Why are manufacturing costs higher in India, compared to China? originally appeared on Quora: the place to gain and share knowledge, empowering people to learn from others and better understand the world.
A number of my relatives run manufacturing plants in Tamil Nadu - a relatively developed state. My in-laws have also recently started importing from China [replacing their Indian suppliers] and I will tell you why costs are higher than in China.
- Power availability: You start a plant and realize that power availability is not 24/7. In Coimbatore and other industrial places you get power for like eight hours a day. That means the machinery lies idle for sixteen hours and that wasted capacity adds to the cost.
- Cost of power: In India, we subsidize the power to farmers so much [farmers are a huge political base to regional parties] that the electricity companies either have to go bankrupt or charge huge amounts for industries. Electricity cost is often higher than some developed countries.
- Cost of labor: Getting good factory labor in places like Tamil Nadu has become extremely hard. Skilled people are already in high paying industries. The unskilled ones are hard to deal with. When we get labor from the north, they often move out without much notice [go to Diwali on vacation and never return]. Skill building is lacking. If you pay $250, the quality of labor you get in China is likely higher than what you get in India.
- Cost of transportation: Given the poor roads, a shipment from India's north can take a week or more to reach India's south. Sometimes it is quicker and cheaper to actually get a shipment from Shenzhen than Kolkata. Time is money and all those delays add to your cost. If I could get something in two days, I could sell it immediately rather than wait two months to sell it [add up the interest costs].
- Bureaucracy: Starting a new plant or to adding anything to an existing one is very costly in time and money. You need to fill out a huge number of forms and grease a lot of palms just to do something legal and useful. Shipping across states is also very delayed [this is why the industry is pushing for GST]. Unless most of the Indian laws - especially the one dealing with factories and labor - are thrown out, corruption, delays and inefficiencies will remain.
- Anti-large enterprises: India grew up in the mindset that large industries are bad. While many laws have changed since 1991, some of our laws, especially in textiles, are structured around small enterprises. Small businesses do not have the scale to produce cheaply and take on massive factories in China or Bangladesh. Thus, in the huge lucrative market of ready-made garments, Bangladesh quickly took the number two spot - leading to huge improvements in women development, while Indians are clinging to outdated laws favoring small, cottage industries.
If India has to compete with China, we have to completely overhaul all of the economic laws - taxes, labor, factories - we have had in place since 1947. Otherwise we will continue to be costlier than Vietnam and Bangladesh.
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