Focus on manufacturing, UN to India

The UN has projected a 6.5 per cent economic growth rate for India against 9 per cent growth for China during 2005. It has also warned that the Indian information technology industry may remain trapped at the low end of the market.

"The Indian IT industry will export low-end services such as debugging, testing, conversion and software installation, but import expensive branded software and hardware products," a report by the United Nations Conference on Trade and Development (Unctad) said today.

It suggested that technology should be upgraded to support diversified and higher value-added production to maintain economic growth. The report highlighted that competition in manufactured exports would intensify, as other developing countries had also begun to produce labour-intensive goods.

It said the share of the manufacturing sector must go up to sustain a high growth rate in the medium to long term.

It pointed out that in contrast to China and other newly industrialising economies, the share of industry in India's GDP had remained constant during the high growth period of the 1990s, while that of services had risen rapidly.

"This may pose a challenge for sustained growth because productivity increase in the services sector is normally weaker than in the manufacturing sector," it said, adding that productivity growth in India's services was only slightly higher than in manufacturing. But in absolute terms, productivity growth was still much lower than in China's manufacturing sector.

The report pointed out that China's and India's rapid growth had been a key cause of the recent surge in primary commodity prices, but growing imports by Beijing and New Delhi would not be enough to reverse a long-term decline in real commodity prices.

It warned that a massive exchange rate appreciation in China and other Asian developing countries could have a deflationary impact on the world economy.

It suggested that countries should consider a multilateral exchange rate system consisting of other currencies, in addition to the dollar and euro, to stabilise exchange rates and help small underdeveloped economies.

The report said a rapid increase in exports by China could lead to a decline in exports by other developing countries, in areas like clothing, footwear, and some information technology and communication products.

The report asked developing countries to avoid a race to the bottom in order to attract foreign investment. It said they should aim at reaping higher revenues from royalties, joint ventures and public ownership of firms operating in the oil and mining sectors.

REPORT CARD

Additional strong imperative for technology upgrade to support more diversified and higher value added production is needed to maintain economic growth

Competition in manufactured exports will intensify as more developing countries develop capacities to produce labour-intensive manufactured goods

India will have to increase the share of the manufacturing sector to sustain a high growth rate in the medium to long term

The share of industry in India's GDP has remained constant during the high growth period of the 1990s, while that of services has risen rapidly