Ashwini Vaishnaw opposes ex RBI Gov, defends PLI scheme for semiconductors

Rejecting the concerns raised by noted economist and former RBI Governor Raghuram Rajan on the Production Linked Incentives (PLI), Minister of Electronics & IT Ashwini Vaishnaw on Monday reiterated how it will only 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. 

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

Vaishnaw, in his defence of the scheme, 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 who is not in support of promoting manufacturing in this country. "Had he been a neutral and a professional economist, I would like to get into a debate with him. But today, he is coloured by his affiliation with a particular party," the minister said while speaking on Monday. 

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 pharmaceuticals 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)".