Category Archives: India

Top 12 Challenges Facing India in the Decades Ahead – 10 – China

China is currently everything India is not. While India is the land of contradictions, China is the land of conformity. While India is an infrastructure nightmare, China, which is already decades ahead of India in infrastructure, is investing heavily, building rapidly, and getting even further ahead. While India is in a perpetual state of energy crisis, the energy sector in China, where the government can effectively control the 11 companies that used to compose the State Power Corporation (SPC), is stable and increasing energy production year over year to meet the needs of its population which make it the world’s second largest electricity consumer after the United States. (In 2011, annual power generation was 4693 TWh, which was over five times the power generation in India that peaked at about 877 MWh.)

But it’s not just infrastructure and energy that China has the lead on. It’s just about everything else too. As per a recent NYT (New York Times) article on Why India Trails China, India has an even bigger problem. In particular, it’s the ever-increasing gap between India and China in the provision of essential public services. And while inequality is high in China (as the 1% control 70% of the country’s wealth, compared to the US where the 1% only control 35% of the country’s wealth), China has done far more than India to raise life expectancy, expand general education, and secure basic health care for its people. Plus, literacy in China significantly exceeds literacy in India at 95% vs 74% in India. While India has elite schools of varying degrees of excellence for the privileged, among all Indians 7 or older, nearly one in every five males and one in every three females are illiterate. And while China devotes 2.7% of its GDP to government spending on health care, India allots a mere 1.2%. (That’s probably why China has a much lower child mortality rate that is less than one third of India’s. See A View from the East.)

In terms of business, China is ahead of India in many respects. China exports goods almost twice as fast, registers property more than twice as fast, and business start-up times are almost 33% faster! (See: Despite being a democracy, India is less politically stable and more corrupt. (See: Interlink India) And the proof is in the GDP pudding. In 1995, when India represented only 3% of world GDP, China represented 6% of world GDP, and in 2010 when India was still only at 5% of world GDP, China was at 14%. (See: The India Site) And while India is expected to increase its GDP by a mere 4.4% next year, China is still on track to increase its GDP by 7%.

Infrastructure. Public Well Being. GDP. While just a few measures of global influence, they are a few important measures and China is leading on every single one. That’s why China is projected to have almost a quarter of the Global GDP in 2025 (by The Conference Board), more than triple what it had in 2000, while India is projected to have a mere 8%, only double what it had in 2000. If India wants to achieve its destiny of being the second most prosperous and influential country on the planet, it will have to at least keep up with China instead of losing ground every day.

Top 12 Challenges Facing India in the Decades Ahead – 11 – Energy

On July 30, 2012 a power blackout temporarily obliterated electricity from half of the country and wreaked havoc on the lives of over 620 Million people in 22 of the northern and northeastern states. (Source: Wikipedia) This was the worst power outage since the last major grid collapse in 2001. This wouldn’t be so bad if it wasn’t for the fact that major outages are not a rare occurrence. As per this recent Bloomberg article, the nation suffers from frequent power outages that last 10 hours. Persistent power failures, known as ‘load shedding’, are organized day in, day out in a great many places across the country by the power providers in an attempt to keep power production, and the grid, up. (Source: An Uncertain Glory) Nor would it be so bad if those 620 Million people who were affected had electricity. A third of the population in those regions, living in poverty (or, more accurately, squalor), never had power to begin with.

As it stands, peak supply, which was approximately 205,000 megawatts in 2012, fell short of demand by about 9%, and the situation is only getting worse. And it’s not being helped by the shift from predominantly a government-owned system towards one based on market principles, as this does nothing to insure that anyone who isn’t a large corporation or extremely wealthy or influential individual gets reliable power. As per the IEA’s (International Energy Agency’s) Understanding Energy Challenges in India, the huge blackouts that occurred in northern India in July 2012 could be seen as a consequence within the framework of incomplete market liberalization. Simply put, The goal of providing energy access to the entire population led to well-meaning policies designed to protect the poor, but resulted in a system of untargeted producer and consumer subsidies that prevent a more thorough implementation of a well-functioning and financially-sound energy sector.

And getting to a sound and reliable energy sector is no easy task. First of all, the six issues addressed in the IEA’s report need to be dealt with:

  • The core (production) capacities of the energy companies need to be improved in a financially viable way.
  • Pricing mechanisms must ensure commercial viability (but not price energy out of the range of the low-end consumer).
  • Significant investment is required to meet the growing energy demand and provide access to all citizens — and it must come from the government.
  • The effective implementation of policies is required and this must lead to the timely, on-budget, completion of energy projects.
  • The energy policy must be integrated and consistent as multiple objectives will undermine the policy and its implementation.
  • Strong political will is required as effective policy implementation will never materialize without it.

And then India will have to deal with:

  • Getting energy theft and transmission loss under control. It is estimated that 27% of energy generated is lost in transmission or stolen. This is intolerable considering the country can’t even meet demand at peak capacity.
  • Getting electronic payment and transfer mechanisms set up and in place. Money will need to flow from the federal government through the states to the districts who will have to then distribute the money to the private companies expanding the infrastructure. Considering that corruption is still rampant in India and administrative fees often at the discretion of the local officials, unless all money allocated to the energy infrastructure is electronically transferred and tracked, and the records made public, it can be assumed that at least 2% of this money will disappear due to corruption, which has cost India at least 345 Billion over the last decade. (Source: India Express)
  • Getting the population educated on safe and sustainable energy use. First of all, the country will need to invest in renewable options, which could be expensive when compared to, say, dirty coal. Secondly, the population and their government, which may want to spend the money elsewhere, will need to agree to the appropriate expenditure. Thirdly, they will make sure they are pugged into the grid safely and securely using modern, approved, legal technology. Otherwise, they may find that their meter bursts into flames when their power consumption is at its peak or their houses catch on fire because of unsafe, illegal hookups. (Unfortunately, neither of these situations is a rare occurrence in India.)

This is a tall order for a country that is faced with many serious problems, financial needs, and political divides, which are likely to get worse before they get better. If India can’t get its energy crisis under control, how will it continue to play effectively in global supply chains?

Top 12 Challenges Facing India in the Decades Ahead – 12 – Infrastructure

When it comes to infrastructure in India, as notes, it really is A Long Road Ahead. China really is decades ahead of India in terms of its transportation and communication infrastructure. In India, airports, rail networks, roads and ports are all in desperate need of repair, expansion, replacement, and, in some regions, creation! As Manish Agarwal stated in A Passage to Modern India (PDF) in the Summer, 2013 issue of Gridlines, decades of underinvestment have left the country with dire deficits in such critical areas as railways, roads, ports, airports, telecommunications and electricity generation. In the World Economic Forum’s Global Competitiveness Report for 2011-2012, India ranked 89th out of 142 countries for its infrastructure. In this light, it’s remarkable that India is ranked 9th in (nominal) GDP by UN, IMF, and World Bank!

Roads are terrible. In a country where 65% of all freight is transported by road, this is a supply management nightmare. In fact, the traffic situation is so severe that the maximum highway speed for trucks and buses is only 30-40 km per hour! (As per a report of the Sub-Group on Policy Issues of the Government of India’s Ministry Road Transport and Highways, found on the Ministry’s Web Site.) And with the urban population expected to increase by 33% in the next five years, the situation is only going to get worse before it gets better.

Even if India succeeds in spending the 1 Trillion allocation it has committed to between now and 2017 — targeted at three airports, two ports, an elevated rail corridor in Mumbai, and almost 9,600 kms of road, the congestion eliminated will only be a drop in the bucket in a country with 87 airports that offer commercial service (Source: Wikipedia), 13 major and 187 notified minor and intermediate ports (Source: Wikipedia) of which 139 are operable (Source: India Core), 64,460 kms of rail (which is the fourth largest rail network in the world, source: Wikipedia), and 4,236,000 kms of road in 2011 (Source: Wikipedia). Thus, even if India managed to achieve its plan of building 20 kms of road a day, or 7,300 kms a year, that would only increase the total capacity by at most 0.17% annually, and do almost nothing to address the severe over-congestion plaguing the urban areas and major trade routes. Especially when India is adding about four million four-plus tire vehicles every year and about eleven million two-wheelers.

The airport situation is just as bad. Even though the country has 87 airpots with commercial service, the India Planning Commission estimates that the country will need an additional 180 airports in the next decade — so improving 3 is not going to do much! (See the 12th 5-Year Plan from 2012-2017, page 21.)

The port situation isn’t any better. As per IndiaCore, the current capacity at major ports is overstretched. The major ports together have a capacity of 215 million metric tonnes (MMT) at 1997- 98 levels (and 288 metric tons at 2001-2002 levels). However, the traffic for total ports in India was worth 740.3 MMT in 2009 and 818.7 MMT in 2010 and this is expected to rise to 1,373.1 MT in 2015 at a compound annual growth rate of 7.6% a year. In other words, throughput increased by a factor of 4 during the zeroes and is expected to increase another 50% by the end of 2015. However, investment in Indian ports in the zeroes was a mere 2.5 Billion. (Source: Global Investments in Ports and Terminals) To put this in perspective, the US West Coast ports are investing 12 Billion (Source: Pacific Merchant Shipping Association) just to handle a few more hundred MMT.

When you consider the inadequacy of the road, rail, air, and ocean transport networks, one has to wonder how India is going to cope with the expected annual rate of increase of 12% for domestic cargo and 10% for international cargo over the next five years, at the same time passenger traffic is expected to increase 12% annually domestically and 8% annually internationally. It’s a huge challenge, and one that’s not going to be solved anytime soon.

Top 12 Challenges Facing India in the Decades Ahead – Prologue

India is the land of contradictions and, as outlined by Jean Dreze and Amartya Sen, it certainly does have An Uncertain Glory ahead of it. It could very well be the 2nd largest economy in the world by 2050, or it could slip out of the top ten and hover three quarters of the way down the top 20 list. Why?

Despite the fact that the Republic of India boasts the 2nd largest population in the world, and the fact that it boasts the largest number of English speakers outside of the United States (Source: Wikipedia) it currently faces more challenges than any emerging country, and certainly any emerging country in the BRICS (Brazil, Russia, India, China and South Africa), and on some metrics, ranks worse than some of the poorest countries in Africa!

While it does have a great opportunity before it, it also suffers from some of the greatest misfortunes of any country on the planet, despite the fact that it is, at the same time, probably the greatest example of democracy on the planet. Consisting of 28 states, 7 union territories and 3.288 Million square kilometers, India has 22 languages of official status in the eighth schedule to the Indian Constitution, 7 major religious groups (Hindu, Muslim, Christian, Sikh, Buddhist, Animist, & Jain), and caste based reservations as a result of the caste system that plagued India until the end of British rule! It also has 6 recognized national parties and 47 recognized state parties. (Imagine the difficulty of getting anything agreed on with that many different viewpoints butting heads!) To put this in perspective, in contrast, the United States, consisting of 50 states and 4 [unincorporated organized] territories, only has to deal with, at most, 2 major languages [English and Spanish] and almost 96% of Americans who declare religion are Christian. Furthermore, there are only 2 major parties and 3 minor parties (Libertarian, Green, and Constitution parties). So, the fact that India has survived, and grown (over the past thirty years in particular), as a constitutional democracy for 66 years is quite impressive.

But the fact remains that this constitutional democracy is plagued with problems and issues that have to be addressed, and solved, if the country is to continue to grow, and flourish in the coming decades, as some optimists are predicting. In the next twelve posts (over the next twelve weeks) in the series, SI will dive into twelve of the most prominent issues to present you with a clear picture of the major challenges that lie ahead of India in its quest to become the next great Asian superpower and the center of your global supply chain.

Stay Tuned!

India is Bigger and Bigger Business By the Day!

While it will likely be at least twenty-five (25) years before India overtakes the United States in GDP, companies are starting to bet big on India, including Anglo-Dutch multinational Unilever that bet big on India with a US $5.41 Billion open offer for a 22.52% stake in its Indian subsidiary Hindustan Unilever Ltd. That’s big, big bucks as far as India is concerned. If you look at the Global 500, and their revenues for 2012, only seven exceeded 30 Billion in Revenue (Oil & Natural Gas, Tata Motors, State Bank of India, Hindustan Petroleum, Bharat Petroleum, Reliance Industries, and Indian Oil). Five of these are in the petroleum industry, one is a bank, and one is an automobile company. None are CPG.

This is a big step for Unilever, who obviously sees India as the next China and wants to guarantee their stake. If the deal goes through, it could be the first of many. In addition to having to Mandarin-ize Your Supply Chain, you may have to add some Hindi to the mix. Are you ready?