- Wednesday, January 15, 2025
By: Shubham Ghosh
Raghuram Rajan, former governor of India’s central bank, has cautioned that the country is “dangerously close” to the Hindu rate of growth in view of the subdued investment in the private sector, high interests and a slowing global growth.
The economist, who served in the governments of both Manmohan Singh and Narendra Modi in 2013-14, said the sequential slowdown in the quarterly growth, as shown by the latest estimate of national income released by India’s National Statistical Office in February, was worrying.
The ‘Hindu rate of growth’ is a term which described low economic growth rates that India witnessed in the 1950s to the 1980s, averaging around four per cent. The term was coined by Indian economist Raj Krishna in 1978 to describe the nation’s slow growth.
The Gross Domestic Product (GDP) in the third quarter (October-December) of the current fiscal slowed to 4.4 per cent from 6.3 per cent in the second quarter (July-September) and 13.2 per cent in the first quarter (April-June).
The growth in the third quarter of the previous financial year was 5.2 per cent.
“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 (Reserve Bank of India) still hiking rates, and global growth likely to slow later in the year, I am not sure where we find additional growth momentum,” Rajan said in an email interview to the Press Trust of India.
Recently, India’s chief economic advisor V Anantha Nageswaran had attributed the subdued quarterly growth to the upward revision of estimates of national income for the past years.
The key question is what Indian growth will be in fiscal 2023-24, Rajan said, adding “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.
“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.
“This is dangerously close to our old Hindu rate of growth! We must do better.”
The government, he said, was doing its bit on infrastructure investment but its manufacturing thrust is yet to pay dividends.
The bright spot is services, he said, adding “it seems less central to government efforts.”
On a query regarding the production-linked incentive (PLI) scheme, Rajan said any scheme in which the government pours money will create jobs and any scheme which elevates tariffs on output while offering bonuses for final units produced in India will create production in India, and exports.
“A sensible evaluation would ask how many jobs are being created and at what price per job. By the government’s own statistics, 15 per cent of the proposed investment has come in but only 3 per cent of the predicted jobs have been created. This does not sound like success, at least not yet,” Rajan said.
(With PTI inputs)
