Washington: Demonetisation and the Goods and Services Tax (GST) are the two major headwinds that held back India’s economic growth last year, former RBI Governor Raghuram Rajan has said, asserting that the current seven per cent growth rate is not enough to meet the country’s needs.
Mr 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. Observing that India is sensitive to global growth, he said India has become a much more open economy, and if the world grows, it also grows more. “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. While India's growth is picking up again, there is the issue of oil prices, the economist noted referring to the huge reliance of India on import of oil for its energy needs. With the oil prices going up, Rajan said things are going to be little tougher for the Indian economy, even though the country is recovering from the headwinds of demonetisation and initial hurdles in the implementation of the GST.
Commenting on the rising Non-Performing Assets (NPA), he said the best thing to do in such a situation is to “clean up”.
It is essential to “deal up with the bad stuff”, so that with clean balance sheets, banks can be put back on the track. “It has taken India far long to clean up the banks, partly because the system did not had instruments to deal with bad debts,” Rajan said.
The bankruptcy code, he asserted, cannot be the only way to clean up the banks.
