India should go for chip designing, not mfg: Rajan

Mumbai: Former RBI Governor Raghuram Rajan has advised the policymakers in the country to focus more on designing of chips by India, rather than manufacturing the same.

Addressing an event virtually from USA, Rajan said: "Why don't we design chips which is a high value added service and less labour intensive rather than working towards manufacturing it. The reason is that designing chips will not be only less labour intensive, but also highly rewarding as well."

India is focusing its efforts on large-scale unskilled manufacturing, but that is not high-value addition job, he said.

Rather than spending $10 billion in chip manufacturing, we should spend the same money in creating 100 new engineering colleges so that graduating engineers from such institutes will create Ubers rather than becoming Uber drivers, he said.

According to him, there is a steady decline in the labour force participation in India. What is also alarming is the increase in primary sector jobs. People are going back to agriculture, which is unprecedented in the growth of modern economy. Normally, people leave agriculture for joining sectors like services and manufacturing. However, in India, they are going back to agriculture during past couple of years after Covid hit the nation. So, unemployment numbers in a sense are misleading, because they don't account for the effective employment of people who have gone back to agriculture.

Rajan believes that in the country like India, there should be 20 IIM (A) like institutions and also that India should produce one-sixth of world's Chief Executive Officers. Just Nadela and Pichai are not enough.

Coming on climate change, he said that India has got a huge role to play here. "India has to adjust its own interest," he said, giving an example of recent floods the neighbouring country China went through.

The event was held by Misra Centre for Financial Markets and Economy, PGPX Batch 2022-23, and Students' Alumni and External Relations Committee at IIM (A) on October 26.

Rajan is currently working as Katherine Dusak Miller Distinguished Service Professor of Finance at the University of Chicago Booth School of Business.

He was the 23rd Governor of the Reserve Bank of India (RBI) between September 2013 and September 2016. Between 2003 and 2006, Rajan was the Chief Economist and Director of Research at the International Monetary Fund (IMF). Prof Rajan's research interests are in banking, corporate finance, and economic development.