Economy needs more animal spirits: Raghuram Rajan

Rajan also said India is capable of much stronger growth and the country can celebrate when it sees strong private investment

Confident about India’s growth picking up further with “more animal spirits” and good monsoon, Reserve Bank of India Governor Raghuram Rajan on Wednesday told television channels the economy is on the right track, though “true numbers” of gross domestic product (GDP) could be one per cent up or down.

“I will hope with good monsoon, strong rural demand, more animal spirit and public investment picking up pace...I think with all that coming together there will be need for private investment.”  On the controversy surrounding the GDP numbers based on new calculations, he said statisticians have done as good a job.

“We have some way to go. I am not saying that economy is where it should be. We do have work to do. We can celebrate when we see private investment strongly back on track and I think we are capable of much stronger growth that we have right now,” Rajan said.

On the controversy surrounding the GDP numbers based on new calculations, he said statisticians have done as good a job as they can and economic growth is significantly high as costs have come down. “And really, what matters to us is change. And the change has been broadly in the positive direction...I think we are starting to change in the right direction,” Rajan said.

He said there may be difference of one per cent on either side in the GDP numbers.

“I will say there may be some ups and downs about the GDP ... Probably one per cent where the true numbers is,” he said.

The GDP numbers, announced last week, pegged India's growth for 2015-16 at 7.6 per cent -- the fastest among the world's major economies, but Chief Statistician TCA Anant admitted to "discrepancies" in the GDP data, which soared to Rs  2.14 lakh crore or up to 1.9 per cent.

Anant said government is making efforts to minimise the discrepancies in computation of the national income or GDP data by relying more on data available under e-governance programmes and corporate accounts.

Rajan further said that some people will quibble that the high GDP numbers do not reflect the ground realty.

"I think we will have to be little careful there. The top line has only started growing recently, that is sales. But costs have come down tremendously and GDP or GVA calculates difference between your sales revenue and costs, that is the value addition.

"It does not feel good because (you are not) increasing sales growth but because your costs have come down...so much your value added is increasing," the Governor added.

Rajan said across industry, profits are "good not great", but certainly better than what top lines suggest.