Sunday, June 12, 2005

India a Manufacturing hub

The story of India’s growth has been as delighting as it has been mesmerizing. Going by conventional economics, there are certain pre-requisites for growth like:

  • Purchasing power in citizens
  • A good manufacturing base
  • A good manufacturing base
  • Good ports and airports

If we have a close look at the above, India has none of the above, and yet it is growing consistently with a growth rate which will be enviable for most developing countries. (China humbly excluded). I agree the growth rate could have been even more phenomenal, if it would have been supported by the above mentioned “pre-requisites”. In fact to my mind the way forward is to address these deficiencies.

If we are so deficient in such basic requirements, what are the factors which are driving the country’s growth, and more importantly is this growth sustainable? Let’s take each question one at a time.

Factors driving India’s growth

The factors which have led to this high rate of growth in the country are:

  • High percentage of people in working population
  • Technology leveling the ground between developed and developing countries leading to large scale labour arbitrage (result BPOs)
  • High number of English speaking population willing to cater to the needs of foreign work requirements
  • High number of skilled labour

The above factors explain how we have managed to skip a vital chain in a country’s growth pattern, where first primary sector like agriculture and mining develop, then the manufacturing sector and then the service industry. We jumped straight from the primary sector to the service sector, thanks to skilled labour, revolutionary technological changes and woefully inadequate infrastructure and directionless government machinery.

Is the growth sustainable?

Very debatable, but I will say yes, to a large extent because I want to believe that the answer is yes. However, for the country to grow, it is imperative that sooner rather than later the infrastructure and manufacturing sector as to grow. The scope for growth is huge. Providing basic amenities like power, water, food, housing alone can lead to a kind of growth which will be unprecedented. (Yes, it can be unprecedented even by Chinese standards). What is required, is a strong government will, growth oriented policies and above all sound implementation with minimal leakages and misutilization of capital. A public-private partnership for a sustained growth is called for.

Like any other country, within the manufacturing sector, the commodity sector will take the lead, and surplus capital generated therefrom will be employed in other technology and knowledge intensive sectors. The preponderance of growth in the service sector means the service infrastructure for fast growth in manufacturing can be supported without too much of a hiccup.

Other factors which goes in our favor in support of growth in manufacturing are:

  • Cheap Labour
  • Growth in quality management education leading to pool of managerial skills
  • Technological development of developed countries can be adopted, without having to invest too much of our own capital
  • A huge proportion of the population in the working age group of 16-59Increasing consumerism

Looking at the possibilities and setup, there is no doubt in my mind that we have the wherewithal to be the next manufacturing led growth story, which will be both inclusive of a larger section of the society and at the same time create a new breed of capitalists. Are you willing to be a part of the party yet?

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