Sounding a note of caution on Prime Minister Narendra Modi’s ‘Make in India’ campaign, Reserve Bank of India governor Raghuram Rajan on Friday said too much focus on manufacturing and an export-led growth path may not work in India as it has done for China. Instead, the focus should be ‘Make for India’, which will produce for the internal market.
“I am counselling against an export-led strategy that involves subsidising exporters with cheap inputs as well as an undervalued exchange rate, simply because it is unlikely to be as effective at this juncture,” Rajan said while speaking at the Bharat Ram Memorial Lecture organised by the Federation of Indian Chambers of Commerce and Industry (Ficci).
“I am cautioning against picking a particular sector such as manufacturing for encouragement, simply because it has worked well for China… India is different and developing at a different time... we should be agnostic about what will work,” the RBI governor pointed out. “When we discuss ‘Make in India’ as something which is focused on manufacturing…an attempt to follow the export-led growth path that China followed… I don’t think such a specific focus is intended.”
Stating that such a strategy will not pay for India due to the tepid global economic recovery, Rajan said, “Other emerging markets could absorb more, and a regional focus for exports will pay off. But the world as a whole is unlikely to be able to accommodate another export-led China.”
Modi unveiled the ‘Make in India’ campaign on August 15, inviting foreign investments with a view to make India a global manufacturing hub.
When external demand growth is muted, it is critical to produce for the internal market, he added. “This means we have to work on creating the strongest sustainable unified market we can, which requires a reduction in transactions costs of buying and selling throughout the country.”
Ahead of the forthcoming Budget, Rajan also pitched for incentivisation of domestic savings, a move that would boost investments. “Some budgetary incentives for household savings could help ensure that the country’s investment is largely financed from domestic savings.”
Rajan said it is not the role of the regulator to boost the Sensex: “Financial stability sometimes means regulators, including the central bank, have to go against popular sentiment... Any positive consequences to the Sensex are welcome but are only a collateral benefit, not the objective.”
Rajan also said RBI will hold talks with the government about an appropriate timeline for the 2-6% medium-term inflation goal.