“China is the factory of the world; India can be the knowledge center of this region … If we orient ourselves to working together, we could be a formidable force of two nations.”
– Ratan Tata, Chairman of TATA Group
The sentiment is one shared by many Indians- being the brain to China’s brawn. Being a “Knowledge Economy” like the US is considered a better option and it probably is better-
Better for the US.
Lets look at some statistics-
- The World Bank estimated that 41% of of people in India earned less than $1.25 a day (international poverty line) in 2005
- If India meets its UN Millennium development goal of bringing poverty level down to 22%, there will still be a minimum of 264,000,000 people below the poverty line.
- NASSCOM estimates that The IT industry directly employed 2,540,000 and indirectly created 6 to 8,000,000 jobs.
- In 2005, the services sector contributed an impressive 53% to India’s GDP, but employed only 25%.
- 55.8% of the workforce was still engaged in the agriculture sector contributing only 19% to the GDP
- In 2009, 70% of the population resided in rural areas.
- In 2006, India’s literacy rate was 63%
Fair to say, if you’re poor or illiterate or living in a rural area, the knowledge economy probably doesn’t put money in your pocket.This
is not a criticism of the knowledge economy. The IT-BPO industry had revenues of $76 billion in 2010-11 with exports accounting for $59 billion.
Ideally, part of the taxes on these huge revenues would find their way to the poor through welfare checks, employment schemes, and subsidies. When families don’t go hungry, parents let their children attend school, the children grow up and get clerical jobs, send their kids to college and so on. A process is put into place where in the downtrodden can, over a generation, rise up and participate in a knowledge economy. In India, corruption, bureaucracy and half baked political schemes don’t allow this to happen on a big enough scale.
This makes the role of the manufacturing sector in India crucial. While researching the automobile industry in South Carolina with Dr. Woodward, we found that the multiplier effect for the industry was 5.5 ie for every job at an automobile factory, 4.5 jobs are created outside it. These 4.5 jobs are at suppliers, sub-suppliers, sub-sub-suppliers that set up to support the auto factory.
Low end manufacturing is an escape route for the rural poor to move from the vagaries of subsistence farming to a steady job. The legal minimum daily wage for an unskilled laborer in India is Rs. 235 ($ 4). Even earning half of that would pull a person above the international poverty line.
China realizes that there is no shame in being the “factory to the world”
- Industry contributed 46.3% to China’s GDP of which 33.9% came from manufacturing
- The same percentages for India’s GDP are 27% and 14.8% respectively.
- Compared to India’s 41%, only 16% of Chinese people earn less than $1.25 a day.
- China’s per-capita GDP adjusted for PPP is twice that of India’s- $7600 compared to $3582
Having set off this virtuous cycle of upward mobility for a vast majority of its citizens, China is now planning on transitioning to a service economy in it’s latest Five year plan.