India's progress - A myth

A great article, given that it is posted on rediff it is quite unlike that website to post articles of such profoundity.

http://www.rediff.com/money/2007/dec/06utop.htm

Looks at all the negatives of the so-called demographic dividend. This article exposes the crisis we also call "demographic dividend". A few quotes from the article to elucidate the point -

Who will create the jobs to absorb the net increase of 71m young people of working age over the next five years? Most are poorly educated and only a fraction will find regular work. Who will feed them and supply them with water and fuel? India has 18 per cent of the world's population but only 4 per cent of its fresh water and just over 2 per cent of its land area. Many of the country's groundwater aquifers are already in critical condition. Available per capita water supply has declined since 1975 and water demand is set to exceed all usable sources of supply by 2050. The bulge of young people today, furthermore, will in time become a bulge of pensioners in a country where only 11 per cent of the working-age population have formal pension arrangements. India will thus face the same problems of ageing and high dependency ratios as Japan and Europe today, only on a larger scale.

India does not have much time to shape up....

The perfect state - Rajasthan...

Why is the going so slow on such a large number of infrastructure projects in the country. The much maligned babudom is a convenient scapegoat. It also deserves the title actually. But the issue is not as simple as that. A big issue in developing anything is availability of land.

India suffers from a variety of issues hampering land use for infrastructure growth - be it SEZ, airports, metros, power plants etc etc...I propose to list them out and elaborate on them in this blog.

1. India faces legacy issues. Its a country where development was preceeded by growth in people who are already living there and occupying the land. Any development therefore must be preceeded by a people relocation exercise. Further, states have poor or weak land records. This means that the tillers of the land have no legal right to the land and hence they are not entitled to any compensation for loss of their land. The result - Nandigram.
2. Available land in India is dual use. India pays the price for being a fertile land which is good for agriculture and necessary for urban centres at the same time.
3. India, to some extent and rightfully so, is paying the price for democracy. See China for a contrast.

A good corollary for all the three points is Dubai. India today can spend almost as much as Dubai can, but in Dubai, development is preceeding people. Dubai has negligible agriculture so the land can be fully committed to urban infrastructure. There are no legacy issues and no people to relocate. Finally, there is no democracy and so there are few conflicts of interest.

So what is the solution to all this. Most fortunately, there is a state in the country with huge land area unoccupied by people. It faces no legacy issues, no ownership rights transfers as its largely desert. The state is Rajasthan (and to some extent Gujarat). Imagine the scope for developing transport hubs, SEZs, power plants and other infrastructure in the heart of the desert linked by a express tube to Jaipur which in turn is linked to the Delhi airport. Its time to go for a desert safari.It can be done...

Shanghai - Public Transport

Came across a very interesting pic recently. It shows the length and breadth of the Shanghai metro network in 2020. Its one hell of a badass. The total length of the track is expected to be 960 Kms within the city. Compare (contrast) this with the length of the London tube at around 450 Kms today and the New York subway at around 400 Kms. Makes the Delhi system (expected to be around 350 Kms as per current plans) in 2020 look puny doesnt it. Given that both the cities have the same population today.....

India@Risk 2007

Came across a recent report online by the World Economic Forum which lists out some of the risks facing India as she tries to sustain a record breaking streak of 9% GDP growth year on year.

The risks listed out for the country (apart from the obvious one of infrastructure) are

• Economic Impact of demographics - Will we really be able to cash in on the so-called demographic dividend. This will require a huge investment into education (some articles envisage around 10%-12% of GDP). This invesment will have to be largely focused on primary education (say around 6% of GDP), followed by vocational education (say another 3% of GDP) and finally around higher education (Engg, Medicine, MBA, Other degrees - another 2%-3% of GDP). Unfortunately the current education minister is more interested in the least important of these three aspects of education. This also implies a quick change to India's current labour laws. India's antiquated labour laws, if re-written can even solve our terrorism issues and maoist worries (more on this in a related article).
• Loss of fresh water sources - I envisage this to be the single-largest issue in the coming 5-10 years. With global warming, the snow isnt falling in the high mountains. What makes it worse is that the available snow is melting faster too. With a population which continues to grow at 1.5% this remains an unaddressed issue.
• Economic crisis/Oil Price shocks - A perfect opportunity to quickly ramp up any investment in public transport infrastructure within urban agglomerations and roads infrastructure connecting the urban centres with the rural areas.
• The negative impacts of globalisation in the developed world - will protectionism be back? I dont think this is likely to impact India in the short-to-medium term. Protectionism will do more harm to the developed world than to India. Besides growing south-south trade should solve this issue to a large extent.
• Climate change - Huge impact, perhaps the single largest threat to India's potential. I dont see much possible here given the huge population pressure on the limited resources. I envisage huge strife here for the country.
• Infectious diseases - Fairly substantial risk from threats like AIDS given India's huge (700 million under 30 yrs) youth population. Again not sure what governance can do in this regard. There must be some awareness of the issue, but is it preventable? I feel, providing gainful employment to the youth, giving a meaning to their lives, is a possible solution of engaging with them in this as well.

All in all, a fairly credible list with 3 very key ones in it. Something I feel has been missed out in this list is the fact that the demographic dividend comes with a time limit. The 700 million strong under 30yrs population of India will be approaching 50 in 25 yrs time. What then? I also feel that the birth rates will decline dramatically as more and more of these youth commit themselves heavily into building something for themselves and getting ahead. No children will be a small price to pay for this achievement. The only caveat here is that this decline in birth rates is expected to be fairly uneven in India - likely to be higher in states with better performances on education and gender equality (read south) and insignificant in poor, male dominant, uneducated states (read north). This would lead to the northern states becoming India's own version of eastern Europe continuing to provide labour to the better developed south of the country.

Labour Laws and Electricity Theft

India has over 12 million retail stores. Dhaka, the Bangladeshi capital has over 400,000 rickshaws. How are these two facts related? These numbers are a symbol of an inherent malice in the system which is the lack of good employment opportunities in these two countries for the unskilled. Consider the Indian example in this, why does the shop owner put up his "dukaan"? Because mostly, he has tried his hand at education and the employment exchange and has failed to get the results. So with no other option left open to him, he decides to raise whatever limited capital he can afford and sets up a small shop. Unfortunately, there are many, many more like him. The net result - a huge number of dilapidated, poor quality retail stores which are an eyesore for organised urban development and hardly generate enough returns on their meagre investments. Such employment opportunities are also highly inefficient ways to utilise labour.

And the reason for this inefficient use of both labour and capital is redundant, "labour-friendly" labour laws. In India, you can hire but you just cant fire. As a result, they simply dont hire. Most business units try and stay below the legal limits of 20 employees beyond which labour laws become applicable for the firm. As a result, not only do the employees suffer, even the enterprenuers do since they are denied the benefits of economies of scale.

Now, given that there are so many of these dukaan wallas - none of them manage to make any decent sums of money - hence the need to cut corners - hire children, not pay electricity bills, flout norms etc etc. See how its all related?

Its not looking good...

Recently came across the following info around a project I am working on.
Its a comparison of India with China, Thailand and India. Check out the education figures. Makes me wonder and feel that all perhaps may not be well going forward...

How Retailers can survive?

Much has been written and said about how organised retail is not the right way forward for India's retailing community.

For the uninitiated, India has 12 million retail stores with retail providing the second largest number of jobs in the country after agriculture. Organised retail is expected to drive down costs, manage supply chain better, develop economies of scale and therefore would drive out the small retailer.

A lot of what is being said just might happen. But the great bit missing in news headlines is that the small retailer can survive. There is evidence of this in developed markets as well. The small retailer is not being driven out. He is just being moved up the value chain. So instead of selling packed food, he moves upto running a small takeaway. From running a stationery shop, he moves to running a courier/photostate shop. Get the picture?

India, a more equitable growth...

For a start, look at the map. Now, try and look at India and China. The glow of bright lights registers across the whole nation in India's case. Not the same for China as you can see. Three reasons to explain this.

One, China has all of its population clustered within the well-lit region. Not likely. Two, India's growth is more evenly spread across the whole country. Three, I fudged the map. You decide.

Why mobiles are India's PCs

In a poor country, which claims to be the IT capital (or atleast brains) of the world, the PC penetration is an abysmal 5%. Primarily because owning a PC and associated infrastructure for internet etc costs a bomb. Besides a PC is an in-home device. Within telecom, fixed line telephony has been a complete disaster all along because it involved last mile wire connectivity infrastructure. That is something which the private sector will not do and the government cannot do. A mobile, however is a different take. First, its cheaper than owning a PC. Two, a young population which is bound to be out of the house a lot would definitely be better served by the mobile than a fixed line or a PC. Three, technically a mobile is always connected. And since all new technology (WIFI, Wimax) does not involve laying cable, it will continue to be effective. Now that is something worth thinking about. But how is mobile uptake among Indians? Exploring this reveals that India adds 6 million new mobile customers each month. Yes, each month. Yes 6 million. And the prime reason for that is the pre-paid card, which can be activated and renewed through a 16 digit number bought from any mom and pop store around town...

Why India's tourism traffic will plateau out....

Its holiday time in London (August is the school break month here). And an ideal time for the Incredible India campaign to be around. Surprisingly, I don't see much of it around. I believe it is money well saved.

Tourism is something that I am not really convinced about. Consider this, the largest markets for outbound tourism and travel, logically, should be the USA and the EU? Now only 20% of US citizens have a passport. (I am not kidding here). Two, US citizens do not need a visa to travel to the EU, unlike travel to India. Three, EU passport holders do not need a visa for travelling within the EU. Four, given the sheer width of locations available within the US and the EU, which citizen from these parts, who can afford a decent holiday will even think about acquiring a visa to travel to a country so far away when he can get all he wants within the confines of these regions with minimum hassles?? Only three types of people would still be interested in visiting India. One, the real budget traveller who cannot afford a holiday in these parts will think about India. Two, somebody who already knows about India and has some knowledge about the place (parents visited India, studied about India, fascinated about cultures) would risk the trouble to make the trip. Three, the poor little business traveller who cannot avoid coming over.

Historically, India has not been able to attract its potential of ones and twos. And once these two pots run out, I believe that tourism traffic will plateau out in the years to come...

India's sunrise sectors

Ok, this article did originate with a very selfish motive. This month, I have some spare cash to invest in the stock market. The fact that its just taken a beating also helps. So trying to figure out which sector/area I should invest in set me thinking. Now I am a long-term & completely risk-averse player who would like to invest and sit back for 5 years before I am reminded that I own some shares. This means that I need to incorporate future potential into the stocks I buy as well. Logically, stocks are about businesses who need funding from the market for their business plans. Business plans involve providing a service/product/piece of information required by consumers today and in the future. Therefore, a logical conclusion from this hypothesis is that if you correctly identify potentially large and profitable future needs, you identify the companies ramping up to meet those needs and therefore those are the ones to invest in.

So I asked around for what could be the right companies/sectors to invest in and I was duly informed that I should identify India's "sunrise" sectors - e.g. pharma, IT, tourism.

Now pharma and IT are the ones which are most likely to face the wrath of the rising rupee. Besides, pharma gestation periods are long and risky. And IT has competition sprouting all over the world. I have just been informed, that India's biggest threat in the IT sector is not China but a country called Estonia. Refer to http://www.msnbc.msn.com/id/20053078/ for more. But the real reason for my diffidence about these two sectors is that I find them too pricey for me at the moment...Having looked at my traditional "sunrise" sectors, I decided to start with the basics. Right, so what do the 1 billion Indian consumers really need? And what are the basics in the modern world - Food, Shelter, Clothing, Communications, Energy. This domestic market would certainly need food (and lots of it). That effectively means food companies would be a good bet any day. They would need shelter. That indicates the real estate sector. And we also know that where you have a shelter, you are bound to have a mortgage provider. So the banking sector is the third choice. Finally, clothing indicates retail for me. That is something worth looking at. And finally we come to communications. An absolute must for a service economy I would say. So need to examine it further. There are essentially two available routes to communications today. The telecom sector and the internet. And finally we come to power. Why are people not too excited about it? Because it involved last mile wire connectivity. Because people consume and do not pay their bills and because there is fixed line infrastructure, it leads to power theft. Also people cannot afford to pay the full rates. So its a no no at the moment.But how will the economy continue to grow without one of its five basic needs unfulfilled...Now fixed-line infrastructure is something we really cannot do much about until they invent wireless electricity. But how about attempting the sachet and pre-paid strategy to power? You buy a connection, they install a meter with an alphanumeric pad. They charge you in advance and give you a 16 digit alpha numeric code which you feed into the meter. Voila!! There is power. The moment your tab runs out, the connection is automatically disconnected until you renew. Technology could help ensure that it is impossible to renew connections without the 16 digit codes. If you have renewed regularly, you move to a monthly payment system. It can be done. Will need to give it some more thought, because it doesnt solve the problem of electricity as a birth right or theft.....

Mind the gap...

Just came across a fantastic website - http://www.gapminder.org/. Captures a global comparison of countries on various social & economic parameters. Definitely worth a look. An example attached. For India, it is indeed "mind the gap..."

The most evolved retail markets in India

Have had a fascinating time understanding the face of retail in India and how it is developing. In one of my recent projects at work, I was asked to evaluate and rate cities on their retail environments.

To begin with, let me give you a quick snapshot of retail in India. India has 11 million retail stores. Yes 11 million retail stores. They are mostly small with only 4% larger than 500 sq ft. It employs 7% of India's population and generates 14% of national GDP. Yet only 2% of it is organised. And it will stay unorganised for a long long time. Why? Because its most successful format which is food retailing will always suffer from sourcing issues since India's agriculture is hugely fragmented with average holdings of less than a hectare.

So how do you go about judging the most evolved retail market in the country. Is it on the proportion of organised retail in total retail? Or on area of organised retail to total retail? Total number of malls? In my personal view, it would have to be the nature of anchor stores at the various organised retail setups mushrooming all over the place.

Let me start by explaining the word "mall" in an Indian perspective. In India, mall is euphemism for organised retail. So all that is hip and happening takes place in and around the mall. Now each mall has an anchor store. A store which on its sheer weight pulls in the footfalls. Its the nature of this store that tells you a lot about the evolution of retail in that market.

If the retail anchor serves functional needs and is largely in the domain of meeting basic utilities such as food and basic entertainment, it could be considered less evolved(e.g. Big Bazar or PVR as an anchor store). On the other hand, if the anchor is a store which serves lifestyle needs (Paintings, Serious book shops, accessories, high-end clothing) then it is obviously a much more evolved retail market. The point here is that every other store in the mall looks up to the anchor to draw in the crowds. An evolved category anchor indicates an evolved retail market.

So who wins this race? Well, this work explored Delhi, Calcutta, Bangalore, Hyderabad and Ahmedabad and Pune (No Mumbai sorry). My personal choice for the most evolved retail market was Hyderabad. In Hyderabad across malls, the anchor stores are high-end clothing and accessory stores. Bangalore is a very close second where anchors are pretty sophisticated but there is the odd mall dependent largely on a PVR to draw crowds. However I do feel that the nature of organised food retail is most sophisticated in Bangalore.

Pune, at the end of the day is a small town really. But quickly getting there. Its a bit like what Bangalore used to be 10 years ago. Another interesting thing about Bangalore. I believe its the most culturally stimulating city to live in. Just do a quick recce across shopping areas in Bangalore and count the number of serious book shops you find. I am only slightly exaggerating when I say that in Bangalore, every 5th shop is a serious book store. Check it out yourself.

So where does that leave Delhi-NCR. Miles behind I am afraid. Across organised retail, you find that the anchor is a PVR or a food store e.g Mcdonalds, Sagar Ratna etc etc.

Another, interesting city, I have missed mentioning is Ahmedabad. There are malls developing all over the place here. But occupancy of these grand and ostentatiously created structures would be around 20% to the naked eye. A huge number of gold retail stores though. Found it quite interesting but then the gujarati community has always invested well. Another interesting story about Gujarat follows....

Why India & China can never go the high-skilled route to development

Simple. Two very large populations with lots of poor, uneducated average people.

India must provide employment or atleast the opportunity of employment to all - even to its most illiterate and uneducated citizens. Its a democracy after all and no government can risk losing votes. The only way this will be done is by focussing on the ITIs rather than the IITs.

China too faces a similar dilemma - or it risks a revolution which is slow in coming compared to India's five-yearly elections but more devastating when it does.

The other point of view on this is that the populations of these two countries is so large that they should be able to absorb all forms of skilled or unskilled labour within them. Even a 10% highly educated population for these two countries is a combined population of 200 million!!!