India China Economic Comparison

India and China were at the same per capita income in 1980. However, as things stand today in 2020, the Chinese economy has taken off whereas the Indian economy has lots of catching up to do.

As per the world bank data, In terms of nominal GDP in 2018, the Chinese economy in current US$ (13.608 Trillion US$) was 5 times the size of the Indian economy (2.719 Trillion US$).

As per the world bank data, In terms of PPP GDP in 2018, the Chinese economy (25.399 Trillion US$) was 2.42 times the size of the Indian economy (10.5 Trillion US$).

The gap between the Chinese economy and the Indian economy is massive. And it will take India several years to catch up with China.

However, how did this huge gap develop between the Chinese economy and the Indian economy? To understand this, we will rely on the numbers rather than rhetoric.

And here are the numbers:

Firstly, Economy comprises of 4 major components:

Economy (E) = Consumption (C) + Investment (I) + Government Spending (G) + Net Exports (X=Exports-Imports)

Therefore, let's get the data for each and every component of the economy for both India and China.

• Consumption (C):

As can be seen from the above charts, the Consumption as a percentage of GDP in 2018 for China was 38.68%. Whereas, the Consumption as a percentage of GDP in 2018 for India was 59.39%.

Another point to be noted is that in the case of the Indian economy, the Consumption as a percentage of GDP has always been higher than the consumption as a percentage of GDP for the Chinese economy.

• Investment (I):

As can be seen from the above charts, the Investment as a percentage of GDP in 2018 for India was 31.31%. Whereas, the Investment as a percentage of GDP in 2018 for China was 44.06%.

One can also observe that for the Chinese economy, the Investment as a percentage of GDP has always been higher than the investment as a percentage of GDP for India. There is almost a difference of 12-15% as a percentage of GDP between the Chinese economy and the Indian economy.

• Government Spending (G):

As can be seen from the above charts, government spending as a percentage of GDP for China in 2018 was 14.68%. Whereas, the government spending as a percentage of GDP for India in 2018 was 11.23%.

One can also observe from the above charts that government spending as a percentage of GDP for the Chinese economy has always been higher than that of the Indian economy.

• Net Exports (X):

We will analyze exports and imports for both the Chinese and Indian economies.

Exports:

As can be seen from the above charts, exports as a percentage of GDP for India in 2018 were 19.74%. Whereas, the exports as a percentage of GDP for China in 2018 were 19.51%.

However, it is also evident that with rising wages in China, Chinese exports are falling consistently since the peak of 2006.

Therein lies the opportunity for India to focus on its manufacturing sector especially on bottom-up manufacturing to expand its exports worldwide.

Imports:

As can be seen from the above charts, imports as a percentage of GDP for China in 2018 were 18.73%. Whereas, imports as a percentage of GDP for India in 2018 were 23.64%.

• Calculations:

Having gathered all the data, we can do simple calculations for both the Chinese and Indian economies.

E = C + I + G + X

For China in 2018:
E = 38.68 + 44.06 + 14.68 + (19.51 - 18.73)

For India in 2018:
E = 59.39 + 31.31 + 11.23 + (19.74 - 23.64)

• Conclusion:

As can be seen from the above charts and calculations, the Chinese economy grew on account of higher Investment (I) and Government spending (G). The consumption as a percentage of GDP has always been lower for the Chinese economy than that of the Indian economy.

Therefore, it is no rocket science to understand from the above charts that for India to grow at 8 - 10% for the next 2 decades, the Indian policymakers need to make sure that both Investment (I) and Government spending (G) rise. The investment (I), as well as Government spending (G), must be geared towards supporting the manufacturing sector or Make in India program.

Focus on the manufacturing sector, especially on bottom-up manufacturing, is the need of the hour to achieve double-digit economic growth as well as to generate millions of jobs. When Investment (I) and Government spending (G) go into the manufacturing sector in India, then, it is highly likely that India's exports will also boom, thereby, giving a further boost to India's GDP.

How will electric vehicles affect the Indian economy and environment in general?

• Environmental impact of Electric Vehicles in India:

As the name suggests, Electric Vehicles consume electricity. The battery is charged for a period of 6-8 hours. So, electricity is the fuel in electric vehicles. However, let's look at the sources of electricity generation in India.

As of 31st March 2020, As per the Ministry of Power, Govt. of India, data, India's total electricity installed capacity is 370106 MW. Out of which 62.8% is generated by thermal fuels such as coal (54.2%), Lignite (1.7%), Gas (6.9%), Diesel (0.1%). Hydro contributes 12.4% to India's total electricity installed capacity. Nuclear contributes 1.9%. And Renewable energy sources contribute 23.5%.

Therefore, when 62.8% of electricity in India is coming from fossil fuels, then, won't that negatively impact the environment? Electric vehicles are brought to the market with the idea that they will reduce emissions. But, facts tell us that since 62.8% of all electricity generation in India is coming from fossil fuels, then, what will be the savings on the emissions front? And it is certain that no major country on earth would give up on its fossil fuels.

Secondly, it is clearly established that the process of manufacturing an electric car generates more CO2 than the process of manufacturing an IC engine car.

Thirdly, today's IC engines are highly efficient and there is continuous research & development going on to make them even more efficient.

Besides, the electric battery when discarded after years of use will result in a further environmental hazard. The discarded battery will end up in our lakes, rivers, and oceans, thereby poisoning the water bodies across India and negatively impacting marine life. When we can't recycle plastic and electronic waste, then, what is the guarantee that we will be able to recycle discarded batteries? Human beings must accept the fact that they are bad at recycling stuff unless there is an economic gain in the waste.

Therefore, given all the above factors, what's the fuss about electric vehicles? In fact, if we as a human race focus on improving the soil and reducing meat consumption, then, we might, in fact, take a concrete step towards tackling the issues of global warming. 

"Now, let's assess how electric vehicles will affect the Indian economy"?

Now, it's all right to talk about electric vehicles or EVs, however, talking about these things without proper research can be detrimental to India's manufacturing sector as well as to India's economy. Let's assess it here:

• First thing first, let's get some numbers for India's automobile sector:

India's automobile sector (including component manufacturing) is expected to touch 251.4 - 282.8 billion US$ by 2026.

Two-wheeler sales dominate the auto industry with approximately 81% of vehicles sold in FY 2019 belonging to the two-wheelers category.

The automotive industry also employs approximately 37 million people directly and indirectly. Direct employment is roughly 10 million whereas indirect employment is 27 million.

The automotive industry also contributes about 50% to India's domestic manufacturing output.

These are massive numbers and any disruption in the automotive industry is bound to impact the growth of India's GDP as well as employment generation.

• Having assessed the current automotive numbers, let's now focus on the working of Electric Vehicles.

An Electric Vehicle runs on an electric battery. This electric battery is made from 4 major materials namely Lithium, Cobalt, Manganese, and Graphite. And India does not possess these materials in abundance. Therefore, India will need to import these raw materials from abroad to make electric batteries in India. Where are these 4 major materials found in abundance? Primarily in Africa and South America. And China has already secured deals with these countries to buy these 4 major materials. China has already developed the supply chain and has become the leader in the manufacturing of electric batteries. India has lagged behind in this aspect. Neither do we have secured substantial deals to procure raw materials from Africa and South America nor do we have developed manufacturing capabilities to develop electric batteries in India.

Electric Vehicles are constant torque vehicles. What does a constant torque vehicle mean? It means, in layman's terms, Electric Vehicles won't be requiring a gearbox system. You just install the electric battery and accelerate. That's it. No gearbox system, no clutch system, just accelerate and use the brake system as and when required. At the same time, since Electric Vehicles would be running on a battery, therefore, there won't be any need for a combustion engine (diesel or petrol). Therefore, there won't be any need for carburetors, injectors, pistons, combustion chambers, flywheels, etc.

• Therefore, with the adoption of Electric Vehicles, 3 things would happen in India.

Firstly, since China has taken a lead in the manufacturing of electric batteries, and India has lagged behind, therefore, for the foreseeable future, we would have to source batteries from China. It is already happening. Many companies, large or small, have already started sourcing batteries from China. In fact, many startups have mushroomed in India that make electric bikes. All these startups source batteries, controllers, and other body parts from China and then assemble in India. These companies call themselves manufacturing companies, however, these companies are nothing but assemblers. Since, electric batteries, controllers, and other body parts are manufactured in China, therefore, the bulk of the jobs are generated in China and not in India. At the same time, these electric batteries are highly expensive. India's trade deficit with China is already in excess of 60+ billion US$ (approximately 4.2 Lacs Crore Rupees). Do we want to increase it further? Do we want to create manufacturing jobs in China? The answer is NO.

The second point is that since electric vehicles will do away with components such as a gearbox, clutch, combustion engine, piston, carburetor, injector, flywheel, then, what will happen to the component manufacturing companies who are currently manufacturing these components? Won't it result in the loss of manufacturing jobs on a large scale? All these component manufacturing companies employ millions of people. All these component manufacturing companies have invested heavily in setting up manufacturing plants. What will happen to these jobs? What will happen to these manufacturing plants?  Won't it derail the Make in India initiative? Won't it slow down India's GDP growth? Won't it make millions of people jobless?

And thirdly, what will happen to a roadside mechanic whom people approach on a typical Sunday to get their car repaired or serviced? Since electric vehicles will operate on a battery and do away with components such as clutch, gearbox, piston, combustion chamber, etc., therefore, the need for car maintenance will reduce. An electric battery will need less maintenance. Therefore, what will happen to millions of unorganized car mechanics in India? Won't it result in a loss of jobs in the informal sector? Won't it slow down India's consumption and in turn slow down GDP growth further?

• Conclusion

Therefore, unless and until India secures substantial deals with African and South American countries to source Lithium, Manganese, Cobalt, Graphite, and at the same time India develops its own capabilities in the manufacturing of electric batteries, we must not rush towards electric vehicles. Once we have developed internal capabilities to manufacture electric batteries, we can shift current component manufacturing jobs to electric battery manufacturing. That is doable. But without developing our own capabilities in the manufacturing of electric batteries and simply sourcing these batteries, controllers from China, we will be doing a great disservice to India's economy.

Coronavirus and other global factors should ideally have become an opportunity for India instead of a threat

These days in business circles or on online forums as well as on social media platforms, the talk is 'What will be the effect of the coronavirus on the already slowing Indian economy'? or 'Global factors are weak and therefore these factors are pulling Indian economy down' or 'World is entering into a recessionary phase'.

Some people term the above-mentioned reasons as valid reasons while others merely scoff at these reasons claiming that India's economic problems are more internal in nature than external.

Instead, Coronavirus and other global factors should ideally have become an opportunity for India instead of a threat.

Let's assess it analytically.

Economy comprises of 4 major components:

Economy (E) = Consumption (C) + Investment (I) + Government Spending (G) + Net Exports (X=Exports-Imports)

Let's now get the data for each and every component.

• Consumption (C):

As can be seen from the above chart, India's household consumption as a percentage of GDP in 2018 is approximately 60%. From the highs of 87% in 1960, it has come down to 60%.

• Investment (I):

As can be seen from the above chart, India's Investment as a percentage of GDP is approximately 27.8% in Quarter 3, 2019 (July - September 2019). Investment as a percentage of GDP is hovering below 30% since 2014. Investment as a percentage of GDP was highest in 2008.

• Government Spending (G):

As can be seen from the above chart, government spending as a percentage of GDP fluctuates between 11 - 12%. In 2018, government spending as a percentage of GDP was 11.23%. The highest number recorded in recent history was in 2000 when government spending as a percentage of GDP was 12.18%.

• Net Exports (X):

Net Exports X = Exports - Imports. Therefore, let's assess exports as well as imports individually.

Exports as a percentage of GDP

As can be seen from the above chart, the exports as a percentage of GDP were 19.74% in 2018. Exports as a percentage of GDP are falling since 2013.

Imports as a percentage of GDP

As can be seen from the above chart, the imports as a percentage of GDP were 23.64% in 2018. Imports as a percentage of GDP have fallen since 2012.


Therefore, having gathered all the data, now, let us do the simple calculations for the year 2018.

E = C + I + G + X
E = 59.39 + 31.31 + 11.23 + (19.74 - 23.64)


We can do this simple calculation for any particular year. The results for 2019 are more or less along the same line.

Therefore, let us now come back to the question 'What will be the effect of the coronavirus on the already slowing Indian economy'? or 'Are global factors negatively impacting the Indian economy'? or 'Is a recession coming'? All these questions are loosely talked about on various forums without looking at the facts.

And the fact of the matter is India's net exports (X=Exports-Imports) are negative or at most they can be neutral. In other words, India is a net importer country.

Therefore, the question that shall be assessed is how will global factors impact India's economy when we are a net importer country?

The impact of Coronavirus on India's exports will be negligible as India's 3 biggest exports destination are the USA, European Union, and UAE. China comes in 4th position.

The impact of Coronavirus on India's imports will be felt for some time as India's largest importing partner is China. And India imports a variety of manufactured goods from China.

But if analyzed with a deep concentration, wouldn't this have been an opportunity for India to build its manufacturing capabilities? Rising wages in China for many years and now the outbreak of Coronavirus in China should have been an opportunity for India instead of the threat. Since India's trade deficit with China is in excess of 60 billion US$. Wouldn't this have been an ideal opportunity for India to get its act together and focus on the manufacturing sector? Shouldn't the Make in India program have resulted in India becoming a net exporter country instead of the net importer country?

Therefore, as per the numbers, it is clearly evident that since India is a net importer country, the impact of Coronavirus or any other global factors shouldn't have ideally slowed down the Indian economy.

The slowdown in the Indian economy is more internal. The charts clearly show that. India's Consumption (C), as well as Investment (I), are falling consistently. And India's Consumption, as well as Investment, roughly constitute 90% of India's GDP. And when these 2 parameters are falling, surely, the economic growth will come down as well. And that is where the problem lies.

Therefore, instead of blaming the Coronavirus or other global factors, we should internalize the reasons for the slowdown. We should internalize and assess why Consumption, as well as Investment rates, are falling in India.

Coronavirus and other global factors should have become our opportunity instead of the threat. However, since we haven't focused on building our manufacturing capabilities especially bottom-up manufacturing capabilities, we are feeling threatened by Coronavirus and other global factors. It's still not late, we can turn this into an opportunity provided we build our manufacturing sector. It is the ideal time for India to become a net exporter country instead of the net importer country. Problems in China should not become a problem for us, instead, they should become an opportunity for us.

What is easy? Bring goods and machinery from China and sell them in India? or Manufacture the same goods and machinery in India?

Many entrepreneurs evaluate this question on a daily basis. Whether to brings goods & machinery from China and sell them in India or manufacture the goods & machinery in India itself? However, as things stand today, the answer to this question tilts in favor of procuring goods & machinery from China and then sell them in India. This has become standard practice. A practice that continues to grow with every passing year. These goods & machinery are simple goods & machinery. Not something very sophisticated that can't be manufactured in India.

So, what explains this trend of procuring goods & machinery from China and then selling them in India? There are 2 principal reasons for it.

1. A lack of understanding among our policymakers to differentiate between top-down manufacturing and bottom-up manufacturing.
2. Because of this lack of understanding to differentiate between top-down manufacturing and bottom-up manufacturing, bottom-up manufacturing continues to suffer in India. And therefore, there is no policy framework to support bottom-up manufacturing in India.

Therefore, let us understand what is bottom-up manufacturing first?

Bottom-up manufacturing is an approach wherein a product or machinery idea originates in an entrepreneur's mind and he/she decides to manufacture it. A large company (top-down manufacturing) won't be manufacturing these simple goods & machinery because of the volume constraints. Goods such as toys, souvenirs, electrical items such as Diwali Lights, exhaust fan, ceiling fan, switches, MCBs, and electronic items won't be manufactured by large companies. Machinery such as the one shown below that's used in construction activities won't be produced by large companies because of the volume constraints. Therefore, SMEs or small entrepreneurs alone can produce these goods and machinery in India. However, they don't manufacture these goods and machinery in India. Why? Because our manufacturing policies, as well as Make in India program, have failed to focus on bottom-up manufacturing resulting in a massive trade deficit with China.

Let us take the case of this simple machinery. This machinery is used in Flooring works. This machine is known as 'Ride-on Trowel' machine or simply ROT. The machine is used to trowel the floor. The machine is mostly used to trowel industrial floors.

Now, this machine is mostly imported from European countries such as Italy or from China. Now, the question that needs to be asked is 'why can't this machine be manufactured in India'? Why are our machinery manufacturers not manufacturing this machine in India? Again, a large manufacturer won't be manufacturing this machine in India because of volume constraints. Unless and until a product or machinery generates large volumes, a large manufacturer (top-down manufacturing) won't manufacture that product or machinery in India. Therefore, only a small-scale entrepreneur (bottom-up manufacturing) can manufacture these goods & machinery.

However, a small-scale entrepreneur does not manufacture these kinds of goods & machinery in India because of the following reasons:

1. a lack of access to modern manufacturing technologies
2. a lack of access to low-cost financing
3. a lack of access to the single-window system to obtain approvals
4. a lack of access to a trained workforce

However, all these above-mentioned reasons are consequences of the lack of understanding among our policymakers to differentiate between top-down manufacturing and bottom-up manufacturing. If policymakers, as well as Make in India program, focuses on bottom-up manufacturing, then, it is inevitable that the above-mentioned reasons will be sorted out resulting in the promotion of bottom-up manufacturing in India. That would definitely be a big boost to the Indian economy. Not only will this focus on bottom-up manufacturing result in reducing the trade deficit with China but it also will result in generating millions of manufacturing jobs in India.

Are our policymakers listening?

What will happen if Indians do not buy Chinese products in India?

People keep discussing, debating questions such as 'What will happen if Indians do not buy Chinese products in India'? or 'If China did not let India be part of the NSG, then why can’t India ban Chinese products in India'? These are all valid questions, however, all these questions are driven by emotions rather than intellect. Therefore, we as a society need to put emotions aside and assess these kinds of questions purely from an economic point of view.

Firstly, we need to understand, what kinds of products we buy from China and what kinds of products we export to China. India and China have trade relations, however, these trade relations are heavily skewed in favor of China resulting in 60+ billion US $ of trade deficit with China.

What do we import from China? mainly manufactured goods.

What do we export to China? mainly raw materials.

Now, we also know that India's sunshine sectors such as IT and pharma are not allowed to participate independently in the Chinese marketplace. However, as things stand today, Indian IT and pharma companies are increasing their presence in China through joint ventures. That's a welcome step. If Indian IT and pharma companies compete in the Chinese market, then, surely, the trade deficit could reduce partially.

However, Chinese manufactured goods will still continue to dominate the Indian market. 

What is the solution to this issue? 

The government of India has tried to raise the duty on some of these goods, however, this kind of action encourages black market. In other words, Chinese manufactured goods still continue to enter the Indian market through dubious routes. In other words, Indians pay extra for the same Chinese Goods. 

So, what are the other solutions? 

Ban Chinese goods in India as the question itself suggests. However, then, who will manufacture these goods? Indian consumers will still demand these goods, and if Chinese goods are banned, then, who will manufacture these goods? If Indian manufacturers were producing these goods already, then, we wouldn't have this situation in the first place itself. Since Indian manufacturers are not manufacturing these goods, therefore, traders across India procure these goods from China and sell them in India.

Instead of banning these Chinese goods, we need to become competitive. Therefore, the real solution lies in building our own manufacturing capabilities, especially in bottom-up manufacturing. Make in India program shall focus on bottom-up manufacturing. By focusing on bottom-up manufacturing, we will be able to manufacture simple daily household goods in India itself. Indian policymakers need to make a list of manufactured goods that are imported from China. From simple items to high-tech items. After preparing this list, we as a nation shall ask ourselves 'why can't we make these goods in India'? Wages are still lower in India compared to China. Therefore, what stops India from manufacturing these goods in India itself. The answer to these questions is simple, however, willingness is needed on the part of our policymakers.

The government of India did announce Make in India program in 2014. However, the program was focused on inviting foreign manufacturers in India and then make manufacturing goods in India. The Make in India program did not pay attention to the needs of our local manufacturers or entrepreneurs. There was no mention of developing manufacturing technologies in India. Make in India program simply focused on ease of setting up a business in India. However, the program failed to pay attention to details, especially manufacturing technical details.

If attention is paid to the manufacturing details, then, India can surely make daily household goods in India itself instead of buying these goods from China. That will not only reduce our trade deficit with China but also generate millions of manufacturing jobs in India. So, what are the manufacturing details that our policymakers need to focus on? It's not rocket science. Just involve entrepreneurs in manufacturing policymaking and things will improve. Within a matter of 2-3 years, the manufacturing industry can be turned around. Within a span of 2-3 years, our manufacturers can start manufacturing globally competitive daily household goods in India itself. Not just for the Indian market but also for the world market. Our manufacturing industry can truly become globally competitive.

Therefore, instead of asking the question 'why can't we ban Chinese goods in India', we shall be asking 'why can't we make these goods in India'? When this question becomes the mainstream question, then, surely, we will be able to find solutions and develop our own manufacturing capabilities. 

'Compete' and 'not ban' is the real solution.

Why is India NOT a global manufacturing hub like China? What is stopping India?

India is not a global manufacturing hub like China. In fact, India is neither a domestic manufacturing hub. In other words, India is not even manufacturing common household goods that are consumed by Indian consumers. Instead, India is trading these simple goods from China and consuming them domestically. Therefore, India's trade deficit with China keeps on rising year after year. As things stand today, India's trade deficit with China is approximately 60+ billion US$. Or in other words, approximately Rs 4.2 Lacs Crores on a yearly basis. That is huge. If India neutralizes its trade deficit with China and starts manufacturing common household goods in India itself, then, consumption of those goods in India alone would result in the generation of millions of manufacturing jobs. However, since Indian manufacturers are not manufacturing these simple goods in India, therefore, jobs are being generated in China. This is not sustainable. India is a low middle-income country and outsourcing manufacturing jobs to an outsider (China) is unsustainable.

Therefore, the pertinent question would be, 'Why are Indian entrepreneurs not able to manufacture simple household goods in India'? There are many reasons for it such as a lack of attention to details by manufacturing policymakers, a lack of focus on manufacturing technologies, a lack of focus in training the workforce, etc. However, all these challenges can be overcome in a matter of 2-3 years provided our policymakers get their act together and start focusing on the manufacturing sector comprehensively. This is possible by involving startup manufacturing entrepreneurs as well as industrialists in policymaking. The policymakers at this stage of India's growth trajectory are cut off from the ground realities.

What are the difficulties faced by a manufacturing entrepreneur in starting up as well as in scaling up? The current manufacturing or 'Make in India' policy has no clue about it. Unless and until the policymakers understand the challenges or obstacles faced by our manufacturing entrepreneurs, we will not be able to come up with solutions in order to make Indian manufacturing competitive. And unless and until the manufacturing sector picks up, we will not be able to provide jobs to people. And unless and until the manufacturing sector revives, we will not be able to boost our GDP growth.

It is high-time manufacturing entrepreneurs in India, SMEs, as well as job seekers, start putting pressure on our policymakers to revive the manufacturing sector. Unlike the IT sector, the manufacturing sector requires government support. Government support in training the workforce, developing the infrastructure to build manufacturing capabilities including developing the manufacturing technologies, financing, and enacting new manufacturing laws. Without government support, the manufacturing sector can not move forward. Therefore, the governments at the center as well as at the state level must form a committee of entrepreneurs to devise a manufacturing policy. Manufacturing entrepreneurs surely know the missing links and with the feedback provided by these entrepreneurs, the solutions can be found out.

India can certainly manufacture common household goods. Wages are rising in China. And with the outbreak of Coronavirus, it further presents an opportunity for Indian policymakers to get their act together and focus on developing a comprehensive Make in India policy by involving manufacturing entrepreneurs in the policymaking roles.

So, in a nutshell, if we get our policy right, then, we can surely be a global manufacturing hub. It will take time, but it is doable.

Why are "Made in China" products cheaper than "Made in India" products, but the salaries in China are much higher than India?

"Why are "Made in China" products cheaper than "Made in India" products, but the salaries in China are much higher than India"?

or 

"Most of the small products bought in India are made in China. Why is India not able to produce such small products"?

These are some of the questions people keep discussing or wondering about. It's true that salaries are certainly higher in China than in India. Therefore, it is a valid question to ask 'Why are "Made in China" products cheaper than "Made in India" products'? or 'Why is India not able to produce small products'?

The answer to these questions can certainly be provided by manufacturing startup entrepreneurs or SMEs (Small and Medium-scale Enterprises). People who are working on the ground can certainly be able to list down the reasons as to why 'Made in China' products are cheaper or why is India not able to produce everyday common household goods.

However, the question then arises is 'are entrepreneurs or SMEs involved in manufacturing policymaking in India'? Did anyone from the policymaking side ask manufacturing entrepreneurs or SMEs about why is India not able to produce small common household goods? No, they did not.

Even the 'Make in India' program does not give focus to small manufacturing entrepreneurs or SMEs. 'Make in India' program simply focuses on large manufacturing companies, especially foreign manufacturers. The policymakers shall notice that these foreign manufacturers will not produce small common household goods. Only an Indian entrepreneur or manufacturing startup or SME can produce these simple common household goods. However, Indian entrepreneurs instead of producing these simple common household goods in India end up buying these goods from China. In other words, Indian entrepreneurs are becoming traders and not manufacturers.

This can be resolved. This can be corrected. India can certainly become a manufacturing hub of these simple common household goods. India can reduce its massive trade deficit of 60+ billion US$ with China. India can create millions of manufacturing jobs.

However, small scale entrepreneurs or SMEs need to be involved in the manufacturing policymaking. Small scale manufacturing startups or SMEs need to be involved in developing the policies for the 'Make in India' program.

These manufacturing startups, or entrepreneurs, or SMEs will be able to list down the reasons for not being able to produce simple common household goods in India. Reasons such as a lack of focus on developing manufacturing technologies in India, a lack of focus on developing the manufacturing processes, a lack of focus on training the workforce, a lack of focus on providing financial support to manufacturing startups, etc. Besides this lack of focus, we must also be able to understand different kinds of manufacturing approaches, especially top-down manufacturing, and bottom-up manufacturing.

Once, we as a country are able to identify the issues, then, we can certainly come up with solutions and start producing simple common household goods in India itself instead of buying these goods from China. However, to identify the issues, we as a country need to involve small scale entrepreneurs in policymaking. Unless we do that, we will continue to buy simple common household goods from China. We will continue to lose out on creating millions of manufacturing jobs in India.

India as a low middle-income country can not afford to lose out on generating millions of manufacturing jobs. India as a low middle-income country can not afford to grow at lower GDP growth. The population is huge and it is imperative to generate millions of jobs. And only the manufacturing sector can generate millions of manufacturing jobs. Therefore, it's time, our policymakers take notice of the fact that without involving manufacturing startup entrepreneurs in the policymaking, we will not be able to produce small common household goods in India.

Do you think the Indian economy will beat the Chinese economy in years to come? Why?

This is a question many people keep asking, discussing, debating. Therefore, the data must give us the exact picture. As things stand today, here is a comparison of Indian and Chinese economy in nominal terms as per world bank data at the end of 2018.

• Nominal GDP - World Bank Data:

India's nominal GDP at the end of 2018 - 2.719 Trillion US$
China's nominal GDP at the end of 2018 - 13.608 Trillion US$

Therefore, China's GDP is approximately 5 times the size of the Indian GDP in nominal terms.



As things stand today, here is a comparison of Indian and Chinese economy in Purchasing Power Parity (PPP) terms as per world bank data at the end of 2018.

• GDP in Purchasing Power Parity (PPP) - World Bank Data:

India's GDP (PPP) at the end of 2018 - 10.5 Trillion US$
China's GDP (PPP) at the end of 2018 - 25.399 Trillion US$

Therefore, China's GDP is approximately 2.42 times the size of the Indian GDP in PPP terms.


Having done the numbers part, let's now assess what explains the growth of the Chinese economy since 1980 when both countries were at equal footing in economic terms. How can the Chinese economy become 5 times the size of the Indian economy in a matter of about 40 years (from 1980 to 2018)?

People will give many reasons for the spectacular rise of the Chinese economy in comparison to the Indian economy. Reasons such as the one-party system in China, focus on exports, investment-led growth, focus on manufacturing, etc. All these are valid reasons for China's incredible rise.

People also give many reasons for the relatively subdued growth of the Indian economy. Reasons such as democracy, lack of reforms, focus on consumption, lackluster growth of the manufacturing sector in India. All these are valid reasons as well.

However, one factor that stands out among all these reasons is while China has become the world's factory, India has lagged behind. India could not develop it's manufacturing capabilities. Why?

India could not develop its manufacturing capabilities because of its dependent on top-down manufacturing (capital intensive manufacturing). In a top-down manufacturing approach, a large company (multi-national or domestic) sets up a base and starts manufacturing products after assessing the size and demand for those products. Once this company starts manufacturing, the ancillary units come up to supply different parts to this large manufacturing company. For example, Maruti started operations in Gurgaon and thereafter many ancillary manufacturing companies came up to supply different parts to Maruti. India has done well in this kind of manufacturing. However, this kind of manufacturing does not create the bulk of jobs. In fact, automation reduces the possibilities of the generation of jobs in this kind of manufacturing. Hi-tech machines and robots are deployed to produce and assemble finished products in this kind of manufacturing.

India did not focus on bottom-up manufacturing (labor-intensive manufacturing). And this is where the bulk of the jobs are created. Simple products such as electrical items, electronics, Lights, toys, plastic products, etc. are not produced in India. A large company won't produce these simple items. Only an entrepreneur or SME will produce these simple items. But SMEs or Indian entrepreneurs do not manufacture these products in India. Instead, they all go to China and flood Indian markets with Chinese goods. Why don't our entrepreneurs and SMEs make these simple products in India? What stops them from producing these simple goods in India? When we can develop our own capabilities in space research, then, why can't we develop our own capabilities in producing or manufacturing these simple products in India? Well, the answer lies in a lack of focus on bottom-up manufacturing.

Make in India program was launched with much gusto in 2014. However, Make in India also focused on top-down manufacturing. Make in India focused on attracting global manufacturers to start manufacturing in India. However, again, Make in India framework did not focus on bottom-up manufacturing. Or in other words, Make in India program did not pay attention to the needs of the local entrepreneurs or SMEs. Make in India program did not provide answers to questions such as 'Why are Indian entrepreneurs becoming traders and not manufacturers'? 'Why are Indian entrepreneurs or SMEs not manufacturing simple common household goods in India'? 'Why are Indian entrepreneurs bringing goods from China and selling in India'?

If 'Make in India' program had looked for answers to these questions, then, India's trade deficit with China would have reduced. Unfortunately, India's trade deficit with China is rising year after year and that is truly worrying.

By manufacturing the simple household goods in India itself, we would not only be generating millions of manufacturing jobs in India but would also be giving a boost to the GDP growth.

Focus on bottom-up manufacturing would result in narrowing the gap with the Chinese economy in the next decade or two.

Therefore, the answer to the question, 'Can Indian economy beat Chinese economy' is 'YES'. The Indian economy can compete and overtake the Chinese economy in the next 20 years or so provided India focuses on bottom-up manufacturing. Bottom-up manufacturing, wherein the bulk of the manufacturing jobs are created.

India's Trade Deficit with China is a Self Goal that needs to be Tackled

India's Trade Deficit with China is a Self Goal That needs to be tackled - Says Nilesh Shah in this interview on NDTV



The trade deficit of 60+ Billion US$ or in other words approximately 4.2 Lacs Crores Rupees with China is rising year after year. That's a huge number and no country can give this kind of preference to any outsider.

However, the question that needs to be asked is how to reduce this massive trade deficit with China? Certainly, if 'Manufacturing' in India takes off, then, this number can surely be reduced. In other words, manufacturing Chinese-made goods in India itself for India's own consumption can reduce the trade deficit with China.

Not only will manufacturing these Chinese-made Goods in India reduce the trade deficit with China but also generate employment in the formal manufacturing sector in India.

The generation of employment will further boost GDP growth as this will bring millions of people in the formal economy.

So, why aren't Indians manufacturing in India? Why are they all going to China and buying simple household goods from China and sell them in India? Simple items like 'Electrical items', 'Electronics', 'Toys', 'Plastic products', etc. are sourced from China and sold in India? Why? Why are our markets like Chandni Chowk, Bhagirathi Palace market, Nehru Place market flooded with Chinese Goods? What stops Indian manufacturers from manufacturing these simple goods in India?

The policymakers shall focus on these questions to reduce the trade deficit with China. Which in turn will result in employment generation, pick-up in manufacturing, and a boost to the GDP growth!