Is Raghuram Rajan responsible for economic slowdown in India?

raghuram rajan

So, as the Vice-Chairman of Niti Aayog says, is former RBI governor Raghuram Rajan really responsible for the economic slowdown?

Days after the GDP growth rate for the first quarter of 2018-19 was pegged at the highest in three years, Niti Aayog vice-chairman Rajiv Kumar has blamed former RBI governor Raghuram Rajan for a succession of declining growth rate over the last three years. Rajiv Kumar said that the GDP growth rate was declining for over half-a-dozen quarters due to the policies of Raghuram Rajan as RBI governor.

Rajiv Kumar said, “There was a trend of declining growth and why the growth was declining? The growth was declining because of the rising NPA, the non-performing assets in the banking sector. When this government came into office, those figures were about Rs 4 lakh crore. It rose to Rs 10.5 lakh crore by the middle of 2017.”

The NPA rose and the GDP growth rate declined “because under the previous governor (Raghuram) Rajan, they had instituted new mechanisms to identify stressed or non-performing assets and these continuously continued to grow up which is why the banking sector stopped giving credit to the industry,” Rajiv Kumar said.

The GDP growth rate for the April-June quarter of 2018-19 has been recorded at 8.2 per cent. Over 8 per cent of quarterly growth was registered last time in the first quarter of 2016-17. So, after eight quarters, the Indian economy grew at over 8 per cent.

So, as the Vice-Chairman of Niti Aayog says, is former RBI governor Raghuram Rajan really responsible for the economic slowdown? HW News brings you reactions from experts and party lines:

Akhilesh Bhargava, Business Editor, HW News:

Nitin Gadkari

“Mr. Rajiv Kumar, Vice Chairman of Niti Ayog says that there was an economic slowdown in India because of the policies formed by Raghuram Rajan, the Former RBI Governor. He also says that his policies on NPA led to the slowdown of the economy. This statement is completely contrary to the facts of the case but at least a high functionary of the government is now admitting that there was indeed a slowdown. Till quite some time there was not even an agreement on that there was a slowdown in the Indian economy. This slowdown has occurred post-Demonetisation and it has occurred primarily because of the informal sector or the small and medium sector which is highly dependent on cash transactions. It was badly hit by demonetisation. 87% of the currency was withdrawn overnight and there was no money to do business. the repumping of cash, they call it remonetization took a much longer time. There is a direct nexus between the economic slowdown and the Demonetisation.”

“Further if now the government wants to blame Mr Raghuram Rajan, he left sometime in the middle of 2015. The economic slowdown came in the first two quarters of 2017. It means two years have lapsed if the government found his policies to be so bad, they had two years to rectify it. Why did they not do it? There is no connection between the policies and the slowdown. But even if there is a connect why did the government not do anything for the two year period. Most importantly, what was Rajan’s policy, it was he who started telling the government that NPAs must be disclosed. It was he who started telling the banks that disclose your NPA’s and come clean. Now, this was a situation where banks were hiding their NPAs, their balance sheets were not correct. He insisted on cleanup. How did that impact to slow down and if by disclosing NPAs the banks were not able to lend further, this as inevitable? At some point in time, the correction had to come and he got in the correction. I certainly do not agree with the statement of Mr. Rajiv Kumar. To me, this is just another spin doctrine of a very apparent event. The apparent event was demonetisation and it resulted in a slowdown of the economy.”

Vishwas Utagi, Vice President, All India Bank Employee Association:


“It is a very wrong perception. Narendra Modi government is there for four and a half years and Rajiv Kumar is the second Niti Aayog Chief, the question will be raised in four and a half years what Niti Aayog has done for the growth of the economy, number one. Secondly, when he is blaming Raghuram Rajan the former RBI governor, the banking system is the part of the economy but then his statement about Raghuram Rajan is partly true. The question is in 2016, Raghuram Rajan was the RBI governor, at that point in time in NIBM campus, there was a big Gyan Sangam programme in which Raghuram Rajan with other dignitaries from economic fraternity was present including Chanda Kochhar. There a policy was decided which was named Gyan Sangam Programme. It was the government of India’s official programme where they said, we will provide you with the action point of the Indra Dhanush 7-point programme. Now, that has led the banking system to this position at present. If the government of India has decided about this earlier at the programme, about the policies then how can they blame only Raghuram Rajan?”

The question is if you ask me Raghuram Rajan can be blamed for one important thing that when all the banks were making record profits in 2015, he said, “At the same time I find 3 Lakh Crore NPA’s in the banks’ books, this is too much.” At the time of 2019 we must be able to clean entire balance sheet for which no bank should show the corporate date registering and they should show NPA, but while showing it see to it that they have huge profits, they should provide from their balance sheet and they should write off bad loans and bad debts which are not recoverable, in that case he said in the tenure of 3 years every year 1 Lakh Crore should be written off, try to recover it, if not, still you write off and that kind of a policy Mr Raghuram Rajan had decided and directed the banking system to that in the broad framework of Narendra Modi’s Swachh Abhiyan Yojna. He decided a Swaccha Balance sheet programme of the banking industry and that has lead to the present situation because NPA of 3 Lakh Crore was not at all recovered but the CDR has become NPA.”

“Since then every quarter subsequent to March 2015, we have seen all the quarters only provisions are made. NPAs were shown and nothing has been recovered in whichever law possible in India and this is a bad situation for the banking industry for which we cannot blame Raghuram Rajan alone.”

Sunil Shah, Market Expert:


“I certainly do not agree with him because there were other factors. I will not entirely blame Raghuram Rajan. As far as growth and NPAs are concerned, we can not blame Raghuram Rajan for it. I disagree. Raghuram Rajan resigned before demonetisation was announced. When he resigned the growth was higher than the subsequent growth which we saw post his retirement.”

Seshadri Chari, BJP NEC Member:


“Niti Aayog vice chairman is considered to be one of the few practical economists and also an expert in economic management. But so was Raghuram Rajan, the former RBI governor. So it is very surprising that one economic advisor and Niti Aayog Vice Chairman disagreeing with policies of RBI under Mr Raghuram Rajan. There can be differences of opinion between two functionaries of the government, but airing those differences of opinions publicly in a news channel does not really ogre well for the bureaucracy and for the officials involved with economic planning and executions in the country. There have been many factors responsible for lack of growth and fall of growth rate. Even according to Mr Rajiv Kumar himself, the growth rate was continuously falling from 2014 to 2016. But the fall of growth rate cannot be attributed only to the policies of the Reserve Bank.”

“In fact, it is true that the Reserve Bank changed the mechanism for identifying the stressed assets and Non-performing assets under the banking rule. So, this new mechanism warranted slowdown of credit to industries. So obviously, the large industries don’t get affected in the first round, it is the small industries that get stressed. So, if the small and medium-scale industries were already stressed due to credit cease, the govt should have thought twice before implementing another policy like demonetization, which further squeezed the credit inflow in the industry and the market. So, I think it is not very correct to blame only Raghuram Rajan and his policies. After all, his policies, the RBI’s policies are part and parcel of economic policies of the ministry of finance. Therefore, Mr Rajiv Kumar should try and identify other reasons for the economic slowdown and should not only blame Mr Raghuram Rajan.”

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