Raghuram Rajan questions India Inc: 'Why is India's private sector not more ambitious?'

Former Reserve Bank of India Governor Raghuram Rajan has questioned why India's private sector is not showing greater ambition on the global stage. He argued that many large companies appear satisfied with dominating the domestic market rather than investing in innovation and competing internationally.

The economist said private investment has remained weak for years despite India's economic potential. He also questioned why technology giants such as TCS and Infosys missed the initial wave of the artificial intelligence revolution.

"I would say it is time for the private sector to ramp up, and the real question is - why is our private sector not more ambitious? Why are they not trying to conquer the world? Why is it that they're satisfied with dominating the Indian market and making profits here?" Rajan said while speaking to Nidhi Razdan on DeKoder. 

The former RBI Governor argued that Indian businesses appear to be returning to the mindset that prevailed before economic liberalisation, when companies could earn profits in the domestic market without aggressively pursuing global opportunities. "We seem to have gone back to a private sector mentality which used to exist before we opened up," he said.

Must Read: 'Learn to live with US tariffs': Raghuram Rajan cautions India despite Trump's midterm defeat

He acknowledged that Indian software companies and some two-wheeler manufacturers have expanded internationally, but questioned the limited presence of large Indian companies creating innovative products for global markets. "But in general we're willing to follow other companies across the world doing what they do but the innovative large Indian companies selling to the Where is that? We are one sixth of humanity," the economist remarked.

'Why did TCS, Infosys miss the AI revolution?'

Turning to India's technology sector, Rajan questioned why leading IT companies failed to play a bigger role in developing artificial intelligence during its early expansion. 

"For our services companies, you have to ask why TCS and Infosys missed the AI revolution, so to speak," the professor said. "They're catching up, of course. They are using AI, but they're using OpenAI and Anthropic's tools at this point. Why weren't they part of the initial sort of ramp-up?"

Rajan rejected the argument that the high cost of developing AI models alone could explain India's limited role in the early stages of the technology.

"And you can't say it's just the cost because the Chinese have created AI models at much lower cost by distilling US models," he said. "Well, why aren't we even distilling those models and 'stealing some AI' if we are at that level?"

'Why are Indian pharma firms still focused on generics?'

Rajan also drew comparisons between India's pharmaceutical industry and China's progress in drug development.

The former RBI Governor said China had moved beyond its earlier focus on generic medicines and was now developing new formulations, attracting interest from Western companies.

"What the Chinese have done, for example, in pharmaceuticals deserves a close study by India because they were also doing generics at the beginning of this century. But now they are producing new formulations which the West is trying to get at," Rajan said. "And why is it that our pharmaceutical firms still are focused on generics with a few exceptions?"

The economist attributed the problem partly to inadequate research and weak links between universities and industry. "Partly because we're not doing much research in our companies and we're not doing much research in our companies because our universities are not doing much research in feeding the companies," he said.

'Stop fixating on GDP numbers'

The discussion began with a question about India's economic growth figures, particularly whether headline GDP growth reflected employment conditions and other economic realities.

Rajan said the focus should move away from debating the accuracy of growth numbers towards examining whether economic growth is delivering enough jobs.

"Let's stop fixating on these growth numbers because we really don't know what goes into them and how they're made up," he said. "The question is - is that number satisfactory for all that we want to do? And that's where you look at outcomes like jobs and so on. And that's where you start worrying. Is it producing enough jobs?"

The former RBI Governor said India's investment performance remained a major concern. "The last sort of big spike in investment was before the global financial crisis. After which we've seen investment really very tepid," he said.

Rajan noted that public infrastructure spending had increased, but cautioned that government investment could not indefinitely compensate for weak private-sector investment. "What has bumped up is public investment that is in infrastructure and so on. But that too has its limits. Once you start a metro in every big city, more is probably overinvestment. We have to be careful about that," he said.

The economist also questioned whether India had developed a clear strategy to achieve its ambition of becoming a developed country by 2047.

"This requires a wholesale revisit of what we're doing, and that's why I think it's good to have an ambition of Viksit Bharat by 2047, but what's the path to that? What's the path? How do we fill in from where we are to where we need to go?" he asked.

The professor suggested that India's policy approach was too focused on replicating initiatives adopted elsewhere rather than developing an independent strategy. 

"I sense Delhi is basically looking around the world. Oh, they do that, let's do that. Somebody else does something else, let's do that," Rajan said. "We're following in the footsteps of others rather than creating our own path."