Lok Sabha elections 2024: 'Indian voter has spoken... what a wise decision', says ex-RBI governor Raghuram Rajan

Lok Sabha elections: Former Reserve Bank of India Governor Raghuram Rajan praised the “wise” Indian voters for electing a strong Opposition in the Lok Sabha elections 2024. Labelling the Lok Sabha election result as a win for Indian democracy and a win for the economy, Rajan said regardless of who forms the government in the next few days, India has elected a strong opposition that would force the government to change course.

"The Indian voter has spoken. And what a wise decision! This is a win for Indian democracy and a win for the Indian economy. Regardless of what happens over the next few days, we will have a strong opposition that forces the government to change course. To understand why this is good, I attach an article with Rohit Lamba that appeared a few days ago," Rajan said in a LinkedIn post.

Prime Minister Narendra Modi secured a third term on June 4, but this time, for the first time in 10 years, he will have to rely on allies for the coalition government. BJP fell 32 seats short of the 272 majority in Lok Sabha. The NDA won 291 seats while the INDIA bloc led by Congress secured 234 seats. Congress gained 99 seats, up from 52 in 2019, while BJP won 240 seats.

Rajan, in his post, further attached an article he published late last month that highlighted why India needs to change its economic course. Here are the top points in the article:

1. India needs to change its economic course. That is less likely if the Bharatiya Janata Party wins with an overwhelming majority because the party will see victory as an affirmation of its policies.

2.  India’s economic growth, although seemingly high compared with other countries, has not been large enough, or taken place in the right sectors, to create enough good jobs.

3. India is still a young country, and over ten million youth start looking for work every year. When China and Korea were similarly young and poor, they employed their growing labor force and consequently grew faster than India is today. 

4. India, by contrast, risks squandering its population dividend. The joblessness, especially among the middle class and lower-middle class, contributes to another problem: a growing gulf between the prosperity of the rich and the rest.

5. According to J.P. Morgan, India will grow between 6 and 6.5 percent in this year and next, making it the fastest-growing country in the G-20. But India’s per capita income is $2,700, making it the poorest country in the G20, and poor countries grow fast because catch-up growth is easier. Moreover, the share of India’s population that is of working age is increasing. The right growth benchmark for India is therefore not that of developed, aging countries (which make up most of the G-20) but the growth of large, successful emerging markets when they were at India’s level of per capita income.

6. India’s inadequate pace of growth is most clearly visible in the lack of good jobs. The share of jobs in India is growing in just two sectors: construction, partly as a result of the government’s infrastructure push, and agriculture.
The latter sector’s growth is alarming. Usually, as countries develop, workers leave agriculture for manufacturing and services, not the reverse. But even
before the pandemic, Indian workers have been going back into farming.

7. The working age population’s share in India is increasing. But it is at risk of missing out on this population dividend because it cannot employ them adequately.

8. The Indian government is trying to generate more economic activity,  offering large subsidies to manufacturing companies that set up shop in
India. The government has also raised tariffs on imported goods, such as cell phones, so that firms that make in India get additional protected profits
from selling into the Indian market. But even as heavy subsidies to firms like Foxconn, which manufactures cell phones for Apple, have generated jobs in
the better-educated southern and western states,India has lost market share in traditional exports such as apparel, where India’s typically small, weakened
firms have lost out to exporters from Bangladesh and Vietnam.

9. Even if the government’s strategy attracts more manufacturing to India, it will eventually run up against the reality that the world simply does not have
enough consumers to accommodate another China-sized manufacturing powerhouse, especially as countries everywhere put up tariffs to protect their producers.

"Wrong" strategies

Rajan also pointed towards the "wrong" strategies of the government such as $2 billion in capital subsidies to the US company Micron to set up a chip plant in Gujarat that is estimated to create only “5,000 jobs.” “Education and training are exactly the sorts of services the Indian government should be spending more on. Doing so would enhance the quality of India’s human capital.” He suggested spending on training and apprenticeship programs.

 “India now accounts for around 5 per cent of worldwide trade in services but less than 2 per cent of manufacturing. An economy led by services exports would follow a very different path from the manufacturing-led-exports path the government desires. But the world has far more room for the former. A service-providing India would also be more sustainable for the climate than an India competing to make global manufactured goods cheaper,” Rajan said, emphasising on the need to boost the key raw material: India's human capital.