New Delhi: India must turn strong economic growth into productive jobs and broader income gains to sustain an expansion of 7 percent or more, former Reserve Bank of India Governor D Subbarao has said, calling for stronger private investment and a greater emphasis on labour-intensive manufacturing.
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While expressing confidence in India’s medium-term prospects, Subbarao cautioned that the pace of growth alone would not determine its durability. Investment in human capital and deeper participation in global value chains would also be essential.
"India's 7.8 percent 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.
His comments come as several international institutions have upgraded their growth projections for India, citing resilient domestic demand and strong economic activity despite global uncertainty and the West Asia conflict.
The World Bank recently raised its forecast for the current financial year to 7.1 percent, up 0.5 percentage points from its April estimate, supported by domestic demand and exports. The OECD increased its FY27 projection by 80 basis points to 7.1 percent, while the Asian Development Bank, S&P and Fitch have also raised their estimates to around 7 percent.
Subbarao identified resilient consumption, public infrastructure spending and a strong performance by manufacturing and services as the principal drivers of first-quarter growth.
"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."
However, sustaining that momentum would require growth to become more employment-intensive and resilient, he said.
Asked why rapid economic expansion was not generating enough employment, Subbarao said the composition of growth mattered as much as its speed.
"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," said Subbarao, who headed the RBI from 2008 to 2013.
Millions of agricultural workers remain underemployed, while many service-sector jobs are informal, poorly paid and characterised by low productivity, he noted. Educated young people also face difficulty finding work suited to their skills.
"This is not merely a labour-market problem; it is a macroeconomic concern," he said.
When growth fails to raise incomes across a broad section of the population, consumption remains constrained. That weakens the incentive for businesses to invest and expand, creating a cycle that can ultimately slow economic growth, he explained.
Subbarao called for policies that support industries capable of employing large numbers of workers, alongside better training and opportunities for smaller enterprises to expand.
"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," he said.
Economic success, he argued, should be measured not only by output but also by the number of people able to earn a decent livelihood.
"India needs growth that creates jobs, and jobs that raise productivity. Otherwise, our demographic dividend could become a demographic disappointment," he said.
On whether changes to GDP estimation methods were intended to flatter economic performance, Subbarao distinguished between the soundness of the methodology and the accuracy of the estimates it produces.
Updating statistical methods is necessary as the economy evolves, he said, identifying a revised base year, better coverage of informal activity, double deflation and improved producer-price measures as important reforms.
A more recent base year can better reflect the economy’s structure, while improved informal-sector estimates can capture activity missed in organised businesses’ accounts. Double deflation accounts separately for input and output price movements to improve the measurement of real manufacturing growth.
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These changes are improvements in principle, Subbarao said, but do not automatically ensure that every estimate is accurate.
"There are legitimate questions about some estimates, including the manufacturing deflator and differences between GDP figures and other indicators of economic activity," he said.
Such concerns merit transparent technical examination, with statistical authorities explaining the underlying data, assumptions and reasons for apparent divergences, he added.
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