Raghuram Rajan’s “Breaking The Mould” | Can we grow rich before we grow old? Manufacturing Vs Design! Brain Vs Brawn! And many more…
KAKALI DAS
Breaking the Mould: Reimagining India’s Economic Future, a book by Raghuram Rajan, the former RBI Governor, and Rohit Lamba, an Assistant Professor at Penn State offers a captivating and easily digestible exploration of economics, free from the usual jargon.
It is wonderful to read a book about Economics that is not targeted at Economics. In a world filled with constant distractions, the book encourages readers to question everything and to kick all the tires.
What I found striking in the book is the inquiry – Can we grow rich before we grow old? And the answer is not que sera sera (whatever will be, will be), the answer is this book.
In India, we are constantly being told that our real wealth is our youthful population, that’s young, enthusiastic, eager to work. And we have a window of opportunity, where that population could, if used or targeted correctly, become affluent and make this nation a first world one.
But, it can’t be undermined that we run the risk of not doing enough before that window closes. And, that is what this book is effectively about.
If we can grow rich, what would it take to grow rich? Are we not creating enough jobs? Or are we not creating the right jobs?
“The answer is both” – Raghuram Rajan
According to him, we certainly are creating incredible jobs – jobs that were unimaginable in the past for a country at our per capita level of GDP. We definitely need more of them. But we also need to employ everyone; not everyone can get those fantastic jobs. It is necessary to think of ways to create jobs for the millions who are joining the labour force, and make them productive, contribute to our well-being. But also keep them off the streets.
India has faced an issue of qualified, educated, talented women dropping out of the workforce, especially after Covid19, because of various reasons. Whether or not that’s something we ought to be focusing on correcting immediately, Raghuram Rajan is of the opinion that the most worrying statistics of India is the low female labour force participation.
And, as Claudia Goldin, who won the Nobel Prize in Economics in 2023, put together data within the US as well as across countries over time, to show that in fact there is a U-shaped relationship between the GDP per capita and women’s labour force participation – countries which are poor as well as countries which are rich exhibit high labour force participation of women, but middle-income countries have low participation of women in the labour market.
This indicates that with economic growth, women’s labour force participation declines initially, but as per capita incomes increase further there is an increase in women’s labour force participation.
But, India hasn’t been able to increase its female labour force participation yet. Within the country, the amount of participation goes down steadily as women have more education. Our most educated women participate less in the labour force. That’s a huge waste of talent. One of the reasons is it becomes a status symbol to pull women back into the house. There’s an entire section on Female Workforce Participation in the book.
Rohit Lamba says, “People in the village are so proud that their women don’t have to work in other’s household anymore. This is somewhere where things go south. The participation climbs up through variety of institutional or cultural reasons, like both supply and demand factors. So, typically, when you are at low levels of per-capita income, a lot of the work that is on is homemade, such as working in the industries attached in and around home. Whereas, when the economy starts growing a bit more, for example, women have to travel, go outside the house, so safety becomes a big issue.”
Are we doing enough for women’s safety, for accessibility? Are jobs available for women?
Here too, the growth of the quality and the quantities comes into play. We aren’t acting too poorly in generating the kind of growth that is attractive for employment of women. There are documented evidences to prove that, across the world especially how East Asian countries grew. There are certain industries that employ women in large numbers such as, textiles, leather, apparel.
“Because of our own policies we have not been able to occupy the space that China, Bangladesh are occupying, in large numbers in terms of women labour force participation – Raghuram Rajan said.
“There are host of factors we discussed in the book. And we completely agree that this is something that is not at all talked about enough, and we talk about women mostly in terms of voters and not providers” Rohit Lamba said.
Data shows that women in India are participating in higher education in STEM, but falling out of the workforce because it’s just not policy friendly for women. In 2022, the number of females per 100 males in colleges went above 1:1 ratio. We have more women going to colleges now. Why aren’t we using these talented women in the workforce?
Brain Vs Brawn – the concept that is extensively dealt with in the book. The book challenges the notion that India’s success hinges on outperforming China in manufacturing, as debunked by Raghuram Rajan and Rohit Lamba saying that is not necessarily the route to take.
In between the value of a company that manufactures versus the value of a company that ideates design and provides service, and the latter is the route they believe India should be marching on. They contend that the key lies in prioritising innovation, design and services over traditional manufacturing.
Raghuram Rajan illustrates the value chain as a smile graph, emphasizing the substantial contributions of intellectual property, creativity, and design in contrast to the highly competitive and pace-driven manufacturing stage. On the X-axis, there are the various parts of the supply chain from beginning to end, and on the Y-axis the amount of value that’s added. A lot of the value is added by the intellectual property, creativity, design etc.
And when it comes to the logistics to actual manufacturing – this is the most competitive part of the supply chain, where there are workers from China competing with Vietnam, Bangladesh, India. According to him the ascent in value resumes with creative marketing, advertising, and content as a supply chain progresses towards the consumer.
For example – iPhone – Apple owns the R&D, the design of it. And, mind you, it’s designed and not made in California. It’s made in Taiwan, China. But Apple’s value is $3 trillion. Foxconn, the company which produces the bulk of Apple’s iPhone line since 2004, its value is $50 billion. Apple is worth 60 times Foxconn.
Manufacturing is no longer where the value added is. It’s the ideas, the creativity,, the design the services that has value – Raghuram Rajan
So, the questions that poses here – Can’t we go directly and capture that which companies like Apple does? Aren’t we doing a lot of that already? Do we have to start at the bottom and work our way up to the top like everybody else did? Or can we just go to the top directly and do some work at the bottom as we need jobs at all levels?
For example, 20% of chip design is done in India. Do we have to capture manufacturing in chips in order to do the chip design? Manufacturing is a costly process.
One counter argument – manufacturing could create a large number of organised jobs, that could absorb a lot of the extra workforce. Raghuram Rajan said, “It could if we are competitive, but we are not, and that’s why we subsidise all that.”
And now the question is, is subsidy greater than the number of jobs? How much will it cost to subsidise manufacturing to get it done?”
Today, we have companies desperately looking for high quality talent in India without subsidies. These are the global capability centres. For example, Mr. Rajan said that ministers from Tamil Nadu told them that 10,000 jobs a month is what they are witnessing from companies entering into Tamil Nadu in search of these workers. Thus, there are places we are already competitive at, successful at. Why not create more workers like that?
“Of course, we also need to employ moderate and low skilled workers. Services sector is already employing a huge number of those, such as in restaurants, hotels. The biggest job in India is actually of security guards” The former RBI Governor said.
Building minds: Are we not doing enough?
The book emphasises the need to prioritise building minds over factories, focusing on health and nutrition. The critical questions arise – If we look at the state and central government, aren’t we already spending on food subsidy, health, education? Are we not doing enough, or is it not impactful enough?
Raghuram Rajan contends that while money is being spent, it’s not allocated effectively. He cites the example of a Micron Factory in Gujarat receiving a $2 billion subsidy, which is INR 16,500 crores, to produce 5,000 jobs.
This subsidy, exceeding one-third of the central government’s higher education budget (INR 44,000 crores), raises concerns. Rajan highlights the disproportionate spending, with INR 3.2 crores spent per job, while a significant portion of college graduates remain unemployable, as indicated by a Wheebox survey.
The former RBI Governor further emphasized the inefficiency in government fund utilization, particularly impacting the poor who struggle to navigate the system. The disparity in school conditions despite substantial spending on teacher salaries, leading many to opt for private schools.
The pandemic further exposed the challenges faced by the less privileged, forcing them to resort to government schools as a last option. Rajan underscored the need for a more effective system to aspire to the status of a first-world country.
Moreover, the alarming rate of suicides among Indian students in the 11th and 12th grades, particularly those preparing for entrance exams in places like Kota, highlights a disturbing norm that should prompt a re-evaluation.
The intense competition and pressure faced by 16-year-olds necessitate a call for more educational opportunities, challenging the acceptability of such stress. In 2022, a staggering 7.5 lakh students in India dropped out, emphasizing the scarcity of avenues for higher education in a country poised for demographic growth.
The issue extends beyond college admissions, persisting into post-college life. Government job exams, such as UPSC or State Services, witness lakhs of applicants competing for a mere hundred job vacancies, revealing a failure in job generation.
The prolonged struggle for success in these exams takes a toll on mental health, questioning the kind of workforce and entrepreneurs we are nurturing. Early messaging that portrays government jobs as the pinnacle due to stability raises concerns about the long-term impact on the country’s labour force.
Entrepreneurs frequently lament the challenge of finding suitable workers amid a vast population of 1.4 billion. The real issue, however, lies in the scarcity of individuals possessing the specific skills required for employment. Efforts to enhance skills, both through upskilling and right-skilling initiatives, are essential.
Addressing this, Raghuram Rajan emphasizes the need to focus on cultivating a workforce with the right skills rather than heavily subsidizing manufacturing. He suggests that, with the correct skills in abundance, companies will be naturally drawn to establish manufacturing jobs. While some progress has been made in areas like infrastructure, logistics cost reduction, and sensible taxation, the key remaining aspect to tackle is the quality of the workforce.
In the case of Tamil Nadu, the government has implemented successful programs targeting graduate students lacking essential tech industry skills. These initiatives involve intensive training over a specific period, proving to be an effective strategy that can be replicated and expanded upon nationwide.
To conclude, traditional growth methods are insufficient; we must surpass the rapid pace of Chinese development to reach Amrit Kaal. Therefore, we must adopt innovative approaches enabled by technological advancements and global changes.
Images from different sources
Kakali Das is the assistant editor of MAHABAHU
Mahabahu.com is an Online Magazine with collection of premium Assamese and English articles and posts with cultural base and modern thinking. You can send your articles to editor@mahabahu.com / editor@mahabahoo.com (For Assamese article, Unicode font is necessary)