Rajan says India is in the middle of a growth recession
NEWDELHI: Former Reserve Bank of India (RBI) governor Raghuram Rajan said India is in the midst of a “growth recession” .
Penning down his recommendations to help the ailing Indian economy out of the ongoing slowdown in the India Today magazine, he called for reforms to liberalize capital, land and labour markets, and spur investment as well as growth.
He also urged India to join free trade agreements judiciously in order to boost competition and improve domestic efficiency.
“To understand what has gone wrong, we need to start with the centralised nature of the current government. Not just decisionmaking but also ideas and plans emanate from a small set of personalities around the Prime Minister and in the PMO,” Rajan wrote. “India is in the midst of a growth recession, with significant distress in rural areas.”
India’s economic growth slowed to a six-year low of 4.5% in the July-September quarter. With inflation rising, fears of stagflation—a fall in aggregate demand accompanied by rising inflation—have resurfaced.
He said construction, real estate and infrastructure sectors are in “deep trouble” and so are lenders to it like the non-bank finance companies. The crisis among shadow lenders and a build-up of bad loans at banks have curbed lending in the economy. He said corporate and household debt is rising, and there is deep distress in parts of the financial sector.
Unemployment, especially among youth, seems to be growing, as is the accompanying risk of youth unrest. “Domestic businesses have not been investing either, and the stagnation in investment is the strongest sign that something is deeply wrong.”
Rajan called for reforms in land acquisition, labour laws, stable tax and regulatory regime, fast-track bankruptcy resolution of developers in default, proper pricing of electricity, preserving competition in telecom sector and giving farmers access to inputs and finance.
Rajan wanted decentralisation of power by empowering ministers and engaging states, beginning with amending the terms of reference of the 15th Finance Commission by not curtailing states’ share of tax revenue. PTI