Interview: Raghuram Rajan - chief economist IMF

(RTR 20/04/2006) Mumbai - India's medium-term goal of growing its economy 10 percent a year is realistic if it can boost infrastructure and job creation, the International Monetary Fund's chief economist said on Wednesday.

In an interview with Reuters before the IMF's spring meeting, Raghuram Rajan said India excelled at high-skilled industries but needed to work on developing more labor-intensive sectors and also the infrastructure needed to accommodate them.

"I think it's feasible, very feasible to see 10 percent growth rates," Rajan said. "I don't think 10 percent is over-optimistic."

Rajan said a well-developed Indian financial system would be a boon in coping with risk, such high growth rates overheating the economy, creating asset bubbles or problems in resource allocation.

Earlier on Wednesday, the IMF forecast India's economy would grow 7.3 percent this year and 6.9 percent in 2007.

INDIA'S GREAT LEAP

"India, in its most advanced states, has the kinds of industries that you would see in advanced economies, not in an economy that has tremendous amounts of labor and should do low-skilled stuff," Rajan said.

"It has leaped beyond that -- but that doesn't create jobs," he added. "It creates value added, but you also need the job creation."

Rajan lauded what he called the "soft, creative, talented" industries that had mushroomed in India in recent years.

"Everybody knows about Indian software but people don't know as much about the Indian pharmaceutical companies which are growing tremendously fast," he said.

But the IMF economic counselor said there were two areas where India has faltered -- infrastructure and employment growth.

"If you have the will, infrastructure is not that difficult," he said, "and infrastructure spending can increase growth rates substantially."

"Where the government needs to work much harder is getting employment growth to pick up," he said, adding strict labor laws and poor infrastructure were preventing from India competing with the likes of China in labor-intensive businesses such as textiles and manufacturing.

Rajan said the development of India's nuclear power program also would be a benefit to both India and the global economy as its projected demand for energy soars.

"Nuclear power has to be a component for a country that is going to require so much energy going forward," he said.

"It's in the world's interests that India develop its nuclear power," Rajan said. "To the extent that nuclear power has become safer over time, it is in India's interests to use this source."