India Failing: Hitting Another BRIC Wall?


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As Asia’s third largest economy, the success or otherwise of India has an impact that resonates through the region and the rest of
the world. As a part of BRICS, the country’s massive growth was a major help during the economic crisis after 2008. Despite this,
the country’s slowing economy has caused concern from investors looking to India as the future.

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India Failing: Hitting Another BRIC Wall?

  1. 1. 10th December 2012India Failing: Hitting Another BRIC Wall?INTRODUCTIONAs Asia’s third largest economy, the success or otherwise of India has an impact that resonates through the region and the rest ofthe world. As a part of BRICS, the country’s massive growth was a major help during the economic crisis after 2008. Despite this,the country’s slowing economy has caused concern from investors looking to India as the future.Over the past year, The Economist has run headlines such as “Farewell to Incredible India”, “Indias economy: A BRIC hits the wall”and “Indian banks: Hold your nose”, this theme is one which many outside India have adopted, but what about those from withinthe country? To gain perspective from inside the country itself, we asked 185 IT & Business professionals based in India if theythought the country was failing, and the reasoning behind their answer. This spotlight provides unique insight from professionalson the ground, and shows how much faith locals have in their economy and where they think things can be improved.Do you think India is failing? (Source: IDG Connect) Yes No 43.2% 56.8%NO - PROGRESS & POTENTIALOverall, a slim majority felt that India is still succeeding. The reasons for this were varied, but the comments were overwhelminglypositive. Many pointed out that the current growth rate of 4-6% is still a good figure - one that many Western countries are unableto reach - and anything higher is a bonus. One person explained:“The Government is looking into implementing more policies which will lead to growth. India still has the advantage of a hugepool of human resources which is being utilized appropriately in every sector. Agreed that last year or so has been a lull period, butwith the change in government stance, India is back on the growth path and will lead the way once again.”Many admit that things have slowed down, but feel that things will return to normal in the future. “The Indian economy is stilldoing much better compared to the rest of the world. And as soon as World Economy improves, India will again be in good shape,so there is no question of failing,” one interviewee said. While another explained, “These are tough times and consumption levelshave gone down. Come the festival season and the New Year there will be a huge upswing in the economy driven by FMCGs,consumer durables and automotives.” 1
  2. 2. Other Comments included: “ India is ‘slowing down’, and that cannot be ruled as ‘failing’. A little bit of slowing down will bring stability to the system amidst breathless growth. ” “ While Indian IT is slowing down,that the wayhuge number of people attempting to andstart-ups. There is optimism there are a do amongst people. We are all clear forward is by getting more educated by looking at starting businesses. ” “ India is passing expect more transparency. Ratings given by analysts etc. are generally based on present less tolerance of corruption. We through a transition to become a society where entrepreneurship will be awarded with situation, they cannot translate the under current into future forecast even if they see positive signs. ” “ Maybe by looking at the current economic situation India looks as if it failing, but a highly enthusiastic, entrepreneur- minded young crowd is going to come like a storm to transform Indian IT sector. ” “ Historically, India has always beentrue potential, it also has helpedhas beenover global crises better. Whenever things has stopped India from achieving her slow at accepting changes, and her tide reactive rather than proactive. While this started getting tough, India has managed to come out better. It may not be the ideal way to do things, but it has always prevented India rom failing. ”YES - STIFLING POLITICAL PROBLEMS AND STAGNANT R&D Reasons India is Failing,Of the 43% who did feel that India was failing, poor legislation and regulation (Source: IDG Connect)were cited as the main reason - almost 50% thought so. Comments were verycritical of the government: “ Nothing has moved for the past 15 months. The central government is paralysed. ” 2.7% “ The government is stuck and cannot pass any new rules or regulations to improve conditions. ” 4.1% 9.6% “ Politicians and vested interests have created a powerful nexus of privatising profit and short-changing the wealth of the country. At every level of government, there is abject corruption and failure to 9.6% provide services. Resources are available but they are being 26% squandered. ” 47.9%One respondent called the government “feeble” and “lacking vigour” inimplementing a growth plan. Corruption was also blamed, with many who choseregulation as the main problem also adding that corruption was an influencing Otherfactor. “Whole country is swamped in scams, corruption and rampant disregardfor rules & discipline,” one interviewee said. Several people pointed to the Low paygovernment’s long term plans, including its own future. One was concerned by a Global economic climate“high number of uneducated ministers who do not have clear vision or drive in Corruptionplanning for growth and aging bureaucrats and no clear succession planning” Lack of innovationwhile another said to fix things, “India needs a political reform with young Poor regulation/legislationgeneration taking on more responsibilities.” 2
  3. 3. A lack of innovation was also a big factor for those who feel India was going in the wrong direction. A lack of government supportwas one of the main reasons, as was an aversion to risk by older members of the business community. One interviewee said:“Government regulations are the biggest hindrance to innovation and urge to do things in the right way. There is no room forinnovation. The moment one tries to do something differently, he/she will be considered mad. We as a community/country lack thecourage to do things in the right way and do not wish to find ways to do things differently.”Another perceived attack on innovation was the education of those currently entering the job market. One interviewee describedthe difficulty of trying to find the right employee; “innovation requires independent thinking and experimentation. Neither ofwhich is encouraged in India. I have come across several youngsters who have done very well in certification exams but yet theyperform very poorly in our quiz which focuses on ‘Application of Mind.’"Other comments on a lack of innovation included: “ People are not showing interest in R&D, neither is the government showing any encouragement. ” “ Lack of innovation comes from older management adopting a risk-averse attitude, not adapting to the hectic changes around the globe and sticking to archaic policies and methodologies in day-to-day activities. ” “ We are still service-market oriented. This means that we are an always-dependent market. Innovation brings products and that will ensure stability. ”The global economy, low pay and over-saturation were also featured in people’s concerns, though less heavily.BACKGROUNDThe business media has all but written India off. YoY growth in India’s real GDP, March fiscal year-ends, 2001-2012E (%)“Farewell to Incredible India”, “Indias economy: ABRIC hits the wall” and “Indian banks: Hold your 12nose” have all graced the cover of the Economist thisyear, and similar stories can be read elsewhere. And 9.5 9.7 9.2on the front of things you can understand why. 9 8.5 8.3 8.0 7.5The IMF recently lowered the countrys growth 6.7 6.7 6.6projection to its lowest point in 10 years and global 6 5.8agency Standard & Poors threatened to downgrade 4.4 3.8Indias sovereign credit rating from the alreadylow BBB - to junk grade within 24 months, after 3it released a report entitled “Will India be the firstBRIC fallen angel?” while on the IT front, Indias net 0software exports have slid to a 10-year low and IT 2002 2005 2003 2001 2004 2006 2007 2008 2009 2010 2011 2012E 2013Erevenues for Q3 rose by just 2%.So why the decline? Government regulation seems (Source: Central Statistical Organization, Kotak Institutional Equities estimates)to be a major issue. For example, S&P said that itcould improve its outlook on the country if "thegovernment implements initiatives to reduce fiscal deficit, improves its investment climate, and increases growth prospects". Inits World Economic Outlook released this month, the IMF said, "Indias activity suffered from waning business confidence amidslow approvals for new projects, sluggish structural reforms, policy rate hikes designed to rein in inflation, and flagging externaldemand." And although on the decline, corruption is still prevalent in many quarters of Indian society. 3
  4. 4. Employment also seems to be hitting a wall. According to Naukris Job Speak Index, the job market has slowed down and seenthree months of decreasing recruitment rates. While lower hiring levels dont mean crisis, it does indicate a lack of growth orambition from companies. The fact that Indian IT companies are one of the 10 worst-paying employers in the world is no doubtalso hampering growth.Even in certain areas of business still enjoying rapid growth, there are Innovation Rankings 2012deep-seated problems. India already enjoys 900 million mobile phone (Source: INSEAD)subscribers, and penetration is expected to rise from its current 78%,but chronic overcrowding of providers is causing troubles - whilethe average number of mobile providers per country is four, India 31st RUS CHNhas 12. The lowest average revenue per user per month in the world,various corruption problems around 2G licences, and a low uptake 51stof 3G means the industry has failed to reach its potential - whenthe countrys biggest mobile phone operator, Bharti Airtel, posts 10 54th SAstraight quarters of decline, something has to be wrong. 58th BRAWhile Indias top spot for outsourcing may be safe for now, times arechanging. The Indian BPO sector is still very strong, worth around 64th IND$63.2 billion in 2012, but competition from China, the Philippines,South Africa, and a backlash against outsourcing have all eatenaway at the sectors growth. Indias growth for the last few years SNGreads 25.4%, 23.6%, and 15.7%, compared to Chinas 43.5%, 63.6%, 1stand 33%, topping revenues of $53.8 billion this year. As with otherareas, new ideas and avenues have to be brought to the table as other 10th USAcountries start to move into ground traditionally held by India.To prepare for the future, India needs to innovate. In this year’s Global Innovation Index, India was last of the BRICS, comingin 64th out of 141 countries, two places lower than the previous year. Vijay Govindarajan, a professor of international businessat Dartmouth College, told TIME magazine, “Without business model innovations, India cannot solve the problems for 90% ofIndians.”But its not all bad by any means. Despite the employment slowdown, a survey by ManpowerGroup found the number of employerswho say they intend to hire in the fourth quarter outnumbers those who report they will reduce payrolls, by almost 20 to 1; variousIndian companies saw decent Q2 growth; and spending on smartphones and tablets continue to rise. And despite low levelsof growth for software exports, 4% is still a decent number in a slow economy. So the future still seems positive, with Gartnerpredicting Indian IT spending to rise next year by more than 7% to $72 billion.With India becoming a bigger player on the G20 stage, according to US Federal Reserve chairman Ben Bernanke, it soundspromising that experts feel confident investing in the Indian economy after government reforms: "It is highly encouraging tosee the current wave of economic reforms being initiated by the Indian Government as they would help in restoring investorconfidence, thus reviving growth too," said US Treasury Secretary Timothy Geithner.There are plenty of opportunities in India; you just have to look for them. Despite the bad news, growth is still growth, and its areality that as the country catches up with more mature markets, those figures will be smaller. But as long as they dont turn intominus figures, its no bad thing, and if the government reforms take hold, maybe even double figure growth can appear again. 4
  5. 5. Expert Opinion Jayadevan PK, Associate Editor, NextBigWhat.comIndia Isn’t Failing - Our Entrepreneurs are Hard at WorkDoing business in India is tough, but that has never stopped great entrepreneurs from building great companies in the past.And it will not stop them from doing so in the future.Passionate entrepreneurship is on the rise and it will have the biggest and furthest impact on the countrys $1.85 trillioneconomy. India’s $70 billion software services industry has given birth to a new generation of risk takers - a generation readyto think big and bet bigger. They understand foreign markets. They understand complex domains. They understand India.And technologies that will drive the future - Cloud computing, social media, mobile, big data and analytics – these are theirweapons of choice.Entrepreneurial activity is perhaps at its highest. Grandchildren of Indians who went to America are coming back to India.New airports, the metro and new roadways are being built. Mobile networks are expanding; broadband penetration, thoughamong the lowest in the world, is increasing fast. Large-scale technology deployment, like the Aadhaar project which hasnever been attempted elsewhere in the world, is happening in the country.Almost all of the worlds’ largest venture capitalists are scouting for the next Google or LinkedIn in emerging economies.Storied Silicon Valley investors like Vinod Khosla are starting business incubators in India. Chamath Palihapitya, the formerFacebook executive who runs a fund backed by Mark Zuckerberg, and Peter Thiel, the co-founder of PayPal and many others,are showing serious interest in India. More “angel” investors who help early stage ventures are coming to the fore; over adozen startup incubators and business accelerators have cropped up in the last four months alone. The famous Silicon Valley-based startup accelerator, 500 Startups, has started in India and their fund to back Indian companies, 500 Startup Wallah, isplanning to invest in 50 startups in 2013.Large tech companies, like Microsoft, Google and LinkedIn are increasing their focus on the country’s startups. For instance,Microsoft’s startup accelerator in India is doubling their intake in 2013. Startup Chile, a program run by the Chileangovernment, recieved more than 50 applications from Indian startups in 2012. State governments are encouraging studententrepreneurship. In Kerala, an ambitious public-private partnership wants to incubate 1000 telecom startups in 10 years.A recent study points out that about 1,000 new product startups will be born in India in the next 3 years. That’s a sharp risegiven that only 3,400 were created since 1990. The new land of opportunity is here. In a nation of billion people, there are abillion problems to solve and entrepreneurs are at it. The nation is startup ready. 5
  6. 6. CONCLUSIONFrom the results of our survey, it seems that despite what certain corners of the media & business community on the outsidethink, the people on the ground feel that India is still moving in the right direction. Our results show that many feel that there areimportant problems that need to be addressed in India, the majority of which lie on the doorstep of the country’s government. Buton the positive side, our respondents feel a keen sense of entrepreneurial spirit among the younger workers, growth figures that arestill higher than many Western countries, and a government that is slowly trying to improve the economy as plus points.ABOUT IDG CONNECTIDG Connect is the demand generation division of International Data Group (IDG), the world’s largest technology mediacompany. Established in 2005, it utilises access to 38 million business decision makers’ details to unite technology marketerswith relevant targets from any country in the world. Committed to engaging a disparate global IT audience with truly localisedmessaging, IDG Connect also publishes market specific thought leadership papers on behalf of its clients, and produces researchfor B2B marketers worldwide. For more information visit: 6