India's growth path lies in liberal democracy to earn world's trust: Raghuram Rajan

London: India's growth path lies in leveraging its intrinsic strengths and becoming crucial to global supply chains by building on its historic culture of tolerance and respect for all, former Reserve Bank of India governor Raghuram Rajan said here on Friday.

He stressed that India has the potential to take a leadership role in the services industry and strengthening the country's liberal democratic values was an economic necessity to earn the world's trust in this endeavour.

With reference to competing with a cheap manufacturing neighbour like China, the leading economist said India would benefit from focussing on the service component of manufacturing or services more directly as a trusted global supplier.

“Our independent judiciary, our liberal democracy, these are critical advantages if we are to go down this manufacturing service-led growth path because this will enable us to earn the world's trust; it's intrinsically necessary,” said Rajan in his keynote address at the 'Ideas for India' conference.

“We want democracy as Indians but we also want democracy to be able to convince the world that we can be trusted, that we can be effective providers of these kinds of services… we need to do our homework in strengthening our institutions, in strengthening our democracy,” he said.

Using 5G technology as an example, the well-known academic from the University of Chicago pointed out that the world would not trust such critical infrastructure being sold by an “authoritarian neighbour, or an authoritarian country” as there would be concerns around backdoors that are built in.

“When you provide consulting services, you need to convince the other place that you're not sort of getting backdoor entries to their firms, finding out what they're doing, and then use that to either get an advantage or blackmail them.

"For that you have to convince them that you are bound by the rule of law… for that we need to strengthen our democracy, our checks and balances, our data protection law. It's in our economic interest and competitive advantage relative to Chinese and Vietnamese and Russian firms,” said Rajan.

He stressed that the country's focus should be on its human capital and look beyond manufacturing more products already available in abundance, such as chips, and focus on value-added chip design.

“If we produce 10,000 engineers a year of high quality, we can be a global presence in chip design. So why not do that, rather than pour money into a bucket which is very deep… as a resource-strapped country, we need to spend much more cleverly,” he said.

Asked if he sees sufficient positives on this growth path from the ongoing free trade agreement (FTA) negotiations between India and the UK, Rajan again highlighted the importance of capitalising on services sector exchanges beyond just agriculture and manufacturing.