India's economic growth is dampened by demonetization and GST: Raghuram Rajan

WASHINGTON: Demonetization and the Goods and Services Tax (GST) are the two biggest obstacles to India 's economic growth last year, the former governor said. RBI, Raghuram Rajan, saying that the current growth rate of 7% was not enough to meet the needs of the country.

Addressing an audience at the University of California at Berkley on Friday, Rajan said for four years – from 2012 to 2016 – that India was growing at a faster pace than before. Be hit by two major headwinds.

"The two successive shocks to demonetization and the GST have had a serious impact on growth in India, and growth has been interestingly slowed at a time when growth in the global economy has reached its peak. culminating, "he said at the second conference on the Bhattacharya. the future of India.

A growth rate of 7% a year for 25 years is a "very very strong" growth, but in a sense it has become the new Hindu growth rate, which was previously three and a half years a year . penny, said Rajan.

"The fact is that seven people are not enough for people entering the job market and we need jobs for them, so we need more and we can not be satisfied at this level. ", did he declare.

Observing that India is sensitive to global growth, he said his economy has become much more open and that if the world grows, it will also grow more.

"What happened in 2017, is that, as the world was gaining momentum, India was collapsing. This reflects the fact that these blows (demonetization and GST) were really very hard … Because of these headwinds, we were kept back, he said.

As Indian growth picks up again, the price of oil poses a problem, the economist noted, citing India's immense dependence on oil. Import of oil for its energy needs.

As oil prices go up, Rajan says the situation will be a little harder for the Indian economy, even as the country recovers from the difficulties caused by demonetization and the first hurdles to implementation GST.

On the rise in unproductive badets (NPAs), he said that the best thing to do in such a situation is to "clean up".

It is essential to "deal with bad things", so that with healthy balance sheets, banks can get back on track. "India took a long time to clean the banks, partly because the system did not have any tools to deal with bad debts," Rajan said.

The bankruptcy code, he said, can not be the only way to clean the banks. This is the only element of the comprehensive clean-up plan, he said, and called for a multi-pronged approach to address the challenge posed by NPAs in India.

India, he said, is capable of strong growth. As such, the 7% growth is now taken for granted.

"If we go down below 7%, we have to do something wrong," he said, adding that it was the base on which India was to develop at less for the next 10 to 15 years.

India, he said, must create one million jobs a month for people joining the labor market.

The country is today facing three major bottlenecks. One of them is torn infrastructure, he said, noting that construction is the industry that drives the economy in its infancy. "Infrastructure creates growth," he said. Secondly, the short-term goal should be to clean up the energy sector and ensure that the electricity produced is actually intended for people who want it, he said.

The cleansing of banks is the third major hurdle to India's growth, he said.

Part of the problem in India is the excessive centralization of power in political decision-making, he said.

"India can not work from the center.India works when a lot of people bear the burden.And today, the central government is excessively centralized," Rajan said. .

An example of this is the number of decisions requiring the rise of the Prime Minister's Office, he said, in a context of increasing tension between the Reserve Bank and the Ministry of Finance.

The RBI headed by Governor Urjit Patel and the government have not been on the same page for months on different issues. Disagreements arose when RBI deputy governor Viral Acharya, in a powerful speech, said any failure to defend the independence of the central bank would "anger the financial markets".

Subsequently, it appeared that the government had used a provision of the law never used before to try to solve problems, notably by relaxing NPA standards, so that banks could start their lending activities, support growth and transfer more dividends to boost liquidity – issues that the central bank says can not be solved.