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Areesha Khan

July 9th, 2024

Breaking the Mould: Reimagining India’s Economic Future – review

0 comments | 3 shares

Estimated reading time: 7 minutes

Areesha Khan

July 9th, 2024

Breaking the Mould: Reimagining India’s Economic Future – review

0 comments | 3 shares

Estimated reading time: 7 minutes

In Breaking the Mould, Raghuram Rajan and Rohit Lamba put forward an alternative path for India’s economy based on service sector growth, human capital investment and a less restrained market. Though she credits the book’s lucid style and the boldness of its vision, Areesha Khan finds that its economic strategy lacks a robust grounding and ultimately fails to convince.

Breaking the Mould: Reimagining India’s Economic Future. Raghuram Rajan and Rohit Lamba. Penguin Business (India). 2023. | Princeton University Press (Global). 2024.

Breaking the Mould book cover


As the title suggests, Breaking the Mould: Reimagining India’s Economic Future by Raghuram Rajan and Rohit Lamba poses an alternative development path for the Indian economy with a focus on the service sector and investment in human capital. It is written in a lucid style that is accessible to people beyond the discipline of economics. It has, therefore, reached a wide audience and has received criticism left and right. On the one hand, the book seems to be overtly critical of the incumbent government and its policies. On the other hand, the book is too bold in its emphasis on moving beyond industrial policy and in its attempt to suggest a counter-course of economic action. The book encapsulates suggestions on all economic policy fronts – employment, education, healthcare, macroeconomic and trade strategies – and offers a one-eighty-degree shift in the outlook.

The authors put forward an argument for making markets more competitive and less restrained by interventions that produce limited results, like subsidies given to businesses to create jobs

Given their neoclassical position, the authors put forward an argument for making markets more competitive and less restrained by interventions that produce limited results, like subsidies given to businesses to create jobs. According to the authors, instead of such policies, the government should provide key infrastructure in digital, industry, transport, energy, etc., which they call enabling frameworks and invest in human capabilities. This highlights that India failed to capture the low-skilled, labour-intensive manufacturing sector long ago, unlike China, which took advantage of it when it was liberalised.

Let’s look at the value addition in the production process through the “smile curve”, which is at the heart of the book. Economists Richard Baldwin and Tadashi Ito (2021) substantiated the smile curve phenomenon, which represents the value-addition in the exports for developing and developed countries. The latter has high levels of own-sourcing value-added share. The former has reduced levels because of a decisive shift in value added to exports from manufacturing to services (see Figure 1 below). In the middle of the curve’s drop lies manufacturing and standardised services. The authors of Breaking the Mould are proposing that India should focus on the two ends of the curve by investing in human capabilities and addressing the question of inequality, democratisation, and decentralisation of institutions, which can enable a productive economy.

 Figure 1. Smile Curve of Gross Value Chain by Stan Shih (1992)
Figure 1. Smile Curve of Gross Value Chain © Stan Shih (1992)

The book suggests a roadmap to boost the economy by focusing on services and service-embedded manufacturing, for which they give various case studies of entrepreneurial successes in the likes of Tifl and Lenskart. However, the book falls short in recognising the role of capital in this movement of capital and labour across the globe and how the production linkages in the globalised world post-1980s are a result of global finance capital looking for the relocation of manufacturing where the labour was not substitutable by capital. Where India did not have the infrastructure for manufacturing, in the aftermath of economic liberalisation we see that services were relocated to India over time.

The book suggests a roadmap to boost the economy by focusing on services and service-embedded manufacturing, for which they give various case studies of entrepreneurial successes

Services like business process outsourcing, customer care, and other technology, medical and legal process work was outsourced to India from the Global North, and the authors speak of continuing this trend. They see potential in the high-end services, which will increasingly be located in India, creating another set of localised services that support those workers, thus creating a spiral effect. We have seen that this spiral effect is present, but it is not vital since the non-tradable services have higher demand constraints. Non-tradable services are those that are produced and consumed locally since they cannot be exported or imported. These are subject to local demand and direct interaction between the service provider and consumer. It can also exacerbate inequality, as we see at the current levels. As the tradable services are remunerated at the competitive foreign exchange rate, the non-tradable services like transport, personal, and hospitality services in the local economy are undervalued and underpaid, creating a vast divergence in the remuneration, with the non-tradable services providing a significant share of the employment within the service sector. Then, there is a set of low-skilled and low-paid menial tradable services that remain entirely unaccounted for in the book.

The book acknowledges this caveat that following a services-export-led development strategy might induce higher inequalities that will eventually lessen as we grow. However, the authors stop short of elaborating on how this could happen. They do propose some social security measures, of which direct benefit transfers (DBT) seem their favourite, pointing to the linkages with DBTs and the propensity to credit and invest where the linkages between the cash transfers and people’s ability to investment could be too weak

[Rajan and Lamba] offer a decontextualised discussion of financialised globalisation, where the financier gets a larger share of the value. This view fails to capture that capital investment is much higher in the advanced capitalist economy

Rajan and Lamba dive too shallowly into the political economy of trade. They offer a decontextualised discussion of financialised globalisation, where the financier gets a larger share of the value. This view fails to capture that capital investment is much higher in the advanced capitalist economy. Consequently, they keep a larger share of the surplus value. The organic composition of capital is between two parts of the world, so much of the surplus value is taken by the Global North even though the larger share of production happens in the Global South. The structure of the advanced economies and development will remain the same for the capital composition, but the countries’ positioning might change. Those involved in knowledge production get a higher share of the surplus value. Earning rent over resources, they have accumulated: capital, knowledge, and rights over knowledge. Having easy access to the resources than the countries like India have through global capital.

According to the authors, the manufacturing export-led growth might not be as easy for India as it was for the Asian economies that preceded us because of the existing competition from those economies. Indian manufacturing has been and might continue to be particularly skill- and capital-intensive. However, the authors are hopeful about service-embedded manufacturing in which they chart out the entrepreneurial case studies of Lenskart, ID fresh food, Tifli, etc. All use cases provided in the book cater to a small urban population within the country, but, as they may argue, they can look outwards for exports. This leaves us to wonder where the alternative demand will come from for these goods and services, if there is a continuing trend of deglobalisation and protectionist policies adopted by the advanced economies, and how long India will continue to receive favours from China plus one strategy of these countries.

From the authors’ neoclassical standpoint, they argue for a frugal government whose role involves the provision of infrastructure, but not intervention in the economy. According to them, a better-educated, skilled and healthy population in better-funded research institutions can produce a class of entrepreneurs. But for the entrepreneurs to come out of the box, state funding is necessary, since private funding doesn’t come easy for the entrepreneurs, as Mazzucato has shown in the context of the US.

The book speaks to the longstanding debate between the industrial policy advocates and the service sector sympathisers, siding with the latter.

In its attempt to argue for service sector-led development, which differs from the conventional modernisation path, the book does not elaborate in detail on the consequences of this approach on India’s economy and its people. Its strongest contribution is how it charts the precursory measures the government should take for the population to achieve the goal. However, it fails to make a convincing case for a strategic economic policy that should focus on both the industrial and the service sectors, which makes the Indian economy increasingly self-reliant in the de-globalising world and holds a key position in trade in Asia. Overall, the book speaks to the longstanding debate between the industrial policy advocates and the service sector sympathisers, siding with the latter. The book’s most valuable contribution may be in its study of global value chains and the national income.


Note: This review gives the views of the author and not the position of the LSE Review of Books blog, nor of the London School of Economics and Political Science.

Image credit: PradeepGaurs on Shutterstock.


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About the author

Areesha Khan

Areesha Khan

Areesha Khan is a young researcher with interdisciplinary training in economics and development studies. Her research interests lie at the intersection of economy and society. She was awarded Regulating Decent Work Fellowship (RDW) 2023 by ILO to present her work at the RDW conference at ILO headquarters. She is currently working on the digital economy and the future of work.

Posted In: Asia | Book Reviews | Development | Economics | Politics

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Creative Commons Attribution-NonCommercial-NoDerivs 2.0 UK: England & Wales
This work by LSE Review of Books is licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 2.0 UK: England & Wales.