News: '$100 bn exports for India'

(Bloomberg 13/06/2006) New Delhi - Indian factories are expected to double their annual exports to $100 billion in the next four years, replicating the success of a remote-office industry that has made the South Asian nation a services hub.

Low labor costs and a tradition in precision engineering will draw investments in the manufacturing sector in India, which will emerge as a sourcing destination for overseas companies looking to cut expenses, New Delhi-based Associated Chambers of Commerce and Industry of India, or Assocham, said in a study yesterday.

Textiles, engineering, pharmaceuticals and automobile parts are among the industries poised for the fastest expansion, Assocham President Anil K. Agarwal said.

``The perception of India as a manufacturing center has changed in the West and India is quite hot from the sourcing standpoint,'' Kavan Mukhtyar, Asia Pacific director for transportation at global research company Frost & Sullivan, said in a phone interview today from Malaysian capital Kuala Lumpur.

``Indian labor is still about 15 to 20 percent cheaper than Malaysia and the biggest strength is its engineering skills.'' India is trying to narrow the gap with its neighbor China and Southeast Asia as a manufacturing center, drawing companies such as Nokia Oyj, Ford Motor Co. and Toyota Motor Corp. to set up factories in the country. The federal government is keen to improve roads, ports and power supplies, moves that will enhance India's export-competitiveness and create jobs for the nation of a billion-plus people.

BOOSTING EXPORTS

India wants to increase exports to boost industrial growth to the 10 percent pace that Prime Minister Manmohan Singh's government says is required to spur economic expansion to more than 8 percent each year. Exports make up about a 10th of India's $775 billion economy.

A dominant player in the services industry, which accounts for more than half the output of India's economy, the federal government is trying to enhance the share of industry in the gross domestic product. A higher contribution from industry to gross domestic product will help absorb surplus agricultural labor in factories and boost disposable incomes in rural areas.

The contribution of manufacturing to India's gross domestic product is about 17 percent, compared with about a third for competing economies such as South Korea or Thailand, Agarwal said. New investments in factories are expected to add 25 million new jobs, of which as many as 10 million will be in textiles alone, he said.

`SOURCING'

"Global trends in manufacturing and sourcing of products to low-cost countries like India will gather strength over the next 10 years, particularly in skill-intensive industries, in which a country like India will have significant competitive advantages," Agarwal said.

The government is trying to unshackle manufacturing from bureaucratic delays and improve efficiency by creating special economic zones, or enclaves, modeled on China's Shenzhen.

Tax breaks and easier labor laws are being offered to draw investments to the China-style trade zones. The special zones, in which developers will get tax incentives and provide power, water and other utility services, are expected to enhance the export-competitiveness of a country trailing China due to its inadequate infrastructure.