India needs to improve cost competitiveness to attract businesses: GTRI

Chennai: Manufacturing has just a 30 per cent share in the foreign direct investment attracted by the country. India must offer a more competitive cost structure to attract businesses that are shifting from China or looking for alternative production locations, finds GTRI.

India’s FDI is disproportionately directed towards trading, services, malls and real estate development. While manufacturing attracts an estimated 30 per cent of the FDI, significant sectors like electronics and technology remain underfunded.

According to GTRI, India must offer a more competitive cost structure to attract businesses shifting from China or considering alternative production locations.

In India, raw material costs are higher for non-traditional manufacturing due to import dependence and high tariffs. China benefits from lower costs due to large-scale production and efficient supply chains, while Vietnam offers competitive costs with low tariffs on imports.

Labour costs in India are lower than in China, with skilled labour averaging about $2 per hour compared to China’s $3 to $4 per hour. Vietnam has the lowest labour costs at around $1.5 per hour.

Industrial energy cost in India ranges from $0.08 to $0.10 per kWh, higher than China’s $0.06 to $0.08 and Vietnam’s $0.08 to $0.09 per kWh.

Infrastructure and logistics in India, despite significant investment, still lags in inefficiency, while China has advanced infrastructure and transport networks and Vietnam is making notable investments in ports and roads.

Financial costs in India are the highest with lending rates around 9-10 per cent, while it is 4-5 per cent in China and 7-8 per cent in Vietnam.

While addressing the issues related to cost competitiveness, India has to improve the ease of doing business by inviting top global firms as anchor manufacturers, developing effective coordination with lead investors, providing ready-to-manufacture space, ensuring quick factory-to-ship movement and ensuring policy predictability and reducing arbitrariness. Setting up quick dispute-resolution systems is also vital.