Raghuram Rajan, the former Governor of the Reserve Bank of India (RBI), courted controversy on Thursday (26th September) after he suddenly had a change of heart over India’s increased push in the ‘manufacturing sector.’
While speaking to PTI about the ‘Make in India’ initiative, Rajan stated, “I would say the intention is good. I think in some areas, we have done a lot, as I said, in infrastructure…we have done a lot that has been very useful”.
He noted that the Modi government has done well in areas such as infrastructure but claimed that a lot needed to be accomplished to promote ‘local manufacturing’ and ‘job creation.’
This is despite the fact that the Centre has already taken several measures to boost local manufacturing. This includes the launch of the Production-linked Incentive (PLI) scheme, which was criticised by none other than Raghuram Rajan in 2023.
As per the data provided by the Ministry of Commerce & Industry, the PLI scheme alone has resulted in over Rs. 1.03 lakh crore of investment till November 2023. Production/ sales soared up to ₹8.61 lakh crore while over 6.78 lakh people were employed (directly/ indirectly).
Under the ‘Make in India’ initiative, the Modi government had also eased Foreign Direct Investment (FDI) norms, created national logistics policy, a single window approval system and reduced compliance burden – all of which led to an increase in local manufacturing.
Raghuram Rajan in this dated conversation (2022) with Rahul Gandhi, sounded less like an economist, and more like Rajdeep Sardesai, when he said, ‘India would be lucky to do 5% GDP growth next year (FY2022-23)’.
— Amit Malviya (@amitmalviya) June 1, 2023
Fact is India has registered 7.2% GDP growth in FY2022-23. 7.2%!… pic.twitter.com/8GNENPjYys
During his interview with PTI, Raghuram Rajan remained fixated on growth in GDP per capita and suggested that India would not become a ‘developed nation’ by 2047.
It may be recalled that the former RBI governor, who participated in the ‘Bharat Jodo Yatra’ of Rahul Gandhi, has repeatedly made doomsday predictions about India’s economic growth (only to fail each time).
In 2022, he alleged that India would be ‘lucky’ if it achieved 5% GDP growth in FY 2022-23. In reality, India registered a GDP growth of 7.1% for the said period.
When Raghuram Rajan wanted India to focus on ‘services’ instead of ‘manufacturing’
The former RBI Governor, who is now mouthing platitudes about India’s remarkable progress in building infrastructure and boosting manufacturing, had previously shot down Modi’s government’s increased focus on manufacturing.
In April 2022, Raghuram Rajan advocated that India focus on exporting ‘services’ instead of becoming a manufacturing hub. He claimed that India somehow had an advantage in building strength in services instead of using the country’s resources on manufacturing-led growth.
“The problem for us in imitating China’s path is China has already created the backlash in the West to manufacturing-led growth. It is not that we will be able to manufacture those cheap assembly line stuff that China manufactured and sent to the US without seeing a similar kind of backlash against India. There is a lot of sensitivity to this kind of stuff today,” he had infamously said.
Again in October of that year, Raghuram Rajan lashed out at the Modi government for not following his unsolicited advice. He reiterated that India must refrain from going down the path of China in becoming a manufacturing hub.
Weightless services also consume little energy on the way to the final consumer, unlike manufactured goods. Export-led services growth will be much less environmentally harmful — the world cannot afford India to follow China’s path, even if it were open to it,” he had brazened out.
The former RBI Governor claimed that liberalisation of the manufacturing sector was fraught with diminishing returns.
“One reason industrial countries have soured on open borders is their manufacturing workers have been disproportionately hit by global
competition and outsourcing, while service workers have benefited. Both politically and economically, further liberalization of manufacturing has diminishing returns,” he had said.
Now that India is doing well in the manufacturing sector, Raghuram Rajan has begun changing his tune.
