Old Indian economy lives on


  • Business
  • Sunday, 23 Nov 2003

By ALAN WHEATLEY

Things are looking up in India. Growth will top 7% this year, foreign exchange reserves are a record US$93bil and the country has grabbed a quarter of the fast-growing market for outsourced service jobs. 

Yet in Firozabad, a run-down glass-making town 240km south of here, India looks anything but the budding economic giant that has prompted investors to drive the key Bombay share index up 42% so far this year. 

To be sure, plenty of road-building is going on. Residents say the air is much cleaner than it was just a few years ago. 

The town's factories will be fuelled from next March by liquefied natural gas from Qatar. And a shiny new motorcycle showroom is a pointer to the growing spending power of Indian consumers. 

“The economy is good. You see general prosperity here,” said District Magistrate Anoop Aggarwal, a top official in this town of about 500,000 people in the northern state of Uttar Pradesh. 

But you also see reminders that, behind the modern face of Delhi's swank shopping malls and Bangalore’s information technology labs, India remains a country of desperate needs. 

Car carcasses wallowing in large pools of stagnant water and pigs rooting through piles of rotting garbage on the main road testify to rudimentary public services, while a visit to Om Glass Works is like touring an industrial museum. 

In a town that is about 90% dependent on glassware and bangles, Om is Firozabad’s largest factory, employing more than 3,000 people round the clock. 

All the glass is made by hand. Lithe men dip long pipes into a molten pool of glass in a gas-powered furnace.  

Each blows a bubble into his blob of glass before plunging it into a mould. 

The glassblowers then toss the pipes down to youngsters, sitting cross-legged on the floor, who casually pluck the rods out of the air and cut the cooling glass free. 

The process is primitive, but business is good. As workers load a container of glassware bound for Germany, general manager J. S. Chowdhary boasts that exports have risen by half in three years. Other markets include Italy, Britain and South Korea. 

Chowdhary, who laughs off a question about the age of the factory's rusting machines, says automation would not pay for Om Glass Works because its production runs are too small. 

Labour, moreover, works out cheaper than machinery. It costs Om 24 rupees (RM2) to make a one-litre thermos flask. China can churn them out for 15 rupees (RM1.20), but its glass has more impurities than Firozabad's, says Chowdhary. 

“We compete on quality not on price,” he says. 

It is a refrain heard time and again in India, and one seemingly borne out by strong growth in skill-intensive exports in recent years. 

“Manufacturing is undergoing a transformation,” said Saumitra Chaudhuri, economic adviser to ICRA, an Indian credit ratings agency. 

“I think that hard evidence has been coming in over the last couple of years that companies are really changing.” 

Investment has been conspicuously sluggish but Chaudhuri says this reflects more efficient use of equipment installed in the mid-1990s. 

As manufacturing expands – output was up 6.3% between April and September from the same period a year earlier – firms will inevitably run into capacity constraints. 

“There has to come a time, maybe next year or the year after, when you will see a significant stepping up of aggregate investment in new capacity,” he said. 

India cannot hope to match China’s investment rate, which as a share of GDP averaged 37.5% between 1980 and 2002. But Chaudhuri said India’s rate of around 24% could climb by two or three percentage points “if everything goes right”. 

One of the things that needs to go right is a shake-up of India’s banking system, according to Montek Ahluwalia, who heads the International Monetary Fund’s Independent Evaluation Office. 

More efficient lending could probably raise India’s GDP expansion rate by a full percentage point. 

“India is losing a lot of growth for the investment it’s doing,” Ahluwalia said. 

Still, the National Council for Applied Economic Research, a New Delhi think tank, says India’s record is not that bad. 

Of the 5.74% average annual real GDP growth between 1996 and 2001, it calculates that 2.85 percentage points came from growth in the capital stock, 0.88 points from labour force growth and 1.95 points from total factor productivity growth. 

“I regard that as pretty consistent with the story that, out of not a lot of investment, India has been achieving pretty good growth,” said NCAER Director Suman Bery. 

Can India improve on this record? Real per capita incomes have grown by more than 80% over the past decade, lifting 63 million people out of poverty. But about a quarter of the billion-strong population are still classified as poor. 

Wendy Tsang, deputy director of the IMF’s Asia-Pacific department, said India could be on the cusp of a high-growth path if the right reforms were implemented. A senior Indian official said he envisaged “mind-boggling growth” in the next five years. 

On the dusty streets of Firozabad, though, the glass looks half-empty rather than half-full. 

It is lunchtime and Wahabuddin, one of dozens of bangle wholesalers in the mainly Muslim town’s bazaar, has not yet made a single sale. It’s not that the bracelets are expensive: he charges 50 rupees (RM4) for a clutch of 240. 

A string of festivals should have stoked demand, but business had been bad, Wahabuddin said as he squatted on the threshold of his small shop, piled high with bangles of every colour. 

After last year’s drought, farmers wanted to be sure that this year’s excellent monsoon would in fact produce the bumper wheat crop that officials expected, Wahabuddin explained. 

“People are still being very cautious,” he said through betel-stained teeth. 

For all the talk of a high-tech India, the fate of the economy, it seems, is still largely in the lap of the rain gods. – Reuters  

Article type: metered
User Type: anonymous web
User Status:
Campaign ID: 1
Cxense type: free
User access status: 3
   

Did you find this article insightful?

Yes
No

Across the site