Re: India Growth Continues…Now Manufacturing
The chief economist of Morgan Stanley, Stephen Roach, is wondering how India will create jobs in factories that are “more heavily populated by robots than by human workers.”
It’s a valid question. And the only answer seems to be, “by setting up thousands of such factories.”
It won’t be easy.
Taking into account both the current stock of jobseekers and the expected increase in the labor force, India has to find work for 150 million people, more than the combined population of France and Germany, to reach full employment by 2010.
While that is patently unrealistic, it underscores the enormity of a task that will test Indian policy makers until the share of working-age people in the total population stops rising in about 2035.
Unemployment may turn India’s “youth bulge,” which is expected to bring the country its long-awaited demographic boon, into a blue-collar tragedy. In the absence of factors that would enable job creation, automation is making a bad situation worse.
Bajaj Auto, India’s No. 2 motorcycle manufacturer, had more than 21,000 workers in 1997.
Over the next eight years, the company tripled revenue by cutting the number of employees to 11,000 and by increasing assets per worker almost sevenfold. Part of this capital infusion went into robots that weld chassis frames.
The rising use of labor-saving technologies and the resultant gain in productivity is the story of most modern shop floors. The reason India has to worry about it more than any other country is that its working-age population will grow by 71 million from 2006 to 2010.
That addition in the number of potential jobseekers in India will be 11 percent more than in China, and it will account for almost a fourth of the increase in the worldwide labor pool, says Chetan Ahya, a Morgan Stanley economist in Mumbai.
Ahya, Roach and Andy Xie, Morgan Stanley’s chief economist for the Asia-Pacific region, this week released the second part of their jointly authored study, titled “India and China: New Tigers of Asia.”
The first part of the study, published in July 2004, looked at how long it could take India to reach the same level of demand for goods and services as China has at present. If that report had a sanguine message for Indian policy makers - it said the Indian car market might double in four years - the latest research contains enough challenges to keep them awake at night.
The most uncomfortable finding is that 80 million Indians, or about 20 percent of the work force, may be effectively jobless. That’s more than double the national planning agency’s estimate.
“For every 1 percent increase in gross domestic product between 1994 and 2000, employment rose by 0.16 percent,” Ahya says. “Throughout much of the 1980s and early 1990s, the same 1 percent economic expansion produced 0.52 percent job growth.”
While there isn’t much that India could do to prevent companies from substituting labor with capital, it could take the sting out of chronically high joblessness by mounting what Morgan Stanley researchers call a “strong supply- side response.” That boils down to lowering the cost of doing business in India.
For one, arresting wasteful state expenditures may allow for a reduction in high indirect taxes, boosting manufacturers’ competitiveness. India’s federal and state governments effectively ran up a budget deficit equal to 9.6 percent of GDP last year, more than in any other major emerging market.
Combined with an aggressive asset-sale program in state- owned companies, fiscal correction will also release money to plug the shortfalls in railways, roads, ports, airports, communications, electricity and urban services.
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India’s infrastructure investment is a paltry $28 billion a year, or 3.6 percent of annual gross domestic product, compared with $201 billion, or 9 percent of GDP, in China.
Indian manufacturers will struggle to expand and create jobs if they have to pay double the Chinese power tariffs and three times China’s railway freight charges.
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Morgan Stanley’s other recommendation is to ease the country’s restrictive labor laws that militate against job creation. Like fiscal deficits and inadequate infrastructure, these laws are a key supply-side bottleneck.
In a speech earlier this year, Raghuram Rajan, the chief economist at the International Monetary Fund in Washington, said that India’s archaic labor laws must be scrapped. “Few realize how pernicious these are because their effects, in terms of the labor-intensive firms that are unborn, cannot easily be seen.”
Although both China and India need jobs, India’s requirement is more desperate. That’s because the share of working-age people in China’s total population will shrink after 2010; India’s population will keep getting younger for almost 30 more years.
This will overlap with a period in which the developed world will invest heavily in automation to cope with its manpower shortages. At present speeds of technology diffusion, new, intelligent robots that can do more than weld, carry or spray-paint are bound to show up on Indian factory floors, too.
http://www.iht.com/articles/2006/06/01/bloomberg/sxmuk.php
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For India, there’s no other route to large-scale, blue-collar job creation than jumping on the global manufacturing treadmill. But it might have to run harder to get there than other developing nations that took the same path.
In 2004-2005, India’s economy had clocked 7.5% growth. **