Raghuram Rajan says India's economic growth held back due to demonetisation, GST

Raghuram Rajan, former RBI Governor, has said the current seven per cent growth rate is not enough to meet India’s needs, and said moves such as demonetisation and the Goods and Services Tax (GST) are the two major headwinds that held back the country’s economic growth last year.  

This was his second direct attack on the government in less than a week. Recently, Rajan said the RBI was like a seat belt in a car, without which accidents could happen, amid mounting tension between the central Bank and the Finance Ministry.

"The two successive shocks of demonetisation and the GST had a serious impact on growth in India. Growth has fallen off interestingly at a time when growth in the global economy has been peaking up," he said while addressing an audience at the University of California in Berkley on Friday.

Highlights of Rajan’s lecture:

‘Seven per cent growth rate not enough’

# "The reality is that seven is not enough for the kind of people coming into the labour market and we need jobs for them, so, we need more and cannot be satisfied at this level.”

# Rajan said India has become a much more open economy, and if the world grows, it also grows more.

 ‘Demonetisation, GST have been really hard blows’   

# "What happened in 2017 is that even as the world picked up, India went down. That reflects the fact that these blows (demonetisation and GST) have really really been hard blows...Because of these headwinds we have been held back.”

 ‘Huge reliance of India on import of oil’

# Rajan said while India's growth is picking up again, there is the issue of oil prices, referring to the huge reliance of India on import of oil for its energy needs.

 On rising Non-Performing Assets

# Commenting on the rising Non-Performing Assets (NPA), he said the best thing to do in such a situation is to "clean up".

# "It has taken India far long to clean up the banks, partly because the system did not had instruments to deal with bad debts."

# Rajan said the bankruptcy code cannot be the only way to clean up the banks. It is the only one element of the larger cleanup plan.

On jobs creation

# He said India needs to create one million jobs a month for the people joining the labour force.

# “The country today is facing three major bottlenecks. Construction is the one industry that drives the economy in early stages. Infrastructure creates growth.”

# “Second, short term target should be to clean up the power sector and to make sure that the electricity produced actually goes to the people who want the power.”

# Cleaning up the banks is the third major bottleneck in India's growth.”

(With PTI inputs)