What Stops Indian Economy To Grow?

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On Mr. Rajan’s Statement

Raghu Ram Rajan was the former governor of RBI. He has asserted the Demonetization and GST as the two headwinds in the way of economic growth of India.

Raghu ram Rajan is an eminent economist.
Raghuram Rajan, former Governor of the Reserve Bank of India. AFP PHOTO/NICHOLAS KAMM
(Photo credit should read NICHOLAS KAMM/AFP/Getty Images)

“The two successive shocks of demonetisation and the GST had a serious impact on growth in India. Growth has fallen off interestingly at a time when growth in the global economy has been peaking up,” he said delivering the second Bhattacharya Lectureship on the Future of India.

According to Mr. Rajan, the current 7% growth isn’t enough. It is not enough to support the needs of the country.

He said,

“..for four years- 2012-16- India was growing at a faster pace before it was hit by two major headwinds..”

Apart from these two shock blows, India is facing some other issues too.

We will talk about them in detail. But before that let’s make the major two headwinds clear. What’s say???

Demonetization

It was an absolute surprise!! A surprise announced on November 8, 2016.

Economic Survey Of India, 2017-18 was released just before the general budget 2018. It claimed that all the negative impacts of Demonetization have ended.

Impact On Economy

The Demonetization stabilized the cash to GDP ratio. This suggests a return to equilibrium.

The survey says that GDP will rise from 7% to 7.5% in 2018-19. This might be proved as an increment from prediction of 6.75% growth this fiscal year.

The import and export data suggests that the Demonetization effect was over now. The data has come to be in line with the global trends. This implies that the Demonetization and GST effects are receding.

The main objective of Demonetization was to curtail the black money. They were running as shadow economy. Besides stopping the counterfeiting was also an objective behind it.

Goods And Services Tax (GST)

It came into effect on 1st July, 2017.

It was an indirect tax levied to replace most of the indirect taxes.

It is probably a comprehensive, multi- staged, destination- based tax. It is levied on every value addition.

It is one Indirect tax for entire country.

How It Works

Tax is levied on every point of sale. Hence, multi- staged.
On intra- state sale, CGST* and SGST* is levied. While on inter-state sale, IGST* is levied.

*CGST- Central Goods And Services Tax, SGST- State Goods And Services Tax, IGST- Integrated Goods And Services Tax.

The impact of GST on economy is quite visible. It has helped in avoiding cascading effects*. Tax is collected on value addition at each stage of transfer of ownership.

Non-performing Assets

It is an asset that has ceased to generate income for the lender. It is also termed to be “bad loans” in the recent past.

NPAs have really proven to be the toxic agents for the banks in India.

On this issue, Mr. Rajan said,

“..best thing to do is to “clean up”..”

Oil Price Hike

It is already the hottest topic in the market. So we don’t think it needs any further detail!! And the reason behind it is the excessive reliance. Excessive reliance of India on oil import for its energy needs.

So, these were the issues India needs to overcome.

Possibilities of India

Back to Mr. Rajan’s statement, he suggested so many things too.

According to him, India is capable of strong growth. Now what it needs to do:

India needs to create about 1 million jobs per month. These jobs are required to be created for people joining the labour field.

Three Challenges Before India

1. Torn infrastructure – It actually needs to be stiched. As construction sector is the wheel of economic growth, it needs attention.

2. Unclean power sector– Power sector needs cleaning. As it is the source of electricity. And electricity needs to be distributed so that it reaches the needy.

3. Unclean Banks– Yes, the detoxification of banks is the need of the hour.

Finally, Mr. Rajan stated that the excessive centralisation of power is the key source of ceased growth of the economy. This was explained by him in a very humorous way. He took the example of the ‘ Statue Of Unity’ and explained the whole mess.

So people, this was an instant post. Hence, imperfect. But we hope you get some basic information about our economy.

It was completely based on Mr. Rajan’s statements, which is laudable and brave. Every word of his lecture inspired us to write a justified opinion.

We apologise if you don’t agree to any of the sentences.

Thanks for reading and we hope your Diwali was awesome!!

Mistella.

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