We should be worried about the economy's health, says Raghuram Rajan

2. Raghuram Govind Rajan - Former Reserve Bank of India governor and currently a Katherine Dusak Miller Distinguished Service Professor of Finance at the University of Chicago Booth School of Business. Rajan, who graduated from IIT-Delhi in 1985 with a Bachelor’s degree in electrical engineering, also won the Director’s Gold Medal there. (Image: PTI)

The Indian economy's health is a matter of concern given that Gross Domestic Product (GDP) growth has significantly slowed to 5.7 percent in the April-June quarter, coupled with low inflation and job creation, former RBI Governor Raghuram Rajan said on Thursday.

"We shouldn't be so pessimistic and think that good times are over," Rajan said at the launch of his latest book 'I Do What I Do' in New Delhi. "They will come back. But we should be worried. One of the things..in the last few years has been the population dividend. All these young people have come into the labour force, some of them are here. If they don't get jobs they will be frustrated. Then it will be a very unhealthy climate, which will impede economic growth and result in a more unhealthy climate. We cannot afford get into the spiral."

Rajan's term as the Governor of the Reserve Bank of India (RBI) ended in September last year, after which he went back to teaching at the University of Chicago. Rajan was one of the economists who had predicted the sub-prime crisis in the US in 2008.

In his three-year term as the chief of the Indian central bank, Rajan and his team successfully stabilised the currency that had hit Rs 69 per dollar in 2013 and largely tamed inflation that had soared as high as 8 percent.

The measure of the health of an economy is private investment, Rajan said, adding that demand has also been tepid.

"Despite what businesses are saying, they are not putting money in the ground. There is certainly very little demand for new big investment. So why is that we are not seeing investment? What is it that is missing it here?" he asked.

According to the former RBI chief, towards higher growth, the government should focus on areas that it has control over — infrastructure, power and exports.

"Infrastructure is a lever that the government can push harder...land acquisition is one of the hurdles. But can we solve that?" he said.

The second crucial area that he pointed out was the power sector. "In a country which is supposed to have surplus power generation capacity, why is that there are large areas that do not have 24x7 power? Also, we have power producers who are in great difficulties. Power distribution companies are still making huge losses and are not buying power," he said.

The government should also focus on things like building logistics, infrastructure and improving export promotion that would make exports stronger, he said.

Exports have not been picking up in India despite favourable global conditions as the small and medium exporters have been in difficulties due to the series of events such as the currency recall exercise in November last year and the rollout of the new indirect tax system Good and Services Tax (GST) in July.