Manufacturing finally comes into its own

By Jo Johnson
Published: January 25 2006 18:30

This time it is for real. That is the conclusion of Scott Bayman, one of the most experienced India hands in the country today.

During the 13 years in which Mr Bayman, a former management consultant and Massachusetts Institute of Technology graduate, has run GE’s Indian operations, a tenure that more or less coincides with the reform era in India that began in 1991, periods of untrammelled optimism have all too often been succeeded by disillusionment and disappointment at the country’s unfulfilled potential.

Today, he says in an interview in New Delhi, things are different. “We’re convinced that India’s time has come,” says Mr Bayman, 59, as he clutches, at 10am, his first Diet Coke of the day.

“I think the underlying fundamentals are really there this time. This period of excitement as opposed to the 1994 one is much more real. “Back then, there was a lot of hand-waving but this huge middle class had not yet really yet come into existence.

“Today, there is a whole new class of consumers – younger, well-educated and making relatively good salaries – who 10 to 15 years ago would have been living at home, underemployed or unemployed.”

He sees legions of software engineers, call centre workers and financial services professionals, armed with disposable incomes of which their parents could have only dreamed, buying homes, cars, and motorcycles at a younger age than ever before, as well as the full gamut of lifestyle products, from iPods and plasma televisions to designer clothes and luxury goods.

This consumer boom, he says, is for the first time creating real economies of scale for Indian industry, giving it an opportunity to increase productivity, become globally competitive and seek a toehold in export markets. The result is that India’s economic growth has become more balanced, with industry, which accounts for 27 per cent of gross domestic product, now serving as a powerful second engine to back up the dominant services sector.

India’s manufacturing sector has been growing at about 10 per cent in recent quarters, notwithstanding the country’s massive infrastructural handicaps vis-a-vis other low-cost countries. Not only are manufacturers finding export markets for their goods, but a number are becoming multinationals by going out and buying companies outside India.

Investors have been rapidly disabusing themselves of the idea, fashionable at the start of the decade, that India was going to leave manufacturing to China, while it concentrated on software and IT-enabled services such as call centres.

“You’ve now got a much more sustainable manufacturing industrial sector that is going to help drive this economy,” Mr Bayman says.