Cautious, former Reserve Bank Governor Raghuram Rajan said India was “dangerously close” to the Hindu growth rate given weak private sector investment, low interest rates high and slowing global growth.
Mr Rajan said the sequential slowdown in quarterly growth, as revealed by the latest national income estimate released by the Office for National Statistics (ONS) last month, was worrying.
Hindu growth rate is a term describing India’s low economic growth rates from the 1950s to the 1980s, which averaged around 4%. The term was coined by Raj Krishna, an Indian economist, in 1978 to describe slow growth.
Gross domestic product (GDP) in the third quarter (October-December) of the current fiscal year slowed to 4.4% from 6.3% in the second quarter (July-September) and 13.2% in the first quarter (April-June).
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Growth in the third quarter of the prior year was 5.2%.
“Of course, optimists will point to upward revisions to past GDP figures, but I worry about the sequential slowdown. With the private sector unwilling to invest, the RBI continues to hike rates and global growth expected to slow down later in the year, I don’t know where we’ll find additional growth momentum,” Mr. Rajan said in an email interview at PTI.
Recently, Chief Economic Adviser V Anantha Nageswaran attributed the weak quarterly growth to the upward revision of national income estimates in recent years.
The key question is what India’s growth will be in the fiscal year 2023-24, Mr Rajan said, adding “I am afraid the sooner we would be lucky if we hit 5% growth. The latest figures Indian GDP from October to December (4.4% on a year ago and 1% compared to the previous quarter) suggests a slowdown in growth compared to the dizzying figures of the first half.
Also read: World Bank lowers India’s economic growth forecast to 7.5% for FY23
“My fears were not misplaced. The RBI forecasts an even smaller decline of 4.2% for the final quarter of this financial year. At this point, the average annual growth in the October to December quarter compared to the similar quarter pre-pandemic of 3 years ago is 3.7%.
“This is dangerously close to our old Hindu growth rate! We need to do better.” The government, he said, was doing its part when it came to investing in infrastructure, but its manufacturing push has yet to bear fruit.
The silver lining is services, he said, adding “it seems less central to the government’s efforts”. On a question regarding the Production Linked Incentive Scheme (PLI), Mr. Rajan said that any scheme the government pours money into will create jobs and any scheme that raises tariffs on production while providing bonuses for final units produced in India will create production in India. India and exports.
“A sensible assessment would ask how many jobs are being created and at what cost per job. According to the government’s own statistics, 15% of the proposed investment has been made, but only 3% of the planned jobs have been created. to a success, at least not yet,” Mr. Rajan said.
Also Read: Despite India’s Economic Growth, Few Jobs and Meager Wages for Urban Youth
Furthermore, even if the program fully meets government expectations over the next few years, it will only create 0.6 crore of jobs, a small dent in the jobs India needs over the same period. the former RBI governor said.
“Similarly, government spokespersons point to increased cellphone exports as evidence that the program is working. But if we subsidize every cellphone exported, that’s an obvious result. The key question is what value added is done in India. It turns out (turns out to be) very little so far,” he said.
Rajan said imports of mobile phone spare parts have also increased, so net exports in the mobile phone sector, the relevant measure that no one in government talks about, is about where it was at the start of the year. program.
“Except we also spent money on subsidies. Foxconn just announced a big factory to produce parts, but they say they’ll be investing for a long time. I think we need a lot more evidence before to celebrate the success of the LIP program,” he said.
Currently, Mr. Rajan is the Katherine Dusak Miller Professor Emeritus of Finance at the University of Chicago Booth School of Business.
He added that the most developed economies in the world are largely service economies, so you can be a big economy without a big presence in manufacturing.
“Services not only make up the majority of our unicorns, services can also provide many semi-skilled jobs in construction, transport, tourism, retail and hospitality.
“So let’s not make fun of service jobs – indeed, while the fraction of manufacturing jobs has stagnated in India, services have absorbed the exodus from agriculture.
“We need to work on both manufacturing and services to create the jobs we need, and fortunately many inputs (services and manufacturing) need to be educated, skilled…”, he said. he declares.
On steps the government should take to improve oversight of private family businesses to address concerns after Hindenburg’s allegations about the Adani Group, Mr Rajan said: “I don’t think the issue is to increase oversight. private companies”.
The problem is to reduce non-transparent links between government and business, and to let, or even encourage, regulators to do their jobs, he said.
“Why hasn’t SEBI yet uncovered the ownership of these Mauritian funds that hold and trade shares of Adani? Does it need help from investigative agencies?” Mr. Rajan is asked.
Adani Group has come under heavy pressure since U.S. short seller Hindenburg Research accused it on January 24 of accounting fraud and stock market manipulation, allegations the conglomerate has denied as “malicious”, “baseless” and a ” calculated attack on India”. .
