'Ready to debate with Raghuram Rajan': Ashwini Vaishnaw defends PLI scheme for semiconductors

Minister of Electronics & IT Ashwini Vaishnaw on Monday rejected the concerns raised by noted economist and former RBI Governor Raghuram Rajan on the Production Linked Incentives (PLI) to boost manufacturing in India. Under the PLI schemes, the government gives incentives to domestic and international companies to set up manufacturing plants in India. 

In December 2021, the Centre rolled out a Rs 76000 crore PLI scheme for the development of the semiconductors and display manufacturing ecosystem in India. 

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However, Rajan, a professor of finance at the University of Chicago, believes that these big-ticket incentives are not required for big players as he says there is no guarantee that these companies will continue their operations once the incentives are over.

When asked about this concern, Vaishnaw said Raghuram Rajan was earlier advocating for credit to industries but his stance changed after May 2014. "When people marry economics with politics, their views change. Before 2014, Raghuram Rajan was always for increasing credit. But after May 2014 as the RBI Governor, he totally changed his stance, he said tighten (the credit to corporate)." 

Rajan was the chief economic advisor from August 2012 to September 2013. He was later appointed as RBI Governor by the Congress-led UPA government headed by then-Prime Minister Dr Manmohan Singh.  

Vaishnaw also suggested that nobody should take a person seriously who says don't promote manufacturing in this country. "Had he been a neutral and a professional economist, I would like to get on a debate with him. But today, he is coloured by his affiliation with a particular party," the minister said while speaking at BT Budget Roundtable on Monday. 

Rather than giving a professional economic rationale, he said, Rajan was giving politically coloured arguments. Vaishnaw's remarks came just weeks after Rajan joined Rahul Gandhi's Bharat Jodo Yatra. 

Last month, Rajan co-authored a paper arguing that PLIs to industries where large industrialists were anyway going to make investments is a pure freebie to them. He also shared a graph of all sectors for which the scheme has been announced with numbers of projected and actual job creation. The three most important industries as far as job creation so far are Food products, Mobile Manufacturing, and Pharmaceuticals, the paper said.

In food products, Rajan argued, around 54 per cent of the expected investment has come in, while 49 per cent of the expected jobs have been created."Yet net exports in Food products do not seem to have increased significantly after the PLI scheme," he wrote.

The former RBI Governor then turned to the next biggest employer, mobile phones. He said 38 per cent of expected investment had come in, but only 4 per cent of the expected jobs were created – "raising questions about how much labor-related value is being added in India". He said the pharmaceutical was probably the sector where there was the least need to give PLI incentives, "given we had a thriving industry (similar concerns apply to auto parts)".

Rajan further wrote that even if production comes to India, manufacturers must find it worthwhile to continue manufacturing after all the incentives end. He said players should bring substantial parts of the supply chain to India so they do not leave easily. He said he was not against manufacturing as India surely needed a much stronger manufacturing base. "But is a scheme that doles out freebies to the biggest domestic and foreign manufacturers the best way to go?" he asked.