“India Does Not Need To Follow Chinese Manufacturing Model”: Raghuram Rajan

Raghuram Rajan further highlighted that services, unlike manufacturing, can be distributed across a country and reduce pressure on megacities that are turning into heat sinks and becoming increasingly unlivable.

The former governor of the Reserve Bank of India (RBI), Raghuram Rajan has endorsed a services-led export model for India, instead of following China’s manufacturing-led export model. In a lecture on globalization and climate change, the economist explained that services c

“Weightless services also consume little energy on the way to the final consumer, unlike manufactured goods. Export-led services growth will be much less environmentally harmful – the world cannot afford India to follow China’s path, even if it were open to it,” the former RBI governor said.

Rajan further said liberalizing manufacturing has diminishing returns and is politically fraught.

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“One reason industrial countries have soured on open borders is their manufacturing workers have been disproportionately hit by global competition and outsourcing, while service workers have benefited. Both politically and economically, further liberalization of manufacturing has diminishing returns.”

Raghuram Rajan further highlighted that services, unlike manufacturing, can be distributed across a country and reduce pressure on megacities that are turning into heat sinks and becoming increasingly unlivable.

“The production of these services can be distributed across a country. In developing countries, this will reduce the burden on the large megacities that are becoming heat sinks and increasingly unlivable. It will also generate a source of income and a reliable stock of human capital to seed rural communities that would otherwise lack the economic capacity to survive the loss of agricultural incomes,” Rajan explained.

It’s not the first time, Rajan has advocated an increase in spending on education and skill-based training to serve the youth with employment and growth. He has also several times pointed out that India needs to differentiate itself from blindly following the manufacturing-led growth, which has been a Chinese economic reality for a long period of time.

Rajan’s thought on the services-led growth model has also been echoed by noted economic commentator Swaminathan Aiyar. Writing for The Economic Times, Aiyar argues that India needs to focus on the services like education and health that have been grossly underfunded for years. In terms of uplifting the economy, these sectors need to be taken care of along with IT.

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