The first half of the current fiscal year saw a sharp increase in GDP, which former RBI governor Raghuram Rajan attributed to infrastructure spending and strong global economic performance. However, Rajan also noted that India still has a long way to go and that achieving the $ 5 trillion economy goal by 2025 is unlikely.
Rajan said that although private investment and consumption have not increased, India’s growth rate remains robust. “So, if you look at why we have performed so well this year, part of the reason is that the world is also performing well.
“… the other reason for this robust growth in the first half is tremendous government spending on infrastructure,” Rajan told PTI.
Thanks to government expenditure and manufacturing boosts, India’s GDP expanded at a faster-than-expected rate of 7.6% during the July–September quarter, maintaining its position as the world’s largest economy with the quickest growth rate.
The GDP is anticipated to be Rs 82.11 lakh crore in April-September 2023–24 (H1 2023–24) at constant (2011–12) prices, compared to Rs 76.22 lakh crore in the same period the previous year. This indicates a growth of 7.7% in H1 2023–24 versus 9.5% in H1 2022–23.
He pointed out that the Indian economy has expanded by almost 4% annually during the past four years, starting before the pandemic and continuing to the present.
“That is way below our growth potential (economic growth rate) of 6 percent.”You stated that inflation is under control. We haven’t even expanded at our potential pace, which is one of the reasons inflation is restrained,” noted Rajan, currently the Katherine Dusak Miller Distinguished Service Professor of Finance at Chicago Booth (USA).
The distinguished economist emphasized that given the reality that growth is not producing enough jobs, India must expand much quicker.
We are roughly 5% below our pre-pandemic trendline, which served as our trendline. Therefore, there is currently some catching up to accomplish,” he said.
Rajan noted, “You can not simply pull numbers out of a hat and say…we will be a $ 5 trillion economy by 2025.” Democracy requires the government to share data with the people. If no “miracle” occurs, Rajan believes it is almost difficult for India’s economy to grow beyond $5 trillion by 2025.
“Because we are now a $ 3.5 trillion economy, to be a $ 5 trillion economy, you have to grow at 12 to 15% per real growth rate over the next two years,” he said.
Rajan questioned if the government had a strategy to boost India’s economic growth from the existing rate of six percent or more to twelve to fifteen percent.
“So you need some sensible discussion in public…you have to take economists into your conference,” he said. In response to a query regarding his previous assessment that India’s economic growth is “dangerously close” to the Hindu rate, Rajan stated he was correct to be concerned that the country’s pace of expansion had slowed.
“I think the word ‘Hindu rate of growth’ was unfortunate because it also created connotations,” he stated. He said it was a technical term that economist Dr. Raj Krishna developed in 1978 to characterize the 3.5% slow development. “The four percent growth that I just mentioned in the last four years is not that different from the three and a half percent growth,” Rajan stated, emphasizing that the nation must expand far more quickly.
In his opinion, the rate at which India is now rising is insufficient.
Observing that creating sufficient jobs in India is the only way the demographic dividend can materialize, Rajan stated, “Let us focus on that instead of worrying about every quarter growth, which can be opened up.” Speaking cautiously earlier this year, Rajan stated that, given poor private sector investment, high-interest rates, and slower global development, India is “dangerously close” to the Hindu pace of growth.
Regarding the production-linked incentive (PLI) plan, Rajan compared its implementation to the period before economic liberalization, when various governments frequently stepped in, showed favor, and provided subsidies to particular industry sectors.
“Why do we think it will work out today when it did not work out in the past,” he said.
The plan, which covers 14 industries, including white goods for telecommunication, textiles, medical device manufacture, cars, specialty steel, food items, high-efficiency solar PV modules, advanced chemical cell batteries, drones, and pharmaceuticals, was launched in 2021.
