India can't rely on wealthy to drive growth: Ex-RBI Dy Guv Viral Acharya

Acharya further said that India's consumption and GDP growth have struggled to recover to pre-COVID levels, with rural areas particularly lagging behind urban centres

India can’t rely on wealthy individuals to drive growth and expect the overall economy to improve, Viral Acharya, former deputy governor of the Reserve Bank of India (RBI) said on Monday.

Acharya, who is the C V Starr Professor of Economics in the Department of Finance at New York University’s Stern School of Business (NYU-Stern), said after the Covid-19 pandemic, rural consumption and investments have weakened.

“We can’t be pumping our growth through the rich and expect that the economy as a whole will do better,” he said while speaking at an event organised by Elara Capital here.

“If there has to be a trickle-down, it should have actually happened by now,” Acharya said, adding that when the rich keep getting wealthier and wealthier, they have a savings problem.

“The bank account keeps getting bigger, hence they look for financial assets to invest in. India is closed, so our money can't go outside India that easily. So, it has to chase the limited financial assets in the country and a lot of the prices in that space have gone up but it doesn't boost India's consumption,” Acharya added.

He further said that India's consumption and GDP growth have struggled to recover to pre-Covid levels, with rural areas particularly lagging behind urban centres.

“India's consumption, which took a big nosedive after Covid, has rebounded, but it has not caught up unlike the United States,” he noted.

This disparity has contributed to slower overall growth, exacerbated by weak investment and reduced government expenditure, Acharya said, adding, that “the slowdown in foreign direct investment reflects this trend”.

Despite improvements in urban consumption, rural and informal sectors remain weak, partly due to high tariffs that protect domestic industries but hinder broader economic progress. “High tariffs have protected domestic industries but have not boosted broader economic progress,” Acharya stated.

To address these issues, India might consider reducing tariffs, especially in sectors like agriculture, and pursuing reforms in land transfer, power, and finance. “We need to keep tariffs down and undertake reforms in land, power, and finance,” Acharya emphasized.

He said that encouraging private sector growth, improving education standards, and increasing female labour force participation could also enhance economic performance. “The focus should be on achieving higher growth rates and ensuring that economic benefits are more widely distributed, including boosting rural and informal sector growth,” he added.