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Rs 184: This is the 'Make in India' edge we have over Chinese factories

India's low-wage edge over China can certainly help Prime Minister Narendra Modi's 'Make in India' policy. But a new policy can blunt this edge.

ET Online|
Updated: Aug 30, 2017, 04.19 PM IST
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The trigger for the article was India’s exports to China increasing 42% in January.
The trigger for the article was India’s exports to China increasing 42% in January.
'Made in India' can overtake 'Made in China' in near future for one big reason: China has to pay far more to its workers which raises output costs and makes goods expensive. According to market research firm Euromonitor, average hourly wages is China were $3.60 last year, 64 per cent more than in 2011. In India, the hourly wages are five times less than in China. The hourly wage difference is nearly Rs 184.

Rapid expansion of Chinese economy over the past decade has driven wages up. Automation is one solution for Chinese companies to control costs but that can lead to more unemployment. Chinese manufacturers might have to shift to smaller countries where wages are low to remain competitive. The huge emphasis on manufacturing is not feasible in the long run so China plans to develop its services sector more.

Global Times, a Chinese establishment newspaper, wrote a few months ago in an article headlined 'China should pay more attention to India’s increasing manufacturing competitiveness': “Although India is still in its initial stage of developing export-oriented manufacturing industries, the country has great potential to emerge as a regional hub for labour-intensive industries. One recent analysis showed China’s manufacturing hourly wage in 2016 was roughly five times that in India.”

The trigger for the article was India’s exports to China increasing 42% in January.

India's low-wage edge over China can certainly help Prime Minister Narendra Modi's 'Make in India' policy. But a new policy can blunt this edge.

The central government is bringing a law that can result in doubling of minimum wage nationally. This will apply to the short-term contract labour too, which faces the most exploitative wage conditions. But it can actually turn out to be bad news for them and the small-scale sector. The doubling of minimum wages will hit the sector which employs most of the low-paid workers. A lot of small-scale firms may not be able to adhere to the new wage law as they are already struggling due to many factors.

A law that doubles the minimum wage might purport to favour workers but it can devastate job market itself in the short term and take away a long-term edge from Indian manufacturing.
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