NEW DELHI, DECEMBER 12:
What worked for China may not necessarily work for India. This seemed to be RBI Governor Raghuram Rajan’s advice to Prime Minister Narendra Modi on his ‘Make in India’ push.
When India pushes manufacturing exports, it will have to compete with China, and an export-led growth will not be as easy as it was for the East-Asian economies, Rajan said, adding that it may not be proper to regard ‘Make in India’ as a strategy of import substitution through tariff barriers. Rajan was addressing the Bharat Ram Memorial Seminar on ‘India’s Growth Trajectory in a Fractured World Economy: Opportunities and Challenges’, organised by FICCI here on Friday. “This strategy (import substitution) has been tried and it has not worked because it ended up reducing domestic competition, making producers inefficient, and increasing costs for consumers,” Rajan said.
Domestic demand
Stressing on ‘Make for India’, Rajan said the country should focus on domestic demand and create a unified market with a view to reducing transaction costs. “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 transaction costs of buying and selling throughout the country,” he said. He also cautioned against picking a particular sector, such as manufacturing, for encouragement, simply because it had worked well for China. “India is different, and developing at a different time, and we should be agnostic about what will work,” he stressed.
Apart from improving physical transportation network, he said, “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.”