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?

Working in India

Was recently asked by colleagues in office to share how my London experience has been. The more time I spend thinking about it, the longer the list gets. So what really is different?

Differences abound. But can be categorised along the following lines

1. Differences in the market
2. Different work practises
3. Different culture
4. Different organisational emphasis
5. Different clients

Starting with the first point, the market is different. Britain is a far more homogenous market than India. The sheer width of the market is astounding in India when you compare it to how the rest of the world looks.

Two - the work practises are far more evolved. Largely a result of the different clients which our company has in India and the UK. India projects are a bottom up exercise. You deal with the implementers of strategy, the marketing teams. In the UK, projects take a top-down approach. Your clients are the strategic planning & research teams within organisations, usually at the most senior global positions in the company. Since strategic planning and research teams are not the implementers of projects, this adds an additional layer of work within the project - the job of communicating the output of projects to the implementers (read marketing teams) on behalf of the client. There are also greater chances of a project not seeing the light of day and being implemented once it is complete. So, UK projects lay a far greater emphasis on the communication of the outputs, visible in fancy output, use of graphics and advanced presentation formats and workshops are the point of sale for all this work.

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...

Risk & Consumer Behaviour

A lot is being written these days about the "global credit crunch". A result of financiers' ability to create complicated financial assets out of consumer debt and trade debt as an asset on the global market. The advantages of doing this were that risky consumer debt instead of lying on banks' books could be sold as a rent providing asset on the global market and would therefore spread the risk across the entire financial food chain.

So what happened? Where did it all go wrong? Well, frankly, if you minimise your risk, what usually happens? You end up taking more and more of it. And this is exactly what happened in the mortgage market. Since the risk of mortgage takers defaulting was supposed to get passed around the world as a rent providing asset, the original mortgage provider had no qualms in offering more and more risky mortgage since it was not going to be on his books anyways. It ended up being an orgy of mortgage being doled out with people with no income proofs being offered loans for houses. The most safe form of lending backed by a person's own dwelling became more risky than the personal loan being offered around. Whats more, it was available at much lower interest rates than personal loans. A crisis which was waiting to happen...

A blog a month...

Have been really indisciplined about writing on the blog. Hopefully should be able to correct it a bit this month. So what all has happened since the last time I wrote here.

Well, India won the T20 world cup, lost a ODI series to Australia, won the solitary T20 against them and the leftists finally lived up to their tag of being the appendix of India. A useless piece of evolutionary history which has lingered well beyond its time, is of no constructive use to the body but boy...what a racket it causes if inflamed!!

Another strange quirk of India's destiny - why do leaders who are basically divisive at heart simply refuse to die - harkishen singh surjeet, VP singh etc etc. These guys just live on and on. The ones who die are the dynamic varieties - Pramod Mahajan, Rajesh Pilot, Madhavrao Scindia..

Another cross the country bears...

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?