Former Reserve Bank of India Governor Raghuram Rajan cautioned that India’s fiscal deficit concealed a lot and could push the country’s economy to a “worrisome situation”, The Economic Times reported on Sunday. Rajan said the uncertainty about the situation at the higher levels had caused severe distress in the country’s economy.

“India has slowed considerably from the go-go years before the financial crisis, but even from the 9% growth in the first quarter of 2016,” he had said at the OP Jindal lecture at Brown University in the United States on October 9. “India is losing its economic way, in part because it is centralising power without a persuasive economic vision. We risk wasting the demographic dividend.”

The country’s economic growth reduced to a six-year low of 5% in the quarter that ended in June, after which the RBI lowered the 2019-’20 growth to 6.1%. Rajan said the fiscal deficit was high, which affected the growth of the economy, adding that the actual fiscal deficit may be higher than the collective figure of the Centre and states at 7%, according to ThePrint. The actual collective fiscal deficit may be higher around 9% to 10%, according to international investment firms, Rajan said.

The former RBI governor attributed the economic slowdown to a decline in investments, consumption and exports, among other things, adding that the “ill-conceived demonetisation and poorly executed GST [Goods and Service Tax]” added to the problem. “Even while the growth is slowing, the government is pushing its welfare programme, which gives it a lot of political capital among people,” The Times of India quoted Rajan as saying. “There is tremendous pressure on the government for a stimulus. But you cannot keep spending, something has got to give.”

Rajan said the situation in the finance and real estate sectors were the symptoms of the slowdown and not the cause. He also claimed the Narendra Modi-led administration did not contribute to the economy’s progress in the first term. “Modi did not do better in the economy during the first term because the government is extremely centralised which puts a lot of pressure on the leadership, which does not have a consistent, articulated vision on how to achieve growth,” he said.

India has been unable to figure out new sources that will be able to trigger growth, according to Rajan. The former RBI governor said he was of the opinion that majoritarians do not improve national security and instead weaken it. “Majoritarian nationalism is intrinsically divisive because it labels a bunch of citizens the “others” and sets impossible terms for these minorities to be considered true citizens,” he said.

The Indian economy has been struggling with a slowdown for several months. Data released on Friday showed that India’s industrial output contracted 1.1% in August compared to the same month last year. The economic growth rate slipped to a six-year low of 5% in the April-June quarter. This was the fourth straight quarter of slowdown.

The crisis hit the automobile sector the most. Data showed passenger vehicle sales fell for the 11th straight month in September, registering a 23.7% decline. This is one of the worst slowdowns to have disrupted the automobile industry since the collection of data of vehicles sales started in 1997.

The output of eight core sectors of the Indian industry – coal, crude oil, natural gas, refinery products, fertiliser, steel, cement and electricity – had declined 0.5% in August compared to the same month last year.

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