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The Shadow of Chinese Dragon on

India

This is the story of two Asians nations. Both have populations

in excess of billion and the ability to become superpowers. Yet

there is a study of contrast: one had achieved the distinction of

being the fastest growing economy of the twentieth and twenty-

first centuries. The other is still playing catch up with the tiger

economies of South East Asia.

China has achieved the status of one of the fastest growing

economy of the decade, close to being the second

largest economy behind US. It has the

largest market in terms of population-

wise which every company in the world

crazes to command. It is also the

country which has got the

reputation of being the cheapest

manufacturing base in the world,

highly skilled and cheap labour

and products which, riding on the low priceship, are commanding a share and position all over the world and

making life miserable for companies competing against them

including that of India.

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Lets have a look as to what has made all these things

happen. What is the history of the reforms undergone by the

country and how has it got in the commanding position.

Also a look at why has India not been able to be in the same

position as that of China. What has been the impact of Chinese

industries on India and what are the measures, which need to be

undertaken to counteract this possible threat.

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China

Introduction

Walk into any major retail outlets like Wal-mart, Kmart,

Sears, Ikea, Sogo, Carefour or any other major retail chain

anywhere in the world. Chances are that more than 30% to 40%

of the merchandise on display will be from China. Chinese toys,garments, shoes, cutlery, consumer electronics, PCs and

accessories, sports equipment etc. are making waves.

Even in India, many industries are feeling the heat of Chinese

products becoming available at substantially lower prices. The

Indian consumer, so far used to high prices, is having a great time

buying these products of reasonable good quality 30-40%

cheaper than their Indian counterpart.

The initial success in penetrating the Indian markets in product

categories like batteries, toys, bulbs, consumer electronics is

slowly being replicated in other industries like pharmaceuticals,

engineering, machinery and even sophisticated industries like

computers hardware and mobile phones.

Ten years back, nobody could have imagined such a dominance

of Chinese products on the world scene. Many are bewildered by

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the sudden transformation in such a short time. Indian industry

appears to be completely at a loss to respond to such an

aggressive competition from China. Most of them are running to

Government for help in the form of protection and anti-dumping

measures. Such steps may give them breathing space in the short

run - but in the long run they will completely isolate themselves

from the world scene.

The story of Chinas competitiveness is the story of how

human skill can attract its own capital and how the ownership of

the means of production by the workers can actually producemiracles. Chinas competitiveness shows how the supply of cheap

and standardized goods can win markets helped by low assets but

intense knowledge. It shows the intense, tremendous and

autonomous role which trade unions can play in the

industrialization of the country. It shows how decentralization and

local autonomy can invoke both corruption and boost productivity

with equal probability. The story of China shows, like Michael

Porters all other examples how adversity for a community in a

country can work wonders for its fate.

To understand this inner story, lets examine what makes china

tick.

What are the reasons due to which China has an advantage and

upper hand?

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The opening up of China

The First Phase

The process of liberalization in China was started in late 70s. The

Chinese leadership had a vision to make China an industrial giant.

It opened the gates for foreign investors by giving them sops. The

overseas Chinese settled all over the world took advantage of this

by bringing in capital and starting manufacturing activities. The

produce had ready markets in their respective countries where

large Chinese population was concentrated.

Also the central government initiated price and ownership

incentives for farmers, which enabled them to sell a portion of

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their crops on the free market. In addition, the government

established four special economic

zones for the purpose of attracting foreign investment, boosting

exports, and importing high technology products into China.

Economic control of various enterprises was given to provincial

and local governments, which were generally allowed to operate

and compete on free market principles, rather than under the

direction and guidance of state planning. Additional coastal

regions and cities were designated as open cities anddevelopment zones, which allowed them to experiment with free

market reforms and to offer tax and trade incentives to attract

foreign investment. In addition, state price controls on a wide

range of products were gradually eliminated.

This process of opening up of Pearl River delta (Guangdong

province) became an example for other provinces to follow.

They started as copycats in products like toys, garments,

consumer electronics etc., producing at one tenth of prevailing

prices and making these available under OEM brand names.

Once the reputation for value was established, they wooed the

likes of Sears, Wal-mart, and Kmart etc. to offer these products

under their private labels.

The presence of Hongkong helped China to market the products

not only to the ASEAN countries but also to other countries in

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Africa, South America and the Middle East. This geographical

spread helped them to expand capacity and reduce costs further.

The Second Phase

In the second phase, China allowed multinational companies to

set up bases in China's economic free zones to take advantage of

Government incentives, cheap labor and presence of large

domestic market. This helped them to create employmentopportunities, gain technical knowledge and improve

infrastructure in terms of power, roads, ports etc.

As a result of this most consumer electronics majors such as

Panasonic, Sony, LG, Toshiba, Nokia etc. have set up

manufacturing plants in China. Many transnational companies like

GE, Siemens, Electrolux etc feed exports all over the world from

plants located in China. Favorable economic policies have

contributed to China becoming the largest Foreign Direct

Investment (FDI) destination among developing countries

The importance and contribution of FDI to China is explained

below:

Foreign Direct Investment

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China became to open up to foreign direct investment in the early

1980s, the amounts initially were relatively small. But by the

1990s, China was attracting $30 to $40 billion of foreign direct

investment per year. These inflows have been so massive that

China now accounts, for one-third of all foreign direct investment

in all developing countries combined.The FDI inflows into China inthe first seven months of 2010 have risen to $58.35 billion. In

2009, it received a whopping $95 billion in foreing direct

investment.

FDI inflow

0

10

20

30

40

50

60

70

197919851990199519971998199920002003200620072008

Years

US$Billion

Fig. 1

This has been a very important driver, of course, for exports,

because many of these foreign invested companies are heavily

involved in export production. Indeed, the next diagram shows

that the share of exports being produced by foreign invested

companies in China grew from about 1 percent in 1985 to

something around 61 percent last year.

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Share of Exports by Foreign Companies

in China

01020304050607080

1985 1990 1993 1995 1997 1998 1999 2000 2003 2006 2007 2008

Years

%R

ise

Fig. 2

As a result of above phases of opening up of Chinese economy,

China has developed a substantially large manufacturing base in

almost every product, be it a commodity like steel or consumergoods like toys batteries, watches etc. Chinese industry has

benefit of a large production base, flexible capacity and sort of

integrated structure of supporting industries in many sectors. In

many sectors, China is still adding capacity in anticipation of

emerging global opportunities. Besides, China has a well-

developed infrastructure.

Secret of Business and Manufacturing Strategy

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A very significant aspect of its competitiveness is perhaps the

mindset that makes business strategy - the way they think and

the way they operate.

This can be explained by the fact that:

Presently most Chinese companies have a single corporate

mission be a global company. Corporate profiles of most of the

companies had this to convey; we are a national company, going

to be a global company.

They seemed to be selling their product at prices that would

create markets for their products and enable the consumers to

buy large and many more times. They believe in maximization of

sales rather than profits that follow from sales. Their business

strategy is seemingly focused around the principle of mass

production and mass consumption. The Chinese concentrate on

mass markets, rather than premium markets and premium

products.

China has a subsequent large manufacturing base in virtually

every product, be it a commodity like steel or light consumer

goods like toys, batteries, watches, etc. Chinese industry has the

benefits of a large production base, flexible capacity and assort of

integrated structure of supporting industries in many sectors.

About China's manufacturing strategy it can be said that

it has opted for a price- and volume-led growth, at wafer-thin

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margins. From the research conducted on Chinese manufacturers,

it can be seen that the Chinese are neither consciously profit or

sales maximizers and value maximizers. The philosophy of a

Chinese manufacturer is simple. It won't claim to sell you the best

quality product, but it will charge you a tenth of the price offered

by others. In other words, their sole aim is to fulfill the customers

value for money for which they pack both product value as well as

money value. This has been the crux of the competitiveness

whether in the 19th century Europe or the 20th century Japan and

America or the 21st

century China.

Example:

Chinese aggressive marketing strategy is to take hold of exports

order at any cost. For instance, early this year, the Nepal

government invited bids to purchase 40 buses. Tata Engineering

and Locomotive company (Telco) offered competitive prices at

thin margins. When the bid was opened, it turned out to be the

lowest bidder. However, Telco was surprised when it found that

the order had gone to a Chinese company. The cause Chinese

firm gave an offer to the Nepal government a four-year, interest

free credit.

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Facilitators of dominance of Chinese products based on

cost leadership

A split unit air conditioner for less than $350, a 29inch television

for $200, a mobile phone for $20, a cotton shirt for $2, the most

demanded product like Children scooter at $15, toys for $1 and

ceramic for less than a dollar - these are some of examples of

prices of Chinese goods.

How are the Chinese able to produce at such a low cost -

sometimes, as per many experts, at costs lower than the

theoretical cost of material used? This question is repeatedly

asked by many people who do not have an in-depth knowledge as

to how the Chinese economy works and it can be explained as

follows:

There are two sides to the China story. The first is that cheap

labour; high productivity and government subsidies have turned it

into a low-cost producer that can beat any country. The second

part is seamier: Chinese firms are often ready to try anything --

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even illegal methods -- to capture a market. And it is becoming

increasingly difficult to separate the two.

Lower Costs Lead To Lower Prices

Although the data is sketchy, empirical evidence suggests that

three factors help Chinese manufacturers gain an edge over their

counterparts in other countries. These are:

1. productive and inexpensive labour

2. cheap inputs and

3. in-built economies of scale

In each of these areas, the government also chips in with specific

measures designed to improve the cost competitiveness. In fact,

the government incentives also explain why multinationals are

keen to set up manufacturing bases in China. Last year, the

country attracted $90 billion of foreign direct investment, or 13

times India's. To put this in perspective, the South Korean LG

Electronics has 10 units in China, while Schneider of France has

21.

First the low-cost, high-productivity labour edge that

China enjoys.

Recent studies indicate that the Chinese workforce is three to four

times more productive than India's in most sectors. Add to it the

labour-related policies adopted by the Chinese government,

which are tilted in favour of the manufacturers. In Mainland China,

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most workers are party cardholders. Also food, clothing and

housing for the workers are subsidised by the government. That

obviously results in lower corporate wage bills.

The situation is somewhat different in the export zones. There,

the companies negotiate wages each time they receive a new

export order. more than half of the companies with foreign

investment in the three SEZs (special export zones) in Guangdong

pay far less than the minimum wages. In addition, managements

in these zones have the flexibility to hire and fire workers, aflexibility that Indian corporate has been demanding for years.

Advantage of lower input costs.

To begin with, the import duty on capital goods is less than 5%,

compared with between 22% and 45% in India. And import duties

on raw materials are fairly low too. For example, the duty on

Caprolactum, an input for making nylon tyrecord, ranges between

4% and 18% in China, compared with 33.42% in India.

And finance costs, too, are lower in China. Interest rates on bank

loans range between 4% and 6% (compared with 14% in India).

Indian managers who regularly visit China claim that Chinese

firms do not have to bother about repaying the principal. And in

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case of default, the debt is converted into equity as long as the

interest is paid regularly.

Chinese Businessmen

Chinese exporters also take a number of steps to prune costs by

increasing productivity and building huge economies of scale. On

an average, the capacities of Chinese firms are at least three to

four times that of their Indian counterparts. Even in sectors like

steel, where capacities are fragmented -- China's largest plant has

a capacity of less than 9 million tpa, while its total capacity is over100 million tonnes -- the plants are located in

clusters to reap the benefits of scale.

Other methods followed

To play the volumes game, China also tacitly allows its

manufacturers to take any step necessary. For example, while the

manufacture of genuine high-quality goods allows them access to

organised markets, counterfeits help crack the gray market in

most countries. China has realised that the unorganised sector in

countries like India is often bigger than the organized one

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Chinese use the dirt-cheap counterfeits to woo new

customers in market where the per-capita consumption is low due

to the price barriers

What is interesting is that the counterfeits are made in the same

factories which produce genuine goods and provide economies of

scale and cross-subsidisation. That could explain why high-quality

Chinese goods can also be sold so cheap, and why the

government turns a blind eye to the illegal activities

One of them tells this story as an illustration. A few years ago,when Chinese companies were busy inking JV agreements with

their western counterparts, the Communist regime insisted that

the foreign partner should submit the technology-related

documents along with the application. When the JVs finally went

on stream, the western firms found that copies of those

documents had been passed on to local Chinese producers.

When one of these foreign firms complained, it received a curt

reply: "In the People's Republic of China, all documents submitted

to the government are people's property." The inference: Chinese

rivals were free to use those documents to make products that

were similar to the foreign brands. And they could sell them for

cheap due to low overheads, economies of scale and the ability to

use the under invoicing and smuggling routes to evade import

duties

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Yet another loophole available to these JVs was the buyback

agreement. So, if the proposed capacity was 100,000 units, and

the entire production was to be purchased by the foreign partner

to be sold in global markets, the Chinese would set up a plant

with twice or thrice that capacity. The additional production would

be sold as look-alikes.

China's counterfeit culture has become so predominant that

certain estimates indicate that two-thirds of products sold in its

domestic markets are fakes. Since it is difficult to differentiate the

real from the fake -- as the same firm could manufacture them.

But what is not an exception -- in fact, it is a planned strategy -- is

the endeavour among Chinese companies to use the smuggling

routes and loopholes in the legal system to evade duties and,

hence, reduce prices. Nepal is a good channel. The porous border

with India has resulted in organised smuggling channels. Also, the

trade treaty between the two countries enables free flow of goods

at low duties if the Nepalese exporter has achieved a minimum

value addition.

The import duty on plastics goods coming from Nepal is

15%, but the government gives a rebate of 75% if the goods are

made locally. That implies that the effective duty is less than 4%

and local manufacture is defined in terms of value addition." By

that logic, if a Nepalese trader under invoices the price of

imported goods from China and sells them at the original price to

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6. In order to make sure that it is able to pay the $180 billion

loan in foreign debt China had made it a point that the

currency was not devalued since 1994.

7. Since 1998 more than 1000 branches of unprofitable banks

have been closed down

8. The privatization of welfare is another Chinese initiative.

Education, housing, healthcare, and unemployment benefits,

which were earlier, delivered through the decaying SOEs is

now being privatised.

The current scenario:

After we have looked at the evolution and reforms through which

china has gone through from 1979 till date, lets see as to where

does China stand and what it has gained due to the reforms. What

is the current situation as regards to the economic position of

china, the different types of laws applicable and such other

things?

China's economic reforms and open investment policies have

contributed to a surge in economic growth. From 1979 to 1999,

China's real GDP grew at an average annual rate of 9.7%, making

it one of the world's fastest growing economies; real GDP growth

in 1999 was 7.1%.

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A significant share of FDI in China comes from overseas Chinese,

especially Hong Kong and Taiwan. At present The United States is

the third largest investor in China. Major U.S. corporate investors

in China include Motorola, Atlantic Richfield, Coca Cola, Amoco,

Ford Motor, United Technologies, Pepsi Cola, Lucent Technologies,

General Electric, and General Motors.

China has quickly become a major world trading power. Total

Chinese trade (exports plus imports) rose from $21 billion in 1978

to $361 billion in 1999; over this period, China's ranking as a

trading economy rose from 27th to 10th. The World Bank projectsthat by the year 2020 China will become the second largest

trading economy.

According to a report by Chinese government the countrys

productivity has been growing by 5 percent a year for the last 2

years. Its export was an impressive $250 billion in 2000-01, and

its imports touched $225 billion the same year. Its forex reserves

were a comfortable $165 billion.

China became the largest source of Indian imports, overtaking the

US, and bilateral trade grew 33 per cent in 2008 over the previous

year, to nearly $52 billion, despite the economic slowdown.

Imports from China almost doubled to $24.16 billion in April-

December 2008-09 over the comparable period of 2006-07, and

now account for a little over 10 per cent of Indias total.

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So, will the Chinese deluge leave a trail of destruction in its path?

Are the business linkages being created bad for Indias strategic

interests? Officially, the heads of Indias trade lobbies fuelled the

China bogey, even as many of them as entrepreneurs rushed off

to find Chinese suppliers. And why not? The ground realities

indicate that Indian industry is a big beneficiary.

Consider this: Almost half of Indias imports from China consist of

capital goods crucial for the manufacturing and infrastructure

sectors. There is robust demand from user industries such as

power, automobiles and electronics (which account for more than

half of Indias imports)and cost is not the only consideration

The Chinese are gaining a name in quality andsophistication

China Makes Claim To Lead WorldEconomies

Based on claims from the Chinese government, which should not

be a revelation to anyone given their source, the economy of the

worlds most populous nation has begun to turn around. That

would put it several months, if not quarters, ahead of the worlds

other large economies. If the pretensions are correct, China has

the opportunity to make a real claim for its role as the critical

driver of global GDP.

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The countrys leadership has already made the case that its semi-

regulated approach to fostered growth has trumped the corrupt

and greed-driven financial engines in the developed world which

has been, in Chinas view, the primary source of the erosion of the

worlds credit system. It would have the world believe that its

economy is simply more robust and resilient than those in the US,

Japan, the UK, and EU.

Crude oil imports into China hit a one-year high last month, a sign

of strong demand in the industrial and transportation sectors. Car

sales also hit a record in March. The central government said, inaddition, that its manufacturing sector grew last month for the

first time since October.

While Chinas GDP may not do as well as the governments stated

goal of 8%, any number above 5% in 2009 would be impressive

when compared to the contraction in the West which looks like it

could last through the entire year.

If China is recovering faster than other countries from the global

downturn, one reason may be that its stimulus package of $585

billion is better designed and better implemented that those

elsewhere.

A superior stimulus package, even one applied to the economy

almost perfectly, does not let China lay claim to being better able

to maintain GDP growth than other large nations. Stimulus

packages like the ones being employed now in most large

countries only come along every few decades. They are not a

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reasonable basis on which to measure which nations are the most

commercially and financially robust over long periods.

Chinas boasting cannot be based entirely on exports either.

Chinas trade partners are simply too weak for the country to look

to what it can manufacture and ship abroad as the source of a

fast and broad-based recovery.

China at least has the potential to have the largest middle class in

the world because it has 1.3 billion people. Since a large portion

of the population is still rural, the process of creating consumersmay only be in its early stages. If it continues to be successful,

China may actually come out of the recession with a meaningful

edge over the US as the preeminent driver of global GDP, perhaps

not in size yet, but certainly in its ability to affect global economic

improvement.

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The overall picture of Chinese competency

In all if to summarize the whole cost and advantage, which China

has over other countries, which shows it leadership can be done

through the following points:

1. Government vision and leadership to make China an

industrial power along with favorable economic policies with

respect to taxation, foreign exchange, low interest rates etc.2. Chinas government is managing very ably the global

financial crisis, and continuing to deliver to its people a

better standard of living. Yes, the economy in China is

growing more slowly than it has over much of recent history,

at around 7%-8%. But, overall, the country continues to

bustle as nowhere else does. People still have spring in their

step, and the same sense of boundless potential.

3. In China, the government, wisely, takes a much lighter

approach to regulation, always with an eye focused on

creating circumstance that will lead to new jobs, more

activity, and more competition in most sectors of the

economy.

4. Mindset of catering to global markets and deep

understanding of consumer trends and building economies

of scale to bring down cost.

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5. Providing better infrastructure in terms of power, roads and

ports and removal of any infrastructure related bottlenecks.

6. Creation of support industries such as steel making,

machinery, telecommunication and transportation etc to

facilitate the trade and lower the cost of input. Most of the

input material is produced within the country.

7. Low inflation and stable exchange rate.

8. Low dependence on Oil import as 75% of the country's

requirement is met by indigenous production. This also helps

in lowering cost of raw material and transportation.9. Cheap labour - The average labour cost in China is below

$30 per month, compared to India where the wages are

more than $60-100 per month.

10. Committed labour force with a mind set to work for the

nation not just for individual need.

11. Spread of modern means of education to large

population totally supported by the Government.

12. Presence of large Chinese population overseas who not

only became the first to set up industries by providing much

needed capital but also act as customers in their respective

countries for Chinese made products. Each city in USA

boasts of China town where most of the traditional Chinese

products are sold. Once successful they become available to

other ethnic groups through retail chains like Wal-mart and

Kmart.

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13. In order to make sure that it is able to pay the $180

billion loan in foreign debt China had made it a point that the

currency was not devalued since 1994.

14. Since 1998 more than 1000 branches of unprofitable

banks have been closed down

Due to these reasons China is able to produce items at such a low

cost. This is what has contributed to China's emergence as themost favored FDI destination for transnational companies. 'The

Chinese concentrate on mass markets based on mass production

and consumption. They seemed to be focused on selling at prices

that will create markets and enable the consumer buy. What

really matter, when technologically you do not have the cutting

edge, are factors like affordability and customer convenience.

This is where the Chinese seem extremely focused and

dominating the global markets.

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Why and where China scores well over India

China scores well on the following consumer dimensionson the

infrastructure front, China has strong PSTN subscription (with a

relative score exceeding 0.8); broadband penetration (as

measured by the percentage of households with service) is also

well above the average for Resource and Efficiency Driven

economies. Unlike India, China is near the top in terms of

coverage of the population by mobile networks, an impressive

accomplishment given the sheer size of the nation.

Chinas performance on the consumer usage front is more mixed.

Although it has a relatively high literacy rate, Internet usage is not

as high as one might expect given the high levels of broadband

penetration. This, however, reflects the fact that in certain

higher-scoring countries on this measure (such as Iran, which

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scores highly on Internet usage) the primary access modes for

Internet are public spaces, rather than at home.

To some extent, Chinas scores (like those of India) in both 2009

and 2008 have been adversely affected by the fact that the

scorecard computes so many performance metrics on a per

capita basis. However, despite these intrinsic disadvantages,

China stands well above India in all measures of basic

infrastructure deployment. It is possible that the tyranny of

dividing by a large population base is more of a factor inproducing low scores on the business metrics: but even if this is

the case, the fact that China does so well on consumer

infrastructure deployment suggests that there is the scope for

improving business

To the extent that China retains a command and control

economic structure in place, this structure is well-suited to rolling

out infrastructure and coordinating the required investment.

However, there are limits as to how well this approach can work,

especially when the demand for infrastructure is so driven by

patterns of usage (as in the business sector). Despite these

shortcomings, it should be recognised that China has far

outstripped India (the only real comparator country) in most

aspects of Connectivity.

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China is at least a generation or two ahead of India when it comes

to technology. China's leaders have been described as

Technocrats, having high regard for Science and Technology.

China has ploughed its huge reservoir of domestic saving about

40% of GDP into some of the best infrastructure in the world.

And it has been brilliant in attracting massive inflows of foreign

direct investment as the means to acquire technology,

managerial expertise, and factories on a scale and with scope

that is hard to believe. China has, in fact, leapt to the fore as thelargest recipient of FDI in the world some US$53 billion per

year in 2002-03. India suffers in comparison basically from having

none of the above. China possesses a diversified communications

system that links all parts of the country by Internet, telephone,

telegraph, radio, and television. System includes some of the

most sophisticated technology in the world. R&D for further

developments are still going on. China is already leading in the

hardware sector in world. It is worlds largest cell phone users of

400 million and worlds largest cable TV subscriber base. It is

worlds second largest PC market (20 mil/yr).It has largest

internet users with a number of420 million.

China's software industry has been performing well despite the

deepening world recession. In 2008, software exports reached

US$14.2 billion, up 39% year-on-year. Services outsourcing grew

at an even faster speed of 54.3% to $1.6 billion. The growth in the

whole year was 6.2 points higher than in the first 11 months.

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During the current global recession, due to the downtown in the

manufacturing and export sectors, China has selected outsourcing

as a new arena for economic growth. While India's outsourcing

entered difficult times, China saw opportunities, because India's

limitations are China's strengths. China has abundant IT human

resources available at low cost. The ratio of wages in China is

about 1:7 now, a ratio much more advantageous than that for

India. China also provides a safe and stable environment to

overseas investors: no terror attacks have ever taken place in

Chinese cities.

Whereas India is yet to succeed in attracting manufacturing

investments, China has been successfully garnering investments

in the IT services projects as well as for R&D. This is mainly due

to the well-educated and cheap labour force in China. The high

influx of foreign investors into China has ensured the high

demand for ICT products and services in the country.

As per a Feb 2009 Report, The Atlantic Century : Benchmarking

EU & U.S. Innovation and Competitiveness from The Information

Technology & Innovation Foundation (ITIF), China stands at 33

with 36.0 points while India finishes the last in the list of 40

countries in the world with 21.6 points. And when it comes to

overall change from 1999 to Feb 2009 on similar ranking, China

tops the list with 19.5 points while India secured the spot of 14

with 13.6. So these rankings indicate that over the last 10 years,

China is becoming competitive and innovative faster and better

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than the rest of the world. And India still lags behind China with

wider margin in both the change as well as absolute rankings.

Government Policies:

Freedom from Internal Control:

In China, citizens need to fill out paper works in the local police

departments where they relocate to a new place. Thisrequirement for migrate workers to file documents enable the

central census bureau to conduct their survey in population and

overall economic statistics. However, citizens are free to create

their wealth anywhere else in the country.

Education:

Chinas school life expectancy is 11 years , It is a quarter shorter

compare to the U.S 15-16 years , The total number of graduates

from colleges and universities in 2008: 2.8 million, which is about

25% of the total high school graduate population. Number of

Students in Colleges and Universities is 4.13 million, which is

about 33% of the total young adult population. In contrary, the

education quality is pretty good in China. And China has some

historical and world famous universities, for instance, Beijing

University, Tsinghua University and so on.

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industry and demonstration effects from other migrants pull rural

workers into urban centres.

A brief comparison of some important factors is givenbelow:

Comparing criteria China India

GDP Based on PPP

$7.8 tri ll ion (2008est.)country comparison

to the world: 3

$7.104 trillion(2007)$6.475 trillion(2006)

$3.267 trillion (2008est.)country comparison

to the world: 5

$3.065 trillion(2007)$2.812 trillion(2006)

Real GDP$4.222 trillion (2008est.)

$1.237 trillion (2008est.

GDP Growth rate

9.8% (2008 est.)country comparison

to the world: 813% (2007 est.)11.6% (2006 est.)


to the world: 419% (2007 est.)9.6% (2006 est.)

Per capita income(PPP)

$6,000 (2008 est.)country comparison

to the world: 132$5,500 (2007 est.)$4,900 (2006 est.)

$2,800 (2008 est.)country comparison

to the world: 168$2,700 (2007 est.)$2,500 (2006 est.)

GDP-sector wise

agriculture: 10.6%industry: 49.2%services: 40.2%(2008 est.)

agriculture: 17.2%industry: 29.1%services: 53.7%(2008 est.)

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Labour force

807.7 million (2008est.)country comparison

to the world: 1

523.5 million (2008est.)country comparison

to the world: 2

Labour force byoccupation

agriculture: 43%industry: 25%services: 32% (2006est.)

agriculture: 60%industry: 12%services: 28%(2003)

Unemployment rate

4% (2008 est.)country comparison

to the world: 464% (2007 est.)


to the world: 857.2% (2007 est.)

Population belowpoverty line

8%25% (2007 est.)

Exchange rates

Renminbi yuan(RMB) per US dollar- 6.9385 (2008 est.),7.61 (2007),7.97 (2006),8.1943 (2005),8.2768 (2004)

Indian rupees (INR) per US dollar -43.319 (2008 est.) ,41.487 (2007),45.3 (2006),44.101 (2005),45.317 (2004)

Foreign directinvestment abroad

$139.3 billion (2008est.)country comparison

to the world: 21


to the world: 29

Foreign directinvestment at home


to the world: 6


to the world: 23

External debt $420.8 billion (31December 2008 est.)country comparison

$163.8 bil lion (31December 2008 est.)country comparison

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to the world: 20 to the world: 27

Forex and gold reserves

$2.033 tri ll ion (31December 2008 est.)country comparison

to the world: 1

$250 billion (31December 2008 est.)country comparison

to the world: 5

Imports

$1.156 trillion f.o.b.(2008 est.)country comparison

to the world: 4

$287.5 billion f.o.b.(2008 est.)country comparison

to the world: 17

Exports

$1.465 trillion f.o.b.(2008 est.)country comparison

to the world: 3

$175.7 billion f.o.b.(2008 est.)country comparison

to the world: 28

Current account balance


to the world: 1

$-38.39 billion(2008 est.)country comparison

to the world: 184

Industrial productiongrowth rate


to the world: 11


to the world: 64

Inflation rate(consumerprices)

6% (2008 est.)country comparison

to the world: 1014.8% (2007 est.)


to the world: 1276.4% (2007 est.)

India

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Introduction

India always was way behind to realize the need of opening up its

economy for better competitiveness. This is because India was 13

years late in announcing and adopting the open door policy,

which China announced to the world in 1978 at the 11th peoples

congress.

Lets have a look at the reforms, which India underwent after the

opening up of its economy in 1991

Economic reforms in India

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The first decade (1991 2001)

1991

1. new industrial policy announced

2. foreign investment upto 51% in select industries allowed

3. PSU reservel list cut from 17 to 8

4. FIIs allowed to invest in market

5. PSUs brought under SICA

19921. Steel industry decontrolled

2. Wealth tax abolished

3. free pricing of IPOs allowed

4. 100% equity in core sectors like steel, telecom and power

permitted

5. five year EXIM policy announced

1993

1. companies act amended

2. rupee made convertible on trade account

3. excise duty simplified by merging special and excise duty

1994

1. private Telcos allowed to compete with state owned

companies

2. lending rate deregulated

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1995

1. modified trading-forward system allowed

2. insurance regulatory body mooted

1996

1. 74% foreign equity in 9 industries and 51% in 16 more

permitted

2. minimum alternated tax (MAT) introduced3. corporate surcharge cut from 15% to 7%

1997

1. coal sector privatized

2. maximum income tax rate cut to 30% and corporate tax to

35%

3. restrictions on import of 69 goods lifted

4. new takeover code approved

1998

1. FII investment in treasury bill cleared

2. FDI norms under automatic route simplified

3. trading in derivatives by FIIs cleared

4. norms on foreign equity participation in airline sector

overhauled

5. 100% FDI in cigarettes allowed

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6. 74% foreign equity cap announced for TV software

companies

7. up to 40% FDI in private bank allowed

8. ISP policy free tariffs, allows private gateways

9. insurance patent forms cleared

1999

1. IT ministry launches a 100 crore VC fund for start-ups

2. IRDA ( insurance regulatory & development Act) bill passed

3. foreign exchange regulatory act replaced by the foreign

exchange management act.4. department of disinvestments created to oversee the issue

of privatisation of public sector enterprises

5. excise rate slab cut from 11 to 3. mainly consisting now of

8%, 16% and 24% slab.

2000

1. VC companies made exempt from income tax as well as

dividend fund

2. Minimum daily requirement for maintaining cash reserve

ratio balances slashed from 85 to 65%

3. Inter-bank gold trading by banks allowed

4. Scheduled commercial banks allowed to float insurance

subsidiaries

5. Special economic zones to be created with 100% foreign

equity

quantitative restrictions (QRs) on 714 tariff lines at the 8-

digit level lifted

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6. Single-window clearance for import of capital goods at a flat

rate of 5% announced

After India opened up its economy in 1991 things did look good

for 2 years in the middle of 1990s when the economy grew byover 7 percent in both years, but it soon returned to where it was

before. The Indian economy grew by an average of 6.4% in the

first decade after reforms (1991 2000). Today the most cheerful

estimates put it at 6% and both the industrial and agricultural

sectors are on the downward spiral

If you see at the reforms, it can be easily noticed that the reforms

are world-class. They have been properly thought about and it is

seen that justice is done to everybody.

But the main problem lies in the implementation of the reforms in

the right spirit. As a result of which even though we have a well

planned and laid down reforms and procedures, the intended and

the required amount of changes and development are not taking

place.

But in India, people feel unsecured to do something different and

also do not want to get exposed to the competitive environment

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even if it means that one day they have to shutdown their shops

and face doom.

Law, rules and regulations

One very important reason due to which investors are shying

away from India is due to its labour law, which is not at all flexible

as compared to that of China.

This can be demonstrated through an article published in the

times of India

'Indian labour laws keep away investors'

Foreign Direct Investment (FDI)

This is one area where most of the problems of India lie. The way

in which India looks at FDI is the total reverse in the way China

looks at it. In case of India, there was no realization or a need felt

to make sure that there is a constant inflow of FDI in the country.

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There has always been hesitation on the part of the government

as far as welcoming FDI is concerned. There is no clarity of vision

among the leaders. Also, FDI approval in India is done at the

central level while the implementation is left with the state

government. There is a huge gap between approvals and inflows

as there is no mechanism for either proper delegation or

monitoring the implementation. It can be seen that even though

foreign companies are ready to invest in India, the legal hassles

take so much of time that by the time the application of the

concerned company has passed, they have already lost interestto invest in India.

India ranks high on intent but low on content because

government fails to attract FDI by not showing advantage of

investing in India. Also the procedural delays for the sanction lead

to a very less amount of inflows into the country as opposed to

those who had initially desired to invest into India. As a result the

approval to actual inflow of FDI in India is very low.

To further make it clear as to the flow of FDI into the

country, here a look at the next figure.

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comparison of flow of FDI

0

10

20

30

40

1991 1993 1995 1997 1999

Shareinworld

FDI

Developing countries Asia India

Fig. 5

The graph clearly shows the position of India as compared to Asia

and developing countries as a whole is much lower and is as good

as non-existent. The share of Asia and developing countries is

high mainly due to the contribution of FDI in china, which is the

largest attractor of foreign funds in developing countries.

After a decade of opening up of the economy and the liberalized

reforms undertaken, lets have a look at the economic indicators

and how it is at present

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Impact on India

Now that we have looked at the reforms undertaken in both

countries and what gives China the upper hand, lets take a look

as to what this has done in respect of the impact created on

Indian industries.

The impact can be shown with the help of some articles, which

were published in the national newspapers recently.

Economic Times

Textile

For now, its advantage China!

IF EVERY inch of India Inc is cowering before the hidden dragon,

can the desi wardrobe be immune? Indias ready-to-wear garment

industry is facing tough competition from China, which has

emerged an important sourcing base for international brands and

retailers in the Asian region because of its comparatively cheaper

costs.

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This helps the Chinese sell their garments 40 per cent cheaper

than Indian companies. It seems India has just not been able to

compete with China on pricing, and China has been able to keep

its price-quality balance to its advantage.

A year ago, China produced 10 billion garments and 5.2 million

tonnes of synthetic fiber. Indias export of readymade garments,

on the other hand, touched 1.5 billion pieces valued at $5.3

billion.

Example of first mover advantage and future oriented

thinkingThe Indian tractor industry is yet to come up with low horsepower

tractors that may be suitable for the eastern and northeastern

region. A Chinese firm is selling such tractors priced between

$800 - $1000 a price that last for ten years. It does not pose a

severe debt to the farmer. On the other hand, our farmers need

the support of NABARD if they want to buy Indian tractors.

Information Technology

IT race: Gushing dragon leaves elephant panting

Recent Gartner figures of hardware and software growth in India

and China shows how our agile neighbour has managed to

outstrip 'IT superpower' India.

Take hardware, for instance. Chinas hardware market in

2000 was almost eight times as big as Indias. While China had

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hardware sales worth $16 billion, India managed only $2.2-billion

hardware sales.

Last year the Chinese hardware market grew 17.8 percent as

compared to Indias 6 percent growth rate.

Furthermore, in the hardware business, local players dominate

China, unlike in India where unbranded grey market and MNCs

rule the roost. Chinas PC-maker Legend, which has more than 80

per cent domestic market share, happens to be Asias largest PC-

manufacturer.

Electronics

Polar prefers the dragon as an ally

With the cheap Chinese imports pervading the domestic market,

Polar industries has decided to ward off threat and join hands with

the chinese counterpart.

polar is importing fans from china and selling them under its

flagship brand, "Polar Mistral". Ashok tiberwal, chairman of polar

industries said" of course, we are reaping full advantage of the

cheap manufacturing base available in china. we have laready

joined hands with a number of chinese manufacturers. our

technical teams regularly visits china and updates the

manufacturers about our latest needs.polar is thus getting the

chinese tailor made products to its own requirments. the

company has already imported fans almost worth a crore over

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the last 4 months, which have seem to met with a good response

in the domestic market.

Business today

Ajanta clocks, the worlds largest clock manufacturer first

considered shifting its entire manufacturing operations to China,

then, gave up that idea and is now considering the idea of getting

out of the business altogether. This is because of the many

advantages, that China has over India, which includes1. raw material being cheaper by about 20 to 25 percent

2. electricity is cheaper by 50 percent .

3. because of the excellent infrastructure, there is little need to

maintain inventory, which reduces the overhead cost.

4. also since there is an hire and fire policy and workers are

paid according to their productivity, the wage bill is very low.

MAIT Report

India is very strong in software, but the main concern is that

China is infrastructure ready and for it to leapfrog to software will

not be difficult.

In fact the lack of a hardware base has threatened to take the

steam out of India's software run. And now, China is set to invest

$5bn internally in software spending, he adds. According to

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industry reports, China is well on the way to becoming an IT

superpower. Vis-a-vis India, the trends are disturbing.

China has 125 million telephone lines compared to India's 30

million, 70 million mobile phones to India's 2.5 million and 22

million internet subscribers to India's 1.5 million. Its international

bandwidth is already 1.2 giga bits per second compared to India's

860 mega bits per second.

Beijing is also aggressively laying fiber optic cables throughoutthe country and upgrading its backbone with the latest 3G (third

generation mobile) technologies and is expected to surpass the

US as the world's largest mobile telecommunication network by

03. It is also setting up its own Integrated Circuit valley as also a

notebook zone.

The MAIT report observes that China is the third largest IT

hardware supplier in the world. The total turnover of the IT

industry is expected to cross $46.1 billion in 01, an increase of

36.8 per cent over the previous year.

Hardware exports are likely to increase by 30 per cent in 01 and

software sales are also likely to register an increase of 31.7 per

cent from 00 ($3.6 billion in 01).

Other Areas

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Apart from this Chinas impact will also be on industries like

calculators, bicycles, stationery like pencil sharpeners, herbal

medicines, bikes, glass products and now colour televisions.

The reasons why China has an advantageous position is

1. the reforms undertaken by the government which give them

better productivity and lower price as already mentioned

earlier

2. the characteristics of such products are that they involve

standard technologies but highly skilled labour. The labour inChina is relatively more skilled than their counterparts who

produce such goods elsewhere in the world.

Industries facing the Threat

Now lets have a look at the industries, which are suffering, due to

the advantageous position of Chinese industries.

Most of the goods manufactured by China in which it has an upper

hand require a major portion of labour efforts. In India all such

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goods are mostly made by small-scale industries. These are

industries, which have a very small startup amount. They produce

the goods and either supply it to some bigger companies or sell it

in the local market. Now these are the small companies which are

going to get affected the most due to the entry of Chinese goods

in the Indian market.

The small-scale industry in India is the largest employer of people

as it is highly people oriented and very little amount of

technology is used. Also they contribute to about 30-40% of ourexports to foreign countries. Therefore they are very important

and play a very significant part of the growth and prosperity of

the country. This Industry is either under threat or facing stiff

competition of cheap imports from China. It is really a matter of

concern for everybody in the country

The people in this industry are of the opinion that they too can

compete with China if input costs are also brought down to their

levels. It claims that Chinese products are cheaper by 10-70 per

cent compared to similar Indian products The Indian small sector

also makes very competitive products, but the fact that Chinese

businessmen get capital at lower interest rates and their

electricity and freight charges are much lower than ours help

them price the goods better. Given a similar business

environment, they can take on China any day.

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Also they claim that Chinese goods though cheap cannot compete

with them on the quality front. The Chinese cycles, fans and other

products can't claim to be superior in quality that ours. They are

just priced better. Though the Chinese threat will fizzle out in a

few months, the small sector needs support to see it through this

period.

Recently, a FICCI survey on Chinese imports stirred a hornets

nest. The survey reports a surge in imports from China in

categories like food items, light and heavy engineering goods,

chemicals and metal products.

Why small-scale industry is facing this stiff competition, can be

explained as follows:

The operating scenario for Chinese businessmen: The government

has set up export zones with extraordinary infrastructure

facilities, importing the latest machinery, buying raw materials in

bulk from the world markets in slump, giving export incentives

and making bank loans available at 4-6 per cent. In contrast, the

Indian businessmen claim to be working with power cuts, high-

interest bank loans, expensive raw materials, bad infrastructure,

high transportation charges and a corrupt system. Imagine what

that has done to our costs. All this is making us the SSIs

uncompetitive against the Chinese.

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The managing director ofAshok Leyland, Mr. R. Seshasayee was

of the opinion that, One half of the industry, which is

unfortunately the small-scale industry, is very vulnerable. But the

organised industry will probably not face such a serious threat, for

two reasons.

The organised industry is capable of delivering more competitive

products because of the fact that there is a greater degree of

technology, access to market and distribution channels are

available to them. So, they will fight and come out.

But the unorganised small-scale industry, where there is

negligible use of technology and which is starved of finances and

the necessary strength to fight a brand-battle, will be most

adversely affected.

The organised industry will have to recognise that China is

capable of mass production at lower prices in comparable quality.

A combination of big production volume, huge market size and

different labour laws has made this possible. The state pays 50

per cent of the labour costs one-way or the other.

It is very unfortunate because this sector is employment intensive

and the sickness in this can have a domino effect.

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Extended impact

The impact can also be seen in other sector like the IT industry

where India boasts of a good percentage of growth and where

India is suppose to have an edge. But China, which invests heavily

in education and boasts of 100 per cent literacy levels, could well

surpass India as a global software producer soon.

In any case, domestically China consumes four times the software

as India does already. It is pointless for mantris to waffle on about

Indias so-called potential to become a global IT powerhouse. With

a government in terminal drift, such aspirations could well turn

into pretentious nonsense.

Chinas well-documented lead in education, infrastructure and

IT also add up to something more fundamental than leadership in

the IT sector alone.

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INDIAs current situation

Growth has continued to slacken to under 8% by the secondquarter of 2008. Inflation is high, driven by commodity prices, but

the peak appears to have passed. The current account deficit has

risen substantially and there is downward pressure on the

exchange rate. The economy is projected to slow further over the

next year and to recover in tandem with the world economy in

2010.

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Whos buying from China

The power sector is a prime example. Over the last couple ofyears, Chinese suppliers have made deep inroads into the power

plant equipment market in India, riding on the back of Indias

huge requirements for power generation and inability of local

companies to meet the growing demand. In India, power

generation companies face regulatory pressure to keep tariffs

low. Most companies pursue a dual strategy to achieve this. First:Faster execution of projects to prevent cost over runs, which can

only be done with timely delivery by the equipment maker.

Second: Reducing the cost of setting up the power plant itself. On

both counts, Chinese companies score over their Indian

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counterparts. Chinese suppliers like Dongfang Electric

Corporation, Shanghai Electric Corporation and Harbein Electric

Corporation dont just offer lower costs, but have shorter delivery

periods. On quality parameters, too, Chinese companies set high

standards. Says S.L. Rao, Director, Reliance Power: With private

sector entry into infrastructure in India, there is a demand for

cheaper and good quality plant and equipment, especially

because their bids are based on competitive tariffs. China can

give them supplies, low prices and quality. For instance, Chinese

suppliers specialise in producing highly-efficient supercriticalequipment. Reliance Powers Ultra Mega Power Project (UMPP) in

Sasan is committed to delivering power at Rs 1.20 per unit only

because it will have supercritical boilers. Using such Chinese

products, which require less coal to produce electricity, is helping

power companies such as Reliance Power and Adani Power

bolster their performance.

The auto industry, too, has been a major importer of Chinese

products. Imports of original equipment manufacturer (OEM)

components from China have grown at a CAGR of 100 per cent

over the past three years. In fact, imports from China now

constitute more than 10 per cent of the total components

imported, up from 1.5 per cent in 2003-04. Several leading

manufacturers, such as Tata Motors, Bajaj Auto, Ashok Leyland,

Mahindra & Mahindra, TVS Motor and Ford Motor India, are

already sourcing important components from China. Thats not

all. Indian companies are now setting up purchase offices in China

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and are sourcing tyres, wheel rims and shafts in bulk from

Chinese firms.

Indias imports from China of automotive components have

jumped exponentially from Rs 100 crore in 2003-04 to Rs 2,200

crore in 2007-08. Cost is certainly an important driver of this

surge in imports. The landed price of Chinese components is, on

an average, 30 per cent less than components sourced locally,

according to Automotive Component Manufacturers Association of

India (ACMA) estimates. But theres more to it, according to

industry experts.

Says Dilip Chenoy, Director General, Society of Indian Automobile

Manufacturers (SIAM): The increased presence of Chinese auto

products in the domestic automobile sector has been largely

attributed to better technology and superior quality. Moreover,

Chinese auto parts manufacturers are producing specialisedcomponents, which are not available in the Indian markets.

Consumer electronics and durables majors in India have also

begun to source from China. Components such as resistors,

capacitors, fly back transformers and rotary compressors along

with end-user products like plasma TVs, LCDs, high-end

refrigerators, microwaves and split air conditioners are all beingimported from China. And almost all the major players are doing it

Philips, Onida, Voltas, Whirlpool and others.

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World Trade Organisation

WTO and China

There has been a lots of hype created over the much anticipated

entry of China into WTO. For many companies this would mean an

opening of a huge market on a liberal policy basis and many such

factors.

Lets have a look at the implication of Chinas entry into WTO on

WTO, other countries and importantly, over India.

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What does it mean for India?

Advantages

On the positive side, Chinas entry into WTO may provide some

relief to the Indian industry. As a member of WTO, China will have

to abide by the multilateral rules and the agreements and make

its policies transparent. All these may lessen the anxieties of the

Indian industry about infiltration of exceptionally low costproducts from China into the Indian market. China is likely to lose

several of its existing advantages in the process of being WTO

compliant.

Substantial lowering of tariffs, reduction of subsidies etc should

provide significant opportunities for accessing the Chinese

market. Removal of quantitative restrictions (since China is not a

country with BOP difficulty) is also expected to widen export

opportunities. Further, with transparent economic and trade

policies, it should be easier for the Indian industry to understand

this complicated and vast market, establish their presence and

develop long-term strategy.

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Disadvantages

This has a very significant implication for India. As a transparent

and compliant economy, China may be more attractive to the

investors from the USA and the EU. Currently, bulk of the FDI flowto China comes from the expatriate Chinese. To the foreign

investors, China may be much more preferable ground to invest

compared to India.

China will also be entitled to greater market access opportunities

in the global market. It will surely make every effort to secure

higher share of world trade. This will mean that Indian industry

should be prepared to face stiffer competition from China in the

world markets.

China has two distinct and significant advantages that the Indian

industry does not have:

1. China has the advantage of mass production and large

volumes.

2. China has a unique advantage of efficient port infrastructure

that gives the benefit of large volume shipments ie low

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freight cost. Indian industry will have to contend with such

realities.

Counter Acting Strategies

It is believed that in times to come Indian industry will face tough

competition from China in terms of cost, quality and economies of

scale. Indian companies need to take serious view of domination

of Chinese manufacturing based on cost leadership while looking

into the future. It can spell doom or end of the road for

manufacturing sector in India - more so in open trade regime of

WTO, which China is going to be part of.

Indian industry needs to learn to take cognizance of this factor,

not by asking for Govt. help in terms of protection, but by creating

world-class organisations in terms of cost, quality and product

innovations. Indian industry is still reeling under the hangover of

protected regime but now it is time to get up from deep slumber

and act before it is too late, as has happened in many industries

especially in the consumer products, which were reserved for the

small-scale industry.

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Competition from Chinese products have given rise to anxiety in

many countries but not many countries are complaining and

responding the way we are. On the contrary most of them are

taking this as an opportunity and building strategies to take

advantage out of it.

Here are some of the strategies for Government and

Indian industry:

Strategies for Indian Government

1. rather than resorting to anti-dumping and non-tariff

measures, which will be retrograde steps in the long run,

Government should allow free competition and create

favorable economic scene.

2. the Government has to modernise labor laws and bankruptcy

laws.

3. de-reservation of products that are currently reserved for the

SSI.

4. removal of infrastructure bottlenecks by allowing free flow of

foreign capital into roads, power, ports, tele-communication.

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5. allowing local players to compete by providing level playing

field in terms of availability of capital at low interest rates

and lowering of excise and other duties and lowering taxes.

6. to improve the efficiency by allowing foreign companies in

all major sectors of economy.

Strategies for Indian industries

a) Face the competition head on

Indian industry must recognise that the only way to fight

competition is by cutting costs and improving quality. This needs

to be done at the company level by focusing on efficiency in the

use of factors of production.

Currently Chinese are dominating the lower end of technology-

based products by producing them at 30-40% cheaper than

Indian industry. Indian industry should evaluate the strength and

weakness of each industry in comparison to China. They should

move vigorously to knowledge-based industries where India still

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has an edge due to spread of English and technically qualified

workforce.

The Indian industry should constantly look for industry where they

still have an edge over China and create world-class organisations

offering innovations. They should also tie up with organizations all

across the world to block them before they cross over to China.

They should develop industry with world as a focus rather than

concentrating on domestic market. For example, India has a well-

developed automotive parts manufacturing industry. They shouldstart talking to automotive manufacturers all over the world to

become favored suppliers by offering quality products at

unmatched cost by leveraging on economies of scale. The highly

skilled manpower of India can be utilised in upcoming industries

like Pharmaceuticals, Software, Biotechnology and education

which are more research based industries. To combat Chinese

invasion, Indian industry needs to create a new mind set of

thinking about world as a market and developing strategies

around it.

b) Collaboration and tie up with Chinese companies

If you cannot beat them, join them. This what many Indian

companies have done to ward off the stiff competition from

Chinese products. Instead of lobbying to keep them out,

companies like Bajaj Electricals are switching over to Chinese

manufacturers to source products for the Indian market. Bajaj

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Electricals is bringing in a range of products - irons, toasters, fans,

and ovens at a rate 30-35% cheaper than those manufactured

within India. Baron international has tied up with TCL, a major

home appliances manufacturers in China to market products in

India. Haier, another major appliances manufacturer has set up a

joint venture in China. Konka is another example of Indian

industry collaborating by setting up joint venture to take

advantage of opportunities offered by Chinese companies.

There are many similar companies looking eagerly towards India.

It is time for India to tap them, develop skills offered by them, andbecome a player in the global markets

c) Setting up bases in China

Indian industry can set up bases in China like many transnational

companies have done to take advantage of favorable economic

conditions, better infrastructure and huge domestic markets. The

world's single largest clock maker, India's Ajanta, has decided to

invest in a manufacturing facility in China. Ajanta has realised

that China is a cheaper and better manufacturing host than India.

Essel packaging in another Indian company which started a

packaging unit in China. Ranbaxy too has set up units in China

and Vietnam. Many of the well established Indian companies who

are looking outward for markets to improve the economies of

scale should follow above example.

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Critical steps in making infrastructure leadership a

strategy for sustainable development of India

A2:- India initiated an ambitious reform programme, involving a

shift from a controlled to an open market economy showing

signs of overheating because of basic infrastructure constraints,

both physical and human. So far, the bulk of infrastructure was

in the public sector. Public sector in India operating in a

protected set up has been largely subsidised by the

Government. Since the launching of reform, Governmentis trying to reduce its borrowing which means that further

subsidization will not be possible. There is one area where there is

a need for private sector and foreign investment to come in.

Because of the long gestation period, and many social

implications, the infrastructure sector compares unfavorably with

manufacturing and many other sectors. For this, specific policies

in this area are need to make infrastructure attractive. Clearly,

there is a wide gap between the potential demand for

infrastructure for high growth and the available supply. This is the

challenge placed before the economy, i.e. before the public and

private sector and foreign investors. This can also be seen as an

opportunity for a widening market and enhanced production

The six core and infrastructure industries, viz., electricity, crude

oil, petroleum refinery products, coal, steel and cement, having a

weight of 26.7 per cent in overall Index of Industrial Production

(IIP). Several fiscal incentives were announced by the government

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for boosting investment in infrastructure projects. Ten-year tax

holiday offered to projects in core sectors like roads, highways,

waterways, water supply, sanitation and solid waste management

systems can now be availed of during the initial 20 years. Projects

in airports, ports, inland ports, industrial parks and generation

and distribution of power can now avail of 10-year tax holidays

during the initial 15 years

The Critical Steps:-

A-A Strong Government with Clear direction"Once committed to a focus on economic growth, some good

policy decisions were implemented quickly and efficiently While

India's corporate leaders agree that this could be true, they are

emphatic that India's vibrant democracy is the only way for the

country to ensure that growth and development reaches all.

There is chaos in it and sometimes policy decisions tend to be

reversed. But ultimately India's democracy is essential for the

country's welfare,

But come what may any party Govt. may come or go but the

direction of development of Infrastructure may not be altered.

B- A consistent and thoughtful marketing effort

We need to sell India. A USP is what is needed.

India's corporate leaders agree that the country's politicians have

never sold the country.

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Much of the investment flowing into the country today is on the

back of India's reputation as a place for skilled people who have

proven themselves in the information technology services sector.

C-Bringing in the Money (FDI and Private Participation)

. The importance of infrastructure sector also follows from the

fact that foreign investors are now looking at infrastructural

development as a yardstick for directing their investments. In

fact infrastructural development had taken precedence over

wage levels in assessing the investment potential in developingcountries. In India infrastructure sector itself is becoming an

attractive investment area for FDIs.

Already there is a huge demand for funds from the manufacturing

sector. On top of that is the demand from the infrastructure

sector. Both draw heavily from the savings of the household

sector. The growth of financial savings of household sector

however is not rising fast. In this context, the importance of

increased obligation of domestic saving needs underscoring.

According to the India infrastructure Report (IIR)2009 (Q2),

currently 3.5 % of the GDP is invested in the infrastructure

sector. Infrastructure investment in the region of US$500bn is

being planned between 2007 and 2012 under the government's

11th five-year plan. Of this, utilities will receive the largest

portion with US$167bn, roads will be allocated US$92bn,

railways US$65bn, ports US$22bn and airports US$8bn. The

government envisages 30% of the total amount in the plan to

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come from private sector companies through public private

partnerships (PPPs). However, the global economic downturn has

highlighted the barriers in India's infrastructure sector, which

may harm the government's ability to attract private sector

participation, especially at a time of risk aversion and tightening

access to credit.

D- Creation of zones and infrastructure for businessesIndia has tried to do this with its creation of export processing

zones and software technology parks.

But the problem lies in some key areas like creation of

infrastructure and quick approval of investment proposals.

More needs o be done

E-. The business-above-all attitude

"In India, trade and economic growth have never been

paramount. That has to change if we need to be a developed

economy by 2020

India's economic growth has always given in to the sentiments of

the local industry; like in cases where foreign investments have

been. curbed or restricted.

Provincial and local governments control the vast majority of

capital-hungry enterprises, and that creates an unsolvable

collusion between regulators and the state's ownership interests.

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This is arguably advantageous in the early, low-tech stages of

infrastructure and commercial development, but for the future its

impact is likely to be less positive

Indian Interests have always to be kept in mind while we do our

interactions with the other dwellings of mother earth.

Conclusion:- With this a belief that we can infact be business

leaders and a developed country of the world is what can lead usto a strong nation and lead us to sustainable development.

5 Policy Intervention strategies that can be put in place in

India. One in each for

A) Power

B) Transport

C) Fiscal

D)Communication

E) Agriculture

To make these a Robust & growth oriented

Power

Privatise Distribution

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Privatisation of distribution has a couple of advantages. First, the

company will invest in some modern equipment. Second, they will

ensure that 100 per cent metering is done and everything is

billed. They will also ensure revenue collection. These things will

be better taken care of by private parties.

Transport

Total Policy focus on this with chalking up a plan (like the

Golden Quadrangle) in terms of the following:- Railways.

Roads

Ports

Air

Four major problems that need to be addressed through policy

and institutional reforms: 1) Unclear or overlappingresponsibilities; 2) Inadequate resource mobilization; 3) poor

asset/system management and 4) Inadequate accountability for

service outcomes. A suggested way forward is through improved

public sector performance and accountability, increased private

sector participation and investment, improving customer-

responsiveness of the core rail business services, focusing a much

larger share of the capital budget on economic priority

investments etc.

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Creation of strong markets for Agri produce

And creation of Processing/Transport/and Preservance.

The infrastructure requirements of the agriculture sector are

many and varied. India needs good roads that would allow

sufficiently large trucks for speedy and bulk movement of

agricultural produce before it turns bad. It needs large cold

storage plants, modern drying facilities and communication

facilities.

Traditionally, India has been an agricultural economy and even

today agricultural sector accounts for one third of GDP as well as

one third of the work force. Successive governments have

realized the importance of agriculture to India and initiatives have

been taken for the growth of this sector.

CASE STUDY

Plastics

Plastic products are of three kinds : PVC, moulded and extruded.

The basic import duty on plastics is 35%, the surcharge on basic

customs duty is 3.5%, the additional duty is 16% and the special

additional duty is 4%, making it a total duty of 67.08%.

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Jewel Plastics is a small scale unit, with plant and machinery

valued at below Rs. one crore, which manufactures extruded

items, mainly packing material. The unit converts polymer into

plastic bags.

What is affecting this unit is the import of smuggled High Density

Poly Ethylene (HDPE), LDPE and Poly Propylene (PP) bags from

Nepal. This unit which previously worked in three shifts is

currently operating only one shift. Packing material manufactured

in China is being routed through Nepal. Manufacture of plastic

bags in China has certain advantages : there is no inspector raj inChina; no customs duty on raw material and no excise either. In

sharp contrast this unit had to face 53 inspectors. Further in China

electricity is cheap. The Chinese get their capital goods from

Germany without any import duty whereas Indian manufacturers

do not have comparable machinery.

Many units have closed down and some are on the verge of

closure. The plastic bags imported from China are about thirty

percent cheaper than those manufactured in India. Plastic bag

manufacturers in India therefore cannot compete with China.The

Association of Plastics Industries has made several

representations to various ministries including Finance and

Commerce but they have not received as much as an

acknowledgement.

Working capital loans were available to this unit at 16%. To be

able to compete effectively the unit needed cheap raw material

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and cheap finance. The unit wanted raw material to be available

at international prices.

No import of raw material was possible because of the high

protection given to indigenous raw material producers. The

import duty structure on plastic raw material (polymers) is the

same as that on plastic products, the total import duty being

67.08%.

Not all units manufacturing packing material in Delhi faced

competition from imports. This phen

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