Raghuram Rajan (former RBI governor) and Rajeev Chandrasekhar (Minister of State for Electronics) clash over the success of a Central government scheme to boost electronics manufacturing.
Rajan, along with two economists, released a paper suggesting the scheme doesn't lead India towards self-sufficiency but creates low-level assembly jobs reliant on imports.
Alleges that the government uses taxpayer funds to establish an ecosystem of assembly jobs, lacking self-sufficiency.
Chandrasekhar dismisses the paper, calling it a concoction of "half-truths" built on "shoddy comparisons."
Argues that only around 22% of mobile phone production in India is supported by the scheme.
Production-Linked Incentives (PLI) Scheme
Government's approach to promote manufacturing by raising import duties (stick) and offering subsidies and incentives (carrot).
PLI scheme rewards companies, foreign or domestic, that manufacture goods in India based on a percentage of revenue for up to five years.
Smartphone manufacturing particularly enthusiastic about the scheme; e.g., Micromax, Samsung, Foxconn.
Mobile phone exports surged from $300 million in FY2018 to $11 billion in FY23; imports dropped from $3.6 billion to $1.6 billion.
Imports of mobile phone components (screens, batteries, etc.) increased alongside the surge in exports.
Suggests that India's manufacturing lacks self-sufficiency; companies import parts for assembly, not full-scale manufacturing.
Low-level assembly work offers limited well-paying jobs and has a weaker multiplier effect.
Chandrasekhar Challenges Rajan's assumptions, indicating imported components might be used for various products.
Clarifies only around 22% of mobile phone production is supported by the PLI scheme.
Acknowledges low "value-addition" in mobile manufacturing but believes it will improve over time.
Dispute centers on whether the PLI scheme will create lasting jobs and establish India as a value-adding manufacturing hub.
Chandrasekhar believes the results will take time to show.
Rajan emphasizes the opportunity cost, suggesting funds could have been used for other economic improvements like education.
COMMENTS