E-Paper
Decoding the Indian economy and how it can break the mould
"Economists Rajan and Lamba outline India's unique path to prosperity in 'Breaking the Mold', advocating for a focus on high-value services over manufacturing."
New Delhi Breaking the Mold: India’s Untraveled Path to Prosperity is a big new book by economists Raghuram Rajan and Rohit Lamba. The book is both a critique of India’s development model as well as a manifesto for reform. Most notably, it challenges the conventional wisdom that India’s primary goal should be to transform the country into a blue-collar manufacturing powerhouse.
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Lamba elaborated on his views in last week’s episode of “Grand Tamasha”, a weekly podcast on Indian politics and policy co-produced by HT and the Carnegie Endowment for International Peace. Lamba is an economist at New York University-Abu Dhabi and has twice worked in the chief economic advisor’s office in the ministry of finance. Rajan served both as chief economic advisor and governor of the Reserve Bank of India, before returning to his academic post at the University of Chicago.
Lamba told host Milan Vaishnav that India cannot duplicate China’s development model, but it can leapfrog by focusing higher up the value chain. “India has developed a comparative advantage in two kinds of services. One is direct services — think of education, telemedicine, financial services, consulting services and IT services. India is very clearly a global leader in these services for a variety of reasons like access to reasonably high-quality graduate engineers, the English language, and so on,” he explained. But he noted that India also has an opportunity to move into services embedded within manufacturing.
“The distinction between manufacturing and services is disappearing or blurring. Think of the quintessential manufactured goods, which is Henry Ford’s car. What we try to argue is that the car itself is becoming more like a mobile phone. If you see, for example, a major company that is manufacturing cars in China now is the same company that was earlier doing mobile phones. The Tesla car, for example, has 40 to 50 million lines of code written into it. So, what is manufacturing and what is services is also blurring.” Lamba cited the example of Lenskart, a prominent eyeglasses store in India, as an example of this way of thinking. “What is interesting is that Lenskart is not only selling glasses through its retail stores in many urban centers, it’s also manufacturing them itself. There are lots of interesting examples of where services and manufacturers are kind of joined at the hip…India should recognize its strength in this aspect,” he argued.
Lamba told host Vaishnav that India would need to hew to an inclusive brand of politics if it has a hope of fully realizing the economic potential of its citizenry. “There’s a view coming in now that the goal is not just to become a strong economy, it’s to become a strong civilisational state,” Lamba explained, saying that he has some sympathy with this statement given that China too used to make similar arguments. “The point is that India, unlike China, arguably enjoys a tremendous amount of soft power in the world. The power of its example India has set [into place] even before it became rich,” he cautioned. “The only singular thing India has to do now is what Nitin Pai [of the Takshashila Institute in Bangalore] once said, which is to grow at 8% for 30 years continuously and then everything else will fall into place.”
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The two discuss what the critics get right about the Indian economy, why India cannot blindly follow the Chinese model, and how India can pivot “from brawn to brain.” Plus, Rohit and Milan discuss the manufacturing versus services debate, India’s inward economic turn, and what India must do to upgrade its human capital.
