f o r    m a n a g i n g    t o m o r r o w
JANUARY 14, 2007
 Letter From
 Message From
The Prime Minister
 Editor's Letter
 The Great Indian
M iddle Class
 India'S Poor
 The Next 15 Years

Flying High
The Indian aviation industry is growing at a rapid pace, thanks to air transport deregulation, emergence of new operators, lower fares and large untapped demand for air travel. The numbers tell an interesting story: India will require an estimated 1,100 aircraft. The average annual passenger traffic growth in India through 2025 is estimated at 7.7 per cent, well above the world average of 4.8 per cent and China's 7.2 per cent.

Bars Of Gold
The global gold industry is flourishing, largely fuelled by Asian demand and a weak US dollar. The boom is probably only halfway through since prices bottomed out in 2000. Since 1800, the boom and bust cycles have averaged about 10 years. While production is down, the value of gold purchased today is up 47 per cent from a year ago. The super-cycle of high metal prices is seen to be spurred largely by demand from China and India. An analysis.
More Net Specials
Business Today,  December 31, 2006

Reforms Have Energised
The Indian Entrepreneur


In mobiles alone, India is adding over six million customers every month to become the fastest growing market in the world

Having started off as a small-time cycle parts manufacturer in 1976, for me 1991 remains a defining year. The year incidentally splits my three decades as an entrepreneur into two equal halves. After 15 years under License Raj, liberalisation came to me as a refreshing contrast. The best thing about liberalisation is that it has not only transformed the business regulatory environment but helped diversify the economy as well. All these were unthinkable when it all started. Liberalisation of the external sector, too, has resulted in progressive globalisation of the economy, bringing global majors to the Indian shores and driving Indian companies abroad for foreign alliances and takeovers. Dozens of acquisitions-big or small-that have recently been completed by India Inc. stand testimony to New India's appetite for growth.

Any reflection on India's liberalisation has to perforce start from the death of licensing and quotas. Government no longer sits in judgment over 'who should produce what and in what quantity'. This big change, however, did not descend in one go. It has instead come in tranches of reforms introduced by successive governments. Thus, freedom for the Indian entrepreneur has come only gradually. But the results have been truly dramatic. Superfluous paperworks are getting shaved off every passing day. Tax rates too are being simplified and have dropped close to the levels in developed economies. Most sectors, leave aside a few, have moved out of the government fold. Foreign direct investment (FDI) restrictions too have been progressively relaxed. Even sectors like airports, telecom and insurance, which hitherto were considered sensitive, have been opened to FDI. On the whole, the business environment has undergone phenomenal changes.

The liberalised set-up, devoid of government control, does take me back to the early 80s, when I used to import Japanese generators into the country. One day, in one stroke, the government banned the import of gensets, leaving me completely bewildered. Entrepreneurship in pre-liberalisation days remained hostage to the idiosyncrasies of the policies of the day. Liberalisation has changed all that. It has made the business climate more predictable. It's a far cry from the arbitrariness of the pre-liberalisation days.

A direct consequence of the new freedom for the Indian entrepreneur is diversification of the economy, which has ushered in more economic activities. This has created more employment opportunities for the citizens. Particular sectors in the economy too have become more competitive. The established players no longer take success for granted, as it used to be the case prior to liberalisation. Corporates are always on their toes trying to stay ahead of competition. A direct beneficiary of this has been the consumer, who calls the shots always and everywhere. Consumers now have more choices before them, both in terms of price and quality.

To grasp the essence of this transformation, let us look at some of the individual pieces of this $720 billion (Rs 32.4 lakh crore) economy that has made 7-8 per cent growth the norm for the last few years. I will try to elaborate on a few of the most visible changes taking place in the economy. To my mind, the most obvious areas of change are diversification and expansion of the services sector, revival of manufacturing, rapid globalisation of the economy and lastly the rise of the stock market cult.

Let us start from the services sector, which accounts for over 50 per cent of the country's GDP today. Emerging sectors such as it software and Business Process Outsourcing (BPO) are clearly making their mark on the world stage. If we rely on today's growth pattern, India could well be earning $60 billion (Rs 2.70 lakh crore) of foreign exchange per annum from this sector alone in another four years. I believe, India has already taken pole position in these areas. Now it is just a question of maintaining the momentum. But the challenge for Indian companies in the coming days would be in moving up the value chain in their respective domains. Indian companies are already working towards this.

Software and BPOs might be the toast of everyone today, but there is a host of other sectors that is showing a lot of promise. One area that is steadily improving is tourism. Given India's geographical diversity and rich architectural history, I strongly believe that this sector has the potential to generate substantial economic momentum in the country. Private entrepreneurs could play a big role in this area, provided the policy framework is reformed with more urgency.

Healthcare is another services sector that is becoming a major area of strength for India. People from across the world are travelling to India to get treated. What I think is most profound is that people from the UK and other European countries are coming to India rather than going to the US. Not only does India turn out to be a very cost-effective destination, but it offers high quality, too, thanks to the investments made by a new breed of healthcare entrepreneurs. As per a recent CII-McKinsey study, health tourism is poised to become a Rs 10,000-crore market by the year 2012.

In the huge Indian retail market, both big and kirana retailers can easily co-exist. I also see a big pay-off from organised retail for Indian agriculture

The fourth services area that holds promise is India's potential as a global r&d hub. India's large pool of technical manpower is attracting global majors. Of a similar nature is India's increasing attractiveness in the field of creativity and entertainment. It is emerging as an important development centre for entertainment software like animation films.

While talking about the services sector, the glitzy shopping malls, of course, enter our minds almost instinctively. They symbolise the fact that retail is getting more organised. Though foreign majors have not yet been allowed to make an entry except in the back-end and wholesale format, Indian players are moving in at great speed. As I write this piece, Bharti has signed an MoU with the world's biggest retailer Wal-Mart to launch its entire retail ecosystem. The large retail formats in lifestyle, food & grocery and durables have started making their mark. But I must emphasise that we are still at the early growth stage in this emerging sector, with just about 2-3 per cent of our total retail market being accounted for by organised retail. I believe, the move from a fragmented retail structure to an organised one will lead to enormous improvements in supply chain. This in turn will have a beneficial impact on consumer prices. And contrary to general belief, I see no threat to the neighborhood stores from organised retail. In the huge Indian retail market, both forms of retail can easily co-exist. I also see a big pay-off from organised retail for Indian agriculture. Inefficiencies in transportation of agricultural products is set to reduce in the days to come as food and grocery retail chains start integrating their supply chains. I see a direct impact on farmers' income in the country.

To my mind, these key services sectors alone will be contributing about 1-1.5 per cent to India's GDP. Over and above these sectors, added momentum is clearly visible in sectors like telecom, where the growth has simply been unbelievable. In mobiles alone, India is adding over 6 million customers every month to become the fastest growing market in the world ahead of China. The next frontier is the race to provide broadband services at affordable rates.

Now, coming to manufacturing, we definitely have conceded a big lead to China. But all is not lost. A sort of revival is currently on. The regrouping of the forces is quite evident in sectors like automobiles, especially auto component manufacturing. Not only the international majors have set up shop here, but are increasingly using India as a global sourcing hub. Steel is another area that of late is witnessing major action. States like Orissa and Jharkhand are emerging as powerful steel manufacturing destinations. Biotechnology, too, is showing a lot of promise. Indian entrepreneurs are trying to leverage India's technical manpower base. Though it is still early days, the potential is obvious.

Globalisation is an inevitable consequence of liberalisation. We are no longer afraid of global competition. There has been a gradual drop in import tariffs over the years, exposing Indian industry to global competition. We have done fairly well in not only facing up to low-cost imports from markets like China, but in moving aggressively into global markets as well. Over and above our success in services exports, entrepreneurs in sectors like textiles are doing particularly well in the overseas market.

Among the BRIC countries (Brazil, Russia, India and China), India has the highest percentage of people in the working class

Beyond services and merchandise exports, there is something very substantial happening out there on the globalisation front. India Inc. is taking definite steps towards acquisitions abroad. The pace of change here has been rapid. Only a few years ago, an overseas takeover bid worth $200 million (Rs 900 crore) used to be considered a big event. Today, the benchmark has gone up several fold.

Capital market reforms have enabled citizens to participate actively in the stock market and play an active role in the growth of Indian corporates. Thanks to them, corporates are able to plan for rapid expansion both in India and abroad. Like in the developed economies, Indian capital market is shaping up as a key instrument to channel public savings towards economic growth. I clearly see more Indians coming into this process of wealth creation.

I consider myself a product of liberalisation. There could be many out there waiting to flourish. Reforms have energised the Indian entrepreneur. Diversification of the economy is expanding the scope for him. He is clearly aiming big. Becoming wealthy is no longer the preserve of a few. I see many more first generation entrepreneurs coming through and making it big in the years ahead.

India currently is growing consistently at 8 per cent. But I strongly feel that this could move to a double-digit growth. The Indian entrepreneur is surely ready to pull in all his might to achieve this and the government seems equally eager. Infrastructure is one area that needs more government attention. I strongly feel private entrepreneurs could play a bigger role in this space and need further government support.

India has truly been born anew in the last 15 years. But so many things are happening and at such a pace that many of us must be wondering if it is sustainable in the long run. I, for one, am optimistic about this. I have my own reason for this. It is our population, which was once perceived to be our biggest bugbear, that holds the key. This could turn out to be our trump card in the long run. Today, with a working population of 630 million, India is a continent of consumers. In fact, among the BRIC countries (Brazil, Russia, India and China), India has the highest percentage of people in the working class. Given that a majority of this class is still at a very low level on the consumption curve, there is a lot of upside still left to be exploited. By 2016, this working class number is expected to touch 830 million. All these hands and minds need to be put to gainful work, which will in turn give consuming power and hold the key for India's economic success in the future.

Having seen successive governments adhere to the fundamentals of reforms so steadfastly, I have no reason to believe that it will be any different in the days to come. At times, the slow pace of reforms could be a little worrying and even annoying for some entrepreneurs, and understandably so. But we should learn to take that in our stride as the inevitable perils of living in a liberal, multi-party democracy, where consensus building on particular issues is a slow-moving process. But I strongly believe that the reforms are clearly on an irreversible path. There might be differences on the pace of reforms, but the direction is no longer negotiable. It's a billion peoples' resolve. There's no turning back now.




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