In an interview where he explains in detail a vision for India’s future growth and development and the sort of country it should be, which involves a radical rethinking of India’s politics and economic strategy and is also very different to the vision of the present government, Raghuram Rajan has said that India should put greater focus on growth through the export of services rather than through export of goods and, at the same time, it must reinforce its credentials as a liberal democracy.

He says this “is not my vision, it’s the vision of our founding fathers”.

However, Raghuram Rajan adds, he has found a way of integrating their vision with the character of the sort of country India has become 75 years after independence.

In a 53-minute interview to Karan Thapar for The Wire, Raghuram Rajan said “our democracy and our economy need course correction”. He added “critical to our economic future is the need to strengthen our liberal democracy and its institutions … if … we allow our liberal democracy to deteriorate into populist majoritarian authoritarianism, it’s not just your economic future that will be jeopardised but our soul as a nation.”

Rajan’s vision for India comprises both an economic and a political dimension. They are interlinked and intertwined and cannot be separated. Change in one direction is not sufficient. It has to happen in both together.

Rajan began the interview by explaining why he has reservations about the recent budget’s thrust on infrastructure development and it’s attempt to replicate the Chinese model of manufacturing export-led growth.

In brief, he touched upon the problems India has faced in the past in developing infrastructure, which have not been resolved and are likely to recur again. He also explained that after China’s dominance the world will be reluctant to accept another China, so to speak. Rajan also pointed out that the Chinese model requires suppression of workers’ wages, which is not just impossible but also undesirable in a democracy like India.

Rajan said that the 'Atmanirbhar' model involves subsidies which are discretionary and can lead to favouritism or even crony capitalism.

It was after explaining this that Rajan began to speak about his vision.

First, he spoke about its economic dimension. He said “we need to go in an entirely new direction”. He said the aim was to focus more on export of services than on export of goods. However, he did point out that we should not forget about manufacturing but rather the thrust should be on boosting export of services. He said the aim is “to leapfrog the manufacturing stage that most countries in the past have gone through and instead go directly to services”.

Rajan said: “Manufacturing-led growth is harder in democratic countries. This is because it involves suppressing wages and interest rates and also taking away peoples’ land”. He said autocratic countries can do this. For instance, China. The East Asian Tigers did this when they were autocratically run. India, a democracy, “cannot”.

On the other hand, Dr. Rajan said “on the services side as a democracy we have a natural advantage”.

Rajan said that “the pandemic has made it easy to provide high-value added services at a distance”. He said this is particularly so in areas like consultancy, medicine, legal services, financial technology, travel and tourism.

Asked by The Wire if the thrust on export of services rather than on export of goods can create the 7-8 million jobs a year that India needs, Rajan explained in detail how he thought that was possible.

Whilst accepting that “no one has done services-led growth before”, Rajan pointed out that 70% of world GDP is services and only 20% is manufacturing. That gives India an opportunity to grow rapidly by the services export-led route.

Having explained the economic dimension of his vision, Rajan began to speak about the political dimension of his vision. The key to the political dimension is that India needs to reinforce its credentials as a liberal democracy.

This has two parts, as Rajan explained. First, India must “place greater weight on individual rights and freedoms”. He spoke about misuse of laws like UAPA, impulsive cabinet decisions without parliamentary consultation, suppressing unfavourable data and protecting free speech and criticism.

He said we need to impose checks and balances that work effectively and, as he put it, “do away with old colonial laws that allow tyrannical governments to arrest” people who protest.

He also spoke of the need for a government that learns. In an article he wrote recently for Times of India he said: “A beguiling but eventually debilitating cocktail of Hindutva-driven nationalism, sweetened with populist welfarism, and made politically attractive by a charismatic leader, is partly why we face these challenges.”

Much of the political change Rajan wants to see involves what he called investing and empowering people. He spoke repeatedly of the need to give the Indian people the power to protest and also the power to decide. He also spoke about the need to improve the education system and increase education outcomes.

The second political change Rajan said was needed is decentralisation of government which involves devolving functions and funds right down to municipalities and panchayats.

At the end of the interview, Rajan made it clear that “politics and economics are intertwined and they hang together”. He said the vision he has explained in detail has been crafted together with a few other like-minded friends. He called it “a truly Indian vision”.

Right at the end, Rajan was asked if he was in touch with any political party that is willing to accept and implement his vision and his answer was “no” but he added “hopefully at some point someone will say this is the way to go”.

Finally, Rajan was asked if the detailed vision he has sketched out is a sign or hint that he is considering joining politics and he answered: “I have no ability in politics...I’m an academic. I deal with ideas.”

Watch the full interview here.

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