Good job is the best form of inclusion, says Rajan

Says as a country, we need more investment, more savings, and less consumption

Even as the Centre is trying to figure out ways to promote inclusive growth, Raghuram Rajan, chief economic advisor to the finance ministry, said providing good job was the best form of inclusion.

“A good job is the best form of inclusion. Rather than assuming the poor need an increasing array of handouts, they should be empowered to equip themselves and their children to become effective contributors to the economy,” he said  at the 38th annual convocation of the Indian Institute of Management (IIM) here today.

The poor should get targeted cash transfers, which they can spend on education, food or healthcare regardless of whether it’s from a private provider or a government provider, he added.

“We must also remember that the line between equipping the poor to get decent jobs and populist vote-buying is a thin one and governments must be careful not to cross it,” said Rajan in his address to the students graduating from IIM-B.

According to him, politicians tend to prefer populist policies because they pay off before the elections and not just in the long-run. “You can almost hear the politicians say, ‘so what if we risk running the government’s finances at least we will stay in power”, he said.

In his speech on ‘democracy and free enterprise in India’, Rajan said the two are found together — it is hard to think of any flourishing democracy that is not a market economy. Citing the way China has been adapting policies to the economic changes, he said a number of autocratic economies have embraced some semblance of free enterprise and it’s only a matter of time before they are forced to become more democratic. “There is indeed a fundamental commonality between democracy and free enterprise. Both guarantee participation to all, but neither guarantees power or success”

On increasing tax revenues, he said, “The government must broaden the tax base, both by finding and penalising tax evaders and also giving them incentives to declare income.”

He said the government needed to ensure projects need to be finished on time.

Over the medium-term, India needs better infrastructure, more effective and streamlined regulation, vigorous competition and more appropriate skills and education in the workforce, he said.

“As a country, we need more investment, more savings, and less consumption. Not only does the government need to save more and spend less... but households need to be incentivised to increase financial savings. Lower inflation will help here,” he added.