SBI report on Raghuram Rajan's remarks on Hindu rate of growth
SBI report on Raghuram Rajan's remarks on Hindu rate of growth

NEW DELHI: An SBI research paper on Tuesday refuted claims that India's rate of development is dangerously close to that of the Hindu nation, claiming that such claims are "ill-conceived, biassed, and premature" in light of recent GDP figures and the information on savings and investments at hand.

According to the SBI report "Ecowrap," interpreting GDP growth based on noisy quarterly data is a game of smoke and mirror. The report comes shortly after former Reserve Bank of India Governor Raghuram Rajan claimed that due to poor private sector investment, high interest rates, and slower global development, India is "dangerously near" to the Hindu rate of growth.

The Former RBI governor said that sequential slowdown in the quarterly growth, as revealed by the latest estimate of national income released by the National Statistical Office (NSO) last month, was worrying. Hindu rate of growth refers to the 3.5% average annual economic growth rates experienced by India from the 1950s through the 1980s. Raj Krishna, an Indian economist, came up with the phrase in 1978 to explain the slow progress.

"India's quarterly year-on-year GDP growth has been in a declining trend in FY23 sequentially, prompting arguments that India's growth is reminiscent of a pre - 1980 Raj Krishna coined growth rate," the report read.

In addition, quarterly growth figures are "When comparing the most recent GDP figures to the available data on savings and investments, "we find such argument ill-conceived, biassed, and premature at its best." (On average, India's GDP growth has witnessed Rs 2 lakh crores upward revision for the three years ended FY23.)
The investment and savings data for the past decade reveals interesting aspects, said the report authored by Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI 

Governmental gross capital formation (GCF) increased from 10.7% in 2020–21 to a high of 11.8 in 2021–22. Also, "this had a cascading effect on private sector investment," which increased from 10% to 10.8% during the same time period.

Ecowrap actually went on to say that due to the previous budgets' emphasis on capital expenditures, the trends in the GCF to gross production ratio or the ploughing back of money for the development of new capacity reveal that the ratio for public administration reached a new peak in 2021–22.

Gross capital formation is anticipated to have reached 32% at the aggregate level in 2022–2023 -- the highest level since 2018–19. The paper claims that gross savings increased from 29% in 2020–21 to 30% in 2021–22.

"The ratio is anticipated to have reached its greatest point since 2018–19 in 2022–23 when it surpassed 31%. Due to the rapid accumulation of financial savings, such as deposits, the household savings expanded significantly throughout the pandemic era "said the Economic Research Department of SBI.

Savings in tangible assets have increased significantly since then, rising to 11.8 percent in 2021–22 from 10.7 percent in 2020–21, while household financial savings have since moderated from 15.4 percent in 2020–21 to 11.1 percent in 2022–23.
"ICOR, which evaluates the additional units of capital (investment) required to produce more units of output, appears to be improving based on a rigorous analysis. "ICOR which was 7.5 in FY12 is now only 3.5 in FY 22. obviously , only half of capital is now needed for the next unit of output," it said.

The declining ICOR in recent years implies a relative rise in capital efficiency. The discussion of ICOR becomes pertinent and demonstrates that the economy is in good shape, it was said.

The report further said it is also now clear that potential growth of the Indian economy (a global phenomenon) is now lower than earlier.  From that perspective, even 7% GDP growth rates "may still constitute a great amount by any measure!," the report stated.

The GDP in the third quarter (October-December) of the current fiscal slowed to 4.4 per cent from 6.3 per cent in the second quarter (July-September) and 13.2 per cent in the first quarter (April-June). In the third quarter of the previous fiscal year, growth was 5.2%.

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