Values and Crony Capitalism:
Raghuram Rajan is a renowned public intellectual and former Governor of the Reserve Bank of India (RBI). His speeches on public policy cover a wide range of issues, including the need to safeguard India’s liberal values and protect it from crony capitalism.

Asking Big Questions:
Rajan’s refreshing habit of asking big questions and genuinely attempting to answer them makes his contribution to India’s public discourse invaluable. This trait is particularly important at a time when India is facing significant challenges to its democracy and economic development.

The Future of Indian Democracy:
India stands at a critical juncture in its history, where it must consider the future shape of its democracy, the values it cherishes, and the rights its citizens demand. Rajan’s insights on these issues are highly relevant and timely.

Ajay Gandhi’s Absence:
The occasion is bittersweet as it coincides with the passing of Ajay Gandhi, a close friend and colleague of Rajan. Despite this loss, Rajan proceeds to address the core topic of his discussion.

Outdated Model of Development:
Common argument in India is that democracy holds back growth and development, and strong leadership is needed for progress. This argument is based on an outdated model of development that focuses solely on economic growth.

Unique Aspects of India:
India’s future development should build on its unique aspects, including its liberal democracy and institutions. These aspects will be critical sources of strength and differentiation for India’s growth.

Importance of Democracy:
Democracy is not just about the trappings of voting but also about the underpinnings such as freedom of speech, strong institutions, and checks and balances on authoritarianism. These elements are crucial for India’s economic and social progress.

Current Economic Situation:
India has strong growth but needs to be cautious about the numbers. The growth is coming from a low base and the pandemic has severely impacted the poorest citizens and the informal sector. The domestic demand in the economy will remain subdued despite the initial rebound.

Export Performance:
India’s export growth has been good but not spectacular. Dollar inflation and oil prices have contributed significantly to the export numbers. The trade deficit has expanded as imports have grown faster than exports.

Underperformance in Job Creation:
India has been underperforming in job creation, especially for the youth. The number of applicants for government jobs far exceeds the available positions. Female labor force participation in India is among the lowest in the G20.

Celebrating Successes:
India has achieved significant successes in the past, such as 7% average growth in the two decades after the 1991 reforms.

Exports and Manufacturing:
India has achieved significant success in exports, becoming the world’s largest exporter of two-wheelers and the largest two-wheeler manufacturer globally. Despite slow growth in the last decade, India’s exports have expanded across the world, including the export of classic Enfields to the United States, the home of Harley Davidson.

Digitalization and Fintech:
India has made significant strides in digitalization and fintech. UPI, a digital payment system, has revolutionized daily lives with over 4 billion transactions per month, spearheading the adoption of fintech across India.

Space Exploration:
ISRO, India’s space agency, has placed India on the space map at a fraction of the cost incurred by other nations. ISRO’s success is a testament to the capabilities of India’s public sector organizations.

Indian Management:
Indian management has gained global recognition, with two of the most valuable companies in the world, Microsoft and Google, being managed by Indians.

Underlying Challenges:
Despite these successes, India faces challenges in creating jobs to meet the needs of its growing population. The author emphasizes that these challenges are not due to a lack of potential in India’s people, but rather due to a failure of imagination in politics and leadership.

The Need for Infrastructure and Supportive Policies:
Well-conceived frameworks and infrastructure, such as Prime Minister Vajpayee’s golden quadrilateral highway and subsequent rural road projects, have proven successful in unleashing India’s creativity and enterprise. The author argues that India needs the “helping hand” of government to provide supportive policies and infrastructure, rather than a heavy-handed approach.

Investment in Infrastructure and Education:
Connecting villages to the rest of India through infrastructure development, such as roads, has led to a surge in economic activity and job creation. Emphasis on improving schooling and skill development has contributed to a more competitive workforce. Liberalization of tariffs and regulations has supported economic growth.

Atmanirbhar Bharat Policy:
The government’s focus on self-reliance includes improving connectivity and logistics. However, the emphasis on physical capital and goods rather than human capital and services resembles past failed policies.

Neglect of Education:
The COVID-19 pandemic has resulted in severe disruptions to education, with many students falling behind. The central government’s focus on digital resources is inadequate, especially for students without access to technology. State governments are not adequately addressing the education crisis.

Production Subsidies and Tariffs:
The government is allocating $30 billion in production subsidies to large manufacturing industries. This approach resembles China’s model of export-led growth, which suppressed wages and consumption to provide cheap inputs to firms. India’s starting point is different, and such policies are not feasible or desirable.

The Challenge of Cell Phone Manufacturing:
Tariffs and subsidies are being provided to promote cell phone manufacturing in India. However, consumers pay significantly higher prices due to tariffs and production subsidies. The question remains whether domestic manufacturers can become efficient enough to compete without protection and subsidies.

The Problem with Tariffs:
Tariffs on inputs can negatively impact export-oriented industries. Constant demands for protection from different industries create uncertainty for global manufacturers. This approach has been tried before and failed due to a lack of willingness to forego protection.

The Alternative: Exporting Services:
India has a strong presence and competitive advantages in exporting services. Focusing on service exports can allow India to get rich fast by catering to the global market. This approach builds on India’s liberal democracy and people’s minds and creativity.

Economic Priorities:
India should prioritize spending on human capital development (education, healthcare, etc.) rather than providing subsidies for manufacturing.

Service Exports:
The pandemic has enabled the provision of high value-added services remotely, opening up global markets for services such as consulting, legal advisory, education, and telemedicine. Services can be delivered online, avoiding physical borders and protectionist measures.

India’s Advantage in Services:
India’s liberal democracy and shared values with Western countries provide an advantage in services that require trust, such as data sharing. India has a good reputation for services, with a strong diaspora of professionals in various fields.

The Growing Demand for Services:
The world is moving towards a greener economy, leading to a shift in consumption from goods to services. Even moderate-income countries are increasingly consuming more services.

Challenges and Questions:
Will high-quality service jobs provide sufficient employment opportunities for the workforce? What other changes are needed to support a service-oriented economy?

New Thrust Areas for Economic Growth:
Instead of solely focusing on creating manufacturing jobs, India should also invest in services like education, which has a strong demand globally.

Quality Higher Education as a Service:
India can attract international students by offering high-quality higher education, both for domestic youth and as a service to students worldwide. This will build networks and create ambassadors for India.

Education Technology (EdTech):
EdTech can provide education directly to homes, creating jobs for software programmers, educationists, and software-assisted tutors. This sector has the potential to create many jobs, including those for less-skilled individuals.

Job Creation through Education:
Every skilled job creates additional jobs for less-skilled individuals. Schools, universities, and EdTech platforms generate employment opportunities in various sectors.

Transitioning Families through Education:
Education can enable families to leapfrog to higher levels of education and employment. This has been observed in families of RBI staff, where children of clerical staff often became bank managers or worked in consulting due to access to education.

Services Sector Possibilities:
India can explore services such as medicine, fintech, consultancy, legal services, travel, and tourism for economic growth.

Conclusion:
India can directly transition to services without going fully through manufacturing, avoiding the premature de-industrialization that Danny Rodrik warns about. The transition to services offers a unique growth path for India. Achieving this transition is challenging, but it is possible with focused efforts on education, EdTech, and job creation in the services sector.

A Service-Oriented Economy Requires Investment in People:
A shift from an export-led manufacturing path to a service-led path requires a focus on developing high-quality capabilities in the workforce. This entails investing in education, training, and empowering individuals to seek better futures for themselves and their children.

The Need for a Learning Government:
A service-oriented economy necessitates a government that is pragmatic, transparent, decentralized, and open to challenge. The government needs to be able to adapt to new challenges and learn from its mistakes to effectively support the growth of the service sector.

Creating a More Hospitable Global Environment for Trade in Services:
Historically, trade in services has been protected by licensing requirements and other barriers, but there is a growing appetite for change worldwide. India has an opportunity to lead global efforts to reduce these barriers and promote free trade in services.

Putting People First in a Service-Oriented Economy:
A discriminatory society is not only immoral but also weak, as it creates internal divisions and alienates potential allies in the community of democracies. Ensuring equal opportunities for all, including women, religious minorities, and disadvantaged castes and tribes, is essential for economic and social progress.

Empowering Individuals through Direct Cash Transfers and Education:
Direct cash transfers can be a step in the right direction, but they should be complemented by efforts to empower individuals and help them access better futures. Initiatives like providing gold ornaments for girls should be shifted towards funding their university education, enabling them to acquire skills and break free from traditional gender roles.

Government Responsiveness:
Decentralization and strong emphasis on individual rights and freedoms can enhance government responsiveness. Draconian laws like UAPA and sedition laws hinder criticism and impede necessary change. Removing legislative constraints on criticism is crucial for improved responsiveness.

Prioritizing Human Capital:
Emphasizing human capital development through investments in top universities and well-equipped schools. Investing in education can yield a higher return on investment compared to manufacturing-led exports. Top-quality universities can produce more skilled engineers and intellectual output than direct investments in hardware manufacturing.

Learning Government:
The government needs to be adaptable and continuously learn from its mistakes. Encourage a culture of experimentation and innovation to identify effective solutions. Adapt policies and strategies based on feedback and evidence to maximize positive outcomes.

Vision for India:
Rajan calls for an “Indian growth path” that draws on India’s capabilities, strengths, and unique democracy. He emphasizes the importance of tolerance, respect for all, and India’s image as a beacon of hope and inspiration across the world.

Role of Education:
Rajan places a significant role for education in putting people first and achieving inclusive growth. He believes India can become the first developing country to transform itself through services, leveraging its strengths in education and technology.

Services-Led Transformation:
Rajan acknowledges the rapid advancements in AI and automation but believes that there is still a runway for India to capitalize on the services sector. He emphasizes the importance of upgrading skills and embracing AI as a tool to enhance productivity and efficiency.

Global Leadership:
Rajan calls for India to lead global change and use its G20 presidency to shift the world’s focus to debating issues of trade, healthcare, and recognition of qualifications. He believes India can persuade the world of its vision for green, inclusive, and local-led growth and development.

Democratic Governance:
Rajan highlights the need for broader government, decentralization, and protection of free speech and criticism to improve governance and build trust among citizens. He emphasizes the importance of debate, consensus-building, and the role of argumentative Indians in shaping a more trusted and effective government.

Becoming a Vishwa Guru:
Rajan envisions India becoming a “Vishwa guru” (world leader) not just based on past ideas but through a new vision that is green, inclusive, locally driven, and persuasive to the world. He calls for India to set its standards against high-tech manufacturing and seize the opportunity to transform itself through services.

Addressing Concerns:
Rajan acknowledges concerns about the impact of AI and automation on jobs but believes that the hype associated with AI is extreme. He emphasizes the need to upgrade skills and use AI as a tool to enhance productivity, highlighting that man plus machine is often better than machine alone. He also recognizes the intense competition in higher education and the need for India to seize the opportunity now.

Importance of Human Capital:
India can seize opportunities in sectors like services and manufacturing by developing the right human capital. Creating a skilled workforce, including design engineers, can enable India to compete in advanced fields like chip manufacturing.

Trusting the Poor:
The poor are capable of making informed decisions about their well-being. Liberal democracy should promote trust in the poor’s ability to choose what is best for them.

Direct Benefit Transfers:
Direct benefit transfers empower the poor with agency and allow them to address their actual needs. Studies show that the poor make careful and responsible decisions when given direct financial assistance. This approach gives them more control over their lives and promotes economic growth.

Comparison of China and India:
Comparisons between China and India often overlook China’s advantage in having a better-educated population. China’s authoritarian regime enabled rapid economic growth, but it is not a model that India should emulate.

Democracy and Development:
The false opposition between democracy and development is often raised. East Asian countries achieved economic development under limited democracy in the past, but that model may not be appropriate for today’s world.

Education as a Key Factor:
China’s success was partly due to its focus on education and skill development. India needs to invest in education and training to create a skilled workforce capable of competing in the global economy.

India’s Education Advantage:
India’s education system lagged behind China’s before liberalization in the 1990s. The focus on education in China resulted in a more capable workforce for manufacturing jobs.

Authoritarian Structures and Manufacturing:
Authoritarian structures can be advantageous for early stages of manufacturing. Authoritarian governments can suppress worker wages and provide cheap credit to firms. Land appropriation for infrastructure projects is easier under authoritarian rule.

High-skilled Manufacturing and Services:
High-skilled manufacturing and services require democracy, debate, and discussion. Authoritarian systems can stifle private industry and innovation. India should focus on filling gaps in high-skilled manufacturing and services rather than following China’s manufacturing-led growth path.

Institutional Development in India:
India’s founders were initially respectful of the government and did not create strong institutions. Checks and balances on the government and independent institutions have eroded over time. Some individuals have taken charge of institutions and created more independence, such as TN Session with the Election Commission and RBI governors with the Reserve Bank of India.

The Need for Constraints on Government:
India needs more constraints on government power as it develops. Unconstrained government can lead to damage and harm.

Intellectual Elite and Majoritarianism:
India lacks a substantial intellectual elite who would advocate for political accountability. The trend towards majoritarianism in India has adverse consequences and goes against the notion of India envisioned by the founding fathers.

Majoritarianism:
Majoritarianism is divisive, wasteful of human resources, and weakens India’s unity, especially in the face of external threats. It treats certain segments of the population, such as women, minorities, and marginalized groups, as second-class citizens, hindering inclusive growth and damaging India’s reputation on the world stage.

Inclusive Growth:
Inclusive growth requires treating all segments of the population equitably and valuing human capital, regardless of background. Wasting human capital by discriminating against any group is economically unsound and counterproductive.

Press Freedom:
A free press is crucial for enabling diverse voices and holding those in power accountable. Government control or influence over the press, even without explicit censorship, can limit critical perspectives and hinder the flow of information. Social media platforms can play a vital role in providing strong and independent journalism.

Education:
There is a need for both public and private universities to cater to the diverse educational needs of India’s population. Quality should be the primary focus, regardless of whether an institution is public or private. Private universities can provide high-quality education if properly regulated and accredited. Accreditation systems should be robust and non-corrupt to weed out fly-by-night operators.

Services Sector:
Services can provide a range of employment opportunities, from unskilled to highly skilled jobs. The tourism sector, for example, offers jobs in hospitality, food service, and other areas. High-quality services can create more upper middle-class households, leading to a broader distribution of wealth.

Manufacturing:
Capital-intensive manufacturing is not a reliable source of employment due to automation and changing global dynamics. India should not rely solely on manufacturing for job creation but explore other sectors with growth potential.

Current Economic Situation:
While India is making progress, there is room for improvement in addressing unemployment and poverty. Complacency and self-congratulation hinder efforts to identify and address weaknesses. A realistic assessment of challenges is necessary to drive meaningful change.

Thank You to the Participants:
Vikram Reddy expressed gratitude to the attendees for joining the event.

Appreciation for Professor Rajan:
Reddy acknowledged Professor Rajan’s effort and time dedicated to the presentation, especially on a Saturday morning.

Next Event Announcement:
The next event in the series will take place on June 13th, featuring Rundar Grover as the presenter.

Break Between Events:
There will be a significant break between the current event and the upcoming one on June 13th.