Raghuram Rajan’s Take on India’s Industrial Policy
In a recent interview with *Frontline*, former Reserve Bank of India chief Raghuram Rajan voiced a starkly different view of India’s industrial trajectory than the one championed by many policymakers. The economist, who has long been hailed as one of the country’s brightest minds, now questions the logic behind the Make‑in‑India initiative and the allocation of public funds to manufacturing incentives.
### Budget Numbers in Context
India’s annual union budget stands at roughly ₹50 lakh crores (US$540 billion). Over the next five fiscal years (FY 2023‑FY 2027), the cumulative outlay is projected at ₹240 lakh crores (US$2.5 trillion). Within this envelope, the Product‑Linked Incentive (PLI) scheme—designed to spur domestic manufacturing across 14 sectors—has an approved envelope of ₹2 lakh crores (US$22 billion). Rajan points out that this represents only 0.8 % of the five‑year budget.
When the Ministry of Commerce and Industry disclosed the disbursed amount in February 2026, it was just ₹23,945 crores (US$2.5 billion), a mere 12 % of the allocated sum and 0.1 % of the cumulative budget. The semiconductor mission, both 1.0 and 2.0 phases, carries a similar ₹2 lakh crores allocation, amounting to about 1.7 % of the five‑year budget. In contrast, infrastructure spending occupies 22 % and subsidies 9 % of the same period.
### Manufacturing vs. Export‑Led Growth
Rajan argues that India’s focus on export‑led manufacturing is misplaced, especially as global supply chains fragment and countries seek alternatives to China. He criticises the perception that Indian industry lacks interest in venturing abroad, while simultaneously lamenting the nation’s “fixation” on export growth.
He also questions the cultural preference for government jobs, noting that many young Indians favour salaried positions over blue‑collar roles such as security guards, plumbers or mechanics. According to Rajan, a ₹20,000‑a‑month factory floor job in Tamil Nadu is often seen as superior to a driver or house‑help earning a similar wage.
### Self‑Sufficiency in Defence and Semiconductors
While not opposed to self‑sufficiency in defence, Rajan doubts the wisdom of opening the sector to private players. He stresses that India’s strategic autonomy cannot be achieved by simply importing chips. Rajan cites the example of China’s procurement of Nvidia chips through indirect channels and the challenges faced by Russia in accessing advanced semiconductor technology.
He argues that India’s diaspora—over 35 million worldwide—could help source chips, but this does not eliminate the risk of structural dependence on foreign technology. The Indian Electronics and Information Technology Minister, Ashwini Vaishnaw, has highlighted the ubiquity of semiconductors in everyday devices, urging domestic production to avoid reliance on external suppliers.
### The Role of Industrial Policy
Rajan criticises the idea of picking specific sectors for industrial policy. He suggests that policy should instead identify gaps in existing industries and address them, citing tourism and the historic site of Hampi as an example. He questions why such a framework is applied to tourism but not to manufacturing or semiconductor development.
### Job Creation and the Long‑Term Road
Rajan acknowledges that the service sector can generate jobs with modest upskilling but insists that manufacturing, high‑value production and public‑sector employment remain essential. He dismisses the 200,000 jobs created by Apple’s Tamil Nadu supply chain as a “pimple” on India’s broader employment picture and warns that building a robust manufacturing base is a 5‑ to 15‑year endeavour.
He proposes that universities should become the future industrial policy, a view that many critics see as too narrow and slow to address the urgent youth‑employment crisis.
### A Call for Balance
The economist’s overarching message is that India, with a GDP of roughly $4 trillion, has the fiscal capacity to make long‑term bets. He urges policymakers to balance incentives for both manufacturing and services, to foster private‑sector participation in defence technology, and to avoid over‑reliance on foreign supply chains.
Why This Matters
Raghuram Rajan’s critique arrives at a time when India is pushing hard to become a global manufacturing hub. His arguments force a re‑examination of how public funds are allocated, the strategic importance of domestic production, and the cultural attitudes towards employment. The debate touches on national security, economic sovereignty, and the future of India’s industrial policy.
Context
India’s Make‑in‑India initiative, launched in 2014, has attracted billions in investment and aims to position the country as a global manufacturing centre. The PLI scheme and semiconductor missions are flagship programmes under this umbrella. Rajan’s comments reflect a broader conversation about the role of the state in guiding industrial development.
What to Watch
- The Ministry’s next budget proposal will likely address the allocation to PLI and semiconductor incentives. - Policy debates on private‑sector participation in defence technology are expected to intensify. - The outcome of the semiconductor mission’s Phase 2 and its impact on India’s chip manufacturing capacity.
Sources
- "Raghuram Rajan simply does not understand India." (Moneycontrol, 2026) - *Frontline* interview with Raghuram Rajan (2026)
Tags
- Raghuram Rajan - Make‑in‑India - Indian manufacturing - Budget allocation - Semiconductor policy