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Raghuram Rajan says India's job situation 'really alarming', needs equal focus on services

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The former central banker expresses concern over the Centre's production-linked incentive schemes for the manufacturing sector, saying the money could be better spent elsewhereRaghuram Rajan says India's job situation 'really alarming', needs equal  focus on services

Former Reserve Bank of India governor Raghuram Rajan has expressed concern over India's employment situation, calling it "really alarming", and said the government must focus on promoting labour-intensive jobs such as those in the services sector.

"I would say we need to do far more. And it's not about bombastic 'oh we have arrived, we are the fifth biggest economy in the world'. It is about doing the hard work that is necessary to support the kind of jobs we need. And the jobs situation, I would say, is really alarming," Rajan said late on Wednesday in a conversation with students of the Indian Institute of Management, Ahmedabad.

Rajan, the Katherine Dusak Miller Distinguished Service Professor of Finance at University of Chicago's Booth School of Business, served as the governor of the Reserve Bank for three years starting September 2013.

Rajan said the rise in agriculture and related jobs was unprecedented for a growing economy.

"People leave agriculture for services and manufacturing. Here, over the last couple of years, we have seen people go back to agriculture. So the unemployment numbers are in a sense misleading because they don't account for this effective underemployment of people who have gone back into agriculture," he said.

Under fire for not creating enough jobs, the central government recently launched a nationwide 'Rozgar Mela' with the aim of appointing 10 lakh personnel.

Service-led growth

According to Rajan, the government's approach to boosting growth and increasing employment through a heavy focus on the manufacturing sector is misguided.

"I am not in any way saying that we should not focus also on manufacturing jobs. What I am saying is that the enormous subsidies that are now going into manufacturing, we need to think of whether they would be better employed in creating the underpinnings of strong service jobs, not just in this country but as exports," he said.

The government has widened the scope of its production-linked incentive (PLI) scheme to numerous sectors, under which it provides incentives on incremental sales for locally manufactured products, and is said to be considering its further expansion.

Rajan, however, argued that it may be much easier to increase services exports than manufacturing in the current global environment. Further, service sector jobs are more labour intensive, which would help create more jobs.

"Rather than manufacturing chips, which is a very capital-intensive and low-labour-intensive business, could we instead design chips, which is a very high-value-added business where we have the potential because of our smart engineers and management people."

In April-September, India's services exports amounted to $150 billion, with a trade surplus of $61 billion. Meanwhile, merchandise exports were higher at $232 billion, but India faced a huge trade deficit of $148 billion in the first half of FY23.

Rajan continued his criticism of the PLI scheme, saying that providing a subsidy to the manufacturing sector while raising tariffs on certain products seemed arbitrary.

"How do you expect to have a decent export strategy when in fact you are subsidising arbitrarily, raising tariffs arbitrarily; some bureaucrat decides whom to benefit and whom not to benefit, who knows on what basis… And I don't think we have any idea, despite claims by some of our ministers, that this (PLI scheme) actually works… I worry that we are putting all our eggs in one basket when we should be spending more carefully on other thing also," Rajan said.