Stephen Roach after making a second trip to India this year and writes about potential for manufacturing in India, the state of the infrastructure and political developments in the country. Stephen writes,"The Indian manufacturing model, continues to suffer from three major deficiencies -- a lack of infrastructure, a low national saving rate (a little over 20%), and anemic inflows of foreign direct investment (barely US$4 billion in 2003). Of those constraints, the infrastructure gap is the most serious. Not only does it risk crimping the efficiencies of supply-chain management and nationwide delivery capabilities, but it raises serious questions about the transportation requirements of a dynamic export sector. Services, by contrast, need none of the above. Moreover, India’s new services dynamic plays to some of the nation’s greatest strengths -- education, entrepreneurial spirit, and IT literacy. Services also rest on a platform of e-based connectivity -- offering an important end run around a massive physical infrastructure deficiency". He adds,"The Indian manufacturing model, continues to suffer from three major deficiencies -- a lack of infrastructure, a low national saving rate (a little over 20%), and anemic inflows of foreign direct investment (barely US$4 billion in 2003). Of those constraints, the infrastructure gap is the most serious. Not only does it risk crimping the efficiencies of supply-chain management and nationwide delivery capabilities, but it raises serious questions about the transportation requirements of a dynamic export sector. Services, by contrast, need none of the above. Moreover, India’s new services dynamic plays to some of the nation’s greatest strengths -- education, entrepreneurial spirit, and IT literacy. Services also rest on a platform of e-based connectivity -- offering an important end run around a massive physical infrastructure deficiency". The approach for manufacturing fixation needs a reality check -- especially given the serious constraints on the infrastructure, FDI and saving fronts. Paradoxically, while India is very proud of its services-led progress, most seem to trivialize the potential macro implications of this trend. As I read Roach's writings, it is very difficult to think about huge number of Indians engaged in service economy alone. This approach might work for a smaller sized economy, but for a developing country with a huge sized economy, it is impossible to overlook investments in manufacturing - this only makes the job tougher for India - no escape from this. |
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