Is Made-in-India Really Cheaper Than China? The Honest Answer for Manufacturers
Is Made-in-India Really Cheaper Than China? The Honest Answer for Manufacturers Read More »
India vs China Manufacturing Cost Comparison The manufacturing fraternity in India creates a new momentum every few months. Glossy headlines herald factories moving, FDI soaring and a new day of industrial self-reliance. The prospect is alluring: India’s labor cost is less than China’s, government is providing incentives, and the geopolitical winds are favouring us. This is the story that is compelling to start-up founders who are considering manufacturing business ideas, and often is incomplete. The real answer is more complicated. India may be more cost-effective for a wise choice of product, scale and supply chain setup when compared to China. But for a lot of categories, the hidden inefficiencies, logistics, infrastructure, and lead time for manufacturing in India still heavily compete with China. That’s closing. However, it has not yet closed. This article cuts through the clutter. It looks at India’s cost advantage, its remaining disadvantage and what considerations manufacturers should make before making a decision on sourcing and/or investment. The Labour Cost Advantage Is Real — But Overstated Let’s talk about India’s strengths first. Average manufacturing wages in India are still much lower than the Chinese counterparts. Data collected by the International Labour Organisation (ILO) and trade bodies like CII shows that factory workers in labour-intensive industries in India are earning approximately 30–45% less than their Chinese counterparts in the same job. That’s a lot of benefit on the books, at least. The industries that benefit most from such an advantage are primarily the clothing, leather, footwear, simple assembly, and some agro-processing industries. For these items, labour represents 35-60% of the total cost. India thus has a defensible cost advantage. It is for this reason that global apparel firms are moving orders to Tiruppur, Surat and Noida. The Confederation of Indian Industry (CII) keeps a close watch on this trend and observes the increasing competitiveness in labour intensive manufacturing. But there are other inputs than labour. Many new startups begin by focusing on labor expenses for manufacturing and neglecting to factor in other expenses. It is not. In capital-intensive or precision manufacturing, labour may only be 10-20% of the cost. Related Article: India vs China Manufacturing: Best Business Opportunities, High Profit Sectors & Startup Ideas in India Where India’s Cost Advantage Gets Eroded Logistics and Inland Infrastructure The Pearl River Delta is a marvellous logistics machine in China. Factories are located within 60-100 km of ports with millions of containers moving through them each month. The roads are of excellent quality. Rail freight operates at high speed. All cold chains, warehouses and last mile are scaled. India’s logistics cost to GDP is in the range of 13-14%, whereas China’s logistics cost to GDP is 8-9% and in developed nations 6-8%. This gap is recognized straight by the Ministry of Commerce and Industry and the National Logistics Policy. The result: manufacturers are paying an additional 4–6% to cover inefficiencies, such as road conditions, port delays and broken cold chains. This one feature can cost the exporter his/her labour cost savings. Power and Utilities The power tariffs for industries are significantly different across states in India, but on average are higher than in China. Power cost is the most important variable input in highly energy consuming industries such as steel processing, chemicals, aluminium, ceramics and glass. In these areas, China’s energy subsidy system and integrated utility system provides a structural cost advantage which India is still trying to catch up with. The Bureau of Energy Efficiency (BEE), under the Ministry of Power, has launched a number of initiatives aimed at enhancing the energy productivity of MSMEs. However, most States still face a tariff deficit against the Chinese industrial zones, and PAT (Perform, Achieve and Trade) cycles and energy audits have helped. Raw Material Supply Chains In part, China developed its manufacturing power by clustering together raw material processing, component production, and final assembly. Shenzhen for electronics. Foshan for ceramics. Small goods in Yiwu. India is building similar clusters, such as textile parks, pharma SEZs and electronics PLI hubs, but the level of depth in the ecosystem is still not matching. India still imports high volumes from China for manufacturers that rely on precision components, speciality chemicals or electronic sub-assemblies. This makes the situation a little paradoxical – a manufactory which seems to be “made in India” can have a partly Chinese supply chain. Government Policies and the PLI Push Indian government has acknowledged these deficits. The Production Linked Incentive (PLI) scheme is implemented through DPIIT and line ministries, and has a total allocation of more than ₹1.97 lakh crore in 14 sectors. They range from mobile phones, pharmaceuticals, medical devices, food processing, textiles, white goods to specialty chemicals. The goal is to push the overall disadvantage of the output side towards direct output-based cash payments. The Ministry of MSME provides credit guarantee scheme (CGTMSE) for MSMEs, capital subsidy on technology upgradation (CLCSS), and the Udyam registration framework which unlocks priority-sector lending for MSMEs. Besides, there’s a Make in India portal (Make in India) which collates information regarding incentives under state and central schemes. It is perhaps the most effective structural intervention, the PM Gati Shakti National Master plan. It plans and manages road, rail, port and utility infrastructure at an integrated level. If fully operational, Gati Shakti has the potential to bring down India’s logistics cost differential by 3-4 percentage points, thus changing the competitiveness landscape. Business Ideas Where India Already Beats China 1. Labour-Intensive Garment and Textile Manufacturing Today, India offers a real cost benefit to entrepreneurs, who are considering their business options in the apparel industry. A well-managed garment unit in Gujarat or Tamil Nadu can compete with the Chinese mills on product categories which are basic and mid-range as the labour cost is 35-40% cheaper compared to the Chinese mills. Additional output incentives are given under PLI scheme for textiles. The success is to establish effective cutting-sewing-finishing lines, to obtain OEKO-TEX or GOTS certification for export markets, and to establish direct buyer-seller relationship without depending on trading









