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“Real Growth about 6.5%, not 8.5%,” Says Ex-RBI Chief Raghuram Rajan, Pointing to Flip Side of India’s Growth Story

One of the problems with GDP data is that it mostly reflects India’s large firms while smaller companies have only seen “tepid growth,” Rajan said.

Raghuram Rajan RBI

India’s former central bank governor, Raghuram Rajan, believes that India’s growth rate of 8.5% is not a credible figure.  According to Rajan, the GDP data primarily reflects the performance of large companies, while smaller firms have experienced only “tepid growth.”

“If we ultimately adjust the GDP numbers, with the fact that small businesses haven’t grown as much, I think we’ll get closer to 6-6.5%,” he said in an interview in CNBC’s “Squawk Box Asia” on Thursday.

Rajan clarified that his perspective is not pessimistic, as a growth rate of 6-6.5% is still impressive. India’s economy expanded by a robust 8.4% in the October to December quarter, surpassing expectations. Reuters too had predicted a GDP growth rate of 6.6%.

Rajan, who currently serves as a finance professor at the University of Chicago Booth School of Business, stated that the 8.5% growth rate contains some inflated figures. He anticipates that after adjusting for the lacklustre growth of small businesses, the growth rate will likely be closer to 6-6.5%.

The Indian government has raised its GDP growth projection for the fiscal year 2023-24 to 7.6% from the previous forecast of 7.3%. Rajan emphasized that the issue with GDP data lies in its reliance on large companies, which skews the overall picture and fails to accurately capture the struggles of smaller firms.

Rajan questioned why private Indian companies have not invested at a higher rate despite the enthusiasm surrounding India’s growth. He emphasized the need for stronger private sector investment to drive job creation and allow more people to enter the labour force.

While Rajan has expressed his concerns, other experts, such as Bhargav Dasgupta from the Asian Development Bank (ADB), have observed visible growth in private investments in India. The ADB is also planning to increase its investments in the country.

Rajan has recently co-authored a book called “Breaking the Mould: Reimagining India’s Economic Future” and has been sharing videos on his LinkedIn profile to provide insights into India’s growth prospects.

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