Why destination india is favoured over destination china on account of labour laws

India and China are the two most populated countries in the world, having population over 1 billion people each. Both countries have great history. Both are unique in having an unbroken stream of culture and civilization for centuries. Populations of both countries consist of very highly educated and technically skilled work force. In both countries, there is very large middle class, progressively are in need for vast quantities of consumer goods. Until 1970's, both India and China have closed their economics to the outside world(India because of East India company's incidence). There was very little foreign trade so domestic markets of both countries were not opened to foreign direct investment (FDI). Around the early 1980's, China started to liberalize their economics and began to open its markets for foreign investors and FDI funds started flowing into the country after that in 1991 India had also liberalize its policies for foreign trade. But Chine liberalizes their economy before India which result higher FDI in favor of China but India is doing better in FDI to overcome China by 2012.

Foreign Direct Investment

Concept & Policy

Foreign direct investment is an investment made by a foreign individual or company in productive capacity of another country. It is the movement of capital across national boundaries in a way that insure the investor control over the acquired asset. In FDI a foreign country comes in other country to establish their plant in that vary country and take the benefits of that country like:-

Resources

Labor

Land

Types of FDI there are two types of FDI:

• Greenfield investment:It is the direct investment in new facilities or the expansion of existing facilities. It is the principal mode of investing in developing countries like India.
• Mergers and Acquisition:It occurs when a transfer of existing assets from local firms takes place.

FDI in India:-

The Indian economy is the third largest economy in the world as measured by Purchasing Power Parity (ppp), with a gross domestic product of US $3.611 tr. According to USD exchange-rate terms, it is the 10thlargest in the world, with a GDP of US $800.8 billion (2006). India is the second fastest growing major economy in the world, having a GDP growth rate of 8.9%. However, India's huge population results in a per capita income of $3,289 at PPP and $715 at nominal.

About two-thirds of the Indian workforce still earns their livelihood directly or indirectly through agriculture whereas service sector is also a growing one and are play a very important role in Indian economy. The advantage of this digital age, and the large number of young and educated population which is fluent in English, is gradually transforming India as an important 'back office' destination for global (multinational) companies for the outsourcing of their technical support and customer services. India is a major exporter of highly talented workforce in financial services and software engineering. That is why most of the countries now coming to India for Foreign direct Investment.

In India FDI is restricted mainly to hard cash unlike other countries which include non-cash such as technology and machinery.

FDI in India also excludes;

              -reinvested earnings

              -subordinated debt

              -overseas commercial borrowings

FDI inflow in India:-

SECTOR WISE INFLOW OF FDI:-

Difference between India and China

1. Some  differences:-

2. DRIVER OF GROWTH:-

THE OUTSOURCING PHENOMENON

Economists are of opinion that outsourcing is closely related to global trade and are beneficial to all the countries dealing in it. Because people in every region of the world would be able to obtain the best quality goods at the lowest prices. New parts of the world, long considered underdeveloped backwaters, are now taking center stage in the global economy. Rapid ascendancy of China's economy is much publicized as it transformed into a major venue for manufacturing of cheaper goods sought after by global consumers. India also is exhibiting a growing economy partially covered by companies around the world trying to reduce their costs by outsourcing some of their operations to India. Stories began to appear in the international media that India was "stealing" jobs from the U S and other wealthy nations. These were not just industrial jobs like those that migrated to China, but many white-collar jobs of well-educated people. Today everyone knows that the small trickle of jobs from developed nations to India which started in the late 1990s has become a veritable flood. India now is said to be the back office of many banks, a magnet for labor-intensive, tedious programming, and the customer service voice of every company from British Airways to Microsoft. It is reported that during the past five years alone, over 100 (IT) and scientific companies have located their Research & Development (R&D) labs in India. These are not routine drudge jobs. High-technology companies are coming to India seeking innovators of the future world. Their recruits are young graduates fresh from the Indian universities and elite Indian Institutes of Technology (IIT). The knowledge revolution is on and some senior scientist and officials believe that India can short-cut the established path to industrial development and move straight to a knowledge economy. The current global financial crisis and the liquidity crunch could push down global foreign direct investment (FDI) flows by about 10 per cent, but the developing world, including India, would still remain a favored FDI destination as opposed to the more advanced economies, according to the World Investment Report 2008 released by United Nations Conference on Trade and Development (UNCTAD). In fact, India emerged as one of the most favored FDI destinations second only to China.

Certain factors that favor India include:

• China has been 85th in terms of economic transformation where India has been ranked 25th by German Bertelsmann Foundation.
• Indian business leaders - as India is having more number of entrepreneurs as comparing to China(in a survey by Korn/Ferry International )
• Indian products were found to be more preferred than Chinese products.(US-based business magazine Fortune)
• On comparing India, China and Malaysia India has fared better in providing social security like healthcare, education and child welfare to its people (Asian Development Bank).
• For Sun Microsystems, India has overtaken the US and China to emerge as the largest developer location.
• Indian IT sector has recorded the fastest growth rate in the world in 2008(global research firm IDC).
• In technology and outsourcing services major, India is all set to threaten China's position as the world's backyard for manufacturing in the next 3-5 years.
• Indian millionaires will hold more than double the wealth of their Chinese counterparts. 411,000 Indian households will be worth US$ 1.7 trillion in 2017. In contrast, 409,000 Chinese millionaires will be worth US$ 795.4 billion.

3. Difference in India and china (in context to labor)

In China nearly 50% of the country's labor force is engaged in agriculture (about 60 percent in India). India has the largest number of illiterate people in the world and China also is burdened with a large number of rural poor as well as uneducated population, who will offer continued challenges for economic development. (Illiteracy rate in India is nearly 40 percent as compare to China's which nearly 10 percent is). Of the total of 2.3 billion people in these two countries, nearly 1.5 billion earn less than US$2 a day. The opportunities in both countries are substantial; the challenges are also large. On compare the two size of these Two countries: China is the world's third-largest country after Russia and Canada and is the second largest country by land area. India is about a third of China's size India is growing at a faster rate and has a younger population. Political systems in China it is a communist country which economically is following market reforms that encourage free trade and capitalist-based business models. India, by comparison, is the world's largest democracy, but was based on the Soviet model and has since been reforming itself to follow more free trade and capitalist-based models. China has been reforming its economy since 1978; India has been working since 1991 but at a faster rate of speed.

In manufacturing China's lead over India is considerable. India's success in expanding its service industry has yet to be as firmly demonstrated in the manufacturing sector.

India will be favored destination over China because of following reason:-

1. India has having huge potential in regards to educated labor force.
2. India is having service intensive labor.
3. Indian labor is so poor and is willing to do work on low wages too.
4. Labor laws are more in favor of employees as comparing to employers.
5. There are special provisions for female workers as comparing to Chinese labor laws.
6. In India labor laws more focus is given on worker safety and protection of their rights.
7. India labor laws give provision of making trade unions for welfare.
8. Special provisions in regards to holidays, remuneration, compensation etc.
9. Minimum working hours for workers at a minimum wage rate.
10. No discrimination on the basis of sex, caste and age.
11. Child labor has been restricted in India (child of less than 14 years of age is not allowed to work on hazardous places.
12. Working condition on female employees.
13. Compensation act deals with the various provision of providing compensation in case on an accident and mishappening.
14. Deals with labor working conditions.
15. Describe the liability in case of violence of laws.
16. Workers are appointed on fixed and flexible time period basis if they are not working properly than they can be terminated from there job.
17. Special provisions:-

• a) Those who are confirmed to have totally or partially lost their labor ability due to occupational diseases or work-related injuries;
• b) Those who are receiving treatment for their diseases or injuries during prescribed period of time;
• c) Women employees during pregnancy, puerperium, and nursing periods;
• d) Others cases stipulated by laws and administrative decrees.

Findings:-

• 1. India can be favored destination over China only if in India equal focus is given on manufacturing sector as comparing to service sector.
• 2. India has been liberalized after 10 years from China's liberalization so FDI in India is less as comparing to China.
• 3. Indian labor laws are less complex as comparing to China.
• 4. India's labor force is more productive as compare to China but the only problem is with regards to flow of information and use of that information in productive way.
• 5. Indian labors do not take advantage of their rights and make others to take advantage of their rights.

Suggestion:-

1. Laws are not only for making proper implementation of laws should be there.

2. Awareness should be there in laborers and employers.

3. Proper care should be taken that in case of violence of the laws strict action should be taken.

4. For encouraging FDI government should liberalize their policies.