Rahul Gandhi: ...You tend to look backwards into history when struggling with a forward vision. I like what you said about how India needs a new vision. What would be the elements of that in your view? Of course, you mentioned infrastructure, education, health care. How would it be different from the last 30 years? What would be the pillars that would be different?
Raghuram Rajan: I think, on the one hand, you need to create capabilities. The elements of creating capabilities is better education, better health care, better infrastructure….
Remember when we talk about creating these capabilities, we have to walk the talk. But we also need to rethink how our industrial and market ecosystems look like. We still have the remnants of the old licence permit raj. We need to figure out how we go to a place where the accent is on creating many many more new jobs of a good quality. More freedom, trust, but verify, is a good idea there.
Gandhi: What has amazed me is how important sentiment and trust is to economics. One of the things I’m finding during this Covid issue is that the real problem is the trust issue. People don’t quite understand what is going to happen next. So, there is fear in the system. You talk about unemployment. We had a big, high level of unemployment, that is now going to be massive. How do we think about unemployment going forward, two, three months from now, when Covid’s impact hits?
Rajan: The numbers are really worrying. If you look at CMIE, virtually another 100 million more people have been put out of work as a result of Covid. Around 50 million through unemployment and 60 million by leaving the labour force. You can dispute what the particular survey does or says, but this is the only data we have. And the numbers are mind boggling. I think it says, we need to open up in a measured way but as fast as possible so that people start having jobs. We don’t have the capacity to support people across the spectrum for too long. Being a relatively poor country, people start out with significantly lower reserves.
But let me throw a question back at you. We see a lot of measures in the USA and Europe based on realities on the ground.
The government in India, of course, has a different kind of reality... What are the big differences in your view between governing in the West and dealing with the reality of life in India?
Gandhi: The scale, first of all. The scale of the problem and at its heart the financial scale of the problem. The inequality and the nature of the inequality. Things like caste, the way Indian society is structured is completely different than American...
Some of the ideas that hold India back are deeply embedded and often hidden...I think, there is a lot of, sort of, social change that is required in India and a lot of these problems are different in different states. The politics of Tamil Nadu, the culture of Tamil Nadu, the language of Tamil Nadu, the way the Tamils think is completely different from the way UPites think; so you have to model things around them. One blanket solution for the whole of India just will not work, can’t work.
Also, there is, in our government, which I think is completely different than United States; there is an element in our governance system, in our administration system, of control...we have a district collector as opposed to a producer. Right? So our idea is always one of control and...people say, this is since the British, I don’t think so, I think this is historic, before the British...that we are facing now. The Covid disease cannot be controlled, it has got to be managed, as you said.
One of the things that sort of annoys me is the level of inequality, and this has been the case in India (for) over the last few decades, the level of inequality that you see in India, you simply cannot see in the United States....so, the type of things I always look at is how to reduce this inequality because I think once a system reaches a very high point, high level of inequality, then it simply stops to work. You know, I like Gandhiji’s words, just go to the back of the line and see what’s going on... This is a very powerful thing for a politician. It’s underrated, but I think that’s where a lot of the insights come in.
Gandhi: How would you think about going forward, dealing with this inequality? You know it is visible in Covid also. I mean, the way India is treating its poor people... migrants versus the way the elite is being treated, two completely different ideas, two completely different ‘Indias’. So, how do you merge these two ‘Indias’ into one?
Rajan: ...you know at the bottom of the pyramid... we have some ways of making their lives a little better, but we need to think more carefully about reaching everybody there and I think successive governments have worked on food, on health care, on education and no doubt we can do a better job there.
But in terms of challenges, it seems to me that there is certainly an administrative challenge in reaching everywhere and making sure that the level of living is enhanced. But the greater challenge to me lies in the range between the lower middle class and the middle class, which is where we need, in a huge way, jobs, good quality jobs, so that people are not dependent on a sarkari job and the comforts that come with it.
...this is where I think a tremendous expansion in the economy is absolutely necessary. We’ve seen over the last so many years, a progressive decline in our rate of economic growth when in fact we have so many young people entering the labour force. So... let us not pick amongst possibilities, but create the opportunity for any kind of area to flourish.
If there is mistake we made in the past, we said, this is the only way to go; and think of one of the most successful area we’ve grown in, software and outsourcing services. Who would have thought that would be India’s strength? And... some people even argue that it emerged only because the government didn’t pay attention to it. I’m not in that camp, but we need to allow for any possibility and let the enterprise of our people take its course.
Edited excerpts from a conversation between Congress MP Rahul Gandhi and former RBI governor Raghuram Rajan in New Delhi, April 29