'Made in China' scores over 'Make in India'

Jenipher Carlos Hosanna MCom, MFM, MCS, LLM, MBA, PGDT, Assistant Professor, Henry Baker College,
Melukavu, Kottayam; Email:hosannagardens@gmail.com

Abstract
Until the recent emergence of labor shortages, China's manufacturing sector has benefited
from a growing pool of young workers trained for production jobs in government-run
vocational schools. At the start of the reforms in 1980, only 19 percent of senior high school
graduates came out of vocational schools. By 2001, however, driven by a policy to emulate
Germany's dual-track training system, the proportion of senior high school students
graduating from vocational schools was much larger: 45 percent or about 6-7 million
vocationally trained graduates each year. This policy ensured that 90-100 percent of the
young workers joining China's factories would be well-trained.
In contrast, the state of vocational training in India has been much weaker. Various surveys
suggest that, as of 2009-2010, only 2-7 percent of India's youth were receiving vocational
training. It is difficult to imagine Mr. Modi's "Make in India" initiative achieving its targeted
goals without redressing the gap in vocational skills. The World Bank estimates that India's
economy is currently growing at a faster pace than China's and forecasts it is likely to remain
the world's fastest growing large economy for the foreseeable future. For these projections to
materialize, it is critical that Mr. Modi succeed in realizing his goals for the "Make in India"
initiative. The dragon to the north has already demonstrated that this can be done. India
would do well to learn the lessons from its neighbor's success.
In 2015, Tata Motors Jaguar Land Rover (JLR) opened its first plant in Changshu, China.
The luxury car-makers $1.78-billion Make-in-China push has come a little over a month
after Tata Group chairman Cyrus Mistry confessed to be greatly encouraged under Prime
Minister Narendra Modis leadership to join the Make In India programme that, he said,
brings together industry and government for crafting a new future. This was at the glittery
launch of Make in India in Delhi where a galaxy of global corporate leaders ranging from
Mukesh Ambani of Reliance Industries Ltd. to Lockheed Martin India CEO Phil Shaw in
response to Mr. Modis call had pledged to invest and manufacture in India.
The pitch had its origin in the Prime Ministers Independence Day speech when he invited
global companies to pick India to locate factories, promising to replace red tape with redcarpet welcomes. The jobs and incomes for Indians these factories would generate, he said,
would in turn create the market for their output. The goal the Modi government has set is to
make India break into the top 50 in the World Banks ease of business index ranking from the
current 134th position.
When companies such as Tata Motors choose where to locate a new factory, they consider a
range of factors. But India fares badly on most of the counts. For instance, contract
enforcement takes 1,420 days and going through the 12 procedures for starting business
typically takes 27 days. Indias chronic infrastructure and logistics deficit with inefficient
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transport networks makes it tough for manufacturing companies to achieve just-in-time

production.
The Modi government has said it wants to radically de-bureaucratise, deregulate, change
officers mindsets, cut paperwork and remove the notorious legal and infrastructure hurdles to
starting and doing business in India. This is not the first time India is focussing on its
manufacturing sector. In 2006, the UPA government put out a national strategy for
manufacturing. It even dubbed 2006-15 as the decade of manufacturing in India. The fiveyear period of 2005-06 to 2009-10 was one of a smart 10 per cent plus growth for the
manufacturing sector when several advantages engineering skills, a growing domestic
market, a raw material base and a large pool of skilled labour trumped the vast barriers to
doing business in India.
JLRs China launch has set alarm bells ringing for the Modi government: Make in India
will have to go quickly from being a statement of intent to real action on the ground. Markets
across Indian towns and cities that are flooded with Chinese products, more so around
festivals such as Deepavali, are grim reminders of how Made-in-China has come to dominate
homes and offices. From furniture and gadgets to industrial equipment, India is importing
almost all products from its neighbour, even yarn for saris. It is estimated that over 99 per
cent of Bangalore silk saris are being made with Chinese silk yarn.
As a result, the rapidly growing bilateral trade between the two neighbours is tilting heavily
in Chinas favour, at a rate that India has termed unsustainable. Bilateral trade crossed $65
billion in 2013, but while India exported $15 billion worth of goods to China, but imported
$51 bn. The quality of trade also goes against India. India exports raw materials such as iron
ore but imports manufactured goods.
In pursuit of its reforms agenda of 1979, China has followed a more-exports-at-any-cost
policy to boost its economy. The Chinese governments support to manufacturing in the form
of affordable cost of funds, cheap inputs and world-class infrastructure gives it an advantage
over Indian manufacturers. The Confederation of Indian Industry estimates that Chinese
manufacturing as a result enjoys a cost advantage of about 10 per cent over Indian
manufacturing.
A fallout of which is dumping of products on big markets like India. To protect domestic
manufacturers, India has been imposing an anti-dumping duty on 159 products ranging
from chemicals, petrochemicals, pharmaceutical, steel, fibres and consumer goods
imported from China since 1992. The spurt in factory imports from China has coincided with
a sharp slide in Indias manufacturing sector despite the UPA governments efforts to push the
sector. Manufacturing output grew barely 1 per cent in 2012-13. In 2013-14, factory output
contracted (-) 0.7 per cent. The share of the jobs-creating sector in the GDP has declined to
14.9 per cent in 2013-14 from the peak level of 16.2 per cent in 2009-10.
Indias advantage
But there is hope still. A new index of manufacturing costs, including productivity-adjusted
wages, electricity, natural gas and currency movements, created by the Boston Consulting
Group (BCG) of the worlds 25 biggest exporters shows Chinas traditional cost advantage is
now under pressure denting its attractiveness. Under pressure from the U.S., China has had to
appreciate its currency by 30 per cent since 2006, which is eroding its exports cost
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competitiveness. Just-in data from the International Monetary Fund show that China is no
longer the largest trade surplus economy in the world.
Therein lies an opportunity Make in India must tap. Indias labour costs are among the
lowest in the world. According to the U.S. Bureau of Labor Statistics, average labour
compensation (including pay, benefits, social insurance, and taxes) in Indias organised
manufacturing sector increased only marginally, from $0.68 an hour in 1999 to $1.50 an hour
currently. The average compensation in Chinas manufacturing sector in contrast rose 20
percent year-on-year in the same period to $3 an hour. Besides, the cost competitiveness,
India boasts a nearly 500-million-strong labour force comprising unskilled workers and
English-speaking scientists, researchers, and engineers, making it a potential destination for
cost-effective research and development-oriented manufacturing.
Recent sporadic instances of the odd Chinese manufacturer setting up shop in India and a few
Indian companies moving production bases back home from China are encouraging. Havells,
Godrej, Micromax and auto-components maker Bosch are amongst a handful of companies
that have recently moved back to India some part of their manufacturing or outsourcing in
China owing to currency, labour and other cost advantages.
As Chinese factories move up the value-chain to hi-tech manufacturing, opportunities would
open up for Indian entrepreneurs but they are up against stiff competition. On the BCG
ranking, however, several countries, including the U.S. and Mexico, are better poised and
ranked above India as of now to take gain from Chinas loss of competitiveness. The coming
together of smart entrepreneurs, employees, infrastructure and know-how could overtime
become a durable advantage, as had happened in Chinas case.
How 'Made in China' scores over 'Make in India'
In one of those rare coincidences, China announced a host of incentives under its Made in
China campaign on the same day that that Indias Prime Minister Narendra Modi issued a
clarion call to investors to choose India as a manufacturing destination.
But where the Factory of the World capitalised on is the gap that the Indian Prime Minister
left in his announcement. In his speech, Modi said that Incentive schemes cannot attract
businesses, it is important to create the environment of trust and confidence. The truth is
different incentives are what attract investments.
Take the case of the new, downsized state of Andhra Pradesh after the separation if
Telengana. On losing Hero Motors plant to Andhra Pradesh, Chief Minister of Karnataka
said, Our government offered maximum concessions in the form of tax holidays, excise duty
exemption, concessions in entry tax, and interest-free loan of Central Sales Tax (CST) to the
company. But, we cannot give them free land, because other companies will also ask for it.
We cannot compete with Andhra Pradesh on this. Andhra Pradesh managed to bag Heros
project after it gave away free land over and above the incentives mentioned above.
Tamil Nadu Chief Minister Jayalalita has complained to the Prime Minister, fearing a flight
of industries and capital to neighbouring Andhra Pradesh and Telangana on account of
incentives awarded to them.

In BJP-ruled Madhya Pradesh, Chief Minister Shivraj Singh Chouhan is framing the
incentive policy ahead of the Global Investors Summit (GIS), and is finalising new grants and
tax incentives to be announced at the summit. The state found mention in ITCs Chairman Y
C Deveshwars speech as his choice of investment destination during the Make in India
summit.
Modis home state of Gujarat has flourished partly because of incentives given by the state,
apart from the ease of doing business. The state is readying its new industrial policy and
intends to announce 100% exemption on VAT, waiver of stamp duty, electricity duty among
others.
Modi in his speech has talked about steps taken in easing and speeding up business start-ups.
These might be a new concept for India but they are the norm globally. This is the bare
minimum that a country now needs to offer. Modi said in his speech that businesses first look
for security of the investment, then growth and then profits. One thing he missed out was
businesses look at return on investments. All things being equal, incentives and grants
improve the return on investments drastically. Proliferation on industries in tax free states is a
clear indication that despite the hardship of starting and operating a business, investment goes
to states which offer incentives and better return on capital.
China has taken the offensive, not only in Ladakh but also in attracting businesses by
announcing a series of incentives on the same day as Modi made his speech. They know that
action in the form of incentives speaks louder than words.
Webography

www.hindustantimes.com/...made-in-china...make-in-india
www.businesstoday.in/cover-story/india...china-begins.../203040.html
www.business-standard.com/.../here-s-how-made-in-china-scores-over-made-in-china
www.thehindu.com/in-india-vs-make...china/article6533575
indianexpress.com business economy