India's manufacturing challenge

Bloomberg columnist William Pesek Jr. thinks that India's push into manufacturing is risky. Excerpt from his article:

India's Push to Manufacturing a Risk
As India struggles to raise the 35 percent of its 1 billion people living on less than $1 a day out of poverty, manufacturing seems a perfect place to create jobs. Such jobs require less education than information- technology ones, and the government is mobilizing resources to create them -- many clustered in the western city of Pune...

Yet the concern is that India is overestimating the job- creating potential of manufacturing. Its bad infrastructure, slow pace of foreign direct investment, low national savings and China's daunting head start are major impediments. Manufacturing industries that complement information-technology are one thing. A national manufacturing push that dilutes efforts to build on India's success in software would be a mistake...

In today's intensely competitive world, manufacturing success is all about high productivity. It's an intrinsically laborsaving endeavor; services, meanwhile, remain labor-intensive, especially in the case of the knowledge-based activities driving growth in India's most vibrant service companies.

Squeezing high productivity out of a laborsaving operation requires huge scale, something that's working for China. Given India's deficiencies in infrastructure and foreign direct investment, achieving that kind of scale is a huge challenge. Labor-intensive services, by contrast, need less scale to create large numbers of jobs.

While Pesek's concerns are valid, India probably has little choice but to put more emphasis into manufacturing. To raise the standard of living, India must export more to wealthy nations with purchasing power. But there is a limit to how much exportable services India can produce and the rest of the world can absorb. Manufacturing provides an alternative export outlet.