sectors. be a

ervice sector is India is booming. Experts say that in the of shoring world, India could be the hub and other asian nations, the spokes. But, china is now

catching up with the Indian of shoring industry… at the same time,its manufacturing sector in full fledge. China seems to have realized that any sector, no matter how profitable will slump into recession once it reaches the peak. However, in India, the service sector is still being milked dry, while we actually need to shift our focus toward the manufacturing

The point however, to be considered, is that china need not replacement market for Indian talent but a

complementary market for growing business in japan and servicing the local Chinese businesses. But setting up a


development centre in china is not that simple. Now, the exit options at the moment are not clear. Even though the cost of a Chinese programmer may be less than that of an Indian programmer, there are other overhead costs which bring the cost of development in china almost on par or above India.

20000 15000 10000 5000 0 INDIA



On comparision of all the above costs, India is the best alternative. The Indian firms will have to look at these centres as strategic resources to de-risk. As far as the English speaking talent is concerned, India will continue to be the base. At the moment, the Indian talent supply looks sufficient. So much so, that there has been no increase of salaries at the entry level for the last 2-3 years.

This is probably an indicator of the soon-to-come recession in the service sector. An attempt has been made in this project to identify the various needs as to why India has to concentrate on industrial development and propel the manufacturing sector that is not being exploited to its fullest potential.



service As driven. what exactly are the different types of services? Services can be classified into four categories on the basis of the service customization and customer contact. 6 . and attention must be paid to ambience and physical surroundings. with such examples as airlines. hotels/resorts and trucking. First of all would be the Service Factory. economies greater become and progressively wealth employment is being generated in this sector.SERVICE SECTOR IN INDIA T he growth of the service sector in both the developed and developing world has been phenomenal. Before we begin. and we would look at the categories as follow. The services offered need to be warm and exciting. This is the type where there is low customer contact and low degree of customization.

the Service Shops. academics and 7 . Lastly. Examples are hospital and auto repair. wholesale trade and school. Due to the growing importance of the service sector. Managing and controlling the workforce would be the key and examples are retailing. the Professional Service Firms. lawyers. Some examples are doctors. The third type of service would be the Mass Service. consulting firms and so on. The management must deal with skilled labour and the key challenges would be keeping cost down and quality up. The key to this type of services is the managing and controlling of people. where there is high degree of customization. with a high degree of customer contact and customization. management's ability to deal with skilled workforce as well as keeping cost down and quality up.Secondly. where there is high level of customer contact and low level of customization.

Pakistan(50%) & Brazil(56%). having expanded at an average annual growth rate of 7 per cent between 1980 and 1985 The share of services sector in the real GDP in India has surpassed that of agriculture and industry at a relatively faster pace as compared to other industrialized nations. Service sector has become the main contributor to the GDP not merely in developed economies like U. the service sector accounted for 47 per cent of GDP. Similarly. (71%). If one describes an economy based on its major economic sector. 8 . Indonesia(41%). In 1985.K. in India.consultants worldwide have make efforts towards improving the management of service businesses. the service sector has been growing rapidly over the last decade or so and the trend is likely to continue.(67%) but also in developing economies like China(33%).S. then India made the transition from an agricultural economy to a service economy in 1979. Japan(60%) & U.A.

it can be safely said that the service sector now accounts for more than half of India's GDP This sector has gained at the expense of both the agricultural and industrial sectors through the 1990s.SHARE OF SERVICE SECTOR IN THE VARIOUS ECONOMIES 41% 33% 71% 67% 60% USA JAPAN U. The rise in the service sector's share in GDP marks a structural shift in the Indian economy and takes it closer 9 .K CHINA INDONESIA In the Indian context.

Service sector growth must be supported by proportionate growth of the industrial sector. otherwise 10 .16 per cent in 1998-99. In contrast. But the service sector has grown at a higher rate than industry.38 per cent to 22. economic growth can be distorted. Some economists caution that if the service sector bypasses the industrial sector.to the fundamentals of a developed economy (in the developed economies. the industrial and service sectors contribute a major share in GDP while agriculture accounts for a relatively lower share). 1990s (except in 1998-99).69 per cent in 1990-91to 51. the industrial sector's share in GDP has declined from 25. The service sector's share has grown from 43.93 per cent to 26.83 per cent in the respective years. The agricultural sector's share has fallen from 30. It is true that the industrial sector too has grown.01 per cent in 1990-91 and 1998-99 respectively.

This project is a comprehensive study of the two important sectors. 11 . namely manufacturing and service of China and India.the service sector grown will not be sustainable.

12 . While its banking system made good progress in divorcing itself from interference by government. There is evidence that the government still encourages lending to ailing State Enterprises. it still has a long way to go. Again one gets to see the same moral hazard that is omnipresent.PROBLEMS FACED BY CHINA IN THE SERVICE SECTOR: I n China. Banks still don't consider bad loans given to State Enterprises a serious problem. banks continue to be keen on providing support to larger players and are playing a relatively small role in financing the private firms who are rewriting its history.

At the basic level the problems are similar to those faced by any banking system that grows under the socialist legacy. With lack of alternative avenues of investment in the 13 . The state ownership of banks and private ownership of business is big mismatch. Deregulation of interest rates will be another area of big change. Competition is very much limited. The change is already visible with many banks gearing up for listing of their shares. Though the bad debts have been transferred to AMCs. they are unlikely to develop profit motive. The state-owned banks saddled with about $150 bn of NPAs are considered technically bankrupt. The bottom line is that the system has to bear the cost of these NPAs. Unless banks are also privatized. it merely transfers the burden from one to another. the banking sector needs to be opened up for foreign competition and foreign ownership. Profit motive is largely absent.

market place. The need of the hour is to totally liberate the banking system . 14 . banks are still flush with deposits and the state guarantee is also construed as risk free investment.

Their collective population amounts to more than 33% of the world population. China's GDP growth. INDIA A COMPARITIVE STUDY C hina and India each have a population of over 1 billion people.CHINA Vs. each speaking their own language or dialect. factory and supplier of quality goods and services? Although India has the major human resource. GDP per capita growth and labour productivity have been significantly higher than that of India. it has failed to utilise its potential to create a vibrant manufacturing sector like that of China There was not 15 . Their countries are geographically large and their population is composed of a wide range of ethnicity. Why is this? What should India do to compete with China and establish itself as the world's workshop. over the last 20 years. Yet.

much difference in the economic performance roughly until 1980. China was better placed than India to extract resources from agriculture to finance the planned industrialization program. 16 . when the per capita incomes were also similar. As the history goes. China's current account balance stands at a huge plus. India didn't pay attention to agriculture until the food crisis of the 1966-67. Over the last quarter century. both instituted economic reforms and economic growth accelerated. while for India it has been a minus throughout the last four decades. In the early 1950s. at nearly $30 billions. Both the economies made modest beginning toward industrialization. in 1947 India achieved independence and it is in the year 1949 that in China communists assumed power.

welcoming foreign direct investment with no inhibitions. China's economy grew at double the rate of India's during the '80s and early '90s. and gradually gaining control of world markets for low-tech labor-intensive manufactures. went to new enterprises. Another area where India failed and China achieved immensely is the area of labor reform. Over 75 percent of FDI that China received. China initiated reforms a decade earlier than India's reform.China's FDI strength stands apart. In India. While successive Indian governments restricted the import of technology from the 17 . India succeeded in overprotecting the interests of workmen making the restructuring of the industry impossible China embraced globalization and trade enthusiastically. about 65 percent of the little FDI went into M&A.

a result not only of faster GDP growth. the doctrinaire socialist policy had begun to be diluted in the second innings of Indira Gandhi. 18 . The result has been that starting with more or less the same per capita incomes 25 years back. the gap widened considerably. Today.West and Japan. The growth rate doubled from the previous rate. Chinese incomes today are double that of India's -. The process of liberalization continued under Rajiv Gandhi. While reforms in India are supposed to have been initiated in 1991. apart from higher incomes and lower poverty. As a result. the Chinese governments encouraged them. and more dramatically after 1991. but also of a lower population increase. but still lagged that of China. FDI. the areas in which China is far ahead of us are literacy.

19 . With interest rates being relatively low at around 4-6 percent. the post-reform China has successfully created manufacturing conditions that have redefined the concept of productivity.labor rationalization in the public sector and infrastructure investments. high productivity of labor. lower input costs. Thus. enabling infrastructure. Chinese private firms have evolved themselves into mighty price warriors.

20 .

there was some private sector activity. they cracked down on private firms. In the 1980s. It was this difficulty that 21 . China’s PSUs were virtually bankrupt because of the tight economic controls that the central planners imposed on the country. At that time the State Owned Enterprises (SOEs) ie. So in 1991 there was a substantial reduction of economic growth and the Chinese external sector ran into difficulty. but when these activities became politically and ideologically problematic for the leadership after Tiananmen.CAUSES OF LIBERALISATION IN CHINA I n the early 1990s was that after Tiananmen Square in 1989. the conservative economic planners took control of the country.

China concentrated on aforesaid two areas. the economic prospects of the country looked good. 22 . as foreign firms didn't think the SOEs could compete with them and to add to that. the first fifteen years of liberalization. Then in 1992.prompted the leadership to open up the Chinese economy to FDIs. In his liberalization strategy of the Chinese government can be broadly classified into two stages: Stage one: Restructuring SOEs. This strategy has proved successful FDI came in response to the weaknesses in the SOEs. rather than privatising Stage Two: Attracting FDI. LIBERALISATION-ONE STEP AT A TIME T them. they substantially liberalised FDI controls.

especially of smaller SOEs. These efforts set in motion a selfpropelling mechanism that led to the emergence of new class of private enterprises who changed the economic scenario considerably.In 1998. Reforms focused on bringing an element of micro autonomy. they began to liberalise the policies toward the domestic private sector. They allowed the banks to lend capital to private entrepreneurs. 23 . Chinese govt also allowed privatisation. They also improved legal and political treatment of private entrepreneurs. Also.

They found that the rural 24 . They had the choice of returning to their native places. By the 1980s the State Enterprises (the public sector companies) were losing steam. Harbingers of this revolution is something called 'Town and Village Enterprises (TVEs). This led to displacement of many skilled workers. About the same time the Non-Resident Chinese became wealthy and were willing to play venture capitalists.T THE TVE PHENOMENON: he real force behind China's economic achievement appears to be the country's ability to take the industry to rural China as against the common model of industry concentration in urban cities. which promised a good return. The TVE phenomenon that led to worldwide spread of China's standard and cheap products . They provided funds to the homeland's businesses.

Smaller private enterprises emerged as a force to reckon with. It led to rapid economic growth. They not only funded these businesses but also acted as buyback agents of the production.entrepreneurship coupled with the skilled worker from the big industry was an ideal combination to unleash a revolution. Production of consumer goods increased. This strategy delivered results. Special thrust was given to light and medium enterprises where investments required are limited. A consequent 25 .

rise in exports and foreign currency earnings led to a general rise in personal incomes. 26 .

moved up from 4. financial services.6% in 2001-2002. trade and transport. Its GDP for 2002-2007 is currently targeted at 8%.8 % in 119-1997 and despite a global slowdown.LIBERALISATION OF INDIAN ECONOMY S ince the start of liberalization of its economy in 1991. India has been going through an epochal transformation into one of the world’s fastest growing economies. New investment opportunities for 2002-2007 total sum of $1. electricity. communications. bio-technology. mining. 27 .5 trillion spread over the various sectors such as agriculture. manufacturing.3 % in 1191 to 1992 to 7.4% in 2000-01 to 5. Its gross domestic product rate was picked up from 1.

2.GDP GROWTH IN INDIA 8 6 PERCENTAGE 4 2 0 YEARS 1991 1992 2001 2002 Financial liberalization consists of 3 sets of measures: 1. to open up a country to the free flow of international finance. 3. To provide autonomy from the government to the central bank so that its supervisory and regulatory role vis-à-vis the banking sector is associated from the 28 . to remove controls and restrictions on the functioning of domestic banks and other financial institutions so that they get properly integrated as participants in the world financial markets.

There were problems with this regime arising from the fact that the economy was experiencing capitalist development 29 . credit was directed to priority sectors . especially agriculture.political process of the country and hence from any accountability to the people. The pre-liberalisation period visualized a subordination of the financial system to the perceived needs of economic development. the interest rates were kept low. To ensure that not all these measures are immediately contemplated or demanded but they represent the ultimate goal of financial liberalization which may be ushered in by stages. the RBI was retained as a part of the government and hence accountable to the parliament for its actions. 4. Banks and financial institutions were required to hold government securities upto a certain percent of their total liabilities. permitting the easy sale and cheap servicing of public debt. To this end.

and hence the credit needs of vast masses of small producers and even small capitalist could not be met cheaply from institutional sources. namely:  its being anchored to the national economy detatched from world’s financial flows Its being obliged to give precedence to production over speculation for which it also had to observe control on the price and direction of credit. which. necessitated its four features. The purpose of financial liberalization is to reverse all these features 30 .    Its being accountable to the people via the government. it was believed. But within this overall constrain the logic of the regime was to make the financial sector serve the needs of development.

An economy that has undertaken financial liberalization also becomes vulnerable to crisis. But if this is avoided through the central bank intervention that 31 . When short term funds flow in they tend to cause an appreciation of the exchange rate. the purpose of financial sector reforms is to make the financial sector an aliquot part of globalised finance. to detatch the infancial sector from its anchorage in the domestic economy and to make it a part of the international financial sector  To make it operate according to the dictates of the market which means the end of cheap interest rates of the regime of directed credit and of the distinction between productive and speculative credit needs.  To remove it from the ambit of accountability to the people. In short. the consequence of which is to make imports cheaper relative to home production and hence need to deindustrialization.

On the other hand. Efforts by the central bank to manage the forex market by raising the interest rate to induce short term funds to say or to come back.interest rate increases which leads to a contraction of the real economy. while the inflow of short term funds.supports the exchange rate by holding foreign exchange reserves. have very little effect or even have the opposite effect of further enhancing outflows by aggrevating the asset market to collapse. which reinforce one another and cause an avalance of outflow. generally. When short funds begin to flow out. Thus. has little impact by way of 32 . there is both a downward pressure on the exchange rate and a collapse of asset prices. or for financing speculative booms in asset markets especially the stock market. then that in turn enlarges liquidity in the economy which is typically used either for an expansion of luxury consumption or for an expansion of investment in the domestic non-tradable sector such as real estate.

 Whatever the India-wide effects. equalizing the incidents of poverty across regions. rural areas with high concentration of industries that were disproportionately affected by tariff reductions. Effect of liberalization on the various cross-sections of the Indian society:  Trade liberalization led to an increase in the poverty gap in the rural districts where industries more exposed to liberalization were concentrated. 33 . experienced slower progress in poverty reduction  The regionally disparate effects of liberalization are not consistent with standard trade theory predicting labour migration in reponse to wage and price shocks.  There is little evidence of high levels of free allocation with districts across industries.increasing the growth rate of the real economy. of trade liberalization were. the withdrawal of short term funds does affect the real economy adversely.

positions is quite comfortable. and foreign exchange reserves are growing steadily. Liberalization has greatly benifitted the external sector. the reduction in income caused some to cross the poverty line or fall even deeper into poverty. The current level is well above what we need for our developmental purposes.  As those employed in traded industries were not at the top of the income distribution before trade reforms. The current account deficit is far from significant.  This effect was aggrevated by the slower overall growth in registered manufacturing employment areas with inflexible labour laws which retarded the pull out of poverty of the poorest subsistence farmers. The balance of payments. Especially rigid labour markets fostered by labour market regulations in parts of India prevented the reallocation of factors in the face of trade liberalization in many areas. 34 .

The domestic market is exposed to external competition. 35 .The exchange rate has remained steady equally encouraging is a decline in the size of external debt and the debt servicing burden. poor insfrastructure. The economic reform continues to remain focused on facilitating foreign investment and liberalization of trade. However. the economic reform still lacks its focus on the imperative of restructuring and competitiveness building of the indegenious industry that continues to suffer from inherent disadvantages of high capital costs. irrational duty structure. Policy liberalization has been significant in this respect. All these should boost confidence of the foreign investors in the long term prospect of the economy and one can expect them to continue investing in India. cumbersome procedures and numerous systematic inefficiencies. strangulating labour laws.

the foreign companies have secured total control of the markets. In other words. even as they have brought little by way of investment. foreign companies are gaining control of the domestic market at a relatively lower cost and without developing significant stake in the economy. 36 .The basic objectives behind liberalization of the FDI policy namely:  Access to latest technology Management skills Exports   Have not been achieved so far. But in many sectors it has destabilized the indigenous enterprises and in certain hi-tech sectors.

37 .

while in India. find them as a force to reckon with in textiles. manufacturing takes the largest slice of the pie. Apart from this. Its exports race ahead despite global slow down and its foreign investment figures are much higher than India 38 . it is third behind services and agriculture. consumer durables. and so on.BIRD’S EYE VIEW OF MANUFACTURING SECTORS OF CHINA AND INDIA C hina’s emphasis on manufacturing is confirmed by the fact that among the three sectors in China. An essential offshoot of this is the huge trade surplus China enjoys. the Chinese are so competitive on a global basis that most nations. including India.

The strategy of sales maximization calls for setting of prices at very low levels so as to create markets. low quality goods and marginal pricing. strong domestic demand fed by low prices and improved quality of products.Most people associate China's economy with over investment in singular and unprofitable pursuit of export products. China's businesses seem to operate on the principle of sales maximization. a growing export based on foreign investment. but by a sharp increase in labour productivity. The focus being maximization of sales the resultant business model necessitated concentration on such products that are amenable to mass production and mass consumption. foreign and domestic. the product offers tremendous value for money. 39 . With pricing set at rates unimaginable to competitors abroad. The truth is that China's growth is the result of not only significant investment. The price competitiveness of China's products is unmatched.

That must explain why Nike produces 40% of its footwear in China while Galanz has 30% of the global market for microwave ovens because of quality enhancements in Chinese factories. 40 .but to lower taxes. Delays in India are due to bureaucracy in customs. China's lower prices are not just due to cheaper wages Indian wages are comparable . • Productivity of Chinese workers can be 10 to 300% higher than those of Indian workers. • Chinese shipments reach the US less than a month after they leave the factory gate compared to six to 12 weeks for Indian exports. loading and unloading in ports and long transit times. depending on the product. lower cost of capital. higher productivity of workers and shorter delivery time.

including multinational companies that have prudent cost accounting. double the increase in India. 41 . import duties and raw material costs are important factors but a competitive environment and a higher level of component manufacturers also help. • Whilst it is true that many Chinese state-owned companies receive loans from state banks at very low interest rates with long repayment periods. • China's manufacturing sector in the 1990s expanded at a rate of 12% per year.• China has attracted £216bn in foreign investment (1980-2000) compared with £120bn in India. Lower taxes. about 70% of China's industrial output comes from the private sector.

China is planning to increase its textile exports to $ 50 billion in 2006.PRODUCT SPECIFIC EXAMPLES 1. 2. And in India we tax polyester fibre and other raw materials at the highest possible rate. China produces more than 25% of the world's televisions and easily surpasses India in both domestic sales and exports. It is already preparing for the global textile market opening up totally. 3. 42 . China produces eight times more ceiling fans than India and half the price advantage is because of India's high indirect taxes that affect domestic and export sales.

This is how democracy has been used in India to hinder growth.in contrast to the Narmada Dam project is an example of how the infrastructure projects in India are frustrated by misguided individuals going to court. The way the giant Three Gorges Dam has come up in China.CAUSES OF STAGNATION OF INDIA’S MANUFACTURING SECTOR 1." Eg. so be it: investment in infrastructure underpins China's success. Financial Times rightly commented (January 21. 43 . LACK OF INFRASTRUCTURAL DEVELOPMENT: The sheer speed with which infrastructure projects get implemented in China is commendable. 2004) "if thousands of villagers have to be moved to make way for roads or power stations.

environmentalists. An Ambani prefers a refinery. One can only imagine the output lost because of the delays in the starting of the project. 44 . but at the cost of creating new jobs. have created a bias in favour of capital-intensive investments. Indian labour laws. in labour- intensive manufacture. endless court cases. OUTDATED LAWS: China is ahead of India. and other manifestations of a democratic. rule-of-law society have not only delayed implementation perhaps by a decade. but also added enormously to the costs while direct cost escalation is perhaps only a small part of the total cost to the economy. to manufacturing. say. which protect existing employment. 2. toys in billions and exporting them to the world.Agitation. in which the only comparative advantage comes out of the duty structure.

the government always takes the side of agriculture. resources are short for the much-needed investments. but also keep thousands employed in factories that haven't produced anything for decades. STEP MOTHERLY TREATMENT TO MANUFACTURITNG SECTOR: Wherever there is a tugof-war between agriculture and manufacturing. In contrast. Millions of jobs in state-owned enterprises have been lost in preparation for world competition. PROTECTIVE TREATMENT TO PUBLIC SECTOR UNITS: China does not seem to be treating its PSUs that is the state owned enterprises (SOEs) protectively . India not only condones over-manning. As a result.3. But new ones keep getting created in larger numbers. The price 45 . 4.

This is where india’s energy-inefficient ways stand out. 5. This is because of variety of reasons like better capital stock and modern infrastructure. the rich countries use less oil per unit of output than the developing countries. For Example. sugar cane. DEPLETION OF RESOURCES: India consumes almost thrice as much energy as any average rich developed country produces. China. fertiliser policy are only a few examples of this short sighted approach. whose economy is powered by manufacturing. the fact that the rich countries are less dependent on manufacturing also ahelps them to conserve energy. Generally. India’s energy intensity is almost 24% higher than china’s despite the fact that both the countries are at around the same level of development.of cotton. 46 . is less energy-intensive than India.

300 250 200 150 100 50 0 INDIA THAILAND AFRICA CHINA 47 .

ENSURE MOBILITY OF LABOUR. There has to be the will to put through a modern labour policy. become high. which will ensure that industry has the right to move labour in and out.In the process. 2. the following steps may have to be taken: REDUCE INTEREST RATES: At real interest rates of 7 or 8 per cent. manufacturing companies will never be able to compete globally because these interest costs. The only way employment will increase in the manufacturing sector is if we give the comfort to the owner that his labour is a variable cost.REMEDIAL STEPS I 1. 48 . ndia needs to immediately set right this situation and give primacy to manufacturing as China has done. as a percentage of total cost.

SECTOR REGULATOR: Develop infrastructure regulatory bodies funded from outside the government 49 . ENCOURAGE COMPETITION: The government must make "competition" India's national password and allow the Indian flair for invention and application to take root. The indirect taxes are way too high and need to be brought down to international levels.3. we are killing domestic demand. TAX CUTS:. By having high excise duties. 6. the key component of our growth. 4. 5. REDUCE RED TAPE: Indian Government must free the Indian entrepreneur from the shackles of state and federal bureaucracy and release the savings through lower direct and indirect taxes.

making more funds available for infrastructure. Establish a fully funded pension scheme to increase national savings and the demand for long term debt. India should have one public sector agency undertake the project design and contracting. DEVELOP LONG TERM DEBT MARKET: Mobilise long term insurance money in the sector andInstitute pension reforms. Establish multi-sector regulatory agencies at the state level. clearances and interacting with private developers and investors. 7. CONTRACTING SECTOR: PROJECTS TO PRIVATE Establish a single body for contracting.budget. 50 . 8.

regulatory and commercial functions. 51 .negotiation and documentation on the reasons why award decisions were made. 10. PORTS: Develop a new institutional structure for the sector by separating policy. AIRPORTS: The focus of the airport authority of India has to be shifted from operations to policy planning and statutory functions. 9. A separate independent authority needs to be created to handle economic regulation for the sector such as the leases and concessions.

Monitor and gradually reduce public support for private road projects. 12. 52 . ROADS: The money collected from petrol and diesel must be used only for road development.11. Railways must get separate instituions for policy regulation and management. RAILWAYS: Corporatise Indian railways into indian railways corporation and focus on the core business and spin off the rest.

the trend of increasing capital repatriations has been dramatic. the Chinese balance of payments statistics indicates that in the mid-1990s. over the long run. 53 . they are about $30 billion. it is seen that increasingly. the foreign income repatriations were only about $6 billion.COMPLICATIONS FACED BY CHINA DUE TO INCREASED FDI O n the competitiveness side. A lot of the gains from economic growth have gone to foreigners rather than Chinese entrepreneurs. Some of that money comes back in the capital account through reinvestment. This is a capital outflow from the current account. but. Today. the gains of Chinese economic growth have gone to foreign firms.

India is not too far away from facing a similar problem as China in this regards.Today. with the FDIs on a constant rise. 54 .

Its reforms have made it the fastest growing economy in the world. communist country with scarce could was make a miracle because happen. china The rightly transformation possible employed its major resource ie the human resource in the productive. It emanates when they are put to their best use. The Chinese experience clearly demonstrates that the competitiveness does not emanate from mere availability of resources. 55 . China’s success story shows how a war-ravaged. What is remarkable is the rapidity with which it all happened. manufacturing sector.T resources he achievements of China's two decades of reforms are regarded as an economic miracle.

the service industry will find itself in throes of massive overcapacity. True. They were looking at the global market when they created these capacities. we need more manufacturing. Our efforts to help the service sector are laudable but the manufacturing sector should not be ignored China did have a head start compared to India in reforming its economy but they went about it with great deal of planning.For quality of life to improve.for agriculture and If the services to grow. But so do we. they had a huge domestic market. It is more difficult for Indian domestic private firms to grow because they have missed the window of opportunity in 56 . domestic industry stops spending. They invested heavily in the manufacturing sector and created impressive capacities in almost every sector of the economy. even India we needs to put the emphasis on manufacturing. They also took their time to get into WTO so that they could practice some amount of protectionism in the intermediate period.

 57 . That India would have to now develop its manufacturing sector is certain. And now they have to compete with Multi National Companies.the last 15 years. the issue now is whether domestic firms can compete with foreign firms. However.

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