According to former governor of the Reserve Bank of India (RBI) Raghuram Rajan, India's true growth rate may be closer to 6–6.5% rather than 8–8.5% if one removes the "fluff" from the country's growth statistics.
He said, "India would need growth rates of 9–10% over a sustained period of time to become a developed country by 2047." At an event held at Northwestern University's Kellogg Business School, Rajan was speaking with Krishnamurthy Subramanian, the former Chief Economic Advisor of India.
Why does Rajan not find India's growth statistics convincing? "Let's say we're growing at 6 to 7%...the big question is why aren't we seeing inflation at this rate of growth," Rajan responded to Subramanian's assertion that India had continuously grown at a rate of more than 7% since the pandemic.
"This type of inflation is caused by running out of supply when you grow quickly. Normally, if you put in more work, wages rise, but not in India." Rajan draws attention to the paradox of excess labor on India's farms rather than in services or manufacturing, which is the focus of the Center.
"Growth is a farce for agricultural employment in a rapidly developing nation. Why do individuals work in the agricultural industry? That is a poor level of production. They ought to be looking for work somewhere, he stated.
According to Rajan, the reason behind the high number of applications for government employment in India is the country's struggling labor market. According to Rajan, the expansion in manufacturing is occurring in parts that need a lot of capital rather than labor.
"If you examine the labor-intensive areas of manufacturing, the production in 12 of the 23 IIP sectors was actually lower in 2016 than it was in 2016." A significant portion of this business shrank during the epidemic, which caused a great deal of harm. I'm not really sure why it hasn't returned. However, one possible explanation might be that our demand hasn't increased significantly since the outbreak," he further added.
Rajan said that the post-pandemic demand in India has not increased all that much, using the sales of two- and four-wheelers as an example. "Observe sales of four-wheelers. People who are similar to us. The amount of passenger automobiles they purchase has exceeded pre-pandemic levels. See what the middle class drives by looking at sales of two-wheelers. Although they have been expanding very slowly over the past ten years, they were really increasing before the epidemic. They've not returned to their pre-pandemic state. Adding all of them together, there wouldn't be enough jobs,” he claimed.
According to Rajan, these elements hint to a dualistic economy. "In conferences concerning China plus one, there is a face that everyone recognizes: Apple building manufacturing in India. The wounded middle class and lower middle class, who are in severe need of employment, is the opposite face."
