Is there room in the world for another manufacturing power the size of China?
/ tr. by Steve Rosinho Cortez
Editor | Peng Ren
The world's fastest-growing major economy is nearing a turning point: India's week-long general election ends on June 1. It will determine whether Narendra Modi, India's current prime minister, can be re-elected for a third five-year term. His tenure offers intriguing possibilities for investors and raises concerns about the health of democracies.
To understand what is at stake in India, Barron Weekly interviewed economists Raghuram G. Rajan and Rohit Rohit Lamba. Rajan is a professor of finance at the University of Chicago's Booth School of Business (University of Chicago Booth School of Business), former governor of the Bank of India (Reserve Bank of India) and former chief economist of the International Monetary Fund (IMF). Lamba is an assistant professor of economics at Cornell University and a former economist in the office of the chief economic adviser of the Indian government. They are co-authors of a new book, Breaking the rules: India's unexplored path to Prosperity (Breaking the Mold: India's Untraveled Path to Prosperity). The following is an edited transcript.
Barron Weekly: what kind of enlightenment can the book Breaking the rules bring?
Lamba: an important lesson is that if India is to achieve its ambitious goal of getting rich before it ages, it won't work to do the same thing again. A stereotyped model that applies to many other countries is to put surplus agricultural labour into low-skilled manufacturing and then shift to high-skilled manufacturing and high-skilled services. It can be said that this development model is not suitable for India.
ElcowboymegawaysWhat we advocate in the book is that India should develop in its own unique way. It should make further progress in the comparative advantage of the service industry. This does not mean that India should not be engaged in manufacturing at all, but India is still a developing country with a limited budget, so it should play to its comparative advantage.
Rajan: India should play to its strengths. The link between democracy and this path is very important. For example, if India strengthens its privacy legislation and checks and balances on the government, then its judicial system can check and balance the government to some extent. As a result, [companies and consumers] can be more confident that when Indian suppliers collect online data, the government will not use it. A democracy with democratic values will build trust in India.
Breaking the rules is about the social, political and economic model of India. It tries to tell people why India missed manufacturing, what it can do, and why it is so important to the world.
Barron Weekly: some people think that India may become the next transformational growth of China, is this a reasonable role for India?
Rajan: the answer is absolutely no. At least that's what we wrote in this book. As far as manufacturing is concerned, China has established great influence. In fact, it is now doubling its investment in manufacturing. So is there room in the world for another manufacturing power the size of China? It's probably gone.
Given the growing protectionism in global manufacturing, it will be very difficult for India to enter this area. India must do its best in manufacturing, but it also needs to consider other ways of growth, such as services that can grow by providing direct services such as telemedicine and consulting.
Barron Weekly: what are the factors hindering India's success?
Rajan: one of the biggest challenges facing India is to improve the quality of education and all the other conditions needed to develop good employees. Like health care. Indian workers often call in sick because their health is threatened from the start. They don't have enough nutrition. India needs to continue to improve the capacity of its people in education, child health and health care, which will create a better workforce for the 21st century.
Lamba: what economists call "the most binding constraint" has slowly but certainly shifted from physical capital to human capital. India does not seem to have solved all its logistics problems, but thanks to the current and previous governments, India has done a pretty good job of repairing physical infrastructure, and India's current binding force will now be the quality of its human capital.
Barron Weekly: Indian Prime Minister Narendra Modi is running for a third term. what do fears of a deteriorating democracy mean for India's economy?
Rajan: we are very worried that this book is trying to awaken people's attention to long-term problems, which is essentially not just about democracies, we are well aware of the advantages of democracies, at the same time, it will also affect our economic development.
Governments also make mistakes, and when they do, they must get feedback, which means open debate, criticism and transparent data. Time and time again, we have seen countries that suppress freedom of debate, data and speech finally get off track, and perhaps most importantly, democracies are more innovative and creative, and if we shut down the system, we have closed a very important path through which India can develop rapidly.
Barron Weekly: what should potential investors in India focus on?
Lamba: there is a famous cultural meme on social media that says: "India is not suitable for beginners." I will tell investors to bet on India, but bet on India for a long time. It has a demographic dividend, it remains basically stable and produces reasonable political results. As the Indian market expands, so will the number of companies that do well, but those who are patient and long in India will do well.
Barron Weekly: thank you both.