Raghuram Rajan, the economist who predicted the 2008 financial crisis in his 2005 paper ‘Has Financial Development Made the World Riskier?‘ has called the present slowdown in the Indian economy ‘very worrisome’.
The former RBI governor’s reaction comes after the world agencies revised India’s growth rate, RBI slashed the repo rate for the fourth consecutive time, and former Chief Economic Advisor (CEA) Arvind Subramanian revised the GDP number by almost 2.5 percentage points.
The reaction also comes as the government is facing flak over the job losses in the automobile sector. In an interview with the CNBC TV18, Rajan expressed concerns over the current economic slowdown and asserted that fresh reforms are needed to revive the sinking economy.
“We really do need a fresh set of reforms keeping in the sight what we want India to be in the future. I would love to prioritise and articulate on that viewpoint. The country needs a comprehensive set of reform that should propel the growth rate by 2-3 percentage points and that means fixing problems in the non-banking financial sector, power sector,” Rajan said.
Talking on the 2008 crash down he said the history never repeats itself and said he doesn’t know if there a crash coming.
“There is more leverage now than in 2008, but it is limited to certain sectors. Banks are less levered, on the other hand, corporates and governments are more levered now. I don’t know if there is a crash coming but simply fixing the old problems will not help in preventing the new ones. If we don’t pay attention to the old global order, where countries would serve the global interest rather than their self, it will be lost.”
Speaking on the growth rate and the ambiguity on the calculation of GDP numbers, Rajan referred to former CEA Arvind Subramanian who in his Harvard paper on India’s GDP numbers says that India in 2011-12 and 2016-17 probably bumped up the GDP numbers by about 2.5 per cent.
“Estimates of growth in India have been brought down, the economic slowdown is worrisome, but we should pay attention to Arvind Subramanian. We need a fresh look from an independent expert at the way we calculate GDP so that the numbers don’t mislead the GDP numbers.”
While explaining what kind of efforts the economy needs, Rajan said, “Sops are not going to help in longterm with the tight situation we have. But a new set of reforms which will encourage the private sector to invest so that business can revive. I really hope we put in our best minds to work or else we are in not so good times.”
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