UP and MP have changed labour laws, will they gain?

UP and MP have changed labour laws, will they gain?
0 0 vote
Article Rating

Let us Look at Mobile Phone Manufacturing in India

Uttar Pradesh – Samsung, Vivo, Xiaomi, Oppo, Andhra – Foxconn, Tamil Nadu – Foxconn, Karnataka – Wistron

Let us Look at Automotive Manufacturing in India

Two Wheelers – Andhra, Haryana, Himachal Pradesh, Madhya Pradesh, Rajasthan, Uttar Pradesh, Karnataka, TN, Maharashtra

Passenger Vehicles – Haryana, Rajasthan, UP, Karnataka, TN, Gujarat, Maharashtra, TN and AP

Commercial Vehicles – TN, Telangana, Andhra Pradesh, Madhya Pradesh, Punjab, Rajasthan, Uttar Pradesh, Uttarakhand, Karnataka, Maharashtra

If one looks at these two lists, contrary to expectation, Uttar Pradesh and Madhya Pradesh already have Some Manufacturing already place. In fact, the NOIDA hub is the biggest mobile manufacturing hub in the company.

Second thing, one would noticed is how Manufacturing is spread across 3 regions – Maharashtra-Gujarat, Karnataka-TN-South Andhra, North India (Mostly Around Delhi). Further, there is a concentration of Units, all the mobile phone units in the South are located in a narrow Tri-State area – Tirupati/ Chittoor, Sriperumbudur in TN and Kolar in Karnataka. The distance is about 200 kms between them. They also have access to 3 big metros – Hyderabad, Chennai and Bangalore. Gurgaon, Pune and Chennai have a heavy concentration of Automotive Companies

Therefore, beyond Land, Labour and Capital, the biggest Factor that drives manufacturer’s choice is

Viability of the Factory

Viability in turn is determined by two factors

a. Cost of Production

b. Access to Markets

We will focus rest of the article on Access to Markets

One reason why China performed really well after 1979 was access to Markets. China Adjacent Countries – Japan, Korea, HongKong, Taiwan in 1979 had a GDP which was 6.6 times higher than China alone. These countries together had less 25% of China’s population.

The richest countries around India in 1991 were Oman, UAE, Saudi Arabia which had a GDP together which was lower than India. We are excluding East Asian Markets because both were equally accessible to India and China. China had a huge advantage to start with because it had huge markets around it, India did not have it in 1991 and the biggest market for India is India itself today. India now gives sufficient volumes to produce at lower costs for exports as well. Which is also why

India’s mobile phone exports have boomed exactly at the same time as the boom in local smartphone market

Today, Mobile Manufacturers are shifting manufacturing to India because

a. India’s Smartphone shipments went from 42.5 million in 2013 to 102 million in 2015 to about 150-160 million last year

b. On a per capita basis, China was ahead of India 3.4 times in 2010, this went upto 4.7 times in 2016 making India a much cheaper option

Coming back to Mobile Phones as an example in India and we use this as surrogate for electronics and automotive manufacturing. It makes a lot of sense to open a factory in NOIDA as it is close to 74 million smartphone users in surrounding States. Similarly a Mobile Factory in South Makes sense as it gives access to 50 million Smartphone Users.

The real issue is what happens to Markets in East and West.

With the opening up of the labour markets in UP and MP and the general improvement in infrastructure, opening more Factories in these two States becomes more viable (as labour costs are already low here). The East India market for smartphones is bigger than both West and South India. A factory in Gorakhpur, UP can easily service Bihar, Odisha, Jharkhand and Bengal. Madhya Pradesh on the other hand (from Indore) can easily service 3 big markets – Maharashtra, Gujarat and MP Itself.

The Governments in the East – Bengal, Bihar, Odisha and Jharkhand are not at all nimble enough to respond to this new change. The Governments in Gujarat and Maharashtra are busy solving the COVID-19 crisis. In other words, a perfect timing.

Which sectors can take advantage is difficult to say. A big issue that needs to be resolved are supply chain factors. Setting up a greenfield factory close to markets is all fine but if there are no low cost suppliers around, the entire purpose is defeated. That apart, any change in attitude in the Governments in East or West India will completely equalise the dynamic, overnight! So this is good news as of now for UP and MP but how long, time will only tell.

Subscribe
Notify of
guest

This site uses Akismet to reduce spam. Learn how your comment data is processed.

0 Comments
Inline Feedbacks
View all comments
0
Would love your thoughts, please comment.x
()
x