Former Governor of Reserve Bank of India (RBI) Raghuram Rajan said India is not attracting enough manufacturing through the China Plus One (a strategy with which companies have looked to build manufacturing units outside of China).
Mexico and Vietnam are attracting lots of manufacturing. However, India is attracting much less than it should, Mr. Rajan said here on Saturday. He was speaking at the launch of Breaking the Mould: Reimagining India’s Economic Future, a book he co-authored with Rohit Lamba, Assistant Professor of Economics, Pennsylvania State University.
There are a lot of things attractive about India for investors, including the huge domestic market and labour force. More than subsidies, investors want clarity on policy, the former RBI Governor said, adding, “We change policy every three months. Investors are going to set up factories for 30 years or more and they expect clarity on the policy front.”
Mr. Rajan, Member Governing Council, Krea University, said one of the issues to be worried about is the subsidies offered on an investment and its return. There should be discussions about the choice of industries and why one has been chosen over the other, he added.
Mr. Rajan also said India need “not go the China way” by focusing on low-cost manufacturing. “Let us look at our competitive advantage. Let us not blindly say this is the only way to go. There are alternatives. This is the theme of the book,” he said.
Meanwhile, Mr. Lamba said one of the aspects that needs to be focused is direct services such as information technology and medical consultancy to the global audience from India. The other aspect is indirect services, where one does things that get embedded into manufacturing, he said.
Mr. Rajan and Mr. Lamba gave an example of Global Capability Centres (GCCs), where cities like Chennai and Bengaluru have fared well.
“Can we increase the number of GCCs by 10 times and also upgrade the skills of unemployable graduates and make them work in the GCCs?”, Mr. Rajan asked. “With a contained and targeted approach, one can make way for a lot of transfers towards social spending. The uncontained and untargeted approach leads to election freebies,” he said.
On freebies, Mr. Rajan said voters have to ultimately take the decision.
Lakshmi Narayanan, Chancellor, Krea University, delivered the welcome address.
In his concluding remarks, N. Ram, Director, The Hindu Group Publishing Private Limited, described the book as “an ambitious essay on the political economy”. Mass deprivation and inequality are the major challenges to be addressed in India, with corruption being another issue, Mr. Ram said.
