“Indian Economy like One Eyed King in Land of Blind”
R Rajan, the RBI Governor is universally respected for his ideas and also for stating them unambiguously. His recent statement, “Indian Economy like One Eyed King in Land of Blind” naturally drew criticism from the government. His statement sums up the economic situation aptly. This blog is based primarily on the views expressed by Anand Rao. I thank him for sharing his views.
World Economic Situation Equated with “Blind”
The world’s economic situation is bad. China is slowing down. Europe and Japan are in a bad shape, out of BRICS only India seems to be doing okay and US is also recovering. Thus the grim situation is appropriately akin to the ‘blind’.
India: “One Eyed King”
India is seen as a “King” because of the following positives:
- Highest GDP growth (7.6) among major economies.
- Controlled inflation- 5.4%.
- Controlled fiscal deficit-3.9%.
- Some improvement in international “Ease of doing business” rating.
- Foreign exchange reserves are $360 billion.
- Current Account Deficit (CAD) has come down to 1.7% of GDP.
The king is, however, is only “One Eyed’ because of the following negatives:
- The growth is practically jobless. Rising unemployment is a big problem and was the prime cause of the Patel protests in Gujarat and Jat protests in Haryana.
- Two consecutive droughts have broken the back of the agriculture sector. With 49% population engaged in agriculture rural economy is on its knees. This affects domestic demand which is very low. We are hoping for nature to be kind and receive decent monsoon rains to improve the situation. The state/central governments have no serious plans to counter this recurring problem.
- Bank NPAs are a major problem. The bank deposits are the lowest since 1962.
- The GST Bill is still stuck in parliament. Bankruptcy law needs to be reformed.
- The CAD and fiscal deficit situation has been aided by the steep fall in oil prices & not by any positive actions by India.
- Disinvestment targets have not been met.
- In per capita GDP terms India is still one of the poorest large countries.
- Huge investments in infrastructure are still needed and the government has not mobilized adequate funds for that.
Rajan’s statement describes the situation correctly. The government should take it in the right spirit and work vigorously to overcome the weaknesses of the economy.