India's population is roughly the same as that of China. The two countries are close neighbors. One might say that if any country can defeat China and become the world's leading manufacturer and exporter, it is India.
Unfortunately, this does not seem to be the case. The markets of China and India are very different, and New Delhi still has a long way to go in building a more important infrastructure network, such as good roads, bridges, railways and reliable energy sources, including the development of new power plants and designated factory and warehouse sites.
Widespread corruption in India and at all levels of government is chilling, the economic system is highly bureaucratic, and local officials are often accused of demanding bribes to approve company registrations and building permits.
I also met some kind people who visited India and hoped to do business there, but were deeply disappointed when they left. They explained that India could not replicate China's success story in the short term.
A friend once complained to me about the traffic situation in major cities in India. According to his experience of traveling around the world, the traffic jam in India is the worst in the world. Poor traffic conditions, crowded buses and other forms of public transport do cause many delays for local residents and business visitors to attend face-to-face meetings.
But how to solve the traffic problem in India? The authorities never seem to think seriously. There is no answer except to build more roads and build new satellite cities to alleviate urban overcrowding.
However, this will take years or even decades to solve, and the lack of infrastructure will delay India's efforts to promote domestic manufacturing for a long time.
New Delhi is not reliable in supporting economic growth policies. At present, Indian Prime Minister Narendra modi supports the promotion of the "made in India" movement to encourage more localization of Indian industry, but the "made in India" strategy is not perfect. Compared with foreign-funded enterprises seeking to expand in India, New Delhi prefers Indian local enterprises and has a strong tendency of exclusion.
The Indian government has done little to weaken the power of trade unions in the country. Factory owners have no choice but to hire trade union workers. Many of them do not work hard and are not productive. Many local trade union presidents are only concerned with collecting dues from their members and wages from factory owners.
India is a multi-party democracy, which means that today's Government may be banned or dissolved after tomorrow's election. Modi is widely popular among Indians with his economic policy of supporting growth, but his treatment of coronavirus has been questioned. India seems to have the largest number of confirmed cases outside the United States.
Of course, India has many fundamental problems that prevent it from becoming the factory of the world:
1. Cultural bias: there is cultural bias against industry and industrialists. In the heyday of the industrial revolution, the country was ruled by the East India Company, and people were ruthlessly exploited and abused. Many Indians could not get rid of this trauma and did not take a positive attitude towards work. They respected farmers and knowledge workers far more than factory owners and workers.
Therefore, due to this deep-rooted cultural prejudice, India has shifted from agriculture to services rather than industry. Most Indians believe that farm work is sacred to some extent, office work is sacred, but factory work is dirty.
2. Engineering Education: the level of Engineering Education in India is far lower than that in the four industrialized countries - Germany, Japan, China and the United States. If we don't want to work in low-cost assembly line factories, the quality of engineering labor must be greatly improved.
3. Environmental protection: in India, if a large company has an impact on the environment, everything will become a mess. Although I fully support environmental protection, what annoys me is this double standard. Farmers can pollute the environment at will (they use free motors to deplete the groundwater level and drain excess fertilizer from the water system), but there are various environmental restrictions and penalties for a large factory.
4. Land law: because of the existence of land law, it is difficult for investors to obtain a large area of land to build factories. In India, the occupation of agricultural land is not allowed. In the past 20 years, less than 1% of India's farmland has been converted to industrial land. Even so, many farmers have fought fiercely.
Therefore, in the foreseeable future, India's road to surpass China in manufacturing seems very bumpy.
India has the potential to replace China as the world's industrial center. This may be incredible for most people, but it can happen. This requires the sustained support of policymakers in India and Western countries. Let me give an example.
Jamnagar refinery on the west coast of India is one of the largest integrated refineries in the world. In order to reduce logistics costs, the refinery plans to become a coastal based refinery with geographical advantages due to its proximity to the Persian Gulf, which has raw crude oil to meet the needs of the world.
Therefore, such projects can only be realized in China, where some rich western countries or countries support large-scale projects. A Chinese refinery transports Gulf crude oil to China through the Malacca bottleneck Strait. Its voyage is almost eight times the sea distance, and its economy cannot be as high as that of Jamnagar refinery.
Therefore, reliance, the owner of Jamnagar refinery, can easily sell refined oil competitively in the global market, do not rely on India's domestic market and earn valuable foreign exchange. The expansion is making Jamnagar the largest oil refining center in the world.
But this advantage alone is far from enough. Indian industry is facing a series of problems to compete with China.
-The cost of industrial power is high. In most states, agricultural electricity is either free or subsidized for political reasons, because farmers are the largest source of election voting, which makes the cost of electricity for commercial and industrial units very high, because it needs to cross subsidize agricultural electricity. Similarly, in summer, when the power demand is very high, the power failure rate in the industrial park is the highest, forcing all industries to buy diesel generator sets as standby, which makes the industrial cost extremely high.
-Logistics costs in India are high. The punctuality of railway freight is uncertain, and most lines are crowded. As a result, the proportion of rail freight in total freight has been declining over the past few decades, from 85% in 1951 to 33% in 2015. Expensive road freight increased from 15% in 1951 to 58% in 2015, which proves the lack of priority to economize freight.
-Waterway is the cheapest mode of transportation, but it has not been developed in India for 70 years, while waterway is widely used in China. On November 12, 2018, modi and Nitin Gakari opened the first waterway between haldiya / Calcutta and Varanasi and carried out a lot of publicity. Expensive cranes were imported from Germany, but the waterway has not been fully utilized since the first shipment was received. Nitin Gakari promised to develop waterways, and he also promised to provide marine aircraft services and manufacturing, but there has been no progress.
-China's industry is mainly distributed along the southeast coast, which reduces transportation costs. Based on this, Nitin Gakari plans to build a new special economic zone along the new highway, which may not be as successful as the coastal special economic zone.
-China has given high incentives and subsidies to exporters, which makes European and American countries clamor to file a lawsuit with WTO rules.
-India's tax laws are clumsy and different states have different tax rates. Although the unified GTS rules have solved this problem, the GST process is still chaotic and may take years to stabilize.
Recently, the Indian government has taken some measures to reduce the impact of Chinese imports:
- the government amended the Customs Law, allowing KYC and users to follow up to prevent frequent abuse of this input route to dump goods in India, thereby receiving up to 5000 rupees from abroad by courier. Alipay e-commerce websites like China did so.
-The Noida Samsung mobile Factory Co chaired by Prime Minister modi and the president of South Korea is the largest mobile factory in the world. Since 2014, there have been two more mobile manufacturers, reaching more than 250, creating huge employment opportunities, but they are still mainly engaged in low-end parts assembly.
-Recently, a tax increase of up to 200% has been implemented on imported toys. Importers from China will protest like the left-wing media, which will help to establish toy factories and create jobs.
-India refused to join the RCEP negotiations at the last minute only because the free trade agreement organization believed that China would only increase the trade deficit between India and India. China is crying out for India to join in the name of globalization.
-In 2019, with the increase of labor costs in China, India reduced the corporate tax to the lowest level in the Asia Pacific region to encourage enterprises to transfer from China to India.
-India recently enacted a law banning Indian companies from land neighbors from obtaining approval for foreign direct investment in the automotive industry in order to prevent China and Hong Kong from buying shares in Indian companies, such as paytm, byjua, Oyo, swiggy, bigb basket and makmytype. Politician Rahul Gandhi once said that paytm was "paid to modi", but it was actually "paid to China". Due to the cessation of currency use, paytm's market value has increased many times, which benefits Chinese investors.
-After the coronavirus pandemic, the Indian government called on 1000 multinational companies to transfer manufacturing from China to India. Some chief ministers, such as up and Gujarat, have launched a plan with MSME minister Nitin Gakari. The COVID-19 pandemic is becoming an excellent opportunity to implement "made in India" and "industrial 4".