India is “dangerously close” to the Hindu rate of growth, Reserve Bank of India (RBI) former Governor Raghuram Rajan has alerted after GDP in the third quarter of the current fiscal slowed from the third quarter to 4.4 per cent. In Rajans’ view, private sector investment, high-interest rates and slowing global growth are the factors that impacted the economy.
In an interview with the PTI, Raghuram Rajan said, “Of course, the optimists will point to the upward revisions in past GDP numbers, but I am worried about the sequential slowdown. With the private sector unwilling to invest, the RBI still hiking rates, and global growth likely to slow later in the year, I am not sure where we find additional growth momentum.”
“I am worried that earlier we would be lucky if we hit 5 per cent growth. The latest October-December Indian GDP numbers (4.4 per cent on year ago and 1 per cent relative to the previous quarter) suggest slowing growth from the heady numbers in the first half of the year,” Rajan added.
“My fears were not misplaced. The RBI projects an even lower 4.2 per cent for the last quarter of this fiscal. At this point, the average annual growth of the October-December quarter relative to the similar pre-pandemic quarter 3 years ago is 3.7 per cent,” he said.
“This is dangerously close to our old Hindu rate of growth! We must do better.”
What is Hindu rate of growth?
Hindu rate of growth is a term describing low Indian economic growth rates from the 1950s to the 1980s, which averaged around 4 per cent. The term was coined by Raj Krishna, an Indian economist, in 1978 to describe the slow growth.
However, Rajan mentioned that the government was doing its part on the infrastructure front but its manufacturing sector is yet to go up.
Rajan said amid this the bright spot is services adding, “it seems less central to government efforts.”
Speaking on the Production Linked Incentive (PLI) scheme of the government, Rajan said, “… a sensible evaluation would ask how many jobs are being created and at what price per job.”
“Similarly, government spokespersons point to the rise in cell phone exports as evidence that the scheme is working. But if we are subsidising every cell phone that is exported, this is an obvious outcome. The key question is how much value added is done in India. It turns (out to be) very little so far,” he said.
“Except, we have also spent money on subsidies. Foxconn just announced a big factory to produce parts but they have been saying they will invest for a long time. I think we need a lot more evidence before celebrating the success of the PLI scheme,” he said.
“We need to work on both manufacturing and services to create the jobs we need, and fortunately, many of the inputs both (services and manufacturing) need schooling, skilling…,” he said.
Raghuram Rajan also mentioned that most developed economies in the world are largely service economies, therefore, India can be a large economy without being a major manufacturing hub.
(With inputs from PTI)
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