Wherever and whatever I read on economy these days, I do get hold of at least few articles on India Euphoria and how India is supposed to grow by double digits for the next 20 years. The reasons these economist present are perfectly rationale and make it a sound theory for us to believe. Increasing working population, increasing public and private investments, changing demographics all point to same direction of consumption led growth story. But, aren't we missing a critical point here?
In the last 20 years after liberalization in 1991, the biggest contributor to India's economic growth has been the 'Services' sector, particularly IT and BPO services. If we think back, the question is Why these services were outsourced to India? And we all know the answer - Availability of cheap and abundant labor. The share of GDP from Services has increased from 41% in 1991 to 55% in 2010 indicating India's increased reliance on services.
The point is that as India develops with increase in GDP and per capita income, wages are surely going to increase significantly from present levels. And as wages grows, the cost advantage India holds in the outsourcing sector will start decreasing unless additional value is added to those services.
The fact of the matter here is that very little is being done for the value addition part. The Government is not emphasizing on vocational courses (that can help masses to get professional training specifically for jobs). Neither do MNCs seems very enthusiastic in providing advanced training to their employees and increase their training costs. Illustratively, Planning Commission report says that only 5% of youth (age group 20-24) undergo vocational training as compared to 60% in industrial countries.
Thus, the picture could sound and look quite gloomy, if you view it from a different angle.
Adios!!
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I agree that if we do not focus on value addition we may not achieve the growth we are targeting. But I guess going forward, with better infra, the urban rural divide will be a thing of past. Also, the outsourcing will shift to so called rural India with cost advantage still on our side and may be the value addition will kick in from the urban side.
ReplyDeleteI agree with the view of 'Anonymous' except that I don't see Rural-Urban divide disappearing very soon. Infrastructure sector will keep on growing and it will take a long time for good infrastructure to emerge in the cities and nearby areas. India is a democracy and one shouldn't expect a China like phenomenal growth in India.
ReplyDeleteComing to Mr Kayp's views on services leading the growth story and that being under threat from Latin American nations (Brazil), South East Asian Nations (Vietnam) and China; This advantage also will not go away so soon given the poverty level and unemployment in our country (Job market would always be demand driven unless it is into specific skills/services). However, your point on skill gap, lack of skill development etc are eminently justified and valid. Those are the real threats and the need of the hour is to provide more opportunities in the education sector. How to do it? Industry involvement, Tax rebate, Opening up the higher education to pvt sector etc- Needs to be deliberated and acted upon.
However, there is one thing which is in India's advantage and that's India's rising manufacturing competitiveness. We are already very competitive in Auto components, some of the electrical components and in pharma space too. So, with more stress on Infrastructure development, less rigid labor laws and proper fiscal incentives, our manufacturing sector can be another significant driver of Indian growth story.
Ofcourse, future risks and gaps leading to suboptimal growth of the services sector (Like skill gap identified in your article) are to be given due recognition and treatment.
Good job Kayp- Keep on transferring your thoughts like this.