India Grows, but Jobs Do not: Automation, Antiquated Labor Laws Shut Out Factory Workers
Drawing on abundant reserves of engineering and entrepreneurial talent, as well as on expertise from abroad, Indian manufacturers are overcoming a reputation for dubious quality and beginning to emulate the countrys booming software and back-office outsourcing firms in reaping the benefits of globalization, according to news reports cited by the World Bank press review Thursday.
However, inspired by Japanese automation and other labor-saving efficiencies, and discouraged from taking on new employees by antiquated labor laws that make firing nearly impossible, Indian manufacturers are creating few if any new jobs.
Notwithstanding the recent growth in industrial output, manufacturing companies in India employ just seven million people, a tiny share of the countrys estimated 406 million workers, according to the World Bank.
The situation contrasts with that of China, where foreign investment has given rise to thousands of new factories churning out such consumer goods as toys and clothes for overseas markets. Chinas manufacturing boom has provided jobs for tens of millions of semiliterate peasants and has created a middle class that is growing as fast as any in the world.
The Washington Post reports that many economists predict that India will not achieve similar success in manufacturing, or in alleviating poverty, until it becomes more hospitable to foreign investors.
They say that achieving those goals would require scrapping a 1947 law requiring medium-size and larger companies to seek government permission before firing workers. It also would require major improvements in such infrastructure as roads and power, which is so unreliable that many companies are forced to generate their own.
However, there are some grounds for optimism. In 2003, exports of manufactured goods grew by 20 percent. A new study by the consulting firm McKinsey and Co. and the Confederation of Indian Industry concluded that with the right policy adjustments, India could gain as many as 30 million manufacturing jobs by 2015.
That, in turn, could generate significant employment gains in such service industries as hotels, restaurants, transportation and information technology.
According N. Srinivasan, the director-general of the Confederation of Indian Industry, Indias best manufacturing prospects are in skill-intensive industries that will allow the country to leverage its advantage in cheap, relatively well-educated labor while not soaking up large numbers of unskilled workers, as is happening in China.
Meanwhile, Indian banks face a dilemma. They know that the next big opportunity is lending to rural customers, who make up the majority of the countrys population. But they also realize that the cost of opening branches to serve the 300 million rural Indians who lack access to formal credit is prohibitive.
That is why banks are increasingly turning to micro-finance lenders (MFLs) – which lend tiny sums to poor people – as a bridgehead into rural India.
Two other factors underpin this emerging partnership. First, there is increasing political support for improving access to credit for the rural poor. Second, banks are beginning to acknowledge that they lack not only the branch networks but also the expertise to judge the credit risk of people earning 30 US dollar a month and requesting loans of 60 dollar.
The large domestic commercial banks -such as ICICI, HDFC and UTI- that have taken a lead, have learned that while the rural poor may earn low incomes, their credit quality is unusually high, with a record of repayment that shames most larger borrowers.
– There is a big market out there but the problem is how to address it, says Bart Hellemans of ING Vysna in Bangalore, which is testing the water with a micro-lending scheme launched in conjunction with a community services unit of Microsoft. The issue for the banks is choosing the right way in.
ICICI, Indias second largest bank, has formed partnerships with 30 MFLs and has grown its micro-finance portfolio from 45 million US dollar two years ago to 100 million. ICICI has also gained access to 2 million rural customers – a market one-fifth the size of its urban customer base but gained in half the time.
Yet the biggest boon to micro-borrowers could be if state-owned banks such as State Bank of India reverse a tradition of under-utilizing their vast rural expertise.
Kilde: www.worldbank.org
