Introduction:
Dr. Rajan’s keynote address focuses on the importance of liberal democracy for India’s economic development. He argues that the outdated model of development based on strong authoritarian leadership is misguided. India’s future lies in strengthening liberal democracy and its institutions.

Economic Arguments for Liberal Democracy:
Liberal democracy promotes economic growth and development. It provides a stable and predictable environment for businesses to operate. Democratic institutions ensure transparency, accountability, and the rule of law, which are essential for attracting investment. Liberal democracy fosters innovation and entrepreneurship by allowing diverse ideas and perspectives to flourish. It also promotes social mobility and equality, leading to a larger consumer base and a more robust economy.

Consequences of Weakening Liberal Democracy:
Weakening liberal democracy can lead to majoritarianism or authoritarianism, jeopardizing India’s economic future. It can also damage India’s reputation and its place in the community of democratic nations.

Moral Imperative:
Beyond economic arguments, there is a moral imperative to uphold liberal democracy. It is essential for preserving India’s soul as a nation and its place in the community of democratic nations.

Conclusion:
Dr. Rajan emphasizes the importance of liberal democracy for India’s economic development. He urges India to strengthen its democratic institutions and values, as its future depends on it.

India’s Recent Economic Performance:
India is currently experiencing a rebound in growth but it is subdued due to the pandemic, war in Ukraine, and rising inflation. India’s growth has underperformed since the global financial crisis, and the country is not creating enough good jobs. This underperformance is particularly evident in the lack of opportunities for India’s youth and women.

India’s Past Economic Successes:
India grew at an average of 7% per year for two decades after the 1991 reforms, making it one of the fastest-growing economies in the world. India has had notable successes in recent years, including the Aadhaar Stack, UPI, and a discount-price mission to Mars. India’s unicorns, Thomas Cup win, and strong cricket team are examples of its successes in various areas.

Reasons for India’s Underperformance:
India’s failure to create enough good jobs is due to a failure of imagination in its politics and leadership. The government’s focus on hard infrastructure, such as roads, is not sufficient to create jobs. India needs to invest in human capital, such as education and skilling, to make its workforce more competitive. Liberalization of tariffs and regulations is needed to make India’s economy more competitive and encourage firms to expand. India needs to strengthen the power of citizens over the government to promote transparency and accountability.

India’s Past Success Factors:
India’s previous growth was driven by a willingness to trust the people and create a framework for liberalization. The Golden Quadrilateral Project, which connected India with highways and rural roads, opened up markets and created development. Reforms in the 1990s and 2000s increased schooling and skilling of the workforce, making it more competitive. Liberalization of tariffs and regulations made India’s economy more competitive and encouraged firms to expand. The Right to Information Act gave citizens the power to question the government and promote transparency.

Atmanirbhar or Self-Reliance:
The current Indian government’s vision centers around Atmanirbhar, focusing on self-reliance and physical capital production, similar to pre-reform policies. This approach neglects human capital and services, prioritizing protection and subsidies over liberalization and competition. The focus on trade substitution and neglect of human capital could hinder India’s economic growth.

Neglect of Human Capital:
During the pandemic, many children have been out of school for two or three years, resulting in significant learning loss. The government should prioritize getting children back to school to avoid a generation of kids experiencing underperformance and inequality. The focus on physical capital and PLI schemes should be shifted towards addressing the educational needs of children.

Production Linked Incentives (PLI):
The government is devoting significant resources to PLI schemes, aiming to boost manufacturing in India. However, the neglect of human capital development could limit the effectiveness of PLI schemes in driving economic growth.

India’s Economic Growth and Comparison with China:
India’s economic growth has been strong, but it lags behind China’s growth. In 1995, India and China had similar per capita GDPs, but today, China’s per capita income is three times higher in PPP terms and five times higher at market exchange rates.

China’s Growth Model and Its Challenges:
China achieved growth by suppressing wages, focusing on exports, and providing cheap capital to industries. This model led to a more educated workforce, better infrastructure, and reduced tariffs. However, it’s challenging to replicate this model in India due to its democracy, unions, and vocal population.

Government’s Strategy for Manufacturing-Led Growth:
The government aims to promote manufacturing growth through improved logistics, higher tariffs, and production subsidies. Tariffs on cell phones were raised from 10% to 20% in 2017, and producers of cell phones in India were offered a 6% subsidy of the product’s invoice price in 2020.

Implications of Subsidies and Tariffs:
The subsidies and tariffs provide significant benefits to manufacturers, making it attractive to produce in India. However, consumers pay higher prices for products due to the markup and subsidies.

Concerns about the Sustainability of the Manufacturing Sector:
The concern is that manufacturers may only assemble parts in India to take advantage of subsidies and tariffs without developing a robust supply chain. This could lead to a situation similar to the license permit raj, where protected industries became high-cost producers and failed to improve quality or efficiency.

Government’s Hope for the Future:
The government hopes that once manufacturers produce in India, they will build out the entire value chain in the country. However, there is no guarantee that this will happen, and the government’s plan may not be effective in promoting sustainable manufacturing growth.

The PLI Scheme and Its Implications:
The government’s Production Linked Incentive (PLI) scheme aims to boost manufacturing in India by providing subsidies and tariffs to various industries. There are concerns that manufacturers might become dependent on subsidies and continue lobbying for their extension, leading to a potential stalemate. The $10 billion PLI scheme for chip manufacturing is questioned as an effective use of funds, with suggestions to invest in education and training to create a skilled workforce.

The Resistance to Export-Led Manufacturing:
There is a growing resistance to export-led growth in manufacturing worldwide, with countries aiming to insure or reshore industries for strategic and de-industrialization concerns. India’s success in export-led manufacturing could face political challenges, similar to those faced by China in recent years.

An Alternative Path: Service Exports and Liberal Democracy:
India’s strength lies in its liberal democracy, creativity, and skilled minds, which can be leveraged to cater to the global market’s demand for services. India already has a surplus in service exports, highlighting its potential in this sector. The government should consider increasing resources for service exports, such as improving infrastructure, investing in education, and promoting innovation, instead of heavily focusing on fostering manufacturing through PLI schemes.

The Changing Environment for Service Exports:
The pandemic has significantly altered the environment for service exports, creating new opportunities and challenges. India needs to assess the changes and adapt its strategies to remain competitive in the global service industry.

Conclusion:
India should carefully evaluate its manufacturing and service industry policies, considering the challenges and opportunities in both sectors. The government should prioritize investments in education, infrastructure, and innovation to create a conducive environment for service exports and economic growth.

Protectionism in Services:
The pandemic highlighted the potential for delivering high value-added services remotely. Protectionism in services takes various forms, hindering the liberalization of services trade.

Services Trade Advantages:
Major economies like the US and Euro area have a strong interest in open services trade due to their significant production of services. India has a key asset in its liberal democracy, which builds trust and shared values, essential for data-sensitive services. India’s brand image in services, with its skilled doctors, software engineers, and consultants, gives it a comparative advantage in selling to democracies worldwide.

Focus on Services:
The world’s consumption patterns are shifting towards services, including creative services, due to environmental concerns and the need for sustainable growth. Manufacturing is becoming increasingly difficult and faces challenges in meeting the demand of growing populations.

Conclusion:
India should focus on developing its services sector to capitalize on the global demand for high-value services. By leveraging its democratic credentials and brand image, India can become a major exporter of services to the world’s democracies.

Necessity of Services:
In the face of automation, India should focus on services, which represent the future and offer more job opportunities.

Addressing Job Creation:
Services can create employment-intensive jobs in sectors like construction and tourism. High value-added services, such as education, have immense potential for job creation.

Quality Higher Education:
India needs quality higher education to create a workforce capable of providing high-value services. Lack of a strong degree prevents Indian faculty from teaching worldwide and students from securing acclaimed jobs. Investing in higher education is no longer a luxury but a necessity.

Job Creation Through Education and EdTech:
India has the potential to migrate its students to service the world through education and EdTech. Distance teaching can expand educational services to students in the Middle East and beyond. EdTech platforms create high-skilled jobs for teachers and tutors, leading to the creation of additional jobs in various sectors.

Education-Driven Job Growth:
Education and EdTech platforms generate jobs for clerical staff, coaches, cooks, cleaners, ground staff, and security guards. While these jobs may not be ideal, they provide employment opportunities and can serve as stepping stones for upward mobility.

India’s Service Sector Potential:
India has significant potential in the service sector, including medicine, FinTech, consultancy, legal services, and tourism. Tourism can be a major contributor to India’s GDP, but requires a positive image of the country as welcoming and open.

Transitioning to Services Without Manufacturing:
India has the opportunity to transition directly from agriculture to services, bypassing the traditional manufacturing stage. This unique pathway could be an advantage for India, avoiding the challenges of premature de-industrialization.

Conclusion:
India’s transition to a service-based economy requires hard work and dedication.

Building Capabilities:
India needs to upgrade its education system to enhance capabilities among its citizens. The government must focus on providing equal opportunities for all, including women, minorities, and disadvantaged groups, to tap into the full potential of its diverse population. Empowering people through direct cash transfers and decentralization of functions and funds can promote bottom-up development and enhance accountability.

Creating a Learning Government:
The government should adopt a pragmatic, transparent, decentralized, and open-to-challenge approach. Experimentation at a small scale, followed by wider rollout, can help identify effective policies. The government must protect speech, criticism, and improve data collection to facilitate learning and policy improvement.

Promoting Trade in Services:
India needs to engage in the process of opening up the global services market. Vested interests in services may pose challenges, but it can be easier to address compared to protectionism in manufacturing. India’s strength in services can be leveraged to drive economic growth.

Ensuring Equality and Justice:
A society that treats everyone equally is not only morally right but also economically beneficial. Discrimination creates internal divisions, weakens society, and invites external intervention. Ensuring equality and justice is crucial for unity, progress, and stability.

Enhancing Individual Rights and Freedoms:
Acts like the UAPA and sedition laws are used to suppress criticism and protect lazy government officials. These acts should be repealed, and security can be provided without resorting to draconian measures. Individual rights and freedoms are essential for fostering a critical and accountable society.

Negotiating a Better Global Position:
India needs to proactively negotiate for win-win outcomes in global change, such as telemedicine, by recognizing Indian medical degrees and allowing Indian doctors to practice elsewhere. The G20 presidency can be used to improve the environment for service exports and create more opportunities for Indian professionals. India should shift its focus from protecting agriculture to creating job opportunities outside the sector, particularly in services.

Improving Laws and Regulations:
India needs to strengthen its laws protecting privacy and data collection, including from government intrusion. A clear and transparent legal framework for information would enhance India’s trustworthiness and competitiveness in providing services to the world.

An Indian Path to Development:
India should draw on its historic culture of tolerance and respect to create an inclusive and sustainable development model. Liberalism, including the ability to criticize and debate, is essential for improving the quality of governance and gaining trust from citizens. India can become a Vishwa Guru by showcasing a green, inclusive, and locally-led development model that works.

Addressing Unemployment and Inclusion:
India’s low labor participation rate, particularly among women, is a major challenge. Representation of marginalized communities, including Dalit, Bahujan, Adivasi, women, religious minorities, and sexual minorities, needs to be improved in the workforce. Large firms employ a significant portion of the workforce, but small firms face barriers in transitioning to larger sizes. Improving the business environment, credit access, and regulatory processes can facilitate the growth of small firms into large firms, creating more job opportunities.

Inclusion Challenges:
Mandating quotas for hiring from marginalized groups can create vulnerabilities for firms if the hired individuals are not qualified. Positive discrimination policies can be counterproductive and may lead to resentment and stigmatization. Addressing the root causes of exclusion, such as lack of education and skills, is crucial for long-term inclusion.

Policy Solutions for Inclusion:
Focus on training, teaching, and capability building to enhance opportunities for disadvantaged minorities. Address the lack of networks in underprivileged communities by providing substitutes for job opportunities and skill development. Consider temporary compromises on quality to build networks and remove them as capabilities improve. Implement policies that promote capability building rather than reinforcing traditional gender roles.

Decentralization and Regional Disparities:
Economic growth centers are concentrated in the west and south of India, while the Hindi heartland states lack growth centers despite having a large population. The average per capita income in southern states is significantly higher than in states like Uttar Pradesh and Bihar. Such lopsided development poses dangers and requires corrective measures.

Reasons for Uneven Development and Corrective Actions:
Historical factors, lack of infrastructure, and poor governance contribute to uneven development. Corrective actions include targeted investments in infrastructure, education, and healthcare in lagging regions. Promote entrepreneurship and small business growth in these regions. Enhance agricultural productivity and support rural livelihoods. Encourage migration from lagging regions to areas with better opportunities, while addressing the challenges faced by migrants.

Role of State Governments:
State governments play a crucial role in addressing regional disparities and promoting inclusive growth. They can implement policies tailored to the specific needs of their regions. State governments should focus on improving governance, infrastructure, and social services. Collaboration between central and state governments is essential for effective policy implementation.

Economy and Governance Disparities:
The North and East of India have historically been less developed compared to the South and West. This disparity is attributed to factors such as land ownership patterns, lack of emphasis on education, and poor governance. There is a growing awareness of the need for change and improvement in these regions.

Education and Human Capital:
The rayatwari system in the South and West led to more egalitarian land holdings and a greater emphasis on education and human capital. This contributed to the economic development of these regions. The Hindi heartland, however, continued to lag behind due to the zamindari system, which required tax payments through intermediaries.

Economic Growth and Political Power:
The North and East of India have experienced higher population growth compared to the South and West. This has led to a shift in political power, as these regions have a larger number of voters. This, combined with the economic disparities, has created tensions and conflicts.

Migration and Economic Transfers:
Migration from the North and East to the South and West has provided economic opportunities for many people. However, it has also contributed to the economic disparities between the regions. There are concerns about the increasing transfers of resources from the South and West to the North and East through taxation.

Reliance on Old Industries:
India’s economic growth has historically been driven by old industries such as heavy industry and IT. The recent conflict in Ukraine has benefited these industries due to India’s oil refining capacity. Concerns have been raised about the overreliance on these old industries and the lack of attention to emerging sectors.

The Role of Liberal Democracy:
The question is raised whether liberal democracy has contributed to the resurgence of old industries. It is suggested that electoral funding from these industries influences government decisions and policies, benefiting them at the expense of newer sectors.

Problems with Crony Capitalism:
Crony capitalism is an efficient way to run a democracy but not a liberal one. Cronies want everything and can only be efficient in a limited number of industries. As cronies expand, they rely on easy credit from a crony banking system. Eventually, this lack of checks and balances leads to inefficiency. A small group of industrialists cannot be good at everything, and crowding out new entry leads to stagnation.

Mexico’s Example:
Mexico’s transition from middle to upper income was hindered by vested interests in industry and public goods. We should learn from Mexico’s example and merge the best aspects of different systems.

New Infrastructure and Resources:
We need to ensure that resources are put to work on new infrastructure and cities, even if they don’t benefit anyone right now.

Crypto Democracy:
Decentralization and other aspects of crypto democracy align with Rajan’s discussion of network states. India’s stance on blockchain and crypto has been confusing.

Rajan’s Stance on New Technologies:
Rajan believes new technologies have a place but cautions against putting too much weight on them.

Blockchain:
Blockchain is a decentralized ledger that can also be used as a centralized ledger. While blockchain has potential applications, it is important to be cautious about placing too much hope and ambition on it. Technology can sometimes work in perverse ways, so we must be careful when using it.

Affirmative Action:
Focus more on enabling capability building, such as access to education and healthcare, rather than focusing solely on outcomes like job reservations. Affirmative action should be removed once individuals are part of the network and no longer face social discrimination. Affirmative action may still be warranted for individuals who face social discrimination, even if they have achieved economic status.

Free Trade Agreement Between UK and India:
There is currently no free trade agreement between the UK and India.

Interest Rate Rise:
The recent interest rate rise across the world is in response to inflation. This hurts emerging markets as it reduces the cost of capital and allows more investment if need be. India has seen portfolio outflows over the last year due to the interest rate rise. Hopefully, India can contain inflation and not make itself unattractive to investors.

Basic Services and Infrastructure:
There is a need to change the way basic services like water, sanitation, electricity, and clean cooking are acquired by the public.

Governance Transparency:
Government services should not be perceived as gifts from the government but as a necessity funded by taxpayers and delivered efficiently. Enhancing governance transparency through better information and decentralization can lead to improved public services.

Decentralization and Local Control:
Decentralization empowers local communities to oversee public services and hold local authorities accountable. Local control can incentivize service providers to deliver quality services due to direct accountability to the community. New technologies, such as the internet, can facilitate transparency and reduce the risk of local elite capture.

Citizen Empowerment and Rights:
People should have more power over government decisions and services to improve the quality of public services. This includes better information access, protection from arbitrary arrest, and the right to criticize and demand accountability. Decentralization and citizen empowerment can promote a non-paternalistic approach to governance, where the government trusts and empowers its citizens.

Learning, Adaptable Government:
Governments should adopt a learning and adaptable approach, continuously seeking feedback and experimenting with policies to improve outcomes. This entrepreneurial approach to policymaking, with a focus on market feedback loops, can lead to more effective and responsive governance.

Moral Imperative for Liberal Democracies:
While the economic benefits of liberal democracies are significant, the moral imperative for upholding tolerance, criticism, and democratic values should not be overlooked. India’s historical culture of tolerance and criticism can provide a foundation for building a uniquely Indian path to liberal democracy.