Former Reserve Bank of India Governor Raghuram Rajan has once again triggered a debate over India’s manufacturing ambitions after questioning the country’s push to build a domestic semiconductor industry. His latest remarks have drawn criticism because they appear to challenge one of the central pillars of India’s future economic strategy, building manufacturing capacity which will boost the country in areas ranging from electronics and automobiles to defence.
Rajan has questioned whether India should spend heavily on manufacturing semiconductor chips when they could potentially be sourced from abroad, through imports and even through smuggling. The comments have sparked a sharp response because semiconductors are not simply another commercial product. They are strategically important for everything from smartphones and automobiles to telecommunications, artificial intelligence, defence systems and critical infrastructure. India has been attempting to establish an indigenous semiconductor ecosystem through substantial government support. The push towards semiconductor manufacturing gained further impetus after the disruption during Covid-19, when the semiconductor supply chain was severely disrupted.
The controversy, however, is bigger than semiconductors. Rajan has for years questioned whether India should attempt to replicate the manufacturing-led development model followed by China and other East Asian economies.
Back in 2014, while discussing the government’s Make in India initiative, Rajan cautioned against picking manufacturing as a favoured sector simply because it had worked for China. He argued that India was different and should remain open to different development models rather than automatically copying China’s path.
That position from him has remained broadly consistent. In his 2024 work with economist Rohit Lamba, Rajan argued that the conventional idea that state-subsidised manufacturing is the inevitable route to development was questionable. They pointed out that manufacturing’s share of Indian employment had barely changed since the early 1980s, with workers leaving agriculture increasingly absorbed by services and construction.
Rajan has also argued that the traditional East Asian model of low-cost, export-oriented manufacturing may no longer be as viable because automation, changing global trade patterns and rising protectionism have altered the economic landscape.
In 2024, Raghuram Rajan said he was not against manufacturing or making more products in India, however, his other statements keep telling us otherwise. Why doesn’t Rajan want India to be a manufacturing hub?
Rajan should answer just one question- Does India have the luxury of deciding that manufacturing is unnecessary when China has built enormous economic and strategic power through industrial capacity?
India’s semiconductor push is not merely about producing chips for today’s market. It is also about creating technological capabilities, attracting global supply chains, developing skilled employment and reducing vulnerabilities in critical technologies that are going to shape the future.
For a country seeking to become a major economic and geopolitical power, services alone cannot make up for the lack of factories, supply chains and industrial capabilities.
Dear Raghuram Rajan, India can not wait for the world to manufacture its strategic goods, it has to manufacture them itself.
