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Raghuram Rajan on GDP growth: Better to under-promise and over-achieve

LiveMint logoLiveMint 05-09-2017 PTI

Chennai: In a veiled dig at the government, former Reserve Bank of India (RBI) governor Raghuram Rajan on Tuesday said it is always better to under-promise and over-achieve than to face awkward questions when it comes to growth comparisons with China.

Rajan, the only central bank governor in two decades who did not get a second term, also sought to clarify his remark of India being a ‘one-eyed king in the land of blind’, saying gross domestic product (GDP) expansion slipped in every quarter since that remark in April of last year.

Breaking his silence after completion of the unwritten one-year moratorium for not commenting on India-specific issues since his exit from RBI on 4 September 2016, Rajan said India has a lot of potential and is capable of doing significantly more but should not get complacent.

“This notion that, we at every corner, we have to say we are the best and there is no body else like us. Well that is not true, first. There is lot of potential in India, we are capable of doing significantly more over the years to come. Let us be confident, we can do it. Let us do it. But let us boast only after we have achieved it. Let us not be overly complacent before that,” he said at an event in Chennai to launch his book.

Rajan said he faced awkward questions in Beijing recently on India lagging behind China in terms of GDP growth rate for the second quarter in a row. “I was in Beijing and reporters there were asking me... India was doing so well...of course we had a certain tiff with them recently which keeps them a little antagonist, but they all (said) India was doing so well (but tell us) which is the fastest growing country in the world (now),” he said.

India’s GDP growth slowed to 5.7% in April-June quarter, down from 6.1% in the preceding three-month period. China clocked 6.5% growth rate in both the quarters. Replying to a question on demonetisation, Rajan said “the jury in terms of data is still out”.

“We still have to wait for the full evolution of data to understand what exactly the cost and benefits have been. It may be that we never know because we do not measure some of the areas where demonetisation had impact because those were part of informal economy,” said Rajan, currently professor of finance at the University of Chicago.

He, however, said the cost of demonetisation has been quite substantial. “What (the impact) is because of demonetisation, what is because of banking sector stress, what is because of anticipation of GST...all three are happening at the same time. So I don’t think you can pinpoint and say exactly this much but analysts have made an estimate—1% and 2% of GDP in terms of the growth cost,” said the former RBI governor.

Rajan also said that he worked under two governments and there was absolutely no interference. “I had very cordial relations with both the governments, kept them informed and essentially had government support all along the way,” he added.

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