Raghuram Rajan Affirms Support For Indian Manufacturing Sector, Raises Concerns Over Fluctuating Tariff

Alongside economist Rohit Lamba, Rajan co-authored a book titled 'Breaking the Mould,' wherein they argue how significant subsidies have fallen short in generating adequate employment opportunities

Former RBI Governor Raghuram Rajan expressed his stance, clarifying that he is not opposed to manufacturing or the concept of producing more in India. However, he voiced concerns on Monday through a LinkedIn post regarding the utilisation of subsidies and tariffs in a manner that lacks transparency. 

Rajan raised questions about the government's extensive subsidies to large corporations under the PLI scheme and substantial incentives for chip manufacturing in India. Alongside economist Rohit Lamba, Rajan co-authored a book titled 'Breaking the Mould,' wherein they argue how significant subsidies have fallen short in generating adequate employment opportunities.

Some within the government view Rajan's perspective on the PLI scheme and the chip sector as opposition to manufacturing in India. The former RBI governor clarified in his post that two BJP ministers misinterpreted the message conveyed in his and Lamba's book. "We are not against manufacturing or against domestic defense production, or against making more in India. We do not advocate services at the expense of manufacturing. I would love more Indians to have jobs outside agriculture, and manufacturing is certainly one important possibility. I have long been an advocate for enhancing domestic defense production wherever possible," he wrote.

He added: “What I worry about is this government’s policies with regards to manufacturing, in which it has let the most labor-intensive parts of the manufacturing system shrivel, even while offering enormous subsidies to areas like chip manufacturing. The non-transparent way tariffs are raised and lowered is also questionable, though this is a long-standing practice in India, pre-dating this government.”

“How will making old generation 28nm chips improve national security when we will still be dependent on the rest of the world for parts of the supply chain that lead to chip production? Also, when will we be making the 3 and 2nm chips that go into state of the art cell phones? How much more in subsidies will that take? Could the subsidies be better utilized in improving our schools and colleges so that many more Indians can design chips, and as important, have decent livelihoods as plumbers or mechanics or as workers in garment or shoe factories? One could argue that one has to start somewhere. But if we can leapfrog many past generations by starting now, can’t we wait and start later (leapfrogging more generations of chips), when we have more resources to do so? Could we enter chip manufacturing at a more opportune moment?” he wrote in a long post.

“More generally, what government process determines which sectors merit subsidies, and which sectors will be protected by tariffs? Is there a document and analysis governing all this which can be shared with the Indian citizen? Or is it the whims of ministers, bureaucrats, and businesspeople that prevail?”

He concludes his post saying he is not against manufacturing but concerned about subsidies. “In sum, far from being against manufacturing, I am more concerned about the use of subsidies and tariffs in a non-transparent way, with the costs paid by the Indian people. After the electoral bond revelations, it is all the more important this government emphasize transparency,” he wrote.