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Economy slowdown worrisome, firms complaining aloud: Rajan
Former RBI Governor Raghuram Rajan has called slowdown in the economy “very worrisome” and said the government needs to fix the immediate problems in power and non-bank financial sectors and come out with a new set of reforms to energise private sector to invest.
Rajan, who was Governor of the Reserve Bank of India from 2013 to 2016, also called for a fresh look at the way GDP in India is calculated as he referred to research by Narendra Modi government’s former chief economist Arvind Subramanian about overestimation of growth rate. “There are a variety of growth projections from the private sector analysts, many of which are perhaps significantly below government projections and I think certainly the slowdown in the economy is something that is very worrisome,” Rajan said in an interview.
India’s economic growth has slowed to 6.8 per cent in 2018-19 - the slowest pace since 2014-15, and various projections by private experts and the central bank estimate that the GDP growth in the current year will be less than government estimate of 7 per cent. In ominous signs that the slowdown may be deep, the auto sector is facing its worst crisis in two decades with reports suggesting thousands of job losses in the automobile and ancillary industry, real estate sector has huge unsold inventory, while fast-moving consumer goods (FMCG) companies have reported a decline in volume growth.
“You can hear businesses all around worrying and complaining out loud that they need some kind of stimulus,” he said. Rajan said “a fresh set of reforms” are now needed to boost the economy and growth rate. “We need a fresh set of reforms informed by view on what we want India to be and I would love for that view to be articulated at the very top (that) here is the kind of economy that we want. One-off programs here and there don’t amount to a comprehensive reform agenda for the economy,” he said, adding borrowing in international markets is not really a reform but a “tactical action”.
“What we really need is an understanding of how we are going to propel this country by the two or three percentage points greater growth that it needs and that needs fixing the immediate problems such as in the power sector, such as in the non-bank financial sector and those need to be done yesterday, not in the next six months, it is very important that those be tackled immediately,” he said.
Rajan advocated for a new set of reforms to get the private sector to invest. “We need a new set of reforms, which energise the private sector to invest. Sops, stimulus of one kind or the other are not going to be that useful in the longer-term especially given the very tight fiscal situation that we have. Instead bold reforms, well thought of, not jumping off the cliff, but really seriously thought out reforms in a variety of areas which energise the Indian people, energise the Indian markets and energise Indian business.
“This is what we need today and I really hope we put our best minds to think about this because absent that my sense is that we are in for not so good times,” he said.
The former governor also drew attention to former chief economic advisor Arvind Subramanian’s research that GDP growth was overestimated by 2.5 per cent during 2011-12 and 2016-17.