Raghuram Rajan on why a China model of manufacturing doesn’t work for us

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Raghuram Rajan, who has repeatedly emphasised that India should focus on services instead of blindly following the China model of manufacturing-led growth, says goods manufactured in India can face a backlash in the West just as Chinese goods have.

It is, therefore, unwise for India to use all resources for a manufacturing-led growth instead of building strength in services where it has an advantage.

“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,” said Rajan in a conversation with MK Anand, MD, Times Network at the Times Network India Economic Conclave.

The former RBI governor has expressed unhappiness with India not being able to educate its students who go abroad in droves, as was evident to the world in the Russia-Ukraine war which saw hundreds of stranded Indian students sending SOS to the Modi Government.

“We have seen all these doctors coming back from Ukraine or students studying to be doctors. Clearly there is a lot of demand in India for learning to become doctors. We have an under supply of medical training institutions but that is an opportunity,” said Rajan at the conclave.

Rajan, who currently teaches at University of Chicago’s Booth School of Business, feels that if India is able to build a pipeline of doctors it can sell medical services abroad. It can, for instance, negotiate with UK’s overburdened NHS to sell telemedicine.

“Telemedicine increased 20% in the US during the pandemic. Why can’t telemedicine be offered from India? Now there are barriers; for instance, there is the issue of degrees. Is the Indian medical degree recognised outside? Well, if we need the equivalent, what do we need to do? For example, the National Health System in the UK is overloaded. Can we have a dialogue with the UK authorities and say we will take some of the overload off with Indian doctors from India who will do telemedicine but for that, what is the kind of certificate they need? Can we start having exams which are available to Indian doctors?”

Democratic dialogue

Rajan was in a discussion at the conclave on Democracy: The Indian Growth Advantage. He spoke on the many advantages democratic dialogue gives, although it sometimes slows down decision-making.

Decisions such as demonetisation or Russia’s invasion of Ukraine would not be made if there was a wider discussion.

“If you think about some of the poster children of autocracy today – Russia and China – you can see the consequences of having no checks and balances. Russia has got into a war that many Russians do not agree with and which is going to set the country back significantly. China seemed to be successful with its Covid policies but now it has got stuck because the Covid policies are so clearly associated with President Xi Jinping that they have no ability to back off,” he said.

“Think also about our jhatka (impromptu) decisions that were made: demonetisation or the lack of attention to vaccines. These are all areas where perhaps a little more transparency, a little more dialogue might actually have led to better decisions. You cannot have a public dialogue about demonetisation, but at least within the government, perhaps a little more checks-and-balances might have prevented us from taking that step which led to large setbacks to the economy.”

Farm laws

Rajan said the farm laws, which the Modi Government was forced to withdraw, would have gained from democratic dialogue and decentralisation.

“Experts in the agricultural area tell me that it could have been much better tailored especially if large elements of it had been decentralised to the states to figure out what worked best for them,” said Rajan.

“When you talk to farmers, they were very concerned about growing rice in Punjab which is a water scarce state, but how do you move from that? That is where the dialogue comes in. My sense is that this should not be a signal to abandon reforms but to start talking about how you would implement it in a way that first takes into account the interests of different parties but then is much more clever about how to formulate it such that it has broader appeal.”

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