The comparison between manufacturing and services has gained new significance. For the first time, some of the iPhones that buyers purchased on the new model’s release date last month were produced in the country with the largest population. It justifies the $24 billion that Prime Minister Narendra Modi’s administration would spend over the next five years to position India as the new China, according to policymakers.
Foxconn Technology Group and other Apple suppliers receiving large subsidies to build phones, in the eyes of detractors, is not always a method to produce their high-value components, especially when the incentives are coupled with a protectionist shift in trade policy. The competitiveness gap between Vietnam and even the People’s Republic has not yet been closed by subsidies.
India’s outsourcing capacity might have peaked. Large domestic businesses like Infosys Ltd. have drastically reduced growth projections. Tata Consultancy Services Ltd. has stopped hiring after expanding by 172,000 employees over the course of nine quarters during the epidemic. An unclear prognosis for global economy and interest rates, a recurrence of the slowdown seen during the 2012 European debt crisis, may be one factor.
There is a medium ground between the manufacturing and service sectors. Although it could not result in the 70 million new jobs the economy needs over the next ten years, it could help generate considerably more value per worker than either selling software as a remotely created service or assembling devices. The third strategy is the use of software.
The starting pay in the outsourcing sector hasn’t changed in 20 years. They have decreased by 50% when converted to dollars. If new technology excludes freshers from the workforce, it will be a double blow given that college grads under 25 have an unemployment rate of 42%. A product that uses conversational AI will still require engineers to provide prompts that extract insights, make predictions, and initiate actions, as well as scientists to train models on additional data.
AI will be difficult to surpass in labor-cost arbitrage. Additionally, while China’s rival economy may gain a foothold in assembly operations thanks to global manufacturers’ efforts to rely less on China, the work will be of low quality. This is where the 1.7 million children employed by the competency centers of global corporations may make a difference. A ten-fold increase in this number does not require any subsidies. Reduced bureaucracy and improved traffic in Bengaluru will suffice. If anything, the revenue and spending from higher-paying jobs will provide the 53 million jobs that will still be required over the next ten years through tax resources. Numerous them may be in underserved sectors of the healthcare, education, and urban infrastructure. Therein may be the third option for India.