China important, but no longer indisputable leader as Indian labour market gets younger and cheaper

A research report published by U.S.-based Reshoring Institute has indicated that manufacturing wages have increased in China, which is no longer the global low-cost labour market. It highlighted India, Mexico and Vietnam, now uniquely positioned, to emerge as the go-to place for conducting business.

For a very long time, global corporate executives gratefully embraced the prospect of cheaper, and less-empowered, labour China offered. But as 2023 dawns, companies are no longer sleepwalking into the Chinese market, but exercising restraint and caution considering China’s obstinate zero-covid policies, its dictatorial control of the market and the prospect of a war with the United States and its powerful allies over Taiwan.

As per a survey conducted by the American Chamber of Commerce in Shanghai, nearly twice as many U.S. companies cut their investment in China in 2022 as compared to last year. Close to 20% of the respondents said they were cutting investment in China, up from 10% in 2021.

While China will continue to attract foreign investments, it’s no longer going to be able to dominate it. India’s manufacturing sector activity rose to a 13-month high in December, supported by healthy inflows of new business and strong demand conditions, a monthly survey has revealed. The seasonally adjusted S&P Global India Manufacturing Purchasing Managers Index (PMI) stood at 57.8 in December, up from 55.7 in November, as business conditions improved to the greatest extent in over two years.

The Reshoring Institute’s research focused on global labour rates in 12 countries, comparing the wages of production workers, machine operators, manufacturing supervisors, and managers. It found European companies, such as those located in France and Germany, and the United States, have been considering moving out of China to other low-cost countries. India, Mexico and Vietnam emerged as the new low-cost hubs for manufacturing companies worldwide.

India is also a peace-loving country and does not have any aggressive designs that can trigger geo-political risks and chaos, situations that negatively impact any business. Its market regulations are much more investor-friendly compared to China’s.

Cheap labour is not the only inviting factor for global companies. The quality of labour is equally important, if not more so.

India is expected to surpass China and become the world’s most populous nation within the next three months, according to a recent report by the United Nations’ population division, marking a seismic shift on the global stage in a trend with significant social and economic impact for both countries. It is also going to be the youngest India has ever been.

Of the rapidly growing 1.41 billion people in India, about one in four are under the age of 15 and nearly half are under 25. By comparison, China’s population is about 1.45 billion, but those under 25 make up only a quarter of the population. By 2050, data shows that India is expected to provide more than a sixth of the world’s population of working age (15 to 64 years old).

Youth is a clear advantage for India. This demographic dividend, said to have commenced around 2004-05, is available for close to five decades and India should do everything to seize this opportunity. India’s population heterogeneity ensures that the window of demographic dividend becomes available at different times in different States.

But harnessing the dividend requires a holistic approach. It will depend upon employability of the working-age population, its health, education and vocational training and skill. The policies that India adopts and their effective implementation will ensure that the demographic dividend, a time-limited opportunity, becomes a boon for India.

Also Read: Can India be the world leader in the textile & apparel market?