Introduction:
Raghuram Rajan addresses the significance of liberal democracy in India’s development, dispelling the notion that authoritarian leadership is necessary for economic growth.

Outdated Development Model:
The current argument favoring authoritarianism is based on an outdated development model that emphasizes goods and capital, neglecting the importance of people and ideas.

Economic Underperformance:
India’s recent economic underperformance indicates the need to rethink the current approach to development.

Strengthening Liberal Democracy:
Strengthening liberal democracy and its institutions is essential for India’s future growth.

Consequences of Majoritarian Authoritarianism:
Attempting to marginalize a large minority divides the country, creates internal resentment, and weakens it against foreign meddling, as seen in the case of Sri Lanka.

Moral Imperative:
A just, liberal, democratic society allows citizens to flourish socially and politically.

Liberalism and Religion:
Liberalism is not anti-religion; it seeks out the good in everyone, similar to the essence of major religions.

Economic Rationale for Liberal Democracy:
India’s economic rebound is hindered by global factors like the war in Ukraine and rising interest rates.

Role of Liberal Democracy in Economic Growth:
Liberal democracy promotes economic growth by encouraging innovation, entrepreneurship, and human capital development.

Conclusion:
India’s future lies in strengthening liberal democracy, not weakening it.

India’s Economic Growth Rebound:
India’s economic growth rebound is positive, but it follows two disastrous fiscal years. Growth is not inclusive; India’s poorest citizens continue to suffer. Scarring of low middle-class households and MSMEs will suppress domestic demand.

Underperformance Predates the Pandemic:
India’s slow growth is not entirely due to the pandemic. Underperformance began around the global financial crisis. Inability to create good jobs for youth is a key measure of underperformance.

Women’s Labor Force Participation:
India’s female labor force participation is among the lowest in the G20. Only Saudi Arabia had a comparable rate, but it has since improved. If more women worked, India would be richer, and youth frustration would be reduced.

India’s Economic Successes:
India achieved 7% growth for 20 years after the 1991 reforms. Notable successes include the Aadhaar scheme, UPI, and various unicorns. There are many examples of Indian successes, such as ISRO and the Thomas Cup badminton team.

Constructive Criticism for Improvement:
India needs to assess its failings critically to avoid continued underperformance. Questions about why India is faltering and not creating enough jobs are raised.

Factors Contributing to Past Growth:
Enabling people with capabilities and empowering them to seek better futures. Freeing up access to opportunities. Governing with a dynamic and sensitive touch, open to criticism and willing to learn.

Education, Infrastructure, and Government Reforms:
Doubling of schooling years between 1990 and 2010. Steady liberalization of tariffs and regulations. Infrastructure investment, including highways and rural road projects. Implementation of Panchayati Raj and the Right to Information Act. Shift towards letting the energy of the people and competition decide.

Overview:
Raghuram Rajan critiques the Atmanirbhar vision, which centers around self-reliance. While it continues past reform efforts in terms of infrastructure, it also reverts to a failed past emphasis on physical capital, protectionism, and favoritism.

Misplaced Priorities:
Rajan highlights the neglect of human capital, particularly in education. The tragedy of school children, especially the poor, dropping out due to the pandemic is not being adequately addressed.

Remedial Education:
Rajan emphasizes the need for remedial education to help children who have missed out on schooling during the pandemic. He cites the innovative scheme in Tamil Nadu, Ilam Thedi Kalvi, which aims to hire workers to provide remedial learning and draw children back to school.

Extent of the Problem:
Rajan points out that Tamil Nadu, despite having one of the better education systems in the country, has discovered that over five lakh children have dropped out. This indicates the magnitude of the problem across the country.

Call for Action:
Rajan questions why more is not being done to address the issue of school dropouts and remedial education. He urges for increased attention and resources to be allocated to human capital development.

The PLI Scheme: An Overview:
The Production Linked Incentives (PLI) scheme is a government initiative aimed at energizing manufacturing in India to address concerns about job creation. The scheme provides tariff protection and subsidies to big manufacturing industries to make them more competitive in the global market.

Rationale Behind the PLI Scheme:
The government believes that India’s manufacturing industry lacks competitiveness and faces challenges such as inadequate infrastructure, power availability, limited design capabilities, and inadequate R&D focus. The PLI scheme aims to overcome these challenges by providing financial incentives and protection to manufacturers.

Impact on Consumers:
Consumers in India pay higher prices for manufactured goods due to tariffs imposed to protect domestic manufacturers. For example, the price of a popular cell phone in India is 43% higher than its price in the US due to tariffs and subsidies provided under the PLI scheme.

Impact on Taxpayers:
Taxpayers bear the burden of subsidies provided to manufacturers under the PLI scheme. State taxpayers also contribute to state subsidies offered to attract manufacturers.

Sustainability of the PLI Scheme:
The success of the PLI scheme depends on manufacturers becoming more efficient over time, allowing India to remove protection and subsidies. Historical evidence from the License Permit Raj suggests that protectionist policies often lead to inefficiency and a lack of incentive for industries to become more competitive.

Potential Risks and Challenges:
The PLI scheme may lead to increased costs for other sectors of the economy, as subsidies and protection for one industry can have ripple effects on other industries. There is a risk that manufacturers will lobby for the extension of PLI schemes beyond their intended end dates, perpetuating inefficiencies. The scheme may fail to address underlying structural issues that hinder India’s manufacturing competitiveness, such as skill development and infrastructure deficiencies.

Conclusion:
The PLI scheme is a well-intentioned initiative aimed at boosting manufacturing in India. However, its long-term success and sustainability remain uncertain. The government must address the underlying structural issues that affect manufacturing competitiveness and ensure that the scheme does not lead to inefficiencies and higher costs for consumers and taxpayers.

Background:
Raghuram Rajan, an eminent economist and former Governor of the Reserve Bank of India, offers a critical analysis of the Production Linked Incentive (PLI) scheme implemented by the Indian government to promote domestic manufacturing.

Criticisms of the PLI Scheme:
Rajan highlights a significant drawback of the PLI scheme: the increased cost of chips for other Indian manufacturers, particularly in industries like car manufacturing. This cost burden makes domestically produced goods less competitive. He draws a parallel to the failed license permit raj system, where discretionary allocation of resources led to inefficient and high-cost outcomes. Rajan also raises concerns about the lack of transparency and discretion involved in the selection of industries eligible for PLI subsidies, potentially favoring well-connected industrialists rather than sectors with genuine potential.

Manufacturing-Led Growth Challenges:
Rajan questions India’s pursuit of manufacturing-led growth in light of the rising protectionism and trade barriers imposed by Western countries. He emphasizes that global markets are increasingly resistant to another manufacturing powerhouse like China, making it challenging for India to find export markets for its manufactured goods.

A New Paradigm: Service-Led Growth:
Instead of emulating China’s manufacturing-led growth model, Rajan proposes a new approach: service-led growth. He believes India can leapfrog the manufacturing stage and directly focus on developing its service sector. Rajan argues that India has several advantages in the service sector, including a large and skilled workforce, a strong education system, and a vibrant startup ecosystem.

Key Elements of Service-Led Growth:
Rajan outlines three key elements for successful service-led growth: Putting people first: Investing in education, healthcare, and skills development to empower individuals and create opportunities for upward mobility. Increasing access to opportunities: Removing barriers and creating an enabling environment for businesses, entrepreneurs, and innovators to thrive. Governing with a dynamic and sensitive touch: Ensuring that government policies are responsive to changing economic conditions and promote inclusive growth.

Conclusion:
Rajan concludes by emphasizing the potential of service-led growth for India, arguing that it can lead to sustainable and inclusive economic development while addressing the challenges posed by rising protectionism and the global shift away from manufacturing-led growth.

Equal Treatment and Empowerment:
Raghuram Rajan emphasizes the importance of equal treatment and empowerment for all citizens, especially marginalized groups like women, religious minorities, and disadvantaged castes and tribes. He highlights that discrimination not only undermines morality but also weakens society. Equal treatment is not just appeasement, but a necessity for economic prosperity and progress.

Prioritizing Human Capital:
Rajan argues for prioritizing investments in human capital over subsidies for specific industries. He suggests reallocating funds from production-linked incentives for chip factories to establishing new universities, upgrading existing ones, and improving high schools. Rajan emphasizes the importance of investing in people, capabilities, and ideas rather than subsidizing industrialists.

Empowerment Through Public Goods and Decentralization:
Rajan questions why India has struggled to provide adequate public goods and services, such as healthcare and education. He proposes cash transfers as a means of empowering people to demand better services. Decentralization of government is also seen as a crucial step in empowering individuals, allowing them to hold local authorities accountable for service delivery.

Decentralization and Local Control:
Decentralizing funds, functions, and functionaries to local areas can increase local control and responsibility. The experiment with Panchayati Raj needs to be continued and expanded to empower local panchayats. Giving local panchayats decision power over areas like sand mining can empower people and allow them to take action on their own futures.

Individual Rights, Freedoms, and Legal Reform:
Putting greater weight on individual rights and freedoms is crucial for empowering people. The weaponization of draconian laws like UAPA, Sedition Law, and Section 295A of the Indian Penal Code needs to be addressed. These laws, if used well, can protect the public, but if misused, they can protect the lazy, incompetent, and corrupt in government. Changing or repealing these laws is necessary to reduce the fear of being put in jail for protesting or criticizing the government.

Improving Access to Opportunities:
Improving access to markets, self-employment, finance, and technology extension services can enhance people’s capabilities and opportunities. Building out infrastructure, such as the Gram Sadak Yojana, can also increase access to opportunities. Reducing the difficulty of doing business and addressing issues like regulations, inspectors, and corruption can help people create jobs and entrepreneurship.

Learning Transparent Government:
In the new path of development, a government willing to experiment, gather data on successes and failures, and listen to criticism is essential. The government should not govern only from the center but should involve experts, parliament, and broader debates in decision-making. Suppressing unfavorable data hinders the government’s ability to respond effectively to issues like unemployment and COVID deaths. Data, free speech, criticism, and debate are essential for good governance and allow governments to learn and be more effective.

Comparative Advantage in Services:
India has a comparative advantage in service exports, with a surplus in services and a deficit in goods exports. Service exports can be a potential path for job creation and economic growth.

Changing Environment for Service-Led Growth:
The pandemic accelerated the provision of high value-added services at a distance. Services delivered online cannot be stopped at physical borders, making them less susceptible to protectionism. The biggest suppliers of services, such as the United States and Europe, have an interest in open markets for services.

Data Protection and Liberal Democracy:
Data protection and privacy are crucial for cross-border service provision, especially in healthcare. Transparent, tolerant democracies with the rule of law can provide better assurance of data protection. India’s liberal democracy can be a key asset in expanding its service exports.

Green Growth and Services:
The world is moving towards green growth, leading to a shift in consumption towards services. Services can expand more sustainably than manufacturing.

Actions to Promote Service-Led Growth:
Improve the capabilities of the workforce. Facilitate international recognition of Indian degrees and qualifications. Negotiate with countries to allow Indian doctors and other professionals to provide services.

India’s Growth Path:
India needs to shift focus from manufacturing to services and consider the needs of service providers to open doors globally.

Job Creation:
Service jobs can provide employment to doctors, consultants, lawyers, and other well-educated individuals. High-level jobs in India often create five to six additional jobs in support roles. Incomes from service jobs allow households to educate their children, leading to a significant leap forward for the next generation.

Education and Healthcare:
Education and healthcare are essential for elevating the next generation and improving the overall economy. Investing in education and healthcare enables individuals to move beyond their parents’ socio-economic status.

India’s Growth Path:
India should draw on its capabilities, culture of tolerance, and respect for all to create a new growth path. This path should focus on green, inclusive, local-led growth and development, primarily based on services. India can persuade the world of the effectiveness of this approach by successfully implementing it.

Challenges and Opportunities:
India’s current ruling ideology may pose obstacles to this new growth path. Despite the challenges, this path can be a manifesto for change and bring about positive transformation.

Conclusion:
India’s best days are still ahead, but work needs to start immediately to make this a reality.