India could grow via intensive services: Raghuram Rajan - Economic Times

Professor Raghuram G. Rajan, Chief Economic Advisor of the Ministry of Finance, elaborated in a speech in Chennai on Saturday how India could grow via services that need a lot of people, instead of following the manufacturing-led growth model of that has helped many of Asia's top economies grow big. Rajan was delivering the Kuruvilla Jacob memorial lecture. Edited excerpts from his speech: On India's growth People get pessimistic about India's growth by looking at last year's data of 5% (growth rate). When we look at India for the next 20 years, you can only be optimistic, because there are so many low-hanging fruits and easy way to grow, which is moving out people from agriculture to other kind of businesses like manufacturing or services. It does not need huge government genius to do this. The move to services Typically what countries do is to move people from agriculture to manufacturing and construction and then eventually from manufacturing and construction to services. That has been the path of every Asian economy which has grown fast. And interestingly, we didn't quite follow that path. Our manufacturing sector has remained fairly constant for the past 20-30 years. Instead, services and construction have grown. Construction more in jobs, and services more in value added. I am going to argue that there is a belief today that what we need to do to generate growth is work on manufacturing. Because after all China, Korea and Japan grew by that. May be we can grow through low-skill manufacturing textile mills, which employs 30,000-40,000 people and eventually move to services. May be we don't need to go through the path that the other countries followed. May be we can follow our own path. A unique path We can create our unique path by emphasizing on things we are already good at, like services, rather than creating a manufacturing revolution. I am not arguing against creating a manufacturing revolution. I am only saying that do we necessarily need to focus on that in the same way we focused on job-intensive industry. We can instead say let us create the environment for businesses to flourish. For a variety of businesses to flourish, whether it is manufacturing, whether it is services or rural industries. Let us create the possibility by doing what is necessary - by building the connectivity, by building the infrastructure, by enabling finance and education, and see what happens. Technology has changed the world and has made it possible (for us) to follow a different path. Intensive services There is a tremendous amount of value-add that can be created in services. In India, especially, financial services as also IT and others are where most value-add is created. Unfortunately, even though services account for 60% of the GDP, they don't account for nearly as much for jobs. They account for just 15% of the jobs. What we need to focus on is perhaps thinking broadly about how we create services that will generate many more jobs. This is where we need to think about intensive services - services which need people. Tourism is one example. There are many examples such as education. For that, we need a better education system. Creating a better education system We need three sets of institutions: teaching institutions with good teachers; institutions that train and teach the teachers, create professors with Phds and so on; and thirdly, idea generating institutions. These are the institutions that will create the patents, the technology and cultural and literature ideas, which will make us a nation of ideas. Copyright © 2013 Times Internet Limited. All rights reserved. via Business - Google News http://news.google.com/news/url?sa=t&fd=R&usg=AFQjCNGou2DzVFJCJnhgEF4E41z1QoJI0g&url=http://economictimes.indiatimes.com/news/economy/finance/india-could-grow-via-intensive-services-raghuram-rajan/articleshow/21581935.cms

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