Notebandi & GST hit India’s economic growth : Raghuram Rajan

Demonetisation and the Goods and Services Tax were the two major headwinds that held back India’s economic growth last year, former RBI governor Raghuram Rajan said, asserting that the current growth rate of 7% was not enough to meet the country’s needs.

Addressing an audience at the University of California in Berkley, Rajan said that for four years — 2012 to 2016 — India was growing at a faster pace before the growth slowed down because of the twin successive shocks of demonetisation and the implementation of GST. “Growth has fallen off interestingly at a time when growth in the global economy has been peaking up,” he said, delivering a lecture on the Future of India.

On the second anniversary of demonetisation on November 8, finance minister Arun Jaitley staunchly defended the drive, saying “prophets of doom” had been proved wrong as hard data of two years shows an increase in tax base, greater formalisation of the economy and India retaining the fastest growing economy tag for the fifth year in a row.

In his address, Rajan said a growth rate of 7% per year for 25 years is “very very strong”, but in some sense this has become the new Hindu rate of growth, which earlier used to be 3.5%”. “The reality is that 7% is not enough for the kind of people coming into the labour market and we need jobs for them. So, we need more and cannot be satisfied at this level,” he said.

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