Manufacturing in India grows as China slows
February 17, 2014

moving manufacturingIs India on the verge of missing out on one of its largest economic opportunities in recent times? As the yuan rises, environmental concerns balloon and labour and raw material costs increase, the benefits of logistics and better infrastructure in China are giving way to cheaper production costs in India. Yes, slowly if India plays all her cards right, she could be the next factory of the world, dethroning China and taking pride in the ‘Made in India’ tag.

Yes, but thats only if she plays her cards right – ensures uniform taxation, policies, a steady supply of water, electricity, better infrastructure and logistsics for her manufacturers. And that is a big IF. Skeptics believe India will miss the boat, that she cannot replace in manufacturing what she did for the services sector in outsourcing, yet for those in the tertiary sector theres a glimmer of hope – raw material costs in India are low, the talent and skill sets are there and India is a huge market herself.

Hopefully, the Indian government will also take heed from Argentina, where a country once in the throes of world domination (1914) is now sinking quickly in quicksand her government created. Yes, Indian policies in the recent past is paying cognizance to improving India’s manufacturing base, yet a lot needs to be done. Regardless however, statistics prove an increasing number of companies are moving their factories to India from China.

Take for example Havells, an Indian company which has been manufacturing ceiling and table fans, a novelty common across sweltering South East Asia since the past decade. Previously Chinese company Midea manufactured table fans for Havells, however since Midea has increased prices by over 20 percent over the past three years, manufacturing fans in China has become costly for Havells. The company started making table fans at Haridwar an industrial zone in North India, where it was already producing ceiling fans, with an installed capacity of 100,000 a month. It no longer imports table fans, but is making them at a cost 10 per cent lower than what the Chinese had offered. “My margins are up and working capital costs are down,” Sunil Sikka, President at Havells told Business Today.

Havells is only one of the several companies to be moving their production base back to India. Poised on China’s eroding profit margins, International conglomerates as well as Chinese companies are also very keen to move manufacturing to India. Consumer appliances company Godrej, mobile-phone maker Micromax, auto-parts maker Bosch and stationery manufacturer ITC have all started expanding or exploring manufacturing operations in India.

rupeevsdollar_021014112437In the recent past, FDI in India has increased exponentially, the rupee Vs the greenback is low and there is promise of a new government augmenting policies towards economic growth. The yuan has climbed 7.2 percent against the US dollar in the past three years and 35.3 percent in the past decade, making China’s exports costlier. The rupee, meanwhile, has dropped 26.7 percent in the past three years, making imports more expensive. Further with many Chinese labourers now aspiring to move up the financial chain themselves, labour is comparatively also much cheaper in India for the same skill set.

India does seem on the cusp of a manufacturing miracle, if only it could get some fairy dust. “Chinese costs are going up. This is a great time to move production from China to India,” Adi Godrej, Chairman of the Godrej Group, which has shifted air conditioner and washing machine production to India told Business Today. He thinks the trend will continue for 20 years. “The earlier India leverages this trend, the better off we will be. If we don’t leverage it soon, other countries will do it better.”

Yes, it will take short of a miracle for India to repeat China’s manufacturing prowess, but she needs to seize the day now. The trend for companies to shift base from China to India started more than two years ago, when costs in China rose exponentially. Indian companies are now able to produce goods which are on par with China on price while maintaining quality. It has now become commercially viable for India to compete with China and win tenders internationally. India should seize her day in the sun!

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