Vijay Joshi, writing in the Financial Times:

Myth of India's outsourcing boom

1. Growth of industry, as portion of GDP, between 1960 and 2002:

China, Indonesia, Malaysia, South Korea and Thailand: from 20% to 40% of GDP.
India: from 20% to 27% of GDP.

2. "Jobless" industrial growth in the past 10 years: The consequences for employment have been dire. In the past 10 years, employment in the organised manufacturing sector has fallen; in services, it has barely changed. Total employment, which includes informal, unorganised jobs, has done somewhat better and has risen by about 1 per cent per year in the last decade.

3. Existing industry jobs not productive whereas labour force is growing:
there remains a large amount of unemployment and low-productivity employment, and b) labour force is projected to grow by 2 per cent (8m people) per year for the next 25 years while the composition of the population shifts towards adults of working age (and much of the rise will occur in backward states). They require industrial blue-collar work with most training received on the job. This "demographic bonus" could boost growth but only if the rapidly growing labour force is productively employed.

4. Share of GDP and growth:

Agriculture(20%,2%),Industry(30%,6%),Services(50%,8%)

5. Services as "jobless" as industrial growth: which suggests that it has been skilled-labour intensive. IT-related output is currently less than 1 per cent of GDP. More significantly the sector employs less than 1m people. This could increase by another million by 2010.

6. IT growth hence pales into insignificance when one considers that India's labour force will rise by 40m by 2010 to an estimated 450m people (and much of the rise will occur in backward states).

7. The only plausible, quantitatively significant, potential source for this demand is labour-intensive exports.

8. An opportunity : East Asian countries, including China, now face higher labour costs and are moving up the ladder of comparative advantage. That gives India the opportunity to kick-start an export boom, especially as textile quotas are to be abolished in 2005.

9.Solution:
a) Small-scale industry reservations must be phased out.
b) Labour laws that hinder employment must be reformed.
c) Delivery of primary education must be enhanced.
d) Direct foreign investment should be welcomed in labour-intensive industries.
e) Power and transport facilities, essential for international competitiveness, must be drastically improved.
f) Trade liberalisation must be extended.
g) Special export zones should be put in place.
h) And adjustment assistance should be devised to cushion any adverse short-term effects of the above policies.