Slow governance responsible for decline in growth: Rajan

Says GDP will improve to 7% in next three years on back of political stability

Attributing decline in economic growth to "slow governance" and faulty allocation of natural resources, RBI Governor Raghuram Rajan has said GDP will improve to 7% in next three years on back of political stability.

"The sharp slowdown in GDP from 8-9% growth to 4-5% in the last two years was caused by issues such as environment and land acquisition problems, delays in withdrawal of fiscal and monetary stimulus, irregularities around allocation of natural resources and slow governance," a Citi report quoted Rajan as saying.

Rajan had addressed a group of investors in Boston yesterday.

"On the back of political stability, improved business and investment climate, GDP growth is poised to improve towards 7% over the next three years," he said.

India's economic growth has slipped to sub-5% in 2013-14 and 2012-13 fiscals. In the current financial year, RBI estimates the growth to be 5.5%.

In the first quarter of 2014-15 fiscal, the GDP improved to 5.7%, from 4.6% in the corresponding period a year ago.

Referring to the recent judgement of the Supreme Court on coal block allocation, Rajan said it "may create uncertainty in the short term, but long term, it is a positive development".

As regards the inflation, he said it is still high because of supply side rigidities. "Food inflation is a source of discomfort and given the sub-par monsoon this year, there is a need to keep an eye on food inflation," he said.

Food inflation in July stood at 8.43%. The retail inflation was 7.96% and WPI inflation was 5.19%.

The RBI targets to contain retail inflation at 8% this year and 6% by next year through a sound monetary policy framework.