In an interview where he explains in detail a vision for India’s future growth and development and the sort of country it should be, which involves a radical rethinking of India’s politics and economic strategy and is also very different to the vision of the present government, Raghuram Rajan has said that India should put greater focus on growth through the export of services rather than through export of goods and, at the same time, it must reinforce its credentials as a liberal democracy.
Below is a full transcript of the interview, edited lightly for clarity.
Karan Thapar: Hello and welcome to special interview for The Wire supported by Glenlivet Books. In a series for articles for the Times of India and also in a lecture he gave in St Stephen’s College on Sunday, the former governor of Reserve Bank of India (RBI), Raghuram Rajan, has sketched out a vision for India’s future growth and development and the sort of country India should be. He calls it a truly ‘Indian vision’ and the ‘vision’ is certainly very different to the prevailing vision that governs us today. Joining us now by Zoom from the United States of America is Raghuram Rajan to talk about his vision in greater detail.
Dr Rajan, as I said in that introduction, in those articles that you wrote for The Times of India, as well as the lecture you gave in St Stephen’s College on Sunday, you sketched out a vision for India’s future which involves a fairly radical rethinking of India’s politics and economic strategy. In the Times of India article you say, “Our democracy and our economy need course correction.” In the St Stephen’s college lecture you say, “Critical to our economic future is the need to strengthen our liberal democracy and institutions. If we allow our liberal democracy to deteriorate into populist majoritarian authoritarianism, it’s not just our economic that will be jeopardised but our soul as a nation.” Before I come to details – and I will come to them in a moment’s time – am I right in my belief that the political and economic dimension of your vision are interlinked and intertwined, and cannot be separated? Change in one direction is not sufficient, it has to happen in both together?
Raghuram Rajan: Yes, you are absolutely right. Except I don’t think this is my vision, I think it’s the vision of our founding fathers and what I want to say is, given the changes in the world since the time they thought of that vision, they are some course changes we have to make, both to our democratic institutions, to strengthen them, but also to our economic path, to try and adapt to where the world is going. So, in a sense, this is a way of integrating the vision they had with the changes in the times.
KT: This is a very important point you are making; you are saying that in fact what I am calling your vision is actually the vision of India’s founding fathers and what you are doing is finding a way to integrate their vision with the changing times of today. In other words, you are making their vision relevant to the country India is 75 years after Independence.
RR: Absolutely. They were operating in a world where we were scared that the country would break up; we had just gone through Partition. So, there was a need for a strong Central government, and the need for checks and balances on that government at that time were felt to be relatively minor. Of course, we have survived, in fact flourished, as an integrated country now for 75 years and we have to start thinking – that degree of centralisation, that degree of empowerment of the government, is that still necessary today? Are there ways we can get better governance through strengthening our institutions – institutions that impose checks and balances – and can that be beneficial for our economic progress, given the directions we need to take now, which were way different from the direction we had then.
KT: You have already begun to hint to the audience the sort of things your political dimensions actually touches upon. It is a rethinking of government, a restructuring of government, but let me for the sake of the audience actually start not with the political dimensions but with the economic dimensions. I will come to the political dimensions thereafter. You start by pointing out, “Our slow growth is not all the fault of the pandemic. Our underperformance predates the pandemic.” Can you briefly explain to the audience, where did we go wrong in the decade after the financial crisis of 2008?
RR: Well, let’s start first with the liberalisation that happened in 1990-91 after the crisis we experienced then; we opened up the economy and that was great for economic growth. We had 20 years of really strong economic growth, 7% a year, and this growth came from the private sector which was given a lot of new opportunities. We got away from the licence permit raj, we actually started focusing more on things like education, we spent more on education, we improved our schooling, we got most of our kids back into schools. So lots of good things were happening on the private sector side, were happening on the social side, and what was left was in some sense the old dream of following the manufacturing-led growth pathway to middle income, which many countries have followed before us.
What was missing there was a build out of infrastructure – more roads, more utilities, more ports, more airports etc. What happened before the global financial crisis was that we started spending on those things, we tried to do much more infrastructure and ran into roadblocks. We ran into roadblocks such as people disliked the way the land was being grabbed, politicians got into the act. Remember, Mamata Banerjee made a name for herself on the Singur issue, stopping Tata from building a plant. She argued that people had their land unfairly taken away and they deserved a higher compensation. So, what we found was as a democracy, it was really much harder for us to go the path of better infrastructure, bigger factories, bigger hardware all around and things slowed.
We sort of ran out of alternatives, maybe we need a better land acquisition process, but how do we make it fair to all the poor people whose land is taken away? And we had this massive Bill which, since then, has made land acquisition more difficult, if you go by the Bill. Take the government’s flagship project, the Mumbai-Ahmedabad high speed rail project – they are stuck. If you look at the statements of when it will be finished, it is 2028. China builds out tens of thousands of kilometres of high speed rail in that time. So there is something that in our system that makes it harder to go that manufacturing-led exports route that other countries have followed, and some of it is in our democratic genes. We can’t repress labour, we can’t pay them low wages, we can’t repress households, we can’t pay them low earnings on their capital. We can’t just take away people’s land and build out infrastructure. That is what authoritarian countries do and if we want to follow that path, it going to take us much longer, be much slower.
KT: The problem is that the Budget announced by the government on February 1 attempts to go around the very path that you are pointing out didn’t work for India. The Budget has a huge stress on infrastructure and that means all the problems that we encountered 9-10 years ago will be back facing us again. The Budget has a huge stress on trying to replicate China. I believe that you are firmly are of the opinion that replicating China is not possible because the world is changed – it won’t want another China – but you also believe that it may not be desirable because it involves suppressing workers’ wages which in a democracy is almost impossible to do. So, your feeling would be both the stress on infrastructure and the attempt to replicate China are an attempt to do once again something that you failed or that the world won’t accept.
RR: Yes, I think we failed on two dimensions here. One is the building out infrastructure. And that does not mean we should give up. By all means our people need infrastructure, we should try. But let’s not imagine that overnight, land acquisition as a problem is going to go away. For a long time, I was of the impression that we need better laws but for a variety of reasons – we don’t need to go into the details – land acquisition is just very difficult in India and all infrastructure, especially of the kind that is going to make us a match for countries like China and Vietnam, will require a significantly faster and significantly more land acquisition than we have been able to manage. So, let’s keep working on it, but let’s ask the question what if that roadblock doesn’t go away?
So that’s one question, the second is the manufacturing-led exports, and you are right we cannot suppress our workers now and tell them to take wages that our below productivity, we cannot suppress our households and tell we are not going to pay you higher interest rates because we need cheap capital for industry. I have had the experience of households complain when they don’t even get comparative rates that match inflation, our households are very sensitive to these things.
So, what we are trying do there is that instead of going that route, which is sensible not to go down that route, but the government is trying to compensate for the deficiencies. If you look at the ministry of electronics website, it says, ‘We have deficiencies, we have poor infrastructure, we have labour which is not as skilled, we have poor power etc.’ The sum total of these deficiencies amount to 8.5-11% of the cost of goods. So why don’t we help the industries by first directing the tariffs to give them some protection but also give them subsidies, so that it makes up this difference by which they are deficient. In other words, we are trying to pay for the deficiencies. That might be okay if there is a transition period over which the deficiencies go away, but it is not clear that we will fix those deficiencies. In fact, I will argue that our Budget sometimes has gone the opposite way, for example in ignoring the problem in schooling. And so if that is the case, then we are locked in to another failed experiment, the licence permit raj where we erected tariff barriers and subsidised our industries in the hopes that one day, they will become competitive, and they never became competitive. Remember the Ambassador car, which looked the same for 40 years, that was the result of no competition, no opening up to the world. And we are trying to do similar things once again.
KT: I would like to point out to the audience that it is not only the thrust of the Budget which you said earlier, in an earlier answer, mistaken in terms of trying to build infrastructure or trying to replicate the Chinese model which the world is not going to accept at this point in time, but also, another element of the Budget that’s mistaken as you have just mentioned – they are trying an attempt to build up chaebols as they are called, preferred industries, by giving them subsidies, the production-linked incentive scene, all of that is discretionary, all of that could lead to favouritism or some form of capital and secondly, it may not overcome the deficiencies and may create further problems. Even on this front, the thrust of the Budget is mistaken, you are saying?
RR: Yeah. Look I think the emphasis on infrastructure is right. But I am just saying, let’s be cognisant of the fact that we haven’t been successful, for good reason, because we have land acquisition laws which are attempting to play fair but which are really hard to use to acquire land in a reasonable manner. So, given all that, I think we also have to ask the question, what if we don’t build out that world-class infrastructure in the next five years? Are we just going to put all our eggs in this manufacturing-led exports basket? The PLI schemes that proliferate in every Budget, coupled with tariffs which keep going up? Or should we also try something else, which may have some hope of succeeding, even while we put eggs in this basket.
KT: Absolutely, and this is where we come to your economic vision as opposed to the Budget’s economic vision. You say, and I am quoting you, “We need to go in an entirely new direction.” Let’s now talk about this new direction. In your St Stephen’s College lecture you say, “There is an alternative path, building on the old vision of increasing openness and liberalisation, and this new path shifts the focus to export of services, rather than the old focus of export of goods.” And you add, perhaps this is particularly critical, “The aim is to leap frog the manufacturing stage that most countries in the past have gone through and instead go directly to services.” This, I think, is the key and kernel of the economic vision. Can you spell it out further for the audience?
RR: Absolutely. First, once again, we are already doing services. Our software industry has proven a great success because they have been able to provide software services at a distance. The key word is ‘distance’, nobody wants an invasion of Indians into the rest of the world, they don’t want people. But what the pandemic has taught us is it’s relatively easy to provide a whole variety of services at a distance.
Now software was the first, it was possible even pre-pandemic. But think of what the pandemic has made possible – you and I are talking right? I can give you a lecture. In fact I have delivered a whole year’s worth of lectures online. Now, you could have been in Chicago, you could have been in India, you could have been anywhere else in the world. I was at the Harvard Business School, they are now doing cases around the world, there is the possibility of exporting services across borders, in a much bigger way than it was possible.
Think of a consultant, my niece works in a consulting firm. She has been working entirely from Bangalore to service the rest of India. There is no longer that mad travel every week. She could very well have been doing that for the international firm she works in, servicing Chicago, servicing New York. So, given that we can expand services like this, why not push on this also as a way of increasing our exports. Not just manufacturing, but a variety of services, telemedicine, legal services, financial services. There is a whole variety. Remember that 70% of GDP in the industrial world is services.
So, when you are tackling manufacturing, you are tackling 20% of GDP. When you are tackling services, you are in the same group as 70% of their GDP. Now that’s what they produce but it is also what they consume. In a sense, there is a much bigger market for services and importantly we already have a reputation, on software we have a good reputation but think of doctors. In the West when they think of a doctor, often they think of an Indian doctor because so many of our expats have gone there and become good, respected doctors in those areas. So, there are areas where we already have a reasonable reputation which we can build on. Consultants, every consulting firm in the world is full of Indian consultants, so why not sell them the services from India?
Think of what we need and it’s not straightforward or simple, but with a little bit of work it can be done. Let me take medical services, a doctor in India cannot practice in the US today, because it is an exam which keeps them apart. Many Indians come to the US, give that exam and then become qualified and practice. Shouldn’t we be discussing with the US, ‘You want to sell us goods, let our doctors sell their services into the US.’ So make that exam – fine, we are willing to take exams – but make it more easily accessible for doctors in India. Let them be able to take it online. There are ways of facilitating the exam process, so that would help the doctors in India actually sell their services there.
One more, Medicare and Medicaid or the National health Service in the UK, don’t pay for medical services provided by people from outside. Why don’t we start saying, ‘We are willing to do some of what you want us to do on trade of goods but give us this on services, start paying for Indian hospitals, Indian doctors, who offer services to your patients if they come and travel to India and get their operation done or if they do it via telemedicine.’ That’s the kind of discussion we should be having, given that this whole area can be opened up, rather than keep on insisting that it is all about trade and agriculture and whether we can subsidise our farmers or not. We are stuck in the Middle Ages there. By all means protect our farmers by helping them as much as we can, but don’t use that as a block to this larger opening up.
Next year, we are the chairman of the G20. Why not formulate an Indian-based agenda on what we need to do and push the world – the world is not going to be that happy doing some of the changes we want but the world can benefit also. Think of America, the world’s largest service exporter saying, ‘Now, I can actually sell legal services into India because India can sell legal services into the US.’ We are protecting our lawyers by keeping out American lawyers. Well, there is gains to trade – they open up to our legal services, we open up to theirs.
KT: You know the beguiling part of vision which stresses, as you put it, “The export of services rather than the export of goods”, is that it also gets around the fact that we haven’t really succeeded in enlarging our manufacturing sector, despite the fact that we have been announcing policies to do so for decades. It hovers around between 15% and 17% of GDP but it doesn’t seem to grow. And clearly you believe that there is a huge opportunity for India to boost its export of services in areas like consultancy, medicine, legal services, financial technology and travel and tourism. The problem is, will this create the sort of jobs we need? You know better than me, that we need to create something like seven million jobs a year because that’s the number of people who enter the labour of market. Conventionally, it’s been thought that by expanding the manufacturing sector, you can actually create new jobs. Now you are focusing on services, can services deliver the volume and quality of jobs we need?
RR: First, we are not going to stop all the existing jobs, they certainly will be there. The question is can we build on it in a way to expand much more. Every service job, high quality service job that is created, usually creates another five or six other jobs. Now, these are lower quality service jobs and by all means we want to, in the end, get to a place where more and more people have high-quality service jobs.
But think of the lower quality service jobs that a higher quality service jobs today provides. Immediately, the person who has the high-quality service jobs needs somebody to look after their kids, they need a cook, they need a security guard, they need a driver. Now, already we are talking about four-five jobs. Now again, these are not great service jobs, but they are better service jobs than what is available in the village in that low productivity farm which is declining in productivity and getting smaller and smaller. So in the transition from agriculture to services, you will be improving somebody’s life.
Now you can make these jobs better, you can certainly talk about social security for these jobs so that if something like the pandemic happens and people are let go, they have something to fall back on. That they don’t have to go back to their villages. That they can stay in the urban agglomerations where a lot of high-quality service people stay. The objective is not to stop here, the objective is to elevate everybody, by and large, so that more and more people can make the transition to middle and high level services jobs.
At the Reserve Bank of India (RBI), one of my most proud or happy moments is when I saw the children of what are called our ‘Class 4’ employees, the people who used to work as the office messenger etc, their children had now because of education, moved right into the frontline of service jobs. Somebody was in Infosys, another person was a bank manger etc. So as we expand exports of services, we will also create more services for the domestic economy, for sure, but we will also have a whole supporting line for these high-quality services which will also provide jobs. In the longer run, everything will move up, there is a pathway for growth here. The important thing is that you start somewhere, you start improving the quality of jobs.
KT: I will just point out for the audience at this moment, that your stress on the export of services actually plays on the strength of the Indian economy. Many people don’t realise that 57% of our GDP is services and therefore we have a natural talent in that area as a people. Therefore, it may not be that difficult for us to start exporting services in areas where we haven’t exported them before, because that natural talent of handling services is very much in our DNA. In a sense, your vision plays to the DNA strengths of our country.
RR: Absolutely. I would argue two things. One, the manufacturing-led growth is harder for democratic countries because often it requires hard decisions like suppressing wages or suppressing the interest rate the households receive or even taking away people’s land without them being able to protest. On the one hand, the more authoritarian countries like Chinas and Vietnams of the world or many of the east Asian countries, when they grew fast, they were able to do a lot of this, I think we cannot.
We can certainly have more friendly laws and move some way, but it is going to be hard for us to do this at the pace that is required for the enormous number of jobs we need to produce. On the service side, we have some natural advantages as a democracy. Think of what is the most precious item today. It is data. The point is that data is precious because in a sense if it is not protected, a lot of damage can be done. What you want is for people who part with their data to have a sense that they will not be blackmailed, that the data will not be spread around to any and everybody. That it will be kept confidential. Think about medical data; do I want everybody in the world to know about my medical ailments? No. If I am firm and am hiring consultants, do I want my competitors to have access to my data? Or do I want the government in which I operate to know exactly what I do, so it can start pressurising me this way or that way? So there is an element of privacy, of protection from excessive intrusion by the government, that a democracy can offer and for that we have to build on these things.
KT: In fact this is the point at which your political dimension begins to tie in very closely and intricately with the economic dimension of your vision. We have been discussing your economic dimension and you believe that what lies at the core of the political dimension is that India needs to reinforce its credentials as a liberal democracy, because that will enable this stress on the export of services to work.
Here you identify two changes that you believe must happen. Let’s go through them one by one. First you say, and I am quoting you, “We must place greater weight on individual rights and freedoms.” You specifically talk about the misuse of laws like the Unlawful Activities (Prevention) Act (UAPA), impulsive cabinet decisions that are taken without proper or sufficient parliamentary consultation. You talk about suppressing unfavourable data and you also talk protecting free speech and criticism. Why is all of this critical to the economic vision you have already explained?
RR: I want to separate this into two pieces. One is, investing in people, and the second is having a government that learns things and adapts.
Investing in people: We really need to elevate the level of our human capital, we need to increase the quality of our education, increase the spread of our education, so all those people can be doing jobs as consultants and maybe as master chefs, but not necessarily be doing the job of security guard. So, how do we do that? We need to improve education at every level, for example. We need to improve medical services at every level. We need to increase the capabilities of our system. The problem with some of our system is of course we are not funding it sufficiently. We keep on talking about how little goes into medical services and we will have rethink, hopefully, post pandemic.
But even education, we are spending a lot of money, but we are not getting the returns to higher quality education at the lower level. All our children used to be in school, of course they haven’t been in school during the pandemic. But they didn’t learn very well, so a lot of them dropped out. How do we improve the quality of education? Well, you got to start with empowering the parents more, so they can protest more if the quality of education is not particularly good. You have to push down, for example, some of the funding of education. Today, a teacher in the government school is hired at the state capital. What can a local parent, who doesn’t see the teacher at school for a few weeks, do, other than just complain, because they can’t go to the state capital and protest. Now supposing, that teacher was hired locally – that’s decentralisation – but even then to some extent, if the parent protests and the teacher is in cahoots with the local authorities, the local authorities start seeing the parent as a troublemaker, start putting them in jail for this or that. We have had a history of this.
It is very hard to get change simply because there is a great fear that if you criticise, you get labelled as a troublemaker and the authorities can work against you. We need more freedom to protest if we are to improve quality of services, of governance, at the lower levels and right up to the higher levels. This is one reason why we need to do away with some of these old colonial laws which allowed incompetent government, which allowed tyrannical government, to arrest anybody that they felt was a threat to them, regardless of the validity of the case.
Today, we rely on a court system to bail out these poor guys who attract the wrath of the authorities. But even in some cases like the UAPA, the court system is powerless, as we saw recently in some examples. It is high time we did away this. We are not that country which is in threat by separatist forces, we are a united country. We don’t need the government to be empowered against the people, we need the people empowered against the government, so that they can get much better services. That’s the first part. Empower the people so that they can improve the quality of services they get, so we can actually for those people to themselves provide services to the world. That’s the train of thought there.
Secondly, nobody has done this service-led growth before. That’s the reason, nobody has talked about it. Everybody followed the east-Asian model of manufacturing-led growth. If you want to do service-led growth, there are lots of new things you have to think about. For example, data protection and privacy. How do you protect people against their own government? How do you protect the foreigners who buy services from these people against the intrusion by their government? This is something China cannot do, because China has an excessively powerful government which can intrude all the time. This is something India can do but it needs a thinking and learning government, it needs a government which is subject to criticism by people who say, ‘Your privacy law has a huge number of holes which don’t meet what the Supreme Court intended when it set out its very broad message on privacy.’ We need a government which absorbs that and then adapts as it follows this new path. That is why I am saying, we need a government which is capable of learning.
KT: In fact, in The Times of India of India article you wrote, you go one step further to explain why India’s politics can sometimes hold back economic growth and development. This is another reason why, you believe change in politics is essential. You write and I am quoting you, “A beguiling but eventually debilitating cocktail of Hindutva-driven nationalism, sweetened with populist welfarism and made politically attractive by a charismatic leader is partly why we face these challenges.” In other words, the government of the day must rethink itself and the way it behaves. That is important, otherwise the atmosphere, the mood and the governance will not permit a huge increase in the export of services.
RR: I think what we tend to do is deflect people’s attention from the most serious issues that face them. If you think about today’s most serious issue, I think it is undoubtedly our children. Especially the children of the lower middle class and the very poor who have not been able to keep up during the pandemic. I work with the government of Tamil Nadu and they are trying to bring kids back to school. They have hired 1.75 lakh volunteers to try to get the kids to start to learn again, in a very friendly way. In the evenings, maybe in the school, maybe in a public hall, try to get them to think, to play games etc, bring them back. And then hopefully get them back into full scale, sort of schooling.
Remember these kids have missed two years of school, which means that they have effectively missed more because they have forgotten some of what they knew. This is a lost generation, if we are not careful. In Tamil Nadu, there are five lakh kids who are not in school anymore and then the government sent volunteers to get them back into the schooling system. They managed, maybe, to get back a third, but that mean 2/3 are still out there, who need to be brought back. We are in danger of losing this generation and I am not just talking about the kids who were going to pass out but the kids in 2nd and 3rd grade who haven’t learnt and who haven’t learnt how to learn and if we thrust them back into school without preparing, without remedial education, without classes and that costs money… Even for this manufacturing led growth, we need workers, who are skilled. Where are we going to get them from if we lose this generation?
So, I would say what that means is that the priority has to be on things like this. The priority has to be on remedying education, not just bringing them back up to where they were but improving the quality of education tremendously. Now we deflect from this by giving people goodies and saying ‘you would be happy’, ‘you have got this’, ‘you have go that’ but what they want is a job. In order to get that job, they need the skills, they need the education – that’s where we need to put more of our effort.
KT: Let me come back to that quotation, I read out a moment ago from your article in the Times of India and put it like this, ‘the export of services means you are exporting things that are data very sensitive, that need to be kept privately. The people who are buying your services need the confidence that you will be honest, fair and straightforward. More importantly, they want to trust in your democracy and your freedoms and your rights.’
Will the West import critical services from India if at the same time you hear bloodcurdling calls for the genocide of Muslims or ruling party MLAs threaten that people who don’t vote for the ruling party in Uttar Pradesh will have their homes bulldozed. Surely that has to change if the world is going to accept this critical, sensitive services from us and give us the opportunity of circumventing manufacturing-led growth and instead go for export-led growth of services.
RR: Well, there are two dimensions to what you are saying. One is the confidence of the customer and certainly I want to be sure that my medical records are not being poured over by your government spies in order to, perhaps, get an entry into my country by blackmailing me. That is why countries are very careful about data being held elsewhere and in order for data to be held elsewhere, which you have to, if you are providing medical services at a distance, you have to assure them that this is protected – it doesn’t go beyond the doctor and the hospital, that the spies of your agencies are not waiting out there to pour.
We are seen as a friendly democracy, but that need not last if people get scared that some of this is happening. It takes only one or two incidents for it to happen. We need data protection, and we have a strength, we have a judicial system which is not under the control of the government. We can set up judicial structures that protect that data from unwarranted intrusions. That is the way we are going to convince others that we won’t misuse their data.
But is more than as a customer, I also care about where I am doing business. Today, China’s biggest problem is its treatment of Uyghurs. Yes, China is a strategic threat to the US. Yes, China has been competing very fiercely. But a lot of the concern in the United States comes from the way that they are mistreating some of their minorities. They are growing calls to boycott. Certainly, anything made in Xinjiang is something which is very suspect, because it is felt that it may be under forced labour.
We are not where China is but we don’t want to go anywhere near that. So, even if it were not for the moral need – which comes from our founding fathers of treating everybody equally and protecting all religions – I think there is also a self-interest in it, if you were to go down this path. You have to not just be seen as worthy of doing business with, but they should actually want to do business with you, because you are the land of brotherly love, you are the land which has an age-old culture which welcomes everybody, brings them into their house and treats them as honoured guests. That’s the place you want to visit, that’s the place you want to go to maybe have your operation done. That’s the Indian doctor you love, but not the guy who is going to do some of the incidents you talked about.
KT: Very quickly and briefly, there are some important details that you mentioned both in your Times of India article and your St Stephen’s College lecture which flow for what you have been talking about. You already mentioned how India needs to get international recognition for its medical degree so that Indian doctors can provide medical services across the internet to people in the West. But you also say, “We need comprehensive and enforceable data privacy laws. The government talks about it but doesn’t seem to deliver.” And more importantly you said, “We need our courts to enforce contracts and enforce laws, even against the government, which sometimes our courts fail to do.” Here, in a nutshell, you are talking about fairly significant if not major changes to our education system, to our legal system and also to the entire attitude we have to privacy and data protection.
RR: Absolutely. I mean some of it is a change with times. Data wasn’t important in the early stage of our democracy. Data is important now. Privacy issues, given the level of intrusion that can happen through your cell phones etc. have become much more important today than they used to be when B.R. Ambedkar was helping to write our constitution. So, things have changed in that respect.
But things have also changed for the country. When we became independent, we didn’t know that we had capable governments, we didn’t know we were capable of governance, because we were never allowed to govern. Now that we have experience of reasonable governance over the last 75 years, now that we have stayed together as a country for 75 years, it’s time to start thinking, do we need all these protections for the government, this empowerment of the government, at the expense of everything else that we had or is it time to start putting more checks and balances, because that will be good for our people. The right to protest when you get bad service is an important right. But also it will be good for the government because the right to hear criticism when you are going off track, or the ability to hear criticism when you are going off track, can be very good in course correction. When you deny all criticism, when you shut it down, you can go in the wrong direction a long way and relying on your own people when you have accumulated power to tell you that you are going wrong is simple foolishness, because when you accumulate all power nobody is going to tell you that you are wrong.
KT: Absolutely. Now I said it earlier on that for the implementation for your political vision, you identified two important changes. One we have talked about, the other I will touch upon very briefly. It is basically decentralisation of governance and you have hinted at it. You are talking about a devolution not just of functions but of funds also, down to municipalities, down to panchayats. How critical is this part?
RR: It very important because if we’re going to try and improve the quality of services to our own people – medical services, educational services – we need to have people who get those services to feel more empowered. One way of empowering them is what the government is doing – cash transfers directly to people – and we need to think of more ways of doing that. But the other way that you want to empower people is by giving them the right to protest when things go wrong.
Right now as I said, that person who controls everything is sitting in the state capital, 300 miles from where you are. That’s one problem. So, you don’t have the ability to protest. And the other is, as I said, the sometimes draconian laws which allow the local authorities to select out those who protest and perhaps deal with them in that way. So, number of changes, these aren’t the only changes that are needed, but decentralisation would give them a face, a person who appoints the local teachers, a person who pays for the local medical services and who can see when the dispensary never has medicine, that’s the person you can go and protest to.
Today if you protest they say, ‘Voh Centre is nahi aaya, state capital se nahi aaya, unse baat kijiye (It hasn’t come from the Centre, it hasn’t come from the state capital, talk to them).’ So, the problem is now you cannot get to the people who have the power and decentralisation will help that. This is again a design in the original constitution it was left as something to be done in the Directive Principles. Yes, we need the third level, but Ambedkar believed that the village was a den of corruption, of elitism, and he wanted in a sense to modernise that whole process. Therefore he was open to a lot more centralisation. But now we have a strong Centre, we have a reasonably functioning state, that third level needs to be strengthened. We need municipalities that can be held responsible for what is going on in the town and that requires decentralisation.
KT: Absolutely. I will just add one more thing. It is not just the power of protests that decentralisation will give people, it will also give them the power to decide. There are many things that parents and individuals can decide for themselves a lot better and if that power is devolved to the panchayats and the municipalities, then you are empowering them in a second way. Not only can they protest, but they can decide.
RR: Absolutely. And there’s a third element, which is ideas. Because when people are left to do their own thing, they come up with innovative new things. Some people may say here’s a different way of running our school and if that different way becomes successful, then others come and learn from it. This is a process of learning best practices, which gets defeated when the diktat is sent from the Centre to the states or from the states to the panchayats. “Thou shall do this and no differently” – that’s when you kill all initiative, all ability to experiment and learn and that’s why decentralisation, again, can help.
KT: Dr Rajan, we are coming to the end of this interview, so let me try and sum up. In that critical St Stephen’s College lecture, I referred to it many times, I really do believe it’s a very critical lecture, you said and I’m quoting you, “I am calling for an Indian growth path that builds on India’s strength and tolerance and respect for all. Not just the fact that we have regular elections but that the argumentative India can debate and criticise.” In other words, as you put it, “I am calling for us all to put the politics back into economics.” That in a sense is key to what you are proposing.
RR: I think they hang together. Sometimes when I make these points, people say you’re talking like a politician, but you know politics and economics were always entwined – it was called political economy, because you know so much is interdependent. As I said, the way our democracy operates affects how we can say build out roads or whether we should build more schools as opposed to maybe a chip factory. So everything is interlinked and to ignore one part entirely, and to say you should be an economist, just talk about prices demand and supply, don’t talk about politics or democracy or free speech. I think that misses in a sense the trees for the forest.
KT: I want to go to the very last sentence, I believe, of the St Stephen’s College lecture and say this: This vision that you have sketched out, which fairly radically rethinks India’s politics and it’s economics, is what you called in that lecture, and again I am quoting you, “a truly Indian vision”. In other words this is crafted to give expression to the genius of the Indian person, which is why you believe the stress on services will provide us an opportunity to grow, manufacturing is not likely to do so, given everything you have discussed. This is a truly Indian vision in that sense.
RR: Well, again, I wanted to say, let’s certainly try and give manufacturing a chance. I am not denying it and saying we should put roadblocks. But let’s create alternative paths also and that’s where we need to focus on our people. Our people, you see them everywhere, have crafted fantastic careers for themselves. We have to give them their chance, we have to give every Indian a chance. That means, I would argue, to open up services to a much greater extent than we have and working on it. Some of it requires government work, but some of it requires work by all of us.
KT: Two quick questions because I am pretty sure they will have occurred to the audience as they heard you speak. Are you in touch with any political party that is willing to accept and implement this vision?
RR: Look, no. That’s not because I have laid it out and they have said, ‘No, this is not something we want to do.’ It is more at this point I am trying to, with the help of a few friends, trying to flesh out what this might mean in a big way. You know, we are testing it out and certainly trying to talk to students, talk to academics, hearing the feedback, hearing criticism and trying to develop it and hopefully at some point, somebody who has influence will hear it and say, maybe this is the way to go.
I certainly think the G20 presidency that we have next year would be an important place to, in a sense, draw attention to the need for liberalising services across the world. We have more of a chance penetrating there and I think we have a good chance of success because the developed world also wants openness in services. They want to sell their services everywhere else. They want to sell us some of their stuff, we can sell them our stuff.
KT: You said something interesting, that you are working on this with other people. This is a collaboration of like thinking, like minded people who are together working on this, what I call, “Vision for India”
RR: Look, any kind of ideas develop in dialogue and certainly Rohit with whom I write these op-eds but others, I don’t know if they wan their names mentioned at this point. We are all talking and trying to see how, I don’t want to implicate them because I am not sure they agree with every sentence I have said. There are many groups like this in India, so I don’t want to claim we are the only ones. So there are many groups that are talking about what alternative vision can we have to what is dominant today. I think it is incumbent on those who don’t think the current vision is the right one to offer alternatives that are persuasive and are subject to criticism themselves. So that they can be developed in better ways.
KT: My last question. Usually when people layout a vision for the future of their country, for the sort of country it should become, that’s a person who is in politics or is keen to get into politics. You just laid out a vision, fairly comprehensibly, you have clearly thought it through in some detail. Would you be interested in coming into politics?
RR: I am an academic so my trade is in ideas. What I would like to do is try and persuade people that this idea, which I believe in, is worth giving more attention to. That is really my hope. When people look grim and say, “This is what faces us but what is the alternative? There is nobody with any alternative.” I think we need any attractive vision, a vision that gets at the central issue in India today, which is the lack of jobs. People can sort of start saying that here are ways in which we can make it better, then we have an alternative to latch on to. That to my mind is what I can do. I have no ability as a politician but what I think I have some ability as is an academic, even though some people say I have no ability there either.
KT: But you are interestingly reversing Keynes. I think he once famously said, “Behind every politician is a failed economist.” You are determined to show the world that behind every successful politician is a brilliant economist.
RR: I don’t know but let me put it this way, I think India is a country with enormous potential and I think, in a sense, our failure has been to be imaginative enough to harness that potential. If we can do more in this dimension, each one of us academics has a responsibility, if we can provide more ideas, throw them into the mix and let the debate sort of produce an alternative, I think we have done our duty. If we don’t I think we have failed.
KT: Alright. I thank you Dr Rajan, for this interview, for explaining in such detail, your vision – both the economic dimension and the political dimension and how actually they are intertwined and enmeshed and you cannot have one without the other. As you said, you are hoping that someone at sometime will say, “This is the way to go.”
Clearly the ball is now to be picked up by some political party, some Indian politician and hopefully race with it to scoring point. Thank you very much indeed. Take care. Stay safe.
