DeMo, GST hit Indian economy hard: Rajan
Washington DC: 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 7 per cent growth rate is not enough to meet the country's needs. Addressing an audience at the University of California in Berkley, Rajan said for four years — 2012 to 2016 — India was growing at a faster pace before it was hit by two major headwinds.
"The two successive shocks of demonetisation and the GST had a serious impact on growth in India. Growth has fallen off interestingly at a time when growth in the global economy has been peaking up," he 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 been hard blows... Because of these headwinds we have been held back, he said.
Part of the problem in India is that there is an excessive centralisation of power in the political decision making, he said "India can't work from the centre. India works when you have many people taking up the burden. And today the central government is excessively centralised," Rajan said.
An example of this is the quantum of decisions that requires the ascent of the PMO, Rajan said as he highlighted the recent unveiling of the 'Statue of Unity' of Sardar Vallabhbhai Patel as an example of a massive project that required the approval of the PMO.
"For example, we build this massive statue, the Sardar Patel statue on time," Rajan said amidst laughter and applause from the audience.