20-India's Manufacturing Strategy - Global Perspective.pdf - Mimts.org

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Disease Control, and other leading institutions and
companies around the world. These people can do
anything that can be done in Japan, North America,
and Europe. Indeed, they can often do it better, and
they can do it for twenty percent of the cost. In
particular, because of the Internet, they can do highly
sophisticated services as well as high tech. Intel and
Texas Instruments, for example, have teams in India
doing design of cutting edge semiconductors. GE has
one of its main R&D centers in India. Brain scans and
radiology of all types are read on-line in India. Indian
hospitals are flying patients from all over the world
for high quality-low cost treatment in Indian
facilities. On top of this, India has an entrepreneurial
culture and experience that is second only to that of
Silicon Valley and far ahead of Japan's. India may
well outdo Japan and even the United States at
inventing the next generation of technology and
bringing it to market.
Thus, the comforting neo-classical paradigm in
which developed countries do R&D and high tech
invention along with sophisticated services while
developing countries specialize in agriculture and
low end, simple manufacturing is being stood on its
head. China and India will excel at both the high end
and the low end and in services as well as
manufacturing. This means Japan's ability to
compete in the future will be severely challenged and
America's even more so.
Indeed, it means acceleration of the likely collapse of
the current global economic structure. The U.S. trade
deficit cannot grow indefinitely. The ability of Japan
to help finance this deficit will be dramatically
reduced by Japan's increasing inability to retain high
tech manufacturing as China more and more
produces its own components and equipment and as
India takes more and more of the sophisticated
service work. Japan's trade surplus and level of
savings will drop significantly. Likewise, the United
States will not be able to expand its exports because
China and India will be more competitive in both
high tech and services.
In light of this, experts like former Federal Reserve
Chairman Paul Volcker are predicting a 75 percent
chance of a global financial crisis in the few years.
This would entail a dramatic devaluation of the
dollar, spiking global interest rates, and recession if
not depression on a world wide scale with China and
India emerging as the new arbiters of the direction of
the global economy.
THE SITUATION IN INDIA
The resurgence of India's manufacturing sector has
been quite magical. Not only are profits soaring, the
sector is fast spreading its roots abroad as many
Indian manufacturing firms inch close to becoming
true blue multinationals.
Indian government statistics released in June held a
pleasant surprise for those with a stake in the Indian
economy. India's Gross Domestic Product (GDP) for
the January through March 2006 quarter grew by 9.3
percent, beating market expectations. That growth
compared to 8.6 percent in the year-ago period, and
came mainly on the back of a healthy 5.5 percent
growth in the agriculture sector. Full-year GDP
growth for fiscal year 2005/06, ending March 31,
2006, was revised to 8.4 per cent from a previous
estimate of 8.1 percent. The better-than-expected
performance in the economy was also due to healthy
growth in manufacturing and services.
(a) Scope for Improvement
"The Indian manufacturing sector has to grow much
more before its full potential is realized, particularly
when the share of manufacturing in gross domestic
product has remained between 16 percent and 17 per
cent during the last two decades. Indian industrial
sector has shown signs of strength in recent years.
Traditionally, the country has been strong in laborintensive
industries such as apparel, footwear,
jewelry, leather and textiles. But of late, it has
emerged as a key player in skill-intensive industries
such as auto components, hardware, generic drugs
and specialty chemicals.
The Indian manufacturing sector has by and large
withstood the "competitive pressures" from imports,
even as tariffs on industrial goods have been cut from
the levels of more than 100 percent to a peak of 15
percent. Domestic manufacturers have demonstrated
their global competitiveness by notching up export
growth by 20 percent or more during the last
three years.
"With a growing middle class and their increasing
purchasing power, domestic demand is likely to be a
more powerful engine of growth than external
demand. The realization that India is not just a
provider of services but a huge market in itself is
pushing companies across the world to rethink their
strategy toward India. The effect of this can be seen
across the manufacturing spectrum, from small to