The Price Of Growth In India


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The Price Of Growth In India

  1. 1. The price of Growth India, The high cost economy By: Vikram B. Thadeshvar Pune [email_address]
  2. 2. Investors prefer where business costs are lower and efficiencies higher. Increasing Inflation Rising input costs. The unprecedented growth The rentals at Mumbai’s Bandra – Kurla complex are one of the highest in the world. Detroit, Once the Mecca of the automotive industry, had lost out when manufacturing shifted to Japan and Korea. [email_address]
  3. 3. Poor Competitor Global Competitiveness Index [email_address] 66 59 Brazil 62 58 Russia 43 48 India 54 34 China 26 21 Malaysia 8 5 Germany 3 4 Sweden 4 3 Denmark 1 2 Switzerland 6 1 United States 2006 Rank 2007 Rank Country
  4. 4. Main Causes <ul><li>Regulatory delays & Business Inflation </li></ul><ul><li>Power costs & Power cuts </li></ul><ul><li>Poor infrastructure </li></ul><ul><li>Tax </li></ul><ul><li>Higher Realistic rates </li></ul><ul><li>Transportation </li></ul>[email_address]
  5. 5. Regulatory delays & Business Inflation <ul><li>Building a hotel 45% costlier than US, and takes 3 yrs instead 1. </li></ul><ul><li>Due to procedural delays </li></ul><ul><ul><li>Of land acquisition, </li></ul></ul><ul><ul><li>its approvals, </li></ul></ul><ul><ul><li>getting the nod from the fire department, </li></ul></ul><ul><ul><li>civil authorities, </li></ul></ul><ul><ul><li>police, </li></ul></ul><ul><ul><li>airport and pollution control </li></ul></ul><ul><li>Currently it is more than 10% but will rise 30 to 35% within a year. </li></ul><ul><li>(experts opinion) </li></ul>[email_address]
  6. 6. Power Costs <ul><li>Hurting power intensive industries such as cement, petroleum and petrochemicals. </li></ul><ul><li>Commercial power at Rs 6-8 per unit in India, Rs 1.50 to 3.50 per unit in US. </li></ul><ul><li>Due to regular power cuts, Generation charges are also high. </li></ul><ul><li>Cost of running these gensets adds up to Rs 18 per unit. </li></ul><ul><li>Every delay has a value. </li></ul><ul><li>The opportunity cost of delay has a financial impact. </li></ul>[email_address]
  7. 7. Logistic & Transportation costs <ul><li>Raises product cost up to 25% </li></ul><ul><li>Indian trucks v/s Global </li></ul><ul><li>22 stopovers & each takes 3 hrs </li></ul><ul><li>Lack of automatic checkpoints </li></ul><ul><li>In Europe, Truck can go through electrically across different countries, without a barrier. </li></ul><ul><li>Indian ports are 50% expensive than Singapore, Dubai and Colombo. </li></ul><ul><li>Loading a 40 ft container in the US costs $6, In India 20 ft costs $48 (Rs. 2000) </li></ul><ul><li>Each state in India is like another Country, requiring separate declarations. </li></ul>[email_address]
  8. 8. Commercial Tax <ul><li>High tax regulations </li></ul><ul><li>10% of companies overall cost. </li></ul><ul><li>More than half of the cargo ships registered outside India. </li></ul><ul><li>High cost economy is unsustainable. </li></ul><ul><li>India is emerging an expensive country. The efforts should be to build it cheaper. </li></ul>[email_address]
  9. 9. High Priced Rentals Rentals in $/sq ft [email_address] 93 New Delhi 41 Mexico City 48 New York Downtown 51 Rio de Janeiro 52 Shanghai 54 Sao Paulo 67 Singapore 68 Dubai 120 London CBD 139 Mumbai Jan 2008 Figures are monthly
  10. 10. Realistic Rates <ul><li>A fully furnished office </li></ul><ul><ul><li>In Malaysia’ Petronas Towers at Rs 40/sq ft </li></ul></ul><ul><ul><li>In Mumbai’s Nariman Point at Rs 500/sq ft. </li></ul></ul><ul><li>Victim of centre-state politics </li></ul><ul><li>Posco India, which has proposed a 12 m tonne steel plant in Orissa with $13 b (largest FDI). But 3 yrs since, it is yet to acquire the land. </li></ul><ul><li>States should try to clear the land acquisition hurdles. </li></ul><ul><li>To build a cement plant $60/tonne 3 yrs ago, today $120-130/t and in china $80/t. </li></ul>[email_address]
  11. 11. Conclusion <ul><li>High wage cost due to demand-supply imbalance and laws of economics </li></ul><ul><li>Govt can take actions like </li></ul><ul><ul><li>Removing regulatory hurdles in land acquisition </li></ul></ul><ul><ul><li>Setting up of power projects </li></ul></ul><ul><ul><li>Streamlining the tax rates </li></ul></ul><ul><ul><li>Improve infrastructure facilities </li></ul></ul><ul><ul><li>Easy transport </li></ul></ul><ul><ul><li>Reforms in regulations </li></ul></ul><ul><ul><li>Merging each state and one rule in allover India </li></ul></ul><ul><ul><li>Control in realistic & logistic rates up to some standers </li></ul></ul><ul><ul><li>Become a member of free trade zones </li></ul></ul><ul><ul><li>Controlling Inflation </li></ul></ul>[email_address]