How To Fix The Economy

Professor of Finance at the University of Chicago Booth School of Business and former RBI governor RAGHURAM RAJAN offers his prescription to revive the distressed Indian economy

- Raghuram Rajan

There are signs of deep malaise in the Indian economy. Growth is slowing significantly and there is currently little fiscal space available to the government to spend more. Corporate and household debt is rising, and there is deep distress in parts of the financial sector. Unemployment, especially amongst youth, seems to be growing, as is the accompanying risk of youth unrest. Moody’s just sounded the alarm on India’s credit rating. Given that in late 2017, even after the economically ill-advised demonetisation and the poorly implemented roll-out of the Goods and Services Tax (GST), Moody’s had upgraded India’s sovereign rating, it can hardly be accused of bias. Repeated government allusions to a $5 trillion economy by 2024, which would necessitate steady real growth of at least 8-9 per cent per year starting now, seem increasingly unrealistic. What is going wrong, and how do we fix it?

The government’s economic travails seem to contrast with its successes—until the recent debacle in Maharashtra—on its political and social agenda, including effectively abrogating Article 370 and building the Ram Mandir in Ayodhya. Yet these might be two sides of the same coin—the reasons why the government has succeeded in its political and social agenda may indeed also be why it has not delivered on its growth ambitions.

LEGACY PROBLEMS