India is not creating enough jobs even with 7% GDP growth: Former RBI governor Raghuram Rajan

Former Reserve Bank of India (RBI) governor Raghuram Rajan said that with 7 per cent economic growth in the country, India is not creating enough jobs as reflected in the number of applications for vacant posts in some states, reported the news agency PTI on Sunday, September 29.

“That is the unfortunate part...You would think with 7 per cent growth, we would be creating a lot of jobs. But if you look at our manufacturing growth, it is more capital intensive,” Rajan told the agency in response to the creation of jobs when the Indian economy is growing at 7 per cent.

The former governor also suggested that the government should focus on promoting labour-intensive industries to generate employment, as per the agency report.

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, according to the agency report.

“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,” said Rajan reported the agency. “You can see it in the number of applications for government jobs, which are overwhelming,” he said. Rajan is now a professor of finance at US-based Chicago Booth.

In the medium term, the Indian economy will grow at 6 to 7 per cent, according to the former governor cited in the report.

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, as per the report.

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

Rajan talked about the private sector's capital utilization being at 75 per cent and said that if the demand is not kept up to the point “where they feel they need to make all that kind of investment,” he said, according to the report.

India has a short span of 15 years to reap the benefits of demographic dividend and it should not lose the opportunity, said the former RBI governor as per the report.

Rajan on US Fed rate cut:

Raghuram Rajan said 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. According to Rajan, if the Fed had not done a rate cut, there would be a sense that the Fed is keeping rates high, so “we have no room to moderate our policies,” as per the agency report.

“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, quoted the agency.

GST rates rationalisation:

On goods and service tax (GST) rates rationalisation, Rajan said that 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”, as per the report.

“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.

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 in the southern states,” according to the agency report.

Rajan also said that the poorer states are 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, “we need to bridge this gap,” said Rajan reported the agency.