Outside the grounds of Sundram Fasteners Ltd., it looks like anywhere else in urban India: wandering cows, tiny Hindu shrines, streets clotted with bicycles and motor scooters. Inside, it looks like Japan.

Surrounded by flowering shrubs and immaculate lawns, workers in identical gray uniforms labor in spotless assembly plants festooned with Japanese management slogans.

Drawing on abundant reserves of engineering and entrepreneurial talent, as well as on expertise from abroad, Indian manufacturers are overcoming a reputation for dubious quality and beginning to emulate the country's booming software and back-office outsourcing firms in reaping the benefits of globalization.

Sundram's rapid rise is emblematic of a broader transformation in the Indian economy, but its success has also created problems. Inspired by Japanese automation and other labor-saving efficiencies, and discouraged from taking on new employees by antiquated labor laws that make firing nearly impossible, Indian manufacturers are creating few if any new jobs.

Established in 1966, Sundram, a subsidiary of TVS Group -- a 93-year-old industrial giant whose products range from motorcycles to sewing needles -- has evolved into one of the country's most successful makers and exporters of car parts. Its biggest customer is General Motors, which installs Sundram radiator caps on every vehicle that rolls off its North American assembly lines.

Sundram's radiator cap assembly line, for example, employs just 33 workers, the same number as a decade ago, even though production has more than doubled to 8.5 million caps per year, said the plant manager, R. Premkumar. Many manufacturers have actually been shedding jobs as they scramble to compete globally following the government's decision to lower trade barriers in the early 1990s. "Even if we go up to 30 million [radiator caps], we don't have any plans to expand the human force," said Premkumar, 53, who has worked for Sundram since 1983. "It's because of automation."

Notwithstanding the recent growth in industrial output, manufacturing companies in India employ just 7 million people, a tiny share of the country's estimated 406 million workers, according to the World Bank. Software and other information-based services account for fewer than 2 million additional jobs. More than 90 percent of Indian workers are employed as farm laborers and in other menial, mostly unregulated jobs, such as brick-making and rickshaw-pulling.

The situation contrasts with that of China, where foreign investment has given rise to thousands of new factories churning out such consumer goods as toys and clothes for overseas markets. China's manufacturing boom has provided jobs for tens of millions of semi-literate peasants and has created a middle class that is growing as fast as any in the world.

Many economists predict that India will not achieve similar success in manufacturing, or in alleviating poverty, until it becomes more hospitable to foreign investors. They say that achieving those goals would require scrapping a 1947 law requiring medium-size and larger companies to seek government permission before firing workers. It also would require major improvements in such infrastructure as roads and power, which is so unreliable that many companies are forced to generate their own.

"We're a couple of major reform steps away" from a manufacturing boom, said Subir Gokarn, chief economist of Crisil, an Indian credit-rating and research agency. He said that generating new jobs is a critical challenge for the government. "If they're not able to find some success in that area in the next five years, I think they will have a huge problem when they go into the next elections."

The job shortage has been cited as a major factor in the electoral defeat last spring of the coalition government led by the Hindu nationalist Bharatiya Janata Party. Its successor, led by the Congress Party, has vowed to address the problem by reducing obstacles to foreign investment and by implementing a costly rural employment program that would guarantee 100 days of work per year to anyone who needed it.

There are some grounds for optimism. In 2003, exports of manufactured goods grew by 20 percent. A new study by the consulting firm McKinsey & Co. and the Confederation of Indian Industry concluded that with the right policy adjustments, India could gain as many as 30 million manufacturing jobs by 2015. That, in turn, could generate significant employment gains in such service industries as hotels, restaurants, transportation and information technology.

"You're not necessarily going to see employment jumping exponentially on the shop floor," said N. Srinivasan, the director general of the Confederation of Indian Industry. But "if you're producing more tractors, you'll need more people to repair those tractors. . . . You must look at the whole chain of employment generation."

According to Srinivasan and other experts, India's best manufacturing prospects are in skill-intensive industries that will allow the country to leverage its advantage in cheap, relatively well-educated labor while not soaking up large numbers of unskilled workers, as is happening in China. The trend is already evident in such industries as pharmaceuticals and especially auto parts, whose export sales rose from $330 million in 1998 to $800 million last year, according to the confederation, even as employment in major firms has remained flat or declined.

The New Delhi-based Sona Koyo Steering Systems Ltd. is a good example. Founded in 1987, the company initially supplied steering components to a major domestic car maker and was shielded from foreign competition by restrictive trade laws. "My company was a typical example of the inefficiency of India," said Surinder Kapur, 60, the company chairman. "There was no incentive to cut costs. There was no incentive to ensure quality," said Kapur, who studied engineering at Michigan State University.

Sona Koyo's business changed in the late 1990s, when major car makers began to invest heavily in India and began demanding better quality at lower prices from component makers. Profits at the company plunged. So Kapur called in Japanese advisers, invested in employee training and oversaw a range of efficiency improvements.

Last week, Kapur oversaw the opening of a $5 million factory near Madras, also known as Chennai, on India's southeast coast, that will supply steering gears for the U.S. automobile industry. Surrounded by palm trees and croplands made soggy by late monsoon rains, the highly automated assembly line employs only seven workers per shift, although that number will grow as the plant expands production, company officials said. The assembly line workers, who earn about $250 per month, speak some English and have undergone a minimum of two years of technical training after high school, Kapur said.

Sona Koyo is one of several companies that make auto parts in and around Madras, a sweltering, frenetic city whose relatively stable power supply and large port reduces the logistical challenges faced by manufacturers in other parts of India. The city is chronically short of water, but Sundram, the radiator cap maker, recently addressed that problem by spending $250,000 on condensers that allow the company to recycle 90 percent of the water used in various industrial processes, said Sampath Moorthy, the company president.

Similarly, to cope with restrictive labor laws, Sundram sometimes meets surges in demand by hiring workers on short-term contracts. "Everything has got a solution," said Moorthy, 57, a reserved, plain-speaking engineer who keeps an iPod -- a gift from a son living in Kansas City -- on his uncluttered desk. "The next five years are going to see a revolution in manufacturing" like that seen in information technology, he said.

R. Premkumar, a factory manager, says automation has enabled him to more than double production of radiator caps without hiring new workers.