Give Everyone A Say, A Chance: Raghuram Rajan
Excerpts:
You emphasise investment in human capital. How important is it for India to do so?
India has produced Nobel Prize winners, Venki Ramakrishnan and Abhijit Banerjee, as also corporate titans, world renowned doctors, and writers and artists prized the world over. Yet, we must also consider where it is not doing well. According to the last National Family and Health Survey, 35 per cent of our children are still malnourished. According to the latest India Skills report done by Wheebox, 50 per cent of our college graduate are unemployable. These are people who are going to be an important part of the labour force of our economy in the years to come. Many industrialists we spoke to lament they can’t hire skilled labour. How can that be when so many of our youth are looking for jobs or at least underemployed? It is because the quality of significant portions of our work force is inadequate. How can we expect to create a growth miracle, if so many of our people do not have a chance to participate because their capabilities are so low? Irrespective of the growth path India chooses, our human capital needs to improve significantly if we are serious about becoming an upper middle-income country in the next two to three decades, if we are to become rich before we grow old.
Do you think the performance-linked incentives (PLI) scheme is effective in creating sufficient jobs for the country?
Some jobs have been created in the industries in which PLI has been applied, most notably in the mobile phone assembly. This is good, but it is hard to tell whether the cost in subsidies outweighs the benefits in jobs. We need more transparency here. It would also be erroneous to conclude that we need PLI to create every one of those jobs. There is what economists call an identification problem. In an effort to diversify supply chains away from China, many firms and many countries are deploying a China-plus-one strategy. And, India is a destination for them. Many of these firms will come anyway if we provide them well-trained workers, decent infrastructure, and business friendly regulatory policies. If we do not plug these deficiencies, and instead attempt to paper over them with subsidies, a long-term sustainable economic environment cannot be created. On the other hand, if we do remedy them, at least partially, Apple will come anyway – the attraction of India’s large domestic market as well as having an alternative to China are too important to forego. We are not against manufacturing. We are against showering it with enormous subsidies, allocated in a non-transparent way, while we starve more important sectors like child nutrition and university research of the government’s scarce resources.
You argue in the book that replicating China’s path will not enable us to grow. What do you think we can adopt from them?
We are saying that path is very difficult to replicate today, and may not be successful even if we do so. Nevertheless, there is much to learn from China. We should learn from them how to improve basic health and education in a large country for that is the foundation on which a large country can grow rapidly. We should also learn how important incentives are in growth -- for instance, despite centralisation of political power in the Communist Party of China, policies affecting businesses were heavily decentralised. City mayors were pitted against each other as they strove to attract firms to set shop. Those who did well were promoted within the ranks of the party. This helped create a business-friendly environment. More recently, the Chinese have strengthened their universities by showering them with resources, and bringing back professors from the Chinese diaspora. There are also things we must not do. China has attracted a lot of adverse reaction with its wolf warrior mentality, flexing its muscles too soon and seeing a global reaction against China. This has hurt China economically. We too must rein in our tiger warriors.
What would be your recommendation for the upcoming Budget?
This will be an interim budget, so not much can be done in terms of new policies, but steadying the fiscal ship, and laying out a roadmap of fiscal discipline for the next government would be a good start. Signalling a strong intent to tackle malnutrition and early childhood education would be excellent. So would be signalling intent to liberalise higher education including medicine—dissolve the UGC and set up a slimmer, trimmer organisation whose main role is to certify and regulate standards, and not to dictate hiring, curricula, etc.
How do you see India as an economy in the global context?
India is an important player in the global stage. Every sixth human is now an Indian. So, what happens in India matters. But while India is growing, we cannot get complacent as yet by deluding ourselves of our economic might or accomplishments. We should feel good about the fact that we are the fifth-largest economy in the world, but also recognise that in terms of per capita income, which is a better indicator of overall wellbeing, we are not even in the top one hundred. We have a long way to go, though with the right policies, we can reach the destination. Our hope is that as India grows economically, and raises its stature in the global context, it does so responsibly and takes other countries along. We say in the book that India has a unique opportunity to take the lead in setting the terms of the next wave of globalisation, which is bound to happen in services, even as countries get more protective about trade in goods. It should also maintain its vibrant and inclusive democracy, focusing on giving everyone a say and a chance.
ashish.sinha@businessworld.in
