Category Archives: India

Sustainable Supply Chains Sacrifice China! (Most of the Time.)

Last Friday we posted China is the Enemy because, especially where your supply chain is concerned, China has just demonstrated what SI has known for over a decade — it is the enemy. (This isn’t the only situation where China or the CCP is the enemy, but those are different rants. Note that we do NOT equate China or CCP with Chinese people. Most Chinese are NOT the enemy of your supply chain or democracy just like most Americans are NOT the enemy of intelligence and common sense.)

Long time readers will know that in the naughts, SI spent a lot of bandwidth telling your deaf ears that you should be investing heavily in nearshoring and home country sourcing because of the dangers of outsourcing in general, and, the dangers of oversourcing to a specific country, like China, in particular — which have finally become very apparent. It’s too bad it took a freakin’ pandemic to make clear how dangerous it is to outsource so many critical products and JIT materials to a country halfway around the globe, especially when such sourcing in bulk across the industry leads to the lack of capacity close to home due to factory closures and talent evaporation.

There’s a reason the doctor told you two weeks ago to remember the 80’s (and the early 80s in particular) … and that’s because that’s the last time most multi-national corporations in the Americas got outsourcing right … when they were near-sourcing to Mexico (who should build the wall just to keep Trump out, but that’s yet another rant for another day).

Let’s face it, some stuff just shouldn’t be sourced from home. Stuff that’s not critical, stuff that’s very expensive to make at home (but easily trucked across a single border) for various reasons (which can go beyond labour to energy costs if there are no affordable renewable sources nearby, transportation costs for raw or unprocessed materials are ridiculous otherwise, etc.), or stuff where most of the raw materials or necessary environmental conditions (for growing, mining, etc.) are just not present at, or near, home.

But when you consider a typical organization, how much stuff really falls into this category? First of all, you have to exclude any product for (re)sale that’s a primary profit line. Then you need to exclude any raw material or component critical to production unless you just can’t get it nearby. Then any product necessary for security or safety. And so on. At the end of the day, you don’t have much left, and if you’re doing the analysis right, you’re going to be left with:

  • raw materials and products just not available nearby (because you need certain growing conditions, large deposits of a mineral only found in certain geographies, etc.)
  • processed materials or chemicals where the raw materials are very expensive or dangerous to transport
  • products unique to a culture or region
  • novelty or other items not critical to your business

which (before the short-sighted wall-street loving common sense hating clueless and unskilled consultants of the late 80’s and early 90’s, like Steve Castle, put everything into the outsourcing bandwagon and blinged it out beyond belief) were the only products a company would outsource halfway around the world and still the only products a company should be sourcing from halfway around the world. Everything else should be near-sourced, and if really critical or the cost differential is small, home-sourced.

This also means that just shifting everything to another country in the BRIC, and India (which is ruled by a more open, transparent, and dependable democracy) in particular, is also NOT the answer. (They may not be the enemy, but they are still NOT the answer.)

So, unless you want your Supply Chain to completely collapse after the next global disaster, go back to basics, remember the smart outsourcing decision from the 80s, reopen those Mexican factories, and start near-sourcing again. And then, where you can, bring it back (close to) home.

Top 12 Challenges Facing India in the Decades Ahead – Epilogue

As we have chronicled in the past 12 posts, India has a large number of significant and imposing challenges ahead of it — challenges it has to face, and conquer, to rise to the glory it aspires to. Moreover, the identified challenges of:

are just the biggest challenges that SI has identified as being the most important to solve; they are by no means the only challenges that lie ahead of India. Pick a topic. Any topic, somewhere, somehow, India is facing a challenge. Maybe it’s just minor and restricted to a small percentage of the population or a few states, but it’s there. And until the major challenges are addressed and reasonably solved, progress is going to be slow and India is not going to surpass the US to become the number two producer of GDP as some economists and futurists are predicting. In fact, if it doesn’t make progress on a number of these challenges, India, which was ranked 10th in GDP production at the end of 2012 (Source Wikipedia), is not even likely to surpass Japan, which currently holds the number 3 slot according to the UN (United Nations), IMF (International Monetary Fund), and WB (World Bank). (However, it is quite likely to pass Italy, Russia, Brazil, the UK, France, and, a few years after France, Germany to take the number 4 slot even if it doesn’t make much progress on the challenges, simply by virtue of the growth that its middle and upper classes, which constitute about 30% of its 1.2 Billion people, can produce on their own.)

But it’s not all doom and gloom! As SI will discuss in a future series, it has as many opportunities as it has challenges and if it conquers its challenges, it will have opportunities that are only equalled by the opportunities before China (and, with China, control approximately 1/3rd of the global economy in the latter half of this century)! What future lies in wait? That’s up to India to decide, but a future blog series will discuss aspects of one possible future. Stay tuned.

Top 12 Challenges Facing India in the Decades Ahead – 01 – Politics & Democratic Complacency

A democracy on its own is not the solution to any of the aforementioned problems. China had many of these problems and solved most of them as a single-party socialist state and Russia as a Federal semi-presidential constitutional republic. Even monarchies, under a benevolent ruler, can solve most of the aforementioned problems. Egypt flourished for centuries as an absolute monarchy, and recent evidence suggests that many of its citizens were much better off than Hollywood would lead us to believe (and that the pyramids were not built by slaves but by farmers who were employed as workers during the off-season).

Like every form of government, democracy has advantages and disadvantages — with a major disadvantage being that a majority of the representatives have to agree before a law can be made or an action can be taken. And when you have a country with six recognized national parties and forty-seven recognized state parties (and approximately twenty more unrecognized state parties), this can be an enormous challenge. After all, the United States couldn’t even keep its government running last fall and it is effectively a two-party system!

Then there is the apparent unwillingness to challenge the status quo, focus on controversial or taboo issues that a country as progressive, modern, and rich as India shouldn’t still be dealing with (such as dalit, a lack of access to modern sanitation for the 55% of households that still practice open defecation, extreme poverty for the 33% of the population below the official poverty line and the 36% of the population that are not much better off, wide-spread under-nourishment and low life expectancies, and so on), or even take on industry (as noted by Dreze and Sen in An Uncertain Glory when they noted that the Finance Minister of India backed off from his proposal to introduce a small excise duty on gold and precious metals used for jewelry when jewellers and other influential people whose interests were effected responded with massive protests). If India wants to become a real first-world country, then it has to be willing to tackle the tough issues, make the tough decisions, and move forward. Populism does not progress make.

Not only does India have the challenge of having to deal with six recognized national parties and forty-seven recognized state parties (and approximately twenty more unrecognized state parties) across thirty-five states and territories, but it also has to deal with the fact that its constitution promotes local control. In some respects, the federal government faces the same challenges as the EU when it tries to standardize trade laws, for example, as India’s constitution (which is the longest constitution in the world at over 117,000 words) allows complete local autonomy in key arenas, with “schedules” (or lists) for the central government, states, and both to share.

And, as noted in William Antholis’ book on Inside Out India and China, India’s centralization effort led to the creation of a dark-side in the central government’s efforts to appease the different states and territories that threatened secession in the early days of the union. In particular, the end result was an elaborate system of license requirements and regulations, as well as carefully crafted spoils and quotas to placate different communities. This “License Raj” has helped to stifle the economy and led to massive local mismanagement and corruption at all levels — mismanagement and corruption that has to be addressed for India to prosper.

Again, a democracy on its own is not the solution to any of the aforementioned problems. There needs to be a willingness to accept the problem, address the problem, and work together towards a solution for the common good, regardless of the consequences, for any progress to be made. Until India politicians accept, and embrace this, en masse, progress will (continue to) be slow — and may not even materialize at all in some of the backwater states and territories (which would be happy just to obtain the quality of life promised by an Amish Paradise).

Top 12 Challenges Facing India in the Decades Ahead – 03 – Accountability & Corruption

According to Transparency International, in 2013, India ranks 94th out of 177 countries, with a score of 36, on the Corruption Perceptions Index which measures the perceived corruption in the public sector. In other words, while there are 83 countries that are perceived as more corrupt, there are 93 countries that are less corrupt. In comparison, the US is 19th with a score of 73, Canada and Australia tie for 9th with a score of 81, and New Zealand is seen as the least corrupt country with a score of 91. In other words, corruption is still quite bad. In comparison, China is 80th with a score of 40 and Brazil is 72nd with a score of 42. Corruption has become such an endemic feature of Indian administration and commercial life that in some parts of the country nothing moves in the intended direction until the palm of the deliverer is greased. (Dreze and Sen, An Uncertain Glory)

In addition, Bribery is a huge problem. In back to back studies in 2005 and 2008, Transparency International found that, despite efforts to curb the practice and corruption, the number of people who had first-hand experience with (and had to pay) bribes only dropped from 62% to 40%. In other words, 2 out of every 5 Indians had to fork over bribes to get a basic service that they were entitled to (such as getting a birth certificate or a passport) from a public official. Corruption is so bad that a NGO (non-governmental organization) by the name of 5th Pillar distributed over 1.3 Million zero rupee notes (modelled after the 50 rupee notes) between 2007 and 2011 in an effort to fight corruption.

Zero Rupees

As clearly stated by the Accountability Initiative, spawned by the Center for Policy Research, Dharam, Marg, Chanakyapuri, New Delhi, there is surprisingly little regular, reliable and most importantly, accessible information on the implementation of service delivery programs in India today. And that’s being politically correct to the nth degree. Dreze and Sen are more accurate when they state that, in An Uncertain Glory, particular to India is the combination of insistence — for entirely plausible reasons — on having a large public sector, combined with a fairly comprehensive neglect of accountability in operating this large sector.

The issue of accountability is particularly important when discussing the many infrastructure issues in India. The neglect of both physical infrastructure (such as power, roads, water, sanitation, etc.) and social infrastructure (education, health care, opportunity for employment, etc.) is extremely widespread. One of the biggest examples failure of public accountability is the crippling power blackout of July, 2012 which plunged half of the country into darkness and earned India the reputation of the blackout nation. This is a prime example of the lack of accountability as even the central guardians of the Indian power strategy at the highest level face little pressure to get things right and are not tasked to take responsibility for the terrible state of power planning in India (where double digit percentages of the power generated is stolen and where significant amounts of generated power is wasted). Consider the story of the National Thermal Power Corporation (NTPC) and the Govind Ballabh Pant Sagar power plant in Uttar Pradesh as recounted by Dreze and Sen. When one of the authors visited the NTPC headquarters on a campus near the plant, he found that a large number of air conditioners were switched on full blas throughout the day, even in the deserted lobby of the guest house. Just outside the boundary walls of the campus, people from the Dom community, working as ‘sweepers’ for the NTPC for twenty five years, live in shacks without any electricity. When asked why they tolerate the situation, they said they feared they would lose their jobs if they complained about their predicament.

It is the lack of accountability that allows corruption, and bribery, to continue to flourish. Corruption flourishes in informational darkness. Until there is more transparency, information accessibility, and accountability in India, it will continue to flourish. This lack of accountability combined with a general belief that certain kinds of bribery and corruption are standard behaviour that is to be expected is posing huge problems for India and limiting its progress. If there was less corruption, there would not only be more accountability, but more money available to address some of the serious physical and social infrastructure problems that we addressed in previous posts.

Top 12 Challenges Facing India in the Decades Ahead – 04 – Behavioural and Social Norms & Castes

As we have demonstrated in the last 9 posts, India has some serious challenges ahead of it. And despite the severity of the challenges like education, health care, and even sanitation, it has even bigger challenges still. The first of these, that we will address in this post, is the social norms.

The first challenge is with the general populace. For example, as Dreze & Sen chronicled in An Uncertain Glory, if asked, due to the fact that there is a model (if not an effective one) for bringing public health care to the rural areas and a growing private industry where you can presumably get what you need when you need it (if you can pay for it), most Indians believe they have reasonable access to health care. Given the considerable number of deaths from infection, the very high citizen to physician ratio, and the average number of people each health care center needs to serve, this is not the case. Secondly, due to the lack of progress on education, and the fact that 10 years after the first PROBE study there is still a significant lack of teaching days, there is obviously an opinion that the education being received by the average Indian child is adequate, which is a perception that is far from reality. There should not only be an uproar about the lack of teachers in some districts (as one per school clearly is not enough given the size of India’s population), but also an uproar that these highly paid individuals are absent 20%+ of the time!

The second challenge is with the government. The government doesn’t want to tackle tough issues, and certainly doesn’t want to take any steps that might cause a considerable backlash from any group of a significant size. Plus, if you look at the relative spending on health care and education in India versus other BRIC countries (Source: World Bank), total spending in India on health care (including the private sector) is a mere 3.9% versus 5.2% in China and 8.9% in Brazil, largely due to the fact that the public sector spend on health care is 1.2% of GDP compared to China’s 2.7% of GDP. If you look at Education, India spends a mere 3.1% (Source: Wikipedia) compared to China’s 3.9% (Source: Xinhuanet) and Brazil’s 5.1%. India is not adequately spending to address it’s most fundamental problems.

Government spending in India for 2013 is estimated at 302 Billion USD while revenues are projected to be 210 Billion USD. While that’s not a lot considering that India has over 1.2 Billion people, it’s still enough to do something. So where is the Indian Government spending its money? If you look at the Budget at a Glance as posted on the Government of India Site, over 1/3rd (37%) of the non-capital non-plan expenditures, which constitute almost 60% of projected expenditures, are going to interest payments and prepayment premium (370,684 crore of 992,908). The next biggest category (at 23%) is subsidies (231,084 crore of 992,908). The third biggest category (at 12%) is defence services (116,931 crore of 992,908). Grants make up 8%, pensions 7%, and the police make up 4%. The budget is rounded out by economic services at 2.4%, general services at 2.3%, and social services at a whopping 2.3%. (Taking us to 98.5% of the budget.) The remaining categories consisting of the postal deficit, the NDRF (National Disaster Relief Fund), union territory expenditures, and foreign government grants collectively amount to about 1.5%. Of the plan expenditures, all of the non-capital expenditures (27%) go towards the central plan and central assistance. In other-words, relatively speaking, India is spending too much on servicing its debt, paying its pensions, and defending its country and not nearly enough on education, health-care, and other economic assistance to lift the majority of its population out of near-poverty — a population it needs educated and healthy to take on China.

The third is with the media. As per Dreze & Sen’s An Uncertain Glory, among more than five thousand articles published on the editorial pages of India’s leading English-medium dailies during the last six months of 2012, less than 1% of the total editorial space was dedicated to health-related matters, and that was with a very broad definition of “health-related matter”. As we will discuss in more detail in a future post, the media really needs to spend more time on critical issues like health care, sanitation, and education.