India has edge over China on growth front: Roubini

[LETHALFORCE]

http://www.thehindubusinessline.com/2010/12/04/stories/2010120452910600.htm

Emerging economies such as India and Brazil have a comparative advantage over China which is still dependent on trade and a weak currency to spur its growth.

However, the challenge for India will be to sustain its growth momentum and also keep its inflation under check, Prof Nouriel Roubini, noted economist and chairman of Roubini Global Economics, said here.

Domestic market edge

Speaking at Lakshmipat Singhania Centennial Lecture in the Capital, the noted economist who predicted the global recession in 2006 said, "In the next few years, it is possible that the growth of India might surpass that of China, with the country maintaining a close to double-digit growth, while China might slow down to eight per cent or so."

Prof Roubini said countries such as India, Indonesia, Brazil and Turkey, with their increasing reliance on domestic markets, have a 'distinct edge'.

"As far as sustaining growth is concerned, China will have more challenges than India. Their economy is characterised by dependence on the US as the consumer of first and last resort, a mode of growth that has been challenged today," he added.

Challenges

Prof Roubini said the challenges for India remain in tackling structural problems that are fuelling inflation. He said the Reserve Bank of India has been ahead of the curve in taking monetary policy decisions.

He also advocated faster privatisation of public sector units to enhance competition and efficiency, easing rigidity in the labour markets, increasing investment in infrastructure, urbanisation and skill development.

Retail FDI

The noted economist said India needs to lift curbs on foreign investment in retail and scale up its infrastructure.

"India has a liberalised FDI regime but it is not fully liberalised. It would require greater amount of liberalisation. For example opening up the retail sector to the foreign direct investment will ensure that distribution system is more efficient, productive and competitive," he added.

 

[SHASH2K2]

Only 2 problem IMHO that may affect our country in long term is corruption and lack of accountability from Government officials and politicians. If we are able to control these two evils Our future is definitely very bright.

 

[kickok1975]

Good for India. Doctor "Doomsday" is right to predict India's economy potential. It's very likely China's growth rate will fall behind India in next few years. But for India to maintain this momentum, she needs to solve following problems:

1. India needs to reduce national debt. The debt level currently is close to 80% of GDP. A whooping 27% of tax income was used to pay interest, which could have been used on building and supporting manufacturing.

2. India needs to control inflation rate. A relaxed monetary policy did help grow economy but also caused high inflation. High inflation will widen already big income gap between riches and poor, and make poor people's life more miserable that may cause instability to India

3. India's government needs be more efficient and also be hold accountable. It takes twice as much time to set up a business in India compare to China and extra time and procedures in other area. And like China, India's government is also notorious for corruption.

4. India also needs solve internal conflict between races and religion. Even in today's modern world, some Indian still hold the belief of different class of races, which leads to discrimination and struggle between interest groups. There are constant conflict between Muslim and Hindu too. In India's rich southern area, Muslim fundamentalist is busy recruiting more young people to join.

5. Of course, let's never forget India needs to find a way to deal with Pakistan. A war with Pakistan will definitely kill this miracle. India needs a peaceful atmosphere to develop.

Just like every other country, India has her problems too. It's a big challenge as well as an opportunity facing India government. If GOI can face directly to these problems and successfully attack them, India will be assured a very bright future.

 

[Rage]

India only has the 'edge' because it is starting from a lower base.

And because billions, no, make that trillions, are to be invested in its infrastructure in the coming years.

China will now start to move toward more value-added goods. And India should seize this opportunity to compete cost-wise for manufacturing labour. Ofcourse, it should also exploit its comparative advantage, which is services and open itself up to more tertiary sectors. For that the government will need to constantly improve the broadband, wireless infrastructure across the country. And I don't see that happening fast enough.

 

[pmaitra]

India only has the 'edge' because it is starting from a lower base.

And because billions, no, make that trillions, are to be invested in its infrastructure in the coming years.

Well said Rage. It is very much like Newton's law of cooling: "The rate of heat loss of a body is proportional to the difference in temperatures between the body and its surroundings." This implies, that if there is a higher temperature gradient, the heat loss will be faster. Similarly, for India starting at a lower base, any improvement is a bigger percentage of its base.

Thus, if a man has $1,000 and he earn $1, his fund has grown by 0.1%. However, if a man has $10,000 and he earns $1, his fund has grown by 0.01%.

China will now start to move toward more value-added goods. And India should seize this opportunity to compete cost-wise for manufacturing labour. Ofcourse, it should also exploit its comparative advantage, which is services and open itself up to more tertiary sectors. For that the government will need to constantly improve the broadband, wireless infrastructure across the country. And I don't see that happening fast enough.

India cannot compete cost-wise for manufacturing labour. The way Chinese products are capturing Indian markets, it is obvious the net manufacturing cost in PRC is less than in India. Indian average income is also rising and this is one area where India cannot beat PRC in the foreseeable future.

 

[kickok1975]

India could well be the biggest beneficiary of capital and labor intensive industry in the future. It's not only because India need it, but also because India can do it in a trend that favors India.

India's population is still growing rapidly and is expect to surpass China in next 10 years. IT, service industry alone cannot employee that many people. India's unemployment rate is already very high and adding job is top priority for Indian government. The only way to provide jobs to so many people is by increasing manufacturing base substantially. The output of India manufacturing is currently merely 28% of national GDP.

China's labor wage is actually higher than India's. And the gap is growing bigger. But why Chinese products are more competitive? It's because labor cost is just one indicator of total cost. Chinese worker are more productive; the factory is better managed and organized; the velocity of transportation is much faster; and the logistic cost is a fraction of India's.

But all these can be changed. While more CEOs find their margins are shrinking in China due to higher cost and increasing competitive environment, India is updating its infrastructure quickly, more highways, sea and airports are being built up. India even set up "special economic zone" like what our Chinese leader Denxiaoping did 30 years ago to attract foreign investment. India Company, overall, is more creative than Chinese counterpart. With a significant portion of people speaking English and closer to western communication culture, India is a nature destination for a lot factory to relocation.

 

[Ray]

China's labor wage is actually higher than India's. And the gap is growing bigger. But why Chinese products are more competitive? It's because labor cost is just one indicator of total cost. Chinese worker are more productive; the factory is better managed and organized; the velocity of transportation is much faster; and the logistic cost is a fraction of India's.

Valid.

China is also blessed with having no Labour Unions or a multiparty system that has to oppose anything, just for political oneupmanship, that the Govt does!

Even our Highway Programme has been scuttled since it was the last govt's brainchild and not that of the current govt.

Trains have sprouted like bean sprouts soaked overnight, but maintenance is zilch and so the movement of goods slow.

The parameters in which the Indian companies operate is too complex and is fickle like the wind. Therefore, when the Indian industry will achieve its actual potential is in itself a million dollar question!

I still harbour hope since hope springs eternal in the human breast.

 

[mattster]

China's economy has been growing at 10% for the last 10 - 20 years, so its only natural that it slows down.

India is so far behind in infrastructure and quality of life is really poor for a vast majority of the people.
So its going take more than just a 10% growth rate to make India a modern developed country in 10 or 20 years.

 

[kickok1975]

China's economy has been growing at 10% for the last 10 - 20 years, so its only natural that it slows down.

India is so far behind in infrastructure and quality of life is really poor for a vast majority of the people.
So its going take more than just a 10% growth rate to make India a modern developed country in 10 or 20 years.

Depend on criteria for modern developed country; it may actually take even longer for both countries to reach that status let alone on per capita basis

 

[amoy]

there is a visible shift of FDI from coastal China, for example Dell, Foxconn to less developed West

Chengdu Computer Systems manufacturing and customer support center to be operational in 2011
Chengdu becomes second Dell flagship site in China after longstanding Xiamen operations, which will also expand later this year
Dell's expansion to Chengdu supports the Western-China Development Strategy (Go-West policy)
Dell's overall spend in China could be greater than US$100 billion over the next 10 years


Dell plans to open a second major China operations center next year in Chengdu with manufacturing, sales and services to support rapid growth in business occurring in western China. Dell's expansion to Chengdu supports the Western-China Development Strategy (Go-West policy) aimed at developing the country's inner-western region for trade and commerce.

In addition, the company also plans to open an additional office at its long-standing flagship center in Xiamen and hire up to 500 team members later this year to support its projected growth needs in North Asia and globally.

The announcements are indicative of Dell's success in China, which is second only to the U.S. in Dell revenue. The company saw revenues increase 11X from fiscal years 2000 to 2010 and reported last fiscal quarter that sales in China grew 52 percent year-over-year. Dell is the No. 2 supplier of computer systems in China with 9 percent share, according to industry analyst firm IDC, which estimates demand for computer systems in western China will grow at a 21 percent annual rate through 2014

Foreign investors are even moving out of China, but not necessarily to India. The competition happens not between India and China. There're other ideal destinations - Vietnam for example

 

[Ray]

It is correct that Vietnam is the next place for foreign investments.

The danger is that foreigners also work in subtle ways to change the system and thinking of the target country to that of theirs.

India maybe a laid back country in the olden days.

It is now gradually becoming American mindset oriented and people are lured towards commercial gains and are becoming highly individualistic. The old ways of being concerned about ethics and the societal well being is blurring.

I wonder how the foreign influence, notwithstanding a strict Govt, is faring in China.

Given the US worry over China, Vietnam is a ripe fruit that is required by the US to be in their basket.

What better way than injecting a commercial angle that while bringing modernisation and wealth to the country, also assists the foreign powers, through their industry, in changing the traditional and cultural mindset and draw it closer to the western mode?

 

[kuku]

The economy is growing on a steady path, and everyone in the world knows that Indian economic growth is sustainable and slow (even at 8-10 percent).

As far as China goes, the growth it has seen is a result of such tremendous exporting economy that it is exceptionally connected with the global economy, any increase or decrease in demand will have a direct impact. A decline in PRC economy will happen only because a similar decline in US and european markets, indicating their economies are not growing, which means life is shitty all around the world. Their nation is fixated on growth and their political system (unique i think) provides the stability for the growth.

The trouble is that people compare two very different nations, what PRC does will never be successful in India and vice versa.

As for the economic growth, when you consider a time frame of 100 years anything can happen, and all the major economists have no success in predicting trends for the next 10 years, so instead we should look at more immediate things IMO, health-care, roads, education, law and order, transparency in governance, etc. etc.

For India, i think the rural market is growing, and if we are able to grow with a good domestic consumption we will have a good economy in the long run (the real long run), the habit some people have of judging ourself with the comparison of Europeans is sometimes very strange, with such huge population it is impossible.

I think what i am saying might be a bit condescending, people are happy to grow however they are never happy when that growth stops and that creates a lot of civil unrest, so growth is good, however India should grow in a way that is sustainable with domestic demand, that ways there will be more social unity.

The current growth rate itself can lead to much better results if we become more efficient in running our contry, a more efficient public health services, public food distribution system, public works department etc. etc can improve the overall living conditions in India without spending another extra rupee on anything.

Do we have a edge over China on growth front, i do not think so, Chinese government has to deliver on growth using any means necessary and more than any other issue economic growth is the biggest one in China, the situation in India is opposite, the government is democratic and restricted through several factors absent in China, and economic growth is one of several issues.

 

[badguy2000]

India only has the 'edge' because it is starting from a lower base.

And because billions, no, make that trillions, are to be invested in its infrastructure in the coming years.

China will now start to move toward more value-added goods. And India should seize this opportunity to compete cost-wise for manufacturing labour. Ofcourse, it should also exploit its comparative advantage, which is services and open itself up to more tertiary sectors. For that the government will need to constantly improve the broadband, wireless infrastructure across the country. And I don't see that happening fast enough.

it is unrealistic for India to skip labour-intensive industry and leapfroging to "service section",when India has still so many labours who are jobless or wasting their time in low effiencient agriculture section.

 

[kuku]

it is unrealistic for India to skip labour-intensive industry and leapfroging to "service section",when India has still so many labours who are jobless or wasting their time in low effiencient agriculture section.

The other side is that it is unrealistic for India to increase manufacturing industry without a demand for the industry.

We have to invest in a lot of infra and labour law reforms which will start giving the advantage 10 years down the road and still have a tough competition in getting manufacturing orders that are already in PRC, which will invest more and more into its social security net and increase its domestic consumption, and India will not have the financial capability of PRC to ensure it gets access to the Chinese market. So will have to compete with China in rest of the world (primarily Europe and USA) who already have economic troubles and might not go back to spending as big as they have in the previous decade.

So small scale agriculture (with government funding and private/public level organisation for increasing efficiency) might be a very good way to keep a part of population employed.

If you follow the Indian manufacturing sector, you will see a steady growth in the last two decade (i think now in the top 10 manufacturing nations).

I do agree that the eventual goal should be to be with-in the top3 (and i believe that will happen in the coming decade).

However there has to be careful thinking that goes into this, a very strong domestic demand can not be forgotten, and should be the priority, i am still afraid that the higher you are the faster you fall and without a cushion (of a strong domestic market) to fall on we might break our backs from the fall.

It is however very difficult to create that demand while for me it is much easier to talk of that domestic demand, and as opposed to the high per capita GDP of developed nation achieving that domestic demand we will have huge population with lower per capita figures achieving it, i think one advantage we have is that the social security net in India exists (in terms of its overall structure) and can be expanded through increased funding as the government earns more and hopefully through making them more efficient (instead of the monuments to corruption that they are right now).

Meanwhile there is the advantage of having a good service sector that will grow in the coming decade, can be sure though global economy is too damn complicated a thing.

 

[kickok1975]

I kind agree with badguy2000 that India can not skip developing labor-intensive manufacturing because:

1. India's population is a decisive factor that labor-intensive manufacturing is very atrractive to ensure people employeed and maintain social stability

2. Huge investment in infrastructure is a must for India government if they still want India to move forward. It not only create more jobs, but also changes people's way of thinking and upward movement of social structure

3. A lot of countries even USA today are scrambling to attract manufacturing investment. If India don't get aggressive, she will lose oppportunity once for all.

4. Indian's product can be competitive in world market. But one should not only target Chinese product, you have Vietnamese, Indonesia, Thailand, Taiwan, South Korea and other countries to compete.

 

[Rage]

Well said Rage. It is very much like Newton's law of cooling: "The rate of heat loss of a body is proportional to the difference in temperatures between the body and its surroundings." This implies, that if there is a higher temperature gradient, the heat loss will be faster. Similarly, for India starting at a lower base, any improvement is a bigger percentage of its base.

Thus, if a man has $1,000 and he earn $1, his fund has grown by 0.1%. However, if a man has $10,000 and he earns $1, his fund has grown by 0.01%.

India cannot compete cost-wise for manufacturing labour. The way Chinese products are capturing Indian markets, it is obvious the net manufacturing cost in PRC is less than in India. Indian average income is also rising and this is one area where India cannot beat PRC in the foreseeable future.

Certainly not in the medium-run. But Indian manufacturing will definitely give China a run for its money in the next 10-15 years. The South is already competing well in the automotive parts and the technical goods manufacturing industries.

Real wages in the manufacturing sector in China are now higher than that in India, by a factor of almost 3:1. The average real wage is of little consideration here, since the quantum of acceleration is dominated purely by rise in wages in the tertiary sectors, which although large, is still a small part of the real (hidden + non-hidden) economy. Its effect on the aggregate / overall real wage can be mitigated by govt. curtailment of inflation, which is the real challenge to wages in the manufacturing sector. Besides, the large domestic market for manufactured produce, which is untapped to date, and the costs from tarrifs and trade-associated costs on commodities imported from abroad, will ensure that Indian manufacturing has a base to start off from. China will not be able to sustain the present level of low real wages, given their saturation in the domestic manufacturing industry, and infuse technology, revalue the yuan, engage in multiple trading currency-regimes, raise living standards and move to higher-end goods simultaneously. Cheap manufacturing will move downwards, as it has from the east Asian tigers to China, Malaysia and the rest. What's important is that we remain prepared, so that we don't lose out on the bulk of manufacturing that moves downward. The 'national manufacturing policy' is one step in that direction. Apart from that, getting rid of regulatory and infrastructural impediments and labour market reform, which is to-date. only 'half-baked', are other challenges facing manufacturing in India.

it is unrealistic for India to skip labour-intensive industry and leapfroging to "service section",when India has still so many labours who are jobless or wasting their time in low effiencient agriculture section.

Read my post, well. I said: China will now start to move towards the value-added end. And India should seize this opportunity to compete cost-wise for manufacturing labour. Ofcourse, it should also exploit its comparative advantage, which is services and open itself up to more tertiary sectors.

 

[tony4562]

There is huge difference from region to region inside China in terms of economic development and consequently also in terms of income. While in the coastal areas people are now typically making 2000-3000 RMB a month for a blue-callar job, the same kind job in the interior might only fetch 1000 RMB, and in the poorest areas like Gansu or Guizhou even less. Thus I don't think low-cost manufacturing will move out of China any time soon. Besides investing huge amount of money in the poorer interior from its own expenditure the government has also been encouraging foreign companies to setup/move their operations there. Fox-conn which has thus far employed perhaps a million workers in two coastal locations (shenzhen and kunshan) has just opened a new manufacturing center in Henan, the 2nd most populous but at same time one of the poorest provinces in China.

 

[badguy2000]

Read my post, well. I said: China will now start to move towards the value-added end. And India should seize this opportunity to compete cost-wise for manufacturing labour. Ofcourse, it should also exploit its comparative advantage, which is services and open itself up to more tertiary sectors.

it is "costal China" that will now start to move toward the value-added end. "Inland China" is still struggling to compete for labour-intensive industry against India and Vietnam.

 

[amoy]

I once travelled in north Vietnam (Hanoi, Ha Long Bay and Haiphong) years ago. So I can recall some fragments about Viet Nam as a competitive option for FDI and manufacturing (but some figures, though 'first-handed' , may be outdated).

1) Cheap Labor Cost: I was told average wage in Haiphong was VND 1 Million ( CNY 1= VND2,000 at that time) for a blue-collar. USD2 was enough for a tri-cycle to carry 2 persons from downtown to hotel miles away. That was very low when a bowl of rice noodle cost VND 2k. It is very attractive for labor intensive industries, which in turn are the mainstay to absorb the lion's share of working force.

2) Investor Friendly Environment: VN has attracted lots of FDI including overseas Vietnamese and Chinese who fled Vietnam with tax rebates, and simplified procedures. In a "socialist" country the regime is working more 'efficiently' and 'effectively' when industrialization inevitable involves hot potatoes such as land acquition etc. .

3) Diligent People: E. Asians loved to boast of their 'work ethics' as if everyone were a workaholic, but probably are no match of Vietnamese. They usually do some part-time aside from their 'full-time' jobs in order to get enough income becoz of low salary and high inflation rate.

4) A part of "Yuan Zone": RMB Yuan is a popular hard currency in VN (at least in the North).

5) Free market "Capitalism" prevails. As a 'symbol' In Haiphong there's even a casino mostly for Chinese tourists who're notorious as addicts to gambling. VN is very pragmatic, not really bound by 'ideology' or 'morality'.

After sign-off of FTA btwn China and Asean VN's exp. to China is boosting. Of course their infrastructures are not as good as in China, but catching up quickly especially their port facilities. Anyway VN is a narrow country with a long coastline and ideal geographic location, favourable for export oriented industries.

Low wage costs attract investors to VietnamBy Pauline Mason
Editor, BBC Asia Business Report, Hanoi
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Pham Van De: "I'm really happy and hopeful about moving to a new area"

For years, the sound and sight of thousands of motorbikes weaving through the narrow streets of Hanoi's old quarter has been an everyday occurrence.

Vietnam's young workforce is attractive to long-term investors But recently, the street scene has changed. The 1980s Hondas have been replaced by brand new Piaggios. Young, well dressed Vietnamese speed by with Nokias and even iPhones clamped to their ears.

Vietnam is booming.

The economy is forecast to grow by 7% this year.

Traditionally, the country's wealth has come from agricultural exports and low-cost industries like shoes and garments.

But rice, coffee and affordable clothing are global commodities: basic items that yield very low profit margins.

So, in recent years, the government has been working to attract higher value industries to Vietnam.

Sweatshop no more

Some 90 minutes south of Hanoi are the wide avenues and modern, purpose-built offices of Que Vo Industrial Complex.

Continue reading the main story
"
Start Quote
The final choice we may have to take is to move production to a lower cost area like Indonesia or Vietnam"
End Quote
Toh Poh-Heng

Lovely Creations
It is in Bac Ninh province, Vietnam's new industrial heartland.

The deputy director of Que Vo, Nguyen Thu Huong is upbeat.

"We have 50 foreign companies here, mostly from hi-tech industries.. firms from Korea, Taiwan, the United States and Japan," she says.

Mrs Nguyen is particularly proud of this last achievement.

In 2008, Canon chose Que Vo as the home of its new laser printer plant.

It is the biggest such facility in the world.

And Canon is building a second plant at Que Vo's neighbouring sister complex.

"Japanese companies demand very high standards of infrastructure and services."

Right next door to Canon is another big international name. Foxconn.

The Taiwanese contract electronics manufacturer made history last month when it announced it would, effectively, double wages at its main plant in Shenzhen in China following a spate of suicides.

Low wages

Vietnam raised minimum wages at foreign enterprises by up to 28% this year. It was the first rise in six years, yet it only raised wages to the leve seen in neighbouring Cambodia.

Average wages - or seen from a company's point of view; labour costs - are still lower than those of its other neighbours Thailand and China. Vietnamese factory workers earn just two thirds of what their comrades in China bring home.

Companies such as Foxconn, which assembles gadgets and phones for big brand companies such as Apple and Sony, already operate on razor-thin profit margins.

They rely on huge workforces turning over huge volumes of goods very quickly to make their money.

Move production
Continue reading the main story

"
Start Quote
They'll have open minds to the way we do business in western companies and also eastern companies"
End Quote
Jeffrey Joerres

Manpower
The toy industry is another low cost, high volume industry.

And Toh Poh-Heng is the general manager of another Taiwanese firm, Lovely Creations.

His cuddly toys end up on the shelves of cut-price retailers such as Walmart and Family Dollar.

Wages in China's coastal manufacturing areas, such as Ningpo, where his main factory is based, have risen between 15 and 20% this year.

He says his profit margins have been halved in just five years. Many of his competitors have already gone bust.

"The final choice we may have to take is to move production to a lower cost area like Indonesia or Vietnam," he says.

Young workforce

But, low wages are not the only attraction.

Jeffrey Joerres, chairman and chief executive of Manpower, made his first trip to Ho Chi Minh City this month.

The world's second biggest employment agency is really excited about Vietnam.

Continue reading the main story
"
Start Quote
There is no substitute for China's supply chain"
End Quote
Gianfranco Lanci

Acer
Half the country's population are under the age of 30.

Hence companies investing in Vietnam can think long-term.

"If I'm here five years from now, 10 years from now, I can really work with these 30-year-olds and 20-year-olds," he says.

"They'll have open minds to the way we do business in western companies and also eastern companies."

But productivity in Vietnam remains lower than in China and even fell last year.

Many of Vietnam's industries rely on relatively small teams of skilled manual labour: hand-finishing furniture and garments, for instance.

Big, efficient, modern plants such as those in Que Vo are still in the minority.

Infrastructure

A bigger disincentive is the state of Vietnam's infrastructure.

In Hanoi, cobwebs of power cables hang low from telegraph poles up and down the street. Roads are rocky and uneven. The ports are small and unmechanised.

Yet Acer's chief executive Gianfranco Lanci says he would not consider moving his factories from China to Vietnam.

"There is no substitute for China's supply chain," he says.

"Other countries (such as Vietnam) are quite a way behind."

Mrs Nguyen credits government support at provincial and national levels for the notably superior roads and services around Que Vo Industrial Complex.

India, u're facing many more competitors, other than China.