NEW DELHI: Sustaining economic growth of 7 per cent or more will require stronger private investment, labour-intensive manufacturing, better human capital and deeper integration into global value chains, former RBI Governor D Subbarao has said.
Subbarao also said that the challenge is not merely to grow fast, but to make growth productive, employment-intensive and resilient.
"India's 7.8 per cent growth in the first quarter suggests that the economy is more resilient than many expected... I am optimistic about India's medium-term prospects, but not complacent," he told PTI.
Recently, the World Bank raised India's GDP growth forecast for the current fiscal year to 7.1 per cent, up 0.5 percentage points from its April projections, supported by robust domestic demand and strong exports, despite global headwinds.
"Sustaining growth of 7 per cent or more will require stronger private investment, labour-intensive manufacturing, better human capital and deeper integration into global value chains... The challenge is not merely to grow fast, but to make growth productive, employment-intensive and resilient," Subbarao said.
Asian Development Bank (ADB), the OECD, and global rating agencies such as S&P and Fitch have raised India's FY27 GDP growth projection to around 7 per cent, boosted by robust June quarter economic activity and resilient domestic demand despite the West Asia conflict.
The Paris-based Organisation for Economic Cooperation and Development (OECD) has raised its GDP growth forecast by 80 basis points to 7.1 per cent for FY27.
He said that three factors have supported the first-quarter growth momentum.
"Domestic consumption has remained resilient; public investment in infrastructure has supported demand and helped crowd in private investment in some sectors; and manufacturing and services, particularly financial, real estate and professional services, have performed well."
Asked why rapid growth is not generating enough employment, he said the problem is not that growth creates no jobs; it is that the composition of growth matters as much as its pace.
"An economy can grow rapidly through capital-intensive industries, automation and sectors that employ relatively few people. Output rises, but employment does not increase proportionately. That is a central concern for India," Subbarao, who served as RBI Governor from 2008 to 2013, said.
Pointing out that millions of workers in the agriculture sector are underemployed, he said many service jobs are informal, low-productivity, and poorly paid.
Subbarao also said educated young people struggle to find suitable employment because the economy is not generating enough jobs that match their skills.
"This is not merely a labour-market problem; it is a macroeconomic concern," he said, adding that if growth does not translate into incomes for a broad section of the population, consumption demand remains constrained.
He said this weakens the incentive for businesses to invest and expand, which in turn hurts growth and creates a vicious cycle.
"We need to encourage labour-intensive manufacturing, including textiles, garments, footwear and food processing. We must also expand productive services employment, improve vocational training and make it easier for small businesses to grow into larger, more productive enterprises," Subbarao said.
Ultimately, Subbarao said economic success is not just about how much an economy produces, but how many people can earn a decent livelihood from that production.
"India needs growth that creates jobs, and jobs that raise productivity. Otherwise, our demographic dividend could become a demographic disappointment," he said.
Asked whether methodological changes in GDP estimates were made to flatter the economy, Subbarao said he would separate two questions: whether the GDP estimation methodology is sound, and whether the resulting estimates accurately capture what is happening on the ground.
He said updating the methodology is necessary as the economy changes.
"Four improvements are particularly important. Updating the base year gives us a more representative picture of the economy's current structure. Better estimates of the informal sector help capture activity that may not be fully reflected in organised businesses' accounts," Subbarao said.
"Double deflation improves the measurement of real manufacturing growth by accounting separately for changes in input and output prices. And better producer-price measures can help distinguish changes in actual output from changes in prices," he added.
According to him, these are improvements in principle, but a better methodology does not automatically guarantee that every estimate is correct.
"There are legitimate questions about some estimates, including the manufacturing deflator and differences between GDP figures and other indicators of economic activity," Subbarao said, adding that these deserve transparent technical examination, with the statistical authorities explaining the underlying data, assumptions and apparent divergences.
