Seven percent is the new Hindu rate of growth, former RBI Governor Raghuram Rajan said at the University of California Berkeley on November 9, as part of a speech where he spoke more freely about India than perhaps any other time in recent memory.
Delivering the second Bhattacharya lecture on the "Future of India" at the university's Institute for South Asia Studies, on the topic of "Is India Ready for the Twenty-First Century?", Rajan took his gloves off early in the piece, saying "Now that I don't have any official position I can do that.(talk about various issues)"
Speaking about India's numbers, he first set his eyes on the growth rate, saying, "India prides itself on being the fastest growing large economy in the world -- 7.3% last year, about the same number or a little lower this year -- but the reality is India has been growing at about 7% on average."
Putting this 7% growth into perspective, Rajan made a significant conclusion, "Except for the example of China this would be considered phenomenal for any country at perhaps any time in history. 7% for 25 years is really very very strong growth. But in some sense this 7% has become the new Hindu Rate of Growth - that was 3.5% -- now it's 7%." His reference was to the slow rate of growth that India was accustomed to recording for a number of decades under the license permit raj, before the 1991 liberalisation opened the market up.
Elaborating, he added, "The reality is that 7% isn't enough to absorb the number of people who come into the labour market today and to create enough jobs for them. So we need more, we can't be satisfied with this level."
It was at this point that he touched upon the twin topics of Demonetisation and GST, for the first time, in the context of India's recent growth:
"In the last couple of years we were recovering from the great recession and growing from 2012 onwards for about 4 years until 2016, till we got hit by two shocks -- GST and Demonetisation. These two with increasing oil prices recently have been serious headwinds."
The net effect of this, Rajan said, was that, "Interestingly, at a time when growth in the global economy was rising, India went down. And that reflects that these blows have been really really hard blows. We should have been growing much faster given what the world was doing."
Remarking on the recent recovery by the economy, he added a caveat: "We are picking up again but there is still the issue of oil prices."
Later in the speech, he spoke again about how India mustn't be satisfied with 7% growth, saying: "We should take 7% growth as granted for 10-15 years. We need that additional 2% growth to create the required jobs, which is 1 million per month."
Growth was just one of the topics Rajan touched upon in his lecture, offering a wide-ranging assessment.