India needs low tariffs to create jobs: Ex-RBI Governor

India needs low tariffs to create jobs: Ex-RBI Governor

Former RBI governor Raghuram Rajan (Photo by Kishor Kumar Bolar)

Former RBI governor Raghuram Rajan on Thursday said a low tariff environment was necessary for India to engage globally, draw supply chains and create more jobs.

"Our problems, in general, is overly high tariffs rather than overly low tariffs. There may be some cleverness we need to figure out what works best," he said after releasing his latest book "The Third Pillar: How Markets and the State Leave the Community Behind".

"I would say engaging in such a way that we bring more supply chains to India and create more job opportunities," he said, noting that one of India's big issues is how to become a part of both the regional as well as international supply chains.

"Unless we bring down the level of tariffs, I think it is going to be very hard. You still have tariffs if the entity wants to produce in the domestic market," said Rajan, after presenting his book at a forum organised by the Institute of South Asian Studies, a think tank of the National University of Singapore.

"If you want to negotiate tariffs be clever about it but being part of this structure is really necessary to create jobs we need," said Rajan, who is a Katherine Dusak Miller Distinguished Service Professor in Finance at University of Chicago Booth School of Business.

Responding to a question on the Indian industry's concern about being part of the free trade agreements, a number of which are being talked about and negotiated by the Indian Government, Rajan said, "Initially, the industry gets concerned but eventually they adapt and eventually they are better off."

He cited the car industry in India as example, pointing out that even though it is well protected but the move from extreme protection to moderate protection had led to the development of the industry from 1,00,000 units a year to three million plus industry.

"I think over time you need to adapt to the world," he added.

Rajan's latest book offers a big-picture framework for understanding how the three forces – the state, markets and communities – interact.

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