Raghuram Rajan dubs India's 7% economic growth, 'Hindu rate of growth', blasts demonetization
Former RBI governor Raghuram Rajan has spoken at length on two of the biggest and most controversy-generating issues in India in recent times that have embroiled the financial system here. Rajan has provided his view about both the ordering of demonetization of Rs 500 and Rs 1000 currency notes by PM Narendra Modi and the NDA government's implementation of the Goods and Services Tax (GST). Raghuram Rajan said that these two are the major headwinds that held back India's economic growth last year. Rajan added that the current 7 percent economic growth rate is not enough to meet India's needs. Raghuram Rajan was speaking at the University of California in Berkeley and was delivering the second Bhattacharya Lectureship on the Future of India on Friday. Here are the highlights of his quotes:
Raghuram Rajan: Demonetization and the GST
Four years - 2012 to 2016 - India was growing at a faster pace before it was hit by two major headwinds. The two successive shocks of demonetization and the GST had a serious impact on growth in India. Growth has fallen off interestingly at a time when growth in the global economy has been peaking up. Image Source: Reuters
Raghuram Rajan: New Hindu rate of growth
The growth rate of 7 percent per year for 25 years is "very, very strong" growth, but in some sense this has become the new Hindu rate of growth, which earlier used to be three-and-a-half percent. Image Source: Reuters
Raghuram Rajan: Labour market
The reality is that seven is not enough for the kind of people coming into the labour market and we need jobs for them, So, we need more and cannot be satisfied at this level." Image Source: Reuters
Raghuram Rajan: Headwinds
What happened in 2017 is that even as the world picked up, India went down. That reflects the fact that these blows (demonetization and GST) have really really been hard blows...Because of these headwinds, we have been held back. Image Source: Reuters
Raghuram Rajan: Oil prices
With the oil prices going up, things are going to be little tougher for the Indian economy, even though the country is recovering from the headwinds of demonetisation and initial hurdles in the implementation of the GST. Image Source: Reuters
Raghuram Rajan: System
"It has taken India far long to clean up the banks, partly because the system did not have instruments to deal with bad debts." Image Source: Reuters
Raghuram Rajan: Bankruptcy code
Raghuram Rajan: Bankruptcy code cannot be the only way to clean up the banks. It is the only one element of the larger cleanup plan. A multi-prong approach to address the challenge of NPAs in India is necessary. Image Source: Reuters
Raghuram Rajan: India is capable of a strong growth
Raghuram Rajan: India is capable of a strong growth. As such the seven per cent growth is now being taken granted. If we go below seven per cent, then we must be doing something wrong. This is the base on which India has to grow at least for next 10-15 years. Image Source: Reuters
Raghuram Rajan: India needs to create one million jobs
India needs to create one million jobs a month for the people joining the labour force. Image Source: Reuters
Raghuram Rajan: Major bottlenecks
The country today is facing three major bottlenecks. One is the torn infrastructure. Construction is the one industry that drives the economy in early stages. Infrastructure creates growth. Image Source: Reuters
Raghuram Rajan: Power sector
Second, short term target should be to clean up the power sector and to make sure that the electricity produced actually goes to the people who want the power. Image Source: Reuters
Raghuram Rajan: India's growth
Cleaning up the banks is the third major bottleneck in India's growth. Image Source: Reuters
Raghuram Rajan: Political decision making
Part of the problem in India is that there is an excessive centralisation of power in the political decision making. Image Source: Reuters
Raghuram Rajan: India can't work from the Centre
India can't work from the Centre. India works when you have many people taking up the burden. And today the central government is excessively centralised. Image Source: Reuters
Raghuram Rajan: Prime Minister's Office
An example of this is the quantum of decisions that require the ascent of the Prime Minister's Office. The recent unveiling of the 'Statue of Unity' of Sardar Vallabhbhai Patel is an example of a massive project that required the approval of the PMO. Image Source: Reuters