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Can India become a manufacturing giant?

Posted by Arun Uday on June 14, 2007

The common refrain amongst most economic observers and commentators is “India will be the back office of the world and China will be the low cost factory of the world.” Even someone as distinguished as Steve Roach, the chief economist of Morgan Stanley advised that India stop trying to get into manufacturing and instead focus only on services. However, such notions of countries as large as India and China seem a little simplistic to me. Yes, there will be one sector which will always be the dominant one. However, given our size, even a smaller percentage of population or a smaller fraction of GDP coming from other sectors will be huge in absolute nos. Take the case of Indian manufacturing. The Indian manufacturing sector underwent a very painful few years in the early to mid 90’s when it had become very inefficient and uncompetitive.  As a result, manufacturers were forced to cut flab, exit unviable businesses and also lay off in large nos. Consequentially, what we have today is a bright industrial scenario, which seems to be matching the specatacular growth in services step for step. The IIP (Index of industrial production) numbers, which have just came in demonstrate just that. The 13.6% growth for April has been the highest in nearly a decade and augurs well for the prospects of the sector.  I also suspect that there could be vast synergistic effects between services and manufacturing that could get unleashed as we go along. For instance, engineering services (like product design and allied services), which has been a part of the outsourcing story so far is creating a class of skilled manpower who could easily carry over their expertise to high end manufacturing and also vice versa. Hence, I am inclined to think that India may end up carving a different niche for itself from China. It may not become the low cost mass manufacturing hub like China, but it could and probably is poised to becoming an end to end design and manufacturing hub for hi-end manufacturing.

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