Former RBI Governor Raghuram Rajan on Tuesday said that the Modi government has been creating infrastructure but flagged job creation as the most pressing challenge facing the Indian economy. "The government of Mr Modi has been very good on infrastructure and has built out India's infrastructure quite a bit," Rajan said while speaking at the World Economic Forum (WEF) in Davos 2025.
"But the problem is that that seems to be the primary engine of the growth. Consumption, which was the other engine earlier, is faltering. Partly, because India needs many more jobs than what you are seeing. The biggest challenge for the government is to create those jobs across the board,” he added.
The former governor noted a stark disparity in employment opportunities, stating, "At the upper end, yes, jobs are plentiful. But at medium and lower levels, they are not. How do you get people out of agriculture? What do they go to? That is the big question."
Rajan said that India is growing at 6 per cent, which is great in terms of looking at other countries. "But comparing to a country of India's per capita income at its stage of growth, India needs to grow faster to provide jobs for the people it has. That is a challenge. We have the budget in a few days, we will know what the government is doing on it."
Earlier today, IMF Deputy Managing Director Gita Gopinath, while speaking to Business Today, said that the second-quarter GDP slowdown was temporary. "There have been some delays in implementing public infrastructure projects, but we see that picking up," she said. Gopinath also projected a growth rate of 6.5% for the fiscal year, expecting rural consumption to remain strong.
When asked about India's efforts to attract investment under its "Make in India" initiative amid competition from the US, Gopinath acknowledged the strong appeal of the US as a destination for foreign direct investment. "The US is actually quite successful now in being able to attract investment into America. If you look at foreign direct investment around the world, the US is an incredibly attractive destination. It's taking a bigger and bigger share of foreign direct investment flows."
"The best thing for India to do to offset some of that is actually to focus on the domestic reforms," she said. "In terms of what prevents people from going into India, it is about still the ease of doing business, the infrastructure, the ability to buy land or sell land, and contract enforcement - those are the kinds of aspects that are more constraining factor. So, the more India does in terms of structural reforms at home - and it's done a lot in terms of public infrastructure and to keep that momentum going that will be what will change the story for India."