Powering Services Sector Vital For India's Economic Growth: Raghuram Rajan

Rajan pointed out challenges faced by the manufacturing sector, including limited export absorption and intense competition from countries like China, Vietnam, Indonesia, and Mexico

Former Reserve Bank of India (RBI) Governor Raghuram Rajan urged India to prioritise enhancing its services sector rather than solely focusing on expanding manufacturing to achieve sustainable economic growth and job creation. Addressing the Annual World Bank Conference, Rajan argued that while manufacturing has been traditionally seen as crucial, there should be other paths to India's economic success.

Rajan pointed out challenges faced by the manufacturing sector, including limited export absorption and intense competition from countries like China, Vietnam, Indonesia, and Mexico. These nations also offer cheap labour and possess more capital compared to India, which poses significant challenges to India's manufacturing competitiveness in the global market. “Both politically and economically, the manufacturing ladder is harder to climb,” he added.

He emphasised that services, including those embedded within manufacturing, contribute higher value-added activities in the value chain than manufacturing, which typically involves lower value addition. "The substantial portion of value added lies in intellectual property within services, rather than in physical manufacturing. We should view services as a potential forefront of the economy," he stated.

The ex-RBI governor further advocated that India should prioritise enhancing education and healthcare services through decentralisation and empowering local communities to achieve superior outcomes, emphasising human capital development alongside physical capital.

He also emphasised India's importance in promoting innovation and creativity to seize high-value opportunities. Rajan suggested that the government should prioritise job creation across all skill levels rather than solely focusing on high-end positions. "The need of the hour is more jobs," Rajan asserted in his recent remarks.

Rajan underscored that India must address both current job availability and future employment opportunities by upskilling individuals for existing roles and offering "last mile remedial training." He emphasised the significance of generating job opportunities that align with existing skills while investing in training programs to prepare for future job prospects.