Is China's Loss India's Gain?

There is a sense of glee among Indians about the problems China is facing. A lot of companies world over are reevaluating their reliance on China and will look for alternatives to China. India being another large country has potential to replace China as a manufacturing hub.

Is this possible ?

I find it unlikely. All large companies had considered India as an alternative to China and had passed on. Despite an expensive “Make in India” campaign PM Modi had failed to attract much interest from the industry.

As a spillover effect India might win some jobs that would have otherwise gone to china but the new manufacturing giant will not be India. Most companies would now rather focus on automation and fragmentation where Vietnaam, Bangladesh, Thailand, etc. will compete with India.

Investing in India is Risky

Rule of Law in India is missing

Indian state operates on the old colonial model where they care very little about the “subjects” and optimize everything for the convenience of the ruling class. As a result to start a modest business operation you have to spend years chasing government officials for trivial “permissions”.

But even when the law is on your side there is simply no assurance that a road side activist wont force you to shut shop. Check what happened with Sterlite. A 20 year old plant was shut down by protests. At least in China one does not have to worry about such random violence.

Lack of skilled manpower

Our school education is completely broken. Vocational education is non-existent. You can buy a new apartment in Mumbai and looking at the plumbing you will wonder if it was done by blind monkeys.

Most SSC pass students can’t read fluently leave alone being able to write an email.

After investing in a factory one will have to invest in training these people. India’s labour laws do not give business owners to hire and fire and hence hiring becomes an expensive activity. If the person is unskilled then it becomes even more expensive.

This way a typical factory worker in India might end up being more expensive than equally productive person from China.

What we can do differently

  • Abolish government control on education

Government control on education has prevented us from building capacity and improving our human capital. As of today even pre-school admissions require intervention from Supreme Court.

If we can not get this basic thin done, we can not build a productive society.

  • Establish trouble free zones

Idea borrowed from a twitter handle (barbarindian), we need to create rule of law. If we do not have it across the country we need to at least create a zone where laws will be established ruthlessly and once a permission is granted there wont be an easy way for local goons to even government to go back on what was promised.