Where are the jobs going to come from?

…Was reading the latest issue of Business World yesterday night. It featured a rather interesting article by Stephen Roach, the Chief Economist at Morgan Stanley.

Roach had visited India recently, and the article, in short, was his observation on the Indian economy, as it stands today. He has grave misgivings that India is still looking at manufacturing led employment (are we?), whereas, in his opinion, that is simply not going to happen. To illustrate, Bajaj manufactured over twice as many two wheelers in 2004 when compared to 1999. In the same period, the number of employees had actually fallen by at least 25%. Similarly, with TELCO.

Manufacturing is a highly mechanized and automated game today, it is all about productivity, and is unlikely to provide the jobs the 10 million plus Indians who enter the work force every year need.

Automation and productivity apart, Roach identifies three other reasons why manufacturing in India will always be at a disadvantage when compared to, say, China.

* Lousy Infrastructure
* Low Savings Rate (and i thought indians saved a lot?)
* Not enough FDI

And none of this is going to change anytime soon.

Roach says, bet on services. Call centres, bpos, lawyers, contract research, health services, blah, blah, only services are going to get the jobs.

Sure, services will do better than manufacturing. But most services still need a graduate level education. And of the 10 million entering the workforce, at least 4 million will be under-educated, if not uneducated.

The last five years have played out in our favour. There is no reason to believe the next 5-10 won’t either. But beyond that, it is difficult to say. If we need to lift the under-educated, the uneducated, and the poor, we need huge investments in social and physical infrastructure, we need to boldly use our reserves, IMF and World Bank be damned. Most of all, we need stronger and abler political vision. Genuine political vision. Democracy, the way it is playing out today, will ensure that we won’t get them. And all it will take for the better-off to get screwed are a couple of unprincipled and misguided rabble rousers. That is certainly more likely.

Where are the jobs going to come from? More importantly, where are the leaders going to come from?

Posted on October 28, 2004, in Uncategorized. Bookmark the permalink. 6 Comments.

  1. To illustrate, Bajaj manufactured over twice as many two wheelers in 2004 as compared to 19999

    19999 ? Phew !

  2. Very interesting da… I’ll try to read the article if I can…

  3. Leaders always emerge in a vacuum. There’s no worry about that. What is of concern is the education.

    • In certain situations, leaders emerge in vacuum. Over here, it is not going to be that easy. Sometimes, I fear, our political conscience has gone too far downhill. At a certain stage, a nation needs to take difficult decisions, put aside power driven squabbles, and grab the opportunity that comes its way. That opportunity has come our way now, but we are not doing enough to grab There is a lot to worry about that.

  4. First of all the three points Mr. Roach mentioned:

    1) Lousy Infrastructure. Very true. It is going to hamper all kinds of growth in India (both service and mfg.) But then the next immediate round of growth itself has to come from massive infrastructre development. If it does not, then we have lost the game anyway.

    2) Low Savings rate: He may be grossly mistaken there. The banks are sitting with huge amounts of cash with no takers. The problem is basically low investment climate which again is caused by various factors such as bad governance, poitical instability, etc. Also the fact that Indian businesses are generally very prudent when it comes to taking bold investment decisions. (Even the Ambanis) But as an offshoot of that, it has held the economy in good steed, even during times of crisis.

    3) Not enough FDI: Again, its a question of national perspective. Yes, it is a stated policy of the Indian government that they welcome more and more FDI. But I think the government is doing fine in setting FDI limits. Otherwise, very soon, there would be no local industry. Just MNCs, sending back their profits to the US. The IMF and World Bank inspired view of more and more FDI isuspiciously smells of vested TNC interests.

    And who said Indian Mfg is not going to make it. As of now, it is the golden sucess story. India is set to attain global production house standards in many sectors soon. (Point to note, do not compare Indian Mfg with Chinese, because firstly they have had a major headstart, and second the dynamics are totally different)

    And using reserves is a good idea untill one takes into consideration the fact that it would be impossible to ensure that the allocation of resources is free from political and personal aspirations of those designated with the task.

    The only thing, that is going to solve the problem in a manner which is not sick and shaky, is good governance. Only that can ensure that the deprived millions are uplifted. And upliftment of the deprived millions is the only thing that will drive India into the big league, BRIC by BRIC.

    • Mr. Roach’s point is not that Indian Mfg is not going to make it. It is increasingly successful, no doubts about that. His point is that manufacturing will not provide the jobs that many people think it will. I agree with him. I think we have just too many people entering the workforce every year, so we need different strategies. Services is part of it, but there are other ways we need to find – alternative technologies based industries for e.g., and find ways to make them sustainable against competition.

      I think it is very important that we use our reserves. We have an incredible opportunity to make things happen because the climate is favourable, and we aren’t doing enough to use it. No doubt, the challenge is to make it free from political and personal aspirations, which is why I bemoan the absence of good leader(s). But that cannot be an excuse to let it sit idle.

      And since I don’t see how the political climate is going to change anytime soon, I am interested in understanding how (difficult, while it is) we can make things happen faster despite poor governance.

      About the savings rate, I am inclined to agree with you. But I don’t know enough about that, so can’t comment.

      About FDI, I think it’s not a question of FDI limits. That is fine enough, I think the issue is that we should be able to attract more FDI despite the limits. And in a sense, that leads back to point #1 – the lamentable infrastructure.

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