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India: Path to sustainable growth - Views on News from Equitymaster
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  • Feb 16, 2004

    India: Path to sustainable growth

    At present, the US economy is witnessing what is known as a 'jobless recovery' where the GDP growth rate has outclassed the growth in addition to payrolls. This is somewhat similar to what the US witnessed in the early 1990s when a similar kind of jobless recovery had given way to a job boom later.

    The job market in the US has weakened in recent times as corporates, in their bid to become competitive, have been shedding excess workforce and outsourcing non-core operations to countries like India, China and Philippines. This has led to a mass exodus of jobs from developed America to developing Asia and has attracted the ire of labour unions out there.

    And why not? The US economy has been witnessing a decline in job creation over the past couple of years. The graph below is indicative of the fact that 7 of the last 13 months have actually seen a decline in payrolls, which is similar to saying - job 'destruction!' And out of the remaining 6, three months saw actual jobs added in the non-farm sector to be much below the anticipated figures.

    While similarities are drawn between the jobless recovery of the early 1990s and that of present times, there are vast differences in these two periods, led by vast advancements in technology and globalisation. However, one important similarity is the improvement in labour productivity i.e. the amount of output from a labour in relation to the cost borne by the employer on him. Besides, in a downturn, it is normal for corporates to slash workforce to safeguard profitability. There is another parallel in these two periods - the reason for the slow recovery in payrolls has been a result of relocation of jobs from one country to another, rather than re-hiring in the same industry. This is to say that the job losses of the recession years of 2001 and 2002 are increasingly becoming permanent in select areas like customer service management.

    Now, how does India play a role here? Most of the jobs (service related) are shifting to India albeit with strong opposition in the US. Is it good or bad? The fact we are boasting about the large exodus of BPO jobs from the US and Europe to India might prove to be a dampener in the country's growth prospects. The problem is that much of these outsourcing contracts for Indian BPOs are stuff like telemarketing and telesales (semi-skilled). While, off late, we have witnessed a flow of some high-value work to Indian companies, their volume stands nowhere to those of low-quality jobs. And this might suppress career growth of a large number of Indian graduates who form a major chunk of BPO employees. Like any industry, the BPO sector will also see its ups and downs.

    Yes, the services sector is providing the growth momentum as of now. But the industrial and the agricultural side also need significant attention for a sustainable recovery (70% of the population is still dependent on agricultural sector for income and most of these are unskilled labour). In fact, the outsourcing opportunities in the agricultural side are immense considering the fact that we are the largest producers of some food grains and cash crops in the world. What we are lacking is a strong will on behalf of the government.

    While we are bragging of the 'India Shining' fever that has caught us on like nothing ever before, we must believe that we still need to cover a lot of ground before putting ourselves on a path to sustainable growth. And for that, we need more leaders like Murthys, Premjis and Reddys - our torchbearers in the global knowledge economy. Also, we need to move up the value chain. After all, while the present euphoria about the BPO boom is acceptable, this is not what great nations are built on.



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