Why did students have to leave India to get a medical degree: Rajan

Amid evacuation of medical students from war-torn Ukrainem, the former RBI governor asks why India is not able to retain its 'human capital'

Former Reserve Bank of India (RBI) Governor Raghuram Rajan predicted in a TV interview that the Russia-Ukraine conflict will compound the already-high level of inflation being seen around the world. He said the war will increase inflation around the world, including India, and slow down the world economy. Russia is not a large player in the global economic scene, but it plays a significant role in global critical supply chains, said the Professor of Finance at the University of Chicago Booth School of Business in an interview with CNBC TV-18.

When asked if high inflation is likely to persist, Rajan said, "When you add the additional effects of war, it increases inflation and reduces growth, this gives greater weight to inflation. It was already becoming more persistent in the US and Europe. With the additional boost from the war, there is a risk that inflationary expectations will become more entrenched and the fight against inflation will take longer. This is not good news, and inflation will stay higher for longer."

Rajan also said Indian students stuck in war-torn Ukraine raises questions on what the country is doing to retain its "human capital".

“Why did students have to leave India to get a medical degree especially a degree in a foreign country with an emphasis on foreign diseases which is going to be hard to translate into working back in India? Why are we exporting human capital in such a big way? Could we not retain human capital in India? We should focus on what are strengths are,” said Rajan.

He said productivity-linked incentives in manufacturing benefit the large industries rather than the SMEs.

“I would like to see a careful analysis of PLI. Thus far I haven’t seen a careful analysis. What is PLI? It is on the one hand we elevate tariffs and on the other hand we give subsidies. Manufacturers love this; it is like the old licence raj. If you remove the tariffs, if you remove the subsidies, can they stand independently? Or are we in a permanent situation of using taxpayer money to produce?” said Rajan.

“PLI is going towards the bigger firms, the well-connected firms, the Ambanis, the Adanis, the Tatas. There is an implicit benefit to scale as the government chooses the beneficiaries. So the question is why do our biggest entities have to be subsidised?," he added.

Regarding the sanctions being imposed on Russia by Western countries, Rajan said they could cause a damage to the global economy as Russia is "a huge exporter of energy, critical commodities like Nickel, Palladium, Neon, Xenon as well as fertilisers and grains". The world is currently heavily dependent on carbon energy, which needs to be reduced. Focus on renewable energy may increase again, said Rajan.

"I think there is a sense that the damage is to be limited by energising other sources of supplies. So, on the oil front, for example, we have talks going on with Venezuela, and Iran, in an attempt to bring Iran's oil back. And of course, Shale, which has been very very circumspect of production because they did not want to invest too much. Shale will also come back. So over a few months, the supplies will also start responding to the high prices even as demand starts falling because of the high prices," added Rajan.

His remarks come at a time when the European Union said on Wednesday it was stepping up sanctions over Russia's invasion of Ukraine, including targeting more Russian individuals and adding banks in Moscow's ally Belarus.

The 27-nation bloc was blacklisting 160 more Russian parliamentarians and oligarchs, was banning exports of maritime navigation technology to Russia and was including crypto-assets under its punitive measures, European Commission President Ursula von der Leyen said.

The EU was also targeting the banking sector in Belarus, where Russia has amassed troops it used to attack Ukraine.