As the manufacturing sector has expanded in China, assembly line jobs have become more lucrative. Average hourly wages hit $3.6 in 2017, spiking 64 percent from 2011.That’s more than five times hourly manufacturing wages in India, and is more on par with countries such as Portugal and South Africa. Some firms are now taking their business elsewhere, which also means China could start losing jobs to other developing countries like Sri Lanka, where hourly factory wages are $0.50.
Apparel manufacturing has been hit extremely hard. The result has been that factory owners have gone on a massive investment spree outside of China. Companies are also investing in robots in efforts to automate as much as possible to offset labor costs. In a survey conducted by the Boston Consulting Group in 2016, 24% of the big companies in US said that they will move out of China in next 3 years.
A breakdown of GDP per capita shows that GDP per capita in China is substantially higher than in India due to higher labour productivity levels, as well as a markedly higher labour participation. The amount of hours worked per worker is almost equal in both countries.
From an international perspective, however, levels of productivity in China (€11 per hour) and India (€7 per hour) are both relatively low. These levels are registered at the low end of the distribution and comparable to for instance, Nigeria (€10) and Pakistan (€7). It also implies that there is much room for improvement. As a reference, productivity per hour in the US and the Netherlands is €62.
Global retail Development Index
India has surpassed China to secure the top position among 30 developing countries on ease of doing business, according to a study by global management consulting firm A T Kearney. The report cited India’s rapidly expanding economy, easing of foreign direct investment rules and a consumption boom are the key drivers for India’s top ranking in the Global Retail Development Index or GRDI. The 16th edition of GRDI – 2017 Global Retail Development Index – ranks the top 30 developing countries for retail investment worldwide and analyses 25 macroeconomic and retail-specific variables.
Ease of doing Business
India has emerged an outperformer in World Bank’s ‘Ease of Doing Business’ rankings in 2017. Scoring a ‘century’, India has jumped a whopping 30 places to bag the 100th position in a research that ranks 190 countries. PM Narendra Modi has often highlighted his government’s aim to break into the top 50 league of countries for doing business, and this jump to 100 would come as a big boost for him, especially at a time when economic growth and reforms are being questioned.
China, on the other hand, has maintained its ranking of 78 from 2017. The gap between 78 and 100 may seem small, yet is not easy to bridge. For one, the rankings are competitive, which means that not only does India have to put in efforts in several of the 10 areas that World Bank assesses, but also has to be seen doing better than other countries.
Logistics Performance Index
The Logistics Performance Index analyses countries across six components: efficiency of customs and border management clearance, quality of trade and transport infrastructure, ease of arranging competitively priced shipments, competence and quality of logistics services, ability to track and trace consignments, and the frequency with which shipments reach consignees within scheduled or expected delivery times.
India’s logistics performance at its key international gateways has improved in the last two years, according to a World Bank report released on Tuesday. In the World Bank’s biennial measure of international supply chain efficiency, called Logistics Performance Index, India’s ranking has jumped from 54 in 2014 to 35 in 2016. Currently, China is at 27th with a score of 3.66. If India keeps the same pace of improvement, it should overtake China by 2018.
Relations with the US
The problem with the US-China trade relationship is that it is highly unequal and has been for a long time. In 2016 alone, the US imported $480bn (£385bn) of goods and services from China – mostly consumer items like clothing, shoes, televisions, smartphones, laptops and tablets. In return, the US sold just $170bn (£137bn) worth of exports to China – including sophisticated machinery like aircraft and agricultural products like soybeans.
Trump has threatened harsh protectionist measures, such as a 45% tariff on Chinese imports. He also threatened to name China a “currency manipulator” and at one point during his campaign went so far as to accuse it of “raping” the US with its trade policy.
For years China intervened to keep its exchange rate low, which kept the price of its goods down and helped increase the US deficit. But more recently its central bank has kept the currency high – making its exports more expensive – and it is in the US’s interest to encourage more of this.
On the other hand, Indo-US relationship made great strides in 2017, with President Donald Trump keeping his electoral promise of being the “best friend of India” inside the White House. India was the only country for which the Trump administration came out with a 100-year plan; an honour not accorded to even America’s top allies. Trump’s daughter and presidential advisor Ivanka Trump led the US delegation to the Global Entrepreneurship Summit in Hyderabad that was co-hosted by India and the US.
R, Macroeconomic Indicators
If India has to realize its ambition of increasing the number of global Indian companies in the Fortune 500 list, and raise its share of manufacturing in GDP (gross domestic product) to around 25% from 17% currently, industry will have to significantly step up its R expenditure. Currently, R spending amounts to around 0.9% of GDP. The private sector in India accounts for around 35% of the country’s total R&D spending, compared to many advanced economies as well as China, where the corresponding number is around 70%.
The high credit to GDP ratio in China and the fact that the Chinese economy has been slowing gradually—although a look at indicators in China, such as loan growth, electricity production, railway freight and fixed asset investment (FAI), suggest that GDP growth in China should remain comfortably within the 6.5%-7.0% range and is unlikely to fall off the cliff any time soon. China is an $11-trillion economy, and its R&D spending as a percent of GDP is around 2.1%. Indian industry has some way to go.
In the list of the top 2,500 global R&D spenders, there are 26 Indian companies compared to over 300 Chinese companies. In the top 10 global industrial R&D sectors by spending, India has a presence largely in three sectors—pharmaceuticals and biotechnology, automobiles and parts, and software and computer services. It has very little or no presence in other top sectors (see table) as opposed to China that has a presence in each of them.