An unrealistic vision of the future

'Breaking The Mould' is a pushback against production-linked incentives, but the alternatives it offers are not logical

- Rahul Jacob

Decades ago, the great trade economist Jagdish Bhagwati observed that India’s "misfortune” was to have almost too many "brilliant economists, an affliction that Far Eastern super-performers (Taiwan, Korea, etc.) were spared”. His point was that there were always going to be Indian economists ready to argue one view or another and frequently justify government policy, no matter how misguided. Former Reserve Bank of India (RBI) governor Raghuram Rajan has long been an exception. His RBI press conferences were renowned for clear-eyed and accessible explanations of monetary policy, and he opposed demonetisation. During his three-year tenure that began in the midst of the 2013 taper tantrum caused by sharply rising Treasury yields and ended in 2016, the rupee was stabilised and inflation brought down.

In his latest book, Breaking The Mould: Reimagining India’s Economic Future, co-authored with Penn State professor Rohit Lamba, Rajan begins well by explaining why the Narendra Modi government’s subsidies to boost the manufacturing sector are the wrong strategy. But then the authors stumble in suggesting unrealistic alternatives such as moving the economy towards high-end services, including global capability centres for large investment banks and consulting firms, while turning India’s back on competing for low-end manufacturing because the margins are razor-thin. This is an overly defeatist approach regarding prospects for manufacturing in India, reminiscent of the export pessimism former Prime Minister Manmohan Singh argued against in his PhD thesis at Oxford in the 1960s.