Competing for the Future

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Competing for the Future

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Bibliographic details

• Authors: KRISHNA SRINIVASAN
• Published: September 3, 2024

Overview and thesis

• Review of Breaking the Mold: India’s Untraveled Path to Prosperity by Raghuram G. Rajan and Rohit Lamba (Princeton University Press, Princeton, NJ, 2024, 336 pp., $35).
• Reviewer: KRISHNA SRINIVASAN, director of the IMF’s Asia and Pacific Department.
• Central argument summarized: India should break from the export-led manufacturing mold followed by Japan, Korea, Taiwan Province of China, and China, and instead prioritize services that align with India’s comparative advantage.

Rationale for the authors’ prescription

• Key points made by Rajan and Lamba:
  • The labor cost advantage that once favored manufacturing in India “no longer exists.”
  • Global supply chains have become highly competitive, with sophisticated logistics enabling efficient movement of manufacturing components worldwide.
  • The manufacturing middle segment of global value chains adds only a modest amount of value; the early and late segments (R&D, design, branding, marketing) capture most value.
• Policy implication drawn by the authors:
  • India should “pivot from brawn to brain” and leverage technology to boost exports of services (examples cited: chip design and financial modeling) and expand services for the domestic market (examples cited: education and health care).
  • They caution against throwing costly subsidies at manufacturers.

Proposed reforms and areas for investment

• Major reforms and investments Rajan and Lamba call for:
  • Revamp and revitalize India’s education system.
  • Improve health care.
  • Improve data, governance, and transparency.
  • Decentralize power to bring government closer to citizens.
• Intended outcome: generate a highly skilled, idea-generating, and entrepreneurial labor force to support a services-led growth model.

Critiques and caveats offered by the reviewer

• Concerns raised by Krishna Srinivasan:
  • The authors may be presenting a false binary between manufacturing and services.
  • India does not currently have a sufficiently large skilled labor force to expand services at the scale advocated; building that workforce “will take a long time.”
  • The book does not quantify the number of jobs the proposed strategy would generate.
  • With India projected to add 15 million people to the labor force every year, the reviewer questions whether focusing primarily on services is sufficient.
  • Suggestion that India may need to create jobs “across all possible activities and in every sector of the economy,” implying a broader set of reforms could be preferable.
• Alternative policy approach proposed by the reviewer:
  • Pursue a wide swath of reforms—including improving the business environment, scaling up investment in education and health care, bridging infrastructure gaps, trade liberalization, and labor and land reforms—and allow the entrepreneurial private sector to decide where to invest.

Assessment and recommendation

• Overall verdict from the reviewer:
  • The book is recommended as “a must-read for anyone who follows India.”
  • Rajan and Lamba are praised for lucidly articulating many innovative ideas that “deserve serious attention and that should be actively debated.”

Competing for the Future — F&D Magazine review by KRISHNA SRINIVASAN, September 2024.

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