Saturday , May 15 2021

India's economic growth retreated due to memorabilia, GST: Raghuram Rajan

The Loan and Goods and Services Tax (GST) are the two major events that kept India's economic growth last year, according to former RBI governor Raghur Rajan, arguing that the current seven percent growth rate is not enough to cover the economies of the country's needs.

Addressing a audience at the University of California at Berkeley on Friday, Rajan said for four years – from 2012 to 2016 – India was rising faster before being hit by two major open raids.

"The two successive disturbances of GST and GST had a serious impact on growth in India. Growth has diminished with interesting events at a time when the growth of the world economy has reached its height, "said the spokesman for the second Bhattacharya Lectureship on the future of India.

Rajan said the growth rate of seven percent per year for 25 years is a "very strong" growth rate, but somehow it has become the new Hindu growth rate, which was three times higher, Rajan said.

"The reality is that the seven are not enough for the kind of people entering the labor market and we need jobs for them, so we need more and we can not be satisfied at this level," he said.

Observing that India is sensitive to global growth, he said that India has become a much more open economy and if people grow bigger and more.

"What happened in 2017 is that even with the recovery of the world, India has descended, reflecting the fact that these blows (reward and GST) were really real blows … Because of these exposures, he said.

While India's growth is rising again, there is the issue of oil prices, the economist said, referring to India's enormous dependence on oil imports for its energy needs.

With oil prices rising, Rajan said things will be a bit tougher for the Indian economy, although the country is recovering from the open move of redeeming and the initial barriers to GST implementation.

Commenting on the growing non-executive assets (NPA), he said that the best thing to do in such a situation is to "clean up".

It is important to "deal with bad things," so that with net balances, banks can go back to the track. "It has taken India a lot of time to clear the banks, partly because the system had no means of dealing with bad debts," said Rajan.

The bankruptcy code, said, can not be the only way to clear the banks. It is the only element of the wider winding-up plan, he said and called for a multi-level approach to addressing the NPA challenge in India.

India, he said, is capable of strong growth. Therefore, the increase of seven per cent is now considered acceptable.

"If we go below seven percent, then we have to do something wrong," he said adding that this is the basis on which India must develop at least for the next 10-15 years.

India, he said, has to create one million jobs a month for people in the labor force.

The country is currently facing three major bottlenecks. One is the torn infrastructure, he said, observing that construction is the industry that leads the economy in the early stages. "The infrastructure is creating growth," he said.

Secondly, the short-term goal must be to clean up the electricity sector and to ensure that the electricity produced actually goes to the people who want power, he said.

Banking is the third major gap in India's growth, he said.

Part of the problem in India is that there is too much concentration of power in political decision making, he said.

"India can not work from the center." India works when many people take on the burden and today the central government is too concentrated, "said Rajan.

An example of this is the quantum of decisions that require the ascent of the Prime Minister's office, Rajan said, as he stressed the recent revelation of "The Statue of Unity" by Shard Vallabhah Pastel as an example of a massive project that required the approval of the PMO.

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