Where did India falter?

In 1970, exports from India and China were virtually identical. Exports from India were around 2 billion and those from China, about 2....

In 1970, exports from India and China were virtually identical. Exports from India were around 2 billion and those from China, about 2.3 billion. In 1997, India exported goods and services worth 33.1 billion vis-a-vis China8217;s exports of 182.7 billion. Evidently, India8217;s exports have faltered, whereas those from China have flourished.

The principal factor driving the Chinese economy has been the heavy inflow of FDI. China has attracted FDI to the tune of 270 billion since 1978, resulting into over 1,20,000 hundred per cent foreign-owned enterprises or joint ventures. In 1997 alone, China attracted FDI worth 42 billion. The total FDI has directly generated 47 per cent of the exports and 37 per cent of the total industrial output of China. Interestingly, even when China8217;s rate of increase in exports last year slipped by 7 per cent, exports by foreign-owned enterprises increased by 8 per cent. Another very important factor working for China is the scale and magnitude of their free trade zones FTZs.India does not have any FTZs today. There are only seven so-called export promotion zones or EPZs. The total exports from all these zones was valued at 1.2 billion in 1997-98.

In special economic zones of China, technology, capital, raw material, components manufacturing processes and even the marketing of products are left entirely up to the foreign company. The only requirement is that the goods manufactured in such zones cannot be sold in the domestic market. Another major contributor to China8217;s success is its investment in infrastructure. China is committed to spending 744 billion on infrastructure during 1995-2004. Compare this with the 14.2 billion Rs 61,000 crore proposed to be invested in infrastructure in India, as contained in the Union Budget of 1999-2000.

Forty per cent of India8217;s exports comprise primary products, in comparison with almost 85 per cent of China8217;s exports in the form of value-added goods. One great deterrent to investments in India is our archaic and obsolete labourlegislation. In spite of it being a Socialist state, there is no International Disputes Act in China.

If amendments in our labour laws commence from the FTZs, the consequent political turmoil can be eliminated. Workers can be given the option of choosing between protection under existing labour laws or the option of not being covered by such laws but receiving dollar salaries and other economic gains. In China, FTZs attract workmen to dollar salaries and duty-free shops. India had embarked on a policy where we attempted to manufacture all goods from a pin to a plane. It is only now that we have understood that such a policy is not viable. The US, on the other hand, deploys its work-force only in high-value products and services. It consciously sources low-value items from other countries. In the case of the US, manufacturing of garments, TVs, toys and such other items are relatively low value and lower down the value chain. Therefore, the US has constantly sought labour for the manufacture of such itemsoverseas. This is precisely the reason why US has shifted manufacturing bases to South Korea, Taiwan, Hong Kong, Singapore and now to mainland China.

Unfortunately, India has been bypassed in this process. We need to attract FDI from the US and Europe to our benefit. Besides increasing exports, we shall derive immense socio-economic benefits. Further, such overseas FDI will provide employment. The silver lining in India8217;s case is its potential of exporting services. Services can be India8217;s main driver of exports. And India has relatively cheap and abundant skilled labour. Moreover, there are more ISO 9000 and CMM certified software companies in India than in any other country worldwide.

The author is Chairman, Datamatics Limited, a software company