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India is ‘dangerously close’ to Hindu rate of growth, says Raghuram Rajan

Hindu rate of growth is a term describing low Indian economic growth rates from the 1950s to the 1980s, which averaged around 4%.

ormer Reserve Bank of India governor Raghuram Rajan. File | Photo Credit: B. Velankanni Raj

Sounding a note of caution, former Reserve Bank Governor Raghuram Rajan has said that India is "dangerously close" to the Hindu rate of growth in view of subdued private sector investment, high-interest rates, and slowing global growth.

Mr. Rajan said that the sequential slowdown in the quarterly growth, as revealed by the latest estimate of national income released by the National Statistical Office (NSO) last month, was worrying.

Hindu rate of growth is a term describing low Indian economic growth rates from the 1950s to the 1980s, which averaged around 4%. The term was coined by Raj Krishna, an Indian economist, in 1978 to describe slow growth.

The Gross Domestic Product (GDP) in the third quarter (October-December) of the current fiscal slowed to 4.4% from 6.3% in the second quarter (July-September) and 13.2% in the first quarter (April-June).

The growth in the third quarter of the previous financial year was 5.2%.

"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 still hiking rates, and global growth likely to slow later in the year, I am not sure where we find additional growth momentum," Mr. Rajan said in an email interview with PTI.

Recently, Chief Economic Advisor V Anantha Nageswaran 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, Mr. Rajan said, adding "I am worried that earlier we would be lucky if we hit 5% growth. The latest October-December Indian GDP numbers (4.4% on year ago and 1% 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% 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%.

"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 services, he said, adding "it seems less central to government efforts." On a query regarding the production-linked incentive (PLI) scheme, Mr. 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 percent of the proposed investment has come in but only 3 percent of the predicted jobs have been created. This does not sound like success, at least not yet," Mr. Rajan said.

Despite India's economic growth, few jobs and meager pay for urban youth

Furthermore, even if the scheme fully meets the government's expectations over the next few years, it will create only 0.6 crore jobs, a small dent in the jobs India needs over the same period, the former RBI Governor said.

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