V Anantha Nageswaran, the chief economic advisor to the finance ministry, has defended the government's Production-Linked Incentive (PLI) scheme by stating that policymaking is similar to venture capitalism and that one must be prepared for failure.
He compared investing in the 14 sectors covered by the PLI scheme to venture capital investments, in which not all investments are expected to succeed.
According to Nageswaran, if some of the sectors are successful and are able to establish a global presence in the global supply chains, the PLI scheme will have achieved its intended purpose. Nageswaran made these comments during a discussion in the Capital hosted by the University of Chicago's Harris School of Public Policy.
"Students of public policy should remember, policymaking itself is an entrepreneurial venture. But you have to be prepared to fail, you have to be prepared to reverse course if it fails, and you have to have the information and the data to know whether you are succeeding or failing," Nageswaran added.
In addition to his defense of the PLI scheme, Nageswaran also emphasized that policies cannot be rigid or driven by ideology, and must be tailored to the specific context. He argued that while policies involve some risk of failure, they are necessary for progress.
However, the PLI scheme has faced criticism from some quarters, including former Reserve Bank of India governor Raghuram Rajan. Rajan has expressed concerns about the amount of money being spent on manufacturing sector subsidies, arguing that the same amount could create more jobs if directed towards services.
He made these comments in a conversation with students at his alma mater, the Indian Institute of Management in Ahmedabad, in late October.
"Rather than manufacturing chips, which is a very capital-intensive and low-labor-intensive business, could we instead design chips, which is a very high-value-added business where we have the potential because of our smart engineers and management people," Rajan had said on October 26.
While Nageswaran did not name Rajan - who happens to be one of his predecessors - in his remarks on March 6, he said there is "a lot of misunderstanding" when it comes to the PLI scheme.
"Some people say that it is very costly. How can it be costly? If they (manufacturers) don't produce, they don't get paid. There is no fiscal cost. If they succeed in producing above the benchmark, then they get paid. That's a fairly sensible arrangement," the current chief economic adviser said.
Nageswaran also commented on the Indian economy more broadly, stating that he believes India's potential growth rate to be in the range of 6.5-7 percent, which is higher than the estimates of non-government economists. However, he also noted that extreme weather conditions could pose a significant risk to agricultural output and potentially impact growth.
"Naturally, if these weather forecasts - which are no more reliable than economic forecasts - turn out to be accurate, it's going to be an important challenge to handle," Nageswaran said.
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