Raghuram Rajan talks of strong institutions, slams 'jugaad'

Mumbai, Sept 18: Coming down hard on quick fixes like 'jugaad' way of working, Reserve Bank Governor Raghuram Rajan on Friday did some plainspeak, saying the key to sustainable growth is strong institutional mechanisms that allow businesses to flourish.

"Jugaad, or working around difficulties by hook or by crook, is a thoroughly Indian way of coping, but it is predicated on a difficult or impossible business environment.

And it encourages an attitude of shortcuts and evasions, none of which help the quality of final products or sustainable economic growth," Rajan said while delivering the fourth CK Prahalad memorial lecture here.

"We must have the discipline to stick to the strategy of building necessary institutions and creating a new path of sustainable growth where jugaad is no longer needed," he said.

Emphasising on the need to salute businesses for operating in tough environment, he said "we need to change the system for the better, and while doing so, the business community will have to cooperate," Rajan, the former IMF chief economist, said.

"We need the understanding and cooperation of the business community, not impatience and pressure for quick impossible fixes. Only then, I believe would we realise the true potential as a nation," the academic-turned-central banker said.

Referring to the late marketing guru Prahalad's seminal work around letting businesses find their core competencies, Rajan posed a question on whether nations need to discover their strengths, but seem to advocate against any such moves for fear of vested interests dictating policies.

"It is very hard for public authorities to determine what they are, in face of massive lobbying and disinformation by some interested parties... Remember, the licence permit raj persisted precisely because some industries were favoured over others in the so-called national interest," he said.

The need for the government is to create the enabling environment in which businesses can flourish, he said.

Rajan cited the growth of the information technology sector, saying it grew largely on its own and the government only played an enabling role through investments in technical education and the working of state-owned undertakings like Bharat Electronics.

According to some academics, one should not confuse jugaad with true innovation. "CK Prahalad believed that Indian businesses were capable of scaling the world heights and so do I... There are no easy ways to the top," Rajan concluded.

PTI