Indian Economy: News and Discussion (Jan 1 2010)

[SwamyG]

Lessons from others....Argentina Collapse
Few paragraphs....

By 1992, Menem’s tactics became starkly clear: he would negotiate with the US to pay off Argentina’s debt by selling state companies at a fraction of their actual value. Privatisation met with little resistance from unions, and the medicine appeared to work: Argentina was credible again. The economy grew and foreign capital – much of it repatriated – flowed back into Argentina. Privatisation yielded more than $30 billion to the nation coffers, and helped to reduce the deficit.

But these gains were short-lived. Profitable state companies were sold for a pittance, and suffered massive downsizing and asset-stripping. When Argentina’s railways were privatised, for instance, much of the rolling stock and lines were simply decommissioned, leaving the provinces economically isolated and the population forced to move to the cities. The reserves of the massive state oil company, YPF, were sold on 25-year contracts for a price equivalent to nine months of production. Towns built to house YPF workers were abandoned, the new owners leaving behind vast deserts of inert machinery. Gas del Estado was sold for 10% of its actual value to Repsol, who polluted the local water supply so that local people now extracted pure gasoline from their water pumps.

To understand how Argentines were beginning to feel, we might imagine the NHS being sold at 10% of its value to a fraudulent conglomerate which then ran it into the ground and was compensated for its lack of productivity. While politicians and business people alike profited and allowed privatised industries to under-perform, hundreds of thousands of workers were laid off. In northern Argentina, per capita income was on a par with Bangladesh by the end of the 1990s.

[Theo_Fidel]

You know the argument is weak when Argentina is brought up. Read some real economic history on Argentina Mr Swamy.

What really doomed Argentina was the peg to the dollar and the failure to make things the world wants. Read this from the FT.

http://www.ft.com/cms/s/2/778193e4-44d8 ... abdc0.html

As far as the dollar the US is definitely trying to force Panda's hand. It can keep driving the value of the dollar down indefinitely because so much of Panda's economy is completely dependent on the US consumer. Game of global chicken. Wonder who blinks first.

[Ambar]

We have passed that discussion in BRF. We have to think of advantage for India and Tata Motors is one example.

Acharyaji, with all due respect to TTM, they did not launch their hugely successful 407 mini truck until they were cornered by Isuzu,Toyota and Mitsubishi in the 80s. Their initial cars (Sierra/Estate) and UV (Sumo) had panel gaps an elephant could get into and engines that would fry itself before 50k. The liberalization of the auto sector forced them to clean up their act, and as a former owner of a 1999 Indica, i don't think i am brave enough to ever buy another Tata product anytime soon.

The point here is, competition helps in natural selection and consumers benefit in the long run. The best run corner stores will continue to thrive because our infrastructure (electricity/humidity control/space) and our small pockets does not allow us to buy and store stuff in bulk.

Armenji, yes,vertical buildings are what most mid-sized Indian retailers are building these days. But they are no where close to half a million sq.ft of built space+parking most Walmarts have in US.The trouble with drawing parallels to multi-storied hyper-markets in EU/US to that in India is our gargantuan population. I find it unpleasant when folks stomp on my foot when i reach out for that right textured tomato! Or am told to block my car somewhere else because their parking is full by 8 in the morning.

Walmart/Tesco will probably operate in 1/10th the size of their US operations and that would be good enough. Atleast at this point, 70% of our population cannot/won't shop at super-sized supermarkets as it is so much convenient to shop at your local grocer. No need to lose sleep over the 'evil' Walmart gulping down hapless nukkad shop owners,they will survive just the way little espresso shops do despite the onslaught of Starbucks and DD.

[abhischekcc]

^^^ soon it will be worth lot less.....credit goes to chi-panda...

No the credit (pun intended) goes to Ben 'The Printer' Bernanke and Tim 'Pasty Faced Weasel' Geithner.

[svinayak]

We have passed that discussion in BRF. We have to think of advantage for India and Tata Motors is one example.

Acharyaji, with all due respect to TTM, they did not launch their hugely successful 407 mini truck until they were cornered by Isuzu,Toyota and Mitsubishi in the 80s.
The point here is, competition helps in natural selection and consumers benefit in the long run.

Even this has been discussed before. Tata asked for JV with Honda in 1980s. Govt refused since they wanted maruti to own the market for cars in India. Now Maruti is a total Foreign owned company while Tata could have been the dominant car company exporting India designed cars worldwide with similar brand name such as Hyundai

[Abhijeet]

Out of curiosity, what is strategic about the retail sector? I see that claim posted here repeatedly without explanation, but to me it doesn't seem to make sense.

Retail is hardly a natural monopoly, or something that can't profitably accommodate dozens of large players. So what is the fear exactly?

This is a real question. Can someone post a thoughtful answer?

I remember reading an estimate that the size of the Indian retail industry is $350 billion. A market of that size can easily accommodate several billion-dollar-plus players with lots of room to spare. The fear of some sort of monopoly or cartel being formed is very unrealistic.

[shyam]

Out of curiosity, what is strategic about the retail sector? I see that claim posted here repeatedly without explanation, but to me it doesn't seem to make sense.

Let us first keep aside the general assumption that retail is just a business that is trying to make profit by providing some beneficial services to consumers. All major corporations work as a geopolitical tool for their original country (don't call it CT too soon). If you read Venkatesh's article posted before, it is not a coincidence that Walmart is based in Arkansas where Bill Clinton was the governor. Its relation with China, and China-US relation grew when Clinton became president. Basically, this corporation has direct connection with government and so it will certainly do more than simple retailing business.

Next, what harm can a retailer do? For regular consumer goods (exclude Apple etc.), people keep loyalty towards the retailer than the product brand because of store location. Once the retailer is well established, it can selectively promote preferred brands by simple adjustment of selling price. The selling price is not decided by the producer, but by the retailer. This provides tremendous power for manipulation. We can identify different scenarios where big retailers can slowly cut local capabilities, if needed, over a period of time. It can do huge damage, if there is any intention, and India doesn't have the luxury to take chances.

It is more like allowing foreign banks to open branches anywhere in India. Those foreign banks are already dead based on Indian accounting rules, but they get huge quantity of free printed money from their governments and can easily expand inside India if allowed.

[amit]

Out of curiosity, what is strategic about the retail sector? I see that claim posted here repeatedly without explanation, but to me it doesn't seem to make sense.

Let us first keep aside the general assumption that retail is just a business that is trying to make profit by providing some beneficial services to consumers. All major corporations work as a geopolitical tool for their original country (don't call it CT too soon). If you read Venkatesh's article posted before, it is not a coincidence that Walmart is based in Arkansas where Bill Clinton was the governor. Its relation with China, and China-US relation grew when Clinton became president. Basically, this corporation has direct connection with government and so it will certainly do more than simple retailing business.

Next, what harm can a retailer do? For regular consumer goods (exclude Apple etc.), people keep loyalty towards the retailer than the product brand because of store location. Once the retailer is well established, it can selectively promote preferred brands by simple adjustment of selling price. The selling price is not decided by the producer, but by the retailer. This provides tremendous power for manipulation. We can identify different scenarios where big retailers can slowly cut local capabilities, if needed, over a period of time. It can do huge damage, if there is any intention, and India doesn't have the luxury to take chances.

It is more like allowing foreign banks to open branches anywhere in India. Those foreign banks are already dead based on Indian accounting rules, but they get huge quantity of free printed money from their governments and can easily expand inside India if allowed.

Shyam,

Your analysis presupposes that a Wal Mart type of foreign entity would have absolute monopoly control over retail. If there are four/five retail companies, with most of them Indian, serving a particular region/city, how can one manipulate the consumer in such a way? And even if they do, how many consumers can they do that with? And this presupposes that consumers are like zombies who will only go to one particular retailer to buy goods and look nowhere else.

In a free market space, where there are competing brands and companies, it is impossible to dictate the choice of a consumer with any other means save the time tested one. That is supplying the best possible goods at the lowest possible price.

A consumer keeps loyalty not to a retailer but to a brand. For example if you like Lux beauty soap you'd buy the soap from where-ever you get it. And brand loyalty is built by the company that owns the brand through advertising. It's a long stretch to think that a retail chain can build loyalty towards a particular brand in a free market like India by giving lower prices. If a Wal Mart sells Lux at a low price and people line up to buy it, do you suppose a Big Bazaar shop set up next door won't notice and cut price of Lux?

I'm sorry but IMO your fears are misplaced and sound too much like the fear mongering indulged in by the Leftists and more importantly by the infamous Bombay Club of the 1990s.

[Abhijeet]

If you read Venkatesh's article posted before, it is not a coincidence that Walmart is based in Arkansas where Bill Clinton was the governor.

Surely you are aware that Walmart was established (in 1962, according to Wikipedia) long before Bill Clinton became governor of Arkansas?

So Walmart is in Arkansas because Clinton was the governor? Is Silicon Valley in California because The Terminator is the governor there?

Your whole post is along the lines of "foreign retailers might do this and that". Yes, anyone could do anything. Please post any credible accounts of where they have actually done that in the dozens of countries in which they operate.

I proclaim that we should push all foreign car-makers out of India! After all, they could modify the car engines they sell in India so that they explode at random times. I demand a return to the Ambassador and Premier Padmini days! At least we knew they weren't trying to kill us.

[bhavin]

Shyam,

Your analysis presupposes that a Wal Mart type of foreign entity would have absolute monopoly control over retail. If there are four/five retail companies, with most of them Indian, serving a particular region/city, how can one manipulate the consumer in such a way? And even if they do, how many consumers can they do that with? And this presupposes that consumers are like zombies who will only go to one particular retailer to buy goods and look nowhere else.

In a free market space, where there are competing brands and companies, it is impossible to dictate the choice of a consumer with any other means save the time tested one. That is supplying the best possible goods at the lowest possible price.

A consumer keeps loyalty not to a retailer but to a brand. For example if you like Lux beauty soap you'd buy the soap from where-ever you get it. And brand loyalty is built by the company that owns the brand through advertising. It's a long stretch to think that a retail chain can build loyalty towards a particular brand in a free market like India by giving lower prices. If a Wal Mart sells Lux at a low price and people line up to buy it, do you suppose a Big Bazaar shop set up next door won't notice and cut price of Lux?

I'm sorry but IMO your fears are misplaced and sound too much like the fear mongering indulged in by the Leftists and more importantly by the infamous Bombay Club of the 1990s.

Amit - Based on your above post, I had a few questions:

1. I think that if Wal-Mart is allowed, other international retailers would not be far behind and most of them would have deeper pockets than any Indian retailer where they might just buy out the Indian retailers ? What are your thoughts on that...

2. I feel that the negatives about Wal-Mart is not just cannibalizing the retailers within a certain radius based on size but the fact that they compete ruthlessly on price. While I would say that this good for the consumer, it might have long term negative effects overall. I have a friend who was a buyer with Wal-Mart ("Buyers" are Wal-Mart employees, responsible for contracting & acquiring items for Wal-Mart) who told me how they negotiate multi-year deals with suppliers where each year the prices have to go down by a certain percentage and Wal-Mart will pay well below the market price and generally behave according to its monopolist nature. Suppliers have to go along with it to get access but are squeezed extremely hard with cost cutting, layoffs etc. Another strategy is when they open in a new market, they undersell items by a big margin till the local competitors are driven out of business (For new competitors: an unstated but oft implemented threat of Wal-Mart is that we will initiate a price war till you are out of business).

Now since Wal-Mart competes on prices, it may or may not provide Indian manufactured or grown items if it can find it cheaper elsewhere. This means that apart from retail, manufacturing and agriculture sectors might also be hard hit. This could have a cascading effects on jobs or local economics for India and could be a net negative for overall job generation. Best possible goods at lowest possible price is the right thing but how the lowest possible price is achieved might also need more study. I feel that in such a price war, the consumer will ultimately be the loser because the options and jobs may shrink over time.

These are just my thoughts and I do not want to butt into the discussion that you are having but I had thought along these lines and wanted to know what others think.

[wig]

regarding our govt finally deciding to take on the Pakis printing our currency. news has been posted earlier on the forum. the tribune of chandigarh had some news, i felt it would be informative to share all aspects on this aspect of this old and continuing diabolical pak attempt to debase our currency.
however considering the volume and sources of printing materials and location of printing machinery it would not be surprising if pakistan is using the currency printed in devious ways to run its own defunct and dysfunctional economy.

http://www.tribuneindia.com/2010/20101117/nation.htm#3

After getting the world to acknowledge that Pakistani soil was unceasingly being used by extremists to abet terrorist activities around the world, New Delhi is now planning to lodge a formal complaint with international bodies about Islamabad’s role in the printing of fake Indian currency.

Armed with relevant documents and evidence, India would be highlighting how the fake currency was being pumped into the country by its neighbour through clandestine modes. Sources said the fake currency was being printed in Quetta, a revelation made following the interrogation of accused in various fake currency cases in India.

According to sources, the plan was to expose Pakistan at the international level. The complaint would be lodged with the Financial Action Task Force (an international body that works towards countering money laundering and terror-financing networks), the International Monetary Fund (IMF) and the World Bank, apart from others.

India, a senior functionary said, had evidence to show that the entire lot of fake notes seized recently in India were printed on the same paper that the Pakistani government purchased from an international security paper printer. These suppliers do not give paper to non-state actors, hence the question of some fly-by-night operator printing the Indian currency was ruled out.

The first tip-off came from Malaysia, where a Pakistani national was arrested for carrying a huge cache of Indian currency. Malaysia, for its part, sent some of the seized notes to India to ascertain if they were genuine. The quality of paper, printing and security features were found to be of such high standards that no non-state actor could have done it. Notably, the machine to print the notes costs some Rs 25-30 crore and is not available in the open market.

An expert committee of forensic experts has now concluded that the notes recovered in Malaysia were printed on the same paper supplied by global printers to Pakistan. The same is the case with the recent catches in India, nearing about Rs 1 crore. Also, Pakistan was buying more paper than the currency it was printing for itself, another fact that supports India’s case.

Another evidence with the Indian agencies was an intercept of a telephonic conversation between a person based in Pakistan with his Indian operators. In the intercept, sleuths heard the Pakistani as saying that Rs 40 crore (in Indian currency) was ready. The network in India comprised petty criminals and was spread across Bihar, West Bengal and Haryana. The Indian operators usually get a 30 per cent commission. They buy fake currency at 70 per cent of its face value, which is then pumped in through Bangladesh, Nepal and Dubai and sometimes through Kuala Lumpur.

Recently, the CBI arrested seven persons in Delhi, Haryana, Bihar and West Bengal. Fake notes having a face value of Rs 1 crore were recovered from their possession.

About two weeks ago, the Interpol nabbed a UP gangster, Prakash Pandey, from Vietnam. He was running the biggest fake currency network through his base in Nepal, pumping in money through the porous border with India in UP. Earlier this month, the Directorate of Revenue Intelligence nabbed a housemaid with Rs 58 lakh worth of fake notes from Malda in West Bengal.

Also, New Delhi would raise questions as to why airport authorities in Pakistan were allowing people to carry such huge amount of Indian currency to other countries like Malaysia, Nepal or elsewhere.

The network

n In India, petty criminals are involved in the distribution of fake currency. The network is spread across, Bihar, West Bengal and Haryana. Indian operators buy fake currency at 70 per cent of its face value.

n The currency is pumped in through Bangladesh, Nepal and Dubai and sometimes through Kuala Lumpur

The evidence

A panel of forensic experts says fake Indian notes recovered in Malaysia recently were printed on the same paper that was supplied by global printers to Pakistan government. How did it reach Malaysia?

n Pakistan has been purchasing more paper than the currency it has been printing for itself. And it is not supplied to non-state actors. Then where is the extra paper going?

The catches

n Seven arrested recently from Delhi, Haryana, Bihar and West Bengal with fake currency of Rs 1 crore face value.

n Two weeks ago, Interpol nabs a UP gangster from Vietnam who was running the biggest fake currency network through his base in Nepal.

[shyam]

Amit, why do you assume that only walmart will come when retail space is opened? I would expect atleast 10 global players to come as India is the only huge promising market for them. There will be a big dog fight for market share.

I don't agree with your view on brand loyalty. Mostly, after excitement period, people won't want to go to multiple stores for regular shopping to buy their prefered items. They would prefer one-stop-shop and prefer to buy whatever is available in that store. If their preferred brand is available, well and good. In our neighborhood, Costco doesn't sell Gillette shaving cream, but people buy whatever is available as the price is good. At WM I have seen many people buying Gillette.

Abhijeet, it doesn't matter when a store/company was founded. What matters is when that got connected to the government. Google might have been founded by two Stanford students. But when the US President visits them, even PRC is scared to take action when it openly defies PRC's censorship laws.

BTW, automobile manufacturing is not a strategic industry as long as we have our own player. So going back to Amby/Padmini is a bad example.

If there is a way in which giant retailers can screw us, be assured that some one will exercise that option. Better thing to discuss is how that can be prevented. I think it is naive to believe that "free market" will take care of those issues since the so called "free market" does not exist.

[svinayak]

If there is a way in which giant retailers can screw us, be sure that some one will exercise that option. Better thing to discuss is how that can be prevented. I think it is naive to believe that "free market" will take care of those issues since the so called "free market" does not exist.

200 years of rule by traders over Indians have not made the Indians wiser. A bit disappointing but I am optimistic that Indians will figure this out and create advantageous position for India.

[krishnan]

http://in.news.yahoo.com/48/20101115/80 ... googl.html

A newly e-literate village paanwala's obsession with Google has blown the lid off a unique NREGS scam in Porbandar. The motley bunch of beneficiaries include affluent NRIs, doctors, government officials, teachers and well-off farmers — all shown as unemployed village labourers holding NREGS job cards. So far, the money siphoned off comes to nearly Rs 1 crore.

On paper, there are 963 NREGS job cardholders at Kotda village in Kutiyana taluka of Porbandar district. Records show they have been paid over Rs 95 lakh for their 'labour' over the past three years. In reality though, none of them have ever dug wells or built roads in their lives or actually received any money for the same under NREGS or otherwise.

[jagga]

How to create Indian Huaweis & ZTEs

Did you know that Indian operators import virtually all the telecom equipment needed for setting up a network?

These imports were Rs 46,158 crore (Rs 461.58 billion) in 2008-09 and account for about 13 per cent of India's current trade deficit.

As of September 2010, India had 684 million mobile subscribers. By 2015, this number is expected to cross 1.2 billion, including 115 million 3G users, growth that is expected to fuel demand for telecom equipment worth $70 billion to $100 billion till 2015.

A big inflection point would be 3G investments, which would be approximately $15 billion across operators. Therefore, India has the world's second-largest wireless market after China.

[ramana]

BR munnas should think about this.

[suryag]

Ramana garu what is needed is the will to accomplish this and a moderate pocket(5k crores)

In terms of manpower India is a goldmine when it comes to software engineers who have worked on core network/phone side software. There are also companies which are good at hardware development. I can vouch for this as i am working in this area. The main thing needed is the resolve. In terms of manpower you need atleast 750 people
1. 100 - for writing proprietary RAN software
2. 100 - 50 for field test and 50 for lab test
3. 100 - systems design
4. 50 - integration of software
5. 100 - hardware design
6. 100 - hw testing, verification and integration
7. 200 - support staff(sales/marketing and other stuff)

The wage bill itself would come to around 150cr(20l / person)
Test equipment can be bought off the shelf for another 150cr.

One final issue is that the company needs to pay royalties too.

The dev time from concept to execution shouldnt take more than 4 years.

[Prem]

BR munnas should think about this.

if any one has plan, i got the man in Delhi who can arrange the audience with Bankers and Baniyas of Indraprastha. Last encounter with "facilitators" was 400% moderating and very enlightening requiring NLI skills to hide back in womhole.

[ramana]

suryag, Work with whoever to come up with credible plan of action. And time phase the hriing and dual job description. Can't have 750 people for a start-up.

[vera_k]

Should start with some device to get off the ground. Probably has to be a 4G device at this point seeing how 3G deployments are under way.

[amit]

Unfortunate as it is, building a Huawei or ZTE in India is easier said than done. What one needs to remember is that these two companies as well as several others started off as low cost OEMs for the likes of Cisco and others.

The Western companies thought they had something good going with manufacturing costs going down as they shifted manufacturing to China, where they could turn a blind eye to labor practices which would have got them into trouble in their home countries.

This continued till such time that they discovered that the managements of these two (and other similar companies), probably in connivance with government, were stealing IP to bring out their own products. If memory serves me right, Cisco unsuccessfully took Huawei to court in China for theft of several million lines of code several years ago.

The moot point is in almost every sector, including telecom the Chinese manufacturers have graduated from being sweat shops to being serious competitors buy stealing IP and perfecting low cost manufacturing. Mind you I don't necessarily think, from a Chinese perspective, that it was a bad thing they did.

The next step they took was to use the huge Chinese market as a leverage to help these companies to scale up operations so that, with the local markets sewed up, they have sufficient scale to offer products which are at least 1/4 the cost of competing western products to third world and increasing to many developed, countries.

In a way it serves the Western companies right since they badly underestimated the the Chinese and put short term gain over long term protection of key IP.

For India, due to our stupid labour laws it's impossible to take the same route and also the Western companies are much more careful after having been bitten in China.

If we have to wait for local companies to build up competencies and technologies from scratch, we'd have a similar situation to that of the LCA, we'd have to wait for an inordinately long time. Now in the case of the LCA we could afford to wait. But can our telcos which operate in the second biggest market and the fastest growing market in the world wait till the (non-existent) telcom equipment manufacturers catch up?

To add to the problem technology in this sector is improving at a breadth taking space. Only around five or six years ago Edge (2.5G) with connection speeds between 28.5-51 kbps was state of the art. Then came 3G with around 300-350kps, then zoom it was 3.5G with more than a megabyte speed. Now already LTE (long term evolution) or 4G networks are being trailed in several place, mainly in Europe. That would give almost a gigabyte of wireless connectivity.

For a a newly developed Indian telecom manufacturing industry, where would they jump in? You can't say we jump in at a lower technology point because the beauty of these technology ramp ups is that the cost is progressively going down for the telco while the bandwidth available to consumers is going up (think in terms of having a bigger diameter water pipe coming into your home).

In short, it's going to be a big ask. That's the really sad story of the procrastination that we've seen (even on this thread) with liberalization in the Indian polity.

JMT

[Theo_Fidel]

What no one mentioned our 'commanding height' monopolies ITI or C-DOT.

From ITI's website, and I quote...

ITI joined the league of world class vendors of Global System for Mobile (GSM) technology with the inauguration of mobile equipment manufacturing facilities at its Mankapur and Rae Bareli Plants in 2005-06. This ushered in a new era of indigenous mobile equipment production in the country. These two facilities supply more than nine million lines per annum to both domestic as well as export markets.

The company is consolidating its diversification into Information and Communication Technology (ICT) to hone its competitive edge in the convergence market by deploying its rich telecom expertise and vast infrastructure. Network Management Systems, Encryption and Networking Solutions for Internet Connectivity are some of the major initiatives taken by the company.

While I mourn the lack of a local design/engineering giant we maybe missing the point here.

The reason India is the lowest cost provider in the world is precisely because the local private teleco's farmed out their entire network package to the suppliers. They rightly decided that buying and maintaining equipment that becomes obsolete over night is NOT their core competency. This is very counter intuitive and can only come about in a free market.

Of course there are negatives but still it is the cheapest model in the world and provides mostly cutting edge technology...

In your face Panda.

Hauwei and ZTE will always be a step or two behind in terms of technology. Yes they provide cheap equipment but that is not exactly what the Indian model is based on. Lets see them try to send their Chinese workers to maintain equipment in India, that will be a fight worth watching.

[amit]

Amit - Based on your above post, I had a few questions:

1. I think that if Wal-Mart is allowed, other international retailers would not be far behind and most of them would have deeper pockets than any Indian retailer where they might just buy out the Indian retailers ? What are your thoughts on that...

2. I feel that the negatives about Wal-Mart is not just cannibalizing the retailers within a certain radius based on size but the fact that they compete ruthlessly on price. While I would say that this good for the consumer, it might have long term negative effects overall. I have a friend who was a buyer with Wal-Mart ("Buyers" are Wal-Mart employees, responsible for contracting & acquiring items for Wal-Mart) who told me how they negotiate multi-year deals with suppliers where each year the prices have to go down by a certain percentage and Wal-Mart will pay well below the market price and generally behave according to its monopolist nature. Suppliers have to go along with it to get access but are squeezed extremely hard with cost cutting, layoffs etc. Another strategy is when they open in a new market, they undersell items by a big margin till the local competitors are driven out of business (For new competitors: an unstated but oft implemented threat of Wal-Mart is that we will initiate a price war till you are out of business).

Now since Wal-Mart competes on prices, it may or may not provide Indian manufactured or grown items if it can find it cheaper elsewhere. This means that apart from retail, manufacturing and agriculture sectors might also be hard hit. This could have a cascading effects on jobs or local economics for India and could be a net negative for overall job generation. Best possible goods at lowest possible price is the right thing but how the lowest possible price is achieved might also need more study. I feel that in such a price war, the consumer will ultimately be the loser because the options and jobs may shrink over time.

These are just my thoughts and I do not want to butt into the discussion that you are having but I had thought along these lines and wanted to know what others think.

Bhavin,

Sorry for the late response, was away.

Let me clarify first by saying that I’m not big fan of Wal Mart and neither do I salivate at the prospect of that company coming into the Indian retail market. You can see my posts above for confirmation.

However, I do believe that Indian retail should be allowed to grow as fast as possible. And I’m sure there are Indian companies out there with the resources and wherewithal to grow and change the market, particularly the supply chain.

I read somewhere recently, sorry don’t have the link, that more than 10-20 per cent of fresh vegetable/fruits produce in India is wasted due to lack of storage and transport (air conditioned trucks) facilities in India. I think that’s criminal. However, only integrated chains will cough up the necessary money to build cold storages all over the country and organised retail is the key to that.

Now coming back to the Wal Mart case. Frankly I think your fears are over blown regarding the ability of the company to replicate what they’ve done in the US in India an elsewhere.

The best confirmation of that is if you look at Wal Mart International. The international arm of the company has not been even a fraction as successful as the US entity. Have you paused to think why?

Because the point you raise, deeper pockets, being able to source the cheapest goods from around the world etc equally apply all around the world as they do in India. After all Wal Mart is much bigger than its rivals.

The reason I think they have not been so successful is due to a variety of factors, the most important of which IMO is the fact that the situation/environment prevalent in the US is in many ways unique. I think only in Australia do you have a similar environment – that is vast country, vast space and a sparse (in relation to geographical area) population with good purchasing power. That allows Wal Mart to build mega stores.

The other point is about local regulations. Do you seriously think that if Wal Mart was allowed to operate in India and it decided that it would import fresh vegetables (say, just as an example) from China instead of taking from Indian producers, since their margins were better, they would be able to do so? More importantly would the GoI and their competitors allow them to do so? I don’t think so. Wal Mart would have to follow the import, export regulations and rules of the country just like everyone else. And that would cover what they can import into India (after paying the necessary duties) and then sell at its stores.

What your friend said could be applicable to the US but I don’t think that would be applicable to India. Sure some stuff would get imported but don’t they already? In a previous post I mentioned the fact that I bought a beautiful Ganesha statute from a small curio shop in Kolkata only find out that it was made in China!

This is a problem which I’m sure the local industry would learn to cope and get around with. Allowing Wal Mart to operate is not going to have any effect on this problem IMO.

Regarding your point about best possible at lowest price turning into a price war with the Consumers becoming a loser and jobs shrinking over time is something I really don’s understand. Perhaps you’d care to elaborate with some hypothetical scenarios?

Bottomline, is while I don’t think the entry or not of Wal Mart in the Indian retail space would have much effect on the growth of this sector as long as our politicians don’t hobble the growth, I disagree that a Wal Mart can influence the way this sector grows.

Take the case of the automobile sector. We’ve got one player who controls more than 50 per cent of the market, which is majority foreign owned. We’ve got another foreign company, Hyundai, which is the second biggest player.

Now in this scenario have the local car companies like the Tatas and Mahindras faded away? Or are they much stronger and more world class today, due to competition in their home market than they were in the good old days of protectionism – remember the time when HM and Premier used to be the titans? They perished due to bad management and refusal to change.

The other stakeholder of the automotive sector: the customers and the ancillary suppliers (you could think of them as the primary goods producers whose products are sold by the retailers), are they better off today than when the market was protected?

I think the answer is obvious. Competition has been good in the automotive sector and there’s really no reason to think the same wouldn’t be the case in retail.

I would really like to see how a foreign company can outsmart an operator like Reliance in its home market!

[amit]

Amit, why do you assume that only walmart will come when retail space is opened? I would expect atleast 10 global players to come as India is the only huge promising market for them. There will be a big dog fight for market share.

I don't agree with your view on brand loyalty. Mostly, after excitement period, people won't want to go to multiple stores for regular shopping to buy their prefered items. They would prefer one-stop-shop and prefer to buy whatever is available in that store. If their preferred brand is available, well and good. In our neighborhood, Costco doesn't sell Gillette shaving cream, but people buy whatever is available as the price is good. At WM I have seen many people buying Gillette.

Shyam,

Sure they will all jump in. There will then be a huge shake out and only a few tough ones will survive - very similar to the telco sector today. My bet is that, just like the telco sector, most of them will be Indian companies. Let there be a dog fight, there's no reason IMO to think that Indian companies are not up to the mark for such a fight.

As regards your Gillette example, you are again using US example and transposing that to the Indian context. I don't thin that works. Also your example is also not the best available. Saving cream is a commodity and most are priced in the same band, save for some fancy ones, which don't include Gillette. I don't think that the folks who buy Gillette in a Wal Mart would pass on the opportunity to buy some other brand in some other store if they happen to visit that store.

[Suraj]

Some data on SEZs from this Bloomberg article:
India revives 45-year old strategy China adopted to lift exports

Now India, which shipped $165 billion worth of goods and services in the same period, is reviving zones as Prime Minister Manmohan Singh tries to raise manufacturing to 22 percent of the economy from 17 percent and double exports to 4 percent of global trade by 2020.

Investment in the special economic zones may double to about 3 trillion rupees ($66.2 billion) by 2012, India’s Commerce Ministry said. Exports from the SEZs more than doubled in the 2009-2010 fiscal year over the previous year, to 2.2 trillion rupees (~$50 billion), a quarter of India’s total.

“Improving infrastructure in the entire country will take a long time, so if you want to promote industry, you need to create more islands of excellence, which these SEZs are,” said Dharmakirti Joshi, chief economist at Crisil Ltd., the Mumbai- based Indian unit of Standard and Poor’s. “India needs manufacturing to grow rapidly now to absorb the growing workforce.”

India set up its first zone in 1965 in Kandla in the western state of Gujarat and had established another by 1975, said Lalit Behari Singhal, former director general of the Export Promotion Council of Export Oriented Units and Special Economic Zones in Delhi. In the next 25 years, six more were set up.

Poor land selection, insufficient fiscal incentives and inadequate transport ensured that the zones didn’t prosper, said Rajesh Sonthalia, a founding member of the export promotion council.

Only since 2005, when the government enacted laws favoring the zones, have they taken off. About 100 zones have opened since 2006, attracting 1.6 trillion rupees in investment, 60 times the level four years earlier. That helped create more than half a million jobs, the Commerce Ministry said. About 478 more SEZs have been approved.

“China spent a lot of money creating infrastructure, which India did not do,” said Priyankar Bhikshu, head of India research at DTZ Holdings Plc in Gurgaon, near Delhi, and author of a report called “Special Economic Zones in India: Expanding Contours.” “As the true spirit of SEZs now emerges, export competitiveness will unfold in the next couple of years.”

“SEZs have the potential to propel India as a major exporting nation,” said Aradhana Aggarwal, who teaches economics at the University of Delhi and is writing a book called “SEZs in India: Past Experience, Present Status and Future Prospects.”

[Neshant]

while industrializing, lets not pollute the environment with hazardous waste as China has.

the costs far outweigh the benefits.

Amazing Pictures, Pollution in China

http://www.chinahush.com/2009/10/21/ama ... -in-china/

[Neshant]

Study: India drained of billions as rich, companies stash money overseas

http://ca.news.finance.yahoo.com/s/1811 ... money.html

MUMBAI, India - India has lost hundreds of billions of dollars over the past six decades as companies and the rich stashed cash overseas to avoid taxes and hide ill-gotten gains, widening inequality and depriving the poor of crucial resources, a new report shows.

[RamaT]

BR munnas should think about this.

if any one has plan, i got the man in Delhi who can arrange the audience with Bankers and Baniyas of Indraprastha. Last encounter with "facilitators" was 400% moderating and very enlightening requiring NLI skills to hide back in womhole.

I'm otherwise occupied but there is an inflection point currently happening in the networking field which can be taken advantage of by a nimble software centric startup.

One of the largest issues for telecom/routing(ignoring wireless) companies like Cisco/Juniper etc. is that highly efficient customized DSP's have to be designed and implemented to keep up with network speeds and these chips end up costing a pretty penny.

With the advent of GPU's, which really are mass produced DSP's a similar inflection to switching from IBM PC's to the clone PC era brought forward by Compaq.

A startup that leverages these readily available chips combined with the Linux kernel and efficiently developed GPU offload algorithms can severely undercut the market and drop the cost per 10gig/40gig port. Optics/fibre can be sourced from others readily.. backplane technology is also old hat.

Overview of concept:

http://www.technologyreview.com/communi ... rss%22&a=f

GPU's will continue their fast roadmap:

http://eetimes.com/electronics-news/421 ... -processor#

[amit]

The reason India is the lowest cost provider in the world is precisely because the local private teleco's farmed out their entire network package to the suppliers. They rightly decided that buying and maintaining equipment that becomes obsolete over night is NOT their core competency. This is very counter intuitive and can only come about in a free market.

Boss good point. But isn't it only Bharti/Airtel which does this? Do the other telcos also do so?

Hauwei and ZTE will always be a step or two behind in terms of technology. Yes they provide cheap equipment but that is not exactly what the Indian model is based on. Lets see them try to send their Chinese workers to maintain equipment in India, that will be a fight worth watching.

I'm afraid Hauwei is catching up fast. See this report

Bharti Airtel has announced that it has chosen Ericsson India Private Ltd., Nokia Siemens Networks Pvt. Ltd. and Huawei Technologies India Pvt. Ltd. as network partners to launch 3G Services in India. These partners will plan, design, deploy and maintain a state of the art 3G HSPA Network in Bharti Airtel 3G license circles. This deployment would enable Bharti Airtel extend its leadership position in the Indian market and meet the growing demand for high speed surfing & wireless entertainment in the country. Further strengthening its relationship with Ericsson, Bharti Airtel has awarded majority of the 3G License Circles to Ericsson India. With this, Ericsson continues to be Bharti's largest Network Partner across 2G and 3G circles in the country. On the same lines, Bharti has also expanded its relationship with Nokia Siemens Networks, which would manage Bharti's 3G Network in 3 circles across India. Bharti Airtel has also introduced Huawei Technologies as the third partner for offering 3G services in a few circles.

The same low cost operations model is allowing a window of opportunity to the Chinese companies.

[Pranay]

http://www.nytimes.com/2010/11/18/world ... ro.html?hp

MADOOR, India — India’s rapidly growing private microcredit industry faces imminent collapse as almost all borrowers in one of India’s largest states have stopped repaying their loans, egged on by politicians who accuse the industry of earning outsize profits on the backs of the poor.

The crisis has been building for weeks, but has now reached a critical stage. Indian banks, which put up about 80 percent of the money that the companies lent to poor consumers, are increasingly worried that after surviving the global financial crisis mostly unscathed, they could now face serious losses. Indian banks have about $4 billion tied up in the industry, banking officials say.

“We are extremely worried about our exposure to the microfinance sector,” said Sunand K. Mitra, a senior executive at Axis Bank, speaking Tuesday on a panel at the India Economic Summit.

The region’s crisis is likely to reverberate around the globe. Initially the work of nonprofit groups, the tiny loans to the poor known as microcredit once seemed a promising path out of poverty for millions. In recent years, foundations, venture capitalists and the World Bank have used India as a petri dish for similar for-profit “social enterprises” that seek to make money while filling a social need. Like-minded industries have sprung up in Africa, Latin America and other parts of Asia.

[Pranay]

http://www.bbc.co.uk/news/world-south-asia-11782795

India has lost more than $460bn since Independence because of companies and the rich illegally funnelling their wealth overseas, a new report says.

The illegal flight of capital through tax evasion, crime and corruption had widened inequality in India, it said.

According to the report from US-based group Global Financial Integrity, the illicit outflows of money increased after economic reforms began in 1991.

Some the main findings of the report are:

India lost a total of $462bn in illegal capital flows between 1948, a year after Independence, and 2008.
The flows are more than twice India's external debt of $230bn.
Total capital flight out of India represents some 16.6% of its GDP.
Some 68% of India's capital loss has happened since the economy opened up in 1991.
"High net-worth individuals" and private companies were found to be primary drivers of illegal capital flows.
The share of money Indian companies moved from developed country banks to "offshore financial centres" (OFCs) increased from 36.4% in 1995 to 54.2% in 2009.

[Singha]

http://www.nytimes.com/2010/11/18/world ... f=homepage

crisis for microfinance cos in India

[SwamyG]

Dunno if this was posted here The Drivers and Dynamics of Illicit Financial Flows from India: 1948-2008

Abstract

This study examines the magnitude of illicit financial flows from India, analyzing the drivers and dynamics of these flows in the context of far-ranging reform. In the process, it represents perhaps the most comprehensive study on the subject matter, both in terms of the range of issues involved and the time span covered. At its heart is a dynamic simulation model which seeks to capture the interaction of economic, structural, and governance issues that underlie the generation and crossborder transfer of illicit capital. Due to the random nature of illicit flows, this model cannot be used to forecast such flows. Apart from the fact that illicit flows are unrecorded, primary motivations that drive them such as the desire for the hidden accumulation of wealth are not easy to test empirically. Nevertheless, a formal model can help us think systematically about the important drivers of illicit flows and how they are likely to interact. An important finding in this study is that illicit flows from India are more likely to have been driven by a complex interplay of structural factors and
governance issues than they are by poor macroeconomic policies. Hence, in order to curtail such flows policymakers must address these entrenched issues through a combination of tax reform and other redistributive policies to ensure more inclusive growth. They must ensure that customs reform and other regulatory oversight lead to significant improvements in governance necessary to shrink the underground economy. For their part, developed countries must hold banks and offshore financial centers to greater accountability regarding transparency so as not to facilitate the absorption of illicit funds.

Budget deficits and inflation are often seen as drivers of illicit money across borders. We do not find this to be true for India. While the licit component of financial flows—foreign direct investment and portfolio investment by Indian citizens—may have reacted to such conditions, our historical analysis indicates that these conditions were of little importance in the movement of the illicit component. What is clear is that, during the post-reform period of 1991-2008, deregulation and trade liberalization haveaccelerated the outflow of illicit money from the Indian economy. Opportunities for trade mispricing have grown, and expansion of the global shadow financial system accommodates hot money, particularly in island tax havens. Disguised corporations situated in secrecy jurisdictions enable billions of dollars shifting out of India to “round trip,” coming back into short- and long-term investments, often with the intention of generating unrecorded transfers again in a self-reinforcing cycle. Illicit outflows drain hard currency reserves and reduce tax collection, harming India’s poor and widening income gaps. Global Financial Integrity, through its Policy Advisory Program for governments, urges that forthright steps be taken to address these realities. We note and applaud the very impressive growth of the Indian economy in recent years. We wish to encourage that this growth accrue to the benefit of all citizens of India—the world’s largest democracy and an emerging power exerting enormous influence across the globe. We especially thank Dev Kar and Karly Curcio for producing this analysis. The Ford Foundation has generously
supported this work, for which we are most grateful.

[svinayak]

Abstract We wish to encourage that this growth accrue to the benefit of all citizens of India—the world’s largest democracy and an emerging power exerting enormous influence across the globe. The Ford Foundation has generously supported this work, for which we are most grateful.

This should tell what is the motto of this report.

[SwamyG]

Abstract We wish to encourage that this growth accrue to the benefit of all citizens of India—the world’s largest democracy and an emerging power exerting enormous influence across the globe. The Ford Foundation has generously supported this work, for which we are most grateful.

This should tell what is the motto of this report.

Yes, one can always suspect that. But then Ford Foundation donated rs 50L for this: http://www.dakshinachitra.net/ So what do we have to say about that? We can float Conspiracy theories though.

So I do not buy into the thought that just because it is a foreign entity we can conclude one way or the other. We ought to judge on a case to case basis. Tie different dots together and arrive at the picture.

[svinayak]

Yes, one can always suspect that. But then Ford Foundation donated rs 50L for this: http://www.dakshinachitra.net/ So what do we have to say about that? We can float Conspiracy theories though.

What is their interest in India. West has seen enough of India for the last 300 years. They dont need to 'study' us anymore. It is OK if you dont agree with me. But the fact is a fact.
I am inside an ngo and i am seeing how things are being 'done'

[SwamyG]

^^^
What do you have to say about donating money to dakshinachitra ? The fact is they have helped causes that benefit our culture too, right?

[Hari Seldon]

x-post.

Five Megathemes That Will Dominate Indian Economics Over The Next Five Years

From ZH, a scribd report. Worthwhile read. Perhaps.

Megatheme 1: Structurally high inflation

Supply constraints in India’s manufacturing sector have historically caused core inflation to spike every time the economy expands rapidly (see Exhibit A on the left). Limited access to finance, hard infrastructure deficits and labour market issues have and will prevent timely supply responses in this demand powerhouse thus driving manufacturing inflation higher. Furthermore, a growing and young population with rising incomes will cause food demand to grow rapidly, while supply responses continue to be weak. This supply-demand mismatch will drive food prices higher over the next decade.

High inflation has historically been a negative for stock market returns (see Exhibit B on the left) as it crunches companies’ margins through higher input costs. Financial services’ companies emerge as being the most inflation-immune due to their limited exposure to employee costs as well as to raw material costs. Commodity-driven sectors emerge as an obvious hedge against higher commodities’ prices. IT and other labour-intensive export-facing sectors appear to be the most vulnerable to high inflation as higher domestic wages erode their price competitiveness.

Megatheme 2: the rise of the “aspirational” consumer

As a country’s per capita incomes rise, the consumption basket of its citizens changes away from food (see Exhibit C on the left) and essentials to non-food and aspirational items (such as cosmetics, motorbikes and jewellery). India’s consumption basket has been undergoing just this sort of change. Given the structural drivers of this trend (rising incomes, high share of youth and urbanisation), investors should focus on aspirational product manufacturers vis-à-vis essentials within India’s broader consumption story. Exhibit 25 on pg19 gives a list of aspirational stocks. Exhibit 23 & 24 on pg 19 show the outperformance of aspirational stock vis-à-vis consumer essentials.

Megatheme 3: a capex boom in the making

The experience of India’s Asian neighbours suggests that a high GDP growth rate coupled with the investment:GDP ratio hitting 33% triggers a surge in capex (see Exhibit D below). These trigger points along with India’s infrastructure deficit and the Government’s desire to address this deficit has set the scene for a seven year surge in capex. History suggests that the Indian Capital Goods sector stands to gain most, both from profitability and from a stock price perspective, from this impending surge in capex.

Megatheme 4: The coming of age of financial intermediation

India’s per capita income in PPP terms recently breached the $ 3K and its savings to GDP ratio stands at a healthy 32%. Cross country experience suggests that India’s savings ratio should touch ~40% in FY15(see Exhibit E on the left) and will continue to rise until India’s per capita income reaches $ 8 K (in PPP terms) and will max out only at 46%. The disproportionate rise in the quantum of India’s savings over the next decade heralds tremendous opportunities for financial intermediaries as the Indian saver looks to channelize these savings into not just bank accounts but into stocks and bonds as well.

Megatheme 5: India will become a hotbed of conflicts

Whilst the ongoing and widespread conflict in central India between the Indian establishment and Maoists generates headlines, we see a broader theme in these stray instances of conflict and expect their intensity to trend upwards over the next decade as inequalities persist.

[Theo_Fidel]

I keeping with our recent theme I thought I'd high light this quote. Funny huh. Not.
With these sorts of attitudes how can corruption be far behind.

http://economictimes.indiatimes.com/new ... 944253.cms

Mr Ibrahim reacted to the charge by saying his name was being unfairly dragged into this controversy. “Please note that Tata has not said that a minister demanded bribes. He said some industrialist told him that if you pay the minister, it will be done. Many people indulge in loose talk — how am I supposed to respond? I followed the government policy at the time and I was opposed to foreign airlines investing in Indian airline companies and I continue to be opposed to this. There are some sectors where foreign strategic investment is not desirable and civil aviation is one of them,” he said.

[SwamyG]

^^^
So if one opens up the country for foreigners then corruption would go away, huh?