Mumbai: A recent study by the Centre for Monitoring Indian Economy (CMIE) says that the Indian economy is slowly shifting its focus from a traditional manufacturing to a trading or outsourcing economy.

CMIE's study of the financial performance of Indian companies, covering the period 1991-92 to 2002-03 shows that the Indian corporate sector has made huge savings on power, wage and administrative costs. However, these savings have been offset by the higher costs of finished goods (as inputs).

"The share of purchase of finished goods has increased from 13 per cent in 1991-92 to 20 percent in 2002-03. This reflects a shift in the business, from manufacturing to trading or outsourcing. This shift is partly responsible for the drop in the share of wages and power costs," the CMIE study says.

The study further says that the rise in purchase costs of finished goods is a lot more than the fall in other costs. "As a net result of these shifts in the cost structure, the overall cost of production of manufacturing companies has increased during the period since 1991-92 when it was 80.4 percent of the net sales to 82.2 per cent in 2002-03. This is disturbing, given that fact that labour has become more mobile, its costs have come down and infrastructure has also improved," the CMIE report says.

The total cost (including production, selling and administration) has also increased from 93 percent in 1991-92 to 94 per cent in 2001-02. In 2002-03, the total cost dropped sharply to 92 percent of sales. This was essentially because of an increase in the stock of finished goods, which account for one per cent of net sales. This alone led to the two percent rise in the operating profit of the manufacturing sector during 2002-03.

Data for the period 1991-92 to 2002-03 shows that the manufacturing sector has saved on its wage and power bill and administrative costs. The share of wages in the total costs has declined from 6.1 per cent in 1991-92 to 4.4 per cent by 2002-03. The textile and automobile sectors were the biggest gainers in this respect. The share of power and fuel costs has declined from six per cent in 1991-92 to 5.2 per cent in 2002-03.

Further, the savings on administrative overheads is quite significant. It has come down from 7.3 per cent in 1991-92 to 5.3 per cent in 2002-03, the CMIE study says.