July 19th, 2012
11:21 AM GMT
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Mumbai, India (CNN) – After years of growing at a breakneck speed of around 9%, the Indian economy is running out of steam and the manufacturing sector is suffering.

External problems like the crisis in Europe, plus domestic troubles like inflation, are hurting manufacturers, forcing some to shut up shop, scale back - or in some cases, start manufacturing in China.

Ashish Saraf is CFO of Technocraft Industries. His factory outside Mumbai makes yarn, cotton, clothes and engineering equipment. Almost everything is exported so Saraf keeps a close eye on exchange rates, watching as the rupee slid about 25% versus the dollar over the past year.

Usually, when the rupee weakens, Indian exports become cheaper, so buyers overseas order more. But that’s not the case for Saraf because, he explains, the European crisis has completely wiped out demand for his goods.

“Last year was one of the worst years we've ever had in the 15 years of existence in this industry, especially in the spinning sector, where every hour of production counts,” Saraf told CNN’s Mallika Kapur. “We had to actually cut down complete shifts for a whole month to cope with the slow demand.  We could not sell what we were producing.”

Faced with similar problems, manufacturing companies across India are shutting down or scaling back.

Narendra Thakkar is finding it hard to staff his garment manufacturing unit. He says laborers want higher wages, because they're paying more for everything from food to fuel. And if they don't get that higher wage, they're going back to their villages where the cost of living is cheaper.

Inflation is also driving up the cost of raw materials at a time when demand is slow.

At full capacity, Thakkar’s 50 tailors operating 50 machines could produce 500 pieces a day. Now, with just 21 tailors, they produce half that. Manufacturing activity - considered the main engine for growth in India - contracted in the first quarter of this year against a 7% rise last year.

“It's because investments have stopped,” said Satish Jamdar, of the Confederation of Indian Industry. “Investments in long-term projects have stopped. Investments have been a little slow. We need to fuel this, give some impetus to infrastructure.

“I have seen all great nations that came up and started growing; in the beginning, initial development came from spending on infrastructure. Then manufacturing kicks in, services kick in. That's what we require.”

The slowdown in manufacturing is affecting overall growth and India's economy is currently growing at its slowest in almost a decade. Disillusioned with the state of the economy, Saraf set up a manufacturing facility in China, where he makes engineering equipment.

“In China, the benefit primarily was the raw material cost,” he said. “The overall cost of production in China is much lower. Even now, the cost differential between here and China is around 10 to 15%. And then you have the labor cost difference. Once you add in all the productivity etc. the labor cost in China is definitely lower.”

He says it was surprisingly easy to set up his factory there.

“In India you have a lot of hidden costs,” he explained. “In China they welcome foreign investment, they welcome industries to be set up there. So setting up was relatively easy and quite fast so you also save on the time. The faster you start up the faster is your recovery on investment.”

But what's good for the bottom line of Indian entrepreneurs isn't necessarily beneficial for India, according to Jamdar.

“What worries me is the flight of capital or investment or evn thinking, which for a nation of huge potential, I find it strange to be in this situation,” Jamdar said.

“All of us have to, as people who are involved and responsible, get down to the business of building it back because it is possible.”



soundoff (32 Responses)
  1. KingofNarnia

    I know of an Indian who moved shop from Mumbai to Karachi. He said workers there are more disciplined and more efficient.

    July 19, 2012 at 2:40 pm |
  2. Indian

    Thats awsome atleast Indians and chinese getting along ..this will help to create amazing relations between Giant countries and economies

    July 19, 2012 at 2:43 pm |
  3. Indian

    King of Lunds ..stop laying son ..Indians are not like your singers and artist who would leave there country to beg India :)

    July 19, 2012 at 2:44 pm |
  4. Aisha begum

    King Of Narnia ..ROLF you gotta be kiddin me ..Pakistan have 18 to 20 hour electricty cuts ..read dawn sometimes
    no industry .no water .no electricty in Pakistan ..pple are dying coz of no labour and jobs ..factories are shutting down .
    Thats why most of pakistani buisnesmen are opening factories and moving to India or bangladesh

    July 19, 2012 at 2:47 pm |
  5. Imtiaz

    why pakistani poke there nose in everything about India? PCB just begged India to share revenue from cricket games and India showed em big middle finger. I know pakistan economy is in shambles 1$ is rs 98
    but have some shame pple so glad my grand parents were smart and didnt move to Bakistan

    July 19, 2012 at 2:50 pm |
  6. objectivemind

    This story runs contrary to CNN troll Anti-AntiUSProgpaganda (aka ShovelinShow) constant theme that US corporation should relocate to India.

    Anti-AntiUSPropaganda is racist troll master ShovelinSnow's new avatar, trying to appeal to ultra US nationalism.

    Doesn't take any difficulty to find out Anti-AntiUSPropaganda is the same troll ShovelinSnow by looking at the same inciting rhetorics:

    "US business relocated to his hometown India, tariff China, 1/6 RMB value, and the same typo, and same inciting comments from the same racist troll........"

    ShovelinSnow, aka ShadowSnow, Lion0fNaria, little Indian from Bangalore, India, fake American.

    July 19, 2012 at 4:16 pm |
  7. Tradesman

    Yes. I notice the Anti-AntiUSPropaganda's latest racially inciting comments.

    He is ShovelinSnow, the notorious racist troll who has been shoveling tons of senseless and biased comments onto any topic related to China, whether the news are related to economy, politics, tourism or even traffic accidents.

    July 19, 2012 at 4:19 pm |
  8. Imtiaz

    lols

    July 19, 2012 at 4:53 pm |
  9. King of Malaysia

    Worst idea ever. Most of the value of corporations comes from manufacturing.

    July 19, 2012 at 5:02 pm |
  10. Careful of these factories

    Google image search for "laogai"

    July 19, 2012 at 5:18 pm |
  11. Karthik Gollap

    Well, if I were a firm, I would do the same. This affects the Indian people, however. Our government couldn't care less– they're too busy stuffing their pockets with our money. People also need to stop blaming China. This is the fault of the Indian government, not the fault of China. We need reforms NOW! Our growth is NOT enough, and our leadership is a joke. What we need right now are young, smart, liberal politicians who actually care about India's future– not the Gandhi dynasty ruining our future. WAKE UP INDIA!

    July 19, 2012 at 6:18 pm |
  12. Karthik Gollap

    Also, India's doing a mistake by just investing in Mumbai. Mumbai is a great city, but there are so many other cities in India with so much potential. They should consider investing more heavily in Hyderabad or Bangalore. These are cities with some of the smartest Indians, and they have LOTS of potential. India's government is lazy beyond belief, however.

    July 19, 2012 at 6:21 pm |
  13. Karthik Gollap

    In 1 or 2 weeks, India's set to pass major economic reforms. I hope they're radical enough. We need BIG reforms now.

    July 19, 2012 at 6:24 pm |
  14. Genius Cucallatus

    Never trust a chinaman.

    July 19, 2012 at 6:34 pm |
  15. K Shah

    India and China shall be a powerful force to reckon with in the future, for now they are just beginning to start co-operating together.

    July 19, 2012 at 7:46 pm |
  16. james S.

    Murder in Syria, China looks the other way. Murder and genocide in Tibet, China is the perpetrator, the world looks the other way.
    India does not need the blood of innocents on its hands, India is a country that works on the ebb and flow of Karma. India should concentrate on its internal problems by fixing them from the inside, just like after independence from the Raj. Be India Buy India was a slogan that was everywhere in the 70's and 80's when I travelled around India. Things were a bit behind, but at least they were all made in India, something that India should not sell to China.
    Don't set up shop in the land of the setting sun India.

    July 19, 2012 at 9:23 pm |
  17. Prettygal

    Now, the Chinese can steal intellectual property, patents, production secrets from the Indians as well as everyone else.

    July 19, 2012 at 11:44 pm |
  18. Marco Hsiao

    [ Asia is moving to prosperity and cooperation ]

    This report is fair and balanced. The friendship between India and China also is very long. Great Emperor Ming Yongle had sent Admiral Zheng He and a huge fleet to visit Calicut in India; lots of gifts were bestowed for friendship.

    Dalai Lama insists the goal is for autonomy (to PRC) not independence; he visits Republic of China (Taiwan) for several time. Now Tibet is moving to prosperity, more and more Tibetan Chinese loyal to China (Mainland + ROC Taiwan + Hong Kong); and China is more and more prosperous.

    India and China both are becoming stronger. China is becoming largest importing source and exporting market for India. In the future Chinese investment on India also will be bigger and bigger. The economic cooperation between India and China will benefit each other certainly. The GDP (nominal) of China and India should surpass the US and the UK in 2025, possibly nothing could stop it.

    July 20, 2012 at 2:41 am |
  19. tonyl9973

    Uh oh.

    India's living standard HIGHER than China?
    How is India more expensive though comparatively? Kind of shocking.

    July 20, 2012 at 2:43 am |
  20. Marco Hsiao

    On the other hand, more than 100,000 innocent Iraqi Muslims are murdered by the US violence and US lies (weapon of mass destruction); so Iraq becomes an ally of Iran. Lots of Libyan and Pakistani are killed by the US, too.

    The US military complex makes lots of lies to cheat the US citizens and the world for prompt military budget. They want to murder another 100,000 Muslims in Syria. And the US treasury is moving to peril.

    July 20, 2012 at 2:43 am |
  21. Careful of these factories

    Someone help poo Marco Hsiao, I think he's stuck on the wrong article and needs to clear the browser cache.

    July 20, 2012 at 4:00 am |
  22. Ernie_Madison

    The Aghori or Aghouri is a Hindu cult that is considered to have split off from the Kapalika order in the fourteenth century AD. They have cannibalistic rituals. The streets of northern Indian cities are littered with followers of this cult carrying a kapala, which is a cup made from a skull! These bizarre people will eat anything from rotten food to animal faeces. In order to achieve the highest citadel of enlightenment, the Aghori will perform horrendously crude rituals. The finality of their rituals is attained from eating the decaying flesh of a human.

    July 20, 2012 at 4:39 pm |
  23. AcclaimedMan

    KingOfNanrnia, a Porky, usually hallucinates like his other countrymen. But this time he is telling the truth of "he knowing a man from India moving a shop from India to Karachi because of more efficient workers over there" !!!

    Hmmm..., definitely he is telling the truth, and the shop owner is a Indian Muslim trying to terrorize Mumbai and decided to move to Karachi to get correct type of workers !!!

    Guess what that shop owner got in Karachi and why !!!! ROFL !!!

    July 20, 2012 at 5:48 pm |
  24. hachimada

    I was actually surprised to know that the overall cost of manufacturing in China is lower. But, it makes sense. The slight higher labor cost can be offset by the efficiency gain due to skilled workers, better infrastructure, and in general effective administration. In any case, I am happy to see Indians can get along well with Chinese.

    July 20, 2012 at 9:04 pm |
  25. Marco Hsiao

    [ Two side investments are expanding between India and China ]

    This article is nice; but it does not mention there are more Chinese investments in India.

    For example, Chinese Huawei Company is investing US$ 2 billion in India in last month (June 2012). "Time of India" has reported it, but CNN has not.

    More and more commercial interflowing between India and Chinese world (Mainland China + ROC Taiwan + Hong Kong + Singapore) are happening, it is natural and is benefitting for each other.

    July 23, 2012 at 2:30 am |
  26. medhat

    Fun to learn English for free
    http://www.elearning-directory.com/arabic-see2

    July 26, 2012 at 1:34 am |
  27. SPENCER SHEIN

    nice!

    July 27, 2012 at 5:44 pm |
  28. Phi Anh

    Really Interesting article! Before reading this, I thought India was on the same platform as China as a manufacturing and sourcing power house. I wouldn’t think Indian companies or firms would migrate to China for cheaper materials and production. Like India, China’s labor wage and cost of living is on also a rise. Here’s a very interesting white paper written by a colleague of mine, which discusses manufacturing industries in both China and India and their potential for growth. You can read the full article here: http://www.chinaperformancegroup.com/2010/07/industry-and-manufacturing-in-china-and-india/

    September 12, 2012 at 9:21 am |
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