India's Manufacturing Sector is Picking Up the Pace

This one is entirely a hat tip to New Economist who posted on this a couple of days ago. The post cites an excellent article in the NYT about how India is beginning to flex its industrial brawn. If you are interested in the economic trends coming out of India you do not want to miss this one!

(Bold parts are my emphasis) 

'For decades, India followed a route to economic development strikingly different from that of countries like Japan, South Korea or China. While its Asian rivals placed their bets on manufacturing and exports, India focused on its domestic economy and grew more slowly with an emphasis on services.

But all that is starting to change.

India’s annual growth in manufacturing output, at 9 percent and accelerating, is close to catching growth in services, at 10 percent. Exports of manufactured goods to the United States are now rising faster in percentage terms than China’s, although from a much smaller base. More than two-thirds of foreign investment in the last year has gone into manufacturing in India, not services.

“Saying we are a back office and China is a factory is a backhanded compliment,” said Kamal Nath, India’s minister of commerce and industry. “It’s not really correct.'

And why is this I you might ask ... demographics my dear reader; demographics. And although demographics by no means represent a holy grail to all economic questions the story told here is important to note.

'A prime reason India is now developing into the world’s next big industrial power is that a number of global manufacturers are already looking ahead to a serious demographic squeeze facing China. Because of China’s “one child” policy, family sizes have been shrinking there since the 1980’s, so fewer young people will be available soon for factory labor.

India is not expected to pass China in total population until 2030. But India will have more young workers aged 20 to 24 by 2013; the International Labor Organization predicts that by 2020, India will have 116 million workers in this age bracket to China’s 94 million.

India’s young population will also make it a huge and growing market for years to come, while the engineering skills and English skills of its educated elite will make it competitive across a wide range of industries. So even though India remains a difficult place to do business, several multinationals have been placing big bets on India in hopes of taking advantage of this shifting global dynamic.'

Moving on to the bottomline ...

'Despite such obstacles [read the article or check out this one], India’s manufacturing sector appears poised for further growth. In a country where the national symbol has shifted from government bureaucrats at aging desks to call center operators in cubicles, it looks as if the next icon will be the laptop-toting engineer on a factory floor.'

In my opinion India and how the country reacts to and influences the global economy is an important aspect to watch out for if you, as the author of this blog, are into international economics.