Former Reserve Bank of India Governor Raghuram Rajan on Friday said demonetisation of Rs 500 and Rs 1,000 currency notes and the introduction of the Goods and Services Tax reduced India’s economic growth rate in 2017, PTI reported. Rajan said the current Gross Domestic Product growth rate of 7% is insufficient to meet the country’s needs.
“The two successive shocks of demonetisation and the GST had a serious impact on growth in India,” Rajan said at the University of California in Berkeley. “Growth has fallen off interestingly at a time when growth in the global economy has been peaking.” Rajan – who delivered the second Bhattacharya Lecture on the “Future of India” – said India was growing at a fast pace between 2012 and 2016 before being hit by the impact of the Narendra Modi government’s two policy decisions.
While a growth rate of 7% over 25 years is impressive, it has “in some sense, become the new Hindu rate of growth”, he added. “The reality is that 7% is not enough for the kind of people coming into the labour market and we need jobs for them,” the former RBI governor said. A growth rate of 7% must be the base rate of growth, he added.
The Hindu rate of growth refers to the Indian economy’s low annual growth rate before liberalisation in 1991.
Rajan said India relies a lot on oil imports for its growing energy needs. The going will be tough for the Indian economy if crude oil prices rise, he added. The former RBI governor said rising non-performing assets in the banking sector can be tackled by cleaning up banks. “It has taken India far long to clean up the banks, partly because the system did not have instruments to deal with bad debts,” he added.
Rajan also pointed out that political decision making in India is “excessively centralised”. “India works when you have many people taking up the burden,” he added.