India: An Industrial
Power
By Dr. Rizwana Rahim
Chicago, IL
In Keith Bradsher’s
four-page article in the New York Times (31 August
06), there were enough indices pointing to the new
kid on the industrial block: India.
There are inevitable comparisons with China in various
fields, from workforce to infrastructure, but not
a single reference to Pakistan in this long article.
This wasn’t, perhaps, due to any tilt this
way or that -- just that, unfortunately, Pakistan
isn’t considered a serious competitor or contender
in any significant industrial area, and thus was
below the radar.
No longer just an outsourced calling-center for
the American and British services or a land of computer
programmers and software developers, far removed
from an agricultural basket case of yesteryear,
India is elbowing itself to the front line of industrial
countries. Spending frustrating decades in trying
to improve domestic economy, its focus has turned
to what other Asian countries had been doing: manufacturing
and export. Despite many problems, things began
to change, and now, it seems quite impressive, even
too good to be true.
In manufacturing goods, a 9% annual growth rate,
compared to a solid 10% in service areas. A steady
growth in export of manufactured goods to the US
and other countries, and since it started from a
relatively smaller base, the rate in terms of percentage
seems faster than China’s. Foreign investors
confidently poured enough money last year -- more
than 66% of the total into the manufacturing (and
not the service) sector of India. India’s
export of manufactured goods is growing faster than
China’s -- no longer the second banana to
China .
Now picture this: tractors and color TV sets for
India and exports to the US, manufactured in the
dusty outskirts of Pune (by John Deere and LG Electronics);
steel for ventilation shafts “in Philadelphia,
high-rise structural beams in Chicago and car engine
mountings in Detroit” in the northwest Hazira
where camels still carry the goods (by Essar Group,
with its own port to bring in iron ore, its own
power plant for electricity, its output set to increase
by 5-7x); General Motors and Motorola are eying
South and Western India for building their plants;
Posco of South Korea and Mittal Steel of the Netherlands
(of the eponymous Indian-born multi-billionaire
magnate) planning giant steel plants in eastern
India where Reliance (India) is planning to build
the world’s largest coal-powered power plants.
The foreign investment strategy may also be driven
by some interesting, regional demographics: in about
seven years, India is expected to have more 20-24
year old workers than in China, and by ILO estimates,
in this age-group, 116 million more workers than
in China (94 million). These Indian workers will
have skills both in engineering and other relevant
fields, as well as in the language (English), a
major international marketing asset in a wide range
of areas. Then, seven more years later, India will
surpass China in population.
What helped Indian economy immensely was the deregulation.
With a current 8% annual economic growth, there
is considerable optimism that it would eventually
overtake China (currently at 10%).
Despite all this, India is not a piece of cake for
foreign businesses, or for that matter India’s
own. Infrastructure (improving roads and transportation,
electricity, ports facilities), still remains the
chief obstacle: for every dollar India spends on
it China spends seven-times more. India’s
labor laws and practices have changed little since
Independence, nearly 60 years ago. Corruption is
pervasive as well as invasive, such that most efforts
at improving the situation are either ineffective
or insufficient; it continues to eat away the very
insides of the economy and its promises.
The ratio of industrial production to total economic
output of the country is an instructive ratio for
comparisons, and here, India comes at 20% while
China is twice that, but the increase in exported
manufactured goods is faster that seen in agriculture
and service areas, which means that the gap between
China and India is narrowing. Government reduced
the protected industry areas from 20,000 to mere
326 and lowered import taxes. High tariffs on imports
and laws designed to protect businesses with less
than 100 employees did create a huge number of small
businesses, particularly in the villages for the
women and minorities, but these protected businesses
also turned out to be too small to be competitive,
and slowed growth in the exported goods.
No other industry illustrates this problem better
than the garment industry: Indian exports in this
area were smaller than even from Bangladesh, and
China, a state-regulated economy, where it is a
major job-producing and growth area. Indian businesses,
smaller than China’s, use leaner and more
efficient Japanese manufacturing procedures, make
higher quality products, and are more efficient.
But inefficient transport and inadequate port facilities
run up holding and storage costs. Removing these
hurdles and bringing in more modern processes will
speed up the exports and economic growth, but without
creating many jobs.
In increasing number of industries manual procedures
are being done by machines: Whirlpool factory in
Pune uses machines, not workers, to fold steel exterior
of the refrigerators: just over 200 employees produce
some 33, 000 refrigerators a month – perhaps
among the highest worker productivity of any Whirlpool
factory in the world.
Working conditions in India are better than in the
State-controlled Chinese factories. For instance,
a comparison between the Hero Group, the largest
producer in the world of inexpensive motorcycles
and its Chinese competitor, Lifan Group: Hero is
a protected business and caters to domestic needs
(little or no export), while Lifan stresses exports.
Hero factories have better health safety conditions
than Lifan’s, Hero’s workers make more
($150) than a Chinese worker ($100) with more benefits
and have effective unions as opposed to state-owned
non-unionized Lifan.
But the biggest problem for India is again with
the infra-structure to support the export of increasing
number of products. Some ports, such as Nhava Sheva
near Mumbai, are comparable to some of the US West
Coast ports in terms of number of containers moved/hour,
but are getting increasingly congested. Same is
true of Chennai ports.
For Indian companies dealing with all corners of
the globe, a reliable and efficient infrastructure
is a must. Improvement in this area came faster
in China, as its steel production surged in 2004.
The Chinese response was effective, and money poured
in (3x more within 6 months) --- ports got improved,
new wharves constructed, and the economy grew (11.3
% in the second quarter this year, with inflation
held at 1% more than a year ago). In India the progress
on such improvements has been glacial by comparison.
By comparison, inflation in India was at 8% this
summer, and new problems are emerging now, after
three years of 8% growth. Frustratingly slow, India
is trying to address the problems of its infrastructure
and pervasive corruption things that keep it from
realizing its potential. Its future lies not as
much in calling centers but in its engineers exporting
manufactured goods.
Bradsher’s article is well-researched, based
on material from dozen-and-a-half business categories
in 10 different places across India.
-----------------------------------------------------------------------------
