Hand spectrometers to students rather than subsidies to chip makers: Raghuram Rajan

Former RBI governor Raghuram Rajan

India needs to focus on more pressing needs, such as putting spectrometers into colleges to produce first-rate science students, rather than wooing chip manufacturers with subsidies, says Raghuram Rajan.

While the former central bank governor clarified that it is not that India should never make chips, "but with every nation trying to pursue the same, it would be a ruinous race to get into now".

"Furthermore, it is far from clear how the government decides which industry, sector, or firm gets subsidies. Chip manufacturing is certainly not a labor-intensive industry when jobs are our most important challenge," Rajan said in a LinkedIn post early March 30.

Rajan's take on this comes at a time when the Union Cabinet just last month approved three semiconductor plants under its Rs 76,000 crore ($10 billion) chip subsidy scheme. Of the Rs 1.26 lakh crore ($15 billion) total investments in these three facilities, an estimated Rs 48,000 crore ($5.8 billion) will be financed by the Centre's subsidies.

The former Reserve Bank of India (RBI) governor's comments in a recent interview with news agency Bloomberg have stirred up a debate on social media, wherein he criticised the government for focussing on high-profile projects like chip manufacturing instead of fixing the education system.

In this interview, the former RBI governor also cautioned that India might be making a big mistake of believing the ‘hype’ around its soaring economic growth.

Rajan's critical take on India's growth story was rejected by many, including NITI Aayog member Arvind Virmani.

The March 30 post did touch upon the reactions to this interview, with Rajan saying that "the troll army ranted and raved about how I did not want India to develop, which is utter nonsense. Their comments are best ignored."

However, in response to a certain criticism of his take on India's push towards chip manufacturing, Rajan sought to explain his stance further.

"It is factually incorrect to say we need to have the whole chip supply chain in India to participate in segments of it. As the IT minister acknowledges, we already have 300,000 chip designers without doing any chip manufacturing. Nvidia and Qualcomm don't make chips, neither does Apple. They design them and get them made in Taiwan. Dutch firm ASML makes machines to make chips, without having major chip manufacturers in the Netherlands," he added.

Rajan then concluded his statement by saying that this is why he worries that chip subsidies are indicative of government policies that have not been carefully thought through and are certainly not the way to become a developed nation.