Sunday, June 17, 2012

Will gap between India and china's export competitiveness will narrow down in future?

China's export competitiveness is subject to multiple factors. Artificially pegged currency and economies of scale are a few of them. And when it comes to export of power plant equipments China enjoys a clear sustainable competitive advantage. This has placed the Indian equipment manufacturers at a disadvantage. Now, considering the way the Chinese are making inroads into the Indian market. It seems difficult that this competitive gap would ever narrow in the future.

We have been hearing a constant rant that the Chinese profligacy is attributed to currency advantage. But this ignores the other benefits that come along with China. Cost advantage is one of them. A Chinese manufacturer can provide power equipment at almost half a price than an Indian manufacturer. This is after accounting for the cost of transportation and import tariffs! It can also deliver that equipment in much shorter span of time. Access to cheaper loans from Chinese banks provides another advantage. Thus, if India has to overcome the China threat it will have to take multiple steps. Method to reduce marginal cost of production is one of them. A sound reform agenda with free market pricing is another.

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