Indian Economy Shows Signs of Deep Malaise: Raghuram Rajan

• Published Month : Monday, 09 Dec 2019 07:00 pm

According to Raghuram Rajan, the repeated government allusions to a USD 5-trillion-economy by 2024, which would necessitate steady real growth of at least 8-9 per cent per year starting now, seem increasingly unrealistic.

As per the statement of Indian economist Mr. Raghuram Rajan, who was also former governor of Reserve Bank of India (RBI), country is in the midst of “growth recession” followed by the signs of deep malaise in the economy.

He penned his recommendations in a recent article of the India Today magazine to aid the ailing Indian economy, where he calls for reforms towards liberalizing capital, land & labor markets along with spurring investment and growth. He even advises India to join free trade agreements eruditely to boost the competition followed by improving domestic efficacy. "To understand what has gone wrong, we need to start first with the centralized nature of the current government. Not just decision-making but also ideas and plans emanate from a small set of personalities around the prime minister and in the Prime Minister's Office (PMO)."

“That works well for the party's political and social agenda, which is well laid out, and where all these individuals have domain expertise. It works less well for economic reforms, where there is less of a coherent articulated agenda at the top, and less domain knowledge of how the economy works at the national rather than state level," he penned.

Stating that previous governments may have been untidy coalitions but they consistently took path of further economic liberalization, he said, "Extreme centralization, coupled with the absence of empowered ministers and the lack of a coherent guiding vision, ensures that reform efforts pick up steam only when the PMO focuses on them, and lose impetus when its attention switches to other pressing issues"

Furthermore, Rajan is of the view that the slowing down economy can only be addressed by acknowledging the real problems. "The starting point has to be to recognize the magnitude of the problem, to not brand every internal or external critic as politically-motivated, and to stop believing that the problem is temporary and that suppressing bad news and inconvenient surveys will make it go away," he said. "India is in the midst of a growth recession, with significant distress in rural areas."

The July-September quarter showed 4.5% of economic growth that was recorded as six-year low. Also, with the rising inflations uncertainties of stagflation have risen. The sectors that are in “deep trouble” according to Rajan are construction, real estate and infrastructure as well as lenders of these sectors such as NBFCs.

Raghuram Rajan took charge as governor when India was in free fall with high inflation and huge current account deficit.  However, with his boldness & farsightedness he had outlined a vision that went beyond the immediate crisis towards focusing over long-term growth as well as stability, also with his iconic statement of “I do what I do,” he kept on restoring investors’ confidence.