What's in Store for India?!

That the economic outlook for Indian remains wobbly is a well known fact. In this blog, I explore what FY 14 has likely in store for us, and what we can do to make the best of it. Though no economic downturn is ever permanent, the recent cycles have demonstrated that they can be both longer and more frequent than ever, thus highlighting a unique problem arising due to the extent of interconnectedness of global economies. Cases in point: A remote nordic island, Iceland’s fall shaking up the entire global banking system in 2008, and more recently, Greece, Spain and Portugal threatening the stability of EU and the rest of the world; in short, a contagion effect is an omnipresent threat, now more than ever.

Although several economies worldwide have been hit by the downturn, India, interestingly enough, remains robust. We saw this in 2008, and we are seeing it again now. One vital factor being robust domestic consumption softening the blow to the economy. Let us take a closer look at some of the economic indicators of India. Indian GDP in 2012 at purchasing power parity stands at $4.825 billion making it the 3rd largest economy in terms of PPP (CII). India continues to be a rapidly growing economy as seen over the last decade and a half (GDP has grown from $250 billion in ’97 to $1.8 trillion in 2012). An interesting fact to be noted is that Agricultural contribution to GDP has shrunk from 32% in 1992 to mere 14% in 2012 indicating the rapid industrialization as well as growth of service industry. India is favorably predisposed with young demographics; India has among the least percentage of population above the age of 65 and is expected to add 290 million people to the workforce by 2050 as against a decline by 233 million for China and mere 29 million for the US. India remains a well diversified economy with sectors such as Auto, BFSI, Oil & Gas, Telecom etc. contributing to domestic consumption as well as exports. Despite global slowdown, we closed FY 12 with a GDP growth of 6.5%, and expect to close FY13 at around 6%. While this may seem disappointing in absolute terms, we must consider the fact that among the BRICS, India continues to be one of the fastest growing economies (in 2012, Brazil grew a mere 2.7%, and South Africa 3.12%). An important factor for this growth being domestic consumption fueled by a large and fast growing middle class. The Indian middle-class is among the largest in the world (expected to reach 60 million households by 2015 as against 13.3 million homes in 2005).

Inflation has remained persistent over the years ranging between 7 and 8% with primary articles and fuel prices being the drivers. But any fast growing economy is bound to face this problem. A strong economy would create inflationary pressure as companies battle for workers and raw materials, pushing up wages and prices. Too, if the economy is strong, businesses will be eager to expand and will compete for saver’s capital, bidding up rates. This is the painful reality we need to come to terms with and realize the futility of expecting RBI to lower interest rates. Overall, corporate sector performance has been weak with disappointing Net Sales growth (14% for FY 13 as compared to 17.2% for FY 12) PAT growth expected 9.3% for FY 13 as against 12.1% for FY 12. The slowdown can be primarily attributed to rising input costs and interest rates.

So what can we expect for FY 14? Not much can be expected in terms of external drivers of economic activity due to persisting uncertainties in US, and Europe; China too is showing signs of slowing down. With rising crude oil prices, inflationary pressure will persist both on industries as well as on commodities. A silver lining on the horizon though is the recent policy agility demonstrated by the centre. Some of the reforms in sight are fiscal consolidation through measures such as hike in diesel prices (beginning with bulk consumers and progressively rising prices across the board), reduction in subsidiary on LPG cylinders, direct transfer of subsidies to poor people, and approval for disinvestment of four pubic sector PSUs. Slight easing of monetary policy (The recent 50 basis point repo rate cut and a CRR rate reduction by 25 bps is expected to infuse Rs. 170 billion in the system, a much needed respite), FDI reforms and land reforms are all positive signs. 

While the centre is doing its best to ring in the fiscal deficit and attract much needed foreign investment, these measures by themselves may not be adequate to revive the economy. India Inc. will have to depend on newer and innovative means to fuel growth. We enjoy several favorable conditions in the form of relatively cheap labor, quality consciousness, and global image as a reliable outsourcing destination for both products & services. The key would be for us to build on these strengths and develop our niches. Apart from growing the domestic market, it is essential to selectively grow our exports especially to some of the fast growing emerging economies. Africa is one such market, which is vast and still relatively untapped. The IMF says continental GDP of Africa will grow by 5% in 2012 and about 5.7% in 2013. A new research paper by two World Bank economists says that if Africa were one country, it would already be “middle income”, defined by the bank as having income per person more than $1000. Africa’s average is $1700. Technology is having a bigger effect in Africa than anywhere else, for instance, the use of telephones went from 0.7% of the population to 70% in the last decade alone! Africa is a global pioneer in banking on mobile devices since most people do not have access to conventional banks. Infrastructure is another big sector in Africa and rest of the developing world, diversifying into this sector would not be a bad idea.

In short, uncertainties and downturns notwithstanding, there are vast opportunities to be tapped and growth to be realized. The key for Indian industries is to remain patient yet opportunistic. With the right strategies in place, I’m confident that Indian industries will go a long way in not only beating these economic cycles but also coming out stronger than ever before!

Booming in Tough Times

It is quite clear by now that the Indian economy is headed southward. My premonition of an imminent slowdown (See Trouble in Paradise: India Inc., 23rd March 2012) indeed came true. India registered a mere 5.3% GDP growth for the quarter ending March 2012, the slowest in 9 years. So what lies ahead for the economy? Is all love lost for domestic industries? What is going to help us get back on our feet and revert to high growth levels?

For too long now, our policy makers have found safety in denial and have been blaming everything from the Euro crisis to Oil prices for the slowdown, but it is undeniable that the government needs to wake up to some of its own wrongdoings that have led us to the situation we are finding ourselves in today. True, global consumption is wobbly; Europe, one of our biggest trade partners is in crisis with no clear visibility of a clear resolution. Investor sentiments are weighing heavily on global currency flow; investors have found safe havens in $ denominated investments, leading to strong movement of portfolio investments away from the Rupee thus hurting it badly. Recent drop in crude oil prices haven’t had the favorable effect that we anticipated, largely due to the declining rupee, which has wiped out any potential gains. One more tell tale sign of crisis is that leading rating agencies such as S&P and Fitch have downgraded India’s credit rating reflecting sagging global sentiments about the country thus threatening to make India the only country among the BRICS to fall below investment grade. The union budget 2012-13 didn’t do much to revive sentiments either; some of the draconian policies such as retrospective taxation have only further scared investors away.

So what can be done to improve the situation. It is clear that UPA II has completely lost its way and there is no sign of policy reversals until 2014 general elections, by when, I fear we would’ve lost too much time. In order for businesses to survive, it is going to take a lot of innovation and some Lean thinking. While falling of rupee is making imports dearer, it is also making exports more lucrative. It is a golden opportunities for exporters now to make windfall profits. What will likely come in the way, of course, is quality and ability to fulfill demand in a timely and qualitative manner. One of the constraints that have prevented exporters from filling orders quickly and expanding their reach has been their inability to eliminate bottleneck in their manufacturing and supply chain leading to back orders and lost opportunities. Too, India is blessed with large domestic consumption, which is a vital ingredient to keep the economy ticking. Sectors ranging from automotive to telecom are witnessing enviable domestic growth. But time and again what has come in the way for them to cash in on the opportunity to grow has been their inability to consistently maintain quality standards and customer commitments. This is where Lean manufacturing and Six Sigma can come in extremely handy. Lean can help overcome supply hurdles and extract more out of existing resources without the burden of capacity expansion. This will in turn help companies cash in on market demand through better productivity and resource utilization. Six Sigma on the other hand is a potent tool that can be effectively leveraged to achieve benchmark quality levels through a relentless quest for defect elimination.

In summary, economy upturns and downturns are imminent. At both ends of the curve there are opportunities abound, it is only a matter of perspective how a company views these opportunities, and more importantly, gears up to cash-in on them. Quality and agility will always remain the cornerstones and key differentiating factors. Only those companies with a genuine eye for customer value creation will remain viable and grow in the long run. Lean helps in agility whereas Six Sigma helps in meeting and surpassing quality standards. In my opinion these are powerful tools available for Indian industries to differentiate themselves and grow and prosper despite uncertain economic conditions.


On a lighter note...

RIP, My Idol

The world has lost a super hero today. Steve Jobs has captured the imagination of millions world wide and in the process created the most loved global brand. Apple holds the distinction of not only being the most valued tech company in the world today but also the only company in the world to have trumped an Oil & Gas major (Exxon Mobil) in terms of market cap at a time when global oil prices are at their peak!

Steve’s visionary leadership will be sorely missed at Apple for years to come. He never allowed to be typecast and kept Apple at the cutting edge of innovation. He pushed his team to dump the tried and tested and create products that were truly revolutionary. As a CEO, Steve inspired millions all over the world. Although I agree that he was not a level - 5 leader who could develop future leaders under his wing to carry his legacy forward (no offense to Tim Cook but I a seriously doubt his ability to fill Steve’s shoes), he was a leader next to none.

Ever since he came back to Apple in 2000, he has led the company from one miracle to another. Starting from the launch of iPod in 2001, which completely transformed the way the world listened to music to the iPhone (2007) and iPad (2010). His style has always been that of a daring and pathbreaking leader. With the launch of iTunes, he singlehandedly brought the biggest names in the music industry, who refused to believe there was a better way to distributing music, to their knees; and in the process transformed the way the world accessed music.

As a budding entrepreneur, I have always tried to emulate Steve. His ability to simplify complexity, his oratory skills, his infectious passion, and his pride for his baby (Apple) have all deeply resonated with me. His keynote speeches at product launch events have always been a treat to watch; I have not seen another leader that is so passionate about his creation as Steve. Although he never bragged about it, Apple, under his leadership has been a pioneer of Lean Product Design. Apple was the first company to shun excessive bells and whistles in its products (Macs to iPads) and instead focused on value as perceived by customer, both in engineering and software design. While delivering superior value and reliability, their products are insanely simple in design and in use. Their OS and Software are next to none; they have just the right amount of features that delight the user while being incredibly simple to learn and use. It always amazes me that Macs (OS X user base) have only 15% penetration even in North America, when it is obvious that they are at least 100 years ahead of the competition in features and design.

I was hoping for Steve to come out strong and win his battle against pancreatic cancer, so it comes as a deep shock to me to learn of his untimely death. Steve has left an indelible mark on the world and his position at Apple is irreplaceable. To my mind, he is the greatest entrepreneur of the century and the world will dearly miss him!

RIP my idol.

"I want to put a ding in the universe."

- Steve Jobs

I'm Back!

It has been over a year since I last blogged. Looks like writers block indeed isn't a myth. It took a great deal of caffeine, and determination to shrug off the inertia and get myself to blog again, and what better topic could I write about than my fresh-from-the-oven MBA experience.

My MBA journey has been a roller coaster ride, in fact it went by so quickly that, up until now, I never really had the chance to reflect. And how has the experience been? To put it succinctly, it was life-changing. So what really is a Global MBA? Is it just a marketing gimmick or does it really stand for something unique? Why should I go to Thunderbird and not to one of the top b-schools in India? These were some of the thoughts that hounded my mind while evaluating Thunderbird among other schools. Looking back now it seems like an obvious choice, but most certainly not back then.

Thunderbird has given me such a global vision that cannot come from even some of the best designed courses in the country simply because they would just lack the global relevance and global context that courses at Thunderbird so naturally resonante with. The cultural tension of working with diverse multi-cultural teams was as much a part of my development as the lectures and case discussions in class. I learned the importance of looking at things from another person’s point of view and respecting their opinion as much as I’d want them to respect mine. I learned the nuances of dealing with diverse cultures and the power of context in every communication. Given my global aspirations for SSA, I don't think I would have had a better avenue to enhance my cultural intelligence.

So in summary, the past several months in the US, and especially at Thunderbird have been some of the most challenging as well as most rewarding months of my life. I am amazed at how much I have learned and grown both in knowledge and stature within such a short span of time. For once I don’t feel like I’m too small to fill my father’s shoes someday, but then I am reminded...there are promises to keep, and miles to go before I sleep!