Indian Economy - News & Discussion 27 May 2012

[Gus]

There is even a power tools sales shop near my area on OMR.

[subhamoy.das]

And USA, they still manufacture a lot.

I disagree, Manufacturing is the Key, a lot of services can be given to these manufacturing jobs, if we can do what GE, Seimens, Boeing, Locked Martin, GM,Ford, Intel, HP< toyato, Honda, Sony, Samsung, BMW, AUdi, Bosch and et all manufacture in the USA, Japan, Germany China then we will a developed country.

Also do not forget what revenue and clout USA gets from its Agriculture and Farm Businesses.

Agriculture and Manufacturing may not sound chi chi but are the backbone of any economy. From that comes knowledge. India is gifted with good agricultural land which is a basic human need, lets combine it with our Knowledge for Manufacturing after removing our bearacracy which destroys our manufacturing. we can then be a global leader.

USA is world no 2 in manufacturing but their GDP is 30% manufacturing and 70% service and very little agriculture. I am saying that this is the model to do focused on and do limited but high value manufacturing for like automobiles, power equipments, aero space etc. By that way India is in top 10 manufacturing country and increasing its rank.

We are gifted with problem solving skill - juggad - and that is basically the service industry, a problem solving industry - from writing apps, to fixing bugs, to designing a frugal engine, to analysing a stock market move, to removing a clot in the brain ..... . Manufacturing requires regimentation and is basically a repeat business and we are not good at that as their is no innovation on day to day.

[subhamoy.das]

A large portion of our service economy hinges on exchange rate. Same with chinese mfg as well.

Our ideal should be a country like germany - an industrial and mfg powerhouse that can weather any economic fluctuation and has a service industry that can service itself capably.

What use is our service industry when vast majority of our own people are out of it. We cannot build a robust economy by servicing others.

We need to employ everybody locally with mfg jobs, raise income and education levels and have a service industry catering to them as well. Skipping thus and jumping to a service industry that caters primarily to select foreign countries is not a great strategy. Only a few benefit here - people like me.

Look at this source : http://www.mapi.net/china-largest-manufacturer-world

Per capita manufacturing will be pretty low in CHINA and INDIA because of their huge population and will never be able to be the driver of job creation. That is the point. Service can be that driver and hence INDIA was very smart to have gone the service route rather manufacturing.

[Theo_Fidel]

Meanwhile....
8%+ growth for manufacturing. Now if only RBI can do a rate cut.

http://www.ibtimes.com/indias-manufactu ... e-economic

India’s manufacturing sector expanded sharply to a six-month high in December, backed by strong export orders, according to the HSBC India Manufacturing Purchasing Managers' Index (PMI) prepared by Markit.
India's Manufacturing PMI Hits Six-Month High; Factory Activity, New Export Orders Indicate Economic Recovery

The HSBC India Manufacturing PMI -- a composite indicator that gauges the factory output and operating conditions in the manufacturing sector -- showed that the country posted a reading of 54.7 in December, up from 53.7 in November, the biggest monthly gain since January 2012.

The index has remained above 50 -- indicating growth -- for almost four years.

[subhamoy.das]

Source : http://en.wikipedia.org/wiki/List_of_co ... per_capita

[chola]

Meanwhile....
8%+ growth for manufacturing. Now if only RBI can do a rate cut.

http://www.ibtimes.com/indias-manufactu ... e-economic

India’s manufacturing sector expanded sharply to a six-month high in December, backed by strong export orders, according to the HSBC India Manufacturing Purchasing Managers' Index (PMI) prepared by Markit.
India's Manufacturing PMI Hits Six-Month High; Factory Activity, New Export Orders Indicate Economic Recovery

The HSBC India Manufacturing PMI -- a composite indicator that gauges the factory output and operating conditions in the manufacturing sector -- showed that the country posted a reading of 54.7 in December, up from 53.7 in November, the biggest monthly gain since January 2012.

The index has remained above 50 -- indicating growth -- for almost four years.

Manufacturing is consistently the best news we've had over the past four years of economic downturn.

[chola]

USA is world no 2 in manufacturing but their GDP is 30% manufacturing and 70% service and very little agriculture. I am saying that this is the model to do focused on and do limited but high value manufacturing for like automobiles, power equipments, aero space etc. By that way India is in top 10 manufacturing country and increasing its rank.

We are gifted with problem solving skill - juggad - and that is basically the service industry, a problem solving industry - from writing apps, to fixing bugs, to designing a frugal engine, to analysing a stock market move, to removing a clot in the brain ..... . Manufacturing requires regimentation and is basically a repeat business and we are not good at that as their is no innovation on day to day.

Complete and utter nonsense. The US was the world's largest manufacturing power and manufacturing was what gave the US its middle class. Only very recently has it given up its top spot. Every large nation on earth has a huge working class population that can only be employed by agriculture, manufacturing or basic consumer services (store attendant, dishwasher, fast food industry, etc.)

Losing the top manufacturing spot is creating huge anti-trade sentiments in the US because it means loss of millions of jobs. The vast majority of service jobs are low paying work in basic consumer services like flipping hamburgers, pumping gas or selling shoes. Those jobs as well as the skilled ones like plumbers and electricians depend on the very real wealth created from making and growing things.

The IT and backoffice industries like "writing apps, to fixing bugs, to designing a frugal engine, to analysing a stock market move, to removing a clot in the brain" also depend on the real wealth that is created from the manufacturing and agricultural sectors. You need tremendous amount of physical wealth to have customers needing "apps written" or "bugs fixed." That type of work can never produce a lot of jobs.

This pie-in-sky of view of the "service industry" is worthless to a nation needing work for hundreds of millions.

"and that is basically the service industry, a problem solving industry

A complete and total misunderstanding of what services mean. Even in the US, the wealthiest nation on earth, services are mainly poor paying jobs that pay far less than manufacturing. The "problem solving" piece of services is a tiny sliver.

[Arjun]

This pie-in-sky of view of the "service industry" is worthless to a nation needing work for hundreds of millions.

I personally think all sectors - services, manufacturing & agriculture need equal emphasis....but I found this quote of your interesting.

Can you back it up with any statistics on share of GDP or share of workforce from Services in the US?

My data suggests that Services is obviously overwhelming in terms of share of GDP, while in terms of share of workforce is something like 6x times that of Manufacturing. The difference in hourly / weekly wages between Services and Manufacturing exists like you suggest, but is rather marginal (<10%) in relation to the difference in actual workforce numbers employed - which is staggeringly different.

[chola]

This pie-in-sky of view of the "service industry" is worthless to a nation needing work for hundreds of millions.

I personally think all sectors - services, manufacturing & agriculture need equal emphasis....but I found this quote of your interesting.

Can you back it up with any statistics on share of GDP or share of workforce from Services in the US?

My data suggests that Services is obviously overwhelming in terms of share of GDP, while in terms of share of workforce is something like 6x times that of Manufacturing. The difference in hourly / weekly wages between Services and Manufacturing exists like you suggest, but is rather marginal (<10%) in relation to the difference in actual workforce numbers employed - which is staggeringly different.

Service is indeed the overwhelming proportion of the US workforce. It is 70% of the workforce. But services is not the job creator that Das describes.

Services is what is considered the tertiary layer of economics. The primary is agricultural produce (agriculture) and raw material (mining.) The secondary, and the traditional layer where value added wealth is created, is manufacturing.

Services cannot exist without the first two layers. Just as manufacturing cannot exist without the primary. Services by definition is dependent on the wealth created by the first two.

The US service sector is built on the vast wealth created by its own manufacturing and primary sectors.

Where does India create jobs if it does not go into manufacturing? Where do we find wealth to fund our "services" if we want to urbanize the vast majority of Indians who are still farmers?

Our own IT industry (that Das is talking about) has only 2m people and it is supported by the US manufacturing and primary sectors not the Indian ones since 70% of Tata and Wipro depend on American-based MNCs.

[Abhijeet]

It's also extreme romanticism to claim that the IT or BPO industries in India are about problem solving. Most BPO work is as regimented as it gets and a lot of IT work is the same way. It's pure labor arbitrage (and English) that that work comes here. \

India doesn't have the physical infrastructure to do large scale manufacturing so the same types of low-skill, low-creativity jobs have come to us over the Internet in BPO/IT. Same type of work, different machines.

[RamaY]

What is the definition of service industry?

Is it the services that people provide with/without the use of tools, appliances etc for people to consume/enjoy?

After taking care of basic food, health and academic security, how much of industrialization is need for service industry to pickup? What is the sweet spot of manufacturing industry in a society? Does society consumes more industrial or less industrial products as it becomes prosperous?

How much of industrial products one consumes as he climbs the prosperity stairs say the ladder of $1 to $ 1000 per day?

What is the optimum renewable eco-friendly ratio of Agri:Manu:services:knowledge industry?

[Theo_Fidel]

Chola,

I think the argument is that there is manufacturing and then there is manufacturing. For instance the USA uses 5% of the cement and 8% of the steel China uses to create a larger manufacturing sector. And before you over react, yes construction is included in manufacturing in China. This is how they pretend to have a similar sized manufacturing. To produce wealth it is not just sheer consumption matters but how efficient you are in your production. Wealth creation is about doing more with less. This is why I keep harping annoyingly about productivity. High end services make efficient manufacturing possible. Even in Germany, for every skilled worker sitting at a lathe and cutting there are 10 workers involved in the design, testing, modelling, proofing, 3D documenting, engineering analysis, etc. All these are services. There very much is a living to be made here. For comparison, India produces 3 times the cement USA does. Yet our infrastructure does not look the same. There is an incredible amount of waste that goes on as I have pointed out before due to lack of ability to design, model and execute properly.

WRT to China, this year they produced and consumed an incredible 2,200 million tons of cement. This is insanity. Even at the USA level of consumption population/population, China should consume 400 million tons of cement, tops. And I don't believe this stuff about untapped demand. The west essentially rebuilds 3%-5% of its infrastructure every year depending on the economy. Over 30-40 or so years the west essentially rebuilds itself. I think Indias present production and consumption of 300 million tons is enough to produce world class infrastructure in 30 years if we can become more productive and efficient at what we do. The way to do this is very high end services.

Even in labor arbitrage, the reason India and China have to resort to labor arbitrage is because their workers are less productive than the ones in west for all sorts of reasons. India should focus on improving the productivity of its labor and less on how many widgets it is making. This is what Germany does, where the average German skilled worker has 22 years of high skilled un-paid training vs the average employee in India/China who has far far less, in the case of India 5 years is our average education level. If we can boost our average training skill levels to even 10-12 years the change would be striking.

I visited a well known and well reputed design/engineering office in Tirunelveli 2 years ago where it took them 6 employees and 2 managers to produce 4 drawing sheets for a foundation component I asked for. Even then they got the conversion between mm/inch all wrong. So I went back to the USA where my colleague fired up his computer and 3D modeled it with design documents in cm/inch in 2 hours flat. And at my request he used the same software as in India, If he had used more powerful software it would have taken him even less time. This is all tied up in services. All those widgets that China makes are all backed up with 10 times more services in the background.

We may not like hearing this but I'll go ahead and say it anyway. There is no future in Indian mass widget manufacturing, esp. for world scale exports. Even in China the entire manufacturing sector only employs a 100-120 million folks. This is including Construction BTW. Compare this to the entire China labor force of 900 million or so, of which 750 million are gainfully employed. The vast majority are not in manufacturing. With this 100 million China has essentially installed enough capacity to feed the entire planet, many decades into the future. India at best can manufacture for itself and generate some surpluses for export. There very much is a good living to be made from this as well.

[Arjun]

Our own IT industry (that Das is talking about) has only 2m people and it is supported by the US manufacturing and primary sectors not the Indian ones since 70% of Tata and Wipro depend on American-based MNCs.

Latest figures are around 3 Million directly employed by the IT BPO sector in India, and about 9 Million indirectly - so totally 12 Million jobs because of this sector.

Actually technology itself could make manufacturing irrelevant over the next decade....check out something called 3D Printing.

As for India, it should continue its emphasis on somewhat higher-end relatively complex manufacturing - it cannot do the commodity stuff well in any case. Anyway, there's only so much that can be directed by the government. The breakup of India's GDP between services, manufacturing and agriculture is determined by its own forces not really within the government's hands - and will land up likely looking closer to the US model than anything else.

There are several low-end service job categories that India has that the US does not even have for example - personal servants, personal cooks, drivers and the like...So, India has a kind of natural tendency towards a higher services component.

[disha]

Theo, thanks for a great post in response to Chola.

Just a question for the gurus here:

Given this is the master plan for the GIFT city coming up near Ahmedabad, WB.
http://giftgujarat.in/masterplan/vision.aspx

What is the service component here and what is the "manufacturing" component? Is the software and the widgets used to come up with the design is all software (or service) in fact the whole design till now is like service layered over service over another service (inputs from several branches of art to engineering).

So what is the manufacturing component? And when GIFT comes online and houses all those financial wizards going through their visi-calc like spreadsheets and dbase like massive databases., the expenditure behind the infrastructure will be returned within few years (if not months). Isn't that the case?

And all the financial wizardry may make the manufacturing cheaper, so the stage should be set for a virtuous cycle. Right?

[disha]

What is the definition of service industry?

Is it the services that people provide with/without the use of tools, appliances etc for people to consume/enjoy?

After taking care of basic food, health and academic security, how much of industrialization is need for service industry to pickup? What is the sweet spot of manufacturing industry in a society? Does society consumes more industrial or less industrial products as it becomes prosperous?

How much of industrial products one consumes as he climbs the prosperity stairs say the ladder of $1 to $ 1000 per day?

What is the optimum renewable eco-friendly ratio of Agri:Manu:services:knowledge industry?

Precisely same question - Ramay.

One needs only a optimum set of "tools" to achieve a better or happier index of living. But there is a conundrum here - the society has to jump through walls of inefficiency to reach a better standard of living. For example, before the advent of GPS, aam-admi will use maps printed on paper. So the society had to evolve to read maps printed on paper, use it massively and then use another tool to make that task more efficient.

Same goes for transport. So the question is how do you initiate generational changes? What happens if you cannot overcome the wall?

[subhamoy.das]

Complete and utter nonsense. The US was the world's largest manufacturing power and manufacturing was what gave the US its middle class. Only very recently has it given up its top spot. Every large nation on earth has a huge working class population that can only be employed by agriculture, manufacturing or basic consumer services (store attendant, dishwasher, fast food industry, etc.)

.

I repeat, every large and wealthy nation of the world - do some google - has 70%+ of its GDP ( read wealth ) in service sector. So by your logic US or GERMANY or FRANCE or UK or JAPAN should be a nation of basic service providers - dish cleaner, toilet cleaner, pizza delivery - no?

Losing the top manufacturing spot is creating huge anti-trade sentiments in the US because it means loss of millions of jobs. The vast majority of service jobs are low paying work in basic consumer services like flipping hamburgers, pumping gas or selling shoes. Those jobs as well as the skilled ones like plumbers and electricians depend on the very real wealth created from making and growing things.

.
See here : http://www.mapi.net/china-largest-manufacturer-world
I repeat, wealth creation my manufacturing DOES NOT work for countries with 500m+ population. See the chart above and u will see that even after manufacturing for the WHOLE WORLD - there is factory in CHINA in every direction u look - their manufacturing density is 1/10 of the wealthy and manufacturing nations.

The IT and backoffice industries like "writing apps, to fixing bugs, to designing a frugal engine, to analysing a stock market move, to removing a clot in the brain" also depend on the real wealth that is created from the manufacturing and agricultural sectors. You need tremendous amount of physical wealth to have customers needing "apps written" or "bugs fixed." That type of work can never produce a lot of jobs.

This pie-in-sky of view of the "service industry" is worthless to a nation needing work for hundreds of millions.

A complete and total misunderstanding of what services mean. Even in the US, the wealthiest nation on earth, services are mainly poor paying jobs that pay far less than manufacturing. The "problem solving" piece of services is a tiny sliver.

Like a complete and total misunderstanding of GDP devaluation?
I have to repeat - u are proving that US is a country of dish cleaners - keep in mind 70% of GDP is in service - and that it will be very hard - tiny sliver - to locate these problem solving folks in US : school teachers, doctors, architects, designers of all kind etc.. These so called old economy jobs can be where they are but we in India want the new economy jobs. I am sure that u have heard of GOOGLE or FACE BOOK? These two are service giants who have fallen a lot of your so called manufacturing giants.

[subhamoy.das]

It's also extreme romanticism to claim that the IT or BPO industries in India are about problem solving. Most BPO work is as regimented as it gets and a lot of IT work is the same way. It's pure labor arbitrage (and English) that that work comes here. \

India doesn't have the physical infrastructure to do large scale manufacturing so the same types of low-skill, low-creativity jobs have come to us over the Internet in BPO/IT. Same type of work, different machines.

U need to compare a IT/BPO delivery center with a factory. In IT/BPO the worker is handing customers directly and that throws up all kind of problems in real-time which needs innovative solution in real-time and is a MIND game even after u have the SKILL. In a factory a worker basically stands in front of a assembly line and does the same stuff again and again like bolting a bolt, pressing a button, moving loads from here to there and is essentially a PHYSICAL LABOR game once u have the SKILL.

[subhamoy.das]

What is the definition of service industry?

Is it the services that people provide with/without the use of tools, appliances etc for people to consume/enjoy?

After taking care of basic food, health and academic security, how much of industrialization is need for service industry to pickup? What is the sweet spot of manufacturing industry in a society? Does society consumes more industrial or less industrial products as it becomes prosperous?

How much of industrial products one consumes as he climbs the prosperity stairs say the ladder of $1 to $ 1000 per day?

What is the optimum renewable eco-friendly ratio of Agri:Manu:services:knowledge industry?

Service is delivered when a UNIQUE problem is solved. The problem could be broken lamp in your car, or a un-solved maths in my childs test, or a clot in a brain, or a crimincal case in the court against me, could be a design to reduce the time heat generated in the CHIP .....

As society prospers they have local service delivery but manufacturing moves to other locations.

[ArmenT]

Service is delivered when a UNIQUE problem is solved. The problem could be broken lamp in your car, or a un-solved maths in my childs test, or a clot in a brain, or a crimincal case in the court against me, could be a design to reduce the time heat generated in the CHIP .....

As society prospers they have local service delivery but manufacturing moves to other locations.

Doesn't have to be a UNIQUE problem. My barber gives the same haircut style to all his customers, but he is still performing a service job.

A better definition would be that the service sector is the economy that produces intangible goods.

[subhamoy.das]

Service is delivered when a UNIQUE problem is solved. The problem could be broken lamp in your car, or a un-solved maths in my childs test, or a clot in a brain, or a crimincal case in the court against me, could be a design to reduce the time heat generated in the CHIP .....

As society prospers they have local service delivery but manufacturing moves to other locations.

Doesn't have to be a UNIQUE problem. My barber gives the same haircut style to all his customers, but he is still performing a service job.

A better definition would be that the service sector is the economy that produces intangible goods.

Agreed about UNIQUE. But INTANGIBLE is exactly the word we want to avoid because it immediately demeans the value of service. Service - just like manufacturing - delivers TANGIBLE and hence valuable and hence paid for with hard cash - items called FIX to problem. A FIX for a long hair costs USD 40.00, a FIX for a fever could cost USD 100.00 and a FIX for a glitch in the FBW system in fighter jet could be - PRICES LESS ( i could not resist it for those who watched the VISA ad but cost of that FIX could be USD 10,000 or more ).

[subhamoy.das]

India now becomes a tech hub, small cos bring smarter technology for local use

http://economictimes.indiatimes.com/tec ... 123900.cms

[Aditya_V]

Well here is why we need to Diversify more from the Service Idnustry. The Tap can be turned off all 2 quickly.

We need hard core Hi tech Industries, Power Plants along with Improvement in Agriculture. The Services related to this will help us immensely.

Basically have the services provided for In house Services and Manufacturing.

Like Back office support for Indian Anti Virus software, rathern than American Anti Virus software, Indian back office. For Boeing type aircraft Manufacture and GE type Engine Manufacture.

But today our critical Power Industry is being neglected and Sheer weight of stupid Taxation, Freight regulations is destroying this country.

Filipino cities gain in outsourcing ranking

[vina]

Shiver in your Dhotis you Yindoos.. Ooops, I mean GSK and Sanofi.. Your vaccine business is going to see strong competition.

Looks like Serum institute is gearing up to launch injectable polio vaccine, the equivalent of Prevnar, and the equivalent of Rotarix. Now those three if launched at the prices that they are promising and made a part of the routine vaccination in India will have a massive massive positive effect on child health. All power to the Poonawalas .

Of course, Sanofi has it's backside covered with it's investment in Shanta Biotech and can compete with the Serum Institute head on. All for the good onree.

Chinese brothers will of course copy the label and paste a fake made in India by Shanta/Serum institute and sell a fake copy across the world.

[chola]

Chola,

Even in Germany, for every skilled worker sitting at a lathe and cutting there are 10 workers involved in the design, testing, modelling, proofing, 3D documenting, engineering analysis, etc. All these are services. There very much is a living to be made here.

Without a product to manufacture, there will be no jobs for "10 workers involved in the design, testing, modelling, proofing, 3D documenting, engineering analysis, etc. "

Services is tier 3, it depends on wealth created by the primary and secondary (value added) layers.

Anyone can draw a design on paper. But it is intrinsically worthless if there is no one making things requiring use of that design.

Our IT/backoffice industry right now is flying high on American willingness to parcel out work based on the wealth of its primary and manufacturing layers.

If services can create its own wealth then Wipro and TCS would not need 70% plus of its revenue to come from the US and UK.

[chola]

Service is delivered when a UNIQUE problem is solved. The problem could be broken lamp in your car, or a un-solved maths in my childs test, or a clot in a brain, or a crimincal case in the court against me, could be a design to reduce the time heat generated in the CHIP .....

Good lord, the vast majority of Indians do not need those things. That kind of problem solving is a luxury required by people in the Western world whose wealth was underpin by a century of being the globe dominant industrial power.

If the US decides that it no longer want to outsource service jobs, India cannot sustain any of this.

As society prospers they have local service delivery but manufacturing moves to other locations.

A society is already prosperous when it allows manufacturing to move to other location. You have things completely backwards.

Services is payment for work done. Only if you have money do you hire someone else to do something. It does not create wealth like the primary and secondary layers. It distributes wealth from those layers.

[chola]

BTW, I sit at the pinnacle of the service industry. I get paid handsomely for looking at data. But in the end, there is no real difference between me and the cleaner lady from Mexico who does my office. Both of us would not be paid unless real goods you can touch and feel are moving from one place to another.

A government can back up a central bank with reserves of gold. A company can put ups its machinery as collateral for a loan. You cannot do either with an IOU on your skills or services. That really is all you need know in this argument between manufacturing and service.

Unless bharat is found to be loaded with diamonds and oil, we must get into manufacturing which creates value and therefore gives us a sustainable service sector.

India always had a huge service sector alongside our agriculture and it had always been poor. They are the millions of wallahs doing everything outside of farming. Suddenly we get outsourcing from the outside because of wealth created overseas and now the service sector is our savior?

[subhamoy.das]

Well here is why we need to Diversify more from the Service Idnustry. The Tap can be turned off all 2 quickly.

We need hard core Hi tech Industries, Power Plants along with Improvement in Agriculture. The Services related to this will help us immensely.

Basically have the services provided for In house Services and Manufacturing.

Like Back office support for Indian Anti Virus software, rathern than American Anti Virus software, Indian back office. For Boeing type aircraft Manufacture and GE type Engine Manufacture.

But today our critical Power Industry is being neglected and Sheer weight of stupid Taxation, Freight regulations is destroying this country.

Filipino cities gain in outsourcing ranking

Service - just like manufacturing and agriculture - has a pyramid structure with the high skilled ones at top. The moment a u step outside of a factory in the supply chain you are in service domain - the office that desings the goods, the office the sells the gods, the trucks that carries the good to ports, the ships that carries the goods to goods to the shore, the trucks that carries the goods to a whare hourse, the trucks that carries the goods to a retail, the folks that sell the goods to the consumers and the folks that repairs these are in SERVICE domain. There is no reason why the manufacturing node of suppy chain cannot be outside India but deisng, repair and support and all be in India. INDIA is already doing this for example the CHIPS are being designed in INDIA but manufactured in TAIWAN, the electronics is being designed in INDIA and manufatured in CHINA, the aircraft engines are being made in US bur repaired in INDIA.

[subhamoy.das]

Chola,

Even in Germany, for every skilled worker sitting at a lathe and cutting there are 10 workers involved in the design, testing, modelling, proofing, 3D documenting, engineering analysis, etc. All these are services. There very much is a living to be made here.

Without a product to manufacture, there will be no jobs for "10 workers involved in the design, testing, modelling, proofing, 3D documenting, engineering analysis, etc. "

Services is tier 3, it depends on wealth created by the primary and secondary (value added) layers.

Anyone can draw a design on paper. But it is intrinsically worthless if there is no one making things requiring use of that design.

Our IT/backoffice industry right now is flying high on American willingness to parcel out work based on the wealth of its primary and manufacturing layers.

If services can create its own wealth then Wipro and TCS would not need 70% plus of its revenue to come from the US and UK.

Simply not true that manufacturing and service need to exists in same country. The design office can be in INDIA but the factory in say CHINA. A classic example of CHIPS. India has no CHIP manufacturing but a whole number of MNC has their design office in INDIA. This is indeed an extreme example and some level of factory need to exists in the country but could be 30%.

I think u are still not getting that manufacturing job stops at the factory. Every thing else is service. And it is preposterous to say "any body can do design on paper". I assume u have no experience in manufacturing then. Only highy qualified folks can do the desing and then ship the desing to a distant land where it will get impemented by low skilled workers using latest automation equipment. The world is moving towards model driven manufacturing where the model is created on paper ( read computer ) and once validated it in paper can be feed into CNC and computes to generate the product.

I will give u anothe example. My father was an ex prof in civil engineering. He never constructued any structure but an expect in structural design. Once he retired he started his own consulting where he would model huge structures using CAD and ship the CAD model to the contractors who would then execute it. I see no reason why all of the worlds building cannot me modeled in INDIA using CAD. This is engineering service.

U some how stuck on the fact that what US did is same that INDIA has to do. They took a bottom up approach. We missed the manufacturing boat and hence taking a top down approach and it is working my friend.

Who says service means service local country. Service can be exported just like manufacturing and that is what TCS and WIPRO does and yes they are slowly but surely delivering more to local country. I need to look and find out what % of their service delivery is inside India. They cater to mega projects like GOI funded e-goverance, local banks etc. And IBM and ACCENTURE is completting with them to deliver this service.

[subhamoy.das]

Service is delivered when a UNIQUE problem is solved. The problem could be broken lamp in your car, or a un-solved maths in my childs test, or a clot in a brain, or a crimincal case in the court against me, could be a design to reduce the time heat generated in the CHIP .....

Good lord, the vast majority of Indians do not need those things. That kind of problem solving is a luxury required by people in the Western world whose wealth was underpin by a century of being the globe dominant industrial power.

If the US decides that it no longer want to outsource service jobs, India cannot sustain any of this.

As society prospers they have local service delivery but manufacturing moves to other locations.

A society is already prosperous when it allows manufacturing to move to other location. You have things completely backwards.

Services is payment for work done. Only if you have money do you hire someone else to do something. It does not create wealth like the primary and secondary layers. It distributes wealth from those layers.

For your argument of service does not ceate wealth - I am a service provider and I have gathered weatlthy but service delivery went to US. Singapore, DUBAI, Switzerland, all prospered on service only. Service ceates more jobs and more weatlh then manfacturing. That is the bottom line between service and manufacturing. And manufacturing did not create wealth - exporting them to a third country did and same is true for service.

This will be my last post.

[chola]

For your argument of service does not ceate wealth - I am a service provider and I have gathered weatlthy but service delivery went to US. Singapore, DUBAI, Switzerland, all prospered on service only. Service ceates more jobs and more weatlh then manfacturing.

Singapore, DUBAI, Switzerland (and Hong Kong, Bahamas, Luxembourg, etc.) are finance and trade centers that skim wealth generated elsewhere. They are totally dependent on wealth generated elsewhere. They facilitate the shipment of goods through their ports.

Now I would be most happy if India is a trading power. But what you keep harping on (IT services) is afforded by a very strict number of consumers and those are Anglophone nations willing to give us work. It is not sustainable.

Even if every high tech job in the US, UK and Canada came to India, we still cannot properly employ more than a tiny slice of the Indian working population in that industry. And the threshold to what the US and others will give up to Indian IT/BPO is nearing every year. At some point, their pain in losing jobs will put an end to it. It can never be a very large employer. Two or three million in the a country of 1.2 billion? Are we kidding ourselves?

[Gus]

Can we move on please. This is such a non debate...this idea that a billion people can jump from partly industrialised stage to post modern economy.

Some here predicted that exchange rate would fall back to 48. But it is now stable at 54. Is this new normal? Will this stay here?

[Theo_Fidel]

Anyone can draw a design on paper. But it is intrinsically worthless if there is no one making things requiring use of that design....

...If services can create its own wealth then Wipro and TCS would not need 70% plus of its revenue to come from the US and UK.

Chola,

You are making some real generalizations here that have a very weak foundation. The reality is anyone can run a CnC machine, not anyone can design the parts. Anyone can assemble a IPhunwa or a Mahindra Scorpio or a GE WDP4000 locomotive, not anyone can design and manufacture its components.



Since I know a little something about how this is done, take for instance Liebherr, the German world leader in telescopic cranes. It took an incredible 1.8 million man hours of design/testing/engineering when they came out with a new model in 2007, with ongoing sales and customer service. By contrast only 30,000 hours were needed for manufacturing a copy. And even of this 30,000 hours a large chunk goes towards design customization for the customers specs. And they only manufacture about 30-40 per year of the high end stuff. The real attraction of this crane is that it can be operated by 2 people, 1 operator and 1 spotter. It can lift 750 tons to almost 150 feet. These are unheard off numbers. Typically a lift like that may require 3-4 cranes with 20+ people to pull off the lift. More in tight quarters like the German machine operates in. So instead of needing a 100 lift cranes, we only need maybe 10 now. To my mind this is a place India can make a good living.

[Suraj]

subhamoy.das: You repeatedly refer to wealthy nations being primarily services-driven economies. Could you post data demonstrating that most of them were *always* services driven (upto or more than 70% services/GDP), even when their per-capita incomes and wealth levels were at India's level ? Sizeable economies/populations (say >25m people), please. Not city states like Dubai, HK or Singapore, even though both of those, especially HK and Singapore, were manufacturing hubs in the 1960s/70s, while Dubai was and still is a trade and transhipment hub.

[member_20292]

Now I would be most happy if India is a trading power. But what you keep harping on (IT services) is afforded by a very strict number of consumers and those are Anglophone nations willing to give us work. It is not sustainable.

Even if every high tech job in the US, UK and Canada came to India, we still cannot properly employ more than a tiny slice of the Indian working population in that industry. And the threshold to what the US and others will give up to Indian IT/BPO is nearing every year. At some point, their pain in losing jobs will put an end to it. It can never be a very large employer. Two or three million in the a country of 1.2 billion? Are we kidding ourselves?

chola, suraj , das babu,

mark my words. there is plenty of room at the bottom (rich feynman, 1959)
i.e there is plenty of IT work to be done in india, and it aint just offshoring. wait watch get popcorn.

[Neshant]

A whole lot of the service economy in the west is based on consumer binging on debt and now govt debt. It looks like it's coming to an end as this debt burden proves unsustainable. For now, it continues to mask the billowing out if the economy. There is no way the wage disparity between China and the US can continue indefinitely. Eventually the US will return to its roots as a manufacturing power house but not before a 30 to 40 % cut in living standards.

A lot of so called service industries like banking & financing produce nothing of value except a paper storm and in fact are a drain on the productive energies of society through the fiat money and other scams. It's less a service industry and more so a fraud industry from central banking on down.

[Theo_Fidel]

Neshant, Welcome back!

This is OT but my opinion is that the USA in particular has already made its people take this 30% haircut. It is now cheaper to manufacturer BMW's in USA than anywhere else on the planet, mostly due to labor productivity.

-----------------------------------

Here are some charts on what Suraj asked.


Heres a chart on American per worker productivity.

[Arjun]

subhamoy.das: You repeatedly refer to wealthy nations being primarily services-driven economies. Could you post data demonstrating that most of them were *always* services driven (upto or more than 70% services/GDP), even when their per-capita incomes and wealth levels were at India's level ? Sizeable economies/populations (say >25m people), please. Not city states like Dubai, HK or Singapore, even though both of those, especially HK and Singapore, were manufacturing hubs in the 1960s/70s, while Dubai was and still is a trade and transhipment hub.

Suraj, I don't think looking for historical precedents is very useful.

Folks don't realize that the world has fundamentally and dramatically changed over the last 20 years. With the internet - a number of services can be delivered globally which were obviously never feasible earlier.

[Suraj]

Arjun; It *is* useful. People still use electricity, drive cars, take trains, and consume household goods now, just as they did back then. There's a reason why economies develop the way they do. All these rich countries with 70% services driven economies today, once had a substantially greater manufacturing sector. The US of the 1920s was the time of the auto industry in Detroit, the rail industry, the largest steel production capability in the world, and more.

All this talk about service delivery over the internet fails to address a larger picture - unless we have the manufacturing base to produce the tools and build our physical infrastructure, we pay western capital costs on the infrastructure and charge Indian rates for our services. Use the technological hurdles we face in the defense sector as a guideline of our technical base, and now consider a call center - everything from the PCs to LAN gear to telecom infrastructure to power generation and transmission equipment is procured externally, or has significant import content.

In other words, we import near finished products with dollar prices, and charge cheap Rupee labor rates to deliver services using them. Not just that, but this biases towards a weak Rupee for competitiveness, which further inflates the dollar cost of the support infrastructure. The math is not in our favor. While the IT/BPO industry may generate significant income, we also end up with a substantial $ import bill, which is why we barely break even on the balance of payments sheet - the IT/BPO inflows come under the services revenue bracket while the substantial component imports show up in the merchandise import bracket. All the infrastructure to support an utopian IT services economy doesn't appear out of thin air. Someone pays for it, and the western costs of that infrastructure shows up in the balance sheet somewhere as a substantial drain of national wealth.

That is not to say that IT services are not an option, but to underscore the fact that services are a tertiary sector. It utilizes or exchanges products created by the primary sector (agriculture) or the secondary sector (manufacturing). If we don't have a sufficient manufacturing base ourselves, we'll continue to pay the inflated prices of the goods and infrastructure needed to deliver those services. Even the barber who delivers services uses a scissors and comb that are manufactured somewhere.

Unless we also utilize our cheap labor to manufacture the goods needed and build out our infrastructure to support the associated services industry, we will remain in the current situation where we pay western costs of manufactured goods and charge Indian prices for services delivered, so that from an overall balance of trade perspective, we barely break even, and that too only when we count the substantial (~$60 billion) remittances from NRIs abroad. Every year we run a merchandise trade deficit of ~$150 billion and not all of it is covered by services exports and remittances.

[Bade]

^^ So we may be leading a better quality of life overall with increased trade from exported services to imported maal but not really getting wealthy enough to spur creative pursuits with extra saved from the trade.

[Arjun]

Arjun; It *is* useful. People still use electricity, drive cars, take trains, and consume household goods now, just as they did back then.

Maybe we need to define what exactly comes under 'services' as used in the calculations of GDP percentage in the US and India.

For example, referring to your sentence above - I would have thought Utilities (including power distribution) and rail transport providers would come under Services. Is that not how they are classified under the economic classifications?