Raghuram Rajan: How to fix India’s growing jobs crisis | DW Business

Summary

In 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

00:00

🌟 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.

05:01

🛠️ 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.

10:02

🎓 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.

15:04

🗳️ 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.

Keywords

💡Demographic Dividend

The demographic dividend refers to the economic growth potential that can result from shifts in a population's age structure, mainly when the share of the working-age population is larger than the non-working-age population. In the video, it is mentioned that India, being a young country, has a window of opportunity to increase economic growth by employing its young workforce. This is crucial as the demographic dividend is a temporary advantage that lasts for about 15 to 20 years.

💡Job Creation

Job creation is the process of generating new employment opportunities. The script discusses India's efforts to create jobs through its new budget, allocating billions for job training and employment. This is a response to the frustration over low employment rates and is seen as a way to utilize the demographic dividend effectively.

💡Economic Growth

Economic growth is the increase in the production of goods and services in an economy over a period of time. The video emphasizes that employing the young workforce can increase the rate of economic growth, which is a primary goal for India as it tries to capitalize on its demographic advantage.

💡Workforce

The workforce refers to the total number of people employed or seeking employment in a country. The script highlights the importance of increasing the size of the workforce relative to the non-working population to boost economic growth. India's challenge is to employ the millions of young people entering the workforce each year.

💡Intellectual Property

Intellectual property (IP) refers to creations of the mind, such as inventions, literary and artistic works, designs, and symbols, names, and images used in commerce. The video discusses the need for India to create its own intellectual property to move from being a source of generic products to inventing new ones, which is crucial for economic advancement and global competitiveness.

💡Manufacturing

Manufacturing is the process of transforming raw materials into finished goods through industrial processes. The script mentions that India has missed the bus on manufacturing, which traditionally has been a path to economic growth for emerging markets. The discussion suggests that India needs to find a different path for growth, possibly focusing on higher value manufacturing.

💡Services Sector

The services sector encompasses industries that provide services rather than tangible goods, such as IT, consulting, legal services, and tourism. The video highlights India's success in the services sector, particularly in service exports, and suggests that this could be a significant area for growth and foreign exchange earnings.

💡AI and Automation

Artificial Intelligence (AI) and automation refer to the use of technology to perform tasks that would typically require human intelligence or physical labor. The script discusses the potential impact of AI on the service sector in India, suggesting that routine service jobs may be at risk, but creative work could be aided by AI.

💡Human Capital

Human capital refers to the skills, knowledge, and health attributes of a population that contribute to economic growth. The video emphasizes the need for India to improve the quality of its human capital by enhancing the quality of education and training, which is essential for economic development and competitiveness.

💡Bureaucracy

Bureaucracy refers to a system of administration characterized by hierarchy, rules, and regulations. The script touches on the challenges of bureaucracy in India, suggesting that reducing protectionism and simplifying administrative rules could be beneficial for economic growth and job creation.

💡Democracy

Democracy is a system of government where power is vested in the people, who exercise it directly or through elected representatives. The video discusses the role of democracy in India, suggesting that the recent elections have brought the issue of unemployment and economic growth to the forefront, which could lead to more responsive and effective policies.

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