I am thrilled to imagine our country becoming a global factory in the coming years. This position is presently held by China. But something has gone wrong there. Some big manufacturing companies are set to leave China. They are on their way to relocating their factories elsewhere. Some of them are diversifying their production and setting up branches in China’s neighborhood. South East Asia and South Asia are their preferred locations.
Their preference list of destinations includes Indonesia, Malaysia, Thailand, Vietnam and Bangladesh and India. So we have contenders. We are not an automatic choice for them. We have to prepare our ground to welcome global factories. We have to make our country the best alternative to China. We may hope that it is India’s turn now.
But why has China, which attracted global companies to do business in their land in the early 1980s and through the following decades until the onset of the Covid pandemic, made them unhappy now?
These manufacturers are now looking for greener pastures elsewhere. Why does China no longer attract MNCs now? Has China’s dominance in global commodity production run a full circle? Have MNCs had enough? They are exploring all opportunities, and suitable alternatives that assure them their expected return on their investments.
Their China business met with falling profits in recent times. Like water that follows the ‘dharma’ of flowing downwards, investment rushes to locations where the expected profit is maximum. Now, India to them is a plausible investment destination. But can India attract them?
This is not an unachievable feat but India has to turn herself into an attractive destination for global manufacturing companies. MNCs are not going to set up or relocate their factories because they might have a special attachment with India. They will invest their capital only when prospects of higher profit loom large. This must be coupled with safety and uninterrupted business activity. Investors call it ‘ease of doing businesses’.
China could accomplish this through radical policies and actions, and the result has been spectacular. From a povertystricken, densely populated and agrarian economy, China transformed itself to become the industrial powerhouse of the world within just three decades. It liberalized its economy in 1978. Now China is the second largest economy of the world next to the USA. China’s per capita income was $196 in 1978 and became $12,556 in 2021 as per World Bank data.
In 1978, India was richer than China. India’s per capita income was $206 in 1978 and it rose to only $2,257 in 2021. An average Chinese person is six times richer now than an average Indian. By the measure of human development, China is far ahead of India now. India stands at 132 out of 191 countries in the Human Development Index of 2021 while China stands at 79.
But despite spectacular growth and its emergence as a global manufacturing hub, the picture is not so rosy for China at the moment. Many global manufacturers who built their factories in post-reform China are now leaving. So, something has gone wrong with China now. The worldrenowned Apple has already set up plants in Bangalore and Chennai to manufacture its products. But why are these companies changing their minds? To answer this question, we have to know why these companies came to China in the first place.
The reformed China under the strong leadership of Deng Xiao Ping laid out the red carpet for global entrepreneurs. He offered the best of opportunities and facilities for them to produce in China and sell their products worldwide. They thronged into China. To the investors, lower wage costs in China was a major driving cause.
A skilled labour force, a plethora of incentives and superb infrastructure attracted them to China. But now, after decades of profit-making in China, global entrepreneurs are witnessing a steep drop in profit caused by a significant rise in wage cost.
Escalating labour costs coincided with a trade war with America after Donald Trump came to power. Chinese products that flooded the vast US market turned costlier because Trump imposed higher tariffs on Chinamade goods. Global market share and profits of MNCs working in China plummeted.
Additionally, companies that built factories in China to serve the global supply chain of final and intermediate products were severely hit by draconian Covid restrictions in China that did not ease even after the whole world was returning to normalcy. Many companies are now set to diversify their operations in other suitable countries to minimize the risk of business loss as a consequence of the unfavorable domestic policies of the ‘host’ country. Draconian Covid restrictions were unique to China.
The manufacturing business was severely hit. In addition to that, geopolitical issues and rising tensions in the Asia-Pacific region centering around Taiwan are discomforting and worrisome to global manufacturers. Thus, a great opportunity is lurking for India. But will these companies choose India as the option when China is no longer attractive?
India can only succeed if she fills the deficits it has in comparison with China. Firstly, we need to build world-class infrastructure. We have been spending only around 3 per cent of our GDP on infrastructure; China spends 9 per cent.
Secondly, we have skill deficits. Chinese workers are 1.6 times more skilled than the average Indian worker. Skills must be at the core of the education system. Thirdly, our land acquisition law needs to be reformulated. Fourthly, our existing labour laws must be freed from cumbersome labour codes.
I am thrilled to imagine our country becoming a global factory in the coming years. This position is presently held by China. But something has gone wrong there. Some big manufacturing companies are set to leave China. They are on their way to relocating their factories elsewhere. Some of them are diversifying their production and setting up branches in China’s neighborhood. South East Asia and South Asia are their preferred locations.
Their preference list of destinations includes Indonesia, Malaysia, Thailand, Vietnam and Bangladesh and India. So we have contenders. We are not an automatic choice for them. We have to prepare our ground to welcome global factories. We have to make our country the best alternative to China. We may hope that it is India’s turn now.
But why has China, which attracted global companies to do business in their land in the early 1980s and through the following decades until the onset of the Covid pandemic, made them unhappy now?
These manufacturers are now looking for greener pastures elsewhere. Why does China no longer attract MNCs now? Has China’s dominance in global commodity production run a full circle? Have MNCs had enough? They are exploring all opportunities, and suitable alternatives that assure them their expected return on their investments.
Their China business met with falling profits in recent times. Like water that follows the ‘dharma’ of flowing downwards, investment rushes to locations where the expected profit is maximum. Now, India to them is a plausible investment destination. But can India attract them?
This is not an unachievable feat but India has to turn herself into an attractive destination for global manufacturing companies. MNCs are not going to set up or relocate their factories because they might have a special attachment with India. They will invest their capital only when prospects of higher profit loom large. This must be coupled with safety and uninterrupted business activity. Investors call it ‘ease of doing businesses’.
China could accomplish this through radical policies and actions, and the result has been spectacular. From a povertystricken, densely populated and agrarian economy, China transformed itself to become the industrial powerhouse of the world within just three decades. It liberalized its economy in 1978. Now China is the second largest economy of the world next to the USA. China’s per capita income was $196 in 1978 and became $12,556 in 2021 as per World Bank data.
In 1978, India was richer than China. India’s per capita income was $206 in 1978 and it rose to only $2,257 in 2021. An average Chinese person is six times richer now than an average Indian. By the measure of human development, China is far ahead of India now. India stands at 132 out of 191 countries in the Human Development Index of 2021 while China stands at 79.
But despite spectacular growth and its emergence as a global manufacturing hub, the picture is not so rosy for China at the moment. Many global manufacturers who built their factories in post-reform China are now leaving. So, something has gone wrong with China now. The worldrenowned Apple has already set up plants in Bangalore and Chennai to manufacture its products. But why are these companies changing their minds? To answer this question, we have to know why these companies came to China in the first place.
The reformed China under the strong leadership of Deng Xiao Ping laid out the red carpet for global entrepreneurs. He offered the best of opportunities and facilities for them to produce in China and sell their products worldwide. They thronged into China. To the investors, lower wage costs in China was a major driving cause.
A skilled labour force, a plethora of incentives and superb infrastructure attracted them to China. But now, after decades of profit-making in China, global entrepreneurs are witnessing a steep drop in profit caused by a significant rise in wage cost.
Escalating labour costs coincided with a trade war with America after Donald Trump came to power. Chinese products that flooded the vast US market turned costlier because Trump imposed higher tariffs on Chinamade goods. Global market share and profits of MNCs working in China plummeted.
Additionally, companies that built factories in China to serve the global supply chain of final and intermediate products were severely hit by draconian Covid restrictions in China that did not ease even after the whole world was returning to normalcy. Many companies are now set to diversify their operations in other suitable countries to minimize the risk of business loss as a consequence of the unfavorable domestic policies of the ‘host’ country. Draconian Covid restrictions were unique to China.
The manufacturing business was severely hit. In addition to that, geopolitical issues and rising tensions in the Asia-Pacific region centering around Taiwan are discomforting and worrisome to global manufacturers. Thus, a great opportunity is lurking for India. But will these companies choose India as the option when China is no longer attractive?
India can only succeed if she fills the deficits it has in comparison with China. Firstly, we need to build world-class infrastructure. We have been spending only around 3 per cent of our GDP on infrastructure; China spends 9 per cent.
Secondly, we have skill deficits. Chinese workers are 1.6 times more skilled than the average Indian worker. Skills must be at the core of the education system. Thirdly, our land acquisition law needs to be reformulated. Fourthly, our existing labour laws must be freed from cumbersome labour codes.
India is a young nation, China is aging. But our demographic dividend can be reaped only when we equip our youths with state-of-the-art skills for modern manufacturing.
India stands a chance of becoming a global factory but we have to fill these gaps first. But one question remains. Can we do what China did to become a global manufacturing hub? We have a parliamentary democracy and a Constitution that guarantees freedom and fundamental rights of citizens.
Land acquisition and labour laws in India cannot be made harsh to attract foreign investment in manufacturing. We must protect our environment and must not allow it to get damaged in a bid to emulate China.
Development is always meant for the people and must aim at improving their lives. We should always marry the needs of democracy and development. One cannot exclude the other. So our pathways would differ.
We must welcome the global factory owners to establish their factories here but they must conform to our fundamental principles of liberal democracy. So our FDI policy must strike a balance between development and democracy.
We can never opt for turning India into a global factory at the cost of the fundamental freedoms guaranteed in our Constitution. We cannot suppress wages for our workers to woo investors.
We cannot keep bank interest rates down to provide cheaper capital to foreign investors, thus bringing down interest rates for domestic depositors. We must not allow a free hand to them to exploit our natural resources. We must stick to sustainable development. We must follow a different path; the Indian path must not blindly follow the Chinese path of manufacturing and export-led growth. We must blend material improvement of people’s lives with democracy and freedom as the main priority in our policy to invite MNCs. GDP growth must not be the sole consideration.
The state must ensure that growth improves the lives of the common man. Growth per se has no value unless it brings smiles to the faces of the poorest of the poor. Our path must be different.
SUDIP CHAKRABORTY The writer, a former Visiting Fulbright professor to the USA, is Associate Professor in Economics, Ananda Chandra College, Jalpaiguri
India is a young nation, China is aging. But our demographic dividend can be reaped only when we equip our youths with state-of-the-art skills for modern manufacturing.
India stands a chance of becoming a global factory but we have to fill these gaps first. But one question remains. Can we do what China did to become a global manufacturing hub? We have a parliamentary democracy and a Constitution that guarantees freedom and fundamental rights of citizens.
Land acquisition and labour laws in India cannot be made harsh to attract foreign investment in manufacturing. We must protect our environment and must not allow it to get damaged in a bid to emulate China.
Development is always meant for the people and must aim at improving their lives. We should always marry the needs of democracy and development. One cannot exclude the other. So our pathways would differ.
We must welcome the global factory owners to establish their factories here but they must conform to our fundamental principles of liberal democracy. So our FDI policy must strike a balance between development and democracy.
We can never opt for turning India into a global factory at the cost of the fundamental freedoms guaranteed in our Constitution. We cannot suppress wages for our workers to woo investors.
We cannot keep bank interest rates down to provide cheaper capital to foreign investors, thus bringing down interest rates for domestic depositors. We must not allow a free hand to them to exploit our natural resources. We must stick to sustainable development. We must follow a different path; the Indian path must not blindly follow the Chinese path of manufacturing and export-led growth. We must blend material improvement of people’s lives with democracy and freedom as the main priority in our policy to invite MNCs. GDP growth must not be the sole consideration.
The state must ensure that growth improves the lives of the common man. Growth per se has no value unless it brings smiles to the faces of the poorest of the poor. Our path must be different.
(The writer, a former Visiting Fulbright professor to the USA, is Associate Professor in Economics, Ananda Chandra College, Jalpaiguri)