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Unlike his predecessor—Kaushik Basu—Raghuram Rajan preferred a graph depicting share in the world trade of four emerging market economies—India, China, Indonesia and Korea—over academic ones.
And then, the Professor of Finance, Booth School of Business, University of Chicago, came out with an introduction to the Survey for the first time.
The surveys for three years—2009-10, 2010-11 and 2011-12—prepared by Basu had academic sort of graphs on the cover.
In his first survey, Basu depicted a graph showing 'coupons equilibrium' which plays a key role in providing micro-foundations for Kenysian macroeconomics. The second year—2010-11—had the classic IS-LM diagram developed by John Hicks to elucidate Keynsian macroeconomics.
For the 2011-12 survey, the graph depicted Phillips curves—both short run and long run— highlighting trade-offs between managing inflation and unemployment.
As if to take the graph given by Basu in his last survey forward, Rajan devoted a whole chapter (two) on employment under the title— "Seizing the Demographic Dividend", but not through theoretical way of Phillips curve, but in a much realistic way.
Chapter 2 of an economic survey is written by the chief economic adviser.
Being a professor of micro economics in the Cornell University, Basu had devoted this chapter to Micro-Foundations of Macroeconomic Policy.
For Rajan, the crucial aspect of today's economic development is a query that disturbs the young population—"Where will my job come from?"
Said the Rajan's survey, India is creating jobs in industry but mainly in low productivity construction and not enough formal jobs in manufacturing, which typically are higher productivity.
"The high productivity service sector is also not creating enough jobs," the survey said, hitting the nail on the head.
In this context, Rajan gave the example of Mauritius, who the two noted nobel laureates— James Meade and V S Naipaul— prophesied a bleak future when it was assuming self-rule from the British. Through the "Mauritius Miracle", the island nation proved both — the economist and the litterateur—wrong.
Mauritius utilised its export processing zones to achieve the miracle, which among other things allowed firms to constantly adjust labour force through layoffs and realistic compensation.
In these difficult times for India, Rajan also portrayed a glimmer of hope, saying,"India has navigated such times before and with good policies it will come through stronger." By good policies, he meant—shifting national spending from consumption to investment, removing bottlenecks to investment, growth and job creation.
The Rajan’s survey is also 20% thinner—containing 294 pages (excluding appendix) —than Basu’s survey of 2011-12 which had 356 pages. This has saved the government Rs 15 lakh. “We want to pull down inflation here as well,” quipped Rajan.
In an interview to the Wall Street Journal, Basu had advised Rajan not to waste his energy on the small issues and matters, but dig in his heels quietly but firmly on a few matters which are important.
The advice came handy to Rajan as he remarked—policymakers are usually focused on short-run economic management issues. "But the short run has to be bridge in the long run," he said as he outlined India's challenge— to create the conditions for faster growth of productive jobs outside agriculture, especially in organised manufacturing and in services, even while improving productivity in agriculture.
