Is it that hard for India to produce goods/services as low as it costs in China? We have people and cheap labor too. What is the factor that is keeping China the No.1 manufacturer?
Balaji Viswanathan, traveled to China multiple times
Answered 20h ago
Let’s say you need to move a big log of wood. In village A, they use 10 humans to lift it up and drag it through for 10 hours. In village B, they build a inclined plane to move the same log in 2 hours with 4 people.
In short, it takes 100 man hours to move a log of wood in village A and just 8 man hours in village B. Even if village B’s labor costs are 12x of village A, they would be cheap.
The cost of a product is not determined merely by the wage cost.
In India, we are like the village A - we use crude tools and backward infrastructure. Just an example - our workers carry large gunny bags for loading and unloading luggage, while in developed world they use more effective tools.
In India, something as simple as a bullet train brings a nationwide discussion, while China implemented many HSR lines when their GDP levels were same as where we are now. Every damn thing in India has to be debated and fought.
Last week I traveled to China as a part of Indian business delegation. When we showed our product to the government there, we got the government to give us a grant to set up a new factory, with free rent for 3 years and money to buy equipments [it comes with a few other strings though]. The electricity is cheap and same is the cost of logistics.
In India, I have to beg our government to do business. I’m a citizen and reasonably well educated and connected, and I find it so hard to get access to the government. For a simple VAT registration the Karnataka government made us run pillar to post. When importing a new technology made by the Russians, our stuff was held in customs for weeks. And we pay 42% customs duty on all those. Electricity is costly and real estate costs are obscene. Oh, the logistics - very hard.
No loans, no grants, no subsidies. Local governments don’t care about our existence until the time comes to pay taxes.
If I make the same product in China than in India, my costs would be significantly lower even though I will be paying a higher wage to people. We have some questions on IP rights, but that is an altogether different issue.
For now, for the sake of patriotism, language comfort and better IP protection we manufacture in India, but we don’t know how long we can sustain. Eventually the question would come - is it better to close down the business altogether or have at least half of it run in India while producing the rest of it abroad. That’s the question facing many Indian manufacturing businesses.
In India, we take our entrepreneurs for granted. Government makes majority of its taxes from corporations [corporate taxes, GST, excise & customs duties], but our people think of us as though things to be milked than to be helped. Infrastructure development is pathetic and we have to pay very high electricity rates to subsidise someone else. For small businesses the headache of following regulations are very high and for large businesses labour laws are a pain.
Until we fix these, we will not be able to utilise our lower wage levels. Until our entrepreneurs set up factories and offices, there won’t be many high paying jobs. And until there are many high paying jobs we won’t become a developed nation.
Until our attitudes towards business change, we will struggle to grow.