caalley logo

The alley for Indian Chartered Accountants

Raghuram Rajan explains why India should not follow China's economic model

New Delhi, Oct 17, 2022

Encouraging India to adopt a services-led export model, former Reserve Bank of India (RBI) governor Raghuram Rajan said that following China's manufacturing-led export path would have been detrimental to world economy.

In a lecture organised by the International Monetary Fund (IMF) during its annual meeting in Washington, Rajan spoke largely about globalisation and climate change.

He urged major economies of the world to realise the benefits of liberalising trade in services since it would help in generating employment and also contribute a great deal towards climate change.

Citing the example of India and China, Rajan said that had India followed China's export-led growth path on manufacturing, the damage to global economy would have been much higher.

"Think of the damage done to the world if India followed China's export-led growth path on manufacturing," he said.

Rajan then pointed out that if India follows a different path -- a service-led export model -- then it would be beneficial.

"Possible India already exposed $250 billion in services but that could lift India up from a low-income country status very quickly without the damage to world economy which would otherwise have arrived," he added.

The former RBI chief also spoke about the need to liberalise services to makes it more affordable. It would be a good thing for industrial country societies as well as for emerging markets, he said.

Rajan further highlighted that there is a need to liberalise services and break barriers even within a country.

"If we want new grounds for reforms, services would be the right place to go because liberalising manufacturing further, especially amid political opposition, would result in diminishing returns," Rajan noted.

Trade in services comprises a major chunk of GDP in industrial countries, he said.

"New technology allows us to provide services across borders and you don't need to migrate to another country for that. Services provided at a distance can do 2 things - it provides livelihood at a distance and also reduces inequality," Rajan said.

[The Times of India]

Read more on:
Don't miss an update!
Subscribe to our newsletter