Demonetisation and the Goods and Services Tax (GST) stalled India’s economic growth in 2017, said former RBI governor Raghuram Rajan at a public address in the US.
He also asserted that India’s current seven per cent growth rate is not enough to sustain the country’s needs.
“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,” he said.
Addressing an audience at the University of California in Berkley on Friday, Rajan said for four years — 2012 to 2016 — India was growing at a faster pace before it was hit by two major headwinds.
“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 delivering the second Bhattacharya Lecture on the Future of India.
Rajan, in his address, said a growth rate of seven per cent per year for 25 years is “very very strong” growth, but in some sense, this has become the new Hindu rate of growth, which earlier used to be three-and-a-half per cent, Rajan said.
“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,” he said.
On Statue of Unity
Part of the problem in India is that there is an excessive centralisation of power in the political decision making, he said.
“India can’t work from the centre. India works when you have many people taking up the burden. And today the central government is excessively centralised,” Rajan said.
An example of this is the quantum of decisions that require the assent of the Prime Minister’s Office, Rajan said as he highlighted the recent unveiling of the ‘Statue of Unity’ of Sardar Vallabhbhai Patel as an example of a massive project that required the approval of the PMO.
Touted to be the tallest statue in the world, the 182-metre tall statue was built at a cost of Rs 2,989 crore.
(with inputs from PTI)