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.