Dr Raghuram Rajan cautioned against reading too much into the recent resurgence in factory output.
Would the Central government be dubbed anti-national for its alleged poor performance initially on the Covid vaccination front, former RBI governor Dr Raghuram Rajan asked on Tuesday. He was responding to the attack on Infosys by a weekly affiliated to the RSS for the IT firm's supposed inability to fix some glitches on the tax-filing website.
A number of private sector firms have in recent months faced the ire of individuals in the government or entities close it, the most recent instance being that of Infosys.
"It just strikes me as completely unproductive. Would you accuse the government of being anti-national for not doing a good job on vaccines initially? You say it is a mistake. And people do make mistakes," Dr Rajan said, citing the creaky rollout of the goods and services tax (GST) as an example.
"I don't think the GST rollout has been spectacular. It could have been done better...but learn from those mistakes and don't use it as a club to roll out your own prejudices," he said.
The renowned economist, now a teacher, expressed his views on other related matters, too, during an exclusive interview with NDTV.
For instance, he said the recent "rebound" in India's factory output should not be read too much into, given the low base on which the numbers have been computed and because of the supposedly skewed nature of the recovery.
He, however, agreed there was a "reasonable recovery" on the industrial side. Asia's third-largest economy grew by a record annual pace of 20.1 per cent last quarter, driven by a surge in manufacturing and a strong rebound in consumer spending.
"The key issue here is, 'is this a rebound for the entire economy or a rebound for certain sections of the economy?'," said the Katherine Dusak Miller Distinguished Service Professor of Finance at Booth School of Business, University of Chicago.
"Certainly, on the industrial side, there is a reasonable recovery. But again, it differentiates between the goods that are targeted at the richer, upper-middle-class people versus goods that are targeted at poorer people."
Dr Rajan cited the example of four-wheeler sales versus two-wheeler sales wherein the latter has plunged.
He pointed to a shift in the economy: larger, more formal firms are experiencing significantly more profit growth as compared to the smaller firms, even among the listed firms.
This, he said, is one reason why the stock market is doing so well. It is also why tax collections are increasing -- GST collections jumped 30 per cent annually to Rs 1.12 lakh crore in August.
"We are seeing a forced formalisation of the economy. We haven't supported our small and medium businesses to the extent that other countries have," Dr Rajan said.
"You don't want formalisation by jhatka. You want formalisation by improving the conditions for the small and medium enterprises to become more formal. I don't think we see that."
Besides, the rising revenues aren't being shared with the state governments, Dr Rajan said.
"State government finances are in a pretty bad way. The Centre has, sort of, swallowed up a significant part of the revenues through central cesses," he said leading to the issue of federalism.
"India is getting too big to be run exclusively from the Centre. And that too not just from the Centre but from the 'Centre within the Centre'. This kind of over-centralisation holds us back."
Decisions, he said, aren't being made until very late. On this front, he cited the example of appointing CEOs of government banks.
"This is suggesting that the government is overwhelmed...Too many people are looking to the Centre for guidance and not getting it. As a result, we get paralysis," Dr Rajan said.
Referring to the effect of a stuttering economy on people, he pointed to the reported increase in gold loans -- people in India, he said, sell their family gold only when in dire straits -- and the marginal fall in consumption.
To alleviate their condition, he recommended cash transfers. Highlighting the Mahatma Gandhi National Rural Employment Guarantee Act as a cash-transfer scheme of sorts for villages, he said something similar is needed for urban India.
"One of the consequences of not supporting them (urban people hit by the downturn) is that they go back to their villages. And then when you want to start up again you have a shortage of labour. And it is very hard to persuade that they will be well supported in the city," the economist said.
He ventured to speculate that despite revenues rising, the government was holding back on spending probably to maintain credit ratings. And yet, credit rating agencies themselves recommend spending in areas necessary, he said.
To a question on investors considering the changes in the texture of Indian democracy as a factor in their business decisions, Dr Rajan said businesses usually don't care as long as it doesn't affect them.
They realise often late that when a government operates without checks and balances, it affects them eventually, according to him. Arbitrary decisions can then be taken with respect to the businesses, too, he said.