India needs 8%-8.5% growth to create enough jobs: Raghuram Rajan

India’s economy is showing signs of steady growth but needs to expand at a pace of over 8 per cent to create enough jobs for the world’s most populous nation, former Reserve Bank of India Governor Raghuram Rajan said.

“We should be going at 8 per cent-8.5 per cent given the needs of the population and the need for jobs,” Rajan said via video link at an event in Beijing on Friday. Economic growth at 6 per cent-6.5 per cent is strong compared with other countries, “but relative to our need for jobs I think it’s still somewhat slow because we have a lot of young people who need to be employed.”

While India’s expansion has outpaced that of other major economies, the country isn’t creating enough jobs for the millions of people joining the workforce every year. The overall unemployment rate climbed to 10.05% in October, the highest in more than two years, according to Mumbai-based researcher Centre for Monitoring Indian Economy. 

HSBC estimates the nation will need to create 70 million new jobs over the next 10 years, and with growth of 7.5 per cent, only two-thirds of the jobs problem will be solved.

High joblessness is also a concern for Prime Minister Narendra Modi as he seeks a third term in office in elections next year.

Officials in his administration have been trying to tackle the problem and burnish their credentials by distributing job appointment letters as part of his promise to provide one million government jobs by the end of this year. 

Rajan said the nation needs to train its workforce to compete with other efficient manufacturing nations, including China and Vietnam. “India is trying to move up the value chain, and you’re seeing some signs of that happening,” he said, citing output of iPhone parts. But he sees “a long distance to go, to actually manufacturing full cell phones” in India.

Rajan also made the following comments in the speech:

• “As far as India’s growth goes, we are recovering from the pandemic and now finally we are seeing some steady growth”

• Higher government spending on infrastructure, cleanup of balance sheets and demand from the upper middle class is driving growth

• China has tremendous innovation in chip manufacturing and India is still very far behind

• A soft landing for the US economy is very difficult - there’s a greater than 50 per cent probability that the economy slows too much