AN OVERVIEW OF INDIA'S ECONOMY
Twenty to twenty-five years ago, few of us had heard of Information Technology. Today, exports from this industry are worth US $10 billion per annum, which amounts to 20 per cent of our total exports.
In spite of the fact that each of the markets to which we supply IT software and solutions has been in the trough of recession for years, IT exports have grown by 26 per cent this year.
Infosys had not even been born 25 years ago. Wipro was a company selling vegetable oil. Indeed, other than the ''Tata'' in Tata Consultancy Services, there is scarcely a name in the IT industry that was known then.
And guess what the average age is in the industry? Just 26 and a half! These 26/27-year-olds have changed the world's perception of India. It's not just a country of snake-charmers, it's a country against which protectionist walls have to be erected. Of course, we can also charm snakes. And not just, to pluck a phrase of Malcolm Muggeridge, snakes in snakes' clothing!
We lament the fact that, while we are ahead in software, we have lost out to China in IT hardware. That is true - as of the moment. We shooed away firms like Motorola when they approached us in the early 1990s for facilities to set up manufacturing operations in India. China welcomed them, it wooed them, it created every conceivable facility for hardware firms from Japan, of course, but also from Taiwan, a country at which 400 of its missiles are aimed. It has thereby leapt ahead.
But the game is hardly over. That world-class hardware can be produced in India is evident. How many of us would have heard of Moser-Baer? Located in unprepossessing Noida, it is the world's third largest optical media manufacturer, and the lowest-cost producer of CD-Recorders. Its exports are close to Rs 1,000 crore.
The firm sells data-storage products to seven of the world's top 10 CD-R producers. And it produces them so efficiently that, to shield themselves, European competitors had to file an anti-dumping case to stop and penalise its exports to Europe. Moser-Baer fought on its own. And won.
A firm most of us have not heard of. A firm that is manufacturing products at the cutting edge of technology. A firm exporting Rs 1,000 crore of products that require the utmost precision and technological sophistication. A firm that European firms fear.
And equally important - the very international fora that our ideologues shout are instruments of exploitation hold against European firms, and in favour of this Indian firm.
There is more. Moser-Baer has acquired Capco Luxembourg, a firm that owns 49 per cent of a Netherlands-based CD-R distributor. And it has set up Glyphics Media Inc. in the United States-for markets in North and South America. And here we are being made to shiver at the thought that foreign firms are about to swallow us!
Heard of Tandon Electronics? Its exports of electronic hardware are close to Rs 4,000 crore!
At a moment's notice, my friends Amit Mitra of FICCI and Tarun Das of CII send me particulars of firm after firm, in sector after sector, that has broken new ground. A sample:
- Fifteen of the world's major automobile manufacturers are now obtaining components from Indian firms.
- Just last year, exports of auto-components were $375 million. This year they are close to $1.5 billion. Estimates indicate they will reach $15 billion within six to seven years.
- Hero Honda is now the largest manufacturer of motorcycles in the world-with an output of 17 lakh motorcycles a year.
- One lakh Indica cars of the Tatas are to be marketed in Europe by Rover, one of the United Kingdom's most prestigious auto-manufacturers under its - that is, Rover's - brand name.
- Bharat Forge has the world's largest single-location forging facility - of 1.2 lakh tonnes per annum. Its client list includes Toyota, Honda, Volvo, Cummins, Daimler Chrysler. It has been chosen as a supplier of small forging parts for Toyota's global transmission parts' sourcing hub in Bangalore.
- Asian Paints has production facilities in 22 countries spread across five continents. It has recently acquired Berger International, which gives it access to 11 countries, and SCIB Chemical SAE in Egypt. Asian Paints is the market leader in 11 of the 22 countries in which it is present, including India.
- Hindustan Inks has the world's largest single stream, fully integrated ink plant, of 1 lakh tonnes per annum capacity, at Vapi, Gujarat. It has a manufacturing plant and a 100 per cent subsidiary in the US. It has another 100 per cent subsidiary in Austria.
- For two years running, General Motors has awarded Sundaram Clayton its 'Best Supplier Award'; the volumes it sources out of India are growing every year.
- Ford has presented the 'Gold World Excellence Award' to Cooper Tyres.
- Essel Propack is the world's largest laminated tube manufacturer. It has a manufacturing presence in 11 countries including China, a global manufacturing share of 25 per cent, and caters to all of P&G's laminated tube requirements in the US, and 40 per cent of Unilever's.
- Aston Martin, one of the world's most expensive car brands, has contracted prototyping its latest luxury sports car to an India-based designer. This would be the cheapest car to roll out of Aston Martin's stable.
- Maruti has been the preferred supplier of small cars under the Suzuki brand for Europe. Suzuki has now decided to make India its manufacturing, export and research hub outside Japan.
- Hyundai Motors India is about to become the parent Hyundai Motors Corporation's global small car hub. In 2003, HMC will source 25,000 Santros from HMI's plant in India. By 2010 HMI is targeted to supply half a million cars to HMC.
It was only in 1999 that HMI got its first outsourcing contract and already, in 2003, 20 per cent of its sales will be what it supplies as an outsourcing hub. It is exporting cars to Indonesia, Algeria, Morocco, Columbia, Nepal, Sri Lanka and Bangladesh.
- Ford India got its first outsourcing contract in 2000. Within 3 years outsourcing accounts for 35 per cent of its sales. Ford India supplies to Mexico, Brazil and China. The parent Ford is sourcing close to $40 million worth of components from India, and plans to increase these in the coming years.
Ford India is already the sole manufacturing and supply base for Ikon cars and components. These are being exported to Mexico, China and Africa.
- Toyota Kirloskar Motors chose India over competitive destinations like Philippines and China for setting up a new project to source transmissions as this option proved more economical.
- Europe's leading tractor maker, Renault, has chosen International Tractors (ITL) as its sole global sourcing hub for 40 to 85 horsepower tractors.
- Tyco Electronics India bagged its first outsourcing contract in 1998-99. So successful has it been that components and products others have contracted from it already account for 50 per cent of its total sales. It supplies to the parent, Tyco Europe.
- TISCO is today the lowest cost producer of hot-rolled steel in the world.
- TVS Motor Company has been awarded the coveted Deming Prize for Total Quality Management. Many of the largest of organisations, even American ones-like GE-have not managed that recognition yet!
India's pharmaceutical industry has come to be feared as much as its infotech industry. It is already worth $ 6.5 billion and it has been growing at 8-10 per cent a year. It's the fourth largest pharmaceutical industry in terms of volumes and 13th in value. Its exports have crossed $2 billion, and have increased by 30 per cent in the past five years. India is among the top five manufacturers of bulk drugs.
Even more telling is another figure. We are always being frightened, ''Multinational drug companies are about to takeover.'' In 1971 the share of these MNCs in the Indian market was 75 per cent. Today it's 35 per cent!
There's another feature we should bear in mind: India's strengths are becoming evident across the technology spectrum:
- We are among the three countries in the world that have built supercomputers on their own, the US and Japan being the other two: two months ago, the fourth generation PARAM super-computer was inaugurated in Bangalore.
- We are among six countries in the world that launch satellites. We launch some of our own satellites of course; we have launched satellites for others too, among them such countries as Germany and Belgium. We have the largest set of remote sensing satellites. Our INSAT system is also among the world's largest domestic satellite communication systems.
At the other end:
- India is one of the world's largest diamond cutting and polishing centres. CLSA estimates nine of every 10 stones sold in the world pass through India.
- Trade of Indian medicinal plants has crossed Rs 4,000 crore.
Here is proof positive that liberalisation has indeed worked. ''By opening the economy before giving it a chance to become competitive, we have thrown our industry to the wolves,'' it used to be said. Quite the contrary. The success in exports, in fields such as IT in which competition is fierce, in which technological change is fast as lightning, success in auto-components, in pharmaceuticals shows that our industry has fought back, it has become competitive.
Our foreign exchange reserves are at an all-time high-$82 billion. We have announced that we will not be taking aid from a string of countries.
We are giving aid to 10 or 11 countries.
We are pre-paying our debt.
We have just ''loaned'' $300 million to the IMF!
.
It turns out that Indian professionals - a thousand of them from Nucleus Software Exports, Mphasis, Polaris, i-Flex Solutions and Wipro - have played a crucial role in transforming the bank: they are the ones who have completely re-engineered the bank's processes, they are the ones who have reorganised the bank's operations around a completely new, modern business model.
And they have done it all in record time, and with record economy: the new, transformed retail bank has been launched within one year instead of the anticipated three; implementation costs have been 90 per cent less than estimated; a range of new financial products has been launched that are better than what competitors are giving; hardware too has been drastically downsized. The success of these professionals in rehabilitating the Shinsei Bank was the talk of the banking and IT community in Japan.
What is it that Indians could bring to this task that, say, Chinese software firms could not? The Indians could not just write software for different functions and transactions that the staff of the bank had to perform - the Chinese too could have done this: China also has a very large software industry that today caters to its domestic IT market, a market which is many times that in India.
The Indians could bring to bear on the task expertise in a host of other domains - for instance, knowledge of financial markets, of modern commercial banking, of accountancy - and thereby provide not just software but complete solutions, from software to hardware to completely new business models.
Similarly, high-end Indian garment industry can avail of not just cheaper labour. In addition it can tap into our fashion designers. Is it any surprise then that Wal-Mart sources $1 billion worth of goods - that is, half of its apparel - from India? That GAP sources $500-600 million from India? That Hilfiger sources $100 million?
The point is the successes we have encountered above are not fortuitous. India has a score of strengths that others do not.
Cost is one of them. Nor is it a marginal advantage. Indeed, the difference between the cost at which we can provide services and many commodities of comparable quality and what those cost in the developed world is so vast that, should those firms and economies shut themselves out from our supplies, they are the ones who will be severely disadvantaged, they are the ones who will be making themselves un-competitive.
Indian IT firms provide world-class services at one-tenth what the same services would cost in the United States.
- An MBA costs about $5,000 in India. In the US, an MBA costs around $120,000.
- Developing a new automobile model in the US costs about $1 billion. Indica and Scorpio have been designed, developed and produced totally in India. They have been acclaimed abroad, and found to be up to international standards. The cost of designing them? Less than half what the design would cost in the US.
- In an important address - you will find it in FICCI's publication, Unleashing India's True Potential: CEO's Vision of the Future - M.S. Banga, chairman, Hindustan Lever, reports results of inquiries that the company made. In spite of high power costs, high interest rates, it found that the capital costs of setting up plants in India to produce an item like toothpaste for Levers worldwide were just 35 per cent of what its sister companies in the US and Europe would have to spend. And the conversion costs were just 15 per cent. In tea bags they were just a quarter of what they would be in the US.
Sourcing already accounts for about half of Hindustan Lever's exports of Rs 1,500 crore a year. But Banga surmised, by being just the hub from which Levers' units worldwide would source their requirements of such goods, Hindustan Lever could build up a business of $1 billion a year - that is Rs 5,000 thousand crore a year. Moreover, as it would be marketing directly to these companies, it would save on the costs of reaching, winning, retaining the individual customer.
- Surgery: Arvind Netralaya performs a cataract operation, including the cost of the lens, for $12; that very operation costs about $1,500 in the US. A bypass surgery in India costs around Rs 40,000; in the US it can cost anything upwards of Rs 6 lakhs. The cost of open-heart surgery in the UK or the US can be anywhere between Rs 15 lakhs and Rs 35 lakhs as against Rs 1.5 lakh to Rs 5 lakhs in the best of hospitals in India. The cost differentials in more complicated surgeries - liver and kidney transplants, etc - are even higher.
Brains are another strength - far, far more important than material resources in several sunrise activities. Most would have been surprised to read recent accounts in magazines such as Business World of India being looked upon as a research hub by company after choosy company. FICCI's list includes:
- Over 70 MNCs, including Delphi, Eli Lilly, General Electric, Hewlett Packard, Heinz and DaimlerChrysler, have set up R&D facilities in India in the past five years. Together with laboratories set up before 1997, 100 of the Fortune 500 have set up R&D facilities in India. By contrast, only 33 of the Business Week 1000 companies have R&D centres in China.
- The scale of these operations also tells the tale. Just four years ago, Intel had a mere 10 persons working in India; today it has over 1,000. GE's John F Welch Technology Center in Bangalore is the company's largest outside the US. With an investment of $60 million, it employs 1,600 researchers. GE's R&D centre in China by contrast employs only 100.
The Indian centre devotes 20 per cent of its resources to fundamental research having a five to 10 year horizon in areas like nanotechnology, hydrogen energy, photonics and advanced propulsion. With 17 clinical trials (10 of them global), the Eli Lilly research facility at Gurgaon is its largest in Asia and the third largest in the world.
- GE Medical in Bangalore has developed a high resolution-imaging machine for angiography to meet GE's entire global requirement. It has also developed a portable ultrasound scanner that is exported around the world from Bangalore.
- Two-thirds of GE Plastics' 300-member research team in India is doing fundamental research on molecules. GE Plastics has contributed to the development of a family of polycarbonates of engineering plastics that are being used in auto headlamps and CDs. It has also developed heat resistant monomers for applications in aircraft bodies and high-end medical equipment.
- GE Motors India has developed an almost noiseless motor for GE's most sophisticated washing machine lines in the US; it is the sole sourcing point for a million of these motors every year.
- Monsanto has been in India for over 50 years. After examining China and India, it set up its first non-US research facility in Bangalore in 1998. This facility is responsible for Monsanto's R&D for Asia. The company is researching ''promoters'' - accelerators that improve crop productivity.
- Whirlpool's Pune Research Lab develops refrigerators and air conditioners for Asia (including China) and Australia. Forty per cent of this facility's resources are devoted to its core research on global projects.
- The DaimlerChrysler Research Centre in Bangalore is engaged in fundamental and applied research in avionics, simulation and software development.
- HP Labs India has built a prototype that can scan handwritten mail through a small handheld device instead of a scanner. It has also built the prototype of a computer for unsophisticated users.
Moreover, while youthful professionals and entrepreneurs have been adding these sinews, the most far-reaching structural change has taken place:
-
The proportion living below the poverty line has fallen from 36 per cent to 27 per cent.
- The balance of power between state and society in the economic sphere has been overturned: the dismantling of the licence-quota raj, the transfer of power to regulators in one sector after another.
Many of the handicaps that hobbled our entrepreneurs have been eased in the past few years. Initiatives in different, seemingly distant fields have reached fruition. And the effect is not additive, it is multiplicative:
- The turnaround time in our ports used to be eight to 10 days; it is now four-and-a-half days.
- As recently as 1999, our telecom infrastructure could provide a bandwidth of only 155 Mbps; today it is able to provide terabit capacity, that is, 75,000 times what could be provided just four years ago. Within a year or so, as the fibre optic network being laid by various enterprises gets in place, it will not matter whether your office is in San Jose, California or in any of 300 cities in India.
- Till the other day we used to be in awe of the rate of expansion of mobile phones in China - a million a month. In the past two months these have increased in India by almost 1.5 million a month.
- Long distance telephone tariffs have fallen by two-thirds in five years.
- Tariffs for data transmission have fallen by 80 per cent in three years.
- The work done by the far-sighted people who set up what seemed at that time such an esoteric institution, one oriented to the rich elite, the National Institute of Design has borne fruit. Today graduates of that fine institution help design cell phones, CAT-scan and MRI machines .
-
Other handicaps too have been eased. Interest rates have come down drastically, foreign exchange restrictions for business purposes are as good as non-existent ...
On the other side is the fact that the developed world will increasingly require services and personnel from a country such as India. We are the ones who have to be swift enough to prepare for and grab the opportunities:
- Various studies conclude (you will find them summarised in the All India Management Association's India's New Opportunity - 2020) that the workforce of developed countries will fall short by 32 to 39 million by 2020. In the US alone the shortfall is expected to be between 8.2 and 14.3 million.
- The proportion of the aged to persons in working age is shooting up precipitously in developed countries from Germany to Japan.
Such developments provide excellent opportunities for India - for services that have to be provided in situ such as nursing and care for the elderly, for services such as surgery that can be provided to residents of those countries upon their coming here. In fact, there are opportunities in a host of new services of an even higher order, and ones that exist not in the future but right now:
- Higher, specially medical and engineering education: educating an MBA to world standards costs $9000 in India; in the US that degree of education costs $30,000.
- Editing, composing, formatting text, from books to newspapers: a sub-editor costs an American paper $25,000; in India an excellent substitute can be employed for $5,200. The editor of an Indian paper told the proprietor of a leading British paper the other day he could edit the latter's paper for merely the amount that the latter's publication spent on renting the space occupied by sub-editors in the publication.
- Printing and binding books: Hong Kong and Singapore, which had taken a leap in this regard, have become high-cost centres.
- India has exactly the same order of cost-cum-competence advantage in professions like law, accountancy, design, engineering, tax consultancy, financial services of all kinds.
- In software itself, though there have been the most conspicuous successes, the field is limited only by our imagination - in that IT fair in Tokyo that I mentioned, I saw fine text-to-voice software that has been developed by a small software unit in Lucknow. It was receiving excellent reception in Japan. It can be used to quickly produce audio versions of books upon books for the visually impaired.
Thus, on the one side the opportunities are unlimited; on the other we have incomparable advantages for grasping them. But as has been said, ''When opportunity knocks, some complain about the noise.''
This is India's moment but it's only a moment, can we grasp it?
On the one hand, we have unbounded opportunities and incomparable advantages to seize them. On the other, there is the fate that will surely befall us if we falter. Unemployment will reach such proportions that social unrest will become unmanageable. Similarly, if the rates of growth of India and China continue to differ by the margins of the past 15 years, within the next 15 years the Chinese economy will be six times that of India. And the consequences will be worse than we can imagine.
Economic strength is itself power. To take one instance, because China has been able to attract so many more to invest than we have, China today is able to mobilise so many more-American firms, for instance-as lobbyists to advance its interests.
Moreover, economic strength gives China the wherewithal to go in for comprehensive modernisation of its armed forces. Indeed, that there is so much talk of China's economic transformation obscures what China is already doing, what its economic modernisation already enables it to do in the military sphere.
Everyone is noticing Indians make a mark in every sphere: writers, scientists, doctors, IT, cricket, beauty pageants, chess...
So it is the moment for India. It is a moment. But, it is only a moment. What should we do to ensure we grasp it?
First, we should begin to notice what is happening around us. We have become what an American author calls ''Negaholics''-addicted to the negative as an alcoholic is to drink. Ever so many of us are unaware of even the elementary examples that have been listed above.
Nor is that the result merely of inattention. We look for, we latch on to the negative; even if some achievement breaks on to our mental screen it does not percolate into our awareness, we do not see that it is part of a pattern, that it is not an isolated fluke. Indeed, our instinct is not to believe evidence of that accomplishment.
Remember how eager many commentators were to find fault with NSS data that established a steep decline in proportions living below the poverty line? These are symptoms of a habit. Remember the exercise that books on creative thinking recommend? Is there much blue around you? You would not have noticed much. Now make an effort to look only for blue things around you. You will notice so many that, though they were lying around, had not registered.
It is especially important that those who are in public life-who hold public office, who participate in public discourse-break out of this addiction to the negative. Because of my work, I have had occasion to travel abroad several times in the past two-three years. Each time I have been struck by the contrast between the way India is looked upon abroad, and the way we look upon it here.
There is an equally telling symptom here at home-there is a great confidence in the Indian industrial.
We should multiply outlays on activities that will engage large numbers, and are things that we should be doing in any case. The Planning Commission has prepared three first-rate reports, for instance-on biofuels, on bamboo cultivation and products, and on medicinal plants. Each of these can engage millions. As can organic farming, diversification into vegetables and fruit and floriculture. As can water harvesting.
When activities like these flourish, incomes will multiply, nutrition will improve, fewer will flock to urban slums. Indeed, through them the country would register gains even in foreign exchange-outlays on biofuels would save on imported crude; organic farming, medicinal plants would bring foreign exchange.
Not the details of economic policy-that is not where the impediments lie. The way we look at things, our discourse, the drag of interests that are vested in the way things are-these are what we need to change. CHANGE IS MOVEMENT AND MOVEMENT IS GROWTH.
TOP
|
