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India can provide China serious competition in low cost manufacturing by 2020

22:47 | 24.03.2017 | Analytic


24 March 2017. PenzaNews. India can provide China a serious competition in cheap goods production in the near future. This topic was raised by Subrata Majumder, Adviser to Japan External Trade Organization (JETRO), New Delhi, and the author of numerous publications on economic issues, in his article “India will be new China in global low cost manufacturing competitiveness” published in foreign media.

India can provide China serious competition in low cost manufacturing by 2020

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“The Delloit survey on manufacturing competitiveness in 2016 ushered India into the future global factory for low cost manufacturing. USA, China, Germany and Japan will continue to be the top four countries in the global manufacturing competitive countries index. India will spurt to 5th rank in the global manufacturing competitiveness index in 2020 from 11th position at present and will outsmart South Korea, Taiwan, Mexico, Canada and Singapore in the race. No other country was projected to grow faster in manufacturing competitiveness like India in the coming five years,” the article says.

According to the author, the factors to be attributed to India’s strength in manufacturing competitiveness are large pool of English speaking scientists, researchers and engineers, coupled with low wage cost estimated 1.72 US dollars per hour in 2015.

“A foreign consultant boosts the foreign investors’ confidence in India’s manufacturing competitiveness, or say Make in India. […] Underpinning the American survey as harbinger for growth, foreign investment in India continued to spur despite demonetization. FDI flow in India surged by 22 percent during the nine month period of April-December 2016 – the record FDI flow ever,” Subrata Majumder writes.

According to him, the global influences of currency turmoil, recessions and the break-down of big trade blocks evoked a new landscape of manufacturing.

“The world is divided into two spaces – low cost manufacturing and high tech with high value manufacturing. While China will lose the powerhouse of low cost manufacturing competitiveness, the Mighty Five – the five Asia Pacific nations, including Malaysia, India, Thailand, Indonesia and Vietnam – will emerge the choice for low cost manufacturing in place of China. India will be the frontrunner with the four countries chasing,” the expert explains.

In his opinion, now China is in the transition period and will move to high tech manufacturing, conceding more space to India in the low cost manufacturing competitiveness.

“Currently, manufacturing goods in China is only 4 percent cheaper than USA, because wages in China increased by 80 percent since 2010 due to Yuan appreciation,” the analyst reminds.

From his point of view, India’s growth in manufacturing competitiveness jittered China.

“When Apple of US was considering to shift its manufacturing facilities along with supply chain to India from China and India broke the world record of largest number of satellite launch, the Chinese were aghast with India’s progress in manufacturing,” the article says.

According to the author, Chinese media and the think tanks raised concerns over India going ahead in low cost manufacturing.

“If Apple expands in India, more global tech giants may follow suit and China is likely to see a further transfer of the supply chain, given India’s abundant supply of working-age labor and low labor costs. China cannot afford losing jobs,” the expert quotes The Chinese Global Times.

According to the analyst, even some Chinese domestic companies are contemplating to shift to India in the attraction of low cost competitiveness.

“The decisions of Chinese largest telecom company Huawei Technologies Co Ltd and a number of Chinese vendors to set up smart phone manufacturing plants in India perturbed the Chinese media. It beaconed China’s loss of competitive edge and forecasted India to be on the way to become the world’s new hub for manufacturing. Vivo China has already set up a smart phone manufacturing unit in Greater Noida. Xiaomi , ZTE, One Plus, Gionee are in the queue to open their manufacturing shops in India,” Subrata Majumder writes.

Meanwhile, in his opinion, India launching record breaking 104 satellites in single rocket made some observers think that India can send commercial satellites into space at lower cost, giving the country’s competitiveness in the global race for burgeoning commercial space business.

“Chinese concern for losing its manufacturing edge was unveiled when China introduced ‘Made in China’ campaign, immediately after ‘Make in India’. ‘Make in India’ and ‘Made in China’ evoked similar resonance for creation of job opportunities. But, conceptually they are different. While ‘Make in India’ was a call to establish world’s biggest manufacturing hub in the area of low tech and low cost, ‘Made in China’ was to build up China’s manufacturing competitiveness into high tech, such as bullet trains, super computer, advanced roboting, 3D printing, Smart, connected products and others,” the article says.

The author believes that China’s slide in GDP growth engulfs China’s future for its dependence on manufacturing as a potential pillar for growth.

“China grew 6.9 percent in 2015 – a sharp slip from 11–12 percent growth since 2012 and the slowdown is likely to intensify to 6.3 and 6 percent in 2016 and 2017 respectively. One of the reasons was the slow growth in manufacturing activity, due to lower demand in the export , resulting excess capacity. Manufacturing share in GDP slipped from 41 percent in 2007 to 36 percent in 2014,” the expert explains.

According to him, despite the positives, India has many challenges.

“Make in India should be revisited and a wish-list of investors should be included in the policy tool to spur the investment potential in 22 sectors, enlisted in the campaign,” Subrata Majumder writes.

In his opinion, the main barriers to the investors are land acquisition, non- transparent tax system, delay in GST scheme and reluctance to open multi-brand retail to the foreign investors.

“Currently, the important part of ‘Make in India’ is easing of business procedures which were broaching the investors’ initiative to expand investment in India,” the author resumes.

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