Thu, Feb 26, 2015 page14

• China still draws Indian makers despite higher wages

  • Bloomberg
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  Indian Prime Minister Narendra Modi wants the nation’s companies to embrace their homeland as a manufacturing base. It is a hard sell for businesspeople like Himanshu Baid.

  Baid can still make more money in China, even though he pays his workers three times more than at his two factories in India, which supply the domestic market.

  Congestion at Indian ports, a lack of skilled workers and a shortage of raw materials offset any advantage India has with cheaper labor costs, he said.

  “It was a risk for a small company like ours, but it worked, as China is an easy place for business,” Baid, the head of Poly Medicure Ltd, a New Delhi-based company with annual sales of US$53 million, said in an interview at his wood-paneled office in the nation’s capital. “It is a struggle in India.”

  Modi has sought to reverse those perceptions since taking office in May last year with a policy initiative to entice companies called “Make in India.”

  Industry groups are now looking for him to fill in the details when his government is expected to present its budget on Saturday.

  “What India must demonstrate is a convincing vision and the means to implement it,” Jean-Pierre Lehmann, a professor of international political economy at the IMD, a business school in Lausanne, Switzerland, said in an e-mail. “There is a lot to be done that will require profound transformations in policies, structures and attitudes.”

  As part of “Make in India,” Modi plans to raise the share of manufacturing in the economy to 25 percent by 2022 from 18 percent now. Doing so would create 100 million jobs, the government estimates, enough to absorb the world’s largest working-age population.

  TRAILING CHINA

  In about seven decades since India achieved independence from the British in 1947, the share of industry in the economy has remained largely unchanged.

  Services replaced farming as the dominant growth driver, and now account for 65 percent of the economy, the Indian Ministry of Finance said.

  While China emerged as the world’s factory with manufacturing accounting for about one-third of its economy, India suffered from a stifling bureaucracy that required permits to produce goods until 1991. English-language skills and an edge in information technology have allowed India to win back office business from a range of multinational firms since then.

  “The goal should be to strengthen Indian manufacturing so it can stand on its own and compete effectively in domestic and world markets,” said Eswar Prasad, a former chief of the IMF’s China division and now an economics professor at Cornell University. “Relative to China, India has a cheaper and younger workforce that could boost the country’s attractiveness to foreign investors.”

  Modi has already taken some steps to make it easier for companies to do business, including moving the application process for industrial licenses online. Investors planning to set up a factory can leave queries on the “Make in India” Web site where they are to be answered in 72 hours.

  Modi has also prioritized military equipment made or assembled in India to cut reliance on foreign purchases.

  India, the world’s largest arms importer, has approved 251 proposals from 150 companies to make defense hardware locally, Minister of State for Defense Rao Inderjit Singh told legislators on Tuesday.

  Still, much more needs to be done. India fell to 142 of 189 countries on the World Bank’s latest Ease of Doing Business Index, falling behind Ethiopia, Yemen and Sierra Leone. China improved several notches to 90th on the index.

  It takes 30 days and 12 clearances to get a company registered in the industrial hub of Noida, near Delhi, the World Bank said. That is three times longer than it takes on average in the 34-member grouping of Organisation for Economic Co-operation and Development.

  ‘ARCHAIC RULES’

  “Ancient and archaic rules have to be all removed,” University of Texas at Dallas professor Sumit Majumdar said. “India has to realize she is starting the race to prosperity last, but needs to come first.”

  Modi’s administration must clean up a maze of tax rates in which components in some sectors are higher than the finished product.

  Business groups are also calling for the end of the minimum alternate tax, which offsets any financial incentives exporters get from investing in special economic zones.

  Attracting investment is key for Modi to provide jobs for the 64 million new workforce entrants in the five years ending next year. By 2021, almost two-thirds of India’s 1.2 billion people will be of working age, the finance ministry said.

  As India becomes more productive, it will be in a better position to compete with China. By 2020, India is estimated to have an average age of 29, eight years younger than China.
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