Economist and Indian School of Business (ISB) professor Prasanna Tantri has argued that India must shift its policy focus from manufacturing to innovation and services. He said the policymakers continue to believe that small and medium-scale manufacturing would create jobs even though technological changes such as robotics are making manual production uncompetitive.
“My point is, what is your focus? Should your focus be ‘Make in India’ or ‘Innovate in India’? My urge is – you focus on Innovate in India,” he said in a podcast conversation with Monika Halan for Groww. “Because the government thinks that SMEs and manufacturing are where the jobs are. They are going anyway. How long will you fight this robo thing? Actual jobs are in non-tradables. The good thing about non-tradable jobs is that technology doesn’t change as much.”
The professor said that employment growth potential lies primarily in non-tradable sectors like personal services, which remain less affected by technological disruptions. “You think about the barber 20-30 years ago versus now. It’s the same thing, same amount of effort, same number of workers. It hasn’t changed as much. Whereas in tradables it dramatically changed,” Tantri explained.
At the same time, he noted that income in non-tradable jobs depends on the prosperity of workers in high-value tradable sectors. Defending former RBI Governor Raghuram Rajan’s position, he said, “When someone like (Raghuram) Rajan says promote services, people mock him. Oh, how can normal people work in IT and all? That’s not what he means. He’s not an idiot. What he is saying is this – that if you create services, then the overall tradable sector will go up. Once the tradable sector grows, then these people are the consumers for non-tradables.”
The economist suggested that India cannot replicate China’s manufacturing model as time has changed. He said China grew 20-30 years ago because that was a world where globalisation was taking off. At that time, he added, China could produce and export. “China’s savings rate was 50%. They invested 50%. We have a declining savings rate. Our savings rate is 30%. Our investment is going down. So we cannot use that model,” he said.
“And secondly, when the rest of the world is manufacturing with robo, if you manufacture manually, your product will not be competitive. You won’t be able to sell anyway. So the best option is innovation,” he added.
Tantri suggested that instead of the Production Linked Incentive (PLI) scheme, the government should have ILI, Innovation Linked Incentives (ILI). “I repeat, two-third of the people work in non-tradable…Despite so much push for manufacturing, our manufacturing proportion hasn’t increased. Instead of PLI, I feel you should have ILI (innovation-linked incentives, not production-linked). We are still in that old-style production thing.”
When asked whether innovation could be dictated, Tantri stressed that innovation thrives on clusters of talent and supportive ecosystems. “Why am I so much harping on innovation? When you have 20 good people together, the sum of these people is more than the total of their abilities. Innovation is a very good concept where clustering works,” he said.
Pointing to Silicon Valley, he noted that despite predictions decades ago that technology would allow people to innovate from anywhere, “every innovation comes from Silicon Valley only. It requires an ecosystem.”
Tantri argued that India must focus on attracting top global talent to build such an ecosystem at home. Referring to Perplexity AI founder Aravind Srinivas, he said, “Apparently, he is still not a green card holder, get that guy somehow-that one person can be more valuable than any PLI. You can get 10 people like that together, you will create an ecosystem.” He added that many innovators in the U.S. are open to moving back. “The environment is so good, some of them are not liking staying there (in the US). Somehow get them into India, that’ll create magic.”