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Raghuram Rajan cautions India's fiscal deficit 'conceals a lot', does not reveal real picture of economy

FP Staff

Calling a spade a spade, former governor of Reserve Bank of India (RBI) Raghuram Rajan termed the economic condition in India as 'worrisome' amid the economic slowdown. The current fiscal deficit "concealed a lot" and did not reveal the real picture of the economy, he said, according to media reports.

Delivering the OP Jindal lecture at the Watson Institute Brown University in the United States on 9 October, Rajan said the current fiscal deficit was high, which affected the growth of the economy. The actual fiscal deficit may be higher than the collective figure of the Centre and states at 7 percent, The Print quoted him as saying in a report.

Rajan said the current economic slowdown was due to a decline in investments, consumption and exports and said 'ill-conceived' demonetisation, and 'poorly executed GST' (Goods and Tax) added to the problem.

"Revenue projections are very optimistic by most counts. What is less noted and something that the auditor general flagged is that a lot of borrowing is going on through off-balance sheet borrowings," he said, according to a report in The Times of India.

The World Bank in its latest edition of South Asia Economic Focus cut India's growth projection to 6 percent from 6.9 percent in 2018-19. The World Bank report also noted that the current account deficit had widened to 2.1 percent of the GDP in 2018-19 from 1.8 percent a year before, mostly reflecting a deteriorating trade balance.

Industrial output shrank at its lowest rate in more than six years in August, reflecting the impact of an economic slowdown that could prompt the central bank to cut its key policy rate for the sixth time in December.

The  Index of Industrial Production (IIP) in August contracted by 1.1 percent, lowest in seven years on dismal performance of manufacturing, capital and consumer goods. Annual industrial output contracted 1.1 percent in August compared with 4.6 percent growth in the previous month, government data showed on Friday. It was the worst performance since a 1.7 percent contraction in November 2012. The IIP last time contracted by 1 percent in the month of June 2013.

On 10 October, Moody's Investors Service  slashed its 2019-20 GDP growth forecast for India to 5.8 percent from 6.2 percent earlier, saying the economy was experiencing a pronounced slowdown which is partly related to long-lasting factors. The projection is lower than 6.1 percent that the Reserve Bank of India (RBI) had forecast just last week.

Rajan was critical about the centralised structure in the Narendra Modi government, which he said, was hindering economic progress. He said the 'extremely centralised' government does not have a consistent, articulated vision on achieving growth, the Times of India report said.

--With PTI inputs

Also See: PMEAC Chairman Bibek Debroy’s warning on economic slowdown shows govt’s top advisors aren’t living in denial any longer

IIP contracts by 1.1% in August: Indian economy is waiting for a Santa to cheer it with bags full of money

Govt may seek Rs 30,000 cr interim dividend from RBI to meet fiscal deficit target for 2019-20; last fiscal central bank paid Rs 28,000 cr

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