Date:11/12/2004 URL: http://www.thehindubusinessline.com/2004/12/11/stories/2004121102110400.htm

Back Labour cost gap widens between India, China

Anil Sasi

New Delhi , Dec. 10

THE gap in labour costs is widening between the Indian and Chinese manufacturing sectors. According to the latest Oxford Economic Forecasting data, the average Indian hourly labour costs have gone up by 25 per cent between 2001 and 2003, as against an increase of only 20 per cent in Chinese labour costs.

More significantly, the average hourly Indian labour cost, which was 60 per cent higher than the hourly Chinese manufacturing sector labour costs in 2001, turned 67 per cent higher in 2003. What it means is that while it was 60 per cent more expensive manufacturing in India as compared with China in 2001, by 2003 it became even costlier, further eroding the competitiveness of the domestic manufacturing sector vis-à-vis the Chinese industry.

The China manufacturing sector's low labour costs may, however, not be entirely comparable to the Indian rates due to a bevy state sponsored benefits extended by the Chinese government to the working class, including subsidised accommodation, rations and other benefits for workers in the manufacturing zones. The Chinese labour costs are net of these facilities extended by the state to the working class, which, thereby remain insulated from the normal inflationary spiral afflicting wages in India and other countries.

Also, the 25 per cent increase in labour costs in India is on the higher side of the 20-25 per cent average hike in labour costs in most countries included in the data. The labour costs in South Korea went up 22 per cent between 2001 and 2003, 23 per cent in the UK and France, 18 per cent in Italy and 28 per cent in Spain. An exception, though, is the Czech Republic, where the manufacturing sector's labour costs shot up 57 per cent between 2001 and 2003.

In terms of absolute numbers, India still retains its competitiveness in terms of labour costs, with the rates ending up nine-folds lower than the labour costs in South Korea and nearly 13 to 20 fold lower than the labour costs in countries of Western Europe.