Disagreeing with Raghuram Rajan.
Disagreeing with Raghuram Rajan.
India MOST DEFINITELY needs Manufacturing jobs.
For a few months, Raghuram Rajan has advocated for pushing Services jobs against Manufacturing jobs. [FT May 13, 2024 | PS May 28, 2024 | FT June 9, 2024]
Raghuram Rajan has an impressive resume.
He is a Professor at the University of Chicago Booth School. He was the Chief Economist and Director of Research at the IMF and most astutely warned of the Great Recession of 2008. He was the economic advisor to the Government of India until 2013 and Governor of the Reserve Bank of India until 2016. Currently, he is the unofficial economic advisor of the Congress Party and a potential candidate for the post of Finance Minister if the Congress Party comes to power.
So we should take note when he says something.
Without indulging the sly critique of the present government, the gist of his argument is thus.
The government should not excessively promote manufacturing as China did.
The world does not need it or is against it: There is no economic space for a mercantilist-manufacturing country now that China is already here and creating distortions.
India is strong in Services; hence, it should focus on it. Within services, India should aim higher and go faster. Focus on developing Intellectual property rights and leveraging technology (for remote consulting, design, films, entertainment, content, storing medical and financial data, etc.).
Strong Service growth will create support services jobs. The argument is that when there is a lot of growth in the high-end services described above, you will invariably create low-end service jobs like plumbers, hairdressers, and caregivers.
Not against manufacturing. Raghuram Rajan is not against manufacturing, just that he does not want the government to subsidize and actively seek out manufacturing growth. He would like Indian manufacturing to be organically competitive not sustained or fed by government subsidy or policy support.
Subsidy money can be spent elsewhere. Government assistance to bring in manufacturing is better directed at eradicating poverty.
As an example, he cites investment in DRAM chip processing in Gujarat, which received a Government subsidy of $2 billion. This, to an extent, mirrors policy deployed first by Japan, then by Korea, Taiwan, China, and, most recently, by the US itself.
But I disagree with him.
Here are some of the reasons:
India Growth—Many Big Ideas: In my 2019 ebook with this title, I explained the very same issues that Rajan highlights. I highlighted that other countries grew by seeking their growth outside. I also noted that we are entering a period of geopolitical quagmire and that the era of trade openness has almost ended. However, I drew a different conclusion than Rajan.
The window of growth opportunity is short. Unfortunately, India slept during the most easy times between 1990 and 2015. Those 25 years have created enormous performance pressure. Despite the scale, scope and volume of work put in by this BJP-led government, we still have to do more. Indian demographic advantage will last until about 2050 or so. It is peaking right about now, and we are just getting ready to turn it into an advantage.
We do not have the luxury of choosing our growth engine. If we waste our time pondering the slow-ideal, clean-cut way to grow, we will never get to it. Our growth will be messy, frantic, and chaotic. But we have no choice. We have to light all the fires all at once. India needs every dollar of growth it can find.
India needs BOTH domestic demand AND export demand. We will have to serve the Indian demand as well as global demand. If we can, we should do import substitution, and if we can, we should out-compete the trade-dumping suppliers. We
India needs BOTH manufacturing AND Services. Just as we do not have the luxury to choose between domestic and export demand, we do not have the luxury to choose between manufacturing and services. We need it all.
Indian Solutions to Indian problems and Indian Solutions to Global problems will provide the best opportunities for growth. We need our entrepreneurs to scout the country and the world for problems to solve in a uniquely Indian way. We will need cutting-edge innovation to deliver world-class solutions.
Matching Job Profile with Skill Profile of the Economy: Since my 2010 book Subverting Capitalism and Democracy, I have been writing about the need to match the Job Profile of the economy with the Skill Profile of human resources available in that economy. From 1947 till 2015, we did not do enough to develop the skill profile of India. This deficit is not easy to make up. It will take another 20 years at least. Till then, we will need jobs that match the skill profile we actually have in the country. And that means Manufacturing jobs.
Manufacturing as a strategic necessity. Certain manufacturing industries are critical to maintaining the strategic autonomy required to defend our country and not have reliance on suppliers that may be choked, overwhelmed or restricted from helping us. This includes Pharma, Defence and Semiconductors, among others. We will have to develop world-class capacity in such industries irrespective of the investment required.
Your arguments are on point!
I agree a 100%.