The Wire Staff 
New Delhi: Former RBI Governor and renowned economist, Raghuram Rajan has recalled India’s poor economic record in the last few years in the Financial Times. He has emphasised how the ‘two Indias’, doing very poorly for a vast majority, maybe shining for a select section will eventually come back to haunt the country.
He notes how the “labour-intensive sectors such as leather and textiles have been disproportionately affected. Of the 23 components of the index of industrial production, 11 labour-intensive sectors were lower in March 2023 than in 2016-17. Worryingly, India’s share in the global garments trade has declined by over 20 per cent since 2015, while Bangladesh and Vietnam’s are surging.”
He writes that the consequences have been visible directly in raging urban unemployment. “The share of agricultural jobs has been on the rise,” he writes, which is not a good sign and an anomaly “for a growing developing country.”
The government’s infrastructure push he writes, has helped the “capital-intensive sectors… The rich and upper middle class have ridden the rise in such sectors and in skilled services exports, as well as in stock and property markets.”
But, he reckons, countries benefit only if all sectors have good prospects. “A two-paced economy,” he writes however, will prove detrimental to “the flourishing side.” With joblessness and poor income growth large sections and a steep rise in household indebtedness, evidenced by “consumption of mass goods like motorised two-wheelers is still below pre-pandemic heights. Young people are anxious about their prospects but don’t know whom to blame: a recent white paper on the economy doesn’t even mention the word “unemployment”, while the government-influenced mainstream media trumpets widespread prosperity”, he writes augurs poorly for demand growth he suggests, which is the only basis for sustained growth of all in a large country like India.
Modi government’s job strategy
Rajan says he finds the Modi government’s strategy for jobs, “to attract manufacturing to India through subsidies” as “mystifying”. He notes that almost “$10bn of subsidies are being allocated to chip manufacturing, which will create only a few jobs for the highly skilled in an industry where India has little comparative advantage. Meanwhile, labour-intensive sectors shrink for want of investment.”
Rajan writes that the Modi government has been able to push most of the poor news under the carpet and “influence perceptions by touting good economic news and suppressing criticism.” People who support Modi say that his authoritarianism brings advantages that other large authoritarian countries like China have, as they “can ignore niceties such as careful environmental studies in building out infrastructure. They can support manufacturing, acquiring land for industry over the protests of households, and suppressing unions and wage growth.”
Imitating China an option?
But, writes Rajan, India trying to imitate China would be futile as China has the first-mover advantage “and is competing away the profits in manufacturing.” Secondly he says, the world would not want to encourage ‘another China’ and would be touchy about their share of manufacturing and also mindful of damage to the environment, scrutiny that China escaped as it rose quickly.
Rajan calls for another path to securing its economy, welfare and place in the world. Instead of the “300,000 engineers working on chip design for companies across the world”, he writes, “why not repurpose chip subsidies to improve the quality of its schools, colleges and universities, so it can have more chip designers, and eventually its own Nvidia or Qualcomm?”
Rajan eventually makes the case for more democracy and a freer press so mistakes and mis-steps of the government can be pointed out and course-correction undertaken.
To “make India a more trusted destination for foreign investors, and a more reliable provider of data-intensive services”, India must prioritise both democracy and a quest for prosperity for larger numbers.
Rajan expresses an apprehension that in the mistaken and old-fashioned belief that there is a trade-off between economic well-being and democracy, India may end up jettisoning both.