Infrastructure Progress Not Enough, India Must Boost Manufacturing: Former RBI Governor Rajan

In a recent interview, former Reserve Bank of India (RBI) Governor Raghuram Rajan has commended India's significant progress in infrastructure development over the last decade but emphasized the critical need to enhance local manufacturing and job creation.

Acknowledging Infrastructure Success

Rajan praised the Indian government's efforts in improving the country's infrastructure, noting that substantial advancements have been made in this sector. "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 stated in an interview with PTI.

The Need for Manufacturing Boost

Despite the infrastructure successes, Rajan stressed that more needs to be done to boost local manufacturing and job creation. He highlighted the importance of creating an environment that fosters growth in both the manufacturing and services sectors. "We need to check the other places. And the best way to check is to ask critics, what do you think? What has happened? Has it happened the way you want it? Should we do more? You get feedback, and then you work along," Rajan advised.

Ease of Doing Business

Rajan also emphasized the need for greater ease of doing business, particularly in terms of government policies and the reduction of fear among businesses regarding raids by inspectors or tax authorities. He suggested that the government should engage more closely with businesses to understand their challenges and address them effectively. "There's a package which creates the environment where growth happens, and I think if we focus on that, it would strengthen the concept of Make in India," he said.

Critique and Feedback

The former RBI Governor underscored the importance of seeking feedback from critics and not dismissing criticism as having vested interests or hidden agendas. "We want praise, we love everybody who comes to praise us, which is good, but of course, then people understand that if they are more critical, they probably will not get heard," Rajan noted, emphasizing the need for a balanced approach to feedback.

'Make in India' Initiatives

Rajan discussed the 'Make in India' initiative, launched 10 years ago, and acknowledged the various measures taken by the government to boost local manufacturing and exports. These include the rollout of production-linked incentive (PLI) schemes for 14 sectors, easing of foreign direct investment (FDI) norms, reduction of compliance burden, a single window approval system, and the national logistics policy.

Economic Growth and Development Goals

When questioned about whether a 7% economic growth rate is sufficient for India to achieve the status of the third-largest economy and become a developed nation by 2047, Rajan expressed some concerns. While he acknowledged that a 7% growth rate could help India surpass the economies of Germany and Japan in a few years, he emphasized that becoming a developed nation requires more than just high GDP growth. "What is more worrisome, however, is when we say a developed nation. Now, what does it mean to be developed now? That is also a changing metric," Rajan said, suggesting that achieving a per capita GDP of around $15,000 by 2047 would be a more meaningful indicator of development.

Education Reform

Rajan also highlighted the critical role of education in India's sustainable development. He advocated for a "laser focus on education" to improve the skill base and education standards in the country. "From the country's perspective, we absolutely need a better skill base, better education base," he emphasized.

Previous Stances on Manufacturing

Interestingly, Rajan's current stance on manufacturing contrasts with his earlier views. In April 2022, he had suggested that India should focus on exporting services rather than becoming a manufacturing hub, citing potential backlash from Western countries and environmental concerns. However, his recent comments reflect a shift towards supporting the 'Make in India' initiative and the need to enhance manufacturing capabilities.

In conclusion, while India has made significant strides in infrastructure development, the former RBI Governor's insights underscore the imperative need for a holistic approach that includes boosting local manufacturing, improving the ease of doing business, and prioritizing education reform to achieve sustainable economic growth and development.