Former central bank governor Raghuram Rajan says India is making a big mistake by believing the “hype” of its strong economic growth as the country needs to address major structural issues to realize its potential.

Rajan said in an interview that the biggest challenge the new government must address after the election is improving the education and skills of the workforce. He said that if this issue is not addressed, it will be difficult for India to benefit from its youthful population, as more than half of India’s 1.4 billion people are under the age of 30.

“The biggest mistake India can make is believing the hype,” he said. “We have many years of hard work to do to make sure the hype is real. Believing the hype is something politicians want you to believe because they want you to believe we have arrived.” But he added, “India has succumbed to this Such a belief would be a grave mistake.”

Mr Rajan dismissed Prime Minister Narendra Modi’s ambition to make India a developed economy by 2047, saying “if so many children have not received a high school education” and the dropout rate is high high, then talking about this goal is “nonsense.” High.

“Our workforce is growing, but that’s a bonus only if they’re in good jobs,” he said. “In my opinion, this is the tragedy we may be facing.” He said that India first needs to improve the employability of its labor force and secondly create jobs for the existing labor force.

Mr. Rajan cited research showing that the learning ability of Indian schoolchildren after the pandemic dropped to pre-2012 levels, and that only 20.5% of third-grade students can read second-grade texts. India’s literacy rate also remains lower than other Asian countries such as Vietnam.

“This is a number that should really worry us,” he said. “This lack of human capital will be with us for decades.”

Rajan said India needs to do more to achieve sustainable 8% growth, undermining some recent optimism about the economic outlook.

Foreign investors have flocked to India to take advantage of the rapid expansion of the Indian economy, which the Indian government expects to grow by more than 7% in the next fiscal year, making it the fastest-growing major economy in the world.

Rajan said the Modi government made a wrong policy choice by spending more on chip manufacturing subsidies than the annual budget for higher education. Subsidies for semiconductor companies to do business in India are estimated at 760 billion rupees ($9.1 billion), while subsidies allocated to higher education are 476 billion rupees.

He said the government was too focused on high-profile projects like chip manufacturing instead of working on fixing the education system to produce the trained engineers those industries need.

“The government’s ambition is real, to become a great nation,” he said. “Whether they focus on what needs to be done is a different question. I worry that we are becoming more focused on prestige projects that signal greater national ambitions, such as chip manufacturing, while leaving behind a foundation that will help drive future development .Sustainable chip manufacturing.”

Mr. Rajan, a professor of finance at the University of Chicago Booth School of Business, is a well-known global economic commentator and an outspoken critic of Indian policies. He left the RBI to enter academia in 2016 after failing to extend his term as governor after coming under attack from hardline politicians for his views.

He recently co-authored a book titled Breaking the Mold: Reimagining India’s Economic Future and has posted a series of videos on his LinkedIn profile providing perspective on India’s growth prospects.

In addition to improving education, Mr. Rajan highlighted some of the new government’s policy priorities, including reducing inequality and increasing labor-intensive production. He also said that India’s governance system is too centralized and devolution of control to states will help improve development.

“What we need is a pragmatic approach,” Mr. Rajan said. Rajan quoted Deng Xiaoping, China’s former leader of economic reforms, who said that if India wanted to learn anything from China, it should be that “it doesn’t matter whether the cat is black or white, the important thing is to catch the mouse.” He said.

(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)