Infra spending pushes sharp uptick in GDP

New Delhi: Former RBI governor Raghuram Rajan has attributed the sharp uptick in GDP in the first half of the current fiscal to infrastructure spending and good performance by large economies of the world but added India has to do a lot of catching up and the $5 trillion economy goal for 2025 is nearly impossible.

Rajan further said that even as India’s growth rate is strong, private investment and private consumption have not picked up. “So if you look at why we have done so well this year, one of the reasons we are doing so well is also because the world is doing well. “... the other reason for this very strong growth in the first half is tremendous government spending on infrastructure,” Rajan told PTI.

India retained the tag of the world’s fastest-growing major economy, with its GDP expanding by a faster-than-expected rate of 7.6 per cent in the July-September quarter on booster shots from government spending and manufacturing. At constant (2011-12) prices in April-September 2023-24 (H1 2023-24), GDP is estimated at Rs 82.11 lakh crore as against Rs 76.22 lakh crore during the corresponding period of the previous year, showing a growth of 7.7 per cent in H1 2023-24 as against 9.5 per cent in H1 2022-23.

He noted that over the last four years, from the pre-pandemic days till today, the Indian economy has grown about 4 per cent a year. “That is way below our growth potential (economic growth rate) of 6 per cent. “So you said inflation is contained. One of the reasons inflation is contained is we haven’t even grown at our potential rate,” Rajan, presently Katherine Dusak Miller Distinguished Service Professor of Finance at Chicago Booth (USA), observed. The eminent economist emphasised that India needs to grow much faster as the worrying fact that the growth is not providing enough jobs.

“We are about 5 per cent below our trendline which was the pre-pandemic trendline. So there is some catch-up to be done at this point,” he said. Noting that for democracy to work, the government needs to share the data with the people, he said, “You can not simply pull numbers out of a hat and say...we will be a USD 5 trillion economy by 2025.” According to Rajan, it is virtually impossible for India to become a USD 5 trillion economy by 2025 unless a “miracle” happens. “Because we are now maybe USD 3.5 trillion economy, to be a USD 5 trillion economy, you have to grow at 12 to 15 per real growth rate over the next two years,” he explained.