Former Reserve Bank governor Raghuram Rajan, who's now a professor of finance at U.S.-based Chicago Booth School of Business, says the high unemployment rate in India is a real danger, especially for the lower-middle-class, as it creates room for "entrepreneurial politicians who cater to these divisions" rather than focussing on actually enhancing jobs.

Rajan, during an interview with Promarket, a publication funded by the Stigler Center at the University of Chicago Booth, says tensions could grow in India if minorities including Muslims and women are not part of strong, sustainable and equitable growth.

"If we focus on just the Indian growth number right now, we’re not doing too badly apart from the dramatic plunge during the pandemic but if you add in that the women’s labour force participation is worse than in Saudi Arabia — people don’t believe me when I say this — these are pressing issues that need to be solved," he adds.

On the worse economic situation in India's neighbouring countries like Pakistan and Sri Lanka, Rajan thinks it'll not have any ripple effect on India, apart from the possibility of economic refugees. However, he thinks neighbours who are hungry or don't have fuel to heat homes or cook food make for a "volatile neighbourhood".

"We already have enough problems of our own without having a neighbourhood that’s going to become more radicalised," adds Rajan.

Rajan says India is sending fuel, food and other supplies to the bankrupt nation but the real worry is that it'll get only a fraction back of the money being lent on humanitarian grounds. "So there has to be some kind of guarantee provided by international organisations or other creditors that this money will not be treated on par with existing debt."

However, India should continue to supply things like food as part of goodwill and as a "friend in need", he says.

Raghuram rajan on unemployment

India’s high unemployment is ‘real danger’: Raghuram Rajan