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India's shining economy

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November 18, 2003 09:48 IST

The Indian economy is poised to grow at over 7 per cent this year. All economic indicators are pointing towards a booming economy. Good news on the economic front is flowing from all directions.

Foreign exchange reserves are bulging at the seams. The Sensex is experiencing a bull run. Inflation is low. Housing loans are available at 6 per cent. Car finance is available at 6 to 8 per cent.

Competition is forcing companies to supply goods and services at wafer thin margins. The telecommunications revolution is benefiting everyone. The power sector is being reformed. The housing sector is booming. The steel and cement sectors are performing. Highways are being built.

Metro railways are being commissioned. Airports are being privatised. Private Indian airlines are being allowed to fly international routes. The monsoon has been excellent and the agricultural sector is expected to experience a healthy growth. Etc. Etc.

There is a feel good factor in the air and India is regaining its confidence. People are beginning to believe that 'India is Shining'.

Retailers, wholesalers and small manufacturers were hoping all of this good news would result in a prosperous Diwali season. Large retailers, large manufacturers and brands have done well during the Diwali shopping season.

For the medium and small businesses, the Diwali shopping season has been fairly disappointing. This has left them fairly disgruntled as they were hoping the benefits of the shining economy would flow to them as well.

The difficulties small and medium businesses face are well known. Operating costs have increased drastically, e.g. power is available at Rs 5 per unit. Salaries have increased. Increased competition has resulted in lower margins. Import liberalisation and the reduction of tariffs have further increased competition. Sales are being spread over a larger number of players.

Rents have increased. Quality levels have changed dramatically. Etc. Etc. The response of these businesses has varied. Some yearn nostalgically for the good old days of a seller's market when competition was scarce and margins were high. Profits flowed, farm houses were acquired and life was comfortable. They continue to hope that the good times will return.

Others are beginning to recognise that in order to survive and prosper in the globalised Indian economy, they must learn new skills, improve their efficiency, learn to compete and reinvent their businesses. They must look for opportunity in the changing economy. They must think out of the box to reinvent their business models.

The manner in which they tackle the complex issues will separate the men from the boys. For manufacturers, a key issue is whether one should invest in newer technology, machinery and skills to upgrade quality and gain competitiveness.

Which technology is the right technology? Would it be better to set up a new unit in investor friendly China? Is it better to subcontract the manufacturing function to units in China? How can an element of flexibility be retained if a course correction is required?

Another challenge that manufacturers face is that of reworking the distribution model. Should they establish their own retail network? Should one launch a brand to compete with the larger players? If the focus has been the domestic market, should one consider the export markets?

If the focus has been the export markets, should one target the shining Indian market? How does one acquire the skills to manage the change, build and manage a retail network, launch and manage a brand, etc?

For those engaged in exports, the issues are equally dynamic. The rupee is appreciating, the US dollar is weakening, China is intense competition, etc. Can the RBI check the rise of the rupee? Should an exporter move up the value chain by launching his own brand in the international markets?

Should he take advantage of the strength of the rupee, the weakness of the dollar and low global interest rates to acquire assets in international markets just as the Japanese did in the 1980's, to lay the foundation for the next generation of exports?

For wholesalers, the challenge is, should one move up the value chain into retail? If one is into commodities, should one create and launch one's own brand?

For those engaged in retail, there is a retail revolution that is taking shape. There are over 300 malls coming up in the country. Is the retail market going to shift to these malls or will it stay in the traditional markets?

Many of these malls could fail, so which mall should one select? Should one rent or buy space? If one is selling a generic product, should one start carrying branded products? Should one launch one's own brand?

These issues are being debated in boardrooms, bedrooms and drawing rooms, around the dining table, with accountants, lawyers, consultants, family, friends, employees, well wishers, etc. The issues must be grappled with and plans drawn up.

There is no such thing as a set winning formula. Each business will have to discover its own solution. What may be a winning formula for one business may not necessarily work for the other. Entrepreneurs who are willing to change and think out of the box will prosper.

To successfully initiate change, they must bring in professional help and change their businesses from being family-run to being professionally managed. In addition to having the right strategy, one will need the skills, expertise in finance and managerial competence to manage change and execute strategy.

It is in India's interest to facilitate the reform and transformation of small and medium businesses into lean and mean fighting machines. These businesses are capable of introducing a new dimension of competition in the economy. Their resurgence will add depth to India's shining economy. They have the potential to push India's GDP growth rate over the 8 per cent mark.

The government must work overtime to remove the hurdles that hinder their transformation. Their resurgence will reap rich political dividends for the Bharatiya Janata Party as small and medium businessmen have been strong and vocal supporters of the BJP. The failure to act could cost the BJP big time in the general elections due next year.

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Chand Mehra