Manufacturing hub called India

With the German engineering technology major, Siemens, planning to make India the global hub for manufacturing its key steel plant equipment, it joins the growing ranks of firms eyeing the country as a launching pad for supplies to Asian markets. India has the manufacturing and engineering capabilities; it has a pool of skilled expertise, and its size offers it a strategic advantage for servicing markets from Myanmar down to Australia and West Asia, if necessary. The Asia-Pacific region is the epicentre of economic expansion at the moment.

Slowly but steadily, almost unnoticed, a transformation of long-term significance is taking place in the economy. Indian manufacturing is diversifying not as a result of any policy initiative but because of conditions on the ground that global players are using to their advantage.

Anecdotal evidence suggests that India may well be on its way to becoming a global manufacturing hub. The pace seems to have increased at a time when the Western economies have yet to witness a pick-up in investments in their own economies.

A couple of years ago, Capgemini Consulting Services undertook a survey of 340 from among the Fortune 5000 global manufacturing companies and, in its report, observed that India could well overtake China as a global manufacturing hub. Most of the respondents stressed that India was large on their radar screen for outsourcing manufacturing over the next three to four years.

The Capgemini report was issued in 2007; since then, a host of firms from Japanese automakers to telecom equipment manufacturers and, now, Siemens are packing their bags for India. The country, the authors of the report were quoted in press reports, could well witness a change, with manufacturing overtaking IT as the driver of growth.

VALORISING SERVICES

That change is not yet evident. India's economic successes are still identified with the IT sector and, more specifically, with a handful of firms that dominate the space. Services contribute the most to the GDP; software and business process outsourcing represent the brightest face of exports — icons of the country's passage into post-modernity.

The services sector dominates the economy in more ways than one; in terms of employment preferences, BFSI (Banking, Financial Services and Insurance) has overtaken manufacturing to a considerable degree. Most management or IIT graduates would prefer BFSI or IT firms for jobs over manufacturing even though salaries in the former are more prone to the vicissitudes of the business cycle.

In 2009, placement salary offerings in IT and BFSI dropped 25 per cent over 2007-08, while salaries in the manufacturing sector fell far less. Yet, the BFSI sector grabbed 39 per cent of graduates from the Indian Institutes of Management (IIMs) followed by consulting firms that attracted 24 per cent.

Manufacturing together with the media and rating agencies had to settle for a mere 6 per cent of the future cream of Indian managerial talent.

It is this star-lit sheen of IT and BFSI sectors that also blinds analysts, keen to advice the rest of the world just how it should go about getting prosperous.

India's liberalisation has focused largely on the financial and IT sectors, and the fact that both are in their own ways connected to the global economy offers the impression of the country participating in the creation of global wealth.

In their paper titled, “Service with a smile: A New growth Engine for poor countries” published on the Web site www.voxeu.org , Ejaz Ghani, Arti Grover (from The World Bank) and Homi Kharas from the Brookings Institution argue that services provide poor countries the easiest and fastest route to prosperity. At one time the privilege of rich countries, the globalisation of services has created new opportunities for countries mired in poverty. That data can substantiate their claim as accomplished fact does not detract from the strong apprehension and deep scepticism that must accompany this strategy for growth.

CHINKS IN THE MODEL

The world knows what happens to countries that decide to become rich quick through services-led economic growth. Iceland is a case in point. A traditional cod-fishing based economy with a high level of stability, it could not resist the temptation that global finance threw its way to become a superstar, the crowning example of financial services-inspired prosperity, only to come to grief when Lehmann Brothers collapsed. The morality tale is yet to conclude, with Portugal the latest victim of the globalisation of services.

On the other hand, countries that have a strong manufacturing base, such as the emerging economies and India and China could, with the help of efficient and prescient monetary and exchange controls, contain the contagion unleashed by Wall Street on the world.

The fact that ‘services' have become globalised distorts the differences between services exported by the US and the EU members such as France and Germany (finance capital and universal banking) on the one hand, and those adopted by poor countries, from tourism to business process outsourcing and call centres on the other; the fact of ‘success' obfuscates the inherent inequalities.

Manufacturing outsourcing, too, contains its systems of domination with its jealous protection of advanced technologies.

But the advantage of technology spill-over and its immersion into the local economy can hardly be denied. China is a shining example of the intuitive transfer of technologies that creates a more sustainable and inclusive economy than one propelled by call centres or tourism.

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