Can India replace China as world’s manufacturing hub?
The question is often asked, but seldom answered. The reason: there is no good answer; no one knows if this is possible in the near future. There is a wishful thinking and a hope, but no clear proof so far.
China has established itself as a dominant force in the manufacturing arena. Chinese have experience, which is hard to replace or reproduce. They have infrastructure specifically designed for outsourced manufacturing and they have no shortage of labor. As a result, ‘Made in China’ is a world force to reckon with.
However, China may be reaching its capacity in manufacturing labor. The wages are going up, the labor market is becoming more demanding. There are only so many workers you can hire at the rock bottom wages.
Necessity is the mother of invention, they say. The western companies need to find an alternate to China; they need a back-up plan at the very least. That’s why more and more companies are looking towards Indonesia, Vietnam, and oh yes…India.
India is world’s second most populated country; no shortage of worker here. hence the question: Can India replace China as a manufacturing hub for the western companies? If you ask anyone including the Indian Government, the answer is Yes, with an ‘*’. Anything is possible, as they say and India has the size to stand against China. So what is the problem? Why India has not made much progress in this area?
Well, there are many ‘problems’, not just one.
India has labor but the labor laws are quite rigid. It is not easy to do business in India if you are an outsider. The country is also notorious for its infrastructure and the frequent power-cuts make it harder to get efficient output from its available manpower. Mind you, in manufacturing sector, you need dependable electric grid to run all the machinery and related production.
Looking at the successful IT sector and software service industries in Bangalore and Chennai, India has the talent and skill-set to deliver world class outputs, but the country has a long way to go.
Then, there are international perception that India is not ready for becoming a world-class manufacturing base. They also point to India’s plans to promote local manufacturing at the expense of foreigners.
For example, Nokia shut down its handset production plant in Chennai recently, siting legal issues related to tax demand by Indian government.
It is worth noting that the Indian government is attempting to change the perceptions in this field. It has plans, for example, to build an ‘industrial corridor’ between Delhi and Mumbai. India is Working with the Japanese government to enhance the infrastructure of cities along this corridor – to have reliable power, dependable water-supply and other facilities.
The Prime Minister Narendra Modi came into power at the right time, a much needed voice for India’s manufacturing sector. He recently launched ‘Make in India‘ campaign, an ambitious initiative to make India a manufacturing superpower.
Also, corruption has been a major concern for foreign companies and foreign investors. In the recent years, there have been many ‘grassroots’ initiative to combat corruption. The Modi government is encouraging anti-corruption atmosphere. The culture of corruption will take some time to change but India is moving in the right direction.
So, given the circumstances and the challenges in China and the top level efforts from Indian Government, the manufacturing pendulum is swinging in favor of India for a change. The next few years are critical for India to prove that we are a world power in manufacturing capabilities and ‘made in China’ and can be eventually replaced by ‘made in India’.
Chak de India!
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