The Manufacturing story: Why India is falling behind China

If India is to compete with China’s manufacturing sector, it is time to analyse the gaps.

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China and India had similar economies during the 1990s but since then, China’s economy reportedly has grown to be five times the size of India’s. China accounted for 22.4 per cent of global manufacturing in 2012, while India’s share of global manufacturing stands at a little over 2 per cent, according to a research paper.

India’s manufacturing sector, if compared to other similar countries including China, is a matter of concern. A large portion of the Indian working force is dependent on manufacturing as a means of livelihood. However, over the past few years, we have seen a major shift from labour-intensive work in the industries to a capital-intensive environment. Due to this, unskilled labourers, daily workers and people who work in industries where labour is being substituted with machines are at a risk of unemployment in India. The problem isn’t the same in China since people are accommodated in other sectors when their work is taken over by industries.

Not only does China ensure employment but the price of products is cheaper in China too as compared to India. According to a written reply in the Lok Sabha by Minister of State for micro, small and medium enterprises (MSME), Haribhai Parthibhai Chaudhary, “The products manufactured in China are reportedly of lower price mainly because of their opaque subsidy regime and distorted factor prices” where opaque subsidy regime is the lack of transparency in the subsidies provided to the workers. The minister said that the survival and growth of MSME depends on a number of factors like availability of timely credit, upgradation of technology, infrastructure, access to market, quality of products, etc. which will ensure better performance of the manufacturing sector.

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The third component myth that the salaries of Chinese labourers is higher as compared to their Indian counterparts is incorrect as manufacturing sector salaries, in fact, are lower in China.The Human Resources and Social Security Bureau said the average income of Rs.2,40,000 workers across 959 companies in the technology and manufacturing hub is Rs.56,110. The reason behind this could be that labourers are paid per piece basis instead of hourly basis. This ensures better outcome from the labourers.

Why is Indian good expensive as compared to China?

In India, people have to undergo documentation or legal processes which takes a considerable amount of time to clear. This makes the acquiring of land processes slower and further delays the installation of machinery projects.

Power availability is another reason. Frequent power cuts halt the manufacturing process because it is highly reliable on machines. For instance, a plant is started and then it is realised that power availability is not 24/7. In many industrial places, one gets power cuts for long durations during the day when the main manufacturing process is taking place. That means the machinery lies idle for hours and that wasted capacity adds to the cost. Further, the cost of electricity adds to the burden. Due to subsidies provided to farmers, the cost of the electricity falls on industries or the companies which results in huge amounts of debt.

Additionally, transportation costs in China are lower as compared to the Indian market as the public transportation is pretty cheap and reliable, according to an article by policy expert CC Huang and communications expert Hallie Kennan. This is unlike India where manufacturers have to rely on private transportation which further adds to the costs as private companies tend to charge higher rates for the transportation process which drains the small manufacturers.

Other problems which affect the Indian manufacturing sector are poor infrastructure and lack of global supply chains.

What can be done to improve our numbers?

To conquer these problems, we have to do devise certain policies which strengthen our manufacturing sector. Make in India is one policy which has been implemented since September 2015 to make India a manufacturing hub. It has identified approximately 25 new sectors in manufacturing, services and infrastructure. It has attracted a lot of Foreign Direct Investments(FDI). India jumped 16 places to the 39th rank in 2016 from 2015’s 55th position in the Global Competitiveness Index. A few Japanese companies such as Sony also joined the Make in India initiative. Companies such as Amazon and Xiomi set up their plants in India after the implementation of the policy.

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India’s car industry has boomed over the years and profited from the plants set up by other countries such as by Toyota, BMW etc. India’s automobile industry generated 25 million jobs between the year 2006 and 2016. India is also doing very well in the production of two wheelers and has been able to come up with a competitive market of Indian brands giving people a wide variety to choose from depending on the cost and utility of the vehicle.

China is on its way to becoming a superpower and India is still a developing economy. So, it needs to fuel its manufacturing process and remove the glitches. There needs to be some strong policy implementations such as providing jobs to millions of its unemployed youth, it must design policies targeted at low cost mass manufacturing which will need massive investment, including major contributions from foreign investors. We can learn a lot by the success of the Chinese policy implementations from the last three decades.