In an address at the Northwestern University's Kellogg Business School, former Reserve Bank of India (RBI) Governor Raghuram Rajan offered a sobering analysis of India's growth story, challenging the prevailing narrative of robust economic expansion.
Rajan, renowned for his astute insights into global economics, raised significant doubts about the accuracy of India's reported growth figures, suggesting that the real rate of growth might be considerably lower than officially stated.
According to Rajan, if one were to strip away the "fluff" from India's growth numbers, the actual rate could be hovering around 6-6.5%, notably lower than the widely touted 8-8.5% range.
Raghuram Rajan's skepticism about India's growth numbers stems from several key factors he highlighted during his speech:
Inflation vs. Growth:
Rajan questioned why, if India is growing at a rate of 6-7%, inflation isn't more evident. Typically, rapid economic growth leads to inflation as demand outstrips supply, pushing up prices.
However, he notes that this isn't happening in India, suggesting that the reported growth figures might not accurately reflect the reality of the economy.
Surplus Labor in Agriculture:
He points out the anomaly of surplus labor in India's agricultural sector. In a fast-growing economy, people should be moving away from low-productivity jobs in agriculture towards more productive sectors like manufacturing and services.
The fact that this transition isn't happening indicates underlying issues in the economy's structure and labor market.
Manufacturing Growth: Rajan highlights that while there is growth in some sectors of manufacturing, particularly capital-intensive ones, labor-intensive sectors are not performing well.
This is concerning because labor-intensive industries are crucial for absorbing surplus labor and providing employment opportunities, especially for the middle and lower-middle classes.
Demand and Employment: He discusses the lackluster demand in certain segments post-pandemic, particularly in areas like two-wheeler sales, which are indicative of the state of the middle class.
The discrepancy between the performance of different segments of the economy reflects an economy that is "two-faced," with one side showing signs of growth and investment while the other side reflects the struggles of the middle and lower-middle classes to find adequate employment opportunities.
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