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Mass Consumption Goods and Services in India and bottleneck to their growth Why should Indian Economy expect

t growth at all?
By: Amit Bhushan Date: February 9th, 2013 Contact: amitbhushan@rediffmail.com

Over-governance and under-management has been a hallmark of Indian economy over the years. Despite reforms, its markets remain regulated and its organizations remain stifled under the weight of these twin curses. The double to its organizations is in the form of a perverse incentive system which its nascent organizations have to cope up with and they find growing capabilities under the system almost impossible. They same managers when they go abroad are able to bring stupendous results but in India, they find almost impossible to connect and collect requirements for growth as all seams seem to be pulling n different directions. So as a nation, we are unable to nurture capabilities that are required by domestic people inspite of being a nation of 1.2 billion people whose 65% population is below the age of 35 years and 50% people below the age of 25 years and thus ready for experiments and challenges.

Age structure

0-14 years:

31.1% (male 190,075,426/female 172,799,553) (2009 est.)

15-64 years: 63.6% (male 381,446,079/female 359,802,209) (2009 est.)

65-over:

5.3% (male 29,364,920/female 32,591,030) (2009 est.)

Sex ratio

At birth:

1.12 male(s)/female (2009 est.)

Under 15:

1.10 male(s)/female (2009 est.)

15-64 years: 1.06 male(s)/female (2009 est.)

65-over:

0.90 male(s)/female (2009 est.)

India's per capita income (nominal) is $ 1219, ranked 142nd in the world, while its per capita purchasing power parity (PPP) of US $3,608 is ranked 129th. A young nation with our kind of demographic and income profile is concerned about availability of Food at affordable prices; Energy to keep it running for cooking fuels; transportation and illumination (besides may also require to maintain warmth at home in certain areas); Education services to keep its young population at cutting edge of marketable skills; Clothing needs, Medicines and Healthcare services; Communication services such personal and mass communication/entertainment service; Financial services such payments services and savings & loans access, Decent housing with water supply, sanitation & hygiene, amongst the most critical needs required by our people. Then there are millions of widgets that go on to improve and enrich our daily lives which may be required some in large and other in relatively smaller proportion. However it is the critical items which dominate the proportion of spend (relative to income) of most of our masses. So most undoubtedly these critical items should represent big business in India. A look at the statistics reveals that for most of the food items, India is a large produce and consumer of goods. We are amongst the largest producers and consumers of Rice, Wheat, some of the other assorted Cereals such as Jowar, Barley, Maize, Pulses etc. We are also amongst the largest producers of Milk, honey, eggs, Chicken & Meat, Sugar, Fruits and Vegetable, Fisheries, cotton, sugar etc. A peek into the sector gives some solace that the sector has been able to live upto the need of our people to some extent. This seems more a result of ability of our people to preserve rather than government creating an enabling environment. To be fair, a fertilizer subsidy did lift the sector when the situation was in doldrums in mid 70s, however, there has been little breakthroughs. It may be noted that we have no single institution which can claim to have specialist capabilities on any single food item where it has some significant intervention and/or capabilities to impact the Cost production or market making ability of a significant order. Probably Food Corporation with its massive storage of food (at the cost of the state) may be the only exception. It may be noted that the sector has been growing insignificantly with policy makers pronouncements giving the segment little hope. This is inspite of food inflation being high for the common man. A good question could also be if we know how to measure agricultural GDP. This because if food prices rise 4-5% or higher per annum and volume of production is 1-1.5%, the Food GDP should grow by 7.5% approx. which it is not. Instead it shows only 2% increase. The next priority item is Energy which includes Cooking Fuel, Transportation fuels and energy for Illumination/weather control. We are an energy deficient nation but have we optimized utilization of resources at our countrys disposal to make such energy available at affordable rates to most of our population. Or the governance structure has been a willing hand maiden of a few trying to grind their axe and maximize private profits with little regards for the majority. A plethora of Rule and Concessionaire agreements between the government and private parties including some intergovernmental agreements regulate the sector. Lack of transparency and inability to appreciate the complexity of issues involved has led to a small group of people playing messiah for the masses. The problem is one which rakes a mullah for the political leaders and they are loathe to solve this issue by creating institutions that can debate issues in public on behalf of the people and educate public about its interests. We did create some institutions such as PCRA etc. who guide public about conservation but 2

they do not throw any light about what can be done to reduce the purchase price of fuels and energy by the common public. The situation remains the same irrespective of political party in power or a change of guard in the ministry as for some reasons issues are kept under wraps even though it is a core issue for 1.2 billion strong public. Both centre and state are equally liable for the prevailing situation as all parties are complicit in keeping their part under wraps. The result is that as a country we are nowhere on the World map in this segment inspite of some of our companies in energy sector being in some of the illustrious list of corporations. So obviously these corporations are not aligned to the needs of the people or lack capacity and capability and/or intent to measurable solve the needs. The corporate presence in the sector is quite a contrast from Food sector were our corporates are nowhere but India with all its ills is an important player. Also a large number of player such as Electricity distributors and producers have been perennially sick requiring regular credit support, grants and write-offs. The next item on the list of priorities of the common man is Education which should be able to support his quest to improve his well being by empowering him with skills that are in demand so that he can improve his productivity and income. India has created a plethora of Laws and institutions in the sector, however forgot to dwell upon economics. We created some institutions of excellence who admitted the highly meritorious students and imparted them with high order skills however such skills fetched better income outside India than within. We created some institutions of research but they were hijacked to focus on progressing the subject as in West rather than trying to develop solutions for our society. We tried to regulate the income of our teachers so that only the really skillful get hired to teach but in the process we raised the costs and sub-optimized the distribution/reach of even primary education to all. A hotch-potch approach has yielded us little. Neither our institutions are not globally regarded amongst the top nor are the graduates of our institutions unable to fit the requirement of our own industry. This is despite this the sector with hundreds of private as well as government funded institutions are not ready to change their approach. Each institution blames someone else for the malaise and allows their students to suffer the consequences rather than undertaking some painful change upon their staff who would be in a more capable position to bear the burden and improve the situation. The sector not only underperforms for itself but drags down other sectors as well. No wonder none of the institutions in the sector are well regarded, though to be fair some of the students from some institutions have been regularly getting laurels for themselves inspite of the grave situation. Clothing is an important item on the priority shopping list of every common man. Often this seems to have a higher order of priority than Education however with awareness that raising productivity is important to well being and education has a role to raise productivity and well being, the order is likely to change for the class of people who are slightly better off than the bottom most layer with no means to realize their aspirations. As far as satisfying the need of people for clothing is concerned, we have not been able to reach affordable and meaningful clothing to our bottom most layer who has t make do with used clothes discarded by someone else. There are no specialized corporates to cater to demand at the lower end of the pyramid despite being a huge market. Part of the reason is a lop-sided tax structure as well as labour markets in favour of small powerlooms. We have also deliberately not allowed our synthetic fibre and textile industry to take off and therefore specialist clothing for specific industry has not really developed. This is inspite of the segments potential to be a huge job generator. Lack of 3

professionalism on what to expect from Indian industry to deliver to its own people and to the rest of the world and facilitating taxonomy needed to enable the potential has been thoroughly lacking. The industry has been largely happy managing to scrape through financial sector largesse from government and creditors year after year. Healthcare and Medicines are next on the list of priorities. To be fair, India does boast of capabilities to produce generic formulations at some of the lowest cost in the world. Its healthcare professionals are well regarded and are capable to perform some of the most complex medical procedures effectively. The government intervention in the sector was two fold. Firstly it tried to create some medical facilities and offered it free and as a result was unable to reach to all people who needed it partly due to lack of resources and partly due to leakages in distribution which even now is rampant. Secondly, it created some education and training institutions and decent employment opportunities within government institutions such as Army/CGHS etc. to meet the needs of the government institutions itself. Later on the private sector started to show buoyancy as it realized that now the healthcare is largely funded privately by the population. Government of its part tried to chip in by error rather than by design when it opened up health insurance sector which has aided the sector to grow. As a result the sector is currently showing dynamism as it is raising capabilities as well as expanding upon distribution. As of now it has reached upper middle to middle segment but as it penetrates further it shall soon find ways and means to cater to even lower class for most of their common ailments, if not all required services. Communications including personal and mass-communication/entertainment is another item which is raising leaps and bounds on the list priorities of the common man. These services were earlier provided by the department of Post and Telegraph, buy hitherto its the Telecom department which has emerged as numero uno regulator for providing personal communication services. Similarly, mass communications are being largely guided through Information and Broadcasting ministry with various agencies under it. To be fair telecom services have reached approx. 50% of our population who is able to afford mobiles. The segment was on a healthy growth path and it was expected that Data services would lead further growth beating down voice services till some government policy derailed the segment. Currently the personal communication sector is in ICU nursing itself to find its mojo back. With regards to the mass communication sector, India has emerged to be a cost effective source of content and we are worlds largest producer of electronic media content. While this serves our own population well, however a nation which has large young population needs to do better in the segment by being able to sell its produce to others. The government and political masters of the day have repeatedly felt shy of promoting the ability of our people to cater to needs of some of the other countries as well thereby generating employment and growth. Financial services are an important cog in the wheel as they work as grease to keep the economy moving. Efficient and dependable payment services lead to an improvement in options and improve upon ability to transact. Ability to deploy savings effectively and/or to receive credit help raise the capability as well as efficiency of entire economy. Despite a plethora of initiatives, we have not been able to reach a vast cross section of our people. Part of the reason is that we have created regulations which have limited the availability of collateral for the banks and excluded agricultural and as effective collateral against which the banks can lend to people in the rural swathes. Banks of their part have 4

focused on the profitable business of savings which have limited potential and neglected payments business as policies have made it a non-lucrative business. Housing with living amenities could have been another area for growth since it is the next item high on agenda of common man. The sector is partly dependent of efficient financial sector being able to channelize savings and loans for creation of this long term asset for people. This sector is again plagued by a maze of regulations blinding ability to satisfy oneself of ownership rights or a level playing field for enforcement of contracts. Common man is perennially and mortally afraid of losing the control over his or her property to the numerous land sharks or get lost in a legal quagmire and lose money even when his own intentions were pure. The politicians and businesses have somehow found this situation more useful for them rather than attempting to develop solutions that lead to a systematic development of the sector which has potential to become the largest employer in the economy with millions of fresh jobs.