Why everyone must listen to Raghuram Rajan on Make in India

Raghuram Rajan has a habit of getting into the headlines and it is not only for his good looks. He also asks good questions. But whether they are the right questions is a matter of perspective. His latest is on the Make In India campaign. Is the new government right in positioning Make in India as an export based manufacturing story, especially when global demand from developed world is slowing down? To me, the question is important. But at the same time one can argue that it’s irrelevant for the moment.

When the RBI governor Rajan points out that subsidising export based units to pump up India as a manufacturing giant doesn't solve the problem we are trying to solve apart from impacting the Indian currency adversely, he may be holding his governor’s cap a tad too tight. The reason is as follows.

No manufacturer today invests billions of dollars to set up factories with just "a market" in sight. Whether the "Make in India" product is "Made for India" or for any other part of the world is driven by demand and that is what governor Rajan has rightly pointed out. If demand from the world is low then why would anyone manufacture here. But why he fails to challenge us enough is because in today’s day and age logistics and planning ensure that any market in the world can be supplied to with products in a short period of time. There must be a reason why China is the biggest manufacturing hub supplying goods to United States. So the point is not whether India’s focus on "Make in India" will be the right move to either solve India’s employment problem or world demand.

The real and more relevant question the Governor needs to ask is can Make in India really happen in our lifetime?

This is a more relevant debate to have and one wishes Rajan had posed more tough questions to the government on how it will happen?

During one of my recent conversations with Amitabh Kant, we discussed the three tenets of this concept Make In India. One, facilitating the ease of doing business. Two, creating and adopting processes that allow for businesses to flourish. Three, open up the economy, bring investment and promote local production.

It is not only the RBI governor but best of critics, well-wishers and the government officials themselves are not confident whether this can happen easily. We need to ask why after so many years only a few giants have set up shop here. Take the example of Koreans versus the Japanese. Koreans came to India with an eye on the Indian market but today India is a hub for their export markets. Japanese except for Suzuki didn’t think India was important enough and hence today struggle to claim their manufacturing status in world’s export markets. It’s a difficult call to make especially when the uncertainty and challenges of setting up shop in India is the real roadblock to ‘Make in India’.

To me Make In India is a campaign that very strategically spells out to investors that you need to come with Foreign Direct Investment (FDI) and there are some rules in place to be followed. It calls for investment, it calls for transfer of technology, it calls for employment, investment commitments for long haul and it eliminates flight of money at the slightest political turbulence. The fact that government has laid out the goals, vision and the rules indicates the right intent but not necessarily all the right ingredients for success. A lot more hard work is needed. States need to be brought on board. The whole project must find a digital backbone to keep all of this effort seamless, quick and effective. Just how will the government achieve this, is perhaps the question to ask. Is this a five year plan? No. It’s perhaps a 25 year plan. And therefore a start must be made to get more machines and mechanics rolling.

If we really wanted a more spicy headline then I wish governor Rajan had suggested an alternative model to Make in India. While he is right that India is different than China and need not ape similar manufacturing led strategy, what is not clear from past economic history is whether any other sector can resolve problems such as unemployment, growth and skill development. Hope Prime Minister Narendra Modi will track Raghuram Rajan’s comments and also seek his advice in private especially since the economist did predict the financial market crash of 2008. To think all predictions turn out to be true would also be a little foolhardy.