JUNE 5, 2020
Former RBI Governor Raghuram Rajan on Friday said the central bank cannot bail out every company and many will need to run through the bankruptcy process.
“The RBI can’t bail out every company,” he said in an interview to CNBC-TV18. “Many will need to be run through bankruptcy processes.”
Rajan said most nations do not have the capacity for mid-sized firms with 100 to 150 employees and manufacturing may find it tough to start up.
“But a restaurant can start and shut anytime quite easily. Taxpaying firms can be supported in a transparent manner. We need to focus on mid-sized firms with some restructuring and government support.”
He said the government will have a lot of companies with huge debt and they will not get any funds.
“What has been done by the World Bank and IMF on a moratorium on debt is very valuable,” he said, adding “we have to think about debt restructuring in the medium term”.
Rajan said nations like Brazil have suffered with real slipping by 35% while more austere countries will fare better in the future. “In India’s 10% package, the fiscal impact is only 1%,” he said, referring to the Centre’s economic package announced last month.