Enormous infrastructure investment by govt in first 2 quarters of 2023 worked for India: Raghuram Rajan

Former RBI Governor Raghuram Rajan, in a recent interview, said that he is happy that India is outperforming expectations. Earlier in an informal chat with Congress leader Rahul Gandhi, he had said that India would be lucky to achieve 5 per cent growth in FY2023-24.

The Indian economy had grown by 7.2 per cent in FY23. In FY23-24, India's GDP growth numbers came in at 7.8 per cent in Q1 and 7.6 per cent in Q2. 

Speaking to ETMarkets, Rajan said that three things worked for India although other economies have been struggling in the post-Covid19 period. "There are three big reasons. The industrial world did not slow down as was anticipated. Second, Chinese demand for commodities stayed muted, keeping commodity prices, especially energy prices low. Indian GDP always benefits from this because we are an energy importer. The third is enormous infrastructure investment by the government in the first two quarters of this year. That is what went right," Rajan said.

On Friday, the latest advance estimate released by the National Statistical Office showed that the Indian economy is expected to grow 7.3 per cent on an annual basis in the current financial year. The Indian economy had grown by 7.2 per cent in FY23.

The estimates showed that the economy is pegged to grow at 8.9 per cent in FY24 in nominal terms, compared to 16.1 per cent in the previous financial year. The government sees FY24 GVA growth at 6.9 per cent YoY, down from 7 per cent in FY23.

Gross Value Added (GVA) is the value that producers have added to the goods and services they have bought.

The government has said that the manufacturing industry growing at 6.5 per cent in FY24, up from 1.3 per cent registered in FY23. This sector accounts for around 17 per cent of India's overall GDP.

The mining and quarrying industry, which grew at 4.6 per cent in FY23, is seen growing at 8.1 per cent in FY24.

Growth of trade, hotels, transport, communication & services related to the broadcasting industry has been pegged at 6.3 per cent in FY24, down from 14 per cent in FY23. 

Earlier in an interview with India Today Group's Lallantop in December, Rajan said India could manage to grow at 7.6 per cent rate strongly because of two reasons -- strong global growth and high government expenditure on infrastructure.

"America grew at 5.2 per cent in the previous quarter. America has a growth potential of 2 per cent, it grew 2-3 per cent more (than its potential). So when we see India, which has 6 per cent potential, it grew at 7.6 per cent - which means 1.5 per cent more," he said.

Rajan had also said that India will remain a lower middle country if the potential growth rate remains at 6% annually without any rise in population by 2047 (Amrit Kaal) and will be reaching the end of the demographic dividend by then.

Rajan pointed out that if one looks at the labour force participation, it is very low and when it comes to female participation, “it is the lowest in the G20”.

"India's growth potential is today about 6% a year, GDP growth. If you do the math, at 6% a year, you double every 12 years and therefore in 24 years, we'll be four times our per capita income. Today, the per capita income in India, as you know, is just a little below $2,500 per person. Multiply by four, we get $10,000 per person… So if you do the math, at our current rate of growth, you know, strong as it is highest in the G20, we don't get rich but we stay lower middle income till 2047," he said.

Also read: Sustained capex, improved financials of India Inc seen to have lifted GDP growth estimate to 7.3% for FY24

Also read: India’s services PMI ends 2023 on a high note; rises to 59.0 in Dec from 56.9 in Nov