India's Race to Move Beyond the Back Office

Knowledge@Wharton recently ran an insightful article that talks about India's struggle to move beyond being just a services led export economy. According to the piece, India's manufacturing economy is "hampered by poor infrastructure, bureaucratic red tape and restrictive labor laws ... Between 1990 and 2005, industry's contribution to the economy remained more or less stagnant, crawling from 25% to 27%. Over the same period, the share of services ballooned from 37% to 52%. According to experts from the Boston Consulting Group, in 2005 India's manufacturing exports were 6% of GDP ($37 billion) compared to 35% for China ($712 billion). About 60% of Chinese manufacturing exports are by firms headquartered outside China.”

But thing are changing, the article notes. However, they're not moving along fast enough. Consider how "restrictive labor laws -- companies that employ more than 100 workers need government permission to fire them -- make India a poor choice for large labor-intensive industries such as shoes and toys." And let's not forget India's "Expensive and unreliable electricity, poor roads, clogged ports and red tape add to the disincentives". Perhaps the “400,000 engineers a year" that India is turning out these days would be of better short-term service to their country if they addressed their nation's infrastructure, economic and political shortcomings before launching into the private sector.

Jason Busch

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