Decoding the Indian economy and how it can set new benchmarks | Latest News India

New Delhi Breaking new ground: India's untrodden path to prosperity is a major new book by economists Raghuram Rajan and Rohit Lamba. The book is both a critique of India's development model and a manifesto for reform. Above all, it challenges the conventional wisdom that India's primary goal should be to transform the country into a manufacturing hub for workers.

As we approached the end of 2022/23, there was near consensus on real growth. The reported value was between 6.8 and 7%. There is less consensus for 2023-2024 and the medium term. An optimist will say 6.5%, a pessimist 5.5%. An enthusiastic optimist will estimate it at 7%, a great pessimist at 5%. While this is a fairly wide range, there is no denying the resilience of the Indian economy's growth. (Shutterstock)

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Lamba explained his views in last week's episode of “Grand Tamasha,” a weekly podcast on Indian politics and policy co-produced by HT and the Carnegie Endowment for International Peace. Lamba is an economist at New York University-Abu Dhabi and has worked twice in the Office of the Chief Economic Adviser at the Treasury Department. Rajan served as both chief economic adviser and governor of the Reserve Bank of India before returning to his academic post at the University of Chicago.

Lamba told host Milan Vaishnav that India cannot copy China's development model, but it can take a leap forward by focusing higher up the value chain. “India has gained a comparative advantage in two types of services. One of these is direct services – think education, telemedicine, financial services, consulting services and IT services. India is clearly a world leader in these services for various reasons such as access to reasonably high-quality graduate engineers, English language, etc.,” he explained. However, he pointed out that India also has an opportunity to move into services embedded in manufacturing.

“The distinction between production and services is disappearing or becoming blurred. Consider the quintessential manufactured goods, namely Henry Ford's car. We are trying to argue that the car itself is becoming more and more like a cell phone. For example, if you see that a large company that makes cars in China is now the same company that used to make cell phones. For example, the Tesla car has 40 to 50 million lines of code written into it. Therefore, the question of what is production and what is service becomes blurred.” Lamba cited the example of Lenskart, a well-known eyewear store in India, as an example of this way of thinking. “What is interesting is that Lenskart not only sells glasses but also manufactures them itself through its retail stores in many urban centers. There are many interesting examples of services and manufacturers being at par, so to speak… India should realize its strength in this aspect,” he argued.

Lamba told host Vaishnav that India needs to develop inclusive policies if it has any hope of realizing the full economic potential of its citizens. “There is now a view that the goal is not only to become a strong economy, but also to become a strong civilizational state,” Lamba explained, saying he had some understanding of this statement, as China has also made similar ones in the past I put forward arguments. “The point is that unlike China, India arguably has an enormous amount of soft power in the world. The power of his example set by India [into place] “Even before it got rich,” he warned. “The only unique thing India needs to do now is what Nitin Pai is doing [of the Takshashila Institute in Bangalore] Once said, that means growing 8% continuously for 30 years and then everything else will fall into place.”

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The two discuss what the critics are getting right about the Indian economy, why India cannot blindly follow the Chinese model and how India can move “from brawn to brains.” Additionally, Rohit and Milan discuss the manufacturing versus services debate, India's inward economic turn, and what India needs to do to improve its human capital.

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