raghuram rajan: India should focus on building (human) capacities, not chips: Raghuram Rajan


Indian students stuck in war-torn Ukraine, their peril splashed on TV screens, has brought home how many young minds leave India for higher education abroad. This is not only an economic drain on India, it shows lack of capacity in higher education where too many candidates are chasing too few, and very expensive, seats. It also shows flight of India’s biggest strength: human capital.

Former RBI governor Raghuram Rajan feels India has followed a subpar economic model for a decade that has left thousands jobless.

“Why did students have to leave India to get a medical degree especially a degree in a foreign country with an emphasis on foreign diseases which is going to be hard to translate into working back in India? Why are we exporting human capital in such a big way? Could we not retain human capital in India? We should focus on what are strengths are,” said Rajan, in an interview to CNBC TV 18.

Raghuram Rajan thinks the economic playbook India has been using for a decade is proving to be subpar, leaving an enormous number of people looking for jobs. “We are really underperforming, and I think we should recognise that,” says Rajan.

“We haven’t really had a strong recovery since demonetisation. There are bright spots. Let us not forget our services exports are doing extremely well at this point. I am told by my friends in IT sector it is extremely hard to find people, we are running full tilt,” he added.

Rajan feels India has a fixation with hardware, with building assets, when its strength is the human mind, its skills. It is these capacities which India should focus on.


“Let me give you a quick example. Any chip factory which is going to be globally competitive will require 10-20 billion; that’s what Intel is talking about. Think about how many universities that would create for India; top-class universities with top class scientists and engineers. Think about how much software, how much chip design they could do without building the chip,” says Rajan.

India can tie-up with countries for import of chips rather than getting fixated with its manufacturing.

PLI scheme: Again, the wrong focus

The former RBI governor wants an analysis of the productivity-linked incentives in manufacturing. It only benefits large industry when it is the small and medium enterprises or SMEs which are bleeding.

“I would like to see a careful analysis of PLI. Thus far I haven’t seen a careful analysis. What is PLI? It is on the one hand we elevate tariffs and on the other hand we give subsidies. Manufacturers love this; it is like the old licence raj. If you remove the tariffs, if you remove the subsidies, can they stand independently? Or are we in a permanent situation of using taxpayer money to produce?” says Rajan.

He says real damage in the economy is to SMEs, but those are not the companies applying for PLI.

“PLI is going towards the bigger firms, the well-connected firms, the Ambanis, the Adanis, the Tatas. There is an implicit benefit to scale as the government chooses the beneficiaries. So the question is why do our biggest entities have to be subsidised?” says Rajan.

He says protection once given is not easy to withdraw.

“Work on improving your capacities, rather than protection,” added Rajan.


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