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Directors Note
Dear All,
I am delighted to present to you VISIONARIOSthe 1st Annual Consulting Magazine launched by XLRI. The theme for
this inaugural edition is Roadmap for Sustaining Indias GrowthStory, given the fact that the Indian economy has
slowed down in the last two years.
India does have serious challenges to overcome. The annual GDP growth has slowed down in the last quarter, to4.4%, consumer price inflation is high, and the current-account and budget deficits last year were too large. One often
reads articles detailing about Indias poor infrastructure, excessive regulation, slow-growing manufacturing sector,
sub-optimal health and social development indicators and a growing workforce that lacks adequate education and
skills.
These institutional and systemic deficiencies must be addressed if the Indian economy has to be on a sustainable
growth trajectory whilst ensuring that all sections of the society benefit from the fruits of economic growth. However,
it is a bit worrying that many of the deficiencies have existed for decades despite the best efforts of government, non-
governmental and private sector institutions.
In part, Indias slowdown is reflective of the substantial fiscal and monetary stimulus that its policymakers, like those
in all major emerging markets, injected into its economy in the aftermath of the 2008 financial crisis. The resulting
growth spurt led to inflation, especially because the world did not slide into a second Great Depression, as was
originally feared. However, it must be admitted that the government could have acted more swiftly and concurrently
undertaken a slew of modest and ambitious reforms thereby precluding the general sense of despair prevailing
amongst the public at large.
What should industries, leaders and strategists do when faced with a long period of slow-down? How does a
downturn impact established and budding managers? What are the strategies that organizations should adopt in the
face of policy paralysis and still ensure profitability? Through this management conclave consisting of eminent
personalities from the corporate, government and academia we shall strive for possible answers to these crucial
challenges and determine how to a develop a Roadmap for Sustaining Indias Growth.
I hope that this endeavor is well received by the academia and the industry alike, and provides encouragement for
more attempts in this direction in the future.
E. Abraham, S.J. Ph.D
Director
XLRIXavier School of Management
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Editorial
If one does not know to which port one is sailing, no wind is favorable.
-Lucius Annaeus Seneca
The most essential element of strategy formulation is having a vision for the entity in question. It is being
able to see beyond the immediate pitfalls and challenges and put the long term objectives of inclusive
growth and sustainability.
India today stands at a peculiar crossroads, where on the one side its shining past decade beckons it to carry
forward the flaming torch of growth, on the other a gloomy looking future looms, should it not get its act
right. An adversity they say is the best time for course correction. But for that it is imperative to look within
and mark out the fallacies that we committed on the way and to take a long term and holistic view of the
best way forward.
With this intention of reflecting on the current situation and ideating towards possible solutions for the
same, CRUX has come up with the first edition of the XLRI Annual Consulting Magazine: VISIONARIOS. It is
an endeavor on our part to create a platform for enthusiasts across a wide spectrum to pour in their ideas
on this raging debate that engulfs the nation.
Through this magazine, we hope to be able to bridge the gap that we believe currently exists between
classroom study and the mechanics of reality; and continue to keep coming up with important and relevant
topics each year.
Happy reading!
TEAM CRUX
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Contents
ABOUT CRUX 1
INDIA -TOWARDS A SUSTAINABLE TOMORROW 2
SUBSIDIES IN INDIA: THE PATH AHEAD 6
ROLE OF INDIAS DEMOGRAPHIC DIVIDEND IN SUSTAINING INDIAS GROWTH 13
KEEPING IT SMART AND SIMPLE 19
MADE IN INDIA-IPAD: TURNING A DREAM INTO REALITY 21
NORTH- EAST INDIA: THE NEW FRONTIER FOR SUPPLY CHAIN MANAGEMENT 24
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About CRUXWith the spirit of Magis and a motto of ever greater-ever better, CRUXConsulting and Research
Undertaking @ XLRI is the exclusive committee for consulting on campus.
Our Vision: To promote XLRI as a premiere consulting destination
Our Objectives:
To promote and hone basic consulting skills at XLRI and within management student community at large.To offer consultancy and research services to interested startups, organizations and voluntary bodies;
leveraging upon XLRIs capable student base, access to knowledge resources and faculty expertise.
To partner with consultancy and research firms for on and off campus branding with a view of developinglong- term fruitful relations between XLRI and the world of consultancy.
Our Activities:
DRISHTIKONNational Level Paper Writing Competition that sees participation from topB-Schools across the country
Y NESHUUnique simulation challenge for XLRI students lasting a week (Senior +Junior batch - BM & HR, Foreign exchange students)
GNITIOInter B-School strategy game. An event which will test your analytical skills,logical acumen & mettle.
ORIONFlagship Case Competition
120 teams participated from top B-Schools
C SE LE GUECase study sessions conducted by professional consultants, senior students
and industry expertsSTR TEGIKONCRUX's flagship event in Ensemble, one of the biggest B-School fests ofIndia, which saw participation from 175 teams last year
CRUX DVISORY SERVICESBold new approach to promote industry-student interaction. Facilitatestudent teams working on live projects
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India -Towards a Sustainable TomorrowSaurav Kumar Das
Shaadab Bakir Zafar
ndias growth story over the last two decades
has been rather impressive owing to sweeping
structural reforms that have opened up the
economy and introduced competition into a
myriad of sectors that had been perpetually
plagued by public monopolies. However, the
pressure put on the various resources owing to
rapid economic growth coupled with the impact
of a weak global environment have been majorly
responsible for the stifled growth in the economy.With inflation creeping towards the 8% mark and
Index of Industrial
Production (IIP) down in
the dumps, it is but
obvious that the
resilience of the
Indian economy is
being questioned
by investors.
Unfortunately,lackadaisical
government policies and restrictive practices are
serving as deterrents for the economy to spring
into a growth trajectory. The people at the helm
of the affairs must adopt dynamic policies to
sustain the economic transformation required for
India to address its socio-economic challenges.
We would focus on a few roadblocks which can be
converted into actionable objectives while
charting out a roadmap for sustainable growth.Dynamic Reform Policies
Lets admit it; the nations growth at the dawn of
the current decade was severely dented by a
policy paralysis that gripped the government.
Since then the policymakers have done their bit to
salvage the scenario through a flurry of measures
to break the policy logjam including fuel price
reforms, opening up of multi-brand retail and the
current spate of financial reforms under one Mr.
Raghuram Rajan. But these sudden spurts ofrenewed impetus on reforms wont be of much
utility in taking the nation towards sustainable
growth.
It is high time that the government decided to
liberalize foreign investment in keys areas and
restructure the taxation system. Retail trade and
the agricultural sector have to be liberalized to a
great extent to further augment the massive
employment potential in these sectors. Expansion
of the services sector has been a key growth
driver for our economy. There is an urgent need
to liberalize the policies in the services sector and
more importantly bring about sweeping reforms.
Inclusive Growth
India has been since times immemorial a crucible
of socio-economic and cultural diversities. When
we talk of inclusive growth from a holistic
perspective it is a much greater challenge than
what it might seem at first sight. It calls for
persistent investment in both people andprocesses, starting from healthcare, education,
employment generation to other social welfare
initiatives with focus on their efficacy as well as
their efficiency. Even though the poverty in
absolute terms is declining marginally, the
economic divide is widening as we speak. We face
a certain dichotomy on the policy front as well
owing to the socio-economic inequalities between
a fast-evolving technologically savvy neo-urban /
semi-urban community and the neglected ruralcommunity, constituting a vast majority of our
demography. Cities evolved out of villages and
villages from small settlements. Coming from well
do to backgrounds, we enjoy all the vagaries of
city life; not just the roti, kapda aur makaan, but
even the privilege of good education, big-screen
entertainment, excellent transportation facilities,
malls and parks, airports and what not. Our reality
is all but a distant dream for people living in some
of the remotest villages in the most backward
areas of the country, untouched by technology.
I
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The government is hardly at the liberty to ignore
the communities that produce what we eat,
weave what we wear and build the structures
where we stay in. We should gracefully accept our
collective responsibility in uplifting them socially
and economically, to get them at par. Only then,can we proudly say that India, in its entirety is
moving towards economic growth.
There also exists a stark geographical variation in
the economic development. The success of the
Gujarat model of development has been largely
attributed to a good governance system. In fact
the sustained growth coupled with a favorable
investment environment ensured by the
government, has put Gujarat on the radar of both
domestic and foreign investors. And its not just
the Gujarat model, but the economic model
followed by quite a few other states which if
replicated across the nation would work wonders.
For instance, in Kerala there are nine parameters
based on which a family is classified as below
poverty line (BPL). Families which lack access to
four or more parameters, including families with
an illiterate adult member and a woman headed
household among others are classified as BPL.
However, the crux of the matter lies in the fact
that owing to the massive levels of heterogeneity
in the socio-economic stratum of each state, a
single model of development for all States would
fall flat. The policies developed ought to serve the
specific problems of each state, which require
tailor-made responses. The large tribal
populations of the north-eastern states and the
likes of Odisha, Jharkhand and Chhattisgarh pose
quite a complex challenge. Even though they are
sitting on a treasure of natural resources, amissing common ground between them, the
industry and policy makers, has led to internal
strife leaving them high and dry. Lack of job
opportunities, proper education, infrastructure,
primary healthcare and many other basic facilities
have allowed the Naxalities and the Maoists to
gain their allegiance in waging a proxy guerrilla
war against the state. This seemingly perpetual
war has cost the nation dearly in terms of lives of
people lost/ affected and the sheer financialburden of waging a civil war. Its high time that
the powers that be put a serious thought in
finding that common ground to initiate a fruitful
dialogue. Unless the Indians from the different
parts of India are not integrated into the social
identity of India, we would be hard-pressed to
achieve economic progress.
Education
The implementation of the Right to Free
Education Act has indeed proved to be a shot in
the arm for increasing classroom enrolment
manifold at both primary as well as secondary
level, but the question remains how effective is itwhen we consider the finer details. Three years
after it came into effect, a stocktaking report of
the implementation of the act across 15 UP
districts in July 2013 showed that only 27%
government primary schools fulfill RTE norms
related with appointment of teachers. As per the
report, the data which collected from 645 schools
reflected that 64% schools were deployed for
non-academic activities. The study further
revealed that 10% elementary schools were not
situated within prescribed area while 12% primary
schools were not suitable for enduring rough
weather. Besides, drinking water facility was not
available in 11% schools. The report also said that
77% government primary schools did not have
functional toilets for girls while only 19% had
functional toilet for boys.
Our concern does not end here. Even with respect
to higher education a lot needs to be done. The
education space is fast evolving with theblossoming of several new niche sectors including
http://en.wikipedia.org/wiki/Literacyhttp://en.wikipedia.org/wiki/Literacy -
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The number of people affected by all
disasters in India has risen from an
average of 174 million a year between
1985 and 1994 to 254 million a year
between 1995 and 2004. It is
inevitable that economic development
will be affected. The trick is to have asustainable growth.
vocational training, finishing schools and e-
learning. We face the challenge of aligning the
higher education system with the evolving skill
requirements of our economy without
compromising on social inclusion. The education
policies should aim at grooming teachingexpertise in key fields, encourage critical thinking
through research orientation and enhance
communication skills on a broader level. This
requires effective evaluation and monitoring of
progress and enhanced levels of capital
investment.
Sustainability
The economic slowdown that we are witnessing
today is only partly cyclical. It has got more to dowith the emergence of energy, infrastructure,
human capital and institutional bottlenecks. A
return to strong, sustainable growth is an
overriding necessity to ensure the continued
progress in tackling poverty head-on and lifting
living standards more generally. When we talk of
sustainability what do we exactly mean? The
standard definition says, Sustainable practices
are those that meet our needs without
compromising on the ability of the futuregenerations to meet theirs.
The impacts of global warming include rise in
average sea level and ocean heat content,
decrease in snow cover and ice glaciers, as well as
extreme weather conditions including long dry
spells and unpredictable, heavy rainfall. These
changes result in drop in agricultural yield,
increased possibility of floods and droughts,
adverse effect on human health and loss of bio-
diversity.
The challenge of sustainability on the resources
front can be addressed through focus on three
key aspects: Policy, Education & Technology. Allthree are interlinked and conribute to the overall
goal of sustainable growth. Education helps to
overcome the barrier of lack of consumer
awareness. Increased awareness will affect
personal choices- lifestyle products, mode of
transport, even political candidates. We need a
paradigm shift from our archetypal kneejerk
reaction after the damage is done, to a more
proactive one. It is high time that such
conservation measures are implemented in
household and communities on a massive scale.
We might not realize but 90% of the energy used
by a standard electric filament bulb is wasted as
heat and only 10% does lighting. Even replacing
one bulb with CFL lights would save thousands of
rupees in electricity bill over its life time. We all
know that virtually every other household device
as an energy efficient substitute. We just dont
realize that the initial investment on such devices
would save us thousands of rupees in the long run
and more importantly save the future generations
a life of misery.
Rigid Bureaucracy & Corruption
Against all odds, irrespective of the market
scenario, corruption has been deeply entrenched
in the Indian bureaucracy since as long as one can
remember. The total money lost in corruption is
an astounding 17% of Indias GDP. We do have a
RTI Act to bring about a sense of accountability,
but it treats just the surface issues rather than theunderlying causes. Though a majority of
corruption takes place in state-run institutions, it
is slowly percolating to other sectors as well. One
of the fundamental reasons of corruption in
countries like India, Pakistan, Bangladesh, etc. is
the salary structure of the government
employees. It has been a silent observation that
competent & highly skilled people are in general
discouraged to join government sectors. This is
attributed to the mindset that firstly, thegovernment sectors dont value his skills as much
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as a corporate entity would and secondly his
growth opportunities are stifled by the
reservation system. So, the candidates entering in
public sectors are not competent enough and
even if they are, they arent remunerated well
enough, preferring nefarious shortcuts to earnmore money.
The strategy to tackle corruption in India would
have to be two pronged. Firstly draw the best
minds in the country to take charge of some of
the most important positions as policymakers and
implementers who really drive the growth story
on the ground. Secondly, to satiate the hunger for
more money in the bureaucracy by defining
performance metrics in line with the long term
growth strategies of the enterprises & then linking
pay to performance. This may not change the
scenario immediately nor will it completely make
the system corruption free. But it would be a shot
in the arm for the younger generation to take up
government jobs as their skills and services will be
valued and over a longer term the objective will
be growth and welfare. Over a period of time, we
would gain economic benefits to offset the bribe
money which is currently lost due to corruption.
In conclusion, we see a certain inexplicable
paradox in the emerging growth driver trends.The challenges India faces are more hard-hitting
owing to the size and population of the country,
catered to by antiquated infrastructure. The
responsibilities shouldered by the regulators, the
utilities and the policy makers are seemingly more
onerous. To project a sustainable growth model,
we must urgently address the issues of resource
constraints and climate change. Its not just India,
in the wake of the not so subtle ways in which
nature has reprimanded us to respect our
environment, the world at large is moving
towards environmentally sustainable channels of
growth. We have to collectively embrace growth
strategies that aim to turn the mutual trade-offs
between economic development, social justice
and environmental concerns into a synergistic
developmental apparatus.
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Subsidies in India: The Path AheadParidhi Jain
Pranav Primlani
Rahul Sapru
Rahul Seth
Abstract
The paper focuses on the role of subsidies in India, taking a stand in favour of targeted subsidies. We
examine the kinds of opposition mounted against subsidies as well as the history of these resistances.
Subsidies in 2 different sectors are then focused upon- agricultural and sector and petroleum sector- chosen
for their enormous fiscal impact on the Indian state and their substantive and psychological impact on its
polity. A conclusion is reached in favour of retention of subsidies, provided they are targeted and not across
the board.
subsidy is a form of financial or in kind
support extended to an economic sector
(or institution, business, or individual)
generally with the aim of promoting beneficial
economic and social outcomes.
Subsidies are designed to overcome deficiencies
in the market, support disadvantaged sections of
society, and positively distort activities such as
pushes towards renewable energy, recycling and
agricultural set-asides. Simply put they represent
an attempt by Governments to control the
behavior of individuals, businesses and larger
groups by offering or exacting economic
benefits/taxes.
The resistance to subsidies is of two kinds-
1. The Neoliberal/libertarian/monetarist
resistance All marginally differing ideologies are
concur on one basic fact that the states
interference in the lives of its citizens should belimited to national security, securing private
property & enforcing contracts. All other forms of
government intervention regulations, subsidies,
tariff barriers etc are detrimental to the efficient
functioning of the market. This outlook holds
currency in the major drivers of economic policy
in the world todaythe US Treasury, the IMF, the
World Bank and the WTO.
2. The Alternative Interventions resistance The
necessity of government regulation/intervention
is acknowledged but subsidies are considered the
wrong instrument for this intervention. This
school of thought has a great many proponents
among the Left. It is necessary, however, to take a
more nuanced approach with regard to this
school of thought. This is because there are
several prominent economists Jean Dreze(the
brain behind NREGA as well as the recent Food
Security Bill) and Amartya Sen, who maintain that
while subsidies are theoretically an inefficientmeans of fighting inequality, in the world as it
exists today, subsidies are an essential instrument
in achieving a modicum of distributional justice.
Our hypothesis is this: that for a developing
country like India, which ranks very low on the
HDI, targeted subsidies are essential for
preserving both the economy and the social fabric
of India. Our premise is that the former cannot be
sustained without the latter. We believe that a
large proportion of the subsidies that are
currently provided are not at all efficacious due to
a lack of or incorrect targeting or embezzlement.
Just because, however, that the mechanisms in
place in India for delivering these subsidies are far
from efficient, this does not imply that the very
notion of targeted subsidies is flawed.
We now propose to examine subsidies in the
Petroleum and Agriculture sectors.
A
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Petrolium Sector
The chorus to do away with subsidies has become
deafening in the past few years. The issue of the
alleged under-recoveries of the OMCs is raised
ad-nauseum in numerous World Bank and
Government of India reports. Before we examine
this issue, a short background to the pricing of
petroleum products in India might be helpful.
In 1977, still reeling from the shocks of the OPEC
oil crisis of 1973, the Indian government
instituted an Administered Price Mechanism
(APM). Under the APM, prices in the petroleum
sector are controlled at all four stages,
production, refining, distribution and marketing
on the cost-plus principle (compensating costs + a
mark-up).
The disadvantages of this mechanism in
particular, and with cost-plus pricing mechanismsin general were manifold-
1. Since companies recovered all their costs (and a
fixed profit) regardless of performance/
investment, the incentive to perform reduced
significantly.
2. As PSUs held monopoly over all stages of
production of petroleum products, investments
and outputs were centrally mandated. The entry
of private firms expedited the need to stimulate
investment by permitting more substantial
profits.
3. Cost-plus formula in private firms encourages
gold plating of the plant and artificially inflates
costs, leading to a drain on the taxpayer.Recognizing these and other lacunae,
Government of India, abandoned the APM in year
2002 and by year 2004, a new, partially de-
regulated mechanism was created in which the
subsidies provided for PDS Kerosene and
Domestic LPG would be shared between the
Government and the OMCs. Since the
government was determined to shield the Indian
consumer from the fluctuations in oil prices in the
International market, retail prices of 4
commodities petrol, diesel, kerosene and LPG
(Source : OECD/IEA, 2009)
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were fixed, allegedly at below cost. This led to
substantial under-recoveries, the burden of which
was shared by the government and the OMCs.
By FY 2009, the gross under-recoveries of the PSU
OMCs on the sale of subsidized Petrol, Diesel, PDSKerosene and Domestic LPG were pegged at .
1,032.9 Bn.
Despite shifting some of the burden to upstream
oil PSUs like ONGC & OIL under the Equitable
Burden Sharing Mechanism formulated in 2005,
the OMCs continued to bleed. To mitigate the rise
in the fiscal deficit, the Government resorted to
issuance of oil bonds in lieu of subsidies. Special
bonds amounting to . 5,904.0 mn (1.8% of GDP)
were issued to oil marketing companies andfertilizer companies during FY09 to cover their
under recoveries. However, these off-budget oil
bonds merely increased the government debt and
since these were mainly 5-7 year bonds, many of
them have been reaching their maturity, further
burdening the government.
Despite these and other measures, however, the
sharp surge in the global fuel prices along with the
weakening rupee had greatly increased the OMCs
losses by FY 2012, mainly because of the lack ofprice revision for the sensitive commodities. Also,
the cash subsidy to OMCs was dispensed after the
extent of under-recoveries was established; this
forced the oil companies to borrow in order to
meet their working capital requirements.
The issue of under-recoveries has been
challenged in an insightful paper by Dipankar
Dasgupta and Tushar Chaterjee. Their primary
contention is that oil refineries, being multi-
product firms in the classical sense, cannot
employ a straightforward cost plus mark-up
procedure for computing the prices of their final
products. Different quantities of petrol, diesel,
kerosene, liquefied petroleum gas (LPG), as well
as other final products are simultaneously
produced from a given volume of crude oil and it
is not obvious what the crude input content of
each product is.
The desired price for petroleum products iscomputed taking into account import-related
costs, which is unjustified since most of the final
products so priced are produced domestically. It is
therefore only the imported part of crude oil
(64.22% - See Table 1) to which these costs should
be added. This factor, therefore, artificially
increases the under-recoveries of the OMCs by
exaggerating their costs.
Given the relative weightage of import vs
domestic crude, the average price of a barrel of
the Indian mix of crude oil ought to be calculated
by attaching a weight of 64.22% to the import
price and 35.78% to the domestic price.
Dasgupta & Chaterjee also propose a pricing
model based on cross-subsidized pricing
mechanism for diesel, petrol, kerosene anddomestic LPG which would have relieved the
central government of its entire subsidy burden of
1,41,802 crore for FY 2011. In addition, a surplus
revenue of 35, 986 crore would be gained from
this sector.
For this reason, we believe that apart from the
issue of OMC under-recoveries being greatly
exaggerated due to a faulty costing mechanism,
the fiscal deficit issue can be tackled by a suitable
cross-subsidization scheme like the one suggested
by Dasgupta and Chaterjee. Removing the
petroleum subsidy will have a cascading effect on
the economy, increasing prices of all essential
commodities. It is not at all clear if this drastic
Table 1: Estimated Crude Oil Domestic Consumption
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step, which will harm the under-privileged more
than any other class, is at all necessary.
Agriculture
The advent of neoliberal economic policies on the
world stage was heralded between 1978-80 bythree major phenomena- Volckers steep hike in
interest rates, a Conservative political
wave(Reagan and Thatcher elected to lead the US
and Britain) and Chinas turn to market economics
under Deng Xiaoping. This ideology was
formalized in the Washington Consensus in 1989,
the three pillars of which are Liberalization,
Privatization and Deregulation. As part of this
agenda, the world economic troika
IMF/WTO/World Bank has been persuadingcountries to adopt these policies ever since. Part
of the liberalization of trade entails cutting
subsidies and lowering tariff barriers.
1. Balance of TradeThe policy of reducing trade barriers is not
enforced uniformly by WTO. The WTOs rules are
framed behind closed doors, with no democratic
oversight whatsoever. The Dispute Resolution
Body of the WTO is infamous for being
notoriously biased, controlled by the West. The
US consistently fails to act on its obligations to
lower domestic subsidies while the developing
world is held to strict account and penalized
harshly for any failure to lower export subsidies or
import tariffs. The Aggregate Measure of Support
(AMS) for this sector of Japan and the EU exceeds
30% of GDP from agricultural sector. In the realm
of agriculture for example, a global commodities
crisis has resulted from the forced reduction ofsubsidies to farmers in developing nations, who
are now expected to compete directly(sans
meaningful import tariffs) with heavily subsidized
EU and US Agri-business corporations.
The agricultural package of WTO on domestic
support and export subsidies provides forcomplex classification of support and subsidies for
agriculture, some of which are totally exempt
from reduction commitments. This classification
favours developed countries, particularly EEC, the
US, Canada and Japan, which are able to maintain
very high level of support for agriculture in the
exempt category.
A further reduction in agricultural subsidies in
India would therefore be disastrous for the Indian
Economy, making us uncompetitive in globaltrade.
2. Domestic ChaosDr Vandana Shiva has convincingly exploded the
myth of the Green Revolution, which increased
yields of certain crops at the expense of
decreasing overall productivity of farms and
increased reliance on High Yielding Varieties of
crops and fertilizers, thus destroying the essence
of agriculture in India the self-perpetuation ofthe crop. Farmers are forced to buy seeds from
Western corporations for each new sowing,
ruining the sustainability of agriculture, not to
mention the destruction of soils and the
groundwater by excessive use of fertilizers. This
has resulted in an explosion of farmer debt,
causing farmer suicides to skyrocket (for example
in Vidharbha, Maharashtra). By further lowering
subsidies to Indian farmers, we risk destroying the
little self-reliance they possess and push them
further into the clutches of Monsanto and its ilk.
The arguments above might seem to indicate that
subsidies and liberalization are mutually
incompatible. It is however interesting to note
that liberalization in Indian Agricultural sector was
initially effected through subsidies. The Indian
government subsidized the purchase of HYV seeds
and fertilizers by farmers, incentivizing the shift
from self-renewable agriculture (based on
internal inputs) to a dependent form (for whichexternal inputs and therefore credits are
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necessary). It is this sort of pseudo-subsidy, in
reality a hand-out to EU/US Agri-business that is
running the agricultural sector.
The Minimum Support Price regime is the
predominant form of subsidy provided to Indianagriculture. It is instructive to examine how this
came about. Norman Borlaugs semi-dwarf HYV
variety of wheat created an explosion of interest
from Agri-Business in the US. The World Bank,
along with the Rockerfeller and the Ford
Foundations took up the mantle of the evangelists
of the new religion of GM crops. The setting up of
various centres International Maize and Wheat
Improvement Centre (CIMMYT) in Mexico and the
International Rice Research Institute (IRRI).
The Dean of one such organization - the Indian
Agricultural Research Institute, Mr MS
Swaminathan, is regarded as the father of Indias
Green Revolution for his tireless work in
spreading the gospel of GM. His intentions were
undoubtedly noble and, in the initial years, the
Green Revolution seemed to be progressing quite
well. The yields of Rice and Wheat in particular
increased exponentially and India became self-
sufficient in terms of these food grains by the1980s. This increase, however, was more due to
the shift in area under cultivation from pulses,
oilseeds and other crops to rice and wheat. As
Ramesh Chand explains, This has created serious
imbalances in demand and supply of several
agricultural commodities in the country. On one
hand, the country is holding more than one-
fourth of the annual production of rice and wheat
in public stock, and on the other every fifth Indian
is underfed even by the standard of minimumcalorie requirement for a healthy and active life.
Similarly, the country has been facing large
shortages of pulses and edible oils and has now to
meet about one-tenth of demand for pulses and
close to half of the demand for edible oil from
imports.
To address this issue the commission on
agricultural costs and prices increased MSP on
pulses and oilseeds. However, the tragic fact is
that regardless of how high the MSPs on thesecrops is set, the government has deliberately
shied away from implementing the MSP on any
product properly except rice and wheat. Another
problem is prices. There was no increase in per
capita cereal production between 1990-91 and
2000-01; the increase in stocks resulted entirely
from decline in per capita cereal consumptioncaused by the steep rise in real prices of cereals in
this period.
Besides these, other problems with the MSP
abound with using the cost of production as a
basis for MSPs. As noted by Chand, Inefficiency
gets built into production and farmers do not
have to bother if growing a particular crop on land
unsuitable for its cultivation would raise cost of
production.
Regardless of demand, regardless of yield,
farmers blindly began to grow rice and wheat to
the exclusion of other crops. Naturally Indias
total production of these two food grains
multiplied and this was hailed as a miracle. No
matter the destruction of soils by shifting from
soil-replenishing polycultures to soil-exhausting
monocultures, no matter the devastation of soils
due to excessive use of fertilizers and the
denudation of the water table due to a neglect of
local irrigation as opposed to large canals and
dams.
Apart from rice and wheat, subsidies also
perniciously distort utilization of harvests. In
Maharashtra, the government is offering
subsidies for liquor production from food grains.As Sachin Tiwale opines, This policy will turn
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Jowar into a cash crop and divert huge quantities
of food grains to alcohol production, creating
scarcity and causing food inflation.(Tiwale 19)
The big beneficiaries of this so-called subsidy are
the distillery owners, who happen to be owned by
the kith and kin of powerful politicians.
Based on the fifth report of the National
Commission for Farmers, which highlighted some
of the aspects of the agrarian crisis gripping India
today, the government is taking a variety of
measures to counter these trends. These
measures, however, seem regressive rather than
helpful. The Public Private Partnership initiatives
aimed at creating Farmer Producer Companies
(FPCs) have been roundly criticized for vesting all
the control in the hands of corporations while
concentrating all the risks on farmers.
It might surprise the reader to know that we still
do not advocate a roll-back of agricultural
subsidies or an end to the MSP. We argue for a
targeted subsidy, which will incentivize farmers to
improve their lands with a minimal amount of
reliance on external agents but by relying on the
materials they have on hand.
Other options like in-kind subsidies (like therecent National Food Security Bill) as well as the
UID-based Direct Cash Transfer mechanisms
might help deliver subsidies in a far more efficient
manner. The former extends the Targeted PDS
system to nearly two thirds of the Indian
population a truly ambitious plan which, even if
moderately successful would help mitigate rural
malnutrition and starvation as well as increase the
utilization of the food grains purchased by the
government under the MSP. Critics level thecharge of fiscal irresponsibility against the
government for proposing so ambitious a scheme.
There have been wild speculations about just how
expensive this scheme will be with several pundits
like Ashok Gulati, the Chairperson of the
Commission of Agriculture Costs and Prices
(CACP), estimating the cost to be as high as . 6
lakh crores over the next three years. Dipa Sinha
points out that Gulati inflates the cost estimate by
including the investment in agriculture that willbe needed to stabilize production, the investment
that would be needed in storage and the
investment that would be needed in
transportation through railways. How all these
costs can be solely attributed to the National
Food Security Ordinance (NFSO) is a mystery. The
current food subsidy bill is around . 90,000crores. Sinha estimates that with an average
subsidy of . 20 per kg; the food bill will cost
about . 1,24,000 crores, around 1.2% of the GDP,
far below the 3% projected by the media. She also
points out that the percentage of households
accessing food grains from the PDS has gone up
from 28% in 2004-05 to 39% in 2009-10 and 44%
by 2011-12 despite the expenditure remaining
constant at less than 1% of GDP. This is because
the efficiency of the PDS has been steadilyimproving as the leaks in the PDS get plugged.
New schemes like the UID will lead to an even
greater efficiency for the NFSO.
There are several shortcomings in the NFSO as it
stands its piece-meal nature, the limited
provisions for women and children and the
centralization of the scheme being most
important among them. However, it is a step in
the right direction since it will optimize the
existing subsidy provided to the farmers as well as
extend the PDS-based subsidy to the consumer. It
is only by improving the system of subsidy that
exists in our country that we can progress in this
liberalized world.
Conclusion
From our analyses of both the petroleum as well
as the agricultural sectors, we see that the
complete rollback of all subsidies would be
disastrous for the economically weaker sectionsof society. It is unrealistic to expect the present
inefficient system to continue without correction.
We strongly advocate, therefore, a turn to
targeted subsidies focused on cross-subsidized
pricing across all four sensitive petroleum
products and, in the agricultural sector targeted
towards agricultural measures that enhance the
long-term sustainability of soils and other
agricultural resources.
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References
Chand Ramesh & Philip Linu. Subsidies and
Support in Agriculture Economic and Political
Weekly August 11, 2001.
Dasgupta Dipankar & Chaterjee Tushar.Petroleum Pricing Policy A Viable Alternative
Economic & Political Weekly. Vol xlvii no 46.
International Energy Agency . Petroleum Prices,
Taxation And Subsidies In India. June 2009.
Khor Martin. The Commodities Crisis and the
Global Trade in Agriculture. Third World Network
Peet Richard -Unholy Trinity The IMF,World Bank
and WTO. Zed Books
Shiva Vandana. The Violence of the Green
Revolution. Third World Network.
Singh Sukhpal. New Markets for Smallholders in
India. Economic and Political Weekly . Vol - XLVII
No. 52, December 29, 2012
Sinha Deepa. National Food Security Ordinance:
Anything But Expensive. Economic and Political
Weekly. Vol - XLVIII No. 30, July 27, 2013
Tiwale Sachin. Foodgrain vs Liquor: Maharashtra
under Crisis Economic and Political Weekly. May29, 2010 vol xlv no 22
http://www.business-
standard.com/article/specials/administered-
price-mechanism-in-oil-sector-bane-or-boon-
197052001002_1.html
https://www.dnb.co.in/IndiasEnergySector2012/
OilPrice.asp
http://www.frontline.in/cover-story/it-excludes-
farmers/article4888083.ecehttp://www.ncap.res.in/contract_%20farming/Co
ntents.htm
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Role of Indias Demographic Dividend in Sustaining Indias GrowthNeha Srivastava
Kiran Banshiwal
Priyalata Patra
Pallavi Bhandari
emographic change in India is opening up
new economic opportunities. As in many
countries, declining infant and child
mortality helped to spark lower fertility,
effectively resulting in a temporary baby boom. As
this cohort moves into working ages, India finds
itself with a potentially higher share of workers as
compared with dependents. If working-age
people can be productively employed, Indiaseconomic growth stands to accelerate.
Theoretical and empirical literature on the effect
of demographics on labour supply, savings, and
economic growth underpins this effort to
understand and forecast economic growth in
India. Policy choices can potentiate Indias
realization of economic benefits stemming from
demographic change. Failure to take advantage of
the opportunities inherent in demographic
change can lead to economic stagnation.
(Source: United Nations, 2009)
According to the Census 2011, the Indian
population stands at 1.2 billion with people in the
age group of 15-59 years as 729 million which isroughly 60% of the whole population. With such a
large demographic dividend several questions
arise as to whether India will be able to utilise this
asset or not and the only way of answering this
question positively is if this population is skilled,
educated and finds productive employment.
Without proper skill building this potential
working population instead of being economically
productive will be an economic burden on the
nation. So far the governments attempts at skill
building havent been as fruitful as expected. For
example the NREGA
One of the ways of enhancing skills and
harnessing the potential of this population is
through education.
Census 2011
Based on the census data we can see that
although the literacy rate has gone up over the
years from 64.8 % in 2001 to 74 % in 2011 there
still exists a lot of scope for improvement
especially in certain states like Bihar where the
factor is as low as 63 %.
D
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Unless the government acts up to provide better
education facilities and not just primary education
but all improved quality higher education that
makes the youth employable the potential
working population cannot be turned to a capable
working population.
For implementing these education facilities apart
from the infrastructure one major concern is
teachers. The teacher-pupil ratio in India is 38
which compared to other countries like US with
13.8, China with 17.7 is very high. (Indian data
from Indiastat.com, report by WHO published in
2012 for US China data)
This factor becomes worse when we move on to
institutes of higher education where there is anacute shortage of good teachers. With an
increasing population to support in terms of
education the government needs to address this
situation by coming up with innovative solutions
like e-learning which will help in reaching the
students in even the remotest part of the country
providing quality education.
Another issue that needs to be addressed is that
of job creation. With an economic slowdown in
the recent years and an increase in the number ofpotential working individuals there has been an
increase in the percentage of unemployment.
This will further reduce the benefit India has in
terms of its economically productive youth as
compared to China because the state cannot
provide enough jobs for this population. A means
to tackle this problem is through grater
investment in infrastructure and energy which
being labour intensive would absorb the large
proportion of unskilled and unemployed labour.
Also, use of technology to build innovative
methods to increase the productivity in
agriculture which can reduce the migrant labour
force which leads to unemployment. Apart from
this investment in strong logistics and storage
infrastructure will help in reducing wastage of
agriculture produce. This will encourage
individuals to work in agriculture as it will be more
profitable and avoid working in unorganised
sector.
There are currently 40 million people employed in
the unorganised sector. Those who work in the
unemployed sector typically have few skills and
consequently, get very poorly paid. Most of them
hail from relatively poor states like Uttar Pradesh,
Bihar and Rajasthan.
Only when proper infrastructure is laid within the
country will it lead to job creation and in turn
employ skilled and unskilled labour force.
Reference:http://www.moneycontrol.com/news/international-
markets/mecklai-graph-kiwis-jobless-rate-zooms-to-135-year-
high_780485.html
Also, when it comes to education it is not just the
primary education which is sufficient but highereducation which is important for making an
individual employable in high-end services such as
information technology, software development
and finance
N Chandrashekharan, chairman and managing
director of Tata Consultancy Services, and RS
Pawar, chairman of NIIT, a technology education
service provider, noted that 400,000 teachers
would be required in the coming decade to train
the next generation. Since the government cannotcreate better working opportunities for teachers
and awareness in terms of value of this profession
there may not be a great scope of increase in the
number of good teachers or educationists. The
only innovative method or solution to this crisis
would be e-learning which would actually enable
better learning opportunities for children in the
remotest location of the country. The growth in
telecom and broadband internet will help in
achieving this target. Clearly, the fact that Indiawill soon be home to one of the worlds youngest
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populations in future can become a tremendous
asset, but only if our policy makers start planning
for it today.
Another argument that jobs can be created
largely by skilling people, and sufficient capital willflow, is presumptive. Even if capital were to flow,
the absorptive capacity within a time frame is
challenging. The jobs-to-GDP ratio is about 50 %
for the service sector, and about 70 % for non-
service industries. As such, the service industry is
over represented in its share of the GDP, and does
not have any more head room to be a bigger GDP
contributor. Hence, it has limited scope to
contribute a good share of job opportunities.
The idea of skilling people will not take off
because enrolment for skilling will not happenwithout a line of sight for jobs. The development
of rail road, aerospace, health care, telecom and
infrastructure industries, globally, was initiated
with non-formal skilled labour. The industrial
revolution and the IT revolution was birthed by
gifted inventors invested into by enterprising
Figure 2: Demographic Profile (2010) Figure 2:Demographic Profile (2050)
Reference:http://www.ifmr.co.in/blog/category/hou
sehold-research/page/2/
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capitalists and set into motion by hordes of non-
formal labour.
According to the given figures, Younger people,
of course, tend to be more geographically mobile,
flexible in terms of occupation and creative. Butthese advantages only translate into greater
productivity and economic growth if these
workers have the right education and training as
well as job opportunities.
While many formal studies have been prepared to
assess the growth and employment potential in
India' formal private sector, less attention has
been given to the conditions and strategies to
promote rapid expansion and job creation in the
rural and informal sectors.
There is enormous scope for raising the
productivity of Indian agriculture, doubling crop
yields and farm incomes, and generating
significant growth in demand for farm labour.
Rising rural incomes consequent to higher
productivity will unleash a multiplier effect,
increasing demand for farm and non-farm
products and services, thereby stimulating rapid
growth of employment opportunities in othersectors.
India labour force suffers from a severe shortage
of employable skills at all levels so the intensive
development of vocational skills will act as a
powerful stimulus for employment and self-
employment generation. In addition to Farm
Schools to impart advanced skills in production
agriculture, government can contribute in
establishing a network of government-certified,
rural vocational institutes providing training andcertification in hundreds of vocational skills not
covered by the ITIs. In order to offset the shortage
of qualified trainers and the costs of replicating
institutions throughout the country, they can
focus on creation of a national network of 'Job
Shops' linked to the Rural Information Centres
and offering televised multimedia training
programmes and computerized vocational
training programmes. So, these educational
institutions must be created keeping in mind the
kinds of skills that are required on job and what
will enhance an individuals productivity.
Although government has taken action in this
direction and included in the eleventh five year
plan the creation of a comprehensive NationalSkill Development Mission and as a result a
Coordinated action on Skill Development with
three- tier institutional structure was created in
early 2008 with a vision to create 500 million
skilled people by 2022 through skill systems. But
what needs to be observed is whether the
government is successful in its endeavor and
achieves this target. Only then will Indias
Demographic dividend be an asset instead of a
liability.
Problems faced and how to tackle them
During the course of the demographic dividend
there are four mechanisms through which the
benefits are delivered. The first is the increased
labour supply. The second mechanism is the
increase in savings. The third mechanism is
human capital. Decreased fertility rates results in
healthier women and fewer economic pressures
at home, leading to better health and educational
facility per child. The fourth mechanism forgrowth is the increasing domestic demand
brought about by the increasing GDP per capita
and the decreasing dependency ratio.
1. Productive jobs are vital for growth. More than
half our population depends on agriculture, so the
number of people dependent on agriculture will
have to shrink if per capita incomes in agriculture
are to go up substantially. While industry is
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creating jobs, but many such jobs are of low
productivity offering low incomes with little
protection, and no benefits. So India's challenge is
to create the conditions for faster growth of
productive jobs apart from agriculture, especially
in organized manufacturing and in services sector,even while improving productivity in agriculture.
2. Urbanization and health
India, like other countries in the world is
becoming more urbanized: the fraction of people
living in urban areas grew from 18% in 1960 to
30% in 2008 (World Bank 2010). During this
period, it has been confronting a surge in chronic
diseases accounting for 53% of all deaths in
India in 2005
There are huge other benefits also that may
promote economic growth. In general work
opportunities are plentiful, fertility rates are
lower so more women enter the labour force,
industries can capture the benefits of economies
of scale, enterprises can readily learn from eachother, and transportation of people and goods is
easier than in rural areas. Even in healthcare,
greater availability of healthcare, combined with
lower fertility rates. Over all increased
urbanization may offer some advantages that can
help propel economic growth.
3. Capturing Indias economic potential
India has several areas to improve the first being
to make wider and deeper investments in health.India has considerable potential to promote
higher income concentrating more on health care.
India has taken a significant step in this direction
by establishing the Public Health Foundation of
India and the National Rural Health Mission,
which intend to fill Indias need for a wide range
of further investments in the promotion andprotection of health, including the training and
wide deployment of medical and public health
professionals who focus on prevention and care.
Indias second great demographic opportunity
involves the acceleration of fertility decline. In
general, there are three main approaches of
promoting this.
3.1 The expansion of family planning services.
Currently, approximately 13% of Indianwomen (10% in urban areas and nearly 15%
in rural areas) report unmet need for
contraception, meaning that many currently
married women who desire to postpone
childbearing are not using contraception.
Satisfying this unmet need for contraception
will help achieving the goal of bringing downTFR from its current level of 2.7 to 2.1.
3.2 Lowering fertility can be achieved
promoting infant and child survival. Vaccines
against childhood disease are one way to
realize an improvement in child survival.
This approach will include wide coverage of
established and inexpensive vaccinations
thereby addressing several leading causes of
child death in India. It will make vaccinated
children more productive through betterattendance in school and therefore well
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educated, higher-earning adults. India is
taking initiatives to increase vaccination
coverage; its coverage rates are currently
well below world averages. DTP3
vaccination coverage rate for India was 66%
in 2008, nearly 20 percentage points lowerthan for the rest of the world (WHO 2010).
3.3 Girls education can serve both development
and promoting fertility decline. Educated
mothers tend to have fewer children it also
empowers women to express their views on
lifestyle and fertility decisions. Having fewer
children allows families to invest more in the
health. And being educated they are also able to
contribute to nations progress.
Seizing the demographic dividend:
Questions we need to address
IS LARGE YOUTH POPULATION A BOON FOR
INDIAS SUSTAINABLE GROWTH?
No doubt large youth populations have led to an
increase in productivity but in terms of
economic benefit distribution, smooth running
of policies and schemes and better job
availabilities, India needs to focus on reducingthe birth rates along with death rates. There are
certain measures we need to take so that
population is within control and we can seize
our demographic dividend equitably.
Prevent the demographic dividend form
turning into a curse
India has developed a lot as far as the
entrepreneurial culture is concerned and this is
one of the most novel ways of creating
sustainable growth in the country. On one hand
it would provide more number of jobs so that
employment levels rise and thereby increasing
the productivity per person. While on the other
hand, it leads to generation of resources for the
country and thereby leading to more growth.
Large companies have been steadily losing jobs
while most of the job opportunities are being
provided by start-ups. Similarly more and more
educational innovations, better opportunities to
students and wide availability of choices in
subjects also help in developing this culture.
A survey was undertaken in IIM Indore, wherein
it was found out that almost 30% of the students
think that they have decided to become anentrepreneur during their course of MBA study
while amongst the pass outs, it was found almost
19% students, decided to go for
entrepreneurship after the completion of course.
This conversion ratio needs to be increased
further, if we aim to achieve growth sustainably.
India needs to leverage the diversity of its
population, the growing number of skilled
manpower and good geographical reach in order
to develop sustainably. In the course ofdevelopment it also needs to focus on proper
allocation of resources, develop means of energy
that is sustainable, reduce environmental impact
of various industrial activities and promote
better infrastructural facilities for investments to
grow within the country and also attract more of
them in future.
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Keeping it smart and simple
Navigating Chaos through Focus and Simplification
Aditi Khanna
hen Ratan Tata took over the reigns ofthe Tata group from the charismatic
JRD Tata, the conglomerate was seen
to be suffering from unstructured growth that
gave the group a bagful of businesses. From
trucks, steel and cement to drugs, lipsticks and
computers, the Tatas make them all. For instance,
the group has three companies making cement -
giant ACC. Tata Chemicals and Tisco..two
pharmaceuticals companies Merind and Tata
Pharma - while three other group companies,
Rallis, Voltas and Lakme, have their own
pharmaceuticals divisions .This also happened to
be a time of unprecedented turmoil in the Indian
economy, which was going through its first major
economic crisis since independence. This meant
sweeping changes in the policy climate, notably
the implementation of the LPG policies- that
exposed Indian industries to foreign competition
and dismantling of the infamous web of the
License raj. Amid this situation, Ratan Tata
prioritized restructuring of the conglomerate, to
retain only the top performers and get rid of the
rest. At Tatas, we believe that if we are not
among the top three in an industry, we should
look seriously at what it would take to become
one of the top three players.. or think about
exiting the industry.
The result was the sale of Tata Oil Mills, Lakme
and Merind brands, streamlined operations of
Voltas, sold stake in Idea cellular and exit from thecement business over the next decade, while the
group continued to consolidate and significantlyexpand in chosen areas. The fruits are there for all
to see. The lesson derived is highly applicable in
todays economic climate. At a time when
uncertainty of business climate has become the
norm rather than an exception and the horizon
for planning forward has been radically reduced,
more and more firms are realizing the virtues of
making larger bets on a more focused group of
products and services. Eliminating complexities as
far as possible from both offerings and processes
makes sense in such a scenario as complexities
in terms of the breadth of spectrumadd to costs
in more ways than one, and take away economies
that could have been realized from scale, while
not necessarily adding to profits, as only some
customer segments tend to be profitably as a rule.
Bain and Co. in a June 2013 survey outlines two
kinds of complexities that have arisen in the
consumer goods companies: above-the-skin and
below-the-skin. Above-the-skin complexity is theproliferation of brands, products and SKUs thats
apparent to shoppers on the store shelf. Below-
the-skin complexity is the abundance of product
features and specificationsvariations and
nuances in recipes, ingredients, packaging
materials and the likethat are not necessarily
discernible to shoppers. In a bid to serve as many
customer segments as possible during the benign
economic climate of the early 2000s, firms tended
to have beefed up their product portfolios andincurred a high mass of both kinds of
W
As uncertainty becomes a norm rather than exception, firms
need to keep it simple and focus their core competency -
now more than ever.
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complexities. While their costs tended to be
camouflaged back then, they are now more
glowering than ever.
Points out Sanjay Khosla, President of Krafts
Developing Markets Business, who wasresponsible for the sharp turnaround of the
segment from an anemic one to a robust
contributor to growth, To improve the quality of
growth, business leaders need to cut back on
marginal products, brands, and markets so that
they have a better chance of winning in their
areas of strength..Focus is a powerful engine for
growthdoing a few things and doing them well.
Seemingly mature businesses can be reenergized
by making fewer but larger bets, and by focusing
relentlessly on executing a simple but powerful
vision. And this strategy seems to have worked.
Today, Developing Markets is a $13.6 billion
business for Kraft foods. Revenues from organic
growth have increased nearly 13 percent and
operating income grew an average of more than
34 percent per year from 2006 through 2010. The
key lay in slicing off the marginal and focusing on
the core brands for the company.
Focus as a strategy is applicable across domains
and verticals. It could pertain to corporate
strategy deciding which businesses to retain or
exit from; to the business unit level deciding
what core offerings and product lines to pursue;
at the product line levelwhat variations to keepand which ones to withdraw; and also at the end-
customer marketing levelthe positioning of the
product and its tailoring relevant to socio-cultural
and geographical context. It aims to cut all the
flab from the enterprise and keep just the crux-
the most profitable ventures under any category
intact, so it receives maximum attention of and
resources from the enterprise.
Perhaps the most vocal advocate of the strategy
of keeping things simple and focused was the
maverick Steve Jobs: That's been one of my
mantras - focus and simplicity. Simple can be
harder than complex: You have to work hard to
get your thinking clean to make it simple. But it's
worth it in the end because once you get there,
you can move mountains.
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Made in India-Ipad: Turning a dream into reality
Adit Suneja
Medha Shanbhag
emiconductors are the building blocks ofalmost all electronic equipment today and
have revolutionized the world of electronics.
Semiconductors are used in the form of
Integrated Circuit (IC) which is a set of electronic
circuits on one small plate of semiconductor
material, normally silicon. Due to the rapid
technology advancement, ICs can be made very
compact with several billion transistors in an area
the size of a fingernail.
The Bigger Picture: Global Semiconductor
Industry
The tremendous growth witnessed by the
electronics industry in the last four decades could
be attributed to one singular factor-the increasing
power and decreasing cost of semiconductors.
True to Moores law, the semiconductor and chip
fabrication industry has made rapid
advancements improving on size year on year.
The industry has a wide ecosystem but the globalsemiconductor industry can be classified into
three broad categories:
The Fully-Integrated Firms:Companies like Intel,
IBM, Toshiba and Samsung populate the apex of
the revenue and profit pyramid. They design as
well as manufacture the chips that form the core
of the devices made by these firms. This enables
them to exercise a tighter control on quality while
guarding against commoditization of their chips
by rivals. The outcome is high returns on theinvestments made.
The Fabless Designers: Companies like
Qualcomm, Nvidia and Braodcomm differentiate
themselves solely on the basis of their designing
capability. Chips once designed are then
outsourced to specialized chip makers.
The Foundries: Companies like Taiwan
Semiconductor Manufacturing Company, the
biggest independent foundry, andGlobalFoundries are some examples which
dominate this segment through their economiesof scale. Foundries are marked by established
capacities for manufacturing a wide variety of
chips in huge quantities.
A rapid change in technology is as much a blessing
as it is a curse. Though demand tends to remain
high due to faster obsolescence of existing
devices, it spells doom for the capital intensive
chip fabrication segment of the industry.
Typically, the economic challenges faced by the
semiconductor industry on the whole can be
attributed to the confluence of two factors. The
first is the cyclicality of the industry. In the
backdrop of rising costs of R&D, it is characterized
by- a 1-2 year upturn marked by high growth
followed by longer periods of downturn.
Secondly, high costs associated with building,
upgrading and maintaining the fabrication plants
require high commitment of financial resources.
As new designs and process technologies becomeincreasingly expensive to develop, semiconductor
companies are resorting to a Fab Litestrategy
outsourcing an increasingly large fraction of their
chip production to the dedicated chip
manufacturers and the foundries. This has led to a
surge in the demand for the chip fabrication
companies.
Parts of a Whole: The Indian Context
India is a global leader in software and related
services. It also has significant presence inelectronic manufacturing, assembly and testing
industry. In terms of the semiconductor chips that
form the heart of these electronic devices, India
has expertise in some critical links of the value
chain. With more than 20,000 engineers working
on chip design and verification, India churns out
over 2,000 chip designs every year generating
about $2 bn from chip design alone. With these
impressive statistics, India has the potential to
become the powerhouse of the semiconductor
S
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industry. Then why has India not put itself on the
global map yet?
Chip fabrication plants are not that easy to set up.
They are heavy on the capital investment side of
the ledger and rapid advances in technologyrender equipment redundant and obsolete quite
soon. An advanced fab plant manufacturing chips
for cell phones can entail an initial investment of
$5 bn while that it can cost up to $1bn for a less
advanced fab unit making chips for automobile
and radio devices! The ballpark figure for the cost
of equipment itself in the plant is about 55% of
the total capital employed. Also, significant funds
need to be put in as the plant matures and the
clientele diversifies.
A fabrication plant also puts tremendous pressure
on the natural resources of the country.
Semiconductors are built in layers on silicon
wafers to build an integrated circuit. After each
layer of semiconductor is added, it must be rinsed
with Ultra Pure Water (UPW), water that is
thousand times purer than drinking water.
Creating an IC on a 30 cm wafer would require
approximately 2,200 gallons of water. Thus a large
fab plant producing, say, 20,000 wafers a month
will consume a staggering 2.4 million gallons of
water per day! Also it is an extremely energy
intensive industry given that it uses about 30-50
megawatts of peak electrical capacity which is
enough to power a small city!
Changing the Dynamics
Indias ever-increasing trade deficit was a glaring
$191 billion as of 31st
March, 13. Out of the total$491.48 bn of imports, the non-oil imports stood
at $322.23 bn constituting 66% of the total
imports. The current import bill for
semiconductors is around $7 bn and is increasing
at a rate of 22%. It is estimated to reach around
$45-70 billion by 2020.
This dependence on chip imports manifests itself
in more than one way. For the nine months
ending April 2013, India recorded imports of
electronic goods worth $26 bn approximatelyfrom countries like China and Taiwan indicating a
substantial supply chain risk. A chip fabrication
plant also promises to create over 1.2 million jobs
in addition to the economic concerns it is
expected to address.
These potential benefits have called for the
Government of India to take a closer look at the
prospects of building a robust chip manufacturing
industry in India. With this view it has offered a
subsidy of 20% on capital expenditure incurred to
companies setting up production units within
Special Economic Zones and 25% to units set up
outside these zones. The Department ofElectronics and Information Technology (DeitY)
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has also selected Accenture to review investment
proposals from companies. The government will
also provide viability-gap fundinga financial
grant to make the project commercially viablein
the form of an interest free loan for 10 years. The
government, which will get 11% equity in theproposed projects, requires the technology
providers to take at least 10% equity. The projects
will be entitled to deduction for expenditure on
research and development under the Income Tax
Act. In addition, fab facilities will also be eligible
for investment-linked deduction under Section
35AD of the Income Tax Act.
Whos heard the Call?
The Union Cabinet, in the 2
nd
week of September,announced an in-principle approval for two
international consortiums to establish Indias first
semiconductor fabrication plants.
One of the consortiums is made of Jaiprakashs
Associates (JayPee) and Israels Tower Jazz with
IBM as the technology partner. It has proposed a
plant near New Delhi at a cost of . 263 bn.
The second comprises Hindustan Semiconductor
Manufacturing Corporation (HSMC) and
Malaysias Silterra with STMicroelectronics as its
technology partner. It has proposed an
investment to the tune . 252.5 billion for a plant
in Gujarat.
Is it Enough?
It has been asserted by one of the top chip
makers that most of the leading chip
manufacturers have already established their
facilities globally. Also, companies like Freescale
Semiconductor India do not want to act on the
proposal since they established chip designers in
India that manufacture the same from their
facilities based abroad. There is overcapacity inthe existing global facilities and hence, players are
not keen on investing in India as a new
manufacturing destination.
Even the new incentives being offered by the
Government of India (GoI) do not seem to be
enough when compared with those offered by the
Chinese and the Taiwanese. The worlds largest
foundry in this industry, Taiwan Semiconductor
Manufacturing Company (TSMC), has been riding
high on government funds since 1987. Due to
such concerted efforts, China and Taiwan are two
decades ahead of India in this race.
Given this late entrant dilemma, the GoI needs to
not just provide the initial impetus in the form of
capital expenditure subsidy but also take care of
the high operating cost of such a plant. It is
imperative for the GoI to provide an ecosystem
whereby the companies do not have to worry
about essential inputs like sufficient water,uninterrupted power supply and well-developed
infrastructure.
It is a step in the right direction but the
government needs to hasten to bridge the
appalling gap in the area.
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North- East India: The New Frontier for Supply Chain ManagementChitresh Kumar
Northeast India, till date remains a bottleneck for
most of the organizations in terms of supply chain
management. The difficult terrain, lack of proper
rail-based and road based infrastructure, in
addition the social conflicts makes it an issue
which, most of the times is not discussed within
the boardrooms. The result invariably remains an
untapped market, with somewhat unknown,
unexplored potential in terms of developing
manufacturing bases or warehouses and
managing the supply chain efficiently in the
region.
However, it seems that the scenario is going to
change in the coming years, with both Indian
Railways (IR) and National Highway Authority of
India (NHAI) working towards developing
networks, integrating all the states. Since, this
integration would not be only at an interstate
level but based on the planning of Asian
Development Bank and ESCAP (Economic and
Social Commission for Asia and the Pacific) the
future integration is going to connect all the East
Asian and South-East Asian Countries through a
unified cross border network of roads and rails.
The projects named Asian Highway Project and
the Asian Rail Network will further elevate the
importance of Northeast India in the region. As of
now, the road-based Asian Highway Project
seems the one to be completed in the near
future, as issues of tough terrain, high costs, rail
gauge and technology integration mar the timely
rail network development. The following sections
of the article will discuss the technical details of
these two network development projects and the
concluding section would discuss their implication
on planning and development of an effective
supply chain by different organization so as to tap
the benefits of these projects in the best possible
manner.
Asian Highway (AH) Network Development
Project
ESCAP, the regional development arm of the
United Nations has undertaken the task of
integrating all the Asian countries through Trans
Asian road network through The Asian Highway
Project. Conceptualized way back in 1959, The
Intergovernmental Agreement was finally
proposed in November 2003 and was adopted by
32 countries in 2005. The aim is to develop some
141, 000 Kilometers of roads integrating these 32nations spread in Asia and Europe
(www.unpan.org).
Once connected the highway would allow
seamless movement of goods across the border in
a faster manner, improving trade opportunities
between these countries and economic
conditions of the region. The long-term vision of
the highway project can be touted as providing a
barrier free movement of goods and work force.
This would have major impact in the sub-regionswithin the countries from where these highways
are proposed to cross through. Further it could
be stated that the ultimate vision would be to
create a continent in the lines of Europe, where
cross-border labour, capital and consumer
markets can be exploited in an optimal manner.
The Indian part of the project consists of 11,650
kms. of which 11,624 km is national highway and
rest are stage highways. Approximately 4,000
kms. of this is class I road which means accesscontrolled, 6-8 lane divided carriageway adhering
to international safety regulations (Mostly parts
of Golden Quadrilateral Project). However,
according to Ministry of Transport and Shipping
most of the Indian roads adhere to the minimum
standard prescribed by AH1. The roads that will
1Development and Upgradation of Asian Highways Network in India,Investment Needs And Status On Road Safety, Presentation given by Shri
S.B. Basu, Ministry of Shipping, Road Transport & Highways, Government ofIndia
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cross India of the network are AH -1, 2, 42, 43, 45,
46 and 47. These networks will connect, Pakistan
(AH -1), Bangladesh (AH 1 and 2, at three points
and from two states West Bengal - 2 Entry and
exit points, Assam One entry-exit point), Nepal
(AH-1 and 42), Sri Lanka (AH 43 and 46), Bhutan(AH48) and Myanmar (AH1 and 2) (see Fig. 1).
Fig. 1Asian Highway NetworkIndia
Source: www.en.wikipedia.org
The overall cost of the project is proposed at 26
Billion Dollars out of which as of now only 18
Billion Dollars have been committed. However,
considering that the Indian network is part of
National Highway Development Programme(NHDP) and development of roads in Northeast
India is being taken separately as NHDP IIIA and
IIIB programmes, there is an overall surplus of
funds, which is a good news (approximately 2
Billion Dollars).
North East Rail Infrastructure Development
Project
The project Intends towards integration of all
northeast states through railways (broad gaugeand medium gauge) at an expected total cost of .
17,000 crores and would develop 2452 kms. of
track, half of which would be broad gauge and
half medium gauge. According to the Ministry of
Railways, the total spend on the same till 2010
has been around . 5684 crores and
approximately 1,800 kms. of tracks have already
been laid2. Once completed all the seven state
capitals would be accessed through the network
2Master Plan for the Development of Rail Infrastructure in the North East
Region, Presented on 7.7.2010, Ministry of Railways, Government of India
(Fig. 2) reducing the travel time as well as cost
significantly. The way forward for the future
would be cross border connectivity towards
Bangladesh and South-east Asian Countries from
Myanmar upto Malaysia as part of Asian Railways.
Fig. 2 Development of Rail Infrastructure in
North East India
Source: Master Plan for the Development of Rail Infrastructure in
the North East Region (2010)
Implications for Firm Level Supply Chain
Management
Analysis done by Parpiev and Sodikov (2008) 3
suggests that a 20 percent increase in intra-region
trade would result towards increase of 48.7 Billion
Dollars and a 35% increase would result towards
89.5 Billion Dollars annually. However, a very
small part (Less than 15%) of this trade would
have Indian share (See figure 3). The major reason
behind such a phenomenon would be amount of
trade between India-China, India Bangladesh
and IndiaMyanmar remains miniscule in nature
as compared to trade between East Asian
countries or North Asia and East Europe, China
and Russia. This would result towards anunderutilized network as far as international trade
is concerned in the Indian Sub-region. This excess
capacity can be utilized for the intra-sub region
trade in the Northeast. However, this is not going
to be one of the major advantages to be exploited
by various organisations.
3Parpiev Z. and Sodikov J., (2008), The Effect of Road Upgrading to
Overland Trade in Asian Highway Network, Eurasian Journal of Businessand Economics Vol. 1, Issue 2, pp. 85-101
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Figure 3: Intra-region TradeAsian Highway
Network
Source: Parpiev and Sodikov, (2008)
Once developed, the two networks together
would provide a unique opportunity of developing
low cost supply chain in the northeast region. The
access to Assam and Northeast India from East
India, through Bangladesh (AH -2, See fig. 1)
would significantly reduce the lead-time. This
means further easy access to raw materials from
the mineral belts of east and southeast India from
states like Orissa, Jharkhand, Chhattisgarh andAndhra Pradesh.
For the manufacturing base in the Northeast India
and the international inbound and outbound
(import and export) supply chain management,
this would open an altogether new avenue
through utilization of Chittagong port of
Bangladesh, rather than coming all the way to
India. Additionally, the opening up of AH and
access to northeast (Assam and Tripura) via
Bangladesh from south West Bengal would allow
better exploitation of Indian East Coast Ports like
Haldia (West Bengal) and Paradeep (Orrisa).
However, in order to exploit the benefits of theseroad and rail based network, the firms need to
study the ph