Raghuram Rajan sounds note of caution on Modi's 'Make in India' campaign

New Delhi: Sounding a note of caution against Prime Minister Narendra Modi's 'Make in India' campaign, RBI governor Raghuram Rajan on Friday said it should not focus only on manufacturing.

"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, and we should be agnostic about what will work," Rajan said while speaking at the Bharat Ram Memorial Lecture in Ficci.

He further said there is "danger 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".

Modi had announced the ambitious 'Make in India' programme at his first Independence Day speech from ramparts of Red Fort to attract overseas investments and make the country a global manufacturing hub.

He said when India pushes manufacturing exports, it will have China to contend with and an export-led growth will not be as easy as it was for the Asian economies who took that path before India.

"...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," he added.

Further, he also said it may not be proper to see 'Make in India' as a strategy of import substitution through tariff barriers.

"This strategy has been tried and it has not worked because it ended up reducing domestic competition, making producers inefficient, and increasing costs to consumers," Rajan said.

He also said that India should also focus on domestic demand and create a unified market with a view to reduce transactions cost.

"If external demand growth is likely to be muted, we have to produce for the internal market. This means we have to work on creating the strongest sustainable unified market we can, which requires a reduction in the transactions costs of buying and selling throughout the country.

"Improvements in the physical transportation network... will help...A well designed GST bill, by reducing state border taxes, will have the important consequence of creating a truly national market for goods and services, which will be critical for our growth in years to come," he added.