New Delhi - An op-ed piece in an English language Chinese newspaper is causing much consternation in India (read here). The piece uses terms like the Indian government's "bark" when referring to our concerns over widening trade deficit between the two countries. Among other things, it also dismisses any attempt by India to match China's manufacturing prowess and terms attempts on Indian social media to boycott Chinese products as mere "rabble rousing".
It is true that the current ultra-nationalist sentiment, which has lead Indian social media warriors to call for boycott of all Chinese things is foolish and liable to fail, given India's dependence on imports from China. We import roughly six times more in value than what we export to China, our largest trading partner.
But then the op-ed in the Global Times is going to the other extreme and missing the woods for the trees. Even though India is in no position at present to stand up to Chinese hegemony in trade, there is every reason to believe that we can improve exports to that country, if we try.
The author of the acerbic piece in the Global Times has been described there as an Indian-born freelance writer living in Baiyin, Gansu Province. Perhaps he needs to take note of what researchers in Chinese territory, Hong Kong, have found through extensive research earlier this year about the potential that various Indian states have to develop as manufacturing hubs.
Yes, you heard it right. The research in fact said a number of manufacturing companies which right now operate in China are looking to shift lock, stock and barrel and could choose India over other Asian destinations.
For one, the strong Make in India push by Prime Minister Narendra Modi has attracted the attention of Hong Kong Trade Development Council (HKTDC), which has – over the last few months – conducted extensive research of advantages India provides for low-cost manufacturing versus other Asian economies such as Vietnam, Bangladesh, Indonesia, Sri Lanka and mainland China. And India seems to be a very favourbale destination in almost all parameters.
“We believe India has a huge potential for this. For one, India’s wages are way below China’s and many other South East Asian countries. Two, India has a huge buyers’ market – Vietnam has only about 90 million in domestic market size compared to about 1.3 billion people in India. Not many companies in Hong Kong are aware of India’s potential in low value added products’ manufacturing...we have done the research and shared it with them,” Dickson Ho, Principal Economist with HKTDC told Firstpost last month.
The Hong Kong-based companies are increasingly eyeing production relocation out of mainland China due to rising production costs. HKTDC Research visited Gujarat, Maharashtra, Andhra Pradesh, Tamil Nadu and Karnataka earlier this year. It did not find the National Capital Region (NCR) viable because of rising costs for labour-intensive production.
Ho’s research quotes factory operators in these states to say manufacturers were increasingly relocating labour-intensive operations from the NCR to other states such as Maharashtra, Rajasthan and Gujarat to take advantage of lower production costs. The five states selected have been identified as having the most potential for production relocation and diversification.
HKTDC says competitive labour costs that are expected to remain for some time in India could be our biggest advantage in attracting fresh manufacturing. Currently, India’s labour costs are lower than China and almost all of the other countries in Southeast Asia, with the exception of Myanmar. We are a third of the wages in mainland China and roughly half those in Indonesia.
Industrial land rates
All selected states have developed industrial parks for private investors to set up their production plants. The state governments or private companies provide infrastructure and amenities such as connecting roads, electricity, water supply, sewage treatment facilities and communication networks. This is another feather in India’s cap
Sea freight is an important factor for manufacturers. Mundra in Gujarat is a port-based special economic zone; Jawaharlal Nehru Port (JNPT) in Maharashtra is India’s largest port with hinterland covering Madhya Pradesh, Gujarat, Karnataka and most of North India. Visakhapatnam mainly serves northeast India, Chhattisgarh and Orissa. Chennai port is the major logistic hub of South India, supporting the vibrant manufacturing activities in Tamil Nadu. So most of the manufacturing hubs identified by HKTDC are also conveniently connected with major ports.
Ease of doing business
Gujarat and Andhra Pradesh are identified as the EODB reform leaders, adopting many business-friendly measures to entice both local and foreign investment, while the other three states require further acceleration in reform. Also, all five states have made notable efforts in tax reforms to streamline registration and payment of value added tax (VAT) and central sales tax (CST) through online services. At the national level, the Centre is working to pass the Goods and Services Tax (GST) Bill to convert India into a unified market and prevent tax-on-tax, notes HKTDC.
Tariffs on India made products
Another key consideration for factory relocation is the import tariffs levied on manufactured products originating from India and whether this country has entered into any preferential trade deals that lower the import tariffs. India has been an active player in Asia, securing free-trade agreements (FTAs) inside and outside the region, including engaging in an FTA talk with the EU. Taking yarn-related products as an example, import tariff rates for India range from 0 percent to 5 percent. Further, US import tariff rates for Indian yarn-related products range between 0 percent and 2.7 percent.
So will there be a wholesale movement of manufacturing from China to India anytime soon? Ho said earlier that large shifts of manufacturing facilities in favour of India may not immediately happen. Apparel, shoes, clothing, textiles and other low-value-added manufacturing activities may look for the shift initially. And this too would perhaps be a trickle instead of being a deluge. But even if a handful of manufacturing units in Hong Kong consider the shift, it would be worthwhile for India.
More to the point, it would make op-ed writers - with scant knowledge of the changing Indian landscape and policy environment - eat a humble pie.