India’s path to economic success lies in boosting the services sector: Rajan

Former RBI chief Raghuram Rajan | Photo: Bloomberg

Former Reserve Bank of India (RBI) Governor Raghuram Rajan has called on India to prioritise improving the services sector over expanding manufacturing to achieve sustainable economic growth and create jobs. Speaking at the annual World Bank conference on Wednesday, Rajan argued that manufacturing is not the “holy grail” for India’s economic success.

Rajan stressed that the manufacturing sector is facing challenges due to limited export absorption and is no longer competing with the expensive US labour force. Instead, the sector is facing stiff competition from countries such as China, Vietnam, Indonesia and Mexico, which also offer cheap labour and have more capital than India.

“Both politically and economically, it is more difficult to climb the production ladder,” he added.

According to him, services and services embedded in production have a higher added value in value chain activities compared to manufacturing, which has a much lower added value. “Most of the added value is in intellectual property in services, not in actual production. We should consider services as a potential for the forefront of the economy,” he said.

The former RBI governor further argued that India should prioritise improving education and healthcare through decentralisation and local empowerment to achieve better results, with an emphasis on human capital rather than just physical capital.

He also stated that India needs to encourage innovation and creativity to seize high value-added opportunities.

According to Rajan, the Indian government should focus on creating jobs at all levels, rather than just high-end positions. “The need of the hour is more jobs,” Rajan argued during his recent remarks.

Rajan stressed that India needs to address both the current availability of jobs and future employment opportunities by upskilling people for the jobs that already exist and providing last-mile remedial training. He stressed the importance of creating employment opportunities that match the skills people already possess, while also investing in training programs for future job prospects.

First print: Jul 11, 2024 | 01:01 AM IST