Why is Raghuram Rajan cautioning against the "Make in India" campaign?

It is a very nuanced argument and Rajan's comments are probably misunderstood. Rajan says that at this current state of world economy it makes more sense to push all sectors - not just manufacturing - and we need to think beyond the exports and build a strong domestic demand. It is an important reminder from the head of the Reserve Bank to the government and a good one to remember.


Make in India is Modi's attempt at replicating the manufacturing successes of South Korea, Taiwan, China and other East Asian countries. Unlike those countries, India never built a range of factories or manufacturing infrastructure. Thus, we were left behind in the tides of time. Rajan gives his argument that the time is up for an East Asian style growth and we need to look at our own strengths.

Modi's argument wrt Make in India

  1. Manufacturing is key to employment at the lower levels. You are not going to get the rural poor work for Facebook or McKinsey. They need to be employed by factories, so that their next generation can move up and grow up in the ladder.
  2. Manufacturing is key to technology & service prowess. Superiority in that sector will have spillover effects through R&D etc. 
  3. To accelerate manufacturing, we will provide more incentives to industrialists - including a weak rupee and incentives to export.

Time to make in India?

Rajan's arguments

  1. It is great that we are making India more easy to do business, but we need to go beyond just manufacutirng. We need to have a policy that pushes all kinds of entrepreneurship instead of emphasizing too much on manufacturing.
  2. World economy is slowing down and what worked in 1970s-90s might not work now. When the world economy is slowing down, there is not enough profits to go in an export-led path.
  3. Providing more incentives for manufacturing will make us go into more debt.
  4. It is not easy to compete with China in its own terrain.
  5. Any policy that tries to discourage imports through a weak currency and/or tailor-made policies will be counterproductive and will not be best for our consumers.
  6. We need to focus more on creating an internal market rather than creating an export-centric market. For instance, US was never built focusing on exports. They built their industries focusing on domestic consumption. 

Reserve Bank of India Full Text of Rajan's speech

Make for India better approach than Make in India: Raghuram Rajan

This is an intellectual debate and both are very smart men. There is no correct answer to this. Rajan is clearly very logical, but the lingering question is how can we provide employment to the millions of people who are coming out of agriculture. If not export-led manufacturing, how else we will do that? Rajan is not very clear on this aspect. Here is a much smarter economist on this subject: Why Raghuram Rajan's pessimism about Make in India's focus on exports is misplaced : Opinion

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