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Thursday, December 5, 2024

Time To Cut Interest Rate To Spur GDP Growth, Says Economist Charan Singh


New Delhi: Expressing his disappointment at the second-quarter estimates of 5.4 per cent GDP growth, Charan  Singh, Chief Executive Officer, EGROW Foundation, has said that corrective measures should be taken faster economic growth and interest rates should be brought down. He said India has the potential to grow much higher than 5.4 per cent given the demographic profile of the country.

India’s GDP grew by 5.4 per cent in the July-September quarter of FY2024-25, significantly below the Reserve Bank of India’s (RBI) forecast of 7 per cent. The official data, released by the Ministry of Statistics and Programme Implementation, showed that India’s GDP for Q2 of FY2024-25 stood at Rs44.10 lakh crore, up from Rs41.86 lakh crore in the same quarter last year. India’s economy grew by 6.7 per cent in Q1.

Charan Singh said he feels that the interest rate policy will have to be revisited “We followed the United States of America, which has raised the interest rate, but they had reduced it too. If we had raised the interest rates, maybe when America had started reducing their interest rates, we could have followed suit,” said Charan Singh, a former RBI Chair Professor of Economics at Indian Institute of Management Bangalore.

“If we analyse the capital formation properly, the interest rate needs to be really taken into account…otherwise, if you look at the high-frequency indicators given in the press release of MoSPI, they are quite promising, so I will not be worried. I am certainly disappointed and I think corrective measures need to be taken urgently,” he added. Singh suggested measures for faster GDP growth.

“Looking at the figure of capital formation, I feel the interest rate should be brought down. At this rate, investors will postpone their decision to take loans for cars or setting up new industries because they know that interest rates will come down in the near future,” he said.

“Second thing is that the inflation target should be interpreted as between 2-6 per cent and not pivoted at 4 per cent. In the last 30 years, we have never actually achieved 4 per cent. If you look at the average of 30 years, we are around 5.5 to 6 per cent. If we are going to pivot it at 4 per cent, we could be strangulating growth,” he added.

Charan Singh stressed that private sector should be encouraged to bring multiplier effect to the government increasing capital expenditure. “The final point I would like to make is that in this growth story of Viksit Bharat, we should be proud that the Prime Minister of the country is thinking as a visionary for the next 25 years. But in the story of Viksit Bharat, the whole thing cannot be done by the government itself. The government does make efforts by increasing the capital expenditure, but the multiplier effect has to come from the private sector. The private sector has to be encouraged,” he said.



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