No space for another export-led China: Raghuram Rajan

Sounding a note of caution against Prime Minister Narendra Modi’s ‘Make in India’ campaign, RBI Governor Raghuram Rajan.

By: ENS Economic Bureau | New Delhi | Updated: December 13, 2014 3:22 am

TERMING the global economic outlook as “mediocre”, Reserve Bank of India Governor Raghuram Rajan said on Friday that it would be better for India to focus on its domestic market than emulate the export-led growth path adopted by China and other Asian countries in the past.

In the backdrop of the government’s concerted push for the Make in India programme, he added the ‘Make For India’ sub-text, suggesting production for the Indian market.

Addressing a seminar organised by industry chamber Ficci weeks ahead of the government’s first full Budget, Rajan also called for an increase in household savings rate and even advocated for tax benefits for individuals to save more.

“The income tax benefits for an individual to save have been largely fixed in nominal terms till the recent Budget, which means the real value of the benefits have eroded. Some budgetary incentives for household savings could help ensure that the country’s investment is largely financed from domestic savings,” he said.

On the government’s Make in India programme, he said there was a danger in assuming that this means a focus on manufacturing and an attempt to follow the export-led growth path that China followed. “The world as a whole is unlikely to be able to accommodate another export-led China,” said Rajan, adding that India should not have export-focussed manufacturing.

“India is different, and developing at a different time, and we should be agnostic about what will work,” said Rajan. His advice comes at a time when the government has pitched hard for reviving manufacturing by improving India’s ranking in the World Bank’s Ease of Doing Business index. He, however, lauded the government’s intent to bring the cost of doing business down, adding that infrastructure must improve.

Under pressure from the government to cut policy rates to ring in a low interest rate regime, Rajan said it was not the regulator’s job to boost the Sensex but to ensure that underlying fundamentals of the economy and the financial system are sound.

The RBI Governor also said India should not be railroaded into compromising its interest to attract FDI. Citing an example, he said, “The requirements to patent a medicine in India are perfectly reasonable, no matter what the international drug companies say — we should ensure policies are transparent and redress quick.” Rajan said if it is made easier for young Indian companies to do business, it will also make it easier for foreign companies to invest, for, after all both are outsiders to the system. “This means a transparent and quick legal process to deal with contractual disputes, and a proper system of bankruptcy to deal with distress,” he said.

Calling India an emerging economy that “weathered the initial squalls of the ‘taper tantrums’ of the summer of 2013”, Rajan said that it should focus on four aspects — Make in India, Make for India, ensure transparency and stability of the economy and work towards a more open and fair global system.

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  1. I
    IndianWellWisher
    Dec 13, 2014 at 12:28 am
    He is right - there are no fail proof repeatable formulas for prosperity - India should define its needs and work towards that solution as much as possible on its own. He is one of the most amazing people I have met. An IIT Delhi BTech alumni.
    Reply
  2. D
    dhiraj kumar
    Dec 13, 2014 at 12:28 am
    he is talking like western stooge.As of now we import 40 billion$of electronics and 500 bilion$of other industrial goods and hi tech equipments.atleast we can become self reliant.
    Reply
  3. H
    Harish Vijayaraghavan
    Dec 12, 2014 at 6:24 pm
    Comprehensive analysis by Rajan and good suggestions to the Indian economy on prevailing market conditions
    Reply
  4. B
    brahmputra
    Dec 13, 2014 at 3:22 am
    Yes Shashi go read bible where you can learn for tooth for tooth. Follow those missionaries who can teach you to divide on the name of love and make you more arrogant and learn quaran where you can learn how to marry in own family, use force and so on.Vedas, Upanishads and Gita are out of reach for you. You will understand only after western media teaches you. Take a trouble of reading Carlyle, Emmerson, Oppenheimer and you will learn the value of these Hindu scriptures.It will be hard to understand 56 inche heart of Hindus for all these secular politicians who has a brain of 5.6 millimeter if they are lucky to have it.
    Reply
  5. H
    Hiten Lakhey
    Dec 12, 2014 at 2:59 pm
    This is a very valuable thought. Often statements made by persons in politics tend to be taken in a straight literal meaning, These have been the bane for our holistic development, as development based on only one or few straight derivatives nearly often becomes lop-sided. In the few public utterances, Mr. Modi has also hinted at concepts like "Making teachers in India and exporting them". We could think of several such non industrial potentials, where if properly done, we can have a monopoly for supplydia is known for its intellectual man-power, diversity of tourist destinations, diverse foods and even ethnic / alternative medicines and healthcare possibilities. If Make in India has to be really meaningful, I fully agree with Mr. Raghuram that for making such a slogan meaningful, in our times (with such a high demand and expectation for development / developmental policies from the Government) we must first plan for translating and transforming these slogans into what could be a good starting point / policy / vision for making things happen at the ground level.
    Reply
  6. G
    G G
    Dec 13, 2014 at 8:32 am
    Difficult to understand the Governors logic!
    Reply
  7. K
    kris kumar
    Dec 13, 2014 at 9:04 am
    Rajan is talking rubbish. Make in India and made for India is fine but has to export too. There is enough space to export and beat China on its own ground. Rajan is talking nonsense when he says there is no space for India to be like China. If India can export quality stuff at compeive rate then India must use its aggressive export policy to best China or Any other country.
    Reply
  8. M
    Mini
    Dec 13, 2014 at 12:51 pm
    The danger in depending on market within India is that there will soon be a saturation point. Indians grow up thinking till the last shred of a product remains they will never buy another. Indians look for durability lasting products so where will the consumption come from? Barring a few metro cities rural India does not shop regularly. Only food and perishables will find a constant market in India. So we cannot not focus on exports else the businesses will not run!!! Another factor for people not buying is under the garb of handmade etc these days NGOs produce stuff which are not necessarily high quality but nevertheless are priced so high that it becomes way above the reach of a common man. Thus China market survives in India more than the Indian market simply because it is priced very attractivelyTo improve our markets India has to m produce and keep price low so Indians begin to turn inwards and buy Indian products thus improving the economy. Only then can it be Make in India and Make for India.
    Reply
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