Raghuram Rajan
India’s growth depends not on government jobs, but private sector jobs. And what type of jobs? Manufacturing or services? One view is that the manufacturing window has closed and the future for India lies in services. This view is echoed by Raghuram Rajan, as reported by moneycontrol (October 2022).
Former Reserve Bank of India governor Raghuram Rajan has expressed concern over India’s employment situation, calling it “really alarming”, and said the government must focus on promoting labour-intensive jobs such as those in the services sector.
…According to Rajan, the government’s approach to boosting growth and increasing employment through a heavy focus on the manufacturing sector is misguided.
“I am not in any way saying that we should not focus also on manufacturing jobs. What I am saying is that the enormous subsidies that are now going into manufacturing, we need to think of whether they would be better employed in creating the underpinnings of strong service jobs, not just in this country but as exports,” he said.
…Rajan, however, argued that it may be much easier to increase services exports than manufacturing in the current global environment. Further, service sector jobs are more labour intensive, which would help create more jobs.
The Eocnomic Times (October 2022) has more on Rajan’s views:
“Weightless services also consume little energy on the way to the final consumer, unlike manufactured goods. Export-led services growth will be much less environmentally harmful – the world cannot afford India to follow China’s path, even if it were open to it,” Rajan said.
He said liberalising manufacturing has diminishing returns and is politically fraught.
“One reason industrial countries have soured on open borders is their manufacturing workers have been disproportionately hit by global competition and outsourcing, while service workers have benefited. Both politically and economically, further liberalization of manufacturing has diminishing returns.”
He explained that services, unlike manufacturing, can be distributed across a country and reduce pressure on megacities that are turning into heat sinks and becoming increasingly unlivable.
Such a distribution of services away from large cities will boost rural incomes and provide an alternative in case of loss of agricultural incomes.
“The production of these services can be distributed across a country. In developing countries, this will reduce the burden on the large megacities that are becoming heat sinks and increasingly unlivable. It will also generate a source of income and a reliable stock of human capital to seed rural communities that would otherwise lack the economic capacity to survive the loss of agricultural incomes,” Rajan highlighted.
In an interview with Karan Thapar (The Wire, in March 2022), Raghuram Rajan said:
Remember that 70% of GDP in the industrial world is services. So, when you are tackling manufacturing, you are tackling 20% of GDP. When you are tackling services, you are in the same group as 70% of their GDP. Now that’s what they produce but it is also what they consume. In a sense, there is a much bigger market for services and importantly we already have a reputation, on software we have a good reputation but think of doctors. In the West when they think of a doctor, often they think of an Indian doctor because so many of our expats have gone there and become good, respected doctors in those areas. So, there are areas where we already have a reasonable reputation which we can build on. Consultants, every consulting firm in the world is full of Indian consultants, so why not sell them the services from India?
…Every service job, high quality service job that is created, usually creates another five or six other jobs. Now, these are lower quality service jobs and by all means we want to, in the end, get to a place where more and more people have high-quality service jobs.
But think of the lower quality service jobs that a higher quality service jobs today provides. Immediately, the person who has the high-quality service jobs needs somebody to look after their kids, they need a cook, they need a security guard, they need a driver. Now, already we are talking about four-five jobs. Now again, these are not great service jobs, but they are better service jobs than what is available in the village in that low productivity farm which is declining in productivity and getting smaller and smaller. So in the transition from agriculture to services, you will be improving somebody’s life.
…The manufacturing-led growth is harder for democratic countries because often it requires hard decisions like suppressing wages or suppressing the interest rate the households receive or even taking away people’s land without them being able to protest. On the one hand, the more authoritarian countries like Chinas and Vietnams of the world or many of the east Asian countries, when they grew fast, they were able to do a lot of this, I think we cannot.
