Wednesday, October 13, 2004
The Bloomberg take on Indian Manufacturing
Staying on the topic of manufacturing in India, Andy Mukherjee writes about LG opening a new cellular phone manufacturing unit near Bombay. Mukherjee also quotes Deutsche Bank economists Michael Spencer and Sanjeev Sanyal who seem equally skeptical of theories floated by the likes of Stephen Roach that India does not have to worry about building a manufacturing base.
Beginning in 2003, Hyundai Motor Co., South Korea's biggest automaker, shifted its entire global production of the Santro compact car to its Indian unit. Unilever Plc's India unit said in May last year that it had been selected by its Anglo-Dutch parent to supply toothpaste to Europe after a study found that India was one of the cheapest places in the world to manufacture personal-care products. And now LG plans to spend $150 million in the country by 2007 and make India its second-largest overseas production base after China.
A renewal of manufacturing in India has been long overdue. Like in most developing nations, the share of agriculture in the economy is shrinking, dropping to 22 percent last year from 28 percent in 1990. Factory production, however, hasn't picked up the slack. Excess rural labor has gotten pushed into low-productivity, unorganized businesses that cater to the needs of a domestic population, which has historically had very little purchasing power. Meanwhile, software and other ``knowledge'' industries failed to create jobs for less-educated workers.
``It's a development motto that has been fashionable in India in recent years -- software, not hardware,'' Deutsche Bank's Sanyal says. ``We doubt that India will be the first country in human history to make the transition from agriculture to services without going through manufacturing development.''A correction is under way. India's booming service industries have now begun to create a significant source of demand for manufactured goods.
Beginning in 2003, Hyundai Motor Co., South Korea's biggest automaker, shifted its entire global production of the Santro compact car to its Indian unit. Unilever Plc's India unit said in May last year that it had been selected by its Anglo-Dutch parent to supply toothpaste to Europe after a study found that India was one of the cheapest places in the world to manufacture personal-care products. And now LG plans to spend $150 million in the country by 2007 and make India its second-largest overseas production base after China.
A renewal of manufacturing in India has been long overdue. Like in most developing nations, the share of agriculture in the economy is shrinking, dropping to 22 percent last year from 28 percent in 1990. Factory production, however, hasn't picked up the slack. Excess rural labor has gotten pushed into low-productivity, unorganized businesses that cater to the needs of a domestic population, which has historically had very little purchasing power. Meanwhile, software and other ``knowledge'' industries failed to create jobs for less-educated workers.
``It's a development motto that has been fashionable in India in recent years -- software, not hardware,'' Deutsche Bank's Sanyal says. ``We doubt that India will be the first country in human history to make the transition from agriculture to services without going through manufacturing development.''A correction is under way. India's booming service industries have now begun to create a significant source of demand for manufactured goods.
