Cash ban, GST held back growth, says Rajan

WASHINGTON: Former Reserve Bank of India governor Raghuram Rajan has said the November 2016 ban on high-value currency notes and the rollout of the Goods and Services Tax (GST) in July 2017 dealt “really really hard blows” to India’s economy at a time when global growth was peaking, news agency PTI reported.

Rajan, PTI reported, was delivering the second Bhattacharya Lectureship on the Future of India at the University of California, Berkeley, on Friday wherein he also suggested that India’s current growth levels were not satisfactory.

“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,” PTI quoted Rajan as saying.

His comments came a day after the second anniversary of the demonetisation decision, which has become an occasion for the opposition to renew criticism of the government. Union finance minister Arun Jaitley had on Thursday defended the government decision afresh, pointing to factors such as an increase in the tax base and formalisation of the economy to contend that the move had helped India in the longer term.

“By the time the first five years of this government are over, we will be close to doubling the assessee base,” he said in a Facebook blog titled ‘Impact of Demonetisation’.

Rajan, in his address, said a growth rate of 7% per year for 25 years was “very very strong” growth, but in some sense this has become the new ‘Hindu rate of growth’, which earlier used to be 3.5%, PTI reported.

‘Hindu rate of growth’ refers to the period before the 1990s when India’s economy growth stagnated at that pace.

“The reality is that 7% 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,” Rajan said.

He also said that India was now sensitive to global growth since it has become a much more open economy, and if the world grows, it also expands at a faster pace.

India, he asserted, is capable of strong growth. “If we go below 7%, then we must be doing something wrong,” he said, adding that it was the pace at which India has to grow at least for the next 10-15 years.