Indian students stuck in war-torn Ukraine, their peril splashed on television screens, have made it clear how many young minds are leaving India for higher education abroad. This is not just an economic drain on India, it shows a lack of capacity in higher education where too many applicants seek too few and very expensive places. It also shows the flight of India’s greatest strength: human capital.

Former RBI Governor Raghuram Rajan says India followed a poor economic model for a decade that left thousands jobless.

“Why have students had to leave India to pursue a medical degree, especially a degree in a foreign country with a focus on foreign diseases, which will be difficult to translate back to work in India? Why are we exporting so much human capital? Couldn’t we retain human capital in India? We should focus on what our strengths are,” Rajan said, in an interview with CNBC TV 18.

Raghuram Rajan thinks the economics textbook that India has been using for a decade is proving poor, leaving huge numbers of people looking for jobs. “We are really underperforming, and I think we should recognize that,” Rajan says.

“We haven’t really had a strong recovery since demonetization. There are bright spots. Let’s not forget that our services exports are doing extremely well right now. My friends in the IT industry tell me it’s extremely difficult to find people, we’re going full throttle,” he added.

Rajan thinks India is obsessed with hardware, building assets, while its strength is human spirit, skills. It is these capabilities that India should focus on.

Capacity Building

“Let me give you a quick example. Any globally competitive chip factory will need 10-20 billion; that’s what Intel is talking about. Think of the number of universities that would create for India; high-level universities with top-level scientists and engineers. Think about how much software, how much chip design they could do without building the chip,” says Rajan.

India can partner with countries to import chips rather than focus on manufacturing them.

PLI scheme: again, the wrong focus

The former RBI governor wants an analysis of productivity-related incentives in the manufacturing sector. It only benefits big industry when it is small and medium-sized enterprises or SMEs that are bleeding.

“I would like to see a careful analysis of PLI. So far, I haven’t seen any in-depth analysis. What is the LIP? It is on the one hand that we raise the tariffs and on the other hand that we grant subsidies. Manufacturers love it; it is like the old license raj. If you remove the tariffs, if you remove the subsidies, can they be autonomous? Or are we in a permanent situation of using taxpayers’ money to produce? says Rajan.

He says the real damage in the economy is for SMEs, but it’s not the businesses that are asking for the LIP.

“PLI goes to the biggest companies, the well-connected companies, the Ambanis, the Adanis, the Tatas. There is an implicit benefit at scale since the government chooses the beneficiaries. So the question is, why should our larger entities be subsidized? said Rajan.

He says that once protection is granted, it is not easy to withdraw it.

“Working on enhancing your abilities, rather than protecting,” added Rajan.