What's the recipe for India's fast economic growth? Raghuram Rajan shares his insights at WEF, Davos

Former RBI governor Raghuram Rajan said too much of investments have been made in making chips globally.

Former RBI Governor Raghuram Rajan said India should use its G20 presidency to push for greater openness towards service exports. He cautioned against too much investments happening globally in chip making which could lead to a glut. Rajan also highlighted potential risks for India’s economy as China opens up.

Speaking to CNBC-TV18 at the World Economic Forum in Davos, Rajan said that one of the areas that can be beneficial for India to boost growth are more services exports.

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“One of the places we are doing quite well at this point is in our service exports. And if the world was more open to globalisation and if we could use the g20 presidency to push for greater openness towards service exports and there are many impediments to service exports many more so than manufacturing exports. That could be something very beneficial for Indian growth.”

He added that services exports face more impediments than manufacturing exports.

On the rush to make investments in chips, he said the world doesn’t need so many chips and it shows a lack of trust between countries as everyone wants to secure themselves by focusing on domestic manufacturing.

“A tremendous amount of investment has gone into chip making. The world doesn’t need so many chips, you go from nothing to a real huge glut. But every country thinks it’s important for its security. That’s an example where the lack of trust between countries creates over investment in certain areas.”

On China’s reopening, he said there is a recalibration of some of the policies. If the reopening leads to global commodity prices edging up, then it could create problems for India as the current account deficit is already high. He said China is back pedaling on some of the COVID policies just to stabilize its economy. He said China may have bitten off more than it can chew.

“From India’s perspective we would like commodity prices to be lower. Right now, the guess is as China comes up, commodity prices will go higher. And that will be a problem for India which is already running a fairly significant current account deficit. The price of oil plays an important role. But I think if commodity prices stay lower, then to some extent some of our inflationary issues become less important than they are. Our core inflation is still something to worry about.”