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India not only needs an overall manufacturing strategy, but also a much more focused sectoral approach, Niranjan Rajadhyaksha tells Saurabh Shukla.
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00:00So what shaped India's economic journey over the 150 years? Economist and the author Niranjan
00:06Ratak Shafshadi with us, he has explored this in his new book, The Idea That Shaped Modern India
00:12and Its Economy. We'll speak to him about the ideas that shaped India's past and what they can
00:18teach us about its next growth story. So welcome to ETA Bharat, Niranjanji.
00:25Thank you so much, Saurabh. Thank you for inviting me to your program.
00:28So sir, as you have traced the 150 years of economic journey of the country, so what's
00:34the big question that India has been trying to answer in all these years? What's your
00:39opinion about that, sir? So if you take the big picture, you will see
00:46that there were three grand themes in Indian nationalism right from the beginning. One
00:52was obviously political freedom that India should be ruled by Indians. The second was
00:57social equality, that a country which has so many divisions of caste, gender, region. These
01:04divisions should gradually wither away. And the third was economic development. Today, most
01:10people don't realize that economics was or economic issues were a key part of Indian nationalism.
01:17And why? Why is economic development important? So there were three broad themes in that as well. First, obviously, economic
01:28development offers people a chance to live a better life, right? We've been a country of extreme poverty and that's
01:35changed gradually.
01:36So its personal lives, how to improve them. The second was obviously for India to hold its own in a
01:44complex and sometimes dangerous world. We need economic depth and economic power. So there is something to do with the
01:51geopolitics as well.
01:52And the third is the idea that as we grow and become a modern economy, the various parts of the
02:01country will see economic integration and that economic integration will add to national integration. So this was broadly the underlying
02:09themes of what they were trying to do.
02:15So you begin the book with the idea of search for Lakshmi. So why did you choose this particular idea
02:22to explain India's economic journey? Any particular reason behind that, sir?
02:26So this is a book written in 1849. So I started with that book for two reasons. First, to show
02:34that very early Indian writers were also grappling with economic issues. And obviously, the, you know, we use the word
02:45Arthashastra for economics in Hindi and Marathi and many other Indian languages.
02:51Lokahitavadi used the word Lakshmi Gyan, you know, and the entire, it's comes from the story of the Samudra Mantan,
02:59you know, where the churning of the ocean, the Mantan actually leaves, Lakshmi emerges from the waves, right?
03:05So wealth comes from human effort, from human collaboration. That is what he was trying to say. So I think
03:12the idea is a picturesque idea. It ties to our tradition.
03:16So I've, I've always been fascinated by it. Why this particular, it's a very simple reason. My mother tongue is
03:24Marathi. So I'm more attuned to reading in Marathi than in any other Indian language.
03:29I'm quite sure there will be writers in Hindi or Kannada or Bengali saying similar things, but it's just the
03:36access to my own language that made me start with the story of Lakshmi.
03:42So in these years, close to one and a half decade, we have seen many economic histories from Dada by
03:50Naruji to Gandhian thoughts, Nehru and the 1991 reforms.
03:54So we have seen different school of thoughts. So was India actually changing its economic philosophy or was it just
04:02accepting kind of changing some circumstances and dealing with the affairs of whatever happened and occurred during the years or
04:10decades?
04:11Yeah, so there are two parts to this. If you look at an intellectual history over 150 years, there will
04:17be some constants, there will be something which are changing. So the constants, as I said in my first, first
04:25remarks was basically about how this country should go towards prosperity, what should be done, what are the problems, etc.
04:33But a large part of it is also adapting to circumstances, you know, so as India changed from being a
04:40colony of the British to an independent, young independent nation, then the entire drive for industrialization, then we had moved
04:49towards a market economy.
04:50And now we are trying to sort of, you know, which is the long term goal. So it's a combination
04:56of the two, there are some things which were deep philosophical constants that, you know, it keeps informing Indian debate.
05:05But as the situation in the country, as the situation globally changes, there's also been adaptation, which is as it
05:13should be, right, because economics is a study is actually a subject, which links to the situation on the ground
05:24at the end of the day.
05:25So, so in a way, you know, there's a science and an art and I think both have played a
05:31role.
05:31So if you talk particularly about post-independence, so what do you think India's economic journey since independence, which policy
05:40ideas have remained constant across different governments, how have they evolved with the changing economic realities, any specific example, if
05:49you'd like to share?
05:50Yeah, so again, at the cost of being repetitive, the big idea of economic development that this country, both for
05:59its people and for national power, national integration, we need to have a developed economy, I think that's been a
06:07constant, right, but how to do it?
06:09So I think the big, you know, example, which stares everyone in the face would be the move from a
06:17planned economy to a market economy, right?
06:19So there was perhaps certain reasons in the 50s where even before the 50s, right, even in the 1930s, not
06:26just Jawaharlal Nehru, but even several other people like Subhash Chandra Bose or even Indian industry, you know, the Indian
06:35industry also sort of backed the idea of national planning.
06:39By 91, you know, that phase was over, so we switched, so I think that is one big change from
06:47like a government-directed economy to an economy directed by the market and the private sector.
06:54Another big one obviously is between how do you look at international trade, you know, means we were a protectionist
07:00country and now we are engaged in the world economy.
07:04So these have been responses to the changing circumstances.
07:09We have always debated with all these things that the government control versus free market for the decades.
07:16So how India has it found it now, the right balance between two or still we are juggling with these
07:23two?
07:24So I think there is no right balance, right?
07:26It's always a changing balance.
07:28All I would say is the balance we have today and today means not just in 2026, but in the
07:34past 25-30 years is better than the balance we had earlier.
07:38So see, in a country like India, we've known that planning had its initial successes, but then we fell behind
07:45and we can discuss that later.
07:47But we also know that a pure market economy in a country where people still don't have opportunities.
07:55So the state does have a role in providing education and providing infrastructure, also in providing some income support to
08:04people because the gains of development across the world do get distributed unequally.
08:11So the people who get opportunities first manage to prosper, then it takes time for everybody to get into a
08:17modern economy.
08:18So I think this is a changing balance.
08:23But I think the underlying point is a balance is needed.
08:27You can't have an economy run completely by the government, nor can you have an economy without any government interventions.
08:35So whenever we discuss the economic history, one point always comes across the Nehruvian economic model.
08:43So there is a debate.
08:44Few people say that it holds back India's growth in the early decades very much.
08:49Few people saying that during that era, we have a kind of foundation of India's growth, which was achieved later.
08:57So what you found during your research or your new writings?
09:01Yeah, so it's always a very contentious issue.
09:06My own view, based on my many years of research for this book, is that the Nehruvian model did have
09:16initial success.
09:17So if you see that when India becomes a republic, so not 47, but 50, 51, the first five-year
09:24plan starts.
09:25In the 50 years before that, the economy had zero growth, right?
09:30It was a stagnant economy, partly because of the world, partly because of colonial policy, etc.
09:38From 51 onwards, you actually see the Indian economy growing at 4, 4.5%.
09:43So it's a break from that years of stagnation.
09:46So that's one clear achievement of those first 15 years of, you know, planned development.
09:54The second, I would say, is that India managed to develop a diversified industrial base.
10:01So new companies were set up in steel, machine tools, you know, lots of areas, you know, the actual industrial
10:09structure became deeper.
10:10So those are the, definitely the foundations.
10:15What happened was that this was done in a protected economy, very efficient.
10:19So we ended up with a very inefficient, you know, industrial sector, which could not export, which could not compete.
10:27So I would say that the first 10-15 years, there was progress, there were achievements.
10:34But the Nehruvian model in the long run failed, you know, so, which is why if you see IC 1965
10:42as a turning point, you know, when Shastriji becomes the, of 64, when he becomes a prime minister, he actually
10:51sees the, you know, the thing that we have achieved so much.
10:55But now we need to change course, so I think the failures added up after 65, you know, so is
11:04this model kind of responsible for the so-called Hindu growth rate?
11:08And how much do you believe that the slow growth can be attributed to the other factors if there were
11:14some?
11:14First of all, I don't like the term Hindu rate of growth.
11:18It was meant as a joke, I don't know why it's become, it's become such a, you know, standard thing
11:25in economic conversation or discourse in our country.
11:29But I think, as I said, you know, the real setbacks happened after 65 and there are, there were external
11:37shocks.
11:38So if you look at the history, which everyone knows, it's 62, we had a war with China, 65, we
11:45had a war with Pakistan.
11:46Then 67, 68, there were very serious droughts.
11:52Similarly, 72, 73, there were droughts.
11:55There was the oil shocks from, you know, the OPEC.
11:5971, there was a war, the entire Bangladeshi crisis, you know, of that.
12:03So there were huge financial burden shocks to the system.
12:10So that did play a role.
12:12But end of the day, I wouldn't say that was the main reason for India losing momentum.
12:18I think it was economic policy mistakes.
12:22So because during these, this particular period, Japan, the East Asian economies has done wonderful, even if we talk about
12:29the China.
12:30So do you believe some policies were there?
12:34And if we adopted those kind of policies, we would have been in a better position to discuss our economy
12:40or deal our challenges in a better way?
12:43A hundred percent. I completely agree with you.
12:46So again, the examples you used, you know, especially East Asia, which is Korea, Taiwan, Singapore, then later, you know,
12:54Malaysia, Indonesia.
12:56You see, actually, they also, if you read their economic history, in the 50s, they were trying to do what
13:02India was doing.
13:03After the mid-60s, they all moved to becoming an export-oriented industry.
13:08So basically, that was the big shift.
13:12It's not that the government didn't play a role, but they were all exposed to international competition.
13:18You had to produce things at international prices.
13:23That, I think, was where India has failed.
13:26You know, India in the 60s should have shifted to a more open economy.
13:31So again, I don't, I don't think the 50 to 65 era is that, you know, is the, at that
13:39time, all these countries were trying this, but then it had, you know, started shifting.
13:43So I think the big mistake, if I may say so, I know there were constraints also, was to, in
13:50fact, become more protectionist, turn your back against, you know, to a booming world economy, which had demand, would have
13:57had demand for your products.
13:59So, yeah, so I think the lack of, you know, trade with the rest of the world was a big,
14:09big mistake.
14:11But we have started again doing things in a certain direction that we may again become a kind of manufacturing
14:19nation.
14:20So we have started focusing on our domestic manufacturing and the Atmanirbharata self-reliance.
14:25So how different is today's focus, today's mode of doing thing is different from the past kind of productionism and
14:33all?
14:33So, yeah, so Atmanirbharata, you know, can be thought of in many ways, the simplest way would be that India
14:43earns enough foreign exchange to buy what it wants from the rest of the world, right?
14:47So it's basically financial, that we did not dependent on foreign loans, IMF, World Bank, that I think we have
14:54achieved, you know, means we, but the other idea of Atmanirbharata is that we will produce everything within our world
15:04rest.
15:04Now, in the modern world, that is not possible, right?
15:07So, in the earlier days, like especially in the 60s and 70s, anything which was available domestically could not be
15:17imported.
15:18So therefore, whatever the price, whatever the quality, you had to, you know, domestic availability was the thing.
15:25I think we are not going to go back to that.
15:28So Atmanirbharata basically today, I think, means that there are critical components because the world, as you know, is becoming
15:36more complex.
15:37you know, with, and more dangerous also, so, you know, all these geopolitical competition between US, China, Russia, so, the
15:47Atmanirbharata idea then would be that we should make key components like, you know,
15:53pharma APIs or semiconductors or, you know, some, you know, machines, etc., they should be available, you know, in, domestically.
16:04But I don't think Atmanirbharata necessarily means or should mean protectionism.
16:11I think the entire idea is that we will build our manufacturing capacity so that we can link to global
16:18supply chain.
16:19So India cannot be an island, right?
16:21It's only that there are some things which we need to be Atmanirbharata for, given the global situation.
16:30So it's very different from protectionism, the Atmanirbharata which is today being discussed and still a debate is different.
16:39So which is why you see rather than there have been some tariff hikes, but other than import duties going
16:45up, most government policy is now focused on giving subsidies to local industry, etc., not shutting out foreign competition.
16:55So let's go back to again in the 1991 era.
16:59So what do you see the major turning point was there?
17:04And after 30 years, if we are discussing those days, so what was left to what was still a kind
17:12of unfinished finished business in the Indian economic reform?
17:16So in my book, what I have shown is that 1991 didn't happen suddenly, right?
17:23There was a huge set of debates even within the government.
17:27So one popular view is that, yeah, IMF ne bata diya, so we've done this and all.
17:32I think that's not necessarily true.
17:34So I have, I think, an entire chapter of all the debates on why India should move from planning to
17:41a more open market economy for 15 years, at least before 91, if not more.
17:47So that is the intellectual churn was happening.
17:51I think the political moment came in 1991 for various reasons, you know.
17:56Unfortunately, it was a balance of payments crisis.
17:59But, you know, in policy economics, there's something called the overturned window.
18:03So there's an opportunity which comes occasionally.
18:05So I think Prime Minister Nassim Rao, Finance Minister Manmohan Singh made use of that.
18:11Then, of course, that continued later, later governments also.
18:16So I think 1991, the, what happened is 91, there were two things.
18:23One is the reforms of 91 should be done at one stroke by the central government.
18:30So you want to abolish industrial licensing.
18:32It can be done.
18:33You can just announce it and you want to make the rupee convertible.
18:37You can, RBI can do it, you know.
18:39Or there are similar things.
18:40You want to cut taxes on corporate profits.
18:44You can do it.
18:44The government can do it single-handedly.
18:47The second generation of reforms, which are more tricky, which are sectoral reforms,
18:53reforms of land markets, labour markets, that includes certain state governments on board,
18:59changing laws, sometimes constitutional amendments.
19:02So those have been more slow moving.
19:06And I think it's not unanticipated because they are the more tricky reforms.
19:11They are not underplaying the importance of 91.
19:13They are absolutely a turning point for India.
19:16But the next generation of reforms is more tricky compared to the first generation.
19:23Right.
19:24Sir, if we talk about the growth rates, the numbers are moving very fast as compared to reality
19:31is because job creation is still a big issue in the country.
19:35And given the AI is also moving very fast rapidly.
19:38So how do you see this particular job scenario over the next decade or so?
19:44And how it is going to impact the overall economy?
19:47No, this is absolutely the big question, right?
19:52That I, for one, do not, I'm not in the camp which says that India's economy is not growing at
19:597.5%.
20:01You can argue about whether it's 7.2 or 7.5, but I'm not in the camp which says that
20:06these numbers are completely untrustworthy.
20:10But there is no doubt that the jobs creation has been weak, not just now, but if you look at
20:16overall past 2025.
20:18So if I may just step back in history, you know, we were largely an agrarian country, 70, 80%
20:24of the people working in small farms.
20:27And I have in my book mentioned a essay by Dr. B.R. Ambedkar, which he wrote in 19, 19
20:34or 1920,
20:35when he said that the only solution to the agricultural crisis is creation of jobs outside of agriculture.
20:4292, if you read Dr. Manmohan Singh's budget speech, he says that we have to follow the East Asian model
20:48where people moved out of agriculture into factories and offices.
20:53We haven't been able to do that.
20:55And it's partly it's because of the lack of factory reform, which I spoke about.
21:01Partly it's because of our tax structure.
21:04So it's a complex set of things.
21:07But net net, I feel that it is, you know, this economic growth will be meaningful only if more people
21:15get stable.
21:17And jobs means jobs which are stable, which have, you know, social security, like an EPFO account or, you know,
21:25paid leave, etc, formal contract.
21:27So that job creation, it's not just about this three years, five years, ten years.
21:33But I think it's been one of our, I would say, failures of the Indian reforms program, which otherwise had
21:41a lot of success.
21:43And as the AI is also becoming a challenge, how to deal with that?
21:48So I'm not an expert on AI, but definitely it's something worth considering, especially for the software and services exports.
22:00Because if you look at our good trade deficit in goods is very high in services, we have a surplus
22:09because of the success of our software services companies,
22:13all the global capacity centers, which have come up, you know, where outsourced work has been sent to India.
22:21If this were to actually be meaningfully affected by AI, and I really don't have a view on this,
22:32so I'm just channeling what the fierce people are saying, then it could lead to a wider range of issues.
22:40You know, so, for example, if software companies do not hire people or their exports are weak, then it has
22:48increased for the rupee.
22:49And the people who are, don't get jobs, you know, they don't consume.
22:53So that has multiple effects on the economy.
22:56So it's a concern we have to, we have to think hard about.
23:03As India has paused itself for becoming a developed nation by 2047 and the manufacturing is going to key for
23:10that.
23:10So do you believe any kind of challenges are there and government need to tackle with these things before moving
23:17ahead to the stream?
23:20Several, several, several challenges, because if you look at manufacturing as a percentage of GDP,
23:27in fact, even slightly declined on about 15% of GDP.
23:33This is happening across the world.
23:35So it's not the thing.
23:36And secondly, what manufacturing goes back to your previous question, manufacturing investment is largely in areas of which have very
23:45capital intensively.
23:46The job creation is not much, but we have some successes.
23:51Yeah.
23:52But for example, the success with mobile phone assembly.
23:56So now we see that even companies like Apple, a large part of their, a meaningful part of their global
24:04production and exports are happening in India.
24:07So I think some of these, we have to build on some of these success stories.
24:11So I don't think my own view is that it's not going to be like manufacturing is a large area,
24:18right?
24:18We have to go sector by sector.
24:20So I think one big failure has been textiles, garments, you know, because this is where India has traditional strengths,
24:27but we've seen countries like Vietnam, Bangladesh, etc.
24:31So I think we need, obviously we need a manufacturing policy, but we should go sectors which are actually labor
24:41intensive, which create jobs.
24:43So mobile assembly, we know, for example, in Tamil Nadu, Karnataka, Telangana.
24:48They're creating jobs and they're creating jobs for women, which is also very important given the other problem, which we
24:54have of low female labor force participation.
24:57There will be some types of industry, which is like semiconductors, which will not produce jobs.
25:03They are more for geostrategic reasons.
25:05We have to push them, you know?
25:06So I think it's a combination, but I think we'll need a sectoral strategy as well, besides an overall manufacturing
25:14strategy.
25:17So as we came to end of this interview, so I'd like to end this with a positive note.
25:22So one thing I'd like to know that any particular area, two or three areas where India is doing very
25:28good.
25:28And if we may tweak these policies, A policy, B policy or C policy, we can do more better than
25:35this in your views.
25:36Yeah, so obviously our services exports, and I'm not just saying, you know, from the turn of the century, but
25:44even post COVID, the entire explosive growth in services exports now, the overhang of the AI threat is there.
25:52But I think, you know, we need to sort of keep this engine going.
25:58We have a lot to learn from our success in mobile phone assembly.
26:04But what happens is currently we're just assembling.
26:07So components come from other parts of the world, and we put them together, right?
26:12So now the next stage will be to make the components even.
26:17So build those deep supply chains which China has built.
26:20So I think that's definitely a second thing.
26:24And I think generally, you know, Indian entrepreneurship and, you know, even in manufacturing, a lot of new age manufacturing
26:31companies are coming up, etc.
26:34I think we need to nurture our entrepreneurial culture.
26:38Again, I said that it's not that the government can do nothing.
26:42But I think some of these positives, you know, we have a young labor force which in an aging world.
26:49So I think we need to build on some of these advantages and recent successes.
26:54Right.
26:55We have a lot of advantages, but we should focus on them to do better.
26:59Thank you so much, sir, for taking our time for ETB Bharat.
27:02Thank you so much, Sarabh.
27:04It's a pleasure talking to you.
27:06Same here, sir.
27:07Thank you, sir.
27:08Thank you, sir.
27:10Indeed, sir.
27:11Thank you, sir.
27:12Thank you, sir.
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