India's imminent manufacturing renaissance

Discussion in 'Economy & Infrastructure' started by Srinivas_K, Feb 15, 2014.

  1. Srinivas_K

    Srinivas_K Senior Member Senior Member

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    India's imminent manufacturing renaissance

    Gleaming glass towers rise sphinx like over the dull haze of a cold winter morning in the city of Ordos, Inner Mongolia. Eerily enough these towers are all vacant. Miles upon miles of empty streets and uninhabited apartments dot the landscape of this vacant city, perpetually in wait for inhabitants. It's a ghost town created in the middle of nowhere and is emblematic of the crazed infrastructure spending that China embarked upon over the last decade. This infrastructure creation, though at times excessive, enabled China achieve its pre-eminent status as the world's manufacturer. A massive shop floor for the entire world - driven by cheap labour and spanking new infrastructure. However, the glorious Chinese manufacturing story may be coming to an abrupt end. And it provides India with an opportunity rivalling, if not exceeding, the famed IT services tsunami that launched it on the global platform.
    In 2012, the official Chinese statistical handbook reported that the number of working-age Chinese fell by 3.45 million, to 937.27 million. It is the kind of interesting-but-irrelevant statement that doesn't usually hold more than a moment's attention. However, it represents the first ever recorded decline in the total sum of labour available for China's manufacturing sector. It also marks the start of a long term decline in Chinese labour supply and a trend that is expected to further accelerate over the next two decades. In short, China no longer has the inexhaustible supply of young workers who formed the backbone of its manufacturing revolution. This has led to a sharp spurt in manufacturing costs in China, which have risen 40 per cent in the last five years. In another two to three years it will be cheaper to manufacture a bulb in California than in Shanghai. This is precisely the opposite of the trend in India. India's working age population has grown at an average rate of eight per cent over the last 10 years. And India is widely expected to maintain, if not accelerate, this growth rate over the next few decades. While this divergence in labour supply between India and China has been in the making for a few years, it has now reached a critical inflection point. The average monthly wage of a Chinese worker in Shanghai, at $275, is more than three times what his India counterpart in Mumbai earns - $81 per month. This divergence is as much a function of rapid growth in India's working age population as it is of decreasing availability of Chinese labour. According to demographic projections, India will single-handedly contribute two-thirds of the global increase in the labour force over the next decade. In fact such has been the growth in India's labour force that, in spite of rapid economic growth, the average industrial wage level is now amongst the lowest in emerging Asia. Barring Cambodia ($66/month), Myanmar ($45/month) and Bangladesh ($56/month), no other Asian country provides labour at a rate cheaper than India does. Surprisingly, even Pakistan's ($88/month), Nepal's ($157/month) and Vietnam's ($92/month) average wage is higher than India's. In effect, there is no Asian country that can match India's scale and low labour wage rate - both critical factors for global manufacturing operations. A trend that has been in the making for decades has reached a point where India, due to its scale, geographical proximity and significantly lower labour cost, is now a natural alternative to Chinese manufacturing.
    Whereas the nature of the opportunity that this cost arbitrage provides India with is fairly straightforward, most don't realise its magnitude. China exports $1.5 trillion worth of manufactured goods every year. Every third air conditioner in the world is made in China. Every second shoe is currently made in China and every fourth CFL lamp is manufactured in China. As context, if India manages to garner even 10 per cent of this manufacturing demand from the rest of the world, its GDP growth rate will double. It would in one single swoop solve one of India's deepest structural problems - lack of employment for the massive new wave of youth entering its workforce. India needs to generate more than 100 million new jobs over the next 10 years to employ, feed and clothe this emerging labour force. This is in comparison to the less than 20 million jobs generated over the last 10 years. As a conservative estimate every single percentage point in manufacturing market share that India gains from China will create 8 million new jobs in India. A 10 per cent market share will nearly employ the entire excess labour force generated over the next decade. India's labour cost advantage over China could not have come at a better time.
    Clearly, cost advantage alone isn't enough. Specifically, Chinese infrastructure is light years ahead of India's. However, despite popular perception to the contrary, India is catching up. Even in absolute dollar terms, India's planned infrastructure investment of $585 billion, over the next five years, is larger than China's $500 billion. (China has quite literally run out of places to create ghost cities in!). Also, India has key advantages in soft, non-physical infrastructure, whose impact is usually over-looked. India's corporate framework, specifically pertaining to private competition, is free from the rampant and ad-hoc government intervention seen in China. Only about 10 per cent of the companies listed on the Bombay Stock Exchange have some sort of government investment against 90 per cent of those in Chinese exchanges. This suggests that coming up against government-backed competition is far more likely in China. Further, in many other key enabling areas viz. patent protection, banking and finance and repatriation of profits, Indian laws offer a far better deal to budding entrepreneurs and manufacturers. For instance, it is far easier to open a bank account in India than in China, where foreign investors are restricted to having a basic RMB account with limited capital flows. In addition to these soft infrastructure areas, there are other key physical infrastructure segments e.g. telecommunications, where India is ahead of China. Call rates are significantly lower in India (on average 60 per cent lower), mobile penetration is growing faster and legacy technology issues are fewer. Hence, whereas India continues to lag behind in infrastructure, the extent of the disadvantage in overstated.
    In fact a recent survey, conducted amongst expat CEO's, reported that close to three fourths of them thought India was a far easier place to live in. They felt that whereas Indian operations in general, and labour in particular, were more inefficient than China's, India was far more predictable than China. In a sense India's predictable inefficiency is preferable to China's unpredictable efficiency. And predictability is highly desirable from a risk management perspective. The bottom line is that while China may be extremely efficient in executing complex manufacturing projects, and may have world class infrastructure, the difference is not insurmountable.
    The point is not even that Indian manufacturing needs to overtake the Chinese juggernaut. But only that cost and soft infrastructure issues have reached a point where it is feasible to expect India to start chipping away at China's overwhelming global manufacturing market share. And that every percentage point that it can gain from China has massive ramifications for India's emergence as a global player.
    However, this does assume that India's political establishment will have the vision and intent to grab this window of opportunity. That it will shed its regulatory ambivalence and create an environment where entrepreneurs feel empowered to create value- both for themselves and for the country at large. That it will show the conviction to move the planned $580 billion infrastructure investment, from paper to reality. That, at the very least, it will recognize that an opportunity exists to quite literally transform India's economic future- as it did for China. However, the biggest question of all is, how do we manufacture a sensible political establishment that makes investment worthy decisions? If only we could pick that up from the Chinese factory.

    India's imminent manufacturing renaissance - Business Today - Business News


    The investment in the infra is close to 1 trillion not 500 Billion according to some sources.
     
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  3. mattster

    mattster Respected Member Senior Member

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    Should be really careful before using the word "imminent" and "India" in one sentence.
    You may be waiting till the cows come home.
     
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  4. Tianshan

    Tianshan Regular Member

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    what is the current growth level in India's manufacturing sector?
     
  5. feathers

    feathers Tihar Jail Banned

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    India aims to raise manufacturing (sector's) share of GDP from 16 per cent to 25 per cent
     
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  6. Tianshan

    Tianshan Regular Member

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    i meant the current growth rate of the manufacturing sector, not the projected share of gdp.
     
  7. feathers

    feathers Tihar Jail Banned

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    The HSBC India Purchasing Managers' Index (PMI) posted a reading of 51.4 in January, up from 50.7 in December and the highest since March 2013. January saw new orders expand at the quickest rate in 10 months.

    Manufacturing activity grows at fastest pace in 10 months - The Times of India
     
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  8. ninja85

    ninja85 Regular Member

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    it's gonna take 50 years.
     
  9. warriorextreme

    warriorextreme Senior Member Senior Member

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    Delhi Mumbai Industrial Corridor, Chennai Bengaluru Industrial corridor and other such industrial corridors are being set up with Dedicated freight corridors . There is a dedicated National Manufacturing Policy...cabinet has recently approved 2 mega semiconductor fab units(Although first phase will manufacture 45nm only)..good times are ahead in manufacturing...
     
  10. Srinivas_K

    Srinivas_K Senior Member Senior Member

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    This time it is going to be different, India has done well in IT sector and India want to replicate the same model in manufacturing as well at a quicker pace.
     
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  11. no smoking

    no smoking Senior Member Senior Member

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    Yes, the same words were repeated by Indians for decades, but it never worked that way.
    Maybe it is time for you to realize that you need a different strategy to boom your manufacturing.
     
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  12. mattster

    mattster Respected Member Senior Member

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    My friend.....the IT business or software outsourcing business is one of the lowest fixed cost business there is.
    Basically you rent a bulding, buy some computers and some software licenses and hire some engineers.
    Essentially your startup costs are next to nothing compared to hardware or industrial manufacturing.

    Plus indian IT shops are basically body-shopping joints.
    That means they put 2 or 3 bodies to do what one engineer in the US might do.
    Most of them are not developing products or doing research, they are just doing low-end grunt work and back-end processing at a cheaper rate.

    There are a few companies that are doing innovative stuff, but very few of them.
    Getting into high volume manufacturing is something that requires a huge infrastructure outlay.

    Probably not going to happen anytime soon.
     
    Last edited: Feb 17, 2014
  13. sunny_10

    sunny_10 Tihar Jail Banned

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    your few information are totally wrong, and one about infrastructure spending.......

    India's planned Infra spending is closed to $1.0trillion for this ongoing 5 years plan. while that of China always exceeds 10% to its GDP, means no less than $1.0trillion per year :thumb:
     
    Last edited: Feb 17, 2014
  14. Srinivas_K

    Srinivas_K Senior Member Senior Member

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    IT requires SEZ's and also infrastructure related to IT parks, If India can establish IT parks all over the country why not Industrial zones??

    GOI has committed lot of money for this purpose and they are going ahead in quicker pace.
     
  15. Srinivas_K

    Srinivas_K Senior Member Senior Member

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    Chinese are exhausted in building infra's that do not give much in return. Even if they want to build infra. they cannot expect much in return in China.

    There are various reasons for that

    One is Chinese low percapita income.

    Secondly Chinese are like Indians who spend very less compared to earnings most of it goes to savings.

    Thirdly It will take atleast a decade for the existing infra to give good returns.
     
    Last edited: Feb 17, 2014
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  16. no smoking

    no smoking Senior Member Senior Member

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    Do you realize that huge gap in the infrastructure required by IT and manufacturing: road, train, port, fleet of truck and ships, not to mention the power system and technical support network.

    Yes if you compare it with the history of india!
    But, if you check the effort China made and those south eastern asian countries are making, India is still far behind.
     
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  17. sunny_10

    sunny_10 Tihar Jail Banned

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    India Needs a 10 Years City Infrastructure Development Plan

    first, there is a book knowledge that, "for every dollar invested, you get 66cents, 66% return through Direct and Indirect taxes." and this definition is mainly applicable if the investments are done on Infrastructure. :truestory:

    (for example, if you build a road of $5.0billion, then the employers paying taxes on their salaries, the companies supplying products/materials also paying taxes, and the sources of supplied materials also have to pay taxes on the products/material supplied. which all fall in Direct Taxes. and then we use our 'after tax' salaries/profits in market to purchase daily uses products, buy cars/home/pruducts etc, which all again result in generating Indirect taxes as even the shops pay taxes, you buy daily usage products...... its all good if the money is kept within the country, specially while investment on Infrastructure. :)

    this way, more and more you do investment in Infrastructure, better it is. and don't forget that China is still a developing country, they first have to have high investment in electricity, roads, bridges, metro trains etc, which all means for basics of life in a developed country :thumb:

    and as India type developing country will grow by at least 6%+ by the next 30years+, we expect it to have higher expanses on Infra projects. even if it reach Public Debt at 120%+ to GDP by 2020, for example, and it borrows $2.0trillion extra by 2020 this way, along with the existing $1.0trillion plan for the next 5 years, its still very good considering its effects on accelerating growth due to high investments and the positive effects of well developed infrastructure on growth from 2020+, hence reducing debt level since then onward :india:

    I would advise a 10 Years City Infra Development Plan, along with the existing 5 years plan which mainly covers investment in power projects/ regional developments like roads, ports etc. and this 10 years plan would mean to develop infrastructure in the cities, in terms of metro trains, bridges, expressways, parks etc. and it would have at least double expenditure to that of 5 years plan. for example, say $3.0trillion infra development in 20 major cities by 2025 :india:

    (and considering 7%+ growth due to higher investments in Infra Projects, along with 7% inflation too, we find Nominal GDP of India reaching at least $6.0trillion+ by 2025 itself.....)

    with that, i strongly favor SEZ development to be categorized as Infrastructure Projects, giving more strength to the SEZ developers in acquiring lands by paying 5-6 times to the land prices too, if required. similar to how roads were laid down in 50s and 60s by forceful way to acquiring lands, with paying higher price to the farmers that time too, true :india:
     
    Last edited: Feb 18, 2014
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  18. Kshatriya87

    Kshatriya87 Senior Member Senior Member

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    Hope the politicians read this.
     
  19. shankyz

    shankyz Regular Member

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