In an opininon piece that he has penned for India Today magazine, former RBI governor Raghuram Rajan has offered his prescription to revive the troubled Indian economy.
According to Rajan, India is in a growth recession, defined as an economy growing at a slow pace and where unemployment is rising.
While acknowledging that Prime Minister Narendra Modi inherited a number of problems from the previous Congress-led UPA government and later became the genesis of the economic crisis that India is currently going through, Rajan noted that “economically ill-advised demonetisation and the poorly implemented roll-out of the Goods and Services Tax (GST)“ exacerbated the the troubles.
Rajan identified stalled infrastructure projects, problem is in power production and distribution, increased bad loans on bank balance sheets, sectoral mess in agriculture and failure to eliminate hordes of middlemen in the agricultural sector as the legacy problems Modi government inherited from the previous regime.
Among the solutions Rajan offered to address the slowdown includes accelerated mapping of land and the process of establishing ownership titles, allowing more flexibility in labour contracts, decentralisation of power to states, stabilise tax and regulatory regimes and making them predictable, fast-tracking bankruptcy for developers in default.
India’s real estate, construction and infrastructure industries are in “deep trouble,” and non-bank finance companies which lend to these sectors should have their asset quality reviewed, Rajan added.
“Given scarce resources, India should not jump immediately to a permanent tax cut for the urban middle class to boost consumer demand. Instead, while growth-boosting reforms are being put in place, scarce fiscal resources are perhaps best targeted toward supporting the rural poor -- for instance, by bolstering the NREGA programme and by funding rural road construction. “ Rajan added