If you're not a regular reader of the international business pages, you might occasionally wonder why nothing you own says "Made in India."
These days, it's particularly bad. On Monday, India reported a 15 percent plunge in exports, the steepest fall in three years, according to AFP. And on Thursday, government data showed that overall manufacturing output remained "absolutely flat" last quarter after a 1.8 percent contraction the one before that, according to DNA.
Both of those numbers have a lot to do with the rest of the world's economic woes, of course. But even in 2005, when you were getting ready to flip your house and it looked like nothing could go wrong, you still didn't own any Indian-made products.
Here's why, according, in part, to economics professor Nirvikar Singh, writing in India's Financial Express:
Compared with China or even lesser Asian powers like Thailand or Vietnam, India has a woefully inadequate transportation network, as well as hopelessly backlogged ports. Despite government efforts to streamline the process (read: strongarm locals), land acquisition for factories remains extremely difficult, so where China can boast mammoth factories with thousands of women piecing together iPhones, India still struggles to establish economies of scale. Worse still, the government's failure to wrangle state-owned or private power companies into producing sufficient electricity means that companies routinely opt to produce their own juice, as Moser Baer, one of the country's few export success stories, explained to me back in 2005.
Tough labor laws:
India's labor laws prevent companies from hiring and firing workers simply because of normal business fluctuations, so it's difficult for companies to stay competitive. As Singh points out: "Albert Bollard, a doctoral student at Stanford University, has provided a detailed and convincing empirical analysis of their consequences. He shows that labour regulations contribute to unduly high wages in the formal sector, and to the 'missing middle' of medium-sized firms in Indian industry."
The "formal sector" here refers to large companies that are actually compelled to follow labor laws. In part, preventing them from hiring and firing workers has propped up small-time sweatshops that can get away with violating the rules--which has also prevented the development of the scale manufacturing needed to compete with other export nations, as I wrote about in a GlobalPost feature on India's union troubles last year. Recently, however, formal sector companies have been getting by with hiring "contract laborers" to do the exact same jobs as permanent employees, and rolling those contracts over again and again. The problem there? The unions are starting to ally with contract laborers, and workers are getting angry -- as the killing of management personnel at a Maruti-Suzuki plant during a deadly riot this July showed.
"What comes across in the studies, as well as in interviews with entrepreneurs in manufacturing, is the extreme shortage of skilled workers in India," Singh writes. "The problem extends from traditional education at all levels to a wide range of vocational and practical training. Manufacturing policy will not succeed without correcting this problem of skilling the population." (Note: that's also something I covered in depth for GlobalPost here).
It is sometimes said that the British invented red tape and Indians perfected it. Nowhere is that more true than in the arcane twist of taxes and regulations that make moving a widget from a factory in Uttar Pradesh to a port in Maharashtra costly, frustrating and time-consuming. Moreover, despite continued talk about a reform to introduce a goods and services tax (or value-added tax, to you), the "policy paralysis" I keep going on about has prevented the government from making much progress. As Singh puts it: "India’s failure to make any significant progress in its ranking on the World Bank’s Ease of Doing Business Index—which provides such a benchmark—is telling. Active industrial policy cannot make up for policy-induced high costs of doing business."
Read on in the Financial Times, via CNN/IBN, for some interested (and copyrighted) analysis of how that has affected Mercedes-Benz and local autoparts maker Microsupreme.