Global Market

China versus Indian Exports

One thing that always came to my mind is why is the export market of India is not up to the range of the China. Especially after migrating, I see most of the products ranging from safety pin to furniture are all made in China. I don’t say India doesn’t have export structure. But it is very limited. Few products really boast of our quality even in this so called Chinese market. But after coming to Australia, I count that Indian export market structure is very limited.

Recently, I was working on my coursework, researching on several economic issues. The main aspect that came to my mind is the standards of market products in this country and global wide especially in European dwelled countries.

What holds back India is the main question?

The key to answering this question is the poor response of large-scale labour-intensive manufacturing including assembly and processing activities in India.

Large-scale labour-intensive manufacturing activities have been virtually absent from India. Apparel factories employing thousands of workers under a single roof found in China are non-existent in India.

The explanation for the poor performance of large-scale labour-intensive manufacturing is, in turn, to be found in the domestic policy regime—both past and present. Until the late 80s, large Indian firms were confined to a positive list of capital-intensive sectors. Even in these sectors, their size was limited through licensing based on the perceived size of the domestic market by the authorities. The same applied to foreign companies.

As long as this reservation was in force, high-quality labour-intensive manufactures that could compete on the world markets had no chance of emerging in vast volumes. The bulk of the small-scale enterprises operated in the protected domestic market.

Most labour-intensive products including toys, footwear, sports goods and apparel have now been off the reservation list for some years.

The most important factor that still holds back large firms from entering these products is a set of labour laws in India. Under these laws, it is virtually impossible for a firm with 100 or more employees to fire the workers even in the face of bankruptcy. It is equally difficult for the firms to reassign the workers from one task to another. These provisions impose very low worker productivity or a high real cost of labour. Large-scale capital-intensive sectors such as automobiles, where labour costs are a tiny proportion of the total costs, can profitably operate in such an environment. But the same is not true of large-scale labour-intensive sectors labour. Few foreign manufacturers are willing to enter India outside of a small subset of capital- and skilled-labour intensive sectors.

Two additional factors have held back the labour-intensive manufacturing in India: costly power and poor transport infrastructure. Not only do firms pay a much higher price for power in India than elsewhere in the world, they also face much greater uncertainty of supply. Likewise, despite considerable improvement, the transportation network in India remains unreliable and inefficient. The time taken to clear the goods entering and existing the ports and to move the goods between ports and manufacturing sites, which is so critical for assembly and processing activities, is much higher and more variable in India than in the competing countries such as China.