World picked up in 2017 but India went down because of note ban, GST: Raghuram Rajan

New Delhi December 07, 2018

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.

e 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.

Rajan has been a long-standing critic of the demonetisation implemented by the Modi government. He had previously said demonetisation “was not a well-planned, well thought-out, useful exercise and I told the government that when the idea was first mooted.”

In April he reiterated that the move to cancel 87.5 per cent of the currency value was “not a good idea”.

He had also said it was ‘naive’ to assume that people who had hidden black money from the government would immediately come to their senses and pay their taxes because of the note ban.

He went to say that one would a need a new economic theory to explain how the demonetisation had had a positive impact on India’s economy.

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.( PTI )