Raghuram Rajan: How to fix India’s growing jobs crisis | DW Business
Summary
TLDRIn this interview, former Reserve Bank of India Governor Raguram Rajan discusses India's demographic dividend and the challenges of job creation. He emphasizes the need for quality education and training to make the workforce employable and highlights the importance of intellectual property creation for India's growth. Rajan also touches on the potential of the service sector and the necessity for India to move away from protectionist measures towards fostering a competitive domestic market.
Takeaways
- 🌟 India's demographic dividend is a significant advantage, with a young population entering the workforce annually, potentially boosting economic growth and well-being.
- 🕰️ The window of opportunity for India to capitalize on its demographic dividend is limited to the next 15 to 20 years due to a declining birth rate as the country becomes wealthier.
- 📉 Less than half of India's working-age population is currently employed, which is significantly lower compared to about 70% in other emerging markets.
- 💼 The new budget allocates $24 billion for job training and employment and reduces corporate taxes for foreign companies, indicating a move in the right direction for job creation.
- 🔍 The budget's effectiveness in creating jobs is yet to be determined, and it may not be large enough to meet the scale of the challenge.
- 🎓 A significant part of India's challenge is the disparity in education quality, with a need for remedial training to make a large segment of the population employable.
- 🏭 The traditional path to growth through manufacturing is less viable for India due to competition from other emerging markets with low wages and the rise of automation.
- 🌐 India's large domestic economy and success in service exports, especially high-end services, present alternative avenues for growth and foreign exchange earnings.
- 🤖 The advent of AI and automation threatens routine service sector jobs but could aid creative work, emphasizing the need for India to focus on the leading edge of industries.
- 📚 India needs to improve the quality of its human capital by enhancing the quality of education at all levels to prepare for the challenges of an aging population and economic growth.
- 🌐 For India to create its own businesses and intellectual property, it must invest in higher education and R&D, and potentially attract skilled individuals back from abroad.
Q & A
What demographic advantage does India currently have and how does it relate to its economic growth potential?
-India has a young population, with many young people entering the workforce every year, which can be a boon for economic growth if they all get jobs. This demographic dividend can increase the rate of economic growth and well-being, but it is a window that lasts only for the next 15 to 20 years due to the aging population trend.
What is the current employment situation in India in comparison to other emerging markets?
-Less than half of India's working-age population of almost 1 billion people is employed, compared to around 70% in other emerging markets. Some of those captured in the data may actually be unpaid family and friends, suggesting that the actual figure could be even lower.
What measures has the new budget in India allocated for job creation and training, and is it sufficient according to Raghuram Rajan?
-The new budget allocates $24 billion for job training and employment and also lowers corporate taxes on foreign companies. Raghuram Rajan believes it is heading in the right direction, but questions if it is big enough and whether the measures will work effectively.
What is Raghuram Rajan's view on the importance of education and training for India's workforce?
-Raghuram Rajan emphasizes the need for India to improve the quality of its human capital. He points out that while there are highly trained individuals, there is a large mass of workers who are not well-trained and require remedial training to become employable.
Why has the focus on manufacturing not created more jobs in India, according to Raghuram Rajan?
-Raghuram Rajan explains that manufacturing, which used to be the East Asian way of growth, is under threat due to competition from other emerging markets with equally low wages and the rise of industrial robots. Additionally, there is more protectionism, and the comparative advantage of low-wage workers has diminished.
What alternative growth path does Raghuram Rajan suggest for India, considering the challenges in manufacturing?
-Raghuram Rajan suggests that India should focus on higher value parts of the manufacturing chain, such as chip design, and also leverage its strengths in the service sector, including service exports, to drive growth.
How does Raghuram Rajan view the impact of AI and automation on the service sector in India?
-He believes that AI and automation will cut into the routine service sector, but creative work will be aided by AI rather than hampered by it. He suggests that India should focus on increasing the quality of its human capital to stay at the leading edge where AI has the least data to work on.
What is the role of intellectual property in India's economic growth, as discussed by Raghuram Rajan?
-Raghuram Rajan highlights the importance of creating intellectual property for India to move from being a source of generic pharmaceuticals to inventing new drugs and to build on its strengths in higher-end services such as consulting, IT, and legal services.
What challenges does India face in terms of bureaucracy and protectionist measures, and how can it address them?
-India is known for bureaucracy and protectionist measures inherited from its colonial past. Raghuram Rajan suggests that India needs to become less protectionist, focus on creating competition for its homegrown companies, and make rules easier for domestic businesses to navigate.
How does the recent election outcome in India reflect the importance of addressing unemployment and economic growth?
-The election results brought home the worry that many people have about their economic futures. Raghuram Rajan sees the new budget as a reaction to the message sent in the election, indicating that addressing unemployment and economic growth is now a priority for the government.
What are the potential benefits and challenges of India's coalition government in terms of policy-making and economic reforms?
-A coalition government has to listen to partners outside the ruling party, which can lead to better policies and consensus-building. However, it also means that there might be concerns about resource allocation among different states, as each partner may demand resources for their own states.
Outlines
🌟 India's Demographic Dividend and Employment Challenges
The first paragraph discusses India's demographic advantage as a young country with a large youth population entering the workforce annually. Raghuram Rajan, former governor of the Reserve Bank of India, explains the potential economic growth that could be achieved by properly employing this demographic dividend, which is a window of opportunity lasting 15 to 20 years. The current employment situation in India is highlighted, with less than half of the working-age population being employed, compared to around 70% in other emerging markets. The new budget's allocation of $24 billion for job training and employment, along with reduced corporate taxes for foreign companies, is seen as a step in the right direction, but concerns are raised about whether it is sufficient and effective, given the need for quality jobs with adequate protections and healthcare.
🛠️ India's Path to Economic Growth Beyond Manufacturing
The second paragraph delves into the challenges and opportunities for India's economic growth, particularly in the context of manufacturing and services. Rajan notes that traditional manufacturing, which was a growth driver for East Asian countries, is less viable for India due to competition from other emerging markets with low wages and advanced robotics. He suggests that India should focus on higher value segments of manufacturing, such as chip design, and the services sector, leveraging its strengths in areas like IT, consulting, and legal services. The importance of India's large domestic economy and its potential to attract foreign investment is underscored, as is the need for India to pivot from low-skilled assembly manufacturing to higher value forms of services and manufacturing.
🎓 The Importance of Intellectual Property and Education for India's Future
In the third paragraph, the focus shifts to the creation of intellectual property and the improvement of education as key to India's future economic success. Rajan emphasizes the need for India to develop its own intellectual property to move from being a source of generic pharmaceuticals to inventing new drugs. The discussion highlights the importance of improving university and research quality to train more highly skilled individuals, both for domestic innovation and to attract back Indian talent from abroad. The paragraph also touches on the bureaucratic and protectionist measures that India needs to address to foster a competitive environment for its businesses and workforce.
🗳️ Democracy and the Role of Government in Tackling Unemployment
The final paragraph examines the role of democracy and government in addressing India's unemployment issues. Rajan discusses the impact of recent elections on the government's focus on employment, suggesting that the election results have highlighted the public's concern about economic futures. The budget is seen as a response to this message, and the existence of a coalition government is viewed positively, as it requires the government to build consensus and explain its policies to partners. The paragraph concludes with the belief that democracy will be beneficial for India's growth, leading to better and more widely accepted policies.
Mindmap
Keywords
💡Demographic Dividend
💡Job Creation
💡Economic Growth
💡Workforce
💡Intellectual Property
💡Manufacturing
💡Services Sector
💡AI and Automation
💡Human Capital
💡Bureaucracy
💡Democracy
Highlights
India's demographic advantage as a young country presents a narrow window of opportunity for economic growth before the population ages.
India's current employment rate is significantly lower than other emerging markets, with less than half of the working-age population employed.
The new budget allocates $24 billion for job creation and training, aiming to address the issue of low employment.
The budget also includes measures to encourage companies to invest in training and hiring new workers.
India faces the challenge of a large untrained workforce that requires remedial training to become employable.
The traditional manufacturing growth path may not be viable for India due to competition from other emerging markets and the rise of automation.
India's large domestic economy and service sector strengths can be leveraged for attracting foreign investment.
The service sector in India is at risk of being disrupted by AI and automation, particularly in routine tasks.
Creative and non-routine service jobs are likely to be aided rather than hampered by AI advancements.
India needs to focus on improving the quality of its human capital and educational institutions to compete globally.
India's transition from low-skilled manufacturing to higher value services and manufacturing is essential for sustained growth.
The importance of creating intellectual property for India to move from generic pharmaceuticals to inventing new drugs.
The need for India to improve its university and R&D quality to retain and attract top talent for innovation.
The potential benefits of India's coalition government in fostering democracy and consensus-based policies for economic growth.
The challenges of bureaucracy and protectionism in India that need to be addressed to improve the business environment.
The importance of creating reasonable jobs with adequate protections and healthcare for the growing workforce.
The role of the service sector in providing employment opportunities and the need to scale up its value and quality of work.
The significance of the recent elections in bringing the issue of unemployment and economic futures to the forefront of policy discussions.
Transcripts
India is still a young country that
gives us a chance of increasing the pace
of growth and perhaps making India Grow
Rich before it grows old and what we
have to do is make sure that those jobs
are reasonable jobs with adquate
protections adequate healthare and so on
India will spend billions on job
creation and training as part of its new
budget as it tries to answer
frustrations over low employment but is
it enough I'm joined by raguram Rajan a
former governor of of The Reserve Bank
of India now at the Chicago Booth School
of Business Mr Rajan thank you for
joining us before we get to this budget
you've warned that a lack of jobs across
India could squander the country's
demographic dividend in the future what
do you mean by
that well India is still a young country
um we have many millions of uh young
people entering the workforce every year
and that could be a boon if all of them
get jobs because that would increase the
rate of economic growth uh that would
would increase well-being and it's a
dividend which lasts only for the next
15 to 20 years because India like uh
many other uh Asian countries has very
limited immigration so as people get
richer they have fewer kids and the
population grows older so we have have a
window in which the size of the
workforce keeps increasing relative to
the people who are not working that
gives us a chance of increasing the pace
of growth and perhaps making India Grow
Rich before it grows old but that window
is narrow and unless we employ the
people coming into the workforce it's
not going to
happen and to give viewers some context
here less than half of India's working
age population of almost 1 billion
people is employed that's compared to
around 70% in other emerging markets and
some of those captured in that data may
actually be unpaid family and friends
meaning that that figure could be even
lower Mr Rajan this new budget allocates
$24 billion for job training and
employment it also lowers corporate
taxes on foreign companies is it heading
in the right direction on this
issue well it is heading in the right
direction that is something one cannot
dispute the question is is it big enough
and and the real uh issue really is you
know what is going to work here I mean
certainly some measures to get companies
to invest more in training new workers
in hiring new workers and holding on to
them uh those certainly uh make sense
and we have to find ways of uh of doing
that well I think this budget offers a
few measures we have to see if they work
but we also have to recognize that part
of India problem is while we have a
bunch a segment of workers who are
really highly trained uh you know top
quality Engineers top quality scientists
uh we also have a large mass who are not
well- trained who haven't been to good
schools who haven't got a decent
education and we have to figure out how
to make them employable which may
require a lot of remedial training also
so we need to work on every aspect of
this that's India's challenge
we know that recent governments have
really focused on attracting
manufacturing why hasn't that created
more
jobs well manufacturing used to be the
East Asian way of growth right you start
with low-skill manufacturing because of
low wages uh you attract a lot of
foreign direct investment and you cater
to Global markets well every element
there is under threat uh first uh you
know the um
what Emerging Markets now are competing
with is not industrial country workers
but other Emerging Markets who have
equally low wages but also with
industrial country robots so in a sense
uh the comparative advantage of low
wages low-wage workers has gone uh
another problem is that you know you
have a lot more protectionism now uh
part of the problem is China came in in
a really big way and China is still a a
big part of manufacturing a part which
many uh developed countries are now wary
of and it's hard to see uh room for
another China sized country India has
1.4 billion people for another China
sized country coming into manufacturing
so uh newly developing uh countries like
uh like India have to find a different
path for
growth in fact you've written that India
unlike China has missed the bus on
manufactur ing do you really see it as
being too late when we know that many
countries are in fact trying to
diversify away from China would that not
be potentially to India's
gain I I think that would be to India's
gain and India should attract as many of
those flows as it can and it's having
some success perhaps not as much as
Vietnam and and Mexico but it has it is
having some success there but I think
India should play on a couple of other
uh factors one it has large domestic
economy in a in 2 or 3 years India's
economy will be bigger than both Japan
and Germany at the current pace of
growth um so that's one attraction for
foreign investors coming into India but
another attraction has to be that India
is doing really well in services
including service exports many of these
are at the higher end uh you know
Consulting Services IT services Legal
Services you know JP Morgan has 3,000
lawyers in in India serving its Global
businesses so I I think that could be
another uh you know place for growth it
it is not going to be a huge employer
but it's going to be a huge foreign
exchange earner where India has to seek
employment is catering a lot more to the
domestic Market both for services as
well as for
manufacturing India of course betting on
the service Services sector like few
other countries over the past two
decades as you mentioned that's created
a lot of jobs
you mentioned that it needs to scale up
faster in terms of its value in terms of
the level of work that the services
sector is doing is that especially a
danger right now at a time of AI and
increased automation do you see that
potentially cutting into that service
sector in
India it is going to cut into the
routine service sector uh so you know
you got a lot of young kids reading leg
legal documents in order to provide
summaries for people uh elsewhere that's
going to die as chat GPT plus and its uh
and its Alternatives take over but
creative work the work that advertising
Executives do in creating new campaigns
uh that Consultants do in creating new
ideas for companies to uh to work on I
think that will uh that will be aided by
AI rather than hampered by Ai and so to
my mind uh you know uh you want to be at
the Leading Edge everywhere uh because
that's where AI has the least data to
work on and it's going to be more of an
aid than a displacement um so to I I
think India has to work on increasing
the quality of its human capital as I
said we have a few people who are really
highly trained we need many more of
those which means improving the quality
of our schools improving the quality of
our universities basically doing
everything that industrial countries now
see as a challenge and are trying to do
India has to do that and that's the only
way we are going to become uh rich in
the span of a generation and a half
which is the time we have before we
start growing
old you've written that India needs to
really pivot from Brawn to brain that
instead of focusing on low skilled
assembly manufacturing like China did
decades ago that again it should really
look to these higher Value parts of the
manufacturing chain like chip design
maybe uh also the services sector as you
touched on earlier though
with the issues in education in training
in access to education is that
transition enough to these higher value
forms of services manufacturing is that
really enough to absorb the amounts of
jobs that this economy
needs no it is not so it's that's going
to be the Leading Edge India already has
300,000 chip designers working for
companies like Qualcomm and broadcom
across the world um what it needs to do
is also create jobs for the many people
who have you know moderate quality
University education or even moderate
quality high school education and that
means uh you know lower skilled service
jobs uh tourism retail um you know
entertainment uh Hospitality uh those
jobs have been Pro uh you know growing
in India uh that's where uh much of
Indian employment has taken place but as
our cities grow there will be many more
jobs of that kind which will be created
and what we have to do is make sure that
those jobs are reasonable jobs with
adequate protections adequate health
care and so on uh and and we need many
many more of them so we have to work on
every part of the spectrum again that is
not to deny that we also can benefit
from manufacturing jobs any
manufacturing that comes to India
because of India's improved
infrastructure India's improved
capabilities amongst his workers will be
really welcome but we need to work along
fronts and certainly we cannot afford to
ignore
Services we know that as you mentioned
India's designing chips already for
foreign companies such as Qualcomm what
will it take for this expertise to
create Indian businesses and and does
that matter when we're talking about
creating jobs whether it comes from
Indian local businesses or whether it
comes from overseas
businesses uh it does matter the name of
the game is intellectual property right
what wcom has going for it or Nvidia is
tremendous amounts of intellectual
property uh built over time so India has
to start uh sort of creating its own
intellectual property this is how it's
going to move from being the source of
generic Pharmaceuticals in the world to
actually inventing new drugs which help
the world and that means uh really
improving the quality of our
universities the quality of research and
development I mean many people in
Germany know uh you know a few smart
Indian students well we need to train
many more of them keep uh some of them
in India but also attract some of them
back after they've done phds elsewhere
to populate our universities India
doesn't have one University in the top
100 in the world it has some which are
close but it has to build on what it has
and make many more of them so that it
can be a player in intellectual property
in the world again our diaspora is
across the world helping intellectual
property creation across the world world
we need to create many more in India
like them and perhaps attract some of
them back to
India we also know that when it comes to
administrations and rules across India
the country is well known for
bureaucracy for having an entire slate
of different rules and protectionist
measures for example do you see that
changing any if we're talking about
Customs delays to high import tariffs is
there going to be movement on this as we
look at this
issue well I I I think uh the attempt is
to move away from our Colonial
inheritance from Britain which was a
very um sort of strong bureaucracy uh
we've been trying uh and you know some
aspects of the current budget for
example tariffs on cell phones were
reduced uh from 20% to 15% that's that's
a movement in the right direction I I
think India has to uh become less
protectionist much more uh you know
focused on creating competition for some
of its own homegrown companies and
making sure that they can actually
survive in in in the global economy I
think for that we have to work on
fundamentals rather than on
protectionism creating uh you know a
stronger Workforce and better trained
Workforce but also easier rules for our
domestic businesses to navigate so I I
think it's in India's interest to uh
eliminate some of the bureaucracy that
has been built up and certainly it's
work in progress It's what uh
governments try and do so a lot of
issues on the agenda here if India is
really going to tackle this uh this
question of jobs and employment do you
feel like after these recent elections
this is really on the government's radar
in a way that it never has been
before that's the beauty of democracy
right before the elections uh a lot of
government economists were pretending it
wasn't a problem that the uh we don't
have good unemployment numbers so you
can debate till the cows come home
whether unemployment is higher or not
but the election results clearly brought
home the uh the worry that many people
have about their economic Futures and I
think this uh this budget uh is in some
measure a reaction to the message that
was sent in the election democracy
democracy Works India needs it and it
has been
helpful you also have a very
democratically elected government in the
sense that this is a coalition
government it's several parties will
that help or hurt progress in this
area you know I think the fact that the
government has to listen to Partners
outside the ruling party uh is a benefit
of course there's going to be a fair
amount of uh of Leverage these parties
have which translates into resources
they will demand for their own States um
that does create concerns amongst other
states whether they are being uh sort of
deprived of resources but I think on net
uh there is a benefit of having the
government in a coalition because it has
to explain some of its moves to its
Partners carry them with it and for
India which was before the election
going down a more authoritarian path
this is really welcome news because it
reasserts democracy in the country and
uh to my mind while one could argue
democracy was a uh hindrance to growth
in in in the early uh days of the Indian
economy today it's going to be a huge
benefit to growth because we'll have
much better policies much more consensus
based policies than
otherwise all right that's rur Rajan a
former governor of The Reserve Bank of
India now at the Chicago Booth School of
Business Mr Rajan thank you so much for
joining
us you're most welcome
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