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Rasheeda Bhagat

While China is forging ahead through rapid economic reforms and privatisation, our present advantages such as IT and English language capability, will not remain so for long, says the Chairman of the Indian Chamber of Commerce in Hong Kong, Mr M. Arunachalam, in an interview to Business Line.

Excerpts:

You are in textiles and leather; how do you look at these industries in India?

The inputs for textiles in India are very expensive; our labour and power costs are very high — and twice that of China. Against Rs 5 for one unit of power in India, in China it is Rs 2.50 and it has promised to reduce this cost over five years. But, in India, power costs will only go up. Also, our productivity is low.

And the differentiation between the small, medium and large industries is too complicated. Doing business in India is very complicated. But in China, it is very easy. There is so much flexibility. I can either have a joint venture, or just lease a facility, and choose what is profitable to me.

Why can't India do this? Let the local person lease out a facility to a foreign investor, who is interested only in the productivity. It is very difficult to believe anybody in India... The trust or confidence level is very low on India when it comes to investing in India.

You would rather trust a Chinese...

I need not invest. Almost 100 per cent of the factory is leased to me... if I do not have an order, I need not pay anything. Can I get this kind of facility anywhere? I can lease the entire production facility for six months, and yet not use it the next month if I do not have orders. I need not pay compensation or any wages. In China, no work means no pay.

So it is this flexible approach to foreign investment that is helping China...

Yes. They found that they cannot reform the public sector and because of the unions, cannot close it so easily. So they simply allowed the private sector to come in without restrictions. Once he makes profits, the public sector man says his employees are benefiting, so I should also reform too. Today in China, the private sector output of GDP is above 50 per cent. And it is going to grow. And China has instructed all the ministries to get out of manufacturing industries other than those related to the military or security.

In Beijing, I saw that the Agriculture Ministry has built one of the largest and modern tanneries, investing $30 million, but has not opened it. The Ministry has instructions to privatise it immediately and give it to either a foreign or a local partner. The Chinese Government is getting out of manufacturing business. The guidelines are clear; no new manufacturing facility and immediate privatisation of existing facilities. In India, we are only talking of divesting in large industries. Small, unviable units are languishing with the BIFR. But in China, such units, where over 90 per cent of the lending has come from public sector banks, are handed over to small entrepreneurs for, say, one dollar. They are told you have to invest so much, employ so much labour and run the factory.

The BIFR takes 10 years to process things by which time the machinery has became redundant. Instead, it should follow the Chinese policy, where the machinery is immediately put to productive use, the workers get employment and get off the state's social security.

So privatisation is rapidly taking place...

Today, China is the most aggressive capitalist country. Because the Chinese have been denied all this in the last 20-30 years, they are going ahead with a vengeance at capitalism. You can see it in the development of a city such as Shanghai, where the Party Secretary lays down the broad policy. But it is the mayor and the vice-mayors, all trained administrators and professionals, who take care of economic planning, industrialisation, building up infrastructure, and so on.

In China, the Party and the administration are kept separate. The party secretary is superior to the mayor but does not interfere in the day-to-day work of the mayor. But, in India, this is not happening.

What about IT? Don't you think we have an advantage over China?

We do, at the moment, but this might not last beyond three to five years. Today, the IT requirement of China's domestic sector is huge compared to India where the domestic requirement is negligible. So you are always dependent on exports. With the EU expanding and the eastern European countries coming in, India's advantage will be wiped out because those countries are equally good. So we will always have to depend on the US, but when September 11-like events take place, what happens?

China has an annual trade of $500 billion, and wants to make this $ 1 trillion in the next five years. They are growing 20-25 per cent per year. Once they reach this trade figure, you can imagine the local IT requirements. There will be a huge opportunity for India, but not unless they learn the Chinese language. Without Chinese we cannot be successful in China.

But there is no such effort...

No. We say India should start teaching Chinese and Japanese to software professionals in India. Major universities in India should have a course in Chinese. I do not think any Indian university, except the JNU, has a course in Chinese. Even there, an ornamental 10 people or so might be learning the language!

Today, 600,00 Hong Kongers, out of a 6.8 million population, are employed in China, because we have no more jobs here. Every year, China organises an employment fair in Hong Kong to recruit managers. China lacks managers, technical people, professors and professionals in areas such as legal, banking and accounting services. Indians will have a tremendous advantage in these areas, provided they learn Chinese. Instead of allowing its unemployed to keep increasing, India should teach Chinese to five million trained people and send them to China. Indians are very hard working and they will succeed.

We cannot fight or compete with China; so why not use it to our advantage? The Indian Government should sign several co-operation agreements with China and send Indians there. China is willing to give any number of visas; today there are no restrictions. Companies are allowed to open rep offices in China and send five representatives. The Government says just pay 5 per cent expenditure tax for those five people. Setting up a business in China is not a problem. That is why many Indian companies have started opening offices in Chinese cities such as Shanghai, or Beijing.

But the government too should take the initiative...

As also the CII and Ficci. But they say the cost is high. In fact, the CII had an office in Shanghai, which it has closed. But we should not look at the cost today, as this is an investment in the future.

China is today saturated in consumer goods such as TV, washing machines refrigerators, air conditions, and the like. They can encourage these companies to shift their factories to India and manufacture these items there. And the Indian government should allow it.

No way... and allow the domestic products to flop?

China is saying if they are competent they will survive. Or else, they will fail. Why should the Indian consumers suffer; let them decide. We are losing out on opportunities. Indian exports are not growing as was expected. I read that the export of Indian leather garments is down by 35 per cent in the last five months. But China's leather export is growing by 35 per cent. Why? When I go to China, I see so many Indian professionals, mainly technicians, in the leather industry. They have learnt Chinese and are happy working in China and the Chinese are happy with their work. The Chinese are recruiting CLRI candidates from Chennai; I have seen over 100 CLRI-trained technicians working in Chinese tanneries. They find them cheaper than Italian or Spanish people.

And your Chamber is willing to help facilitate all this?

Of course. We feel very disappointed. The Hong Kong Indians are marketing Chinese products in Africa, Latin America, and West Asia. Every year, the prices are going down and we are able to compete. We would love to market Indian products, provided they are competitively priced. And India should concentrate on making consumer goods that are easily saleable and can fetch immediate profits instead of engineering goods. IT is fine but it cannot give employment to large numbers of blue-collar and ordinary people.

Also, I visit engineering factories in China. It is very backward in process engineering. If they need a computer control equipment, they just go out and buy it from Europe or the US. They buy the entire package — the computers, the programmes and the process technology to run the machines. This is where they lag behind, and where India is tremendously competitive. But our handicap is that we do not know the language. They want it in Chinese.

Two, we do not have the products. We think that the customer will come and tell us what to make. Instead of that we should go to China, see the factories, decide what they need, design and sell it to them. We are not doing that. When we talk to IT majors in India, they say we are 95-100 per cent busy and have no excess capacity. Everyone is talking of the US, despite one bad experience.

So we should think of alternatives?

Yes, we should have new markets in reserve. China is going to be the market of tomorrow, which everybody is neglecting because they are looking only at present revenues. If top Indian IT companies cannot do it, Nasscom should look at second- and third-tier companies which are starved of projects. Nasscom should open an office in China and take such companies to China where the opportunities are tremendous.

(Response can be sent to rasheeda@thehindu.co.in)

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