India's growth rate would be too sluggish without changes: Raghuram Rajan

4 Jul 2022 , 03:08 PM

Former Reserve Bank of India governor Raghuram Rajan cautioned that if the urgently required changes are not carried out, the rate of economic development will sharply drop down.

"I believe that India can accelerate growth with the appropriate set of reforms. It will expand too slowly for its own benefit without that and more of the political unrest and faction warfare that always occur in India. We will have to examine how you implement changes at a faster speed "On July 4, Rajan spoke at a Standard Chartered event in Singapore.

"Our current administration is seeking these reforms. Unfortunately, there is a lot of opposition to these changes and they haven't been successful. For instance, reforms in agriculture were effectively turned back, maybe because there hasn't been a strong consensus in favor of them "explained Rajan.

Prime Minister Narendra Modi stated on November 19 that the government will abolish the three new farm rules in response to months of ferocious farmer protests.

However, Rajan drew attention to recent accounts of bank privatization and suggested that the administration may not be finished with reforms.

"The banking industry is now, on the whole, slowing down the economy rather than boosting it, so if that can be done in a reasonable manner, it presents an opportunity. Credit growth must be far stronger, "Rajan, a professor of finance at the Booth School of Business at the University of Chicago and a Katherine Dusak Miller Distinguished Service Professor, stated.

Regarding India as a potential investment, Rajan stated that the nation was young and had a critical need for infrastructure. He did, however, issue a warning, pointing out that despite India's $3 trillion GDP, it is a long way from being able to replace China, which is five times bigger.

Rajan mentioned that drag consumption was proving to be another issue with growth. "In India, those with higher incomes are doing rather well. The formal sector has significant profitability. In fact, no nation can truly prosper at the expense of a declining industry. The lack of equal employment growth has been an obvious source of worry for lower middle-class households in India. There are many unemployed people. They cannot all return to farming, "said he.

"There is a lot of anxiety there, then. And that's holding down spending, which was previously driving India's economy ahead and growing strongly. That is now slowing things down "explained Rajan.