[via Yuvaraj Galada] Morgan Stanley looks at India’s “rising participation in global labour arbitrage trend ” and the industry in general:
With opportunities in the domestic market being inadequate, Indian educated labour continues to look for outsourcing opportunities and jobs offshore. In the past, India participated in the global labour arbitrage trend in a limited way through the migration of its people to other parts of the world. However, the acceleration in the outsourcing trend in services and manufacturing over the last 10 years has created alternative ways to participate in the global labour arbitrage. So far, India has achieved greater success in sectors that have higher labour intensity but lower infrastructure/capital intensity, such as software and IT-enabled services, pharmaceuticals, gems and jewellery, and garments. However, its success in capital-intensive manufacturing sectors has been limited. Indeed, in a short period of time, India has built a market share of 1.3% in global trade of commercial services (excluding remittances from Indians working abroad) compared to its share of 0.8% in trade of goods.
Though the opportunities in IT and Pharma should create employment, this will account for a small share of people entering the workforce. We believe the take-off of manufacturing and major reforms in the agricultural sector is critical to improving India’s employment levels. China can be a good example to follow. Over the last 10 years, it has provided a larger section of its work force with higher-quality job opportunities through outsourcing in manufacturing as well agricultural sector reforms. In China, the share of employment in the low income-generating agricultural sector has reduced significantly to 45% in 2001 from 68% in 1981. In comparison, in India the share of agricultural workers has reduced to 58% from 67%. We believe that simultaneous progress in manufacturing will be necessary for balanced economic development ensuring participation of lower-income earners in economic progress and social stability.
In a world with increasingly mobile factors of production, India’s rising surplus labour will continue to create opportunities for MNCs and raise of the issue of protection. However, to make full use of this opportunity, India will have to initiate key reform measures, which will enable the manufacturing sector to gear up and provide jobs to the millions likely to join the workforce each year.