Former Reserve Bank of India Governor Raghuram Rajan has questioned India’s economic growth narrative, arguing that weak corporate investment and slowing foreign capital inflows were difficult to reconcile with official GDP figures showing the economy expanding at more than 7 per cent.
In an exclusive interview with India Today TV, Rajan said “something is off” in the economy, pointing to a persistent disconnect between headline growth numbers and investment activity. “I don’t understand it. If the economy was growing at this rate, you would definitely expect investment to be higher. Something is off,” he said.
The former RBI chief described the lack of corporate investment as one of the biggest puzzles facing the Indian economy, noting that the trend has persisted for over a decade despite strong growth projections.
“Why corporate investment hasn’t taken off was a puzzle 10 years ago. It still is a puzzle today,” he said. “The only answer with the kind of growth we’ve seen over the last 10 years in the official numbers is that perhaps we are growing less strongly than those numbers suggest.”
Asked whether he trusted the official GDP figures, Rajan said the behaviour of businesses suggested that the numbers may not fully reflect economic realities on the ground.
“The fact that they’re not investing suggests that they’re not seeing the kind of demand that would be consistent with these growth numbers. That suggests the growth numbers aren’t fully reflective of what the economy is doing,” he said.
The 63-year-old economist also highlighted declining foreign direct investment and weaker capital inflows, saying both domestic and foreign investors appear reluctant to commit fresh capital.
“FDI is down significantly. They’re not bringing in money to build factories in India. Portfolio investors have been selling and getting out. That’s consistent with a lack of confidence in the Indian economy,” he said.
Rajan argued that India lacked a clearly articulated economic vision beyond the goal of becoming a developed nation by 2047 and said policymakers needed to spell out a clearer strategy for growth, job creation and human capital development.
“Nobody knows what India’s vision is, other than it wants to be a developed country by 2047. What are you going to emphasise? What is the growth strategy? How much are you going to invest in your people? None of this is particularly clear,” he said.
He also questioned the effectiveness of efforts to boost manufacturing and employment, saying India has yet to emerge as a major manufacturing powerhouse despite years of policy focus.
Warning that the ongoing war and rising oil prices could expose deeper economic vulnerabilities, Rajan said the lack of investment should serve as a warning sign. “The lack of investment is a canary in the coal mine. It’s telling us something is not quite right,” he added.
Calling for a broader reassessment of economic policy, Rajan said India needs reforms that encourage investment, improve the business environment and create jobs. “We need the willingness to acknowledge that something is going wrong. A rethink, forced by tighter circumstances, would be very welcome,” he added.
Rajan argued that India’s relatively moderate fuel-price increases compared with some other countries have come at a fiscal cost, with the government absorbing part of the burden.
“There is a limit to how much hit you can take on the fiscal,” he said, warning that prolonged subsidies could increase debt, strain public finances and divert resources away from priorities such as healthcare and education.
According to Rajan, India will eventually have to pass on higher energy costs to consumers if disruptions in global oil markets persist.
“In the short run, almost surely, we have to pass it on. Maybe not in one jhatka, but in steady increases in the prices of all manner of energy,” he said.
He argued that higher prices would encourage consumers and businesses to adjust demand while allowing subsidies to be targeted only at the poorest households.
Rajan said rising oil prices pose a significant inflation risk because they feed into the cost of goods and services across the economy.
The key challenge for the RBI, he said, would be preventing a broader inflationary spiral in which households and businesses begin expecting permanently higher inflation.
“If oil prices move much higher, then you’re seeing both prices go up, and also expectations of prices going up. That is the killer as far as inflation goes,” he said.
Rajan warned that a prolonged disruption in the Middle East, particularly if shipping routes remain affected on the , could significantly hurt India because of its dependence on imported energy.
“If the Strait stays closed for much longer, towards the end of summer, I think we will have to absorb significant pain because we import so much oil from that direction,” he said.