'5% growth simply doesn't cut it,' says Raghuram Rajan on Modi govt's performance

Former RBI governor Raghuram Rajan has called for significant reforms to boost the sagging Indian economy. During an interview with CNBC International, Rajan said 5 per cent GDP for a country like India was simply not enough. "We have a lot of young people entering the labour force. We need to provide jobs for them and even if much of the growth is job-oriented, 5% simply doesn't cut it," he said.

Notably, India's Central Statistics Office (CSO) has estimated that GDP growth for fiscal 2020 would be 5 per cent as against 6.8 per cent in the preceding year. This advance estimate puts the country's growth at its slowest pace since FY09.

Rajan, who was the Reserve Bank of India governor between 2013 and 2016, said the pace of reforms had slowed down considerably in the past 15 years. "India needs significantly more growth, which means significant reforms, and I think the problem in the last 15 years or so, is the reform momentum has slowed considerably," he added.

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Rajan said investment in building infrastructure across rural areas of India could alleviate stress and produce an immediate boost in demand. "Certainly, in some of the rural areas, which have not done well in the past few years. Building more roads there, more transfers, enhancing spending in the national rural employment guarantee plan. These would be ways of alleviating the stress in some of the poorest households," he told CNBC International.

The former RBI governor has been one of the strongest critics of the Modi government on several key issues concerning the Indian economy.

Rajan had penned down his recommendations to help the ailing Indian economy out of the ongoing slowdown in India Today magazine's cover story 'How to fix the economy' in December 2019. In this piece, Rajan said India was in the midst of a "growth recession" with signs of a deep malaise in the Indian economy, which was being run through extreme centralisation of power in Prime Minister's Office and powerless ministers.

Among other things, Rajan had called for reforms to liberalise capital, land and labour markets, and spur investment and growth. He also urged India to join free trade agreements judiciously in order to boost competition and improve domestic efficiency.

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Rajan also advised the government to measure the extent of economic troubles, focus on reforms and decentralise economic policies. He had also suggested that India should not go for easy ways out when managing fiscal health.

Indian economy has experienced a downward trend for the last seven quarters. In the September quarter of this fiscal, the GDP growth slipped further to an over six-year low of 4.5 per cent, largely impacted by a slump in manufacturing output. The economic growth moderated from 5 per cent in the April-June quarter and 7 per cent in the July-September quarter of 2018.

Edited by Manoj Sharma