(Bloomberg) -- India must boost growth if it’s to provide enough jobs for what will be the world’s biggest workforce, and history shows that some of the country’s best economic phases have come when society is most open, said Raghuram Rajan.
Speaking a week after data showed growth in Asia’s No. 3 economy unexpectedly slowed to 5.7 percent, the former governor of the Reserve Bank of India said the pace of expansion needs to rise to 8 percent or 9 percent. He sees higher private investment and a revival in exports as the way to spur activity, underpinned by ridding bank and company balance sheets of festering bad debts.
"Remember that we have what we call the population dividend. A million new people entering the labor force every month," Rajan said in an interview in New Delhi on Thursday. "If we don’t provide these jobs that are required, you have a million dissatisfied entrants. And that could create a lot of social mischief."
Rajan’s urgency to stoke economic growth and clean up balance sheets echoes comments the same evening by current RBI Deputy Governor Viral Acharya. However, Rajan also had another requirement: freedom of thought and expression is essential to foster innovation and encourage risk.
In a world where opportunities for manufacturing-led growth are reducing, India can leverage its strength in services, Rajan told NDTV. Major manufacturing companies in India cut about 30 percent of their employees in 2016, which could rise to 40 percent this year, the Business Standard reported Friday, citing a report from Bengaluru-based recruitment company TeamLease Services Ltd.
However expertise in services would need free, out-of-the-box thinking, Rajan said. He cited a book written by Sanjeev Sanyal, former strategist at Deutsche Bank AG and now an adviser in the Indian government, where Sanyal argues that the most important revolution in India has been the opening of people’s minds.
Rajan’s views come against the backdrop of rising nationalism in India. During his time at the RBI, Rajan himself was attacked by a key ally of Prime Minister Narendra Modi, who called Rajan “mentally not fully Indian" and criticized him for a speech that called for tolerance amid a debate over religious discrimination.
Global investors "worry" that a perceived lack of tolerance in India could derail economic growth, Rajan told Bloomberg News.
"Talking to investors outside, I think the perception -- and I’m not saying there’s a reality -- the perception that there are battles fought over some of these issues is certainly a source of concern," he said. "Tolerance has historically been one of our strengths and we should maintain that as one of our strengths given where we’re going in the global economy."