- 6/3/2025
In an exclusive interview with India Today TV's Consulting Editor Rajdeep Sardesai, former RBI Governor Raghuram Rajan discussed India's economic outlook in uncertain global times. He emphasised the need for 8-9% growth for India to become a developed nation by 2047.
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00:00And joining me now to look at how India and the world should see the global economy in
00:10these uncertain times is a very special guest, former RBI governor and professor at the University
00:16of Chicago Booth School. Raghuram Rajan, good to have you once again on the show. Thank you very
00:22much. Thanks for having me. Professor Rajan, we spoke a couple of months ago and since then
00:29if anything the world seems to be in an even more uncertain place. We've had the Trump tariffs
00:36still raging on, uncertainty over their future. We've had global conflicts, Russia, Ukraine
00:42intensifying and even one here in the subcontinent between India and Pakistan. Given all that,
00:48how do you see the economic outlook in these uncertain times? Well, for sure some slowing
00:57is on the cards, right? We came into this year with an extraordinary performance last year,
01:04certainly in the United States. But that's sort of off the cards now with the tariffs creating
01:13an enormous amount of uncertainty, both in the United States but across the world. So
01:19if you're a business person today, where do you invest? Do you invest keeping in mind the
01:25current level of tariffs? Do you keep in mind the tariffs going back to high levels if the
01:31reciprocal tariffs go back on July 9th, 10th? Or do you sort of think of some magical negotiation
01:39which is going to bring them all down? It's hard for any business person to invest at this point,
01:45and that's part of why the uncertainty is going to slow growth. Investment is in deep trouble at this
01:54point. But even in these uncertain times, India, last quarter figure, 7.4% growth rate,
02:0424, 25, 6.5%. Yes, slowing down compared to previous years, but you could argue much better than many
02:12other large economies in the world. How much do you see India being buffeted by these global headwinds
02:20at the moment? Is India's growth rate satisfying in these uncertain times?
02:26Well, I think first, 6.5% is a very predictable growth rate. We should be careful about looking at
02:33the ups and downs of the last, of the year so far. Some of it was postponed government investment
02:41as the election cycle played out. Some of it is that subsidies were up, you know, registered up front.
02:49And so you had a few quarters of really low growth and then a few quarters of really high growth. So
02:54these are just statistical artifacts. The number to focus on is the 6.5%. And of course,
03:00one of the bright lights in recent weeks is that the monsoon looks like it's going to be a strong
03:07one, which is going to enhance agricultural growth. One of the big concerns in India is that consumption
03:14has been driven by the upper middle class so far. And the lower middle class, the agriculturists,
03:22the rural areas, they're starting to show up in the consumption numbers, even while the upper
03:28middle class is lagging. So there may be a handoff in consumption. That's a positive because, of
03:33course, you know, it also reduces inequality if the people who are worse off consume more.
03:40So broadly speaking, good. But we need more. I've been saying this shouting from the rooftops forever
03:47so long. If we want to become a Vixit Desh by 2047, we need more like eight, eight and a half,
03:57nine percent growth because we are a relatively poor nation. And so that growth is what we should
04:04be aspiring for. This, I've said, could be India's moment, but we have to seize it.
04:10You know, you're saying India's moment because the headlines here just a couple of days ago was
04:15the IMF projecting India's nominal GDP to cross that of Japan, become the third largest economy,
04:22fourth largest economy in the world on its way to crossing, overtaking Japan. And yet per capita income
04:33well below that of Japan and many other countries in the world. Do you believe that, therefore,
04:39in your view, rather than look at that number, are we crossing Japan? When are we becoming the third
04:44largest economy next? The focus should be, what are we doing to reduce income inequality? What are we
04:49going to do to live per capita income? And as you're saying now, eight, eight point five percent needs
04:55to be the target. Am I correct?
04:56That's right. I mean, let's not minimize the fact that we are crossing these countries.
05:03We will cross Germany at some point over the next few years, maybe one or two. Exchange rate
05:11fluctuations also have an effect. The Japanese yen has strengthened. So we should take this as
05:18evidence that we are on a good path, but not necessarily get overly enthusiastic about it. For
05:25the reasons you mentioned, we are much poorer than these countries. And what matters to the average
05:30citizen is how wealthy they are, not aggregate GDP, because we are the most populous country in the
05:37world. So aggregate GDP, overall GDP, is going to be quite high, even if every citizen is quite poor.
05:43But that said, I think going forward, there is an opportunity for us with some of the rethinking
05:51of manufacturing supply chains. There's also some possibility that with some of these actions against
06:01students across the world, not just in the United States, but many countries are now getting a little
06:07more worried about having students come in from outside. There is an opportunity for us to expand our
06:13education sector. Can we keep the students who we would otherwise send abroad and give them a first
06:20rate education? But can we also improve the quality of our universities so that they produce more
06:25research, which is absolutely necessary for India to become an innovative nation? So I would say this is
06:31a moment of introspection. We need to think about how we look over the next 5, 10, 15 years.
06:38You know, certainly the manufacturing-led growth path is coming under some kind of cloud with all
06:45those protections. And that's something we have talked about in our recent book, Breaking the Mold.
06:51But we also need every job we can get, which means we need to work very hard on skilling our population.
06:57We need to work very hard on creating new jobs in services. We need to work hard on creating new
07:04sources of exports. And that's why I think, you know, areas like the education sector, the health
07:10care sector could be also new areas of focus. I'll come to the economic challenges once again in a
07:15moment, but you just mentioned about education. The entire Trump policy taking on Harvard University,
07:22trying to put a stop to all foreign student visas has troubled many in this country. You just seem to
07:28suggest that that is actually an opportunity perhaps for Indian education to raise its standards and keep
07:33students within. That's not going to be very easy. What's your overall take on what Trump is doing
07:39to the higher education system in the United States? And do you see really an opportunity here for
07:45India or Indian students now finding it increasingly difficult to get into top-end American universities?
07:53Well, yes, it is an unfortunate action by the administration to target not just the universities,
08:01but the students within those universities, the international students. You must remember that
08:06international students coming into the United States is a big export for the United States. 45 billion
08:11is what they earned, some of which we are paying from India. When our students go there and we pay
08:17tuition fees, we're essentially paying for U.S. education. That's been good. I don't want to fault that.
08:26U.S. universities have benefited. Indian students have benefited and been able to get jobs across the
08:32world, but also bring back a high quality of learning to India. So this has been win-win.
08:38And it's unfortunate that we, that in the United States, you're seeing actions against this very
08:46source of well-being between, you know, the U.S. and the rest of the world. It'll hurt the U.S., for sure.
08:52I think students are already asking, do I want to be there or do I want to go to Australia or the U.K.,
08:58which may be a little more welcoming. But also it is, you know, in the longer run, getting the best
09:05and the brightest into the United States has been a big source of growth. What I am saying is let's try
09:11and find a silver lining in this cloud. It is a cloud. But the silver lining could be that if we focus
09:18on investing more in our education, including in our, in our best universities and, and bring them
09:25to a higher plane. China did this in the, in the last 20 years. We can do it. And we absolutely need
09:31to do it if we want to have a place in the risk, you know, in research and, and development. If we want
09:38new products that, that, you know, we can sell to the rest of the world. These are areas where India is
09:44relatively weak, which Indian product is sold across the world, which Indian car has a global
09:51market. These areas we need to focus on. And I think we can. But do you see a pushback to what, uh,
09:57Donald Trump has done with universities? Do you see American universities? You are, of course,
10:02a leading professor in one of them. Do you see a pushback in general in the next few months?
10:06I think there is a, a, a pushback, of course. Uh, I think Harvard is, is, uh, is fighting back, uh,
10:16quite, uh, quite vigorously. Uh, but I think the, uh, this is damaging no matter what happens. A fight
10:23between the universities and the government. Essentially, students become, become collateral
10:29damage. Research becomes collateral damage. A lot of, uh, medical research has been halted, uh,
10:36while the government thinks about funding. Uh, this creates enormous uncertainty amongst researchers.
10:43And, you know, I was in Singapore, uh, last week. The president of one of the, the universities there
10:49told me, we used to have a hit rate of 40% when we made offers to U.S. academics. Today, the hit rate
10:56is 100%. So you are seeing a weakening of, uh, uh, of U.S. academia. Of course, it's very strong.
11:04And if, if these issues are resolved quickly, I don't see a longer term, uh, significant weakening,
11:11but people remember and people when offered choice between two places will pick the place they feel
11:17more comfortable in. Okay. Let's turn then to another pushback, which is tariffs. The reason,
11:23uh, we started off with tariffs and the uncertainty over it. Uh, we've just heard the U.S. Commerce
11:28Secretary saying that the India-U.S. trade deal is on track. He hopes to have some good news in the
11:34next few weeks. What's your sense? Because, uh, there are two types of responses to what Trump is
11:39doing. Either countries are looking him in the eye, uh, or they are falling in line. And stronger
11:45nations seem to be willing to look him in the eye. Should India be looking Trump in the eye and seeing
11:50how can we get a win-win out of this trade deal? Do you believe this trade deal,
11:53as and when it happens, is good for India? Or is this uncertainty over it one of the major headwinds
11:59we will face? Well, so long as we are careful about the areas which still need some support,
12:07um, I mean, certain parts of the agricultural sector, uh, will still need, uh, some support.
12:13Um, so long as we're careful about that, broadly speaking, reducing our tariffs could be beneficial for
12:21us, even as we make a play for becoming, uh, host to many of the supply chains that crisscross the world.
12:28So in that, I don't see it as a, as a win-lose if India accepts lower tariffs and, and does a deal
12:34with the United States. Uh, I don't see it as us kowtowing to them. But we have to do it with our
12:40interests in mind. Where are the areas that we can easily afford to bring down tariffs? Our industry,
12:47in many situations, actually becomes more competitive when they're forced to compete with,
12:52with imports, uh, and, and, uh, compete on a global stage. Remember, in the early 2000s,
12:58we were world beaters. Uh, our industry felt it could take on the world. We need that kind of, uh,
13:04of, um, sort of enthusiasm again. That said, uh, you know, even as the tariffs get, uh, get, uh, uh,
13:12sort of settled, there is the huge issue of, uh, if the tariffs on China remain high from the United
13:19States, Chinese goods will look for a home elsewhere. And, uh, you know, one of the, one of
13:24the homes will be India. So we will have to figure out how we manage that without, on the one hand,
13:30reducing tariffs to the U.S., but elevating tariffs to the rest of the world. We, again, we need to be
13:35very clever about it that where we benefit from Chinese imports, we should focus on, on, on keeping
13:42tariffs low. But of course, uh, where there is dumping, we have to be careful about having an
13:48open door. You know, you just mentioned the China factor. Uh, there is also talk that you could have
13:54a U.S.-China trade deal. Uh, there are those who are now using the, the word, uh, uh, Professor
14:00Rajan taco. Trump always chickens out. Uh, do you believe that he is bargaining hard with the
14:07Chinese? And is that also something we should be looking at very carefully from our perspective?
14:13As you said, the fear that, uh, if, uh, tariffs remain high with China, there could be dumping of
14:18goods in this country. Is China the X factor when I look at global headwinds over the next few months?
14:25Well, I would say anybody who says they can predict what this administration will do,
14:30uh, you know, is, is being overly optimistic. Uh, I, I, I think we, uh, have seen backward, forward,
14:38left, right, uh, all kinds of moves, uh, by the administration, uh, suggesting that,
14:45you know, there isn't a, a clear overall plan. It depends to some extent. There are factions in
14:50the administration. It depends which faction has the year of the president at a particular point in
14:55time. Uh, for example, if you remember in the election campaign, it was all about, uh, you know,
15:01China being the, uh, sort of, uh, rival, geopolitical rival, and therefore tariffs had to be really high
15:08on it. Uh, but of course we've seen that in recent weeks, uh, there's more of a dialogue, uh, uh, initiated
15:16with, with China, even while, uh, you know, Europe seems to be a little more of the enemy. Uh, so I, I think
15:24it's hard to predict what will happen. Um, but almost surely, uh, I think we'll see the contours.
15:30We have to see the contours of some kind of agreement. Uh, it won't be full because trade
15:35agreements take a long time, but, uh, you know, some kind of framework, uh, soon. Otherwise,
15:42the uncertainty will kill. Professor Rajan, there's one other, uh, potential headwind looking at the
15:49future. The recently released minutes of the U S federal reserve meeting held in early May, a
15:55wand of high inflation in the United States because of Trump's policies. Now, if high inflation happens
16:01and the U S goes into recession, how worrying is that for, uh, for India? How should India be looking
16:08at that possibility? Well, if it's, uh, uh, a serious downturn and, uh, that will be accompanied
16:16by job losses, I think the fed will have, uh, at that point enough information to cut and it will
16:23start cutting what the fed will not do is preemptive cuts, anticipating that slow down because the, uh,
16:29economy has been quite resilient so far. The hard data are still, uh, maybe changes with this Friday's
16:36labor market numbers, but the hard data in the U S are still with a reasonably, uh, uh, you know,
16:42strong economy. Um, so, uh, I think every, uh, estimate of growth over the coming year is down. Uh,
16:52last year was 2.8%. This year, uh, you know, 1% seems like where a number of, uh, investment banks
17:00have coordinated, uh, and 1% means you're not that far from, uh, a recession. So, um, I think, uh, uh,
17:09the fed will certainly wait and see, uh, if the recession is bad, it's can cut interest rates. It
17:16has a fair amount of ammunition. Uh, but, you know, there's no offsetting the kinds of headwinds
17:23that we talked about earlier, which is issues like the uncertainty about tariffs, uh, the uncertainty
17:29about government policy, uh, and investments. So, um, you know, the fed can do a little bit,
17:36but it could be that, uh, you know, the downturn is hard to, uh, sort of offset at least for a while.
17:43So, but what's your sense is America is the fear of recession real?
17:50It is, it is because your, uh, your, uh, sort of baseline estimate of growth is much lower
17:57than it was at the beginning of the year as a result of what has happened so far.
18:01So you're flirting more with recession. Uh, you know, is it a certainty? No, absolutely not.
18:07Um, if everything is reversed, the tariffs are reversed, uh, could growth pick up, uh, quite
18:13strongly? Yes. But if, uh, we continue with the uncertainty, we, you know, have, uh, days of 50%
18:20tariffs, days of 100% tariffs, and then back and forth, I think, uh, the likelihood of a recession
18:26increases considerably. At this point, it's still, in my view, uh, below 50%, but it is something that
18:33depends intimately on how policy evolves. At the same time, uh, Professor Rajan, global supply
18:40chains being re-evaluated, restructured, uh, in this post-pandemic world, given also the uncertainty
18:46over U.S.-China's trade war. Could India emerge as a key beneficiary? There's a sense that this could
18:52be, as you said earlier, our moment. Is one of that moment to, uh, uh, sort of replace, if not
18:58replace, at least be seen as an alternate to global supply chains. Uh, do you believe that, uh, that's
19:03an opportunity? Or with Donald Trump speaking about making, uh, make America, America great again,
19:09even telling Apple that, you know, you don't produce in India for America. How do you see it? Is this an
19:15opportunity or is Donald Trump going to play spoiled sport? It is definitely an opportunity,
19:22but we have to be very diplomatic about it. I wouldn't trump from the rooftops that doesn't
19:28such player as bringing that supply chain in. I would, uh, keep relatively quiet about it,
19:34but do my best to attract every kind of manufacturer I can to come to the country,
19:38as well as service providers. There's no reason why it only needs to be manufacturing.
19:42Um, you know, that means doing our homework. What we've always insisted we're doing,
19:48but we need to do more of, uh, make the playing field a little more welcoming. Stop having tax
19:54demands on, on, on business people, which come out of the blue, which vitiate all their operations
20:00for many years. I mean, have some control. I mean, this is something that even within the government,
20:05you hear, uh, sort of worries about this kind of, uh, tax demand coming, uh, but the government
20:11needs to control its tax authorities. Uh, similarly, I, I think the level playing field on, uh, on rules
20:17and regulations, you can't suddenly invent a regulation to benefit Indian national champions,
20:23even while, you know, hurting, uh, foreign investors who've come in. Nobody's, uh, wants
20:30privileges, but they want some certainty about policies. And if we can give them that at this point,
20:36and rein in some of the undue demands we have, I think we could, uh, certainly, uh, you know,
20:42attract more. Of course, we also need to do homework for domestic firms, uh, you know, uh, easier, uh,
20:49rules and regulations, more transparent, as well as focus on things like land acquisition and so on,
20:55which have been often a bugbear. But that said, we've made enormous improvements in infrastructure,
21:01which I think will be helpful, uh, for whatever sets up in India. So what you're saying net net is
21:07ease of doing business based on ensuring stable policies and, and critical reforms. Am I correct?
21:14Uh, the worry is of course, that, uh, the ease of the, uh, doing business is spoken about,
21:19but on the ground, businessmen still find India a tough place to do business in.
21:25Absolutely. So I would, I would have, uh, so we had a committee, which was, uh, set up in the last
21:31budget. I would accelerate the working of that committee. The CEA has said, uh, basically that
21:37we should, uh, look inwardly to see what we need to remedy. I, I agree entirely with that view.
21:43And we should hear people on the ground. There's no point sort of ticking off
21:48thus and such doing business, uh, measures that the World Bank puts out. We need to ask business
21:54people on the ground, have things improved and utilize information technology to the maximum extent
22:00possible, both, uh, to facilitate the, uh, the, uh, compliance with rules, but also to pick out
22:07rogue bureaucrats who are, uh, you know, holding up business. We need to do that effectively if we are
22:13going to make a difference. Uh, we spoke a little earlier about the trade deal. Now, one of the, uh,
22:20concerns is potential us demands for access to India's agriculture and dairy sectors and opinion
22:27seems divided. A recent Niti Aayog working paper has argued India should offer concessions on
22:33agriculture products from us, such as edible oils and nuts where domestic supply gaps exist. Do you
22:39believe that because that has often been the big hurdle, uh, to ensuring trade deals with different
22:45parts of the world? We've just done one with the United Kingdom. Uh, do you believe it's time to open
22:50up agriculture as well? Uh, should there be a, uh, a full blown trade deal with the United States or do
22:56we go step by step? We, we should, uh, introspect and open up judiciously. Uh, I don't think agriculture
23:06should be completely off bounds. There are places where our, uh, farmers, agriculturalists, our, um,
23:13horticulturalists are competitive with the rest of the world or with a little bit of extra investment
23:19could be competitive. I think that should be seen as an opportunity. Uh, and to the extent that we can,
23:25you know, uh, do deals where they open up also, even as we open up, it may benefit both countries,
23:31but that requires looking at each and every sector with a close eye and not going in with, you know,
23:39even the word that you use concession. Uh, it may be, uh, it may not necessarily be a concession. It
23:45could be win-win if, uh, if we get access to some of their markets, uh, for our agriculturists.
23:51Uh, I mean, we need to take them into a confidence. We need to persuade,
23:55but it doesn't need to be that every time we reduce an agricultural tariff, that's a loss for India.
24:00Uh, we started, uh, this chat, uh, uh, Professor Rajan by saying that India at the moment among large
24:08economies, uh, doing relatively better. But as you said, for, uh, for the future, that's just not
24:14good enough. We need to grow at eight, 8.5%. Uh, do you believe the key therefore lies in stimulating
24:22private consumption and indeed some element of manufacturing, which really hasn't kept up,
24:27uh, with other sectors of the economy and where would you start? So if, if today, uh, you were told,
24:33uh, Dr. Rajan, how do we move from 6.5 to 8.5, given the uncertain global climate in the next couple
24:40of years, what would you say? Or should we just wait and see what happens over the next 12 months,
24:44given the uncertainties across the world? No, I, you know, my worry is we're both
24:50complacent at the business level and complacent at the governance level that, uh, somehow we've eased
24:57into this, oh, we're growing so well, we've just overtaken Japan, et cetera. We're doing fine. We're
25:02not, uh, this is the time of our maximum population dividend. And if we're not creating jobs, we're
25:08not employing people, we're not growing at two percent decades, uh, we're underperforming. And so,
25:19we need to shed this complacency, which means that, you know, look, be pragmatic. Don't go with
25:25ideological blinkers. Manufacturing is the only way or services is the only way. Do everything that works
25:31and energize the states. A lot of states now want to do more, uh, draw them in along with the center
25:39and learn from the best practices that states have. For example, Tamil Nadu has this, uh, semi-private
25:44organization called Guidance, which helps, uh, businesses from outside set up in India. Uh, they
25:51also help businesses within India set up in Tamil Nadu. Why can't we sort of roll that out more widely?
25:57Uh, learn from what, what seems to be working amongst, uh, uh, our states and, and join with the
26:05center. It can't be that the center says you invest only in this state or that state. It has to be,
26:09you invest in India. India's open. And whatever the state, uh, comes up, I'm going to support it.
26:15We need to think across every dimension at this point. There is a sense of urgency, which I feel
26:21sometimes is lacking. Uh, we need to develop that because if this time is to be our time,
26:27we need to work on every front. Uh, a final question. You've been traveling across the
26:31world. I saw you in Singapore, uh, a few days ago. How is the world looking at India? We've just
26:37gone through, as I said, this conflict with Pakistan, the uncertainty, the element of destabilization,
26:43uh, that followed that is the world looking at India, uh, with renewed eyes as a potential,
26:50uh, uh, marketplace, uh, as a global supply chain and alternate to China, or do we need to do,
26:58as you've been saying much more to get the world, to take real notice of India and the India story?
27:03Well, I, I, I think that, uh, one worry, uh, I don't want to talk about the broader, uh, issues.
27:10That is not my area of expertise, but one worry of the, uh, about the conflict with Pakistan is
27:15it raised questions about, uh, geopolitical stability in this area of the world and also,
27:22you know, in a sense, put us back in a, in a, in a bucket with Pakistan. Uh, we need to avoid that
27:29because, uh, we need to see ourselves as a much bigger global player and, uh, that, you know, we have
27:36a much more stable political regime and therefore our focus is, is beyond sort of the nitty, you know,
27:44a jit pit with, uh, uh, with neighbors. Again, I don't want to say it's, it's that. I just want to
27:49say that we need to rise above, uh, the sense that we are held, uh, on equal terms with our, uh, our small
27:57neighbors, uh, to some extent, our bigger concern is that we, uh, you know, become competitive with
28:05China, uh, and, uh, you know, uh, rather than put Pakistan, um, as, as the, um, sort of, uh,
28:15as being clubbed with Pakistan, better to be India, China, uh, and, and then we have a elevated, uh,
28:22uh, sort of, uh, uh, position in people's minds. But I think that's the world looking at India with
28:28optimism, even in these troubled, difficult, uncertain times. I think people are looking for
28:35places, uh, to invest. And I, I, I think that, uh, there are many things which are going right for
28:44India, including a large domestic market. Um, I do think that, uh, you know, uh, there are,
28:52uh, areas we need to work on. Uh, for example, if we want to improve the quality of our universities,
28:58we also need to focus on freedom of speech within the universities. Uh, that's something that is
29:04putting people off in, uh, in the US. We shouldn't, uh, you know, ensure that it puts people off India.
29:10So, uh, I, I, I think there's work to do, but I, I do think that, uh, we have a chance
29:17and, uh, it is for us to lose it. Uh, so, uh, you know, uh, let's, let's put all the effort we can.
29:26Okay. Professor Rajan, uh, as always, it's a pleasure talking to you. You've given us a really
29:31broad overview of the opportunities and challenges, uh, that lie ahead for India and indeed, uh,
29:37economies across the world. As always a pleasure talking to you. Thank you so much
29:42for giving us the time. Most welcome.
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