Raghuram Rajan Exclusive: On Economic Fallout of Climate Crisis, COVID & More

Rajan spoke about COVID vaccination, India's informal sector & his taxation model to tackle the climate crisis.

Raghuram Rajan says that the consumption expenditure among the low-income households has fallen.

(Image: The Quint)

Video Producer: Mayank Chawla

Video Editor: Mohd Irshad Alam

Referring to the digital divide and the impact of the pandemic on the informal sector, Raghuram Rajan, former governor of the Reserve Bank of India, said that the consumption expenditure among the low-income households has fallen.

Speaking exclusively with The Quint’s Editor-in-Chief Raghav Bahl, Professor Rajan assessed COVID-19 vaccine programmes across the world, the untimely formalisation of the informal sector in India, and his taxation model to tackle the global climate crisis.

"Global leadership is lacking. There is so much to be produced with little investment. Countries think that they can become sufficient on their own, but the governments should know that this virus does not boost their ego. Rather, the virus deflates them," the ex-RBI governor told The Quint.

Here are some excerpts from the interview. Watch the video above for the full chat.

How do you assess the vaccination programme across the world?

It is a very unequal vaccination programme globally, both across countries and within countries. The countries which have effective governments were able to procure the vaccines in time. But it is not just about vaccinating people as early as possible. You also have to worry about booster doses, which the United States is thinking about now.

First, the immediate problem across countries is the availability of vaccines. Second, the rolling out of vaccine programme has been difficult. Third, overcoming vaccine hesitancy and the fake news around vaccination is key.

Do we need to calibrate the balance between the formal and informal sectors, in terms of formalisation?

The lockdown has certainly hurt the ability of people to work in the informal sector. Loans against gold have gone up, which is a cause of concern, because generally, households don't part ways with their gold, unless there is a dire need.

Besides, there are other suggestive indicators of the increasing inequality within the country.

• Consumption of food has fallen.

• The workforce employment rate has fallen from 39.5 percent to 36.5 percent.

• The demand for goods bought by low-income groups has fallen.

Also, you have forced the informal sector to formalise at the worst time.

The true extent of the damage is unknown and one should not be deceived by a rebound. A rebound might look spectacular because the economy plummeted. Going forward, we need to decide how we need to help those who are unemployed and the families which have slipped into poverty, during the lockdowns.

How has inequality in the western countries come down, while inequality among the poorer countries has gone up amid the pandemic?

The western countries have been able to cushion the blow. Transfers like unemployment insurance have allowed many to pay their debts, even if they were not earning. This has also helped them improve their financial situation because of the enormous size of the transfers. They were able to save more, including the low-income groups.

In poorer countries, lack of such transfers has led to middle-income families slipping into poverty. Consumption has become more restrictive during the pandemic. This will also affect the children from these countries in the longer term, as they don’t have access to the internet and the digital landscape.

Can you take us through the taxation plan that you advocated to tackle the climate crisis?

India is nearer to the equator and more dependent on the monsoons, which is why the Indian subcontinent will be much more susceptible to climate change.

We need the developed world to stop manufacturing their own plans, which tend to be unfair with respect to us. They haven’t been able to get a global agreement. So, how they’re going about it (countering climate change) is effectively taxing the financing of any kind of ‘brown investment’ in natural gas, coal and so on, by essentially telling their financial institutions, 'thou shall not lend'.

They are putting huge penalties on any investment in coal, in natural gases, anything other than renewables.

This privileges those who already have growth, and hurts those who have a growth pathway, which requires building some of this out.

Fighting climate change should be done as a fair exchange. What we need effectively, is a global tax on carbon. For every additional per capita ton of carbon you put out, if you are above the global average, you pay. You collect this money and give it to countries who are emitting less than average.