Former Reserve Bank of India (RBI) governor Raghuram Rajan has warned that the Indian economy is in a "worrisome" situation with the government set to miss the fiscal deficit reduction target by a wide margin, media reports say. The lack of an economic vision at the top rungs of the government is causing deep distress in the economy the deficit conceals a lot, he said delivering OP Jindal lecture at Brown University in the US.
Rajan's warnings follow the RBI's recent guidance under current governor Shaktikanta Das revising the growth projection downward for yet another time from 6.8 percent to 6.1 percent. Rating agency Moody's recently cut the growth forecast for the 2019-20 fiscal to 5.8 percent from 6.2 percent, sending alarm waves across the markets that have been trying to price in the slowdown.
Some economists have called to question the government's fiscal discipline after Finance Minister Nirmala Sitharaman cut corporate tax rates in an attempt to ignite economic growth, giving corporate houses a financial largesse of about Rs 1.45 lakh crores. There have been worries about the country's growth momentum losing steam amid investment crunch and rural liquidity issues in an environment of global financial conditions marred by the US-China trade war fears, Brexit uncertainty and the Middle East tensions.
Prime Minister Narendra Modi's government in its second stint has taken several steps to reignite growth momentum without much effect. The country has been grappling with slowing macro numbers, the report on the Economic Times website. The country's growth slumped to a six-year low of 5 percent in the April-June quarter, and is likely to be near this trough in the July-September quarter, the report says. The India Industrial Production (IIP) numbers released on Friday showed August clocking the lowest figures in seven years at a negative growth of 1.1 percent.
"India has slowed considerably from the go-go years before the financial crisis, but even from the 9 percent growth in the first quarter of 2016," Rajan said. Talking about the origin of the trouble, Rajan said the slide can be traced back to "legacy problems that haven't been solved". While the country's financial and power sectors still need immediate aid, the real problem is that India hasn't been able to figure out "new sources of growth," Rajan said.
Rajan had said in a recent blog post that India should shed its inhibition about foreign competition. "We cannot be so insecure that we believe allowing foreign competition will demolish our culture, our ideas, and our firms. Indeed, it is by erecting protective walls that we have always fallen behind, making us susceptible to total colonization," he said. The government has found it tough deciding the extent of foreign competition that should be allowed. He singles out the serial shocks of demonetization and Goods and Services Tax (GST) implementation for triggering the slowdown.