FDI in Indian Retail : One step forward . . .

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As Delhi put its proverbial foot to the accelerator to gear up for the Commonwealth Games over the past week, the Indian economy at large was not delinked from the spirit of sport. Indeed, the Olympic motto of ‘faster, higher, stronger’ is easily apt for the some of the economic indicators and signals that were revealed.

1. The Bombay Sensex reached a 33-month high.
2. India now home to as many as 69 dollar billionaires, compared to 52 last year (Forbes).
3. 127,000 High Net Worth Individuals[1], whose cumulative wealth stands at US$477 billion resident in India (2010 Asia-Pacific Wealth Report, compiled jointly by Cap Gemini and Merrill Lynch Global Wealth Management).
4. India’s growth is likely to outpace China’s (cover story of the latest Economist).

Ostensibly sensing the mood, the Government of India decided to give greater steer to the economy. It announced an easing of the norms for foreign direct investment (FDI) for a few sectors including wholesale cash-and-carry trading.

The Indian retail sector is arguably the most watched and contentious sector on India’s economic horizon. With growth trends and forecasts being what they are (see earlier blog post), this is not surprising. The policy amendment removes the restriction for internal use by the foreign wholesale cash-and-carry segment. It, however, retains the ceiling, mandating that such companies could sell only up to 25 per cent of their turnover to group companies. The move has implications for several retailers such as Bharti-Walmart, Carrefour and Metro Cash and Carry.

This relaxation comes at a time when much debate is underway regarding opening up of the retail sector to foreign investment. Since 2006, FDI up to 51 per cent has been permitted in single-brand retailing in India. 100 per cent FDI has been allowed under the automatic route in the cash and carry wholesale business. A few months ago, the Indian Ministry of Commerce had released a discussion paper on the issue of multi-brand retail, soliciting opinions. While Commerce is in favour of easing norms with some restrictions, the Ministry of Finance is said to be in favour of a more cautious approach.

Some innovative players are not letting these current restrictions be a bottleneck. Instead, they are crafting innovative solutions within the defined goal posts while the patiently nudge the public policy eco-system.

Interestingly, the organised, domestic retail sector is keen to see opening up. Indeed, there are strong and vociferous proponents on both sides of the fence. At what pace the situation evolves and its implications for the economy only time will tell. Perhaps it will be a case of catching the tiger by its (re)tail.

If you would like to increase the growth of your organisation by deepening its engagement with India, do write in at ratika.jain@whiteowladvisory.com .

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[1] Has “investible assets of $1 million or more, excluding primary residence, collectibles, consumables and consumer durables”. 

Is Education India’s next gold rush?

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About twelve years ago, I was sitting in a seminar listening to the Israeli management guru, Dr Eli Goldratt, expound forth on his seminal Theory of Constraints (TOC).  Dr Goldratt shared something very basic but something we often forget - that a chain is as strong as its weakest link.  This thought has stayed with me and it brings me to the theme of this week’s blog – higher education in India. While statistics in the Indian context are astounding, the one’s relating to education are mind-boggling.

• 5: The multiplier by which the budget for education has increased in the 11th Five Year Plan (2007-12), compared to the 10th;
• 14%: Current enrolment rate in higher education; targeted to increase to 30% by 2020;
• 18,000+: Number of universities and colleges in India;
• 600,000: Shortage of doctors;
• 1,000,000: Shortage of nurses;
• 15 million: Annual increase in labour pool by 2015;
• 240-250 million: Estimated skilled workers required over the next 12 years to cater to the incremental skilled workforce demand in 20 high-growth sectors as well as the unorganised sector;  and
• 600 million:  Indians under 25 years of age.

The strain of inadequate educational infrastructure is beginning to take its toll.  A few weeks ago, the World Economic Forum released its Business Competitiveness Report 2010-11.  India had dropped two places to rank 59.  Poorer rankings on education were identified as one of the major speed-breakers.  

Sensing the opportunity, a number of players – new and old - have jumped on to the bandwagon.  Exponential growth in stock prices of educational companies over the past decade bears testimony to the demand-supply dynamics.

Leading international universities have not been impervious to India’s hunger for quality education. Last week, Duke University announced its intent to set up a campus for its business school in India. Like Yale, Brown and Massachusetts Institute of Technology (MIT), it is also in talks with India’s Ministry for Human Resource Development for partnering the upcoming 14 innovation universities. 

As institutions jostle for market share, the resulting frenzy has prompted the Advertising Standards Council of India (ASCI) to introduce a new set of guidelines prohibiting educational institutions and programmes from claiming recognition, authorisation, accreditation, or affiliations without proper evidence.   

To my mind, and borrowing from Dr Goldratt’s TOC, embedded in the education opportunity is one more nugget – that of standards and certification.  Indeed, attention to this could easily apply to India’s preparation for the Commonwealth Games.  After all, success in India is not only about what you do but how.

If you would like to increase the growth for your organisation by deepening its engagement with India, do write in at ratika.jain@whiteowladvisory.com .

Seven trends defining India’s growth story

In the last one week, I’ve come across some very interesting research – some slightly dated, the majority quite recent.  Yet, each of these individual threads, coincidentally, supports the other.  What does the emerging tapestry reveal?

1. The undisputable re-emergence of Asia, specifically China and India (see Angus Maddison, Hans Rosling, McKinsey, International Monetary Fund).  China’s recent eclipsing of Japan to gain recognition as the world’s second largest economy is par for the course as is increased intra-regional trade.

2. Increasing domestic prosperity 

• For the first time ever, the number of high-income households in India has exceeded the number of low-income ones (reference NCAER);
• Sales of trucks and buses — an indicator of economic activity — rose 37 per cent to 51,481 units in July 2010;
• Overall automobile sales grew at 31.50 per cent to 1,237,461 units in July 2010; and
• Mobile penetration is projected to reach 55.9 percent in 2010, increasing to 72.5 percent in 2012. 

3.  India’s growing engagement with the world

• Expanding share of world trade - 2.8% in 2009 compared to 0.6% in 1998
• Foreign direct investment (FDI) flows increasing steadily

4.  Heightened business focus; less emotional baggage

• India Inc's merger and acquisitions have touched nearly US$ 50 billion level over January-July 2010, over three times the total in 2009. 
• Strategic rationale driving corporate expansion (Fortis, Piramal Healthcare)
• Robust succession planning process (Tata Sons, Larsen and Toubro, Infosys)

5.  An aspirational, entrepreneurial, young talent pool

• 72 % of India's population is below the age of 40, 47% of Indians are under the age of 20 and 10% of the world population is an Indian under 25
• According to Goldman Sachs, India will add 110 mn people to global workforce by 2020.
• The Indian Government plans to increase the gross enrolment ratio from the current 12.4% to 30% by 2020 and further up to 40% by 2025. 

6.  Increasingly pervasive influence of technology and media

• Reverse / low-cost innovation – Tata, GE, Nokia leading the way
• The media and entertainment sector is estimated to be growing at a compounded annual growth rate of 13 per cent over the next few years; rollout of 3G by the private sector over the next few months is expected to be a game-changer for business and society.

7.  Growing economic maturity and self-confidence

• India has become the fifth country to have a unique symbol (`) for its currency
• Foreign exchange reserves total US$ 284 billion
• Is forging its own set of strategic partnerships – USA, Singapore, Myanmar, Africa, Afghanistan - to name a few.

In sum, the tapestry presents much potential.  Yet, as anyone remotely familiar with India knows, it is far from being an easy market to do business with.  Any truthful case study of an international company doing business with India is peppered with anecdotes about how they have had to revise their India strategy.  Poor governance and infrastructure remain areas of concern.  

But then again, if India were an economist’s ‘perfect’ market, it wouldn’t be witnessing the extraordinary growth rates it has.