दृष्टिकोण – Indra's Viewpoint

Agriculture contributes slightly more than 20% of India’s GDP but supports nearly 75% of its population.

Cumulative wastage in the agriculture related supply chain is estimated to be about $11 billion, or 9.8% of agriculture component of GDP.

India’s milk production has jumped more than five-fold from 17 million tonnes in 1950-51 to over 90 million tonnes in 2004-05. Over the same period, the production of eggs has skyrocketed from 1.8 billion to 45.2 billion and fish production from 752,000 tonnes to 6.3 million tonnes.

India that in 1966 imported about a sixth of its total requirement of cereals became a net exporter of grain. Unfortunately, for the first time after many years, India is importing wheat. Oilseeds production too has increased, from around 5 million tonnes in 1950-51 to over 25 million tonnes today.

The net availability of food grains that had risen from 394.9 grams per capita per day (gpcd) in 1951 to 510.1 gpcd in 1991 has since fallen to closer to 435 gpcd. In pulses, today’s availability levels are barely half what they were in 1951, having plummeted from 60.7 gpcd to 29.1 gpcd.

Availability of edible oils has grown sharply particularly since the beginning of 1980s (3.8 Kg/annum in 1980-81 to 8.2 Kg/annum in 2000-01) , but per capita cereal availability has declined from the beginning of 1990s (171 kg/annum in 1991 to 141 kg/annum in 2001) and the availability of pulses today is 10.9 Kg/annum less than half what it was at the time of independence (25.2 kg/annum in 1961).

India’s average yield in paddy is about 3,000 kg per hectare, when China’s is 6,350. In wheat, Indian yields are around 2,750 kg/hectare, when China does over 3,800. Even in cane, where India is the world’s largest producer, Chinese yields are about 10% higher than India’s. Production and yields for most important crops including rice and wheat have plateaued since the beginning of the 1990s.

Only about a quarter of the country’s agricultural land is irrigated even six decades after Independence.

Agricultural labourers even today form a larger part of the country’s population than they did in 1951. In that year, three-fourths of those who lived off farming were cultivators and the remaining one-fourth (who made up 7.5% of the total population) were labourers. Today, almost half of these people who earn their livelihood from agriculture (10.4% of the total population) are labourers, not farmers. The proportion of farmers in India’s population has fallen to 12.4% in 2001 as against 19.4% in 1951, but that of farm labourers has increased from 7.6% in 1951 too 10.4%- a significant rise.

Annual growth in Indian agriculture has plummeted to 0.9% over 2002-04. Agricultural profitability has fallen by 14.2% since 1991-the decade of economic reforms. The last seven years of the 19909s India have registered a dismal 0.67% per annum growth of rural employment, the lowest since 1947. Spiraling input costs have made 43.42 million Indian farmers in debt. Only 10% of all farmers are having access to crop insurance.

Public outlay on agriculture research stagnates at around 0.5 of the agricultural GDP. Even the states like Punjab and Haryana today register retarding productivity.

Global warming has reduced the span of winters, leading to early maturing of wheat- every one-degree rise in temperature above normal levels during the second half of December leads to a yield loss of about 315 kg per hectare.

Wheat constitutes around 35% of domestic consumption. The production profile of the cereals consists of: Rice about 91 tonnes, Wheat about 70 tonnes, Pulses about 13 tonnes, and Coarse cereals about 35 tonnes.

India will import a record six million tonnes of wheat at a price nothing less than $260-270 per tonne. MS Swaminathan calls it “wake up call.” A few years ago, India was exporting wheat, but the realization then was no more than around $90 per tonne.

The more visible result of the crisis of agriculture is the spate of farmer suicides in several states like Andhra Pradesh, Punjab, Maharashtra and Karnataka – not one of which is a BIMARU state.

Fortunately with certain affluence, the consumption pattern has changed, and small farmers are responding to the necessity of high-value farming. Thirty years ago, the average rural Indian consumed approximately 15 kg of cereals each month. Today, this figure has slipped below 13 kg. At the same time, Indian consumers – even the very poorest – have increasingly turned their attention to high-value foods. Between 1970 and 2003, the poorest 30% of India’s rural population accounted for the country’s highest growth rate in milk and milk product consumption. Per capita consumption of vegetables during this period tripled in rural areas and nearly doubled in urban ones. Overall, consumption of high-value foods grew at almost 1% per year over the past three decades. By 2020, India’s monthly expenditure on milk, meat, eggs and fish is projected to double, and to more than double for fruits and vegetables.

Solutions are known, but India is to be serious to take all the actions before it is too late to prevent a disaster because of the failure of the agriculture sector. I add only one item required to improve agriculture. Remove or regulate intermediary traders who pay less to farmers, who charge more for all the inputs such as insecticides, and seeds, and that too fake and poor quality.

I wish IITians come out in big and generous way to Prafulla’s assistance and he gets back to a normal living soon.

A good Reading: Kaizen must be a way of life

Here are two references about the importance of compassion that we must try to practise with all including the animals.

Last week the Dalai Lama said, “I knew a Tibetan monk for a long time. He was taken away to a Chinese gulag and kept there for 18 years. When he was released he fled to India, along with other Tibetans, for refuge”.

He continued calmly, “I met him and asked him about his experiences in prison”. The monk replied, “At times I was in great danger”.

“What kind of danger?” asked the Dalai Lama. “I was in danger of losing my compassion towards my Chinese captors”, he replied.

How do you deal with an ‘enemy’, someone who actually has inflicted pain upon you, asked someone. “Your enemy”, replied the Dalai Lama to all listening, “becomes an object for you to practise compassion. It is easy to practise compassion on those you love, but the enemy becomes an object for you to further your practice”.

Compassion is not something that’s meant to be shown only to humans; we need to be sensitive towards other living beings too.

Swami Vivekananda would say: “Always cultivate the heart, for through the heart the Lord speaketh, but through the intellect you yourself speak”.

In Belur Math, Kolkata, the Swami lived with his dog Bagha, goat Hansi, an antelope, a stork, several cows, sheep, ducks, geese and a kid called Matru with whom the Swami played like a little child.

Ramakrishna Paramhansa was fond of a dog in the Dakshineshwar temple garden. He called the dog Captain and he often sat on the front terrace of Mother Kali’s temple.

Captain was devoted to Ramakrishna who would remark: “Captain has been born as a dog as the result of his karma. He had some good samskaras (tendencies) in his previous life, so he is here. He is a blessed soul”.

As reported, besides higher level of confidence in overall economy, Indian business owners are most optimistic globally about growth of their business turnover. This is according to an International Business Report (IBR) survey published last week by Grant Thornton International.

For the past two years, growth in manufacturing sector production was 9.1%.
The Index of Industrial Production (IIP) figures released by the government last week show that growth was primarily driven by manufacturing, which soared 15.7% in November. This is a great news.

According to the central bank, exports of India’s manufactured engineering goods grew at an average annual rate of 33.8% during the most recent three years and 40% of these exports were manufactured by small- and medium- size enterprises.

Though manufacturing forms only 17% of India’s GDP, it contributes 75% to exports, and accounts for over 50% of FDI, while employing 11% of the workforce, generates $450 billion worth of output.

India needs to create 8 Million jobs every year incrementally to sustain even current rate of unemployment. Manufacturing only is the right cure for the teeming millions of Indian unemployed youths going to join the workforce. Manufacturing is a force-multiplier, as every rupee of investment increases GDP by Rs 4.

Indian manufacturing must grow at 12-14% if India is to maintain an 8-9% per annum GDP growth rate over the next decade. And the growth rate of 12% in manufacturing can create about 1.6-2.9 million direct jobs annually in addition to two-to-three times this number of new jobs indirectly.

As per one estimate, poor infrastructure adds 3-6% to the Indian manufacturer’s cost of doing business even as there is a gain of 4-5% on account of better engineering skills and R&D of the country.

According to McKinsey, it is possible for Fortune 500 company to manufacture products in India at about 70% of the cost of a similar product in the US. Tata Motors’ ‘Indica’ costs about 40% less than what a comparable car developed in the West would have cost.

According to McKinsey estimates, half of all global offshoring by US companies already involves skill-intensive sectors. By 2015, the figure may go up to 70%. India can emerge as one of the three largest exporters among Low Cost Countries with skill-intensive manufacturing exports of $250-300 billion and can create an additional 25-30 million jobs.

But India is to compete with China. As per an automotive industry estimate (three years ago), the cost differential between India and China was 22-24%. Nearly two-thirds of this was because of interest rates and the cascading impact of taxation, while the balance was due to logistics issue and rigid labour market.

Implementation of VAT, Value Added Tax, once completed in all states of India is expected to reduce the cost differential between India and China to a more manageable 5-6%. Why should India go on perpetuating a system where it appears as if each state is a country with separate sets of taxations?

India must also go for less high-tech and more labour-intensive manufacturing segments. On an average, it takes six parsons in the small industry to do the job of one person in the corporate (big industry) setup. So a judicious approach is necessary to encourage the growth of SMEs, while maintaining the competitiveness with the large scale manufacturing companies.

India can no longer expect to compete and play a big role in global trade without a substantial growth of its manufacturing sectors of all hues- low-skill, high-skill, apparels, leathers, chemicals, home goods, souvenirs, or perhaps everything that are in demand by the consumers, in domestic market or more so globally. Manufacturing must embrace rural India to bring in prosperity to the millions of people there. Many entrepreneurs have come out with business models in manufacturing for rural India that must be emulated by hundreds and thousands of entrepreneurs and supported by the government and successful business leaders.

The Economist recently published a report, The problem with Made in China‘, that details why the manufactures are switching over to a strategy of ‘China plus’ in Asia. India may be candidate of that China plus destination. But it will have to work hard to remove some of the hurdles fast.

China has rapidly become a global economic force, doubling its share of global manufacturing output for both domestic as well as export market.

The perception is that every factory closing in America or Europe is destined to reopen in China. And a majority of the export from China is in real term is an American or European company’s export. However, as reported, the western entrepreneurs who made China’s manufacturing a unique story of success with their investment are gradually becoming skeptical about their future business in China.

Some of the concerns are genuine too. The most important concern is about the internal problems because of inequity. Even the official figures record 87,000 incidences of rioting and social disturbance in 2005. Civil unrest may come a speed breaker in China economy.

Many grumble about the urgent need of reform in the banking sector, the capital market, and the financial-reporting standards. Many are concerned that the Chinese economy may be overheating. Many predict yuan’s revaluation making Chinese manufacturing loose the present advantages. The value of the Chinese currency, as per some assessment, may continue to rise by around 5% in the year ahead that will certainly affect the export-based manufacturing adversely. China also has earned bad publicity about the lack of protection for intellectual property rights.

But perhaps the most significant of all are rocketing wages and the shortage of the managers, versed in international production techniques such as “six sigma” and “lean manufacturing”. Poaching is rampant. “China is definitely not the cheapest place to produce any more, Average wages for a factory worker, combined with social security costs, came to almost $350 a month in Shanghai in 2005 and almost $250 a month in Shenzhen. By comparison, monthly wages were less than $200 in Manila, around $150 in Bangkok and just over $100 in Batam in Indonesia. No doubt, the productivity of Chinese workers is better and rising. But it is not keeping pace with wages. To overcome the higher wages, the Chinese government has been inducing companies to move inland since 2000, but the entrepreneurs are neither convinced nor ready. Many firms are reluctant to put any more of their eggs in the same basket.

A research report of the Japan External Trade Organisation concluded: “Due to the country’s increasing business risks and rising labour costs…Japanese firms employing a ‘China-plus-one’ strategy-in which they invest in China and another country, namely in ASEAN-should consider placing more emphasis on the ‘plus one’ country.” Managers from other countries now share such nervousness.

Starting early 2006 Intel, the American chipmaker had committed as much money to Vietnam as it had to China in the previous ten years. Another global firm, Flextronics, has fired up the production lines of a new M$400m ($110m) factory to make computer printers for another American firm, Hewlett-Packard in Malaysia. One of the largest contract electronics manufacturers, Flextronics with vast facilities in China has chosen Malaysia as the site for its latest investment.

India has 1.1 billion people, an emerging middle class of its own and will grow at around 8% this year. To date, foreign investment in manufacturing has been limited-total investment inflows in 2005 amounted to a meagre $7 billion, compared with more than $70 billion for China Even with hugely inadequate infrastructure and infamously corrupt and lethargic bureaucracy, more foreign companies are starting to open factories in India.

Indian technicians could re-engineer some of the West’s highly automated car-production lines to make them more labour-intensive for the Indian market. Firms making specialty chemicals are keen to combine technical expertise with low costs and a growing market. Even low-technology industries are interested: Yue Yuen is close to building its first shoe factory in India.

Most observers reckon India’s manufacturing evolution is ten years behind China’s, but progress is unlikely to be as swift or as smooth. A country that puts a higher value than China does on democracy and the rights of the individual will inevitably find it harder to push through infrastructure projects and reform to sensitive areas such as the rigid labour market.

Why can’t Indian manufacturing sector take advantage of the opportunity? Why can’t the team of the National Investment Commission and National Manufacturing Competitiveness Commission take up the task to contact all the manufacturers with ‘China plus’ strategy and allure them to India?

For all practical purposes, Tata Motors and Mahindra & Mahindra are the only two Indian companies in automobile manufacturing, particularly in passenger cars and SUVs. And if the two enterprises, wish to remain the major players in domestic market or have dreams to go global ultimately, perhaps the only way will be some reliable alliances with some automobile majors of the day. Both are on the right track.

Last year, Carlos Ghosn, CEO of both Renault and Nissan and Anand Mahindra, M&M’s vice-chairman and managing director, signed an alliance in Paris. The two decided to set up a plant that would make half a million cars a year in India within the next five years, Many expect an investment of over $1 billion in the project, may be the largest investment announced by any auto company in India. Both Renault and M&M vehicles and, possibly, Nissan’s too, will be manufactured in this plant. Ghosn puts a lot of importance on this deal. Both Nissan as well as Renault wish a presence in India with a strong Indian partner and use India to manufacture models for some export market too. So under a previous agreement, Maruti Udyog will also manufacture 50,000 Nissan cars for export.

Under a separate alliance, Mahindra International, a 51:49 joint venture (JV) between M&M and the $9.6-billion US-based International Truck and Engine Corporation, will develop and market commercial vehicles in India, Asia, the Middle-East, Africa and central Europe. It will also develop low-cost products for the American continent. The duo will invest $80 million in the project. It appears, M&M has a strong global ambition for automotive sector from engineering service outsourcing to contract manufacturing.

Tata Group chairman Ratan Tata and Fiat Group CEO Sergio Marchionne have also gone for another grand alliance that was announced in September 2005. Tata Motors will distribute Fiat vehicles in India. Later on in late 2005, Fiat announced plans to build Tata Motors’ vehicles (probably one-tonne pick-up trucks) at its plant in Cordoba, Argentina. And last month, the duo announced a Rs 4,000-crore investment to set up a plant in Ranjangaon, Maharashtra with a capacity of over 100,000 cars and 200,000 engines. The manufacturing facility will produce both Tata and Fiat cars.

The two groups are now closely studying each other’s platforms that are under development, including the Tatas’ Rs 1-lakh car. Ravi Kant, managing director, Tata Motors said, “Up to this point we have done this (development of the Rs 1-lakh car) on our own. In future, if a partnership is required, we will look at it.” Alfredo Altavilla, CEO of Fiat PowerTrain Technologies and senior vice-president (business development), has been a little more forthcoming: “We are fully available to cooperate on any platform that Tata requires. Fiat’s considerable expertise in small cars has been made available to Tata.” The next generation of Indica will have Fiat’s diesel engines. And a lot of the design and development of new Fiat models could be done by the Tatas to cut down the development cost.

Tata Motors also has alliances with Spanish truck and bus maker Hispano Carrocera (with a 21 per cent equity holding) and with Thailand-based Thonburi Automotive Assembly Plant (70 per cent) to make pick-up trucks. Tata Motors are also on look out for an acquisition that further expands its presence in passenger car business.

Why is India important now? One, India’s automobile sector today is considerably big rushing fast to the two million a year with a growth rate in double digits. India now forms a vital part of the global automotive industry’s cost-cutting plans.

In the automotive industry, millions of dollars are pumped in R&D and manufacturing for each new model. These costs used to be recouped from the vehicle sales that would go on for many years. Now, with the product life cycle significantly reduced based on customers’ expectations, the manufacturers have fewer vehicles to spread these costs on. As a result, if the global biggies don’t cut the development costs, the losses can’t be avoided.

Indian automobile manufacturers have proved its cost effectiveness in product development. As reported, M&M’s Scorpio was put on the road at a cost of only $120 million ($30 million in development; $50 million in dyes, tools, etc.; and $40 million on manufacturing facilities). In the developed world, a comparable product would cost over $600 million. Tata Motors also came out with its product development with similar lower figures. So is the advantage in manufacturing too. As reported, Indica costs about 40% less than what a comparable developed in the West would have cost.

Indian companies might not have a lot of technology to offer in basic design, but can be a good and cheaper source for engineering tasks related to new platform development. Both Tata Motors and M&M are having a pool of engineers engaged in product development. As reported, over 200 M&M engineers based in Pune are working on global product development for International Truck.

Indian firms ensure that break-even is achieved in about two years instead of the usual five years from a new manufacturing facility. And that makes a big difference.

The alliances have two things in common for the foreign partners. One, they have set ambitious growth targets for the next 4-5 years. Two, none of them has a strong presence in India. So it a win-win situation for all the partners, while for Indian partner, it is the easier way to go global.

The 5 Ss of Japanese efficiency by Surinder Kapur