India: The Silent Manufacturing Boom

The Economist had a great special report on India earlier in the month. While reading it, I jotted down a few notes on some of the more insightful and salient finding from the articles. For example, in the article, Few Hands Make Work Light, the authors describe the state of Indian manufacturing today. In the piece, they cite a BCG study that points out that, "despite manufacturing's low profile in India, it contributes a much higher share of GDP (16%) than IT does; it is the source of 53% of exports (compared with 27% from services); and it is the destination for four-fifths of foreign investment." I doubt if you asked a room-full of Western executives if they knew the balance of India's exports in manufacturing and services that they would know the critical role of the former in the country's growth and FDI.

In contrast to China, however, India has relied -- so far at least -- on brains rather than brawn to drive manufacturing growth. The same article cites the case of Bharat Forge, which realized early on that "India could not be a success relying on cheap labour to produce cheap goods. Prices were uncompetitive and quality low." Based on this realization, nearly two decades ago, Bharat Forge changed its business model, opting to invest in "brand-new facilities and new technology, some of it developed in-house. Then [the company realigned its] workforce into a white-collar, technically adept team. The company soon gained sales in India and outgrew the market, so it had to become a global business."

Despite this investment in factories, technology, and a white-collar workforce, goods still move through India more slowly than almost any country in the world, thanks to a crumbling infrastructure and levels of bureaucracy that would make even an EU government official cringe and need a smoke. For those that have not been to India, it is hard to fathom how a country with such great engineers can fail to build an efficient, national highway system. In a short article, The Long Journey, the editors describe how it takes eight days at an average speed of 6.8 miles per hour -- including 32 hours of waiting at checkpoints -- for a lorry to travel from Kolkata to Mumbai. Perhaps to speed the journey India should cut the nuclear arms race with its neighbor, Pakistan, and redeploy a few troops so that it does have to shut down a major highway at night between Orissa and Mumbai "to avoid the danger of attacks by bandits or Maoist insurgents." Now, I will admit that driving through parts of Newark, New Jersey poses similar risks, but that's what North American urban toll-roads are for -- they elevate you above the gunfire.

Jason Busch

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