Indian Economy - News & Discussion 27 May 2012

[Suraj]

5.5% isn't too bad under the circumstances, with poor monsoons and a weak 4th quarter of the last fiscal year, in addition to the high base in Q1 last year. Even good years of the mid/late 2000s had first quarters of 6% or so. What really matters is the Q2 and Q3 data this year. Due to the low bases from last year, there's a potential for data for Q2-Q4 to be positive, if GoI wakes up from its stupor and ensures growth friendly policies.

[vera_k]

Inflation rose as well. If the RBI continues to be behind the curve on inflation - as it has been since 2006 - the economy is in for an extended period of sub-6% growth while waiting for inflation to subside.

[Pratyush]

GAAR deferment proposal boosts rupee too

[Suraj]

July exports down 14.8% at $22B

India's annual exports fell 14.8% to $22.4 billion in July, while imports fell 7.6% to $37.9 billion, leaving a trade deficit of $15.5 billion, the trade ministry said in a statement on Monday.

After strong growth for much of last year, India's overseas sales have slumped, with officials blaming weak demand in the major export destinations such as the United States and Europe. Paltry exports have added to India's economic gloom, with growth close to its weakest levels in three years.

Exports have fallen from year-earlier levels in four out of the last five months. Exports between April and July fell 5.1% on year to $97.7 billion, the statement added. Oil imports were down 5.5% to $12.2 billion in July.

[abhischekcc]

I remember a time when it was said that India will never be able to reach 5.5% growth rate, and now it is a 'disappointing' growth rate!

We HAVE come a long way people.

[Hari Seldon]

^^^Saar, with all due respect, we can always find bars low enough for our present performance to look pretty against. And if you look a little to our west, we can find a country whose 'bars' are buried deep underground. Bar bar dekho indeed.

Point is is 5.5% going to cut it for poverty reduction, living standards raise and so on for a plurality of our people in our lifetimes? I doubt it.

[Theo_Fidel]

One wonders what folks expect.

After 3 years of 9%+ type growth we have slipped to 6% for a couple of quarters and folks begin rhona-dhona....

This is called the business cycle. The economy is taking a breather from 3 years of relentless expansion. Just to put a number out there, In just the last 12 months India has added 20,000 MW of electric capacity. In 1980 Indias entire electric generation capacity was 24,000MW, we just added that in one year. Let me repeat that, One Year. 20 years ago we would have killed for this type of growth. Now it is blaaahh... ..we are doomed onlee...

6% growth on our vastly larger base is a staggeringly fast growth rate. Roughly adding $120 Billion in real terms to ourselves annually. This is enough to raise another 25 million folks to middle class status every year. When you consider our abject poor are 400 million, this is enough to raise most of them out of poverty in 10-15 years. Essentially a rounding error.

At 6% growth & 4% nominal inflation WRT dollar, in 8 years our GDP will be $5 Trillion, per capita income a solid $4,000 per annum. Roughly Thailand/China today and a hop skip jump away from say a Malaysia. Now at growth of 9% our per capita would be in the range of $6,000 in 8 years. I would be nice but it is not wise to get too greedy.

In any case this is a temporary blip and I expect the economy to return to 8% type growth soon, once investment gets going again. We really need the BIMARU type states to join in the 10%+ growth rate and soon... ..well maybe Bihar has now joined the race... ..need UP+MP+RJ+etc however....

[Theo_Fidel]

Meanwhile from PIB....

Code: Select all

Year (Apr-Mar)              FDI (Rscrore)                 FDI (US$ million)	

2009-10                                 123,119.65                      25,834.41
2010-11                                 88,519.53                       19,426.93
2011-12                                 173,946.39                      36,504.28

[nakul]

6% growth on our vastly larger base is a staggeringly fast growth rate. Roughly adding $120 Billion in real terms to ourselves annually. This is enough to raise another 25 million folks to middle class status every year. When you consider our abject poor are 400 million, this is enough to raise most of them out of poverty in 10-15 years. Essentially a rounding error.

This would be true if only the poor would benefit from growth and the others do not. We know it is not. Hence, the rona dhona

In any case this is a temporary blip and I expect the economy to return to 8% type growth soon, once investment gets going again. We really need the BIMARU type states to join in the 10%+ growth rate and soon... ..well maybe Bihar has now joined the race... ..need UP+MP+RJ+etc however....

I agree if that more growth in poor areas will have a greater affect on eradicating poverty. Moving from $1000 > $ 2000 is better than moving from $4000 > $ 5000

[sanjaykumar]

Theo, a note of appreciation-it is refreshing to see an eternal optimist wrt the Indian economy.

[Theo_Fidel]

nakul,

That is not correct. That is not what the rhona-dhona was about.
------------------------

Sanjay,

Its not optimism boss. Simply what the numbers are telling. Reality is very different from this irrational pessimism.

My opinion still is that India is one of the greatest investment stories on the planet over the next 25 years. Folks would be wise to invest as much as they can in the Indian economy and market over that time. Returns of 10% per annum after inflation are likely.

[Virupaksha]

Manufacturing grew by a negligible 0.2 percent against 7.3 percent growth in the same period last year.

To move the next round of growth, it will have to be manufacturing to pick up. The world or India didnt even sneeze yet and yet manufacturing showed dismal performance.

The IT boom has lets just say in the phase of maturing, so from 20-50% growth, it will be a max of sober 5-15% growth - good when seen by itself. I dont see the services sector being able to cover up for both manufacturing and agriculture as it has done for many quarters. It might be able to cover up from one, not the other.

I personally am not seeing the next sector kicking in or which one it is. Until that happens, 5.5% growth will be the new 9% growth, i.e. the new excellence while we slowly return to the failed Nehruvian growth rates of 3-4%.

[member_23686]

^^^
This is why we can't have nice things

Long, but posting in full-

40 Years of "Innovation" in India
By Harshwardhan Gupta

Innovation is The Next Big Boom on India Inc.'s Horizon! declares a Management Guru. "Innovation Drives Us!" says a commercial from a truck-tyre manufacturer. "Innovation Amidst Tranquillity" blazons a full-page ad for overpriced bungalows in fake Spanish style oddly mixed with Gothic. "Innovation will drive India's inexorable march towards becoming a Global Design Hub!" opines a Design Celeb... Of late, "Innovation" has become a much hyped and misused word in our country, and a lot more people are preaching about innovation than innovating!

What's the reality on the ground? Let's first look at a historical perspective over the last 40 years from my vantage point of being a consulting engineer-designer-innovator for the last 31 years.

I am a practising engineer, not a writer, journalist, academician or philosopher. As a practising engineer, I have it in my nature and training to see and understand things quantitatively and objectively. Therefore, I have tried to make sure that the various observations I make here are quantitatively correct and statistically significant. Before I go further, I wish to clarify that technological innovation and engineering design go hand-in-hand. The former cannot take place without the latter.

Ever since I graduated from the hallowed portals of IIT Bombay in 1976, I have been designing all sorts of mechanical machines. I designed my first real-life machine for the industry in 1975 when I was still a student (and saw my first IPF in 1978). After IIT, I decided to stay back in India and go on designing machines, as the challenges and opportunities to do original work here were much greater than those the developed world offered.

With stars in my eyes, I sincerely believed that as time passed, we would become a more mature nation, technologically more self-reliant, and achieve the efficiencies and quality of life approaching that of the developed world, which we all could enviously see even in 1976.

Effects of Liberalisation

In the 70s and 80s and early 90s, as our 'Licence-Permit Raj' Bharat lived behind closed doors, a large amount of real engineering design and innovation went on everywhere, especially in smaller companies; and usually they grew much faster than the then-prevalent so-called 'Hindu' rate of growth. This might be difficult for the younger generation to believe, but it is true!

Admittedly, much of it was copying - mostly from catalogs and machine manuals - but since we could not import or manufacture many crucial components of what we were copying, we had to perforce redesign and innovate. We routinely saw these innovations in various trade fairs like IMTEX, and here in IPF. I myself designed many dozens of high-end machines from first principles in many different fields in that pre-liberalisation period. Every machine-building industry had decent machine-designers and draftsmen who worked on paper on manual drafting machines and slowly but surely created many good albeit old-fashioned and over-designed machines.

Then the much-dreamed-about, much vaunted Liberalisation (and coincidentally the advent of CAD) came about, and VERY quietly, the bottom fell out of indigenous design and innovation. All these small companies and entrepreneurs rushed to get a foreign name on their letterheads, and on their machines. At the same time, anyone who was not CAD savvy began to be looked down upon as Old School.

So within a span of a few short years, because of these two factors, a large number of our coveted design engineers and design draftsmen went out of real work, and many out of real jobs. Many took retirement; many more could not adjust to the advent of CAD, and failed to pass on their machine-design skills to the CAD-dependent Gen-Next.

The Gen-Next merrily took off on mastering CAD skills, believing that CAD skills equalled machine-design skills. This false notion has persisted till today, and real machine-design skills are becoming extremely scarce in India instead of becoming plentiful. This is quietly but steadily corroding our industry AND economy from the inside.

Let's See This in a Global Perspective

In the period after WW2, many countries of the world embarked upon a race to become a developed nation from almost the same starting line as us. These were Japan, South Korea, Taiwan, Malaysia... Many others started much later than we did - Brazil, China, South Africa, Thailand... As of now, all of them have almost achieved their goal of becoming a developed nation. At the same time, thoroughly devastated European nations like Germany, Poland, Czechoslovakia, Hungary, Italy... persevered and ran the fastest, and more than recovered their lost grounds.

In India, we always try to interpret the rapid and fast-maturing industrialisation of these countries in monetary and political terms, being the money- and politics-obsessed (and technologically ineffectual) people we are. This is a very naïve viewpoint, which makes us miss their real secret to success.

After WW2, without much fanfare, Japan, Taiwan, South Korea (and later China and others) started their race to prosperity with buying and then copying machines from Europe and US and developing their indigenous industry. Simultaneously, they quickly (and 'quickly' is the key word here) learned the underlying engineering and design philosophies behind these sophisticated machines. And herein lies their secret to success: they then started improving upon the originals by leaps and bounds, and rapidly started mass manufacturing a vast array of products in very modern factories. Their low cost was an added catalyst to this effervescent chain-reaction. Within a couple of decades, many of the Eastern technologies came abreast of the Western innovation engine, and soon overtook them.

As India struggled and limped with her own feeble 'socialist model' of industrialisation, South Korea became the world's largest and best shipbuilder, forcing many renowned Western shipyards to close down. Japan first overtook and then took over the entire world's electronic industry. Communist Russia went into space before the US; tiny Taiwan became the entire world's machine-tool builder and globally threatened the machine-tool industry (and certainly overran ours). Thailand and Malaysia account for almost all of the world's microchip production.

Now China is steamrolling the entire world's mould and die-making industry (which is the very heart of industrialisation), among many other spectacular wins. China has also emerged as the world's largest single producer of consumer electronics and home appliances. Brazil has mastered the bio-fuel race and Spain is far ahead in solar energy technologies. Israel, despite its troubled existence, has given many unique innovations to the world.

Even today, we are nowhere near winning even one of these races; however much we may try to console ourselves with hollow patriotic boasts. We may pride ourselves in our software and IT talents, but the facts remain that not even one of the many massive leaps in software, communication and IT has originated on Indian soil. Quantitatively, our software and BPO industry grew mainly out of clerical labour arbitrage, and that arbitrage is slowly disappearing now.

The myriad tranquillising signs of industrial progress you see today are utterly and completely dependent on foreign companies, their technologies, machines and designs. Virtually nothing of their technologies, machines and their engineering designs are percolating fast enough into our own indigenous domain, excepting a few cheapo copies in a few areas. We simply haven't evolved mechanisms to do so.

Let's return to discussing India's innovation and industrialisation; the two go hand in hand - you cannot have one without the other! One point always missed here by ALL commentators is the fact that in order to manufacture something completely new (like a CFL lamp, or a new kind of mobile phone, or an LCD screen, or a new-generation container ship, or a new kind of weapon system, or a new kind of process like laser cutting) you need dozens upon dozens of completely new kinds of physical machines. Obviously, these machines too need to be invented and detail-designed by engineering designers, prototypes built, tried out and perfected in a short time. This enormous task goes on in all industry round the world - mostly cooperatively, and sometimes competitively.

All the newly emerged economies, except us, have quietly developed engineering design capabilities on a vast scale in a short time. Indian industry, however, has continuously failed to participate in this ongoing global engineering development process in any significant way.

We too started our race with copying machines and technologies, but we could not shed our heavy cultural and habitual baggage, which weighed us down in this race. Of course, our Government and its officials have incessantly hindered us rather than helped (and it is fashionable to blame them), but they are only a minor reason for our technological backwardness.

So Why Have We Remained So Technologically Backward?

What are the invisible baggages we still carry? Spurred on by our increasingly immature media, we have surrounded ourselves with many myths. Let's list some major ones:

1. Myth: India is fast catching up with the world technologically.

Fact: We are only using (or furiously installing in alien-owned factories) newer and newer technologies and machines, not generating or designing even a minuscule portion of those - as now we can import anything we want. Many countries are racing ahead with developing newer technologies and machines at a faster and faster pace, and we are falling behind farther and faster. We are becoming increasingly dependent on imported technology and machinery, losing entire vital indigenous industries (machine-tool building, plastic moulding, die making...) in the process. Our ever-increasing dependence on other nations for new technology and new kinds of machinery is making us a slave nation all over again, and is creating a deep cancer within our industry.

2. Myth: India has given many inventions to the world, latest being jugaad.

Fact: We have invented absolutely nothing worth the name after we (allegedly) invented the zero. Look around - the pressure cooker, the auto-rickshaw, the diesel locomotive, the CFL lamp, the sports shoes, the mobile phone, the thermometer, the refrigerator... and the machines which make these and so many other things, and the machines which make the raw materials for these... we have invented absolutely none of them. We have clumsily copied many things but not learnt how to develop newer technologies and design completely new kinds of machines.

We have deluded ourselves to believe that jugaad is same as innovation. It is NOT! Jugaadbaazi has not brought us the LCD TV, the smart phones, the washing machine, the luxury bus, the aircrafts, the x-ray machine, or processed food (including dana-dana ek samaan Basmati rice). In fact, jugaadbaazi has given our society and nation absolutely nothing, except misplaced vanity. It is a matter of national shame that books extolling jugaad have become bestsellers in India.

3. Myth: Automation is a capitalist evil in our overpopulated socialist country.

Fact:

1.2+ billion Indians cannot sustain, flourish, or be nourished without a high degree of automation - which has lifted so many people of so many (even communist) nations out of drudgery and poverty - and significantly reduced wastage of resources. A few examples: Almost 1/3rd of India's vegetable and farm produce is wasted. Much of it simply rots, as we do not have machines to dress, wash and pack vegetables right in the fields to give them longer shelf life and retain their nutrition. Our roads are still cleaned (rather not cleaned) manually. Urban sanitation machinery (therefore urban sanitation) does not exist anywhere in our hyper-filthy cities... just to name a few. Less than half of our people have access to a basic toilet. Majority of our factories are labour-intensive repositories of filth and junkyard machines.
Secondly, innovative mechanisation and automation across the country will need millions of skilled people in many fields. As a seasoned engineer, I can vouch that this machine-dependent industrialisation I am talking about will generate widespread, better paying, cleaner, more fulfilling employment of a higher social level than the kind provided by the wretched NREGA.

4. Myth: Since IP rights in India are not well protected, inventors are discouraged.

Fact: I can tell you as a professional inventor-designer that this belief is just a cover-up for the sheer lack of engineering inventiveness among us.

5. Myth: It is expensive to do R&D, that's why people copy.

Fact: As I explained earlier, copying is not the problem. Our problem lies in NOT learning anything from that copying process; since our copycats' one and only focus is to cut cost anywhere, anyhow and at any cost to oneself and to others. The whole nation is paying dearly for our dear "reduce cost at any cost" mentality.

6. Myth: India has the largest pool of young capable engineers.

Fact: May be numerically true, but ask any placement consultant how completely difficult it is to find even entry-level people with specific domain knowledge. Qualitatively AND quantitatively, our engineering work force is very poorly trained, capable or even motivated to develop new technologies and machines. Majority fresh engineering graduates immediately abandon their profession and join a bank, a BPO, or a marketing setup (or take up non-core jobs in core industries) not merely because these offer a higher starting salary, but also because they are afraid of physical machinery, and averse to working with their hands.

7. Myth: India has a very large pool of cheap manual labour so we need not mechanise. Fact: False, because:

a. Indian labour is not at all cheap in terms of cost per unit productivity.
b. A very large proportion of our labour is untrained or improperly trained (and many are untrainable) for all kinds of badly needed skills.
c. Suitable labour is often not able to relocate to where the jobs are, and vice versa.
d. Many vital skills, like precision machine assembly and operation, die making, etc., are becoming increasingly scarce, with no mechanism in place to train and motivate young workers. Socially we still look down upon a highly skilled engineering worker and look up at a graduate engineer working as a virtual clerk in a bank. The skilled worker doesn't know the theory; the engineer has no connexion with the machines - this forecloses new development.
India's ability to quickly develop efficient automation solutions in every field is VERY severely limited, and is not keeping pace with whatever demand exists.
f. Most importantly: today, a vast and increasing number of things simply cannot be manufactured manually, or cannot be made manually at the scale the market is already demanding. Therefore, we are already furiously importing entire shiploads of these things (or the machines to make them), or just ruing our misfortune if we cannot afford these sophisticated machines.
So much for our cheap labour!

8. Myth: Our young engineers are good at CAD and so will soon become capable of designing innovative machines.

Fact: CAD is only a tool. It's a tool that fragments the profession of machine designers as it makes it difficult for them to change their CAD platform, and hinders them from finding a job best suited to their skills.

9. Myth: The world is now a Global Village, so we can import whatever we need.

Fact: This is a VERY myopic and damaging viewpoint! A moment of pondering will show up its fallacy: If this is true, then why are all other countries investing so heavily in developing indigenous machines and machine-building skills? We simply cannot become a great nation by continually exporting rice and iron ore, and importing machines and technologies!

10. Myth: India is on the way to become a superpower.


Fact: Every superpower has reached that crest by creating a vast and modern technology-generation and machine building (and by corollary machine-design) infrastructure. We do not have such vibrant and deeply interconnected engineering infrastructure that makes a nation a true superpower.

11. Myth: China will soon falter and start having problems, leaving the field open to us.


Fact: 'Sour grapes!' There are no signs of China faltering on any indices in any significant way. When it comes to innovation and engineering development, the entire Chinese nation works like an army phalanx to a whole raft of detailed interconnected long-term plans. In India, we keep arguing, working at cross-purposes, obstructing development, praising ourselves, and celebrating our super-chaotic, lethargic democracy.

12. Myth: India is too big for anyone to bring about any significant change rapidly.

Fact: To see the fallacy in this thinking, we only have to look at the fast-paced development and quality of life in China, the US and the EU.

So Why Have We Remained So Technologically Backward?

After exploding some popular myths, let me list some little-known or ignored facts:
Most serious fact of all is the steady, widespread and invisible de-skilling of our work force. Today the industry cannot find trained industrial workers, as most educated young people are not willing to work with machines. Simultaneously, the not-so-educated ones are also not willing to do the work of machines any more - like sweeping roads or washing utensils or recycling garbage or filling products off a running conveyor belt into shipping boxes. When people are made to do a menial task that is better done by a machine, they are obviously far less efficient than a machine, and by corollary de-motivated too.

Across the board, we stubbornly refuse to look at innovative automation until our house is on fire - I have the front-row seat on these scenes of despair! On one hand, capable engineering designers are far too few in India; and on the other hand, those who really need their contribution either really can't afford the costs of development any more, or (the majority) are way too cagey to risk their money (which they otherwise routinely pour into advertising and self-aggrandisement). Most don't have the stomach to persevere through the normal failure-punctuated development cycle. It's an appalling situation, my individual success notwithstanding. In the words of the great Dr Raghunath Mashelkar (Former DG, CSIR), "The 'I' in India does not stand for Innovation; it stands for Inhibition and Imitation!" How very true!

Thousands upon thousands of ordinary items, which we were (or still are) manufacturing in inefficient manual ways with increasingly lower quality, obsolete technology and designs (because of our obsession with cheapness), are now importing them by container-loads from China and other eastern countries. Examples: Diwali Diyas, Rakhi components, bathroom tiles and fittings, sewing needles, small air compressors, all sorts of fasteners, small and large machine tools, telecom switches, household appliances, CFL light-bulbs, door latches, even paper-clips! The scale and extent of such imports is draining the remaining life out of indigenous manufacturers. The widespread knee-jerk Indian response is to cut costs (and quality) even more brutally, akin to a losing athlete starving himself in hope of quickly shedding weight to be able to run faster.

Compared to other industrialised and industrialising nations, we remain extremely inefficient in terms of per-capita productivity. Our relative efficiency averages between 1/3rd to 1/5th of the developed world's average, and this is not improving. China exceeds the developed world's average productivity - and this has been achieved by rapidly mechanising and automating thousands of manual tasks and skills. Many multinational brands, which have edged out Indian brands in various sectors, now get their manufacturing done wholly or partly in China. Many Indian brands are also getting lot of their manufacturing done in China. China is low-cost because it is efficient!

We still primarily export raw materials and raw agro-produce, and regularly import high technology and machinery by millions of containers a year. This scenario has hardly changed in the last 65 years. Our Asian neighbours like Japan, South Korea, Taiwan, China, Malaysia, etc., have managed to reverse this scenario completely!

The policy stagnation and a born-again licence-permit Raj through callously increasing layers of permissions and procedures are again hindering all attempts at rapid technological advances via the private sector. Power, defence, transport, agriculture, infrastructure are all major sufferers. Since our Governments cannot enforce laws effectively, they habitually counter this by creating more and more laws and rules. This is severely hindering any rapid technological development and making the entire industrial machinery even more inefficient.

In the developed world (including China), if an engineer needs to design and build a new kind of machine he can design most of it with all sorts of bought-outs, go to a big departmental hardware store, fill his cart (or order stuff online and get it in 2-3 days), farm out the manufactured parts, get well-made parts in a few weeks without banging his head, put the machine together in a short time, and start testing and debugging his new design!


In India, every such exercise everywhere in the country is an increasingly slower and uphill battle, to put it mildly. However innovative the designer is, he is hindered, delayed and short-changed at every step of this development cycle.


Two decades ago, you could buy good and increasingly better quality of all sorts of engineering bought-outs. Today you simply cannot find simple decent quality Made-in-India engineering items like plated fasteners, hand tools, hacksaw blades, circlips.


This list is vast and growing. The foreign-brand invasion notwithstanding - we are actually becoming more and more backward industrially, transmogrifying from an independent to a dependant nation.


And lastly: Our frenzied media and obstructing politicians still have NO clue to how China has brought about its present-day Great Leap Forward so quickly!


Very unobtrusively, China has consistently sucked in thousands upon thousands of experts from all over the world (retired or otherwise) in each and every conceivable field right from microbiology to tyre design to rolling mill erection to glassblowing to rail track laying to servomotor design... to train its own highly motivated professionals despite their severe language barrier!


Specifically, on one hand, China has zeroed in on retired/jobless experts in the declining industrialised countries of Europe and the Americas, and offered these experts very lucrative contracts with a pot of gold at the end of their tenure.


Many Indians experts too are in China on similar assignments. On the other hand, China has sent its students out by the million to every possible center of technical learning in the west, academic or otherwise. These students invariably go back to China and join the Dragon march.


Japan, Korea and Taiwan did much the same thing earlier at a much smaller scale, and came out winners. We have already frittered away our chance of massively gaining technological prowess from the decline of the industrial nations.


Now, I proudly say here that a great many Indians count among world's most innovative doctors, surgeons, lawyers, businessmen, actors, artisans, soldiers, etc., etc. However, the moment it comes to technological and machine-related innovation, we somehow drop to the bottom rung - so gross is our national disconnect with machinery and technology. We merely use the latest of global technologies and machines everywhere, but at 1/6th of world population, we cannot create even a few of them.



I also proudly say that innovative changes for the better do happen everywhere in India in many spheres including technological. However, their scale always remains minuscule. Our REAL problem is that as a nation we are collectively incapable of scaling up these betterments. If one municipality, school, industry, institution or an individual does something innovative, we repeatedly prove ourselves incapable of reproducing or scaling up that innovation. Betterment of any kind is now becoming slower and slower in India as the world around us progresses faster and faster.

Worse, we slowly let our gains go to seed. If something good of a large size makes its appearance on the Indian scene, it only takes a few short years before it all starts coming apart at the seams instead of getting even better with time. Look at the IRCTC, the private courier services, mass housing, urban infrastructure, BRTS, the Golden Quadrilateral, various Private-Public-Partnership projects...

Nevertheless, we do scale up bad things extremely fast and efficiently: corruption, female foeticide, misuse of public utilities, stealing electricity, illegal mining, adulteration, dynasty politics...

It is sad that the vast majority of us, the People of India, remain perennially immersed in arguments, entertainment, ornamentation, media hype, self-aggrandisement, and remain completely immune to the vast amounts of filth, chaos, mediocrity and inefficiency. As one foreigner put it so graphically, "India is like an aircraft which is ready to take off, but never ever takes off."

All of the above is already resulting in increasingly slower growth, and we are slowly becoming irrelevant in the world order. The editorial of The Economist of March 24th 2012 succinctly concludes, "A slower growing India will be more financially vulnerable, poorer, full of frustrated young people and taken less seriously by the rest of the world."

What Needs to be Done?

It is customary to end such a 'negative' article with suggestions for change. So here are my suggestions for bringing about innovative, widespread and quick changes, knowing fully well that innovative change in our country will always remain a case of way too little and way too late:

Learning to scale up good change quickly, by not procrastinating, not obstructing change for personal gains, ego or self-aggrandisement. Today, scaling up the change is actually even more imperative than change itself.

Learning how to do something better and faster rather than cheaper and more mediocre.

Working on Education to make it shed irrelevant baggage and include various modern skills and civic sense (like garbage segregation, traffic civility, unambiguous communication)... This lays the foundation of innovative minds flourishing in a healthy, clean, peaceful society.

Motivating AND facilitating young people to learn about machinery and industrialisation, acquire skills to use, design and build advanced machines of all sorts.

Getting out of the jugaad mentality, as any jugaad solution can neither be scaled up, nor work reliably in the long run, nor make the practitioner (nor the society) any richer. For this, the entire nation's social mindset has to change.

Reducing our addiction to entertainment in various forms - Bollywood, TV, music, sports, social networking, as these have become habitual anaesthetics for our various pains.

Fixing our national habit of offering an instant argumentative explanation for every shortcoming or a problem (big or small) as a necessary AND sufficient response. Such defensive argumentativeness routinely pre-empts real solutions.

Stopping the coining of and playing with new words and phrases; and doing something real.

Bringing the Media around to shift its interminable focus from politics, crime, sports and numbing entertainment... to skills, training, cleanliness, civic sense and promotion of technology of the non-entertainment kind.

Having a re-look at our contagious optimism: This may sound cynical, but in reality, this has become poignantly true: From Satyamev Jayate (Truth always Prevails), our de-facto national motto has become Sab theek ho jayega - everything will be alright... implying somehow and by itself. Unless we get seriously alarmed about our future being bleak, we will not change.

Lastly, learning to accept and comprehend criticism, and to quickly work on fixing the problem instead of instantly attacking the critic. In the land of Kabir, the latter has become our most predictable, all-pervasive national nature!

I rest my case.

(The author is a graduate of IIT Bombay in Mechanical Engineering. He has been designing machines since 1976. He founded Neubauplan Machine-design Studio, an independent consulting machine-design firm in 1981 in Pune, and Neubauplan Automation Machines P Ltd in 2010 to design and manufacture machines for end-of-line automation in the FMCG industry. He can be reached at [email protected] or through his website http://www.neubauplan.com)

[Theo_Fidel]

^^^
Sounds like Bombay club wallah with some serious sour grapes. Probably thinks Ambassador car was the pinnacle of engineering achievement.

Mechanical drafting has its place but simply can not compete with CAD. The latest iteration uses 3D CAD systems that completely eliminates the old 'cut and fit' type of shoddy engineering. Old school folks of the 'good enough' school don't understand the obsession required for 0.001 mm type tolerances. This is the type of obsession that creates a BMW or Audi. Try getting that with 'mechanical drafting' set.

India very much does world class manufacturing and engineering. But the old school types are completely useless for this purpose. Too set in their ways and unable to adapt, shame really.

[Abhijeet]

I read an article in the newspaper today: the policy of 30% sourcing from "small scale industries" will not be reviewed for single brand retail. Old news. What was new to me was: the article defined small scale industry as companies with an investment of less than...hold on to your 1950s hats...$1 million.

So single brand retailers are supposed to source one-third of everything they sell from ridiculously undercapitalized companies that have no money to invest in product development or better processes. What manufacturing operation can be stood up (let alone scaled) for under $1 million?

It's no wonder that the Indian market is filled with low-quality, high-cost products with incredibly poor fit and finish as I've ranted about elsewhere. In the few industries where automation is allowed and high -- for example, cars -- there are many products that are of international quality. For most other products, it's a wasteland of poor design and low quality manufacturing, or imported overpriced products.

Amazing that such regressive ideas still rule, unchallenged, 20 years after liberalization.

[vera_k]

Our REAL problem is that as a nation we are collectively incapable of scaling up these betterments. If one municipality, school, industry, institution or an individual does something innovative, we repeatedly prove ourselves incapable of reproducing or scaling up that innovation. Betterment of any kind is now becoming slower and slower in India as the world around us progresses faster and faster.

A lot of the scaling up happens due to standardization. Almost every profession here, has a plethora of industry-led standards bodies, and in many cases, they serve the same function as trade unions in raising the bar for new entrants. Maybe the BIS needs to be restructured with local players setting most standards along with some of the bright sparks in the trade unions.

[Varoon Shekhar]

Just generally wondering, how do the educated classes, elite and intellectuals of countries like Indonesia, Brazil, Philippines, Thailand, Argentina, Nigeria and South Africa, view their own achievements in science, technology and engineering? We do often hear soul searching or even scathing criticism about India's accomplishments or insufficient accomplishments. And articles like the one by Mr. Gupta are a prime example. Are the self aware segment of those countries very content with their own developments in science and technology, or will you read equally weighty, tough-love, harsh indictments of their countrymen, as Mr. Gupta's and a score of other Indians? Also, when Western writers want to make an example of developing countries, they often choose India. Does that have to do with greater accessibility of India i.e English language and freedom/democracy. They can find Indians who can state things openly.

[RamaY]

Yadha Raja Tadha Praja...

RBI governor wants to reduce GoI stake in the banks to 51% to save 20,000 crores. Govt have to pay 90,000 crore to meet Basel3 requirements if it wants to keep the current stake or will have to pay 70k crore if it reduces it to 51%.

Yet, UPA2 has 100s of thousands crores to give freebies for their election campaign.

These guys need to be charged with treason.

[pentaiah]

Queen to Naked fakir in minutes

[Prem]

http://online.wsj.com/article/SB1000087 ... ions_india

India Moves to Center Stage in Global Grain Trade

In the first half of this year, India exported at least 10 million tons of grains and soymeal amid droughts in major exporting nations. That was almost double the volume shipped in January-August last year, before New Delhi lifted of an almost four-year export ban on wheat and ordinary rice.Countries like South Korea, Indonesia and Thailand are now buying Indian wheat for the first time in nearly a decade, and India looks well-placed to capitalize on markets in the Middle East and North Africa because of reduced grain exports from the Black Sea region, which is suffering from too little rain. Russia's wheat exports may plunge by 60% to 8.5 million tons in the marketing year that started July 1, the London-based International Grains Council says.
India has a freight advantage over Russia of $10-$25/ton in exporting grains to East Asia and parts of the Middle East. While this advantage has always been there, India in the past didn't have enough grain to export, or sales were banned, or quality concerns limited buyers' interest. But with prices rising, importers are more willing to give it a chance. Commodity traders now expect India to export about 22 million tons of wheat, corn, rice and soymeal in the year ahead, which at current prices will translate into a foreign-exchange inflow of more than $10 billion. An example of India's clout came last year. Global rice prices were expected to hit new highs when Thailand, the world's largest exporter, raised prices paid to local farmers by 50%. However, the removal of India's ban on rice exports turned India is now world's largest rice exporter, surpassing Thailand and Vietnam, and rice prices have fallen."In the rice market, India saved the world from a cardiac arrest," said Tejinder Narang, an adviser at Emmsons International, a New Delhi-based commodity trading company. While global soybean output is shrinking, India's soymeal exports, used for animal feed, may rise 10% in 2012-13, said Davish Jain, managing director of Prestige Group, one of India's largest exporters of the product. Indian corn on a delivered basis in eastern Asia costs at least $30/ton less than the cheapest grade of Australian wheat because of a relatively weak rupee, low labor costs and tight supply from alternative sellers. Similarly, Indian feed wheat is at least $70/ton cheaper than U.S. corn. India was one of the world's largest wheat importers in 2006, but since then has had a series of bumper crops because of favorable weather, higher yields and more planting. The government buys wheat and rice from growers at above-market prices to boost rural incomes and rations sales at highly subsidized rates to many millions of undernourished Indians. But rampant corruption has resulted in grain stocks being siphoned off for sale in the domestic open market where prices are more than double the subsidized rates. Both output and inventories have hit records, although a lack of warehousing has damaged the quality of grain stored in the open.

[Suraj]

Yadha Raja Tadha Praja...

RBI governor wants to reduce GoI stake in the banks to 51% to save 20,000 crores. Govt have to pay 90,000 crore to meet Basel3 requirements if it wants to keep the current stake or will have to pay 70k crore if it reduces it to 51%.

Yet, UPA2 has 100s of thousands crores to give freebies for their election campaign.

These guys need to be charged with treason.

Can we not be so sensationalist ? This is the economy thread. The specifics:
Govt can dilute stake to help PSU banks meet Basel III norms: RBI

Given its poor fiscal position, the government will find it difficult to re-capitalise banks to help them meet the Basel III norms, RBI Governor D Subbarao said today. However, bringing down its holdings to below 51 per cent can help tide over the problem, he added.

Noting that both public and private banks together need an additional capital of Rs. 5 trillion (Rs. 5 lakh crore) to comply with the Basel III regulations, he said, "the government needs to infuse Rs. 90,000 crore into the state-run banks to maintain majority shareholding under the Basel III, which given its precarious fiscal position will be a difficult task."

The banks would need a total equity capital of Rs. 1.75 trillion, and non-equity capital of Rs. 3.25 trillion, taking the overall requirement for Basel III to Rs. 5 trillion, the governor told bankers at a Ficci-IBA organised summit in Mumbai.

"The government has two options: either to maintain its shareholding at the current level or bring down its shareholding at 51 per cent in all the banks across the board," Subbarao said.

"If the government wants to maintain its shareholding at the current level (by law it has to hold at least 51 per cent in each of its 26 banks), it will have to provide capital to the order of Rs. 90,000 crore, (but) if it brings down its shareholding across all public sector banks, the burden reduces to just under Rs. 70,000 crore," he said.

[vina]

This would be true if only the poor would benefit from growth and the others do not. We know it is not. Hence, the rona dhona

The R&D is misplaced. First, Indian industry in search of productivity gains will seek to move inland to the BIMARU and other states, given that the traditional indutrial sectors/coasts are probably seeing fewer marginal gains in productivity. The wage cost differential will get industry to the interiors.

Second, traditional dead beat cases like Bihar,Jharkhand, Orissa, MP, Rajasthan, Chattisgarh are on the move and in most cases growing faster than the all India average.

The laggard is You Pee, thanks to it's politics of who Pees farthest and that ridiculous Mayavati vs Mulayam vs Kangrees vs BJP rubbish, with zero focus on development.

[sanjaykumar]

http://www.ipfonline.com/IPFCONTENT/art ... ndia-1.php


Well at least some people are overcoming the blinkers of their native culture to see things as they really are.

How much longer will the general Indian masses persist in their self-delusion?

[Singha]

>>Just generally wondering, how do the educated classes, elite and intellectuals of countries like Indonesia, Brazil, Philippines, Thailand, Argentina, Nigeria and South Africa, view their own achievements in science, technology and engineering?

well their educated classes are likely not a psec/JNUfied/self-hating as some of our vocal opinion shapers in the media. but more importantly neither are their ruling elites, which makes a better business friendly dictum as the main flag to gather around, corrupt but business friendly.
when its their turn to shiver, I have seen english language papers in asean region and middle east shivering and mewling at the progress india is making and how they lag behind!

[RamaY]

Can we not be so sensationalist ? This is the economy thread. The specifics:
Govt can dilute stake to help PSU banks meet Basel III norms: RBI

OK please explain me this. Why is Mr. Subbarao talking the way he was, w.r.t this issue and another issue where he suggested locking people in a room until they come up with a solution etc?

I understand his interest in this topic (Basel III conformance) due to nature of Govt. stake in the banks. By being the majority stake holder, GoI's responsibility does not limit to its share of capital contribution (Rs 90,000 crore of Rs 500,000 crore), but also how the banks raise the remaining equity capital (Rs 175K - 90K = 85K crore) as well as the non-equity capital of Rs 325K crore.

He is indirectly indicating things to come by making suggestions to save a mere Rs 20,000 crore. These same people were giving dole-outs to IMF, WB etc., just few months back.

[Singha]

I saw a magazine chart that links all sorts of central bankers around the world to MIT incl mr subbarao who was a funded fellow there in early 80s .... folks from argentina to israel to india to EU top positions have some links to key people in MIT as thesis advisors during their phd there. and btw larry summers it seems is a nephew of samuelson.
the chart had a matrix of links of who advised whose thesis, who shared office rooms, who played tennis with who.
various GOI officials also spend years at harvard on sponsored training.

quite a cozy little influence cultivating system khan has in place for the elites around the world.

[ShyamSP]

I saw a magazine chart that links all sorts of central bankers around the world to MIT incl mr subbarao who was a funded fellow there in early 80s .... folks from argentina to israel to india to EU top positions have some links to key people in MIT as thesis advisors during their phd there. and btw larry summers it seems is a nephew of samuelson.
the chart had a matrix of links of who advised whose thesis, who shared office rooms, who played tennis with who.
various GOI officials also spend years at harvard on sponsored training.

quite a cozy little influence cultivating system khan has in place for the elites around the world.

When you print currency on paper and you need to give high value to it, you need to maintain chelas around the world to maintain high value. This is economic equivalent, though sophisticated, of military, media, NGO, etc chelas the US maintains.

[Abhijeet]

A couple of years back wasn't it generally agreed that India's trend growth rate was 8-9% as a mathematical consequence of the savings rate and ICOR? So what has happened to pull the trend rate, as seems to be generally agreed nowadays, down to 6%? Has the savings rate come down, or has the ICOR increased?

My layperson's guess is that the ICOR is simply a mathematical construct without much real world significance. It's "whatever it turns out to be" as a result of dividing the savings rate with the growth rate, and can't be computed (or is hard to compute) from independent factors. That would explain why the growth rate swings wildly within a couple of years when the savings rate over the period does not change that much. It also explains why it's risky to extrapolate growth trends from just the savings rate and assuming an ICOR, without more fundamental analysis.

[Suraj]

Trend growth rate doesn't mean growth at that rate every year. It indicates that over a period of time, given a fixed savings rate and rate of return on capital, you'll get a certain average GDP growth rate.

When the savings rate is very low, and a combination of factors result in a single year growth far beyond recent average, that number is unlikely to be sustainable. Example: TSP around 2002-03 due to unkil baksheesh, when Mush went to town crowing that they grew faster than us that year, but that was a one-off event. Ditto for our double-digit growth the year after the 1987-88 fiscal year drought.

Similarly, where GDP growth each year runs at or beyond the number suggested by savings rate and recent average ICOR, it suggests a year or two of higher inflation and lower real growth, which we're seeing now. We were generating year after year of 8-9% growth on 32-35% savings rate, straining our ability to sustain it long term unless GoI enabled savings to increase (rather than spending profligately). With external inflows increasing investment/GDP rate to around 34-36%, we had little 'headroom' @ a reasonable ICOR of 4-4.5 to generate more than 9% growth (36/4) . In comparison, PRC generated ~10% growth on >50% investment/GDP, which is comparatively much worse resource utilization @ close to ICOR of 5.

There's really nothing contradictory about the present circumstances and what was stated earlier. We generated very good growth on the savings base we have, at close to an ICOR of 4. The current lull is just an indicator that we cannot keep utilizing resources as effectively year after year unless government policy enables it. Unless there's a significant drop in savings/GDP rate, growth rate will again rise as the current inflationary conditions dissipate.

[RamaY]

When you print currency on paper and you need to give high value to it, you need to maintain chelas around the world to maintain high value. This is economic equivalent, though sophisticated, of military, media, NGO, etc chelas the US maintains.

The interesting thing is... USA is printing currency (QEx) to wiggle out from its problems. At the same time its cost of capital (interest rates) is artificially kept low...

To keep the balance (of trade - in my opinion this should become a gaali)..

Indian currency is forced to depreciate, to not only accommodate the low cost of capital but also to cover internal inflation (and associated high interest rates)...

Just do a graph putting the $ conversion, US cost of capital and INR cost of capital in india and this balance is maintained. That is why rupee is falling down w.r.t $.

And our RBI governors and their e-KHAN-o-masters MMS/PC/MSA etc are busy selling GoI stake all over the place...

Yet we do not want to question their motives lest (a) we become sensationalist (b) we give voice to external media/influence (c) questioning their wisdom.

depressing indeed ....

[Suraj]

OK please explain me this. Why is Mr. Subbarao talking the way he was, w.r.t this issue and another issue where he suggested locking people in a room until they come up with a solution etc?

I understand his interest in this topic (Basel III conformance) due to nature of Govt. stake in the banks. By being the majority stake holder, GoI's responsibility does not limit to its share of capital contribution (Rs 90,000 crore of Rs 500,000 crore), but also how the banks raise the remaining equity capital (Rs 175K - 90K = 85K crore) as well as the non-equity capital of Rs 325K crore.

He is indirectly indicating things to come by making suggestions to save a mere Rs 20,000 crore. These same people were giving dole-outs to IMF, WB etc., just few months back.

RamaY: Like you indicated, the RBI governor's imperative is what it is, and he's just saying so. As in anything to do with banking, there are plenty of creative solutions to get the numbers to line up, including GoI offloading stake to a notionally autonomous entity that it retains full ownership over, among other things.

[Abhijeet]

I understand that trend growth is not based off a single year's data point -- but it does seem that more and more people are agreeing that for the foreseeable future the Indian economy will grow at around 6%, rather than 8% as those same people were saying a couple of years back. However, I don't see anyone similarly claiming that the savings rate has crashed by 25%, so those projections are based on fundamental factors (supply side constraints, a useless government, the familiar litany of woes). Again, I don't think anyone computes ICOR directly.

Second: does savings divided by ICOR equal nominal or real GDP growth? At one point in your post you seem to indicate that it's nominal, since you include inflation ("where GDP growth each year runs at or beyond the number suggested by savings rate and recent average ICOR, it suggests a year or two of higher inflation and lower real growth"). At another point you seem to indicate real growth ("With external inflows increasing investment/GDP rate to around 34-36%, we had little 'headroom' @ a reasonable ICOR of 4-4.5 to generate more than 9% growth (36/4)"). Nominal GDP growth in 2004-2009 must have been 15%+ per year, so cannot be computed as simply 38% savings divided by 4 ICOR.

[Suraj]

Growth patterns are cyclical. I don't agree with either the claims ~4-5 years ago screaming that the economy was overheating, or the ones now claiming we're really only capable of 6% trend growth rate. Subjective assessments of that sort are somewhat different from this quantitative perspective anyway. For example, the US election-time business cycle uptick (with the incumbent priming the pump through fiscal stimulus) combined with ECBs 'we'll do whatever it takes' attitude recently, could result in very good growth in the next few quarters, and optimism has a way of rapidly changing the consensus.

After demonstrating over half a decade of growth rates far beyond anything in the modern economic history of the country, the current lull - to me - just amounts to the economy catching its breath. How well it returns to prior trend growth level absolutely is related to how well GoI can get its act together, but that has always been an immutable factor in economic growth. That's not to say GoI hasn't been poor at economic management. This administration, IMHO, rates as the one that will be remembered for having most squandered opportunities provided by the political mandate it received. RG in 1985 arguably had a bigger mandate, but he had less of a pie to play with then (our current GDP is about 8-10x what it was then). Conversely, I'd rate PVNR's and ABV's administrations as the ones that maximized the very limited political capital they had to get things done.

The numbers generated by ICOR are real growth figures. Inflation is a monetary phenomenon reflecting in very simplistic terms, demand in excess of supply, and amounts to a business cyclical peak, followed by supply consolidation. In the past when we were touching 9% growth, we had a savings/GDP of ~34% and investment/GDP of ~36%, amounting to an ICOR of 4, which is a very good conversion rate - Rs.4 of investment needed for each Rs.1 of real return. ICOR is also not fixed, since it depends on the nature of investments; those with larger gestation periods tend to elongate ICOR.

[pentaiah]

When you print currency on paper and you need to give high value to it, you need to maintain chelas around the world to maintain high value. This is economic equivalent, though sophisticated, of military, media, NGO, etc chelas the US maintains.

The interesting thing is... USA is printing currency (QEx) to wiggle out from its problems. At the same time its cost of capital (interest rates) is artificially kept low...

To keep the balance (of trade - in my opinion this should become a gaali)..

Indian currency is forced to depreciate, to not only accommodate the low cost of capital but also to cover internal inflation (and associated high interest rates)...

Just do a graph putting the $ conversion, US cost of capital and INR cost of capital in india and this balance is maintained. That is why rupee is falling down w.r.t $.

And our RBI governors and their e-KHAN-o-masters MMS/PC/MSA etc are busy selling GoI stake all over the place...

Yet we do not want to question their motives lest (a) we become sensationalist (b) we give voice to external media/influence (c) questioning their wisdom.

depressing indeed ....

First thing first the cost of capital to US treasury is not controlled by any one but the bond market in free auction.

The cost of capital to industry inside US. Is based on the cost of capital ( yields on t bills) beta + risk+market can bear

Second the deflation of INR visa a vis USD is dependent on the economic, monetary policies of the government of India

The US can print USD with out directly devaluation of its currency because it
Easy entry of money and exit of money plus the ability of GOTUS to impose the dollar trade on the world especially trade in important commodities especially oil etc

Third the biggest reason US can get away with its policies is that it is the largest consumer of goods products services in the world, every body love George Washington even Ivan's , lizards , pakis

Yes the intrinsic strength of dollar is no more than INR 30 and yuan is much lower valued than it is supposed to be, 2.5 yuans to USD is correct rate but Lizard wants it the current way because it can export maximum to US

Imagine for a moment magically US does not need any BPOs of India, any software support from info sys wipro TCS and no more made in PRC products what would be world economy
In a way TCS etc are jumping in joy that USD is going up vis a vis INR they hardly care about inflation in India for that matter nor does Man Mohan who takes orders from woe man

[RamaY]

^

The loosening of patriation and repatriation of $ is the key reason for the Rs devaluation past few years.

The Rs value is reflecting the interest rate difference between the two nations. Please check past few years interests and how it converges with the devaluation almost to the dot.

--

Question is how US is able to control its cost of capital (risk free rate is the basis to which the market and default risk are added, which is same in Indian case) even after the melt down and QE?

By controlling the world financial markets.

[kmkraoind]

NREGA funding may be stopped if no redressal: Jairam Ramesh - Economic Times

If it done, problems of labor shortage, inflation and lower level neta-babu money siphoning will come be addressed. It seems UPA has realized these money spinners are not generating any votes for them.

[RamaY]

Excerpt from above article...

The new mechanism will prevent the occurrence of situations like the one that had emerged in Uttar Pradesh. Last year, Ramesh had a running battle with then chief minister of Uttar Pradesh Mayawati over reports of embezzlement and misutilisation of funds earmarked for the rural emplyment guarantee scheme in Balrampur, Gonda, Mahoba, Sonbhadra, Sant Kabir Nagar and Mirzapur districts. However, despite the findings of 22 national level monitors, and even findings of the state quality monitor on the implementation of the rural employment scheme in four of these districts, the state government dragged its feet on taking appropriate action. Despite repeated missives the Centre was unable to get the UP government's consent for a CBI enquiry.

[Vriksh]

This may be off topic (mods may move/x-post it to relevant forums) but I need advice on handling the market conditions for our firm, which may be broadly applicable to many on this forum who work as independent consultants/ proprietorships/entrepreneurs.

Background:

Our firm is a boutique firm (turnover ~ 3Cr/Yr) specializing in design/consultancy/turnkey execution industrial/domestic waste water using an innovative technology that allows water reuse without expensive membrane technology (which is mostly imported). Towards this we have assembled a very strong technical/execution team of Skilled workers, M.Tech, PhDs and Professors from the best institutes in India and abroad. In the last 3 years we have set up 40-50 small scale plants all over India running very successfully with strong consumer satisfaction. However our contracts/legal department is understaffed/non existent (probably an understatement)

Issues:

Of late in our quest (or you may say greed) for expansion we took on larger projects (Rs 1 Cr - Rs 2 Cr per Work Order/WO) from various clients in the private and government sector. Based on the strength of our order book a cash credit/CC facility (Rs 30L) extended by a Bank.

In one of our pvt sector projects in the interest of fast project completion we used the CC and internal resources and moved made to order materials and installation labor to project site worth nearly (Rs 1 Crore). When we raised bills for materials supply the pvt ltd company started raising all sorts of questions to dispute the validity of bills to avoid/delay paying and threatens to cancel contract. They interpreted the WO to suggest payments could only be paid at their discretion/pleasure after commissioning (since WO says payment after commissioning) of plants which in this case would take atleast 3-4 years since waste water is not likely to be generated any time soon. The aforesaid company is apparently using the following modus operandi (using their financial size arbitrage) with many other small/large vendors by 1) giving what seems to be lucrative contracts on paper similar to ours, 2) waiting for materials supply, 3) and using site security to prevent our personnel from removing materials from site for non payment 4) Threatening legal and extra legal action using hired goons 5) From reading the fine print it appears that all arbitration is via their mediators.

In other private sector work also many companies expect us to deliver materials and then release payment. When we raise bills typically there are disputes on various items on technicalities and deductions from the WO at the end of the project (ultimately making project financially un-viable). Payments are routinely delayed 4-6 months on this basis. This has lead to extremely difficult cash flow conditions leading to much heartburn. Essentially it appears that all power is in the hands of the client and no amount of effort from our side is capable of satisfying them.

Based on this we have now run into a cash crunch making it impossible to honor our contracts with other companies.

Advise wanted
1) How can we find out track record/ financial record of clients (publically listed firms/non publically listed firms) before Work Order/MoU signing
2) What is legal recourse in case of disputes as listed above
3) Can we ask for 3 years IT returns and other financial documents
4) How can we ensure we get paid on time
5) Is there an escrow service available on contracts
6) Is it possible to insure materials (for non-payment from client side)
7) is it possible to get Third party Bank Guarantees.
8.) Is there open source information on Private Ltd Firms, Proprietorships, Listed and unlisted firms to help take important financial decisions etc

Present action chosen
1) We have started booking new contracts on consultancy/design basis only, materials to be bought by client instead of us

Can gurus comment on all of the items above. Our company may have landed ourselves in (hopefully temporary) soup due to our naivete and may be difficult to extricate. However I would like to use BR to devise methods/procedures/collate open source so that such issues routinely faced by small scale industries/firms (which form the bedrock of Indian economy) can be fairly addressed/ resolved.

[vic]

As am typing on iPad, so short answer is yes to everything. Use MCA21 website for getting info about prospective clients.

[Rishirishi]

This may be off topic (mods may move/x-post it to relevant forums) but I need advice on handling the market conditions for our firm, which may be broadly applicable to many on this forum who work as independent consultants/ proprietorships/entrepreneurs.

Background:

Our firm is a boutique firm (turnover ~ 3Cr/Yr) specializing in design/consultancy/turnkey execution industrial/domestic waste water using an innovative technology that allows water reuse without expensive membrane technology (which is mostly imported). Towards this we have assembled a very strong technical/execution team of Skilled workers, M.Tech, PhDs and Professors from the best institutes in India and abroad. In the last 3 years we have set up 40-50 small scale plants all over India running very successfully with strong consumer satisfaction. However our contracts/legal department is understaffed/non existent (probably an understatement)

Issues:

Of late in our quest (or you may say greed) for expansion we took on larger projects (Rs 1 Cr - Rs 2 Cr per Work Order/WO) from various clients in the private and government sector. Based on the strength of our order book a cash credit/CC facility (Rs 30L) extended by a Bank.

In one of our pvt sector projects in the interest of fast project completion we used the CC and internal resources and moved made to order materials and installation labor to project site worth nearly (Rs 1 Crore). When we raised bills for materials supply the pvt ltd company started raising all sorts of questions to dispute the validity of bills to avoid/delay paying and threatens to cancel contract. They interpreted the WO to suggest payments could only be paid at their discretion/pleasure after commissioning (since WO says payment after commissioning) of plants which in this case would take atleast 3-4 years since waste water is not likely to be generated any time soon. The aforesaid company is apparently using the following modus operandi (using their financial size arbitrage) with many other small/large vendors by 1) giving what seems to be lucrative contracts on paper similar to ours, 2) waiting for materials supply, 3) and using site security to prevent our personnel from removing materials from site for non payment 4) Threatening legal and extra legal action using hired goons 5) From reading the fine print it appears that all arbitration is via their mediators.

In other private sector work also many companies expect us to deliver materials and then release payment. When we raise bills typically there are disputes on various items on technicalities and deductions from the WO at the end of the project (ultimately making project financially un-viable). Payments are routinely delayed 4-6 months on this basis. This has lead to extremely difficult cash flow conditions leading to much heartburn. Essentially it appears that all power is in the hands of the client and no amount of effort from our side is capable of satisfying them.

Based on this we have now run into a cash crunch making it impossible to honor our contracts with other companies.

Advise wanted
1) How can we find out track record/ financial record of clients (publically listed firms/non publically listed firms) before Work Order/MoU signing
2) What is legal recourse in case of disputes as listed above
3) Can we ask for 3 years IT returns and other financial documents
4) How can we ensure we get paid on time
5) Is there an escrow service available on contracts
6) Is it possible to insure materials (for non-payment from client side)
7) is it possible to get Third party Bank Guarantees.
8.) Is there open source information on Private Ltd Firms, Proprietorships, Listed and unlisted firms to help take important financial decisions etc

Present action chosen
1) We have started booking new contracts on consultancy/design basis only, materials to be bought by client instead of us

Can gurus comment on all of the items above. Our company may have landed ourselves in (hopefully temporary) soup due to our naivete and may be difficult to extricate. However I would like to use BR to devise methods/procedures/collate open source so that such issues routinely faced by small scale industries/firms (which form the bedrock of Indian economy) can be fairly addressed/ resolved.

find referances from previous suppliers. Make small delivers and demand continued payments up front.

A lot of builders have cash flow problems. One of the greatest weaknesses of India, is the legal situation. Contracts have virtually no value, as they are not enforced.

Basically "cash is king". The serious customers will pay up.