Speaking at Brown University, former RBI governor Raghuram Rajan said demonetisation and GST were the straws that broke the Indian economy’s back.
THE Indian economy is in a “worrisome” situation, with slowing growth, a fiscal deficit that “conceals” a lot and rising levels of debt and distress, former Reserve Bank of India governor Raghuram Rajan has said.
Delivering the O.P. Jindal lecture at Watson Institute, Brown University, on 9 October, Rajan said there are signs of deep malaise in the Indian economy.
“India is losing its economic way, in part because it is centralising power without a persuasive economic vision. We risk wasting the demographic dividend,” he said.
India’s economic growth slowed to a six-year low of 5 per cent in the quarter ending June 2019, prompting the RBI to lower the full year 2019-20 growth projections to 6.1 per cent.
“Growth has slowed down considerably. The fiscal deficit is large, leaving little room to do much about growth,” said Rajan, pointing out that investment banks’ projections indicate that there isn’t “going to be a rebound in the very short run”.
Rajan said the actual fiscal deficit may be much higher than the combined fiscal deficit of states and the Centre at 7 per cent.
“Revenue projections are very optimistic by most counts. What is less noted and something that the auditor general flagged is that a lot of borrowing is going on through off-balance sheet borrowings,” he said, adding that borrowings of the Food Corporation of India should be thought off as a part of fiscal deficit.
According to Rajan, the fiscal deficit is also under pressure because of a rise in contingent liabilities.
Rising non-performing assets (NPA) mean banks will need more capitalisation. In addition, healthcare schemes like the Ayushman Bharat will require greater allocations in the budget.
“We don’t account for them well in the budget, but they hit future budgets,” he said.
Rajan attributed the current economic slowdown to a fall in investment, consumption, exports and the NBFC crisis, but pointed out how demonetisation and the goods and services tax further compounded the economy’s woes along with a lack of reforms.
(Courtesy: the print.com)