Finance Minister Nirmala Sitharaman has defended the government's focus on manufacturing, saying it is crucial to strengthen the sector.
Speaking at the Federation of Indian Chambers of Commerce and Industry's annual convention at the national capital on December 16, she seemingly rejected former Reserve Bank of India (RBI) governor Raghuram Rajan's criticism of the government's manufacturing-focussed policies. She, however, did not take his name.
"If there are voices suggesting that India should not focus on manufacturing, but it should focus only on services, I am sorry, no," Sitharaman said.
"We should be focussing on manufacturing, we should be focussing on newer areas of services, no doubt. The service sector, particularly the IT-driven service sector, has already made a big impact to the extent that today 60 percent of our GDP is being contributed by them. But it is necessary for us to strengthen our manufacturing," she said.
Earlier this week, a newspaper column co-authored by Raghuram Rajan titled 'Where have all the jobs gone?' said data suggested India may be the only developing country which is seeing people returning to agriculture - an "alarming indictment of our efforts at job creation".
"Minister Chandrasekharji wrote in these pages that eight lakh jobs will be created over the next five years by the government's flagship ProductionLinked Incentives (PLI) scheme. Given that such subsidies are being directed into capital intensive industries, this is arguably an optimistic number. Furthermore, the estimated cost in government subsidies will be Rs 2 lakh crores, amounting to Rs 25 lakhs per job created. By any account, this is an enormous subsidy per job," Rajan and his co-authors wrote.
As per the statistics ministry's latest national accounts data, the manufacturing sector contracted by 4.3 percent in July-September, while the services sector grew 9 percent.
Rajan has voiced his concerns over the money the government is spending on the PLI schemes even prior to the newspaper column.
In a conversation with students of his alma mater, Indian Institute of Management, Ahmedabad, in late October, Rajan had said the money the government was spending on manufacturing sector subsidies could result in more jobs if spent on services.
"Rather than manufacturing chips, which is a very capital-intensive and low-labour-intensive business, could we instead design chips, which is a very high-value-added business where we have the potential because of our smart engineers and management people," Rajan had said on October 26.
The former RBI governor has also come under criticism from members of the ruling Bharatiya Janata Party for joining Congress leader Rahul Gandhi's Bharat Jodo Yatra.
Sitharaman on Friday called on the industry to take cues from startups in the manufacturing space, which were taking the lead in innovation.
"They (startups) are doing all the innovation. I would (ask) the industry to keep a close watch on the innovations coming out of the startups. If you are ready to adopt, commercialise, scale up the innovation coming out of the startups, I think both you and the startups will benefit. Together, India can benefit out of it," the finance minister said.