Former RBI governor Raghuram Rajan said regardless of whether one picks services, manufacturing, agricultural construction, India has a problem. File
| Photo Credit: PTI

India is not reaping the benefits of demographic dividends, former RBI governor Raghuram Rajan said on April 16, emphasising that there is a need to focus on improving the human capital and enhancing their skill sets.

“I think we are in the midst of it (demographic dividend), but the problem is we are not reaping the benefits,” Mr. Rajan said at a conference on “Making India an Advanced Economy by 2047: What Will it Take” at the George Washington University here.

“That’s why I said 6% growth. If you think that’s about what we are right now, take away the fluff in the GDP numbers. That 6% is in the midst of a demographic dividend. It is much below where China and Korea were when they reaped their demographic dividend. And that’s why I’m saying we are being overly complicit when we say this is great. This is not because we are losing the demographic dividend because we are not giving those guys jobs,” the former RBI governor said.

“And that leads us to the question, how do we create those jobs? The answer to my mind is partly enhancing the capabilities of the people we have, partly changing the nature of the jobs that are available and we need to work on both fronts.

“This idea of apprenticeship, which the Congress has in its manifesto is worth working on. I think there’s a lot that needs to be done to make it effective, but we need many more students to at least be capable of doing a good job,” Mr. Rajan said, adding that there also needs to be focus on job creation.

Mr. Rajan was critical of India spending billions of dollars on chip manufacturing. “Think about these chip factories. So many billions going to subsidise chip manufacturing,” he said, adding that a number of job intensive areas like leather are not doing good.

“We are going down in those areas. No wonder we have more of a job problem. The job problem was not created in the last 10 years. It’s been growing over the last few decades. But if you neglect the areas which are more intensive, I’m not saying we need to now offer subsidised subsidies to leather examples, but figure out what’s going wrong there and try and rectify that,” he said.

Responding to a question, Mr. Rajan said a lot of Indian innovators now are going to Singapore or to Silicon Valley to set up because they find access to the final markets much easier there. “We need to ask what is it that forces them to go outside of India to set up rather than stay inside India? But what is really heartwarming is talking to some of these entrepreneurs and seeing their desire to change the world and increasingly many of them are not happy staying in India,” he said.

“They want to actually expand more globally. I think there is a young India that has a Virat Kohli mentality. I’m second to none in the world,” Mr. Rajan said.

Earlier in his presentation, Mr. Rajan said regardless of whether one picks services, manufacturing, agricultural construction, India has a problem.

“And this is so well known, I don’t need to elaborate. Unemployment numbers are high, disguised unemployment is even higher, labour force participation is low, female labour force participation is really alarmingly low…the share of agriculture and jobs is increasing in recent times. Of course, all this is exhibited in highly educated unemployment and massive numbers of people applying for government jobs. PhDs applying for jobs as peons in railways,” he said.

“Even as this is happening. Even as we have a massive labour which is unemployed, we have the capital intensity of manufacturing steadily going up,” Mr. Rajan said.

Article corrected post publication.

Image for representation purpose only. FIle
| Photo Credit: PTI

India’s manufacturing sector activity surged in March with new orders and output levels rising at the fastest pace since October 2020, lifting the HSBC India Manufacturing Purchasing Managers Index (PMI) to a 16-year high of 59.1 from 56.9 in the previous month. A reading of over 50 on the index indicates growth in activity levels.

Export orders also grew at the fastest pace since May 2022, and though pressures on current capacity remained mild for producers, they resumed job creation after a two-month pause. While the scale of new jobs created was mild, it marked the best uptick in six months, with firms hiring mid-level and full-time employees.

While output growth quickened across the consumer, intermediate and investment goods sectors, the steepest expansion in production and new orders was seen at investment goods makers, as per the survey-based index findings.

Though input costs rose at the highest pace in five months during March, most producers refrained from passing on costs to buyers, resulting in output prices rising at the slowest pace in a year. In fact, less than 5% of surveyed firms opted to increase selling prices as the focus was on retaining customers. Firms also stocked up on input inventories at a pace that is the second-sharpest since the PMI surveys started, with the most stockpiling seen in capital goods

Despite the broadly positive trends, the overall outlook for the manufacturing sector was mixed, with sentiment levels among firms slipping to a four-month low. Just 28% firms expect output to grow in the year ahead while 1% expected a contraction, as worries about inflation weighed down confidence levels.

Noting that India’s March manufacturing PMI rose to its highest level since 2008, HSBC economist Ines Lam said that manufacturing companies expanded hiring in response to strong production and new orders. “On the back of strong demand and a slight tightening in capacity, input cost inflation picked up in March,” he added.