‘We got lucky for 2 reasons’: Raghuram Rajan on why India’s GDP grew at 7.6% in Q2

Former RBI Governor Raghuram Rajan on Saturday responded to criticism that he faced after India recorded better-than-expected GDP growth of 7.6 per cent in the second quarter of FY 2023-24. In December last year, Rajan, during an informal chat with former Congress chief Rahul Gandhi, said that India would be lucky to achieve 5 per cent growth.  

However, India's GDP growth numbers came in at 7.8 per cent in Q1 and 7.6 per cent in Q2. These numbers were way more than what Rajan had predicted. The economist faced some criticism for his “inaccurate” prediction for GDP growth. 

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During an interview with India Today Group's Lallantop, Rajan responded to the criticism and said it was an “organised effort”. “And I don't even see them.”

The former RBI Governor then explained why India could manage to grow at 7.6 per cent rate. He said India got lucky for two reasons, strong global growth and high government expenditure on infrastructure. “America grew at 5.2 per cent in the previous quarter. America has a growth potential of 2 per cent, it grew 2-3 per cent more (than its potential). So when we see India, which has 6 per cent potential, it grew at 7.6 per cent – which means 1.5 per cent more.”

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The renowned economist, who is in India to promote his latest book ‘Breaking the Mould', said that India grew at that rate because the world economy grew faster than expected. “Everybody was expecting the world economy to slow,” he said, suggesting that his prediction for India was based on overall growth projections. 

In its World Economic Outlook published in October this year, the International Monetary Fund (IMF) said global growth was forecast to slow from 3.5 per cent in 2022 to 3.0 per cent in 2023 and 2.9 per cent in 2024. The growth projections for the US were 2.1 per cent in 2023 and 1.5 per cent in 2024.  However, America's growth in the past three quarters was 2.20 per cent, 2.10 per cent, and 5.20 per cent – higher than the forecast. 

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According to Rajan, who is a Professor of Finance at the University of Chicago's Booth School of Business, the second reason for India's strong GDP growth in Q2 was heavy government spending in the infrastructure sector. “The government saw that the economy is slowing down and if we invest in infrastructure, it will support the economy…we should give the government the credit,” the professor said, adding that all the growth projections have been revised upwards because of good global growth and the work government has done in the infrastructure sector.    

In the Union Budget 2023-24, the Centre increased the investment outlay for infrastructure by 33 per cent to Rs 10 lakh crore, which was 3.3 per cent of GDP. During the budget presentation, Finance Minister Nirmala Sitharaman said investments in infrastructure and productive capacity have a large multiplier impact on growth and employment. She said Rs 10 lakh crore outlay for infrastructure was almost three times the outlay in 2019-20.  “The ‘Effective Capital Expenditure' of the Centre is budgeted at Rs 13.7 lakh crore, which will be 4.5 per cent of GDP,” Sitharaman had said.