‘There’s no room for another China’: Raghuram Rajan says India must ditch factory job dream

India must abandon the ambition of becoming the “next China” in manufacturing, says former RBI Governor Raghuram Rajan, warning that global conditions and structural constraints make large-scale, low-cost factory-led growth increasingly implausible.

In a wide-ranging interview with Frontline, Rajan cautioned against relying on traditional manufacturing as the core of India’s job creation strategy. “There’s no room for another China,” he said, noting that global manufacturing is increasingly automated, protectionist, and saturated by countries like Vietnam and China that combine low wages with strong infrastructure.

Even low-skill segments like assembly are seeing rapid adoption of machines. “What companies need now is people who can tend the machines, repair the machines—not those who do the manual work machines have replaced,” Rajan said.

The problem is compounded by rising global manufacturing nationalism. “Everybody wants their own little manufacturing industry,” he observed. “We cannot expect that number of jobs in manufacturing.”

Rajan’s remarks come as India navigates a critical phase in its economic trajectory. With a falling dependency ratio and a massive young workforce, India should be capitalizing on its so-called demographic dividend. Yet, he argues, the country is stuck in “low earth orbit,” with consistent but insufficient growth of 6–6.5%—impressive historically, but not enough to become rich before aging overtakes the population, particularly in states like Tamil Nadu and Kerala where fertility rates are already below replacement level.

Instead of chasing a now-unrealistic manufacturing-led model, Rajan urged a multipronged approach. India, he said, is already excelling in high-value services, accounting for 4.5% of global service exports. While this sector won’t absorb all job seekers, it represents a critical pillar of future growth.

Equally important, he added, is scaling up moderately skilled domestic services—logistics, truck driving, plumbing, repair work. These roles could absorb millions if backed by focused skill-building. “Get a job wherever, create a job wherever you can,” Rajan urged.

He emphasized that India needs to harness every opportunity—both export and domestic—to accelerate growth beyond the current plateau. “We are the fastest-growing country in the G20,” he said, “but also the poorest on a per capita basis. That has to change.”