Hyderabad, Oct 31 Former RBI Governor C Rangarajan on Saturday said India must change its development strategy to account for eventualities such as the fallout of the blocking of the Strait of Hormuz.
Speaking at the 16th convocation of the ICFAI Foundation for Higher Education here, he said the new strategy should include building reserves of key commodities such as oil, in addition to producing for consumption and exports, reducing dependence on imported energy, and focusing on innovation.
Rangarajan, the institution’s Chancellor, said US President Donald Trump’s unilateral imposition of tariffs and the US-Iran war, which led to the blocking of the Strait of Hormuz, had given a big shock to the world economy and global trade in particular.
The two pillars of the international trading system, international consensus on tariff rates and the free movement of goods along sea routes, had been knocked down, he said.
India needed to address these immediate concerns, which could worsen if the war continued. Even if a settlement was reached, such episodes could recur, he said.
In an era where “might is right” prevailed, India’s development strategy must be recalibrated, he said. India must identify sectors that deserve high priority for domestic production, and “Atmanirbhar” (self-reliance) must be interpreted correctly.
“‘Make in India’ should not mean blind import substitution as it happened in the first few decades after independence. Indian industry must remain competitive. And ‘Make in India’ should be for the ‘Rest of the World’. Thus, India must focus on improving its productivity and competitiveness along with enhancement of domestic production,” he said.
Recent events have shown that the country must produce not only for consumption and exports but also to build reserves of critical commodities, Rangarajan said.
The same should apply to critical imports such as crude oil, since such buffers were needed when war erupted suddenly, he said.
He stressed that dependence on imported energy must be reduced substantially by developing alternative energy sources.
India must also adopt new technologies such as AI and could not afford to fall behind, despite their impact on employment, he said.
India’s free trade agreements with partners such as the UK and Australia, and its negotiations with the US and a few Gulf countries, were good news, he said. But given the outcomes of past FTAs, India must be cautious about betting heavily on new ones. Such agreements were nevertheless necessary in the absence of free multilateral trade, he said.
He said much more structural reform was needed in factor markets, along with significant investment in physical and social infrastructure.
Stressing knowledge and innovation, he said South Korea and China, ranked 4th and 10th respectively in the Global Innovation Index (India is 38th), showed a strong positive correlation between innovation and competitiveness. India could do much more here, and the focus on innovation became even more crucial amid de-globalisation, he said.
“Some of the changes suggested are contrary to the policy of liberalisation. But modifications are needed because of a fundamental change in the approach to global trade by leading countries,” he said.
Observing that the world was in flux, Rangarajan said AI would affect the entire production process, though its impact on employment was unclear at present. India’s development strategy must take all these changes into account, he said.
But the immediate focus must be on overcoming the problems thrown up by the recent shocks to world trade, he said.
“These are compelling us to become self-sufficient in the production of certain critical inputs. This we should do without sacrificing efficiency. Efficient import substitution may be a compulsion with respect to certain products,” he added.
Ajai Chowdhry, co-founder of HCL, who was the chief guest, said aspiration must outstrip resources and urged graduates not to let resource constraints limit their ambitions.
(PTI News)
