Ex-RBI Guv Raghuram Rajan predicts difficult year ahead for Indian economy

Former governor of the Reserve Bank of India Raghuram Rajan, who joined Rahul Gandhi's Bharat Jodo Yatra on Wednesday, said the next year will be difficult for the Indian economy as also for the rest of the world and the country failed to "generate reforms" needed for growth.

He said policies should be formulated keeping in mind the lower middle class which suffered the most due to the coronavirus pandemic. Rajan also pitched for creating a conducive environment for small and medium-scale industries and giving a push to a green revolution in the field of sustainable energy.

The Bharat Jodo Yatra, which started from Kanyakumari in Tamil Nadu on September 7, is passing through Rajasthan. The yatra will complete 100 days on Friday. Rajan walked with Gandhi as the Yatra resumed from the Bhadoti area of Sawai Madhopur on Wednesday and reached Badhshapura.

In a conversation with Rahul Gandhi, Rajan suggested that the next revolution in the country can be in the service sector.

Gandhi, in his candid interaction that was posted on his social media handle, asked Rajan about his views on the current economic conditions in India, the US and other countries, challenges before small industries, and economic inequality, among others.

When the Congress leaders claimed that "only 4-5 industrialists are getting richer, the rest of the country is behind, a set of industrialists have a separate 'Hindustan' while the farmers and others have another 'Hindustan", Rajan said that this is a big problem but it is not about capitalists.

He said that the income of the upper middle class increased because they could work from home during the COVID-19 pandemic but those who worked in factories lost their earnings.

“So this divide increased in the pandemic. Rich had no problem, the lower class got ration and other things but the lower middle class had a big damage. There were no jobs, unemployment increased,” he said.

He suggested that policymakers should consider this class.

The BJP took a swipe at Rajan over his joining the Yatra in Rajasthan and said his commentary on India's economy should be discarded with "disdain" as it is "coloured and opportunistic".

BJP's foreign affairs department head Vijay Chauthaiwale tweeted, "One former RBI governor became head of govt and country lost ten precious years. Thanks to Modi, India will not repeat that mistake. RRR (Raghuram Rajan) can walk from Delhi to Chicago." The Congress hit back, saying the entire cabinet put together cannot match the abilities of the economist.

Reacting to BJP's criticism, senior Congress leader P Chidambaram tweeted, "Why is the BJP outraged by Rahul Gandhi having a conversation with Raghuram Rajan? Because PM Modi does not meet economists and economists have no access to PM Modi." In his conversation, Gandhi said that after independence, there was a green revolution, followed by the white revolution and then the computer revolution, so what can be the next revolution? Responding to this, Rajan said that the service sector revolution can be the next.

“We can work for the US from here without going to America… like doctors can provide telemedicine services to the US and can earn a lot of foreign exchanges. Our service export will make us a superpower in export,” he said.

Secondly, he said, a new kind of green revolution is there.

“If we push on that, we can be at the forefront in building windmills, making our buildings green. Most damage from climate change will be in South Asia. You have already seen Bangladesh and Pakistan suffer. India is not far behind. We occupy the same territory. So, we have to push very hard,” he said.

“We can make windmills, solar, we have huge demand. But we can also innovate and I think there are lots of possibilities, we should be forward-thinking,” he said.

On India's economic condition, he said that next year is going to be difficult as the present year.

He said that the growth is going to be slow in the world and India is also going to be hit.

“Exports are slowing a bit. India's inflation problem is more commodity inflation problem and that is also going to be negative for growth,” he said.

He said that the pandemic was part of the problem and the economy was slowing before the pandemic. “We have not really generated reforms which will generate growth,” he added.

He said that unemployment is a major problem and the private sector has to be pushed because all cannot get government jobs. He said that jobs can be generated in the agriculture sector if technological intervention is increased.

Rajan also suggested that a conducive environment and factors are needed for small and medium-scale industries to grow bigger.

On investment in the stock market by people less informed, Rajan said that consumer protection should be there so that they can know their rights.

He also appreciated Rahul Gandhi's move of Bharat Jodo Yatra saying that 'Bharat ko Jodna hai'.

Gandhi said that when there is hatred everywhere in the world, India can show the path. This is our culture, history and strength,” he said.