Survey: India Will Be New China In Global Low Cost Manufacturing Competitiveness – OpEd

The Delloit survey on manufacturing competitiveness in 2016 ushered India into the future global factory for low cost manufacturing. The survey revealed that India will be the “New China “ in terms of low cost manufacturing country in the next five years. India will spurt to 5th rank in the global manufacturing competitiveness index in 2020 from 11th position at present. India will outsmart South Korea, Taiwan, Mexico, Canada and Singapore in the race. USA, China, Germany and Japan will continue to be the top 4 countries in the global manufacturing competitive countries index. No other country was projected to grow faster in manufacturing competitiveness like India in the coming five years.

Indeed, it is surprising amidst the uncertainty of high economic growth due to demonetization. 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 US $ 1.72 /hour 2015) , the survey said.

The Delloit survey, a Global Manufacturing Competitiveness Index (GMCI), 2016, covered 540  CEOs. The survey included the views of CEOs mostly from North America and EU countries. In the survey, CEOs were asked to rank six countries of current and future manufacturing competitiveness and India was one of them. These six nations account for 60 percent of world manufacturing GDP.

Ironically, while a foreign consultant boosts the foreign investors’ confidence in India’s manufacturing competitiveness, or say Make in India , the domestic think tanks wobble over tapering in the high growth trajectory. 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.

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.

According to the survey, 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 4 countries chasing, the survey said.

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.

India’s growth in manufacturing competitiveness jittered China. Chinese media and the think tanks raised concerns over India going ahead in low cost manufacturing. When Apple of USA 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.

Chinese media Global Times was perturbed over Apple shifting to India. It said, “ 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 labour and low labour costs. China cannot afford losing jobs “.

Even the 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 daily. 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.

With India launching record breaking 104 satellites in single rocket, Director in the new technology department of Shanghai Engineering Centre for Microsatellite , Dr. Zhang Yongho said. “It indicates 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 Made 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 built up China’s manufacturing competitiveness into high tech, such as bullet trains, super computer, advanced roboting, 3D printing, Smart, connected products( IoT) and others.

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.

Despite the positives, India has many challenges. Make in India is yet to act a foolproof policy tool to attract investors. Currently, the important part of the Make in India is easing of business procedures which were broaching the investors’ initiative to expand investment in India. 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, which are yet to be dissipated.

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. Given the acceleration in cross-border manufacturing investment, India’s competitiveness can be assessed by sectors horizontally across the countries.

Views are personal

Subrata Majumder

Subrata Majumder

Subrata Majumder is an adviser to Japan External Trade Organization (JETRO), New Delhi, and the author of “Exporting to Japan,” as well as various articles in Indian media, including Business Line, Echo of India, Indian Press Agency, and foreign media, such as Asia Times online and Eurasia Review .

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