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Directors Note

Dear All, I am delighted to present to you VISIONARIOS the 1st Annual Consulting Magazine launched by XLRI. The theme for this inaugural edition is Roadmap for Sustaining Indias Growth Story, given the fact that the Indian economy has slowed down in the last two years. India does have serious challenges to overcome. The annual GDP growth has slowed down in the last quarter, to 4.4%, consumer price inflation is high, and the current-account and budget deficits last year were too large. One often reads articles detailing about Indias poor infrastructure, excessive regulation, slow -growing manufacturing sector, sub-optimal health and social development indicators and a growing workforce that lacks adequate education and skills. These institutional and systemic deficiencies must be addressed if the Indian economy has to be on a sustainable growth trajectory whilst ensuring that all sections of the society benefit from the fruits of economic growth. However, it is a bit worrying that many of the deficiencies have existed for decades despite the best efforts of government, nongovernmental and private sector institutions. In part, Indias slowdown is reflective of the substantial fiscal and monetary stimulus that its policymakers, like those in all major emerging markets, injected into its economy in the aftermath of the 2008 financial crisis. The resulting growth spurt led to inflation, especially because the world did not slide into a second Great Depression, as was originally feared. However, it must be admitted that the government could have acted more swiftly and concurrently undertaken a slew of modest and ambitious reforms thereby precluding the general sense of despair prevailing amongst the public at large. What should industries, leaders and strategists do when faced with a long period of slow-down? How does a downturn impact established and budding managers? What are the strategies that organizations should adopt in the face of policy paralysis and still ensure profitability? Through this management conclave consisting of eminent personalities from the corporate, government and academia we shall strive for possible answers to these crucial challenges and determine how to a develop a Roadmap for Sustaining Indias Growth. I hope that this endeavor is well received by the academia and the industry alike, and provides encouragement for more attempts in this direction in the future. E. Abraham, S.J. Ph.D Director

XLRI Xavier School of Management


If one does not know to which port one is sailing, no wind is favorable. -Lucius Annaeus Seneca The most essential element of strategy formulation is having a vision for the entity in question. It is being able to see beyond the immediate pitfalls and challenges and put the long term objectives of inclusive growth and sustainability. India today stands at a peculiar crossroads, where on the one side its shining past decade beckons it to carry forward the flaming torch of growth, on the other a gloomy looking future looms, should it not get its act right. An adversity they say is the best time for course correction. But for that it is imperative to look within and mark out the fallacies that we committed on the way and to take a long term and holistic view of the best way forward. With this intention of reflecting on the current situation and ideating towards possible solutions for the same, CRUX has come up with the first edition of the XLRI Annual Consulting Magazine: VISIONARIOS. It is an endeavor on our part to create a platform for enthusiasts across a wide spectrum to pour in their ideas on this raging debate that engulfs the nation. Through this magazine, we hope to be able to bridge the gap that we believe currently exists between classroom study and the mechanics of reality; and continue to keep coming up with important and relevant topics each year. Happy reading! TEAM CRUX




About CRUX
With the spirit of Magis and a motto of ever greater-ever better, CRUX Consulting and Research Undertaking @ XLRI is the exclusive committee for consulting on campus. Our Vision: To promote XLRI as a premiere consulting destination Our Objectives: To promote and hone basic consulting skills at XLRI and within management student community at large. To offer consultancy and research services to interested startups, organizations and voluntary bodies; leveraging upon XLRIs capable student base, access to knowledge resources and faculty expertise. To partner with consultancy and research firms for on and off campus branding with a view of developing long- term fruitful relations between XLRI and the world of consultancy. Our Activities:

National Level Paper Writing Competition that sees participation from top B-Schools across the country

Unique simulation challenge for XLRI students lasting a week (Senior + Junior batch - BM & HR, Foreign exchange students)

Inter B-School strategy game. An event which will test your analytical skills, logical acumen & mettle.

Flagship Case Competition 120 teams participated from top B-Schools

Case study sessions conducted by professional consultants, senior students and industry experts

CRUX's flagship event in Ensemble, one of the biggest B-School fests of India, which saw participation from 175 teams last year


Bold new approach to promote industry-student interaction. Facilitate student teams working on live projects


India -Towards a Sustainable Tomorrow

Saurav Kumar Das Shaadab Bakir Zafar

ndias growth story over the last two decades has been rather impressive owing to sweeping structural reforms that have opened up the economy and introduced competition into a myriad of sectors that had been perpetually plagued by public monopolies. However, the pressure put on the various resources owing to rapid economic growth coupled with the impact of a weak global environment have been majorly responsible for the stifled growth in the economy. With inflation creeping towards the 8% mark and Index of Industrial Production (IIP) down in the dumps, it is but obvious that the resilience of the Indian economy is being questioned by investors. Unfortunately, lackadaisical government policies and restrictive practices are serving as deterrents for the economy to spring into a growth trajectory. The people at the helm of the affairs must adopt dynamic policies to sustain the economic transformation required for India to address its socio-economic challenges. We would focus on a few roadblocks which can be converted into actionable objectives while charting out a roadmap for sustainable growth.

utility in taking the nation towards sustainable growth. It is high time that the government decided to liberalize foreign investment in keys areas and restructure the taxation system. Retail trade and the agricultural sector have to be liberalized to a great extent to further augment the massive employment potential in these sectors. Expansion of the services sector has been a key growth driver for our economy. There is an urgent need to liberalize the policies in the services sector and more importantly bring about sweeping reforms.

Inclusive Growth
India has been since times immemorial a crucible of socio-economic and cultural diversities. When we talk of inclusive growth from a holistic perspective it is a much greater challenge than what it might seem at first sight. It calls for persistent investment in both people and processes, starting from healthcare, education, employment generation to other social welfare initiatives with focus on their efficacy as well as their efficiency. Even though the poverty in absolute terms is declining marginally, the economic divide is widening as we speak. We face a certain dichotomy on the policy front as well owing to the socio-economic inequalities between a fast-evolving technologically savvy neo-urban / semi-urban community and the neglected rural community, constituting a vast majority of our demography. Cities evolved out of villages and villages from small settlements. Coming from well do to backgrounds, we enjoy all the vagaries of city life; not just the roti, kapda aur makaan, but even the privilege of good education, big-screen entertainment, excellent transportation facilities, malls and parks, airports and what not. Our reality is all but a distant dream for people living in some of the remotest villages in the most backward areas of the country, untouched by technology.

Dynamic Reform Policies

Lets admit it; the nations growth at the dawn of the current decade was severely dented by a policy paralysis that gripped the government. Since then the policymakers have done their bit to salvage the scenario through a flurry of measures to break the policy logjam including fuel price reforms, opening up of multi-brand retail and the current spate of financial reforms under one Mr. Raghuram Rajan. But these sudden spurts of renewed impetus on reforms wont be of much


The government is hardly at the liberty to ignore the communities that produce what we eat, weave what we wear and build the structures where we stay in. We should gracefully accept our collective responsibility in uplifting them socially and economically, to get them at par. Only then, can we proudly say that India, in its entirety is moving towards economic growth. There also exists a stark geographical variation in the economic development. The success of the Gujarat model of development has been largely attributed to a good governance system. In fact the sustained growth coupled with a favorable investment environment ensured by the government, has put Gujarat on the radar of both domestic and foreign investors. And its not just the Gujarat model, but the economic model followed by quite a few other states which if replicated across the nation would work wonders. For instance, in Kerala there are nine parameters based on which a family is classified as below poverty line (BPL). Families which lack access to four or more parameters, including families with an illiterate adult member and a woman headed household among others are classified as BPL. However, the crux of the matter lies in the fact that owing to the massive levels of heterogeneity in the socio-economic stratum of each state, a single model of development for all States would fall flat. The policies developed ought to serve the specific problems of each state, which require tailor-made responses. The large tribal populations of the north-eastern states and the likes of Odisha, Jharkhand and Chhattisgarh pose quite a complex challenge. Even though they are sitting on a treasure of natural resources, a missing common ground between them, the industry and policy makers, has led to internal strife leaving them high and dry. Lack of job opportunities, proper education, infrastructure, primary healthcare and many other basic facilities have allowed the Naxalities and the Maoists to gain their allegiance in waging a proxy guerrilla war against the state. This seemingly perpetual war has cost the nation dearly in terms of lives of people lost/ affected and the sheer financial burden of waging a civil war. Its high time that

the powers that be put a serious thought in finding that common ground to initiate a fruitful dialogue. Unless the Indians from the different parts of India are not integrated into the social identity of India, we would be hard-pressed to achieve economic progress.


The implementation of the Right to Free Education Act has indeed proved to be a shot in the arm for increasing classroom enrolment manifold at both primary as well as secondary level, but the question remains how effective is it when we consider the finer details. Three years after it came into effect, a stocktaking report of the implementation of the act across 15 UP districts in July 2013 showed that only 27% government primary schools fulfill RTE norms related with appointment of teachers. As per the report, the data which collected from 645 schools reflected that 64% schools were deployed for non-academic activities. The study further revealed that 10% elementary schools were not situated within prescribed area while 12% primary schools were not suitable for enduring rough weather. Besides, drinking water facility was not available in 11% schools. The report also said that 77% government primary schools did not have functional toilets for girls while only 19% had functional toilet for boys. Our concern does not end here. Even with respect to higher education a lot needs to be done. The education space is fast evolving with the blossoming of several new niche sectors including


vocational training, finishing schools and elearning. We face the challenge of aligning the higher education system with the evolving skill requirements of our economy without compromising on social inclusion. The education policies should aim at grooming teaching expertise in key fields, encourage critical thinking through research orientation and enhance communication skills on a broader level. This requires effective evaluation and monitoring of progress and enhanced levels of capital investment.

adverse effect on human health and loss of biodiversity. The challenge of sustainability on the resources front can be addressed through focus on three key aspects: Policy, Education & Technology. All three are interlinked and conribute to the overall goal of sustainable growth. Education helps to overcome the barrier of lack of consumer awareness. Increased awareness will affect personal choices- lifestyle products, mode of transport, even political candidates. We need a paradigm shift from our archetypal kneejerk reaction after the damage is done, to a more proactive one. It is high time that such conservation measures are implemented in household and communities on a massive scale. We might not realize but 90% of the energy used by a standard electric filament bulb is wasted as heat and only 10% does lighting. Even replacing one bulb with CFL lights would save thousands of rupees in electricity bill over its life time. We all know that virtually every other household device as an energy efficient substitute. We just dont realize that the initial investment on such devices would save us thousands of rupees in the long run and more importantly save the future generations a life of misery.

The economic slowdown that we are witnessing today is only partly cyclical. It has got more to do with the emergence of energy, infrastructure, human capital and institutional bottlenecks. A return to strong, sustainable growth is an overriding necessity to ensure the continued progress in tackling poverty head-on and lifting living standards more generally. When we talk of sustainability what do we exactly mean? The standard definition says, Sustainable practices are those that meet our needs without compromising on the ability of the future generations to meet theirs. The number of people affected by all disasters in India has risen from an average of 174 million a year between 1985 and 1994 to 254 million a year between 1995 and 2004. It is inevitable that economic development will be affected. The trick is to have a sustainable growth. The impacts of global warming include rise in average sea level and ocean heat content, decrease in snow cover and ice glaciers, as well as extreme weather conditions including long dry spells and unpredictable, heavy rainfall. These changes result in drop in agricultural yield, increased possibility of floods and droughts,

Rigid Bureaucracy & Corruption

Against all odds, irrespective of the market scenario, corruption has been deeply entrenched in the Indian bureaucracy since as long as one can remember. The total money lost in corruption is an astounding 17% of Indias GDP. We do have a RTI Act to bring about a sense of accountability, but it treats just the surface issues rather than the underlying causes. Though a majority of corruption takes place in state-run institutions, it is slowly percolating to other sectors as well. One of the fundamental reasons of corruption in countries like India, Pakistan, Bangladesh, etc. is the salary structure of the government employees. It has been a silent observation that competent & highly skilled people are in general discouraged to join government sectors. This is attributed to the mindset that firstly, the government sectors dont value his skills as much



as a corporate entity would and secondly his growth opportunities are stifled by the reservation system. So, the candidates entering in public sectors are not competent enough and even if they are, they arent remunerated well enough, preferring nefarious shortcuts to earn more money. The strategy to tackle corruption in India would have to be two pronged. Firstly draw the best minds in the country to take charge of some of the most important positions as policymakers and implementers who really drive the growth story on the ground. Secondly, to satiate the hunger for more money in the bureaucracy by defining performance metrics in line with the long term growth strategies of the enterprises & then linking pay to performance. This may not change the scenario immediately nor will it completely make the system corruption free. But it would be a shot in the arm for the younger generation to take up government jobs as their skills and services will be valued and over a longer term the objective will

be growth and welfare. Over a period of time, we would gain economic benefits to offset the bribe money which is currently lost due to corruption. In conclusion, we see a certain inexplicable paradox in the emerging growth driver trends. The challenges India faces are more hard-hitting owing to the size and population of the country, catered to by antiquated infrastructure. The responsibilities shouldered by the regulators, the utilities and the policy makers are seemingly more onerous. To project a sustainable growth model, we must urgently address the issues of resource constraints and climate change. Its not just India, in the wake of the not so subtle ways in which nature has reprimanded us to respect our environment, the world at large is moving towards environmentally sustainable channels of growth. We have to collectively embrace growth strategies that aim to turn the mutual trade-offs between economic development, social justice and environmental concerns into a synergistic developmental apparatus.


Subsidies in India: The Path Ahead

Paridhi Jain Pranav Primlani Rahul Sapru Rahul Seth

The paper focuses on the role of subsidies in India, taking a stand in favour of targeted subsidies. We examine the kinds of opposition mounted against subsidies as well as the history of these resistances. Subsidies in 2 different sectors are then focused upon- agricultural and sector and petroleum sector- chosen for their enormous fiscal impact on the Indian state and their substantive and psychological impact on its polity. A conclusion is reached in favour of retention of subsidies, provided they are targeted and not across the board.

subsidy is a form of financial or in kind support extended to an economic sector (or institution, business, or individual) generally with the aim of promoting beneficial economic and social outcomes. Subsidies are designed to overcome deficiencies in the market, support disadvantaged sections of society, and positively distort activities such as pushes towards renewable energy, recycling and agricultural set-asides. Simply put they represent an attempt by Governments to control the behavior of individuals, businesses and larger groups by offering or exacting economic benefits/taxes. The resistance to subsidies is of two kinds1. The Neoliberal/libertarian/monetarist resistance All marginally differing ideologies are concur on one basic fact that the states interference in the lives of its citizens should be limited to national security, securing private property & enforcing contracts. All other forms of government intervention regulations, subsidies, tariff barriers etc are detrimental to the efficient functioning of the market. This outlook holds currency in the major drivers of economic policy in the world today the US Treasury, the IMF, the World Bank and the WTO. 2. The Alternative Interventions resistance The necessity of government regulation/intervention

is acknowledged but subsidies are considered the wrong instrument for this intervention. This school of thought has a great many proponents among the Left. It is necessary, however, to take a more nuanced approach with regard to this school of thought. This is because there are several prominent economists Jean Dreze(the brain behind NREGA as well as the recent Food Security Bill) and Amartya Sen, who maintain that while subsidies are theoretically an inefficient means of fighting inequality, in the world as it exists today, subsidies are an essential instrument in achieving a modicum of distributional justice. Our hypothesis is this: that for a developing country like India, which ranks very low on the HDI, targeted subsidies are essential for preserving both the economy and the social fabric of India. Our premise is that the former cannot be sustained without the latter. We believe that a large proportion of the subsidies that are currently provided are not at all efficacious due to a lack of or incorrect targeting or embezzlement. Just because, however, that the mechanisms in place in India for delivering these subsidies are far from efficient, this does not imply that the very notion of targeted subsidies is flawed. We now propose to examine subsidies in the Petroleum and Agriculture sectors.


Petrolium Sector
The chorus to do away with subsidies has become deafening in the past few years. The issue of the alleged under-recoveries of the OMCs is raised ad-nauseum in numerous World Bank and Government of India reports. Before we examine this issue, a short background to the pricing of

investment profits.





3. Cost-plus formula in private firms encourages gold plating of the plant and artificially inflates costs, leading to a drain on the taxpayer. Recognizing these and other lacunae, Government of India, abandoned the APM in year

(Source : OECD/IEA, 2009)

petroleum products in India might be helpful. In 1977, still reeling from the shocks of the OPEC oil crisis of 1973, the Indian government instituted an Administered Price Mechanism (APM). Under the APM, prices in the petroleum sector are controlled at all four stages, production, refining, distribution and marketing on the cost-plus principle (compensating costs + a mark-up). The disadvantages of this mechanism in particular, and with cost-plus pricing mechanisms in general were manifold1. Since companies recovered all their costs (and a fixed profit) regardless of performance/ investment, the incentive to perform reduced significantly. 2. As PSUs held monopoly over all stages of production of petroleum products, investments and outputs were centrally mandated. The entry of private firms expedited the need to stimulate

2002 and by year 2004, a new, partially deregulated mechanism was created in which the subsidies provided for PDS Kerosene and Domestic LPG would be shared between the Government and the OMCs. Since the government was determined to shield the Indian consumer from the fluctuations in oil prices in the International market, retail prices of 4 commodities petrol, diesel, kerosene and LPG


were fixed, allegedly at below cost. This led to substantial under-recoveries, the burden of which was shared by the government and the OMCs. By FY 2009, the gross under-recoveries of the PSU OMCs on the sale of subsidized Petrol, Diesel, PDS Kerosene and Domestic LPG were pegged at . 1,032.9 Bn. Despite shifting some of the burden to upstream oil PSUs like ONGC & OIL under the Equitable Burden Sharing Mechanism formulated in 2005, the OMCs continued to bleed. To mitigate the rise in the fiscal deficit, the Government resorted to issuance of oil bonds in lieu of subsidies. Special bonds amounting to . 5,904.0 mn (1.8% of GDP) were issued to oil marketing companies and fertilizer companies during FY09 to cover their under recoveries. However, these off-budget oil bonds merely increased the government debt and since these were mainly 5-7 year bonds, many of them have been reaching their maturity, further burdening the government. Despite these and other measures, however, the sharp surge in the global fuel prices along with the weakening rupee had greatly increased the OMCs losses by FY 2012, mainly because of the lack of price revision for the sensitive commodities. Also, the cash subsidy to OMCs was dispensed after the extent of under-recoveries was established; this forced the oil companies to borrow in order to meet their working capital requirements. The issue of under-recoveries has been challenged in an insightful paper by Dipankar Dasgupta and Tushar Chaterjee. Their primary contention is that oil refineries, being multi product firms in the classical sense, cannot employ a straightforward cost plus mark-up procedure for computing the prices of their final products. Different quantities of petrol, diesel, kerosene, liquefied petroleum gas (LPG), as well as other final products are simultaneously produced from a given volume of crude oil and it is not obvious what the crude input content of each product is. The desired price for petroleum products is computed taking into account import-related

costs, which is unjustified since most of the final products so priced are produced domestically. It is therefore only the imported part of crude oil (64.22% - See Table 1) to which these costs should be added. This factor, therefore, artificially increases the under-recoveries of the OMCs by exaggerating their costs. Given the relative weightage of import vs domestic crude, the average price of a barrel of the Indian mix of crude oil ought to be calculated by attaching a weight of 64.22% to the import price and 35.78% to the domestic price. Dasgupta & Chaterjee also propose a pricing model based on cross-subsidized pricing mechanism for diesel, petrol, kerosene and domestic LPG which would have relieved the central government of its entire subsidy burden of 1,41,802 crore for FY 2011. In addition, a surplus

Table 1: Estimated Crude Oil Domestic Consumption

revenue of 35, 986 crore would be gained from this sector. For this reason, we believe that apart from the issue of OMC under-recoveries being greatly exaggerated due to a faulty costing mechanism, the fiscal deficit issue can be tackled by a suitable cross-subsidization scheme like the one suggested by Dasgupta and Chaterjee. Removing the petroleum subsidy will have a cascading effect on the economy, increasing prices of all essential commodities. It is not at all clear if this drastic

step, which will harm the under-privileged more than any other class, is at all necessary.

The advent of neoliberal economic policies on the world stage was heralded between 1978-80 by three major phenomena- Volckers steep hike in interest rates, a Conservative political wave(Reagan and Thatcher elected to lead the US and Britain) and Chinas turn to market economics under Deng Xiaoping. This ideology was formalized in the Washington Consensus in 1989, the three pillars of which are Liberalization, Privatization and Deregulation. As part of this agenda, the world economic troika IMF/WTO/World Bank has been persuading countries to adopt these policies ever since. Part of the liberalization of trade entails cutting subsidies and lowering tariff barriers. 1. Balance of Trade The policy of reducing trade barriers is not enforced uniformly by WTO. The WTOs rules are framed behind closed doors, with no democratic oversight whatsoever. The Dispute Resolution Body of the WTO is infamous for being notoriously biased, controlled by the West. The US consistently fails to act on its obligations to lower domestic subsidies while the developing world is held to strict account and penalized

are now expected to compete directly(sans meaningful import tariffs) with heavily subsidized EU and US Agri-business corporations. The agricultural package of WTO on domestic support and export subsidies provides for complex classification of support and subsidies for agriculture, some of which are totally exempt from reduction commitments. This classification favours developed countries, particularly EEC, the US, Canada and Japan, which are able to maintain very high level of support for agriculture in the exempt category. A further reduction in agricultural subsidies in India would therefore be disastrous for the Indian Economy, making us uncompetitive in global trade. 2. Domestic Chaos Dr Vandana Shiva has convincingly exploded the myth of the Green Revolution, which increased yields of certain crops at the expense of decreasing overall productivity of farms and increased reliance on High Yielding Varieties of crops and fertilizers, thus destroying the essence of agriculture in India the self-perpetuation of the crop. Farmers are forced to buy seeds from Western corporations for each new sowing, ruining the sustainability of agriculture, not to mention the destruction of soils and the groundwater by excessive use of fertilizers. This has resulted in an explosion of farmer debt, causing farmer suicides to skyrocket (for example in Vidharbha, Maharashtra). By further lowering subsidies to Indian farmers, we risk destroying the little self-reliance they possess and push them further into the clutches of Monsanto and its ilk. The arguments above might seem to indicate that subsidies and liberalization are mutually incompatible. It is however interesting to note that liberalization in Indian Agricultural sector was initially effected through subsidies. The Indian government subsidized the purchase of HYV seeds and fertilizers by farmers, incentivizing the shift from self-renewable agriculture (based on internal inputs) to a dependent form (for which external inputs and therefore credits are

harshly for any failure to lower export subsidies or import tariffs. The Aggregate Measure of Support (AMS) for this sector of Japan and the EU exceeds 30% of GDP from agricultural sector. In the realm of agriculture for example, a global commodities crisis has resulted from the forced reduction of subsidies to farmers in developing nations, who


necessary). It is this sort of pseudo-subsidy, in reality a hand-out to EU/US Agri-business that is running the agricultural sector. The Minimum Support Price regime is the predominant form of subsidy provided to Indian agriculture. It is instructive to examine how this came about. Norman Borlaugs semi-dwarf HYV variety of wheat created an explosion of interest from Agri-Business in the US. The World Bank, along with the Rockerfeller and the Ford Foundations took up the mantle of the evangelists of the new religion of GM crops. The setting up of various centres International Maize and Wheat Improvement Centre (CIMMYT) in Mexico and the International Rice Research Institute (IRRI). The Dean of one such organization - the Indian Agricultural Research Institute, Mr MS Swaminathan, is regarded as the father of Indias Green Revolution for his tireless work in spreading the gospel of GM. His intentions were undoubtedly noble and, in the initial years, the Green Revolution seemed to be progressing quite well. The yields of Rice and Wheat in particular increased exponentially and India became selfsufficient in terms of these food grains by the 1980s. This increase, however, was more due to the shift in area under cultivation from pulses, oilseeds and other crops to rice and wheat. As Ramesh Chand explains, This has created serious imbalances in demand and supply of several agricultural commodities in the country. On one hand, the country is holding more than onefourth of the annual production of rice and wheat in public stock, and on the other every fifth Indian is underfed even by the standard of minimum calorie requirement for a healthy and active life. Similarly, the country has been facing large shortages of pulses and edible oils and has now to meet about one-tenth of demand for pulses and close to half of the demand for edible oil from imports. To address this issue the commission on agricultural costs and prices increased MSP on pulses and oilseeds. However, the tragic fact is that regardless of how high the MSPs on these crops is set, the government has deliberately

shied away from implementing the MSP on any product properly except rice and wheat. Another problem is prices. There was no increase in per capita cereal production between 1990-91 and 2000-01; the increase in stocks resulted entirely from decline in per capita cereal consumption caused by the steep rise in real prices of cereals in this period. Besides these, other problems with the MSP abound with using the cost of production as a basis for MSPs. As noted by Chand, Inefficiency gets built into production and farmers do not have to bother if growing a particular crop on land unsuitable for its cultivation would raise cost of production. Regardless of demand, regardless of yield, farmers blindly began to grow rice and wheat to the exclusion of other crops. Naturally Indias total production of these two food grains multiplied and this was hailed as a miracle. No matter the destruction of soils by shifting from soil-replenishing polycultures to soil-exhausting monocultures, no matter the devastation of soils due to excessive use of fertilizers and the denudation of the water table due to a neglect of

local irrigation as opposed to large canals and dams. Apart from rice and wheat, subsidies also perniciously distort utilization of harvests. In Maharashtra, the government is offering subsidies for liquor production from food grains. As Sachin Tiwale opines, This policy will turn


Jowar into a cash crop and divert huge quantities of food grains to alcohol production, creating scarcity and causing food inflation.(Tiwale 19) The big beneficiaries of this so-called subsidy are the distillery owners, who happen to be owned by the kith and kin of powerful politicians. Based on the fifth report of the National Commission for Farmers, which highlighted some of the aspects of the agrarian crisis gripping India today, the government is taking a variety of measures to counter these trends. These measures, however, seem regressive rather than helpful. The Public Private Partnership initiatives aimed at creating Farmer Producer Companies (FPCs) have been roundly criticized for vesting all the control in the hands of corporations while concentrating all the risks on farmers. It might surprise the reader to know that we still do not advocate a roll-back of agricultural subsidies or an end to the MSP. We argue for a targeted subsidy, which will incentivize farmers to improve their lands with a minimal amount of reliance on external agents but by relying on the materials they have on hand. Other options like in-kind subsidies (like the recent National Food Security Bill) as well as the UID-based Direct Cash Transfer mechanisms might help deliver subsidies in a far more efficient manner. The former extends the Targeted PDS system to nearly two thirds of the Indian population a truly ambitious plan which, even if moderately successful would help mitigate rural malnutrition and starvation as well as increase the utilization of the food grains purchased by the government under the MSP. Critics level the charge of fiscal irresponsibility against the government for proposing so ambitious a scheme. There have been wild speculations about just how expensive this scheme will be with several pundits like Ashok Gulati, the Chairperson of the Commission of Agriculture Costs and Prices (CACP), estimating the cost to be as high as . 6 lakh crores over the next three years. Dipa Sinha points out that Gulati inflates the cost estimate by including the investment in agriculture that will be needed to stabilize production, the investment

that would be needed in storage and the investment that would be needed in transportation through railways. How all these costs can be solely attributed to the National Food Security Ordinance (NFSO) is a mystery. The current food subsidy bill is around . 90,000 crores. Sinha estimates that with an average subsidy of . 20 per kg; the food bill will cost about . 1,24,000 crores, around 1.2% of the GDP, far below the 3% projected by the media. She also points out that the percentage of households accessing food grains from the PDS has gone up from 28% in 2004-05 to 39% in 2009-10 and 44% by 2011-12 despite the expenditure remaining constant at less than 1% of GDP. This is because the efficiency of the PDS has been steadily improving as the leaks in the PDS get plugged. New schemes like the UID will lead to an even greater efficiency for the NFSO. There are several shortcomings in the NFSO as it stands its piece-meal nature, the limited provisions for women and children and the centralization of the scheme being most important among them. However, it is a step in the right direction since it will optimize the existing subsidy provided to the farmers as well as extend the PDS-based subsidy to the consumer. It is only by improving the system of subsidy that exists in our country that we can progress in this liberalized world.

From our analyses of both the petroleum as well as the agricultural sectors, we see that the complete rollback of all subsidies would be disastrous for the economically weaker sections of society. It is unrealistic to expect the present inefficient system to continue without correction. We strongly advocate, therefore, a turn to targeted subsidies focused on cross-subsidized pricing across all four sensitive petroleum products and, in the agricultural sector targeted towards agricultural measures that enhance the long-term sustainability of soils and other agricultural resources.


Chand Ramesh & Philip Linu. Subsidies and Support in Agriculture Economic and Political Weekly August 11, 2001. Dasgupta Dipankar & Chaterjee Tushar. Petroleum Pricing Policy A Viable Alternative Economic & Political Weekly. Vol xlvii no 46. International Energy Agency . Petroleum Prices, Taxation And Subsidies In India. June 2009. Khor Martin. The Commodities Crisis and the Global Trade in Agriculture. Third World Network Peet Richard -Unholy Trinity The IMF,World Bank and WTO. Zed Books Shiva Vandana. The Violence of the Green Revolution. Third World Network. Singh Sukhpal. New Markets for Smallholders in India. Economic and Political Weekly . Vol - XLVII No. 52, December 29, 2012

Sinha Deepa. National Food Security Ordinance: Anything But Expensive. Economic and Political Weekly. Vol - XLVIII No. 30, July 27, 2013 Tiwale Sachin. Foodgrain vs Liquor: Maharashtra under Crisis Economic and Political Weekly. May 29, 2010 vol xlv no 22 OilPrice.asp ntents.htm


Role of Indias Demographic Dividend in Sustaining Indias Growth

Neha Srivastava Kiran Banshiwal Priyalata Patra Pallavi Bhandari

emographic change in India is opening up new economic opportunities. As in many countries, declining infant and child mortality helped to spark lower fertility, effectively resulting in a temporary baby boom. As this cohort moves into working ages, India finds itself with a potentially higher share of workers as compared with dependents. If working-age people can be productively employed, Indias economic growth stands to accelerate. Theoretical and empirical literature on the effect of demographics on labour supply, savings, and economic growth underpins this effort to understand and forecast economic growth in India. Policy choices can potentiate Indias realization of economic benefits stemming from demographic change. Failure to take advantage of the opportunities inherent in demographic change can lead to economic stagnation.

large demographic dividend several questions arise as to whether India will be able to utilise this asset or not and the only way of answering this question positively is if this population is skilled, educated and finds productive employment. Without proper skill building this potential working population instead of being economically productive will be an economic burden on the nation. So far the governments attempts at skill building havent been as fruitful as expected. For example the NREGA One of the ways of enhancing skills and harnessing the potential of this population is through education.

Census 2011
Based on the census data we can see that although the literacy rate has gone up over the years from 64.8 % in 2001 to 74 % in 2011 there

(Source: United Nations, 2009)

According to the Census 2011, the Indian population stands at 1.2 billion with people in the age group of 15-59 years as 729 million which is roughly 60% of the whole population. With such a

still exists a lot of scope for improvement especially in certain states like Bihar where the factor is as low as 63 %.


Unless the government acts up to provide better education facilities and not just primary education but all improved quality higher education that makes the youth employable the potential working population cannot be turned to a capable working population. For implementing these education facilities apart from the infrastructure one major concern is teachers. The teacher-pupil ratio in India is 38 which compared to other countries like US with 13.8, China with 17.7 is very high. (Indian data from, report by WHO published in 2012 for US China data) This factor becomes worse when we move on to institutes of higher education where there is an acute shortage of good teachers. With an increasing population to support in terms of education the government needs to address this situation by coming up with innovative solutions like e-learning which will help in reaching the students in even the remotest part of the country providing quality education. Another issue that needs to be addressed is that of job creation. With an economic slowdown in the recent years and an increase in the number of potential working individuals there has been an increase in the percentage of unemployment. This will further reduce the benefit India has in terms of its economically productive youth as compared to China because the state cannot provide enough jobs for this population. A means to tackle this problem is through grater investment in infrastructure and energy which being labour intensive would absorb the large proportion of unskilled and unemployed labour. Also, use of technology to build innovative methods to increase the productivity in agriculture which can reduce the migrant labour force which leads to unemployment. Apart from this investment in strong logistics and storage infrastructure will help in reducing wastage of agriculture produce. This will encourage individuals to work in agriculture as it will be more profitable and avoid working in unorganised sector.

There are currently 40 million people employed in the unorganised sector. Those who work in the unemployed sector typically have few skills and consequently, get very poorly paid. Most of them hail from relatively poor states like Uttar Pradesh, Bihar and Rajasthan. Only when proper infrastructure is laid within the country will it lead to job creation and in turn employ skilled and unskilled labour force.


Also, when it comes to education it is not just the primary education which is sufficient but higher education which is important for making an individual employable in high-end services such as information technology, software development and finance N Chandrashekharan, chairman and managing director of Tata Consultancy Services, and RS Pawar, chairman of NIIT, a technology education service provider, noted that 400,000 teachers would be required in the coming decade to train the next generation. Since the government cannot create better working opportunities for teachers and awareness in terms of value of this profession there may not be a great scope of increase in the number of good teachers or educationists. The only innovative method or solution to this crisis would be e-learning which would actually enable better learning opportunities for children in the remotest location of the country. The growth in telecom and broadband internet will help in achieving this target. Clearly, the fact that India will soon be home to one of the worlds youngest


populations in future can become a tremendous asset, but only if our policy makers start planning for it today. Another argument that jobs can be created largely by skilling people, and sufficient capital will flow, is presumptive. Even if capital were to flow, the absorptive capacity within a time frame is

not have any more head room to be a bigger GDP contributor. Hence, it has limited scope to contribute a good share of job opportunities. The idea of skilling people will not take off because enrolment for skilling will not happen without a line of sight for jobs. The development of rail road, aerospace, health care, telecom and

challenging. The jobs-to-GDP ratio is about 50 % for the service sector, and about 70 % for nonservice industries. As such, the service industry is over represented in its share of the GDP, and does

infrastructure industries, globally, was initiated with non-formal skilled labour. The industrial revolution and the IT revolution was birthed by gifted inventors invested into by enterprising

Figure 2: Demographic Profile (2010) Reference: sehold-research/page/2/

Figure 2:Demographic Profile (2050)


capitalists and set into motion by hordes of nonformal labour. According to the given figures, Younger people, of course, tend to be more geographically mobile, flexible in terms of occupation and creative. But these advantages only translate into greater productivity and economic growth if these workers have the right education and training as well as job opportunities. While many formal studies have been prepared to assess the growth and employment potential in India' formal private sector, less attention has been given to the conditions and strategies to promote rapid expansion and job creation in the rural and informal sectors. There is enormous scope for raising the productivity of Indian agriculture, doubling crop yields and farm incomes, and generating significant growth in demand for farm labour. Rising rural incomes consequent to higher productivity will unleash a multiplier effect, increasing demand for farm and non-farm products and services, thereby stimulating rapid growth of employment opportunities in other sectors. India labour force suffers from a severe shortage of employable skills at all levels so the intensive development of vocational skills will act as a powerful stimulus for employment and selfemployment generation. In addition to Farm Schools to impart advanced skills in production agriculture, government can contribute in establishing a network of government-certified, rural vocational institutes providing training and certification in hundreds of vocational skills not covered by the ITIs. In order to offset the shortage of qualified trainers and the costs of replicating institutions throughout the country, they can focus on creation of a national network of 'Job Shops' linked to the Rural Information Centres and offering televised multimedia training programmes and computerized vocational training programmes. So, these educational institutions must be created keeping in mind the

kinds of skills that are required on job and what will enhance an individuals productivity. Although government has taken action in this direction and included in the eleventh five year plan the creation of a comprehensive National Skill Development Mission and as a result a Coordinated action on Skill Development with three- tier institutional structure was created in early 2008 with a vision to create 500 million skilled people by 2022 through skill systems. But what needs to be observed is whether the government is successful in its endeavor and achieves this target. Only then will Indias Demographic dividend be an asset instead of a liability.

Problems faced and how to tackle them

During the course of the demographic dividend there are four mechanisms through which the benefits are delivered. The first is the increased labour supply. The second mechanism is the increase in savings. The third mechanism is human capital. Decreased fertility rates results in healthier women and fewer economic pressures at home, leading to better health and educational facility per child. The fourth mechanism for growth is the increasing domestic demand brought about by the increasing GDP per capita and the decreasing dependency ratio.

1. Productive jobs are vital for growth. More than half our population depends on agriculture, so the number of people dependent on agriculture will have to shrink if per capita incomes in agriculture are to go up substantially. While industry is



creating jobs, but many such jobs are of low productivity offering low incomes with little protection, and no benefits. So India's challenge is to create the conditions for faster growth of productive jobs apart from agriculture, especially in organized manufacturing and in services sector, even while improving productivity in agriculture. 2. Urbanization and health India, like other countries in the world is becoming more urbanized: the fraction of people living in urban areas grew from 18% in 1960 to 30% in 2008 (World Bank 2010). During this period, it has been confronting a surge in chronic diseases accounting for 53% of all deaths in India in 2005 There are huge other benefits also that may promote economic growth. In general work opportunities are plentiful, fertility rates are lower so more women enter the labour force, industries can capture the benefits of economies

higher income concentrating more on health care. India has taken a significant step in this direction by establishing the Public Health Foundation of India and the National Rural Health Mission, which intend to fill Indias need for a wide range of further investments in the promotion and protection of health, including the training and wide deployment of medical and public health professionals who focus on prevention and care. Indias second great demographic opportunity involves the acceleration of fertility decline. In general, there are three main approaches of promoting this. 3.1 The expansion of family planning services. Currently, approximately 13% of Indian women (10% in urban areas and nearly 15% in rural areas) report unmet need for contraception, meaning that many currently married women who desire to postpone childbearing are not using contraception. Satisfying this unmet need for contraception

of scale, enterprises can readily learn from each other, and transportation of people and goods is easier than in rural areas. Even in healthcare, greater availability of healthcare, combined with lower fertility rates. Over all increased urbanization may offer some advantages that can help propel economic growth. 3. Capturing Indias economic potential India has several areas to improve the first being to make wider and deeper investments in health. India has considerable potential to promote

will help achieving the goal of bringing down TFR from its current level of 2.7 to 2.1. 3.2 Lowering fertility can be achieved promoting infant and child survival. Vaccines against childhood disease are one way to realize an improvement in child survival. This approach will include wide coverage of established and inexpensive vaccinations thereby addressing several leading causes of child death in India. It will make vaccinated children more productive through better attendance in school and therefore well


educated, higher-earning adults. India is taking initiatives to increase vaccination coverage; its coverage rates are currently well below world averages. DTP3 vaccination coverage rate for India was 66% in 2008, nearly 20 percentage points lower than for the rest of the world (WHO 2010). 3.3 Girls education can serve both development and promoting fertility decline. Educated mothers tend to have fewer children it also empowers women to express their views on lifestyle and fertility decisions. Having fewer children allows families to invest more in the health. And being educated they are also able to contribute to nations progress.

sustainable growth in the country. On one hand it would provide more number of jobs so that employment levels rise and thereby increasing the productivity per person. While on the other hand, it leads to generation of resources for the country and thereby leading to more growth. Large companies have been steadily losing jobs while most of the job opportunities are being provided by start-ups. Similarly more and more educational innovations, better opportunities to students and wide availability of choices in subjects also help in developing this culture. A survey was undertaken in IIM Indore, wherein it was found out that almost 30% of the students think that they have decided to become an entrepreneur during their course of MBA study while amongst the pass outs, it was found almost 19% students, decided to go for entrepreneurship after the completion of course. This conversion ratio needs to be increased further, if we aim to achieve growth sustainably. India needs to leverage the diversity of its population, the growing number of skilled manpower and good geographical reach in order to develop sustainably. In the course of development it also needs to focus on proper allocation of resources, develop means of energy that is sustainable, reduce environmental impact of various industrial activities and promote better infrastructural facilities for investments to grow within the country and also attract more of them in future.

Seizing the demographic dividend:

Questions we need to address IS LARGE YOUTH POPULATION A BOON FOR INDIAS SUSTAINABLE GROWTH? No doubt large youth populations have led to an increase in productivity but in terms of economic benefit distribution, smooth running of policies and schemes and better job availabilities, India needs to focus on reducing the birth rates along with death rates. There are certain measures we need to take so that population is within control and we can seize our demographic dividend equitably.

Prevent the demographic dividend form turning into a curse

India has developed a lot as far as the entrepreneurial culture is concerned and this is one of the most novel ways of creating


Keeping it smart and simple

Navigating Chaos through Focus and Simplification
Aditi Khanna

As uncertainty becomes a norm rather than exception, firms need to keep it simple and focus their core competency now more than ever.

hen Ratan Tata took over the reigns of the Tata group from the charismatic JRD Tata, the conglomerate was seen to be suffering from unstructured growth that gave the group a bagful of businesses. From trucks, steel and cement to drugs, lipsticks and computers, the Tatas make them all. For instance, the group has three companies making cement giant ACC. Tata Chemicals and Tisco..two pharmaceuticals companies Merind and Tata Pharma - while three other group companies, Rallis, Voltas and Lakme, have their own pharmaceuticals divisions .This also happened to be a time of unprecedented turmoil in the Indian economy, which was going through its first major economic crisis since independence. This meant sweeping changes in the policy climate, notably the implementation of the LPG policies- that exposed Indian industries to foreign competition and dismantling of the infamous web of the License raj. Amid this situation, Ratan Tata prioritized restructuring of the conglomerate, to retain only the top performers and get rid of the rest. At Tatas, we believe that if we are not among the top three in an industry, we should look seriously at what it would take to become one of the top three players.. or think about exiting the industry. The result was the sale of Tata Oil Mills, Lakme and Merind brands, streamlined operations of Voltas, sold stake in Idea cellular and exit from the cement business over the next decade, while the

group continued to consolidate and significantly expand in chosen areas. The fruits are there for all to see. The lesson derived is highly applicable in todays economic climate. At a time when uncertainty of business climate has become the norm rather than an exception and the horizon for planning forward has been radically reduced, more and more firms are realizing the virtues of making larger bets on a more focused group of products and services. Eliminating complexities as far as possible from both offerings and processes makes sense in such a scenario as complexities in terms of the breadth of spectrum add to costs in more ways than one, and take away economies that could have been realized from scale, while not necessarily adding to profits, as only some customer segments tend to be profitably as a rule. Bain and Co. in a June 2013 survey outlines two kinds of complexities that have arisen in the consumer goods companies: above-the-skin and below-the-skin. Above-the-skin complexity is the proliferation of brands, products and SKUs thats apparent to shoppers on the store shelf. Belowthe-skin complexity is the abundance of product features and specificationsvariations and nuances in recipes, ingredients, packaging materials and the likethat are not necessarily discernible to shoppers. In a bid to serve as many customer segments as possible during the benign economic climate of the early 2000s, firms tended to have beefed up their product portfolios and incurred a high mass of both kinds of


complexities. While their costs tended to be camouflaged back then, they are now more glowering than ever. Points out Sanjay Khosla, President of Krafts Developing Markets Business, who was responsible for the sharp turnaround of the segment from an anemic one to a robust contributor to growth, To improve the quality of growth, business leaders need to cut back on marginal products, brands, and markets so that they have a better chance of winning in their areas of strength..Focus is a powerful engine for growthdoing a few things and doing them well. Seemingly mature businesses can be reenergized by making fewer but larger bets, and by focusing relentlessly on executing a simple but powerful vision. And this strategy seems to have worked. Today, Developing Markets is a $13.6 billion business for Kraft foods. Revenues from organic growth have increased nearly 13 percent and operating income grew an average of more than 34 percent per year from 2006 through 2010. The key lay in slicing off the marginal and focusing on the core brands for the company.

Focus as a strategy is applicable across domains and verticals. It could pertain to corporate strategy deciding which businesses to retain or exit from; to the business unit level deciding what core offerings and product lines to pursue; at the product line level what variations to keep and which ones to withdraw; and also at the endcustomer marketing level the positioning of the product and its tailoring relevant to socio-cultural and geographical context. It aims to cut all the flab from the enterprise and keep just the cruxthe most profitable ventures under any category intact, so it receives maximum attention of and resources from the enterprise. Perhaps the most vocal advocate of the strategy of keeping things simple and focused was the maverick Steve Jobs: That's been one of my mantras - focus and simplicity. Simple can be harder than complex: You have to work hard to get your thinking clean to make it simple. But it's worth it in the end because once you get there, you can move mountains.


Made in India-Ipad: Turning a dream into reality

Adit Suneja Medha Shanbhag

emiconductors are the building blocks of almost all electronic equipment today and have revolutionized the world of electronics. Semiconductors are used in the form of Integrated Circuit (IC) which is a set of electronic circuits on one small plate of semiconductor material, normally silicon. Due to the rapid technology advancement, ICs can be made very compact with several billion transistors in an area the size of a fingernail.

dominate this segment through their economies of scale. Foundries are marked by established capacities for manufacturing a wide variety of chips in huge quantities. A rapid change in technology is as much a blessing as it is a curse. Though demand tends to remain high due to faster obsolescence of existing devices, it spells doom for the capital intensive chip fabrication segment of the industry. Typically, the economic challenges faced by the semiconductor industry on the whole can be attributed to the confluence of two factors. The first is the cyclicality of the industry. In the backdrop of rising costs of R&D, it is characterized by- a 1-2 year upturn marked by high growth followed by longer periods of downturn. Secondly, high costs associated with building, upgrading and maintaining the fabrication plants require high commitment of financial resources. As new designs and process technologies become increasingly expensive to develop, semiconductor companies are resorting to a Fab Lite strategy outsourcing an increasingly large fraction of their chip production to the dedicated chip manufacturers and the foundries. This has led to a surge in the demand for the chip fabrication companies.

The Bigger Picture: Global Semiconductor Industry

The tremendous growth witnessed by the electronics industry in the last four decades could be attributed to one singular factor-the increasing power and decreasing cost of semiconductors. True to Moores law, the semiconductor and chip fabrication industry has made rapid advancements improving on size year on year. The industry has a wide ecosystem but the global semiconductor industry can be classified into three broad categories: The Fully-Integrated Firms: Companies like Intel, IBM, Toshiba and Samsung populate the apex of the revenue and profit pyramid. They design as well as manufacture the chips that form the core of the devices made by these firms. This enables them to exercise a tighter control on quality while guarding against commoditization of their chips by rivals. The outcome is high returns on the investments made. The Fabless Designers: Companies like Qualcomm, Nvidia and Braodcomm differentiate themselves solely on the basis of their designing capability. Chips once designed are then outsourced to specialized chip makers. The Foundries: Companies like Taiwan Semiconductor Manufacturing Company, the biggest independent foundry, and GlobalFoundries are some examples which

Parts of a Whole: The Indian Context

India is a global leader in software and related services. It also has significant presence in electronic manufacturing, assembly and testing industry. In terms of the semiconductor chips that form the heart of these electronic devices, India has expertise in some critical links of the value chain. With more than 20,000 engineers working on chip design and verification, India churns out over 2,000 chip designs every year generating about $2 bn from chip design alone. With these impressive statistics, India has the potential to become the powerhouse of the semiconductor


industry. Then why has India not put itself on the global map yet? Chip fabrication plants are not that easy to set up. They are heavy on the capital investment side of the ledger and rapid advances in technology render equipment redundant and obsolete quite soon. An advanced fab plant manufacturing chips for cell phones can entail an initial investment of $5 bn while that it can cost up to $1bn for a less advanced fab unit making chips for automobile and radio devices! The ballpark figure for the cost of equipment itself in the plant is about 55% of the total capital employed. Also, significant funds need to be put in as the plant matures and the clientele diversifies. A fabrication plant also puts tremendous pressure on the natural resources of the country. Semiconductors are built in layers on silicon wafers to build an integrated circuit. After each layer of semiconductor is added, it must be rinsed with Ultra Pure Water (UPW), water that is thousand times purer than drinking water. Creating an IC on a 30 cm wafer would require

megawatts of peak electrical capacity which is enough to power a small city!

Changing the Dynamics

Indias ever-increasing trade deficit was a glaring $191 billion as of 31st March, 13. Out of the total $491.48 bn of imports, the non-oil imports stood at $322.23 bn constituting 66% of the total imports. The current import bill for semiconductors is around $7 bn and is increasing at a rate of 22%. It is estimated to reach around $45-70 billion by 2020. This dependence on chip imports manifests itself in more than one way. For the nine months ending April 2013, India recorded imports of electronic goods worth $26 bn approximately from countries like China and Taiwan indicating a substantial supply chain risk. A chip fabrication plant also promises to create over 1.2 million jobs in addition to the economic concerns it is expected to address. These potential benefits have called for the Government of India to take a closer look at the prospects of building a robust chip manufacturing

approximately 2,200 gallons of water. Thus a large fab plant producing, say, 20,000 wafers a month will consume a staggering 2.4 million gallons of water per day! Also it is an extremely energy intensive industry given that it uses about 30-50

industry in India. With this view it has offered a subsidy of 20% on capital expenditure incurred to companies setting up production units within Special Economic Zones and 25% to units set up outside these zones. The Department of Electronics and Information Technology (DeitY)

has also selected Accenture to review investment proposals from companies. The government will also provide viability-gap fundinga financial grant to make the project commercially viablein the form of an interest free loan for 10 years. The government, which will get 11% equity in the proposed projects, requires the technology providers to take at least 10% equity. The projects will be entitled to deduction for expenditure on research and development under the Income Tax Act. In addition, fab facilities will also be eligible for investment-linked deduction under Section 35AD of the Income Tax Act.

manufacturers have already established their facilities globally. Also, companies like Freescale Semiconductor India do not want to act on the proposal since they established chip designers in India that manufacture the same from their facilities based abroad. There is overcapacity in the existing global facilities and hence, players are not keen on investing in India as a new manufacturing destination. Even the new incentives being offered by the Government of India (GoI) do not seem to be enough when compared with those offered by the Chinese and the Taiwanese. The worlds largest foundry in this industry, Taiwan Semiconductor Manufacturing Company (TSMC), has been riding high on government funds since 1987. Due to such concerted efforts, China and Taiwan are two decades ahead of India in this race. Given this late entrant dilemma, the GoI needs to not just provide the initial impetus in the form of capital expenditure subsidy but also take care of the high operating cost of such a plant. It is imperative for the GoI to provide an ecosystem whereby the companies do not have to worry about essential inputs like sufficient water, uninterrupted power supply and well-developed infrastructure. It is a step in the right direction but the government needs to hasten to bridge the appalling gap in the area.

Whos heard the Call?

The Union Cabinet, in the 2nd week of September, announced an in-principle approval for two international consortiums to establish Indias first semiconductor fabrication plants. One of the consortiums is made of Jaiprakashs Associates (JayPee) and Israels Tower Jazz with IBM as the technology partner. It has proposed a plant near New Delhi at a cost of . 263 bn. The second comprises Hindustan Semiconductor Manufacturing Corporation (HSMC) and Malaysias Silterra with STMicroelectronics as its technology partner. It has proposed an investment to the tune . 252.5 billion for a plant in Gujarat.

Is it Enough?
It has been asserted by one of the top chip makers that most of the leading chip


North- East India: The New Frontier for Supply Chain Management
Chitresh Kumar Northeast India, till date remains a bottleneck for most of the organizations in terms of supply chain management. The difficult terrain, lack of proper rail-based and road based infrastructure, in addition the social conflicts makes it an issue which, most of the times is not discussed within the boardrooms. The result invariably remains an untapped market, with somewhat unknown, unexplored potential in terms of developing manufacturing bases or warehouses and managing the supply chain efficiently in the region. However, it seems that the scenario is going to change in the coming years, with both Indian Railways (IR) and National Highway Authority of India (NHAI) working towards developing networks, integrating all the states. Since, this integration would not be only at an interstate level but based on the planning of Asian Development Bank and ESCAP (Economic and Social Commission for Asia and the Pacific) the future integration is going to connect all the East Asian and South-East Asian Countries through a unified cross border network of roads and rails. The projects named Asian Highway Project and the Asian Rail Network will further elevate the importance of Northeast India in the region. As of now, the road-based Asian Highway Project seems the one to be completed in the near future, as issues of tough terrain, high costs, rail gauge and technology integration mar the timely rail network development. The following sections of the article will discuss the technical details of these two network development projects and the concluding section would discuss their implication on planning and development of an effective supply chain by different organization so as to tap the benefits of these projects in the best possible manner.

Asian Highway (AH) Network Development Project

ESCAP, the regional development arm of the United Nations has undertaken the task of integrating all the Asian countries through Trans Asian road network through The Asian Highway Project. Conceptualized way back in 1959, The Intergovernmental Agreement was finally proposed in November 2003 and was adopted by 32 countries in 2005. The aim is to develop some 141, 000 Kilometers of roads integrating these 32 nations spread in Asia and Europe ( Once connected the highway would allow seamless movement of goods across the border in a faster manner, improving trade opportunities between these countries and economic conditions of the region. The long-term vision of the highway project can be touted as providing a barrier free movement of goods and work force. This would have major impact in the sub-regions within the countries from where these highways are proposed to cross through. Further it could be stated that the ultimate vision would be to create a continent in the lines of Europe, where cross-border labour, capital and consumer markets can be exploited in an optimal manner. The Indian part of the project consists of 11,650 kms. of which 11,624 km is national highway and rest are stage highways. Approximately 4,000 kms. of this is class I road which means access controlled, 6-8 lane divided carriageway adhering to international safety regulations (Mostly parts of Golden Quadrilateral Project). However, according to Ministry of Transport and Shipping most of the Indian roads adhere to the minimum standard prescribed by AH 1. The roads that will

Development and Upgradation of Asian Highways Network in India, Investment Needs And Status On Road Safety, Presentation given by Shri S.B. Basu, Ministry of Shipping, Road Transport & Highways, Government of India


cross India of the network are AH -1, 2, 42, 43, 45, 46 and 47. These networks will connect, Pakistan (AH -1), Bangladesh (AH 1 and 2, at three points and from two states West Bengal - 2 Entry and exit points, Assam One entry-exit point), Nepal (AH-1 and 42), Sri Lanka (AH 43 and 46), Bhutan (AH 48) and Myanmar (AH 1 and 2) (see Fig. 1). Fig. 1 Asian Highway Network India

(Fig. 2) reducing the travel time as well as cost significantly. The way forward for the future would be cross border connectivity towards Bangladesh and South-east Asian Countries from Myanmar upto Malaysia as part of Asian Railways. Fig. 2 Development of Rail Infrastructure in North East India


Source: Master Plan for the Development of Rail Infrastructure in the North East Region (2010)

The overall cost of the project is proposed at 26 Billion Dollars out of which as of now only 18 Billion Dollars have been committed. However, considering that the Indian network is part of National Highway Development Programme (NHDP) and development of roads in Northeast India is being taken separately as NHDP IIIA and IIIB programmes, there is an overall surplus of funds, which is a good news (approximately 2 Billion Dollars).

Implications for Firm Level Supply Chain Management

Analysis done by Parpiev and Sodikov (2008) 3 suggests that a 20 percent increase in intra-region trade would result towards increase of 48.7 Billion Dollars and a 35% increase would result towards 89.5 Billion Dollars annually. However, a very small part (Less than 15%) of this trade would have Indian share (See figure 3). The major reason behind such a phenomenon would be amount of trade between India-China, India Bangladesh and India Myanmar remains miniscule in nature as compared to trade between East Asian countries or North Asia and East Europe, China and Russia. This would result towards an underutilized network as far as international trade is concerned in the Indian Sub-region. This excess capacity can be utilized for the intra-sub region trade in the Northeast. However, this is not going to be one of the major advantages to be exploited by various organisations.

North East Rail Infrastructure Development Project

The project Intends towards integration of all northeast states through railways (broad gauge and medium gauge) at an expected total cost of . 17,000 crores and would develop 2452 kms. of track, half of which would be broad gauge and half medium gauge. According to the Ministry of Railways, the total spend on the same till 2010 has been around . 5684 crores and approximately 1,800 kms. of tracks have already been laid2. Once completed all the seven state capitals would be accessed through the network
2 Master Plan for the Development of Rail Infrastructure in the North East Region, Presented on 7.7.2010, Ministry of Railways, Government of India

Parpiev Z. and Sodikov J., (2008), The Effect of Road Upgrading to Overland Trade in Asian Highway Network, Eurasian Journal of Business and Economics Vol. 1, Issue 2, pp. 85-101


Figure 3: Intra-region Trade Asian Highway Network

access to northeast (Assam and Tripura) via Bangladesh from south West Bengal would allow better exploitation of Indian East Coast Ports like Haldia (West Bengal) and Paradeep (Orrisa). However, in order to exploit the benefits of these road and rail based network, the firms need to study the phase wise development of these networks, the reduction in transportation cost and lead-times and potential of market development. All of these needs to be planned in the coming years to exploit the first movers advantage as most of the development projects are planned for completion by 2020. Considering that next policy initiative post network development would be barrier free movement of goods and labour, the supply chain needs to be designed in such a way so that the inbound and outbound logistics as well as development of new manufacturing and warehousing hub can exploit the benefits of forecasted rise in international trade within the East and Southeast Asia Region. However, most of these mega efforts would need additional efforts by the local state level governments, by planning and developing facilities like dry ports and truck terminals along the network. A comprehensive approach by the Warehousing Corporation of India, with cooperation from FICCI, NAHI and IR will help towards a road map where finally northeast can become the long awaited hub it is supposed to be of the long lost silk route.

Source: Parpiev and Sodikov, (2008)

Once developed, the two networks together would provide a unique opportunity of developing low cost supply chain in the northeast region. The access to Assam and Northeast India from East India, through Bangladesh (AH -2, See fig. 1) would significantly reduce the lead-time. This means further easy access to raw materials from the mineral belts of east and southeast India from states like Orissa, Jharkhand, Chhattisgarh and Andhra Pradesh. For the manufacturing base in the Northeast India and the international inbound and outbound (import and export) supply chain management, this would open an altogether new avenue through utilization of Chittagong port of Bangladesh, rather than coming all the way to India. Additionally, the opening up of AH and


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