Posted by: naunita | September 17, 2008

India- The high Cost Economy

I still remember the time, when my grandfather used to make me sit as a child with him and tell me about his days as a young man, and how everything was so cheap. His statements like “India strongly positioning itself as a low cost economy ” makes me wonder now- was that the real world then and if it was then it took few decades to change into a high cost economy. Gone are the days where India was a dream country for entrepreneurs for its cheap labour and land. And this time it took few months and the economy went haywire. According to the World Bank recent report on “ease of doing business” has ranked India 120th out of 178 countries. High cost are effecting Indian companies ability to compete against companies in china and other emerging economies such as Brazil, Mexico or even Malaysia and Indonesia.

Salaries and wages have risen 22.44%, the highest in the past 10 quarters, while power and fuel cost are growing at a fast clip of 14%. If wages would spare a business exorbitant realty certainly won’t. Retail rentals in central business district in India’s major metro’s are higher than those in downtown Shanghai and Manhattan, New York. If the service sector is hit by high rentals, the manufacturing sector is a victim of centre-state politics over land acquisition.

In such a scenario, it’s nearly impossible for a start up to take off. Several components of cost of doing business here such as spiraling wages, poor economies of scale, lack of infrastructure, high tax regimes and administrative corruption have become too exorbitant to keep India competitive. High cost economy is strong blow to business- rising inputs cost, especially that of labour and power, coupled with shifting political alliances have made India an expensive business destination.

Many elements such as wage costs are purely due to demand and supply imbalance, but companies can still take remedial measures like either controlling their wage cost or moving to high value added business. And the government can certainly take measures that are within the control- like removing regulatory hurdles, setting up power projects and streamlining the tax rates. At least then India could avoid unemployment and rundown factories. And my grandfather could relive his youth.

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Responses

  1. Its right our economy is so costlier than that of past times, so this is good information for people to know about our economy keep it up.

    We should have to tri our economy get cheper by cooperating with government.

  2. Fake inflationary housing prices resulted in the downfall of US economy. This has also affected global markets. Same is the case in India due to high inflationary costs. It is affecting the economic growth of the country adversely. All in all, a nice effort to create awareness.

  3. thank u so much Anurag..

  4. Dear Naunita ,one must go into reasons ,why there is bullish trend in factor market, IF u go by the reasons nt by world bank report, U ‘ll find India still , nt an high cost economy……..If u keep aside the last year inflationary trends …. u ‘ll find in past 5-6 year we have very consistent and persistent n mild in flation rate, which actually provide feel good factor to Industry.While u compare present rate with past u must take the help of indexes…..By d way in the 80’s India consistently faced 12 to 15 percent of inflation.
    Rest we will do later


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