Will Chinese Jobs Come to India? - Vivek Kaul's Diary
Free Reports

Will Chinese Jobs Come to India?

Feb 22, 2017

28

One of the themes that I have regularly explored in the Diary is the fact that one million individuals are entering the workforce every month and there aren't enough jobs going around for them. This basically means that around 12 million or 1.2 crore youth enter the Indian workforce, every year.

And how many jobs are available for them? As a recent newsreport in the Business Word magazine points out: "According to the Labour Bureau of India, only 1.35 lakh jobs were created in 2015 and 4.93 lakh in 2014 across eight sectors." Hence, there are barely any jobs being created for those entering the workforce.

Given the fact that so many individuals are entering the workforce every year, India needs a large burst of economic activity in labour intensive sectors which can employ India's largely low-skill, semi-skilled and unskilled workforce. Only then will the country be able to put its so called demographic dividend to good use.

So, which are these labour intensive sectors that have the potential to employ India's burgeoning workforce? The apparel sector and the leather and footwear sector are two such sectors. As the Economic Survey of 2016-2017 points out: "The data show that the apparel sector is the most labour-intensive, followed by footwear. Apparels are 80-fold more labour-intensive than autos and 240-fold more jobs than steel. The comparable numbers for leather goods are 33 and 100, respectively. Note that these attributes apply to the apparel not the textile sector and to leather goods and footwear not necessarily to tanning."

Take a look at Figure 1.

Figure 1: Jobs to Investment Ratio for Select Industries

Figure 1 tells us that the apparel sector creates close to 24 jobs per lakh of investment. For a similar investment, the steel sector creates almost no jobs. On the other hand, the leather and footwear sector create around seven jobs per lakh of investment. Hence, these sectors have a great potential to create jobs, given that they don't need a lot of investment to create jobs. Also, they have a huge potential to create jobs for women.

As mentioned earlier, it is estimated that nearly one million Indians are entering the workforce every month. This number is based on the assumption of a very low female labour participation rate. The men make up for a bulk of the Indian workforce, with women forming a small part.

Advertisement
  Make 2017 the Best Year Yet  
   
  There are various approaches to trading stocks. But few work.

Our top chartist, Apurva Sheth (Research Analyst), believes he has zeroed in on an approach that has real potential, especially in 2017. In fact he has revealed full details of this strategy in his latest special report:

How To Boost Trading Profits in Four Easy Steps

If you want to make 2017 a great year for your trading portfolio, we recommend you read this report right away.
 

Nevertheless, the thing is that more and more women are likely to join the workforce in the years to come. And if that turns out to be true, then the estimate of one million Indians entering the workforce every month, will turn out to be an underestimate. In this scenario, if the sectors like apparel and leather and footwear expand, they are likely to create the required jobs.

Over and above this, as the Economic Survey points out: "The opportunity created for women implies that these sectors could be vehicles for social transformation... In Bangladesh, female education, total fertility rates, and women's labour force participation moved positively due to the expansion of the apparel sector."

The interesting thing is that there is an immediate opportunity here. In the last two decades, China has seen an explosion of economic growth. In this scenario, the per capita income in the country has gone up many times over. In 1995, the per-capita income had stood at $610 (current US $, World Bank data). By 2015, this had exploded more than 13 times to $8,028.

This tells us that the labour costs in China have gone up. Some of the goods that it used to produce earlier, and on which a lot of economic prosperity was built, it is no longer competitive in. As far as labour cost goes, India is well -positioned to cash in on this. If labour cost was the only concern, businesses which produce apparel, leather and footwear, should have been moving their manufacturing from China to India.

This becomes clear from Figure 2. The minimum wages for semi-skilled labour in most Indian states are lower than Vietnam, China and Indonesia. Despite this, the space being vacated by China is not being taken over by India.

Figure 2: Minimum Wages for semi-skilled workers

As the Economic Survey points out: "The space vacated by China is fast being taken over by Bangladesh and Vietnam in case of apparels; Vietnam and Indonesia in case of leather and footwear. Indian apparel and leather firms are relocating to Bangladesh, Vietnam, Myanmar, and even Ethiopia."

If India firms are leaving India and setting up apparel and leather firms in other countries, it is not surprising that the space being vacated in China is moving to other countries and not India.

This is a point I make in my new book India's Big Government-The Intrusive State and How It is Hurting Us: "In fact, if we look at the cost factor, India has the second lowest manufacturing cost (Indonesia is lower) among the top 25 exporting countries in the world. Nevertheless, it is important to realise here that companies set up a manufacturing base in China not just because of the low cost, but also because of the very good infrastructure that was available. And such an infrastructure is clearly not available in India right now. Indeed, almost all countries in East Asia offer an easier working environment than what is available in India."

Hence, when it comes to capturing the space being vacated by China, two major factors are holding India back, logistics and labour laws. India's labour laws essentially ensure that Indian firms continue to remain small and in the process they lack economies of scale to compete internationally.

As the Economic Survey points out: "One symptom of labour market problems is that Indian apparel and leather firms are smaller compared to firms in say China, Bangladesh and Vietnam. An estimated 78 per cent of firms in India employ less than 50 workers with 10 per cent employing more than 500. In China, the comparable numbers are about 15 per cent and 28 per cent respectively."

Take a look at Figure 3. It shows the logistic costs of different countries. India comes right at the bottom. In fact, the logistics cost of India and Vietnam is the same. Nevertheless, it takes lesser time to deliver stuff from Vietnam to the US East Coast, than it takes from India. This works in favour of Vietnam.

Figure 3:

To conclude, the window of opportunity to capture the space being vacated by China is narrowing. And India needs to get its act right quickly, if it wants to capture the space being vacated.

Vivek Kaul is the Editor of the Diary and The Vivek Kaul Letter. Vivek is a writer who has worked at senior positions with the Daily News and Analysis (DNA) and The Economic Times, in the past. He is the author of the Easy Money trilogy. The latest book in the trilogy Easy Money: The Greatest Ponzi Scheme Ever and How It Is Set to Destroy the Global Financial System was published in March 2015. The books were bestsellers on Amazon. His writing has also appeared in The Times of India, The Hindu, The Hindu Business Line, Business World, Business Today, India Today, Business Standard, Forbes India, Deccan Chronicle, The Asian Age, Mutual Fund Insight, Wealth Insight, Swarajya, Bangalore Mirror among others.

Disclaimer: The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

Recent Articles

Deep State First August 23, 2017
Nowhere was the darkness deeper than in the nation's capital. There, no light shone. No flicker of awareness...observation...learning...or reflection appeared.
A Darkness Is Spreading Across the US August 22, 2017
Today, we are attacked by one preposterous thing after another, each of them even more absurd than the last.
Dear PM Modi, India is Already Land of Self-Employed, and It Ain't Working August 21, 2017
Most Indians who cannot find jobs, look at becoming self-employed.
Trump Takes a Beating August 18, 2017
Donald J Trump, a wrasslin' fan, took a 'Holy Sh*t!' blow on Tuesday.

Equitymaster requests your view! Post a comment on "Will Chinese Jobs Come to India?". Click here!

4 Responses to "Will Chinese Jobs Come to India?"

Ramakrishna

Feb 22, 2017

If India suffers from chronic unemployment in the years to come it may in part be attributed to disappointing growth and investments in Agrarian sector which cries for rapid and urgent reforms.Our limited and fragmented land has gained the potential of diminishing returns. Many a rural youth who got no significant skill set, lacking the needed talent to compete with urban labour are trying to urbanize despising the agriculture.. The farming community still adopting age old practices, labor intensive but with poor returns. Climatic vagaries, compounded by lack of efficient water&land management strategies, inability to bring additional land into cultivation on regular basis,failure to attract substantial new investments,low inputs in animal husbandry, inability to bank on the fruits of green revolution or replicate second green revolution are important setbacks of Indian agriculture..,Exploring avenues of agri export,concentrating on the production of natural rubber,cotton,tea,coca vegetables, pulses, oilseeds, nuts,dairy products,sericulture,inland water fisheries,organic farming etc are some of the areas which can generate millons of jobs if the needed attention is bestowed.Agricultural research targets should focus on in high yielding varieties, animal health and productivity.....

Like 

KD

Feb 22, 2017

You mentioned about high logistics cost in India. One of the major reason is due to very heavy tax on diesel. Then there is road tax, goods tax, permit, insurance and heavy excise / sales tax on purchase of vehicle. Last but not lease, CVs have to pay very heavy toll tax compared to any other country.

Give me the name of the country which have such a high tax on diesel? Moreover, this Industry creates lots of jobs. If one CV is sold, it creates 5 jobs. Labor cost may be low, but overall cost is very high in India compared to China.

Like (1)

Paresh Vora

Feb 22, 2017

The labour wages comparison is misleading. This is probably what the unprotected labour, or labour employed through contractors gets in hand. Effective cost of labour to companies may be higher due to intricacies of our labour laws, where either the labour employed directly by companies is paid higher and also gets substantial job protection, thus increasing the cost of labour or it gets employed through contractors, with its own direct and indirect costs due to lack of training, absenteeism, overheads of contractors etc.

Like (1)

Dr Aloke Chakravartty

Feb 22, 2017

I would like to add that there has to be dispersion of manufacturing from urban to rural. Kindly add, electronic assembly, handicraft, spare manufacturing and small item manufacturing such as toys, porcelain etc. It is where large opportunities are available for mass engagement.
Today large monolithic factories should become just assembly plants.
Aloke chakravartty, MBA, PhD

Like (1)
  
Equitymaster requests your view! Post a comment on "Will Chinese Jobs Come to India?". Click here!