7% GDP growth is fine, but there are no jobs, says Raghuram Rajan

Former Reserve Bank governor Raghuram Rajan said that with 7 percent economic growth in the country, India is not creating enough jobs, as reflected in the number of applications for vacant posts in some States.

“That is the unfortunate part...You would think with 7 percent growth we would be creating a lot of jobs. But if you look at our manufacturing growth, it is more capital intensive,” Mr Rajan told the news agency PTI in response to a question about creating jobs as the economy grows at 7%. The former RBI governor also suggested that the government should focus on promoting labour-intensive industries to generate employment.

Mr Rajan also said that some Indians, especially those at the upper level, are comfortable with high incomes, but consumption growth from the lower half of India has still not recovered to pre-pandemic levels.

Desperate need for jobs

“It is not going well at the lower level. I think the desperate need is for jobs. And you can see this, forget the official statistics,” Mr Rajan told PTI. “You can see it in the number of applications for government jobs, which are overwhelming,” he said. Mr Rajan is now a professor of finance at Chicago Booth in the US.

Mr Rajan welcomed the apprenticeship schemes announced by the Ministry of Finance in this year's Union Budget. He talked about monitoring it very closely to see what works and expanding what works more.

Citing examples of Vietnam and Bangladesh, Mr Rajan said “We need to look at this (labour-intensive industry) very, very carefully, we cannot be left out.” 

India has a short span of 15 years to reap the benefits of demographic dividend and it should not lose the opportunity, said Mr Rajan.

Mr Rajan noted that the US Federal Reserve's 50-basis points rate cut has given the Fed more room to proceed at a pace they think is appropriate. If the Fed had not done the rate cut, there would be a sense that the Fed is keeping rates high, so “we have no room to moderate our policies.” 

“I think the Fed has created more room for others to perhaps reduce interest rates, and so in that sense, people will be looking at their policies,” he said.

GST rates rationalisation

On the GST rates rationalisation, Mr Rajan said the policy has run for a fair amount of time, it is useful to ask, what has been the experience and “do we need the policy change.”

“I would try and appoint an expert committee to go into it, to take the opinions, just like the Finance Commission does, take the opinions of the various stakeholders, including the States, and come up with something that meets the needs of the country,” said Rajan quoted the agency.

Mr Rajan also commented on the ongoing debate on economically and socially better-off southern and western states 'subsidising' the northern and eastern states. He said, “If India grows together, (then) in fact, it prevents this kind of conflict...There is the equity issue, which is that the states that are growing faster, have also in the process, typically grow wealthier. And that is what is happening in the case of western and southern States.” 

Mr Rajan also said that the poorer States were not going to sit in isolation. "They are going to buy more goods from the richer States." He highlighted that there has to be some transfers from the richer States to the poorer states as “we need to bridge this gap.” 

(By arrangement with livemint.com)