Interview: Rajan, Lamba seek honesty, data, debate in Indian policymaking

For Rajan and Lamba, the level of growth India needs is going to come from moving up the manufacturing chain. Key to that is investing in human capital.

That Raghuram Rajan and Rohit Lamba are not fans of the production-linked incentive (PLI) scheme – the Indian government's flagship programme to boost domestic manufacturing in certain sectors – is not news. The two have written multiple newspaper columns about the scheme's inefficiencies and the huge amount of money that is being given to companies in the form of subsidies.

However, what probably worries them more is the government's overall economic vision, or lack thereof.

"Our sense is we are going fast down the old China path," Rajan, a former Reserve Bank of India governor, told Moneycontrol in an interview ahead of the release of his new book, Breaking the Mould, co-authored with Rohit Lamba, assistant professor of economics at Pennsylvania State University. "The problem with this vision is that the world has sort of moved on… this notion that the old, export-led growth in manufacturing is going to be available to us just like it was available to everybody else fails to recognise the reality."

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For Rajan and Lamba - who twice served as an economist under Rajan and Arvind Subramanian when they were the government's chief economic advisers - the PLI scheme is a failure on two counts. Not only is money being thrown down a well that has run dry, but it is also at the cost of other sectors where India can challenge the rest of the world.

"Why are we so fixated on manufacturing chips when, in fact, the design is where the high-end of the value added is? This is what we keep asking: what is the vision? There seems to be a very narrow vision. And if we are to become a 21st century power, our vision has to be much broader and it has to focus on our greatest strength – our human capital, our 1.4 billion people, making sure every one of them has a chance," Rajan said.

Show us the data

Through their newspaper columns, Rajan and Lamba have looked to expose what they think is a serious miscalculation in India's economic policy. And while they don't think it is because government officials are not applying their minds, there is a need for greater "intellectual honesty", Lamba said.

"I understand that there is a burden on high-level of polity to really package its message. But if you come one level down, we should really be having a much more honest debate about the policies that are being put in place and whether they are working or not," he said, picking up the example of the proposed Micron chip assembly and test facility in Gujarat, for which the government has set aside around Rs 16,500 crore ($1.97 billion) – more than a third of the country's entire higher education budget for 2023-24.

During the conversation, the government's decision to impose restrictions on the import of laptops and PCs in August – now partially rolled back – came up. And the two economists could not hide their amazement.

Rajan: "I am hopeful that our government is still interested in the welfare and growth of its people."

Lamba: "There are a lot of smart people sitting in government making this policy. Has somebody done the math?"

For Rajan and Lamba, the level of growth that India needs will come from moving up the manufacturing chain. And the key to that is investing in human capital – something both insist can be done without the government having to admit the PLI scheme has failed.

"Even within the same framework of providing jobs to people, you can repackage this scheme and say the time is up for subsidies and let's really try to train our people well. That's what's going to generate the next round of jobs. So, I don't think it's a political hot potato," Lamba said.

Hope in debate

Rajan is no stranger to criticism, having been accused of harbouring political ambitions due to his disapproval of the Narendra Modi government's policies and joining Congress leader Rahul Gandhi on his Bharat Jodo Yatra. And some of that disapproval has managed to creep into his LinkedIn account.

"Early on, my children told me not to read the comments (on his posts). And so I don't. If I read them and internalise them, I would stop writing," he said.

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But their arguments are seemingly seeping through into the wider discourse.

"Initially, when we had just put out a piece – Raghu is used to this, I am not – my father called me and said, 'Beta, I looked at Raghu's LinkedIn. There are so many comments there. You really need to write on this'," Lamba said, laughing.

And that is what Rajan and Lamba hope to achieve with their new book – to get ordinary citizens talking and debating policies.

"Rather than get stuck in these WhatsApp debates about our history, let's debate the future: how do we get more Chandrayaans going rather than focus on what happened between Aurangzeb or Guru Tegh Bahadur? This, to our mind, is how the dialogue needs to move – and not a tu-tu-main-main debate and insulting each other," Rajan said, with Lamba adding that history should be used for inspiration, not for living.