Dr. Raghuram Rajan speaks to Brut

If all you do is applaud, you know it from the outside and say what a wonderful government and the government itself says how wonderful we are, you make a lot of serious mistakes and that is something we have to keep in mind, why hasn't India created to date? an Uber Snapchat, a meta and Amazon, we have many of you who know fascinating companies, some of which we documented in the book lenscart U, the cool um agnik that is making three printed rockets, but you're right that we know we don't do it yet we make. we have our Tesla, we don't have our drug makers yet, where is our fizer or our M?

Professor of Finance at the University of Chicago Boot School of Business, former Governor of the Reserve Bank of India, former Chief Economic Advisor to the Indian Ministry of Finance, former Chief Economist of the IMF and, of course, author of numerous books Dr. raguram Rajan, thank you very much for talking to Brute, thank you for inviting me, you worked with both UPA government and Modi government, what are the differences in the two working styles? the two governments um well, I worked briefly with the UPA government maybe 8 months and I worked a lot more with the NDA government uh sometimes people don't recognize this uh I think I spent more like 20 uh 28 months with the government of the NDA the um The UPA government was much more decentralized in the sense that the ministers had power, while the NDA government is more centralized in the sense that the Prime Minister and the prime minister's office largely determine measure what happens.

What do you think is a better way to govern when? it is about policies, economic policies, it depends entirely on politics, sometimes what is needed is central direction, we need these things to happen, so ministries have to send and deliver, sometimes, so that ministries always keeping an eye on orders means there are delays because they don't, when the pmo is busy they don't take action and as a result I think you see negligence. India is too big a country to be completely pushed out of the center and that too from the center of the center uh, you need the ministers to step up, you need the states to step up and too much centralization, as we say in our book, breaking the mold can be a problem, any example that comes up Please note, Dr.

Rajun, there is too much centralization, one might wonder about policies that were not enacted, for example, why do we not procure vaccines when we have the entity largest vaccine producer in the world in our own country, why? Did we not acquire the vaccines on time and start vaccinating our people? When, when did Covid happen? We started vaccinating in a big way and it was a success, but the lack of preparation must be attributed to the specialized entities losing sight of what was needed and not taking appropriate measures. I guess that was part of it. You know they were waiting for orders and the orders never came.

Could you explain a little bit about why you think India you felt India didn't handle Co well while we've seen headlines and the belief is something else? about how the media tweeted it, so start with the numbers, if you're wrong with the numbers, all the conclusions are wrong with the data, um, we underestimated covid debts, that's something that's been documented in many ways, including by reporters who went to the uh you. I know the crematoriums and we found out that the actual numbers of bodies burned don't look like the official numbers that we had bodies floating down the Ganges, that doesn't happen if the cremator is not full, but I don't have similar records of deaths at that time, But I think the most important thing is that many organizations recognize the World Health Organization, organizations that you know have no reason to lie.

They have estimates of excess debt in India on the order of you. we know on average about 5 million, while that suggests that 5 million more people died than we recorded, as covid related deaths, now these are not just covid, they could be due to lack of medical care during the period of covid, but that is 5 million, the official number. It is one of the 10 that in India you would think that, having been such an important event in the life of our country, we would have commissions of inquiry trying to collect data to see what exactly happened, was Lancet right or not?

Are the official figures correct? Were they correct or is the Indian government right but we are not and that is the problem? Today data is needed to run good government. Lots of people to examine the data, including critics. and the government really listens and takes action if all you do is clap, you know from the outside and say what a wonderful government and the government itself says how wonderful we are, you make a lot of serious mistakes and that is something we have to keep in mind his new book, a book that breaks the mold and reinvents the economic future of India.

He is talking about how India can become a rich nation. How does a country become rich? Well, a country becomes rich by producing more effectively. There is another component of production that someone has to want. to buy it, they can be within the country, which is called internal demand, they can be outside the country, which is foreign demand, but what is produced is what is wanted, things are not produced that no one wants, but rather they are put together both, that is, there is offer. of goods and services that people want to buy and demand for them and if you can do it in a bigger way, you become richer because someone is paying you for all those things they produce.

India missed the Industrial Revolution, right? I think we've been trying to catch up since then, well we're trying to catch up today, and what's important to keep in mind is that we're not against manufacturing, sometimes, the book report is these guys . They are only about services and that they offer high quality services, they want many more, Internet, or that, personal, but that is a caricature, what we are saying is that it is important to understand that India's greatest asset is its human capital , 1.4 billion people. and we have to give these people a better opportunity to grow and fulfill themselves and that means focusing on improving their capabilities and usually that means something that government after government has neglected, which is health care, nutrition from the beginning, healthcare later and education and skills now we have a bit of a skewed structure we don't produce enough moderately educated people India has one of the highest number of engineering graduates every year but the quality differs widely not all are IITs or nit uh graduates many of them come from universities that don't teach well in fact a survey suggests that 50% of Indian graduates are not employable so what we have to do is change that and then if they go into manufacturing services, it matters less what we see.

It is an attempt not to do the fundamentals but to spend huge amounts to try to revive manufacturing assuming that is the only way to grow and we are saying that elevating manufacturing above everything else through huge subsidies is not the way to go. continue because in the feeling that the defeat of Ro is much more difficult today than before, it usually used to be the case that the East Asian countries, China, started from the bottom, unskilled manufacturing put things together and then climbed the ladder to become more sophisticated manufacturing, the benefit they had in doing so. that was, they were competing with western workers, uh, and they, you know, with cheap labor, uh, many sins are forgiven, you don't have good infrastructure, you sure don't have cheap electricity, it doesn't matter, your labor cheap is compensating, so we.

We're saying it's great to think about becoming a developed nation, but fixing the fundamentals with 35% nutritional malnutrition at a young age condemns 35% of your workforce to very low quality jobs because their minds don't develop their bodies don't. . you need to solve malnutrition on a war footing and make sure it is finished in project mode in the next 3 or 4 years instead of saying oh uh no no uh this is an ongoing problem in your book you say um that in 1961 and this is a really interesting statistic that says that India's income per person was 86, it was ahead of China, which was 76, but behind South Korea, which had 94 dollars today, India is lagging behind with 2,300, down from 12,500 from China and the 35,000 dollars from South Korea, uh, my simple The question is why you know a variety of things.

I would say the wrong answer is to say they went into manufacturing and we didn't do it well. I think the correct answer is to say that we didn't even do it as a democracy. focus on focus on developing human capital that we lagged behind in education and if we compare India and China at the time of their liberalization, they started in 1980, they probably started sometime in the early 1990s, we were 10 years behind, but they They started out with fantastic capabilities in their worker population, they were much better educated than our workers. We are moving forward in different states to try to improve the business environment.

Which is still a place where we must do more. about human capital, let me give you an example to show the power of human capital, which is what we start with in the book, there is a guy, Mustafa, with a really moving story, who is a hard-working son, his father picks roots of ginger and throws it into a truck. uh and Mustafa goes to school, which is wonderful uh you know uh all the kids go to school but they fail in sixth grade he comes back and starts working on his farm with his father on the farm basically doing that uh picking root ginger his the teacher comes to the farm and says Mustafa why are you not in school he says sir I failed uh he says no no you can't leave school you must continue uh that is a much better life than this and the only way to do it is through of education so he goes back to school, his friends make fun of him because now he's a grade below you know, with all the high school kids, uh, and he's despondent, his teacher says no, no, you should hold on, but try to do one thing well and he. he focuses on mathematics. the class gets approval from all students. school becomes an engineer.

He goes crazy. You know, one of the great advantages we have in India, there are many public universities that are really cheap but also very good. he goes out, wins a job as an engineer, then comes back and wants to become an entrepreneur and passes. I'm from Bangalore but starting a business, making slack dough seems simple but requires a lot of designing, how do you create packaging that lasts? It is fresh, which keeps it clean and hygienic. He now has cameras in his factory that show how it is produced and you can access the Internet to see a wonderful story.

Today he employs 2,500 people, under the ID brand. Fresh makes dough without making anything, even coffee. Good coffee. I tried it. The point is the power of education. Why hasn't India to date created an Uber, a Snapchat, a meta and an Amazon? We have many of you who know fascinating companies, some of which we documented in the book, um, uh, uh, lenscart. U the cool um agik that is making 3D printed rockets uh um all of these are fascinating and you even know taking traditional crafts and selling them to the world, which is centered around banari sarees and getting traditional artisans to make them there. a lot of these in India, but you're right that we, you know, we still don't have our Tesla, we still don't have our um, you know, drug manufacturers, we didn't.

Where is our fizer or our MC? One of the questions asked in the book is how can we be a leading nation in the world when we don't have a top 100 university? We spoke to a great entrepreneur, YF Hamid, who, Dr. YF Hamid, ran Sia and Sia. He was always a generic drug manufacturer, never uh, kind of new formulations and we asked him why and he said, look with my profitability, I can't really make these original drugs more effective and Merk doesn't make them either. What they do is they work with universities and as the universities come up with new formulations, they then take them to commercialization.

Where are Indian universities coming up with new Indian formulations? You know, new formulations, so we need a lot more focus on R&D within Indian universities. to produce the kind of intellectual capital that Indian companies can take around the world in a similar way with electric vehicles and with battery technology. There have to be industrial and university combinations. We have great teachers. We need many more and there are many spread around the world. So what I'm saying is that we can bring back a lot of those professors to work in Indian universities with the right kinds of incentives, but recognizing that it's something we have to work on, just don't say come back and they They will come back, no, you have to work on it.

Attracting them creates the environment and a lot of that environment is a much more democratic environment. You can't have a situation wheresomeone produces results you don't like and gets fired from the University. This is not a conducive environment to become radical. Innovative teachers are back, so we say that democracy is also a strength of India and we should build on it instead of weakening it. I'm going to ask you about the farmers' protest that is currently taking place, as you know in India, in your book. You said that at the beginning of the century Punjab was the richest state in India.

Now he is not in the top 15. What is the economic solution right now to what farmers in Punjab are facing? First, I think it all starts with dialogue, which is why I am glad that dialogue continues right now. You don't say my way or the highway on both sides, what is also important is to recognize that the farmers themselves understand that they have a problem, That's what we talked about, you know, some farmers who basically, you know, are saying that. Look, you don't understand, don't you understand that we ourselves are worried about the lack of diversification?

We are producing a crop that requires a lot of water, for example with rice, and water is going to be more difficult to obtain. We are digging deeper and deeper wells to get there and the poor farmers can't dig those deep wells and they have a problem, so then we have to think about crop diversification, how do we get away from it? and like gulati uh uh very um U you know prominent An agricultural economist has suggested that there are many crops that are likely to produce more value than, say, rice or wheat. Horticulture has become an important factor.

You know, milk is our most valuable agricultural or agricultural product, for example, so we need. thinking about how farms can diversify the path towards higher value-added instruments and that needs technological support that needs a certain amount of buffer. There are huge risks in going beyond what is tried and tested, for which there is a you know, a device to buy, that is the MSP device, uh, for a crop for which there is not that much support, so we have to think In that process of movement, how are they given reasonable alternatives? And I think a dialogue where you give them Alternatives and say: this is the alternative and this is important to you because you see as well as I do that climate change is coming.

Water is going to become increasingly scarce. Punjab, which is a natural reservoir of water in the country, has to focus on you know other things besides crops that require more water and can have a glorious future there, what do we mean? How do we protect farmers' incomes, but in a way that also protects the national strategy and this is where there is a very sensible dialogue? and offer to listen and offer alternatives by talking to all the major political parties as well who, you know, have an interest in this, I think that's one way to take this forward, Dr.

Rajun, I'm going to do it quickly, you know. Get his input on electoral bonds in his book. He said one of the breeding grounds for corporate government cronyism is opaque electoral financing. An estimated 55,000 to 60,000 cents were spent on the 2019 election. The media studies center called it the most expensive election in history. There is widespread concern everywhere that such massive spending is not financed cleanly and transparently, what does this look like from a political point of view? Is there a solution to eliminate the opacity of electoral financing? Well, I think the Supreme Court essentially denied the form. of the old electoral bond and declared it unconstitutional, which I believe was the correct decision, in a democracy you cannot have corporate financing, some party and no one knows who finances, what with an abandonment of the procedure, if I send you 1,000 million rupees , en It was not out of the good will of my heart that I was pressured or got anything in return.

I got lower and higher tariffs to protect my products. Did I get cheaper funds from state institutions? You know, and also. I know why unprofitable entities finance, what is happening. I mean, there weren't even any restrictions, as I understand it, on, you know, foreign entities funding political parties through this route. I mean, this is this, this is just inconceivable and I think. the Supreme Court has rightly said that this needs to be cleaned up uh I I I I think it's also calling for the names of those who gave to be made public uh I'm not sure we'll learn much from that uh I think even under the system uh Some of those roots may be disguised, but I think it is important that in the future it is made public who gives who it should be now that it says that there is another element to that, which is that in our system we had, in this system it was relatively biased, given If the entity receiving the money was the State Bank of India, most people would assume that the government also knew who was giving the money to whom and then if it was giving it to the opposition, many businessmen might fear that He would be targeted by the government for giving it to the opposition.

I don't know if those fears are justified, but I think that since most of the money went to the party in power rather than the opposition and that skewed the playing field because the party in power had white money to play on elections, while the opposition was forced to rely on darker sources of money and that made them vulnerable to Ed raids and such, so the entire establishment was forced into office. Which I think we needed to rectify, he said, I mean, in the future we need two elements, one is more transparent funding, people should know who donates to which party and that should be completely open and for everyone to see, but equally important. and this is the most difficult part, how to protect the opposition from the raids of Ed uh and uh of the income tax authorities and that requires a much greater strengthening of our democracy, which we talk about in the book, how to do that these agencies are independent of the government in power because if they are not, you know, make whatever changes you want, it is still a biased system.

Talking about the system and the controls that you've talked about, you know a quick question about that, what are the changes that? we need in governance, uh, so that there are no checks and balances, as you say, to hold power accountable no matter who is in uh, you know who is who heads the government, so people are asking how can you expect this to happen? . And it happened once in the history of India, which was post-emergency in 1977, when the Janta government came in. He reversed much of what had happened up until then and also took steps to try to reduce the power of some of these agencies.

I remember that the head of IB, the head of Raw, was demoted in position and became less powerful. It was because he didn't last long enough, the government didn't change much. I mean, a coalition has an incentive to do that. because they know that one day one of them will have been part of it, they don't want to empower that party too much, Dr. Rajun, the last Bo in my interview is, we'll show you three photographs, we'll go. one by one and if you can, you know, we call it reacting to what we're showing you, if you can tell us a little bit about the background, we'll give you a minute or two, you know, this was when I took I finished as governor and, uh, I gave a a, I was trying to rebuild Spirits in India because we had been hit by the tantrum, we were one of the fragile five and there is some concern that the government, you know, in the last days of the UPA was No, it was being hampered by a a lot of uh, you know, opposition and scandals and this and that, so, what we set out to do was give a list of things that we would do here, there are a lot of actions. we would take and that was important that first day because it suggested that, you know, reform was still happening in India and that had a positive effect on the spirits, as exemplified by this, you know, I was relatively young as well. for an RBI governor, so there was a bit of pooling about that, but the idea was that we were actually going to raise the level of reforms and, you know, there was some confidence building. which was exactly what we wanted, and when you saw yourself represented as in this case James Bond, do you remember when you picked up that newspaper?

What did you feel about it? You know, I'm as different as I may seem. I'm a pretty conservative guy, and you know this wasn't necessarily the right image for a central banker. We were trying to portray the scale of trust, but you know if this is what it takes, you know, the general public to come. So be it, the important thing was to ensure that, you know, you sent the picture of confidence and capability within the central bank and time and again when I talk to the RBI staff, I emphasized the capabilities of the RBI. and the integrity of the RBI and those were really important.

In that environment, we will show you the second image. Dr. Rajun, could you talk about that a little bit? I think it was important for um as an institution to establish contact with with the NDA government officials because we are a democratic democracy, you know, the changes in the government, so I went and met with the Finance Minister and then with the Prime Minister. Minister, and the important thing is that both had the intention of showing continuity. I know there was talk that there would be a mass dismissal of previous officials, but I had a good relationship with both Mr.

Jley and Mr. Modi, and I used to go every month and a half to brief Mr. Modi on what was happening. . He was listening very carefully when I said that he is not an economist, but obviously he is a leader who wants to know and we used to have a very fruitful conversation in which we talked about what needed to be done, etc., um, yeah. So like I said, again, maybe 28 months with the NDA, when you see someone, the trolls, you would think I spent all my time with the UPA government, I actually cut interest rates, I raised interest rates in the UPA government. cut them in the NDA, you wouldn't know it from the kind of dialogue that sometimes happens in public, our last picture, Dr.

Rajun, we will put it on the screen for you, uh, and you know this is the previous bhad joro yatra for Rahul. Gandi and you also had an interaction with him, if you could talk about that a little bit well, I think Mr. Gandhi's bhat J yatra was, you know, an attempt to push the idea that of course we are an integrated country . We are a country but also democracy was very and the dialogue about freedom of expression was a very important component and I thought it was really very important. I find Mr. Gandhi to be someone who is, you know, a person with with a variety of ideas, some of which you know, I agree with, you know wholeheartedly, some of which we have a debate about this dialogue, we spent a couple of hours walking together, you know, talking about some of those ideas, but I've had many conversations over time with him, and I think you know his drive for love, not hate, for democracy, for national integration, his visits to some of the critical points of the country, Manipur.

For example, and more generally, I think the courage to walk relatively unprotected, I mean, on this walk I realized how you know, walking through India like this is required of a person who has seen his father and his grandmother. destroyed by murderers, a degree of courage that is really commendable, so I have said it repeatedly, I talk to everyone, but you know, this was an attempt to say that democracy was really important for India and I subscribe to it. to that and this was a walk for democracy Dr. Rajan, thank you very much for talking to the

brut

e, thank you