From the Chicago Booth Review, July 30:
Democracy and Innovation Could Set India on a Different Development Path
The emphasis should be on new companies, ideas, and products that allow the country to own the high end of the value chain.
India can adopt a new path to development, one that no developing country has taken before, wherein its firms come up with world-beating ideas and products and deliver them globally.
No large developing country has skipped the middle step in the typical development route, which entails first shifting workers from agriculture to manufacturing before shifting them again to services. India has partly jumped from agriculture straight to services, but it must now reinvent itself once again so as to accelerate growth and provide jobs to the teeming millions joining its labor force every year.
Instead of making generic pharmaceuticals, which it has been good at, India should turn to finding new cures for the diseases that plague its people and sell those new medicines to the world. Instead of buying expensive 5G technology from a vendor in an industrial country, India should create a cheaper version domestically and sell it to the emerging world, assuring buyers that India will create no backdoors through which it can snoop on them. It is important to recognize that India has the foundations on which it can build to fulfill these aspirations. But it is not there yet.
For instance, India has only a few top-quality research institutions, such as some of the Indian Institutes of Technology, the Tata Institute of Fundamental Research, and the Indian Institute of Science. To move from incremental innovation to pathbreaking innovation, India needs to raise many more of its universities to global standards, and encourage and fund innovative research as well as business-academia collaborations.
India should also create the conditions for more manufacturing at home, but the export-led, low-skilled variety—such as the assembly of electronics components or the stitching of garments—has become highly competitive and no longer offers an easy path to becoming a middle-income nation. Instead of trying to capture the bottom of the value-added chain and climbing up from there, as the East Asian countries did, India could aspire to own the high end of the value chain directly. In some cases, the low-skilled segments would then migrate naturally to India. While high-skilled services can also expand to provide the foreign exchange and jobs India needs, the emphasis should be on new firms, ideas, and products, whether in manufacturing or services, that can allow India to leapfrog.
The right climate for innovation
One critical support to India’s development path will be its democracy. Citizens benefit intrinsically from democracy—the dignity that comes from being able to vote and possessing the right to express your opinion through your ballot, having freedom of thought and expression more generally, being treated fairly, enjoying the rule of law, and so on. India’s citizens just exercised their universal adult franchise in the recently conducted national elections, where about 650 million people voted. But there is also an instrumental reason India should strengthen its democracy.In the early stages of development, the focus is, as we have seen, on catch-up growth. The ideas and know-how needed for development are already out there, discovered by some other country and its businesses; they simply have to be imitated or licensed....
....MUCH MORE
Professor Rajan has a comfy endowed chair at the University of Chicago's Booth School of Business. Previously:
Raghuram G. Rajan: "The Indian Election and the Country’s Economic Future"
I think the Professor is on good terms with the Prime Minister but you can see where Modi's muscle guys might take offense at straight talk.If interested we've visited him on everything from central banking to American farmland prices in the 1920's.
