Business

ANALYSIS

Raghuram Rajan: India faces implementation challenge

The headquarters of the Reserve Bank of India towers above the historic financial district of Mumbai. From here it's easy to see why the bank's governor, Raghuram Rajan, is confident his country's contribution to global growth will increase.

Below sprawls a vast metropolis and beyond that a densely populated nation of 1.2 billion where GDP per person is less than $2000. In an interview with Fairfax Dr Rajan said that low per capita figure was one reason India's growth outlook is so positive.

"We have such a long way to go to even get to decent levels of per capita GDP I have no doubt that in the next five to 10 years we will be a major contributor to global growth," he said.

Even so, India's economic challenges are huge.

When I asked Dr Rajan to nominate the three things that most need to change to make a difference to the India economy his reply was: "Implementation, implementation, and implementation."

To explain he used the example of infrastructure.

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"We have enormous infrastructure projects planned," he says.

"Some of them are in the process of being rolled out. We need to keep at it. We need to do it faster. We need to get these new roads, these new airports, these new railway lines built ... we know what we have to do. We just have to do it."

Dr Rajan believes the "implementation gap" which had plagued India in the past is narrowing. But he is quick to point out that it will be some time before India can match China as a global growth engine.

"We are still significantly smaller than China so even if we grow at a similar rate we contribute less to the global economy," he says.

India ranks a lowly 130 out of 188 nations on the UN's Human Development Index, which rates countries according to a broad measure of health, education and income. Dr Rajan drew attention to India's high rate of child malnutrition.

"It turns out that as you get richer the extent of malnutrition actually increases over a range," he said. "We need to understand that better and find out why we are not getting rid of this tremendous curse."

India's banking system is troubled by bad debts and the manufacturing sector has been a chronic underperformer. But maybe India's biggest challenge is jobs. Many wonder if India can meet the aspirations of the 10 million young people who reach working age each year.

Dr Rajan says India must resist the temptation to attempt to micro-manage job creation with top-down government schemes. Rather, he says, India needs to get its economic fundamentals right by upgrading infrastructure, improving human capital (the knowledge base of the population), providing finance and by adopting effective, business-friendly regulations.

"Forget micro-management, do the macro-management, create the frameworks and then let's see what happens," he says.

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