New Delhi: Falling automation costs and less open global trade are unlikely to disrupt the Indian economy as much as in some other major economies due to the favourable labour market situation and robust domestic demand, according to Karen Harris, managing director of consulting firm Bain & Company Inc.’s macro trends group.
Among the broad global trends identified by Bain & Company that will have a favourable impact on India’s economic indicators is the rise of alternative sources of energy, which is putting a lid on the price that petroleum products command in world markets.
Harris said in an interview that ‘abundance of labour’ and relatively low wages meant slower adoption of automation in India. Besides, automation has been nascent in the field of services which accounts for a larger share of the Indian economy than manufacturing. Automation has been the norm for gaining efficiency in the manufacturing sector for decades. “India is the only country with scale which has superabundance of labour which means India may be slow to take up automation," said Harris.
Falling cost of automation and policies of national governments meant to protect local industry and jobs from other low cost markets have been increasingly shaping business strategies. Harris said India’s labour market is distinct from those in China and some other economies where wages have gone up sharply in recent years.
In China, a few years ago, it used to take about five years for an industrial robot to break even. Today, the cost of automation has come down and the cost of labour has gone up and it now takes barely 1.5 years, she said.
“You have to look at individual sectors and see the labour availability. If a large pool of cheap labour is available in that job category, the adoption of automation will be slower because the cost trade off will be less," she said. It is estimated that automation could hit 20-25% of jobs in the US in coming years, creating 40 million unemployed.
Indian economy is unlikely to be hurt by protectionist trends in global trade, said Harris. “India is in a unique position with its large consuming population which is an advantage to the Make in India drive. Manufacturing with the hope of serving overseas markets is very difficult in today’s environment. In the post globalization world, where trade is more difficult and automation makes manufacturing more and more possible locally, having a robust demand gives tremendous advantage," said Harris.
The rise of alternative sources of energy including solar, wind and biomass has been helpful to contain oil prices in world markets, a trend that is of significance to India in terms of current account balance and inflation. Harris said the era of liquid petroleum controlling the price of energy has ended. “The dominance of coal dropped in 1930s with the advent of cars on a mass scale and the surge in consumption of refined petroleum products. We expect the same trend in oil too. The growth of alternatives has touched a tipping point which has capped the price of petroleum fuels," said Harris.