The Question That Matters

In September 2026, two men who between them ran the Reserve Bank of India for eight consecutive years — through the global financial crisis, the taper tantrum, and India's ascent to the world's fifth largest economy — sat down independently and said the same things.

Neither is a political opponent of the current government in any conventional sense. Duvvuri Subbarao is an IAS officer and economist who served under both UPA and NDA. Raghuram Rajan is a University of Chicago professor and former IMF Chief Economist whose appointment spanned both governments. Both are speaking from data, not from a party position.

When two people of this calibre, independently, in the same month, identify the same structural failures — it deserves to be treated as signal rather than noise.

This piece examines what they are actually saying, what the data behind their concerns shows, where they diverge, and what both are pointing at without saying directly.

Private investment has not arrived — and a decade of public capex cannot substitute for it

This is Subbarao's first and most emphatic point. Private corporate investment remains stuck at about 11% of GDP, far below its historical peak of nearly 17% in 2008. The bulk of recent growth is coming from public capital expenditure. Public spending can kick-start an economy — but it cannot sustain it indefinitely.

Rajan frames the same point as a question: why are Indian industrialists reluctant to make larger investments? Why is foreign direct investment not coming into India in a much bigger way?

The reason private investment isn't coming is not a mystery. Both economists identify it: regulatory uncertainty, demand weakness at the bottom of the income distribution, and a business environment where the rules of engagement are not always predictable. Businesses place long-term investment bets only when they have deep confidence in both future demand and the stability of the regulatory environment.

Government capex has built the roads, the railways, the ports. It cannot build the demand confidence or regulatory predictability that unlocks private investment. India has been on that bridge for a decade without crossing it.

Growth is not creating productive employment — and the demographic window is closing

This is Rajan's central preoccupation, and has been for years. Asked once what India's three biggest economic problems were, he answered: "Jobs. Jobs. Jobs." If you get the jobs, he said, you get the development, the growth, and you reduce conflict.

Subbarao provides the structural explanation. Agriculture contributes roughly 15% of GDP but employs nearly half the workforce. Manufacturing is 13% of GDP and employs 11%. High-value sectors — IT, finance, business services — generate 15% of GDP but directly employ only 3% of the workforce.

The economy is growing in the sectors that employ the fewest people. The people are concentrated in the sectors that are growing the least. This is the precise structural reason why 7.8% GDP growth and near-zero real wage growth can coexist — and have coexisted for a decade.

Rajan's urgency is about the window closing. India's demographic dividend — 64% of the population in working age — is not a permanent condition. It closes. Every year that passes without productive employment for the 10–12 million young people entering the workforce is a year of irreversible compounding. The skills programme that was supposed to capture this dividend trained millions — and placed approximately 10% of them in jobs in their trained skill.

Skills and human capital are systemically weak — and AI is accelerating the clock

Subbarao's R&D observation is striking in its precision: India's R&D expenditure of roughly 0.7% of GDP sits well below leading innovation economies. This limits India's role in producing core intellectual property across semiconductors, artificial intelligence, biotechnology, and advanced manufacturing.

India's IT sector — the great success story — is predominantly a services export economy. It takes intellectual property developed elsewhere, applies Indian engineering talent to implement and maintain it, and exports the service. The margin is in implementation, not in creation. The moment AI automates implementation — which is already happening, visibly — the structural advantage narrows.

Rajan's framing focuses on what India needs to do to stay at the forefront of sectors where it already has a presence. Those sectors — IT, pharmaceuticals, some manufacturing — are all under disruption pressure simultaneously. Staying at the forefront requires R&D investment, world-class university output, and a domestic innovation ecosystem. India has none of these at scale relative to the challenge.

The education system produces engineers in large numbers. The quality problem inside the quantity story is acute. Neither government has confronted it at the pace the demographic challenge demands. Meanwhile AI compresses the timeline: the skills India's workforce has spent decades building in IT services can increasingly be replicated at a fraction of the cost. The moat is narrowing.

Inequality has reached a level that threatens the growth model itself

This is where Rajan is most pointed — and where the data is most damning. His concern is not primarily moral. It is economic. When the bottom 60% cannot consume, the growth model has a structural ceiling.

The top 10% of earners capture 58% of national income. The bottom 50% receive 15%. India's richest 1% expanded their wealth by 62% between 2000 and 2023 — against 54% in China over the same period. Corporate profits at India's largest listed companies grew 22.3% in FY24. Employment at those same companies grew 1.5%.

Rajan's concern is the demand ceiling: if the bottom half's consumption has not recovered to pre-pandemic levels, how long can the upper 10% drive consumption growth? The consumption that has sustained GDP in recent years is concentrated in the upper income brackets. A growth model that depends on the top decile for demand is a growth model with a hard ceiling — and that ceiling is approaching.

Breaking this loop requires either significant redistribution through taxation and public services, or a manufacturing export boom that creates employment regardless of domestic demand — as China achieved through two decades of export-led growth. India has achieved neither. The loop continues.

Same diagnosis. Different urgency. Different implication.

Subbarao and Rajan are not identical in emphasis or prescription. The distinction matters.

Both are correct. They are asking different questions about the same problem. Subbarao is asking whether the growth can continue. Rajan is asking whether it matters if it does — if it continues in its current form without reaching the majority.

What both are pointing at without saying directly

Neither Subbarao nor Rajan — both careful, credentialed, institutionally aware economists — will say directly that the headline GDP number is wrong. But both are pointing at the gap between the headline and the lived reality in ways that, combined with what we know, imply a specific conclusion.

The growth is real. It is not distributed. It is not generating employment at the pace the demographic situation demands. It is not driven by the private investment that would make it self-sustaining. It is being propped up by public capex funded through debt whose interest burden is compounding faster than revenue growth. It is producing extraordinary returns for the top decile and near-zero real income growth for the bottom half.

That is not a political assessment. It is a structural one. And when the two men who ran the RBI between 2008 and 2016 — through the worst and the best of India's recent economic history — sit down in the same month and say it independently, it deserves to be taken seriously as exactly that.