Former RBI Governor Raghuram Rajan thinks India is making a big mistake believing the "hype" around its strong economic growth since there are significant structural problems that need to be fixed for the country to meet its potential. The biggest challenge a new government must grapple with after the elections is improving the education and skills of the workforce, Rajan was quoted as saying by Bloomberg.
Without fixing that, he said, India will struggle to reap the benefits of its young population. "The greatest mistake India can make is to believe the hype," he said. "We've got many more years of hard work to do to ensure the hype is real. Believing the hype is something politicians want you to believe because they want you to believe that we have arrived." But, he said, it would be a "serious mistake for India to succumb to that" belief.
India grew at 8.4 per cent in the third quarter, beating all expectations. Prime Minister Narendra Modi has, on multiple occasions, said that India will become the third-largest economy in the next few years and a developed one by 2047.
However, Rajan dismissed PM Modi's developed economy goal and said it was "nonsense" to talk of that target "if so many of your kids don't have a high school education" and drop-out rates are high.
The former central bank governor said that India has a growing workforce, but it is a dividend only if they are employed in good jobs. "And that's, to my mind, the possible tragedy that we face." He said India needs to make the workforce more employable and create jobs for the workforce it has. He said India needs to do a lot more work to get to 8 per cent growth on a sustainable basis.
Rajan's comments are in stark contrast to what some financial institutions and foreign investors have said. about India in recent times. Foreign investors are bulling on India and advising people to bet big on the country to benefit from its potential growth in the next decade.
The economist, who teaches finance at the University of Chicago Booth School of Business, also criticised the Centre's move to spend more on subsidies for chip manufacturing than the annual budget for higher education and said this was misguided.
In December 2021, the Modi government rolled out Rs 76000 crore ($10 billion) scheme for the development of semiconductors and display manufacturing ecosystem in India. In February this year, the Centre cleared three semiconductor plants, including two by Tata. Rajan, however, said that the government is too focused on high-profile projects like chip manufacturing instead of doing the work to fix the education system. "The ambition of the government is real, to become a great nation. Whether they pay attention to what needs to be done is a different question. I worry that we've become more fixated on prestige projects, which suggest more great nation ambition, such as chip manufacturing while leaving the underpinnings that will contribute to a sustainable chip manufacturing industry."
(With inputs from Bloomberg)