Infrastructure in India - An opportunity

It takes just few minutes on a railway station in India to understand what it means when somebody says India lacks Infrastructure. No doubt India has to go a long way as far as achieving infrastructure revolution. The path will be very difficult and will require commitment not only from government but from every citizen of India. What citizens have to do with it? Isn’t building infrastructure government’s job? I think we the people of India now have to come out of this mould of leaving our issues to be resolved by some unknown hand of God. It has to be the society and people of India to come out and build the nation. It will be a painful process and the worst part of it is that those who are going to build it will not be able to enjoy its fruits. Every generation builds for the future generations and that is how nations are built.

Now after philosophy it is time for business. Economics sense says any rational investor will not take up that venture, which cannot provide economic returns. So is there profit in this market? Actually how big is the market? Is there really an opportunity? Well to answer these question just consider this fact that Indian’s eleventh five year plan envisaged Rs 20,00,000 crore requirement for infrastructure development in 5 years completing in 2012. So we are talking about a market which requires investment of tune to 9% of India’s GDP in five years. So at modest 10% return we are talking about Rs 2,00,000 crore profits over the five years i.e. 40,000 crore per year. There are not many industries who can boast of such returns. But are these returns sustainable? Definitely so if we consider the fact that above requirement is expected to remain so in the years to come with growing urban areas, development of rural areas and increasing population.

A back of the envelope analysis of the sector tells us that there are very favourable government policies to encourage investment. There is demand, which is heading north. Competition is yet not fierce. Users are too many and need the services. Suppliers are too eager to cater. So it seems that it is one of the most profitable sectors in India. But then the big question why investments are not coming up. Why it is still lagging?

Infrastructure projects generally require huge investment and generally affect large no. of people while implementation. Risk increases more so when we consider that generally these are long duration projects and for getting the returns investor may have to wait for years. The very nature and structure of this sector makes it a difficult sector to enter.

There are 2 major challenges in infrastructure projects at the moment:

1. Long term sustainable financing for these mega projects

           - It is easier to get the initial funding, but getting a sustained funding in long term is a challenge,

             which causes stoppage or delays in projects.
           - Sources of funds should be increased within the Indian economy. Currently, Banks are a major 

             source of funding. They themselves face liquidity issues in long term. Apart from Banks, other 

             financial institutions such as insurance companies should also come forward for financing.
           - Government issues infrastructure bonds for raising funds. Banks and other FIs can also look for 

             this option, though ICICI already follows this practice.
           - It is important to start generating some cash flows after some time, so as to keep the interest of 

             debtors in long term

       2. Execution Challenges

           - Land acquisition
           - Environment policies very confusing for the companies right now
           - Delays in approvals from government side

It is critical for the success of ventures to take care of above issues and create better models for implementation, models that achieve participation and support from public also. That will be most critical factor above all.

Otherwise years after years we will be standing on the same railways stations wondering why trains get late. And while waiting for the train we will be wondering why India lacks Infrastructure.

- Dushyant Chaturvedi and Rishi Khanna

My Experience In France

The intention of this article is to objectively record my personal observations during my stay in Paris as part of my international module at IIM Lucknow, and in no way to generalize or criticize any specific country or its practices.

I landed at the Paris International airport with tons of excitement, however, my first experience was not very pleasant as we had to wait over an hour to go through the immigration process because there was only one counter for non European citizens (who were around 80% of total present people) as opposed to a couple for EU citizens. It made me think whether the world has really become global in the true sense? I was not able to solve the puzzle of such inefficiency in one of the most developed & powerful nations of the world.

During our trip to the hotel, I saw lots of bikes all across the city. Initially, I was a bit surprised, however, with some discussions and reading, I figured out how by ensuring availability of bikes all across the city, the French Government is really serious about reducing the carbon foot prints of the country. The volume of bikes available for rent itself speaks for the seriousness of the Government about the initiative. We have grown up in India seeing people using bikes extensively, however, with time we gradually started moving towards other personal vehicles such as scooters, motorcycles and cars. I would really love to see the Indian Government’s focus to promote the usage of bikes in key areas of all metro cities. It would not only help in keeping the environment clean but also help in solving the traffic congestion problem. Moreover, it would also help us in reducing our trade deficit by reducing the import of fossil fuels.

My first experience with Paris’s public transit system, which is one of the most comprehensive metro networks in the world, with more than 200 stations spread over 40 sq mi, was just amazing. After having experienced some other big public transit systems e.g. that of New York and Toronto, I could say that it is the one of the best. After roaming around Paris using various Metros, RERs, Trams and Buses, I can comfortably say that this is the way to explore Paris. In India, although we have started a Metro in Delhi, however, we have a long way to go to have its presence in other Indian metros and also in term of cross connectivity with other transportation modes such as buses, trams and rail.

I was highly impressed, after moving around the city and seeing the way the city of Paris has been preserved. The French Government’s efforts to preserve all its monuments are just amazing. The way 3-4 hundred year old buildings are maintained is commendable. It really made me think, “Why couldn’t we do similar thing in India?” The condition’s of some of India’s finest monuments is abysmal. I would love to see a similar passion to preserve our own heritage. The way the whole of Paris is presented as one of the best tourist places is commendable. I feel deeply hurt to see, even though we have so many good culturally rich places in India, we don’t present it in the best possible way to the world.

Finally, my experience with the customer service at various places in Paris has not been very pleasant. After having lived for over six years in North America (US & Canada) and having experienced excellent service there, I was a disappointed to see such dismal customer service in France. However, my experience in Paris made me think, “Why, in spite of being a developed country, is there no focus on customer service in France?” I thought that my ignorance of the language could be a cause. However, after visiting places like Brussels, Bruges and Amsterdam, I knew this is not exactly the reason. I found people in Belgium and Netherlands friendlier and more open to Non EU tourists. Even though people did not understand English, they did put-in their best efforts to understand and help the tourists. I would definitely not like to have the French way of customer service in India.

A fortnight in Paris - IIM Lucknow students' international module

I got a chance recently, to go to the land of pretty girls, tall towers, large palaces and elaborately embellished places of worship. Partly because I haven't seen too many foreign countries and I was excited to do so, and partly because it was part of my curriculum at IPMX (1 year MBA program at IIM Lucknow) and I didn't have too much of a choice, I grabbed the opportunity with both hands.

Now, statistics suggest that it takes an alert person approximately 2 weeks to assimilate an alien culture, and co-incidentally, my visit was scheduled to last exactly 14 days. (Of course, like most other statistics you've come across, this one too, has been concocted on-the-spot, entirely with the intention of sounding convincing and knowledgeable about the point just made.)


So anyway, in the little time I was there, I came to know a lot about the people there. For example, the general impression about people from this part of the world is that they have w-a-y too many holidays and that they never get any real work done. Well, that is slightly true, but only slightly. The new generation is very task-oriented and is changing the work-culture dramatically, getting the job done inspite of all the holidays/ frequent strikes and closures of work. Even though the customer-service is quite literally, pathetic, the general public itself is a pretty helpful lot (which is to say that if a certain individual is paid to be helpful, he won't be; its only when you establish a momentary bond with him/ her, preferably in his/ her mother tongue, that you can hope to receive any assistance).

The country spends a good amount of time preening its history and reminiscing about the "good old days when we used to be a power to reckon with". Indeed, the country does have a fabulous military past, and judging by its considerable number of architectural masterpieces, a better-than-fair cultural heritage. There are a good number of sites of historical significance scattered in the national capital region alone.

Foodwise, the country is a gastronomer's paradise. You can hardly ever go wrong with anything you pick on the menu. And the chef's there love to compare everything with the creations of their brethren in Great Britain. Seriously, if you want to tick someone off, make a mention of the British. "I dare you to. No, I IMPLORE you to", said our professor.

People love to speak, and appear intellegent at the same time (two traits which force them to be helpful on the street, 'coz they'd hate to say "I don't know" to anything).

There's a strong sense of the family, and although it is slowly eroding, it's not quite dead. People love to engage in mind-games, speak without really saying anything of value, haggle... hmmmm..... now that I've started to write about my experience, this could easily be an account of a visit to India by a Frenchman. We aren't too different after all.

Nawabs of IPMX

 

Prof. Archana, Chairperson IPMX

Nawabs of Lucknow and Nizams of Hyderabad are long gone but they have left behind a legacy which still throbs in many parts of India. One living and soaring example of this legacy is ‘Kite flying’. Historians believe that Kite-Flying was brought in India by Chinese and was popularized by the Nawabs and the Nizams (thanks to exponentially more idle time than they knew what to do with J).

Now, why I am talking about Kite-Flying and Nawabs is because it seems that students of IPMX batch have also got some traces of this hobby of Nawabs, lurking somewhere deep down in their hearts.

On the eve of Independence Day, the idea of kite-flying fidgeted, wriggled and kicked inside some of us and manifested itself in the decision that we would celebrate Independence Day by flying kites.

No sooner was the decision taken than helter-skelter kites, spools and maanjha were arranged and at 10 am a battalion of pseudo Nawabs, equipped with shades and cameras, marched towards basketball court. Those who were adept in the art of kite flying took to the strings and those who have tried everything from applying Bernoullie’s theorem to aerodynamic analysis in order to fly a kite but still cannot fathom the secret formula to get it up in the air contented themselves with just holding spools.

Those of you who have tried their hands at kite-flying would know that the real fun is in penchbaazi. My personal theory regarding penchbaazi is that it is an amicable transaction between two parties which follows the double entry system – at the end of the transaction the frustration on one side is exactly matched by the satisfaction on the other side. Oh boy, is it too much Corporate Finance doing some chemical locha in my brain?

After one and half hour of fierce battle among kites for domination of the sky, the Big J (Gaurav Jalote) emerged victorious with team of Santosh Rout and Saurabh close behind him. Batch topper Dushi couldn’t replicate his success story on the front of kite-flying and ended up losing again and again… and again and again …to anybody and everybody. Poor Dushi!

Well, that’s all I have for now.

Manish K

Power of Rural India- Talk by Mr Pradeep Kashyap- CEO and Founder, MART

Mr. Pradeep Kashyap, CEO and Founder, MART

We got amazing insights this Tuesday, when Mr. Pradeep Kashyap, CEO and Founder, MART, also considered father of rural India, delivered an informative lecture on the power of rural India and its role in the growth of Indian Economy. The Q&A session went on as long as the session itself, continuing well into the high tea whereby Mr Kashyap managed to evoke enthusiastic curiosity amongst a normally urban smitten audience. We were all taken by the sheer power of rural India and its role in the growth of Indian Economy over the last decade and the potential for future. Clearly, it is a BIG asset today as opposed to a liability that we had grown up thinking.

We are realizing the potential of the vast market that had been untapped so far. About 70% of the Indian population resides in our villages and they account for 60% of FMCG market, 57% consumer durables and 40% two-wheelers. As the transportation is improving, the villages are becoming electrified and the literacy rate is improving due to heavy investment and focus by the Indian Government, the scene of Rural India is undergoing an image transformation over past 7-10 years

One of the biggest advantages is that rural sector was instrumental in guarding India from the Global Economic meltdown. During the last 1-2 year recession period, there has been no growth in urban sector, but all the growth that occurred in Indian economy is solely due to rural sector. 600,000 villages saved the 5136 odd towns and cities that together make up our country. There was no wealth erosion simply because all the impacted sectors (IT, real estate and stock market) did not have a role to play in the rural market! People construct houses to live, not for investments and of course there are no IT companies or stock markets to bother here.

Going back to statistics, rural India accounts for 0.5 Trillion USD today (this has been the growth until now i.e. in 60 years) and it is expected to cross 1 Trillion USD in the next 10 years i.e. by 2020. This is the total economy for Canada.
In 50 years (1950-2000) we managed to have road connectivity to 50% villages. In the next 10 years (2000- 2010) another 30% villages have been connected! 21% teledensity with 0-> 180 million connections has been accomplished over last 5 years. On an average each family in rural India has a mobile phone today! Could we ever envisage this?

Everything's seem to be going well on rural marketing front whereby domestic as well as Multinationals have recognized the market potential due to sheer volume of population. The only jarring note is agriculture as the farmers are still the poorest with their per capita income less than half of those in any other sector. The service people are definitely the best off. Fortunately the Rain God and Government God ( yes, Mr Kashyap used these two terms ;)) have been very kind over last 10 years and we had 8 out of 10 good monsoon seasons as opposed to an average of 5 out of 10. Toda, the people in villages spend about 43% of their income on food as opposed to 58% back in 2000. This number is projected to further reduce to 33% by year 2020 that is the amount invested by urban man on food today! The needs to the village man are clearly becoming more and more urbanized giving cues to all the companies out there to reach out to this new market with customized products.

The growth rate of Rural India is at an all time high of 13.5% and some of the projections are as follows:
Healthcare: 24.4% today to 55.6% by 2020
Education: 24.4% today to 55.6% by 2020
Transportation: 44.4% today to 80% by 2020
Communication: 3.3% today to 8.9% by 2020

We can comfortably look up to Rural India for leading Indian Economic growth. The only factors that can possibly go wrong are failure of monsoons or a shift in the priority of Government. The latter is unlikely , therefore, we should gear up to a rural economy led growth and here's a message to all the companies out there....come and explore, rather explode the potential of our rural market to reap benefits for one and all !

Unfulfilled demand

In the growing telecom market, we are currently witnessing intense price war among leading operators. The competition in the telecom space initially was about access to large customer base and later on it switched to providing wide varieties of VAS. This was then followed by price war when new player pitched in to the battle. Some of these players timed their entry just before 3G/4G spectrum allocation. Giants like Bharti Airtel, reliance, Tata Tel and Vodafone focused heavily on winning spectrum in their planned network circle, while new players started eating up their market share in every possible way. These biggies in fact were in no mood to get into price war, however, they don’t have any option as they want to retain their market share. It is very much essential to retain customers since they want to launch 3G/ 4G services to this customer base first. They have paid huge license fee and are under high pressure to start earning from the first year itself. In fact, the spending on 3G/ 4G and impact of price war has made Vodafone group to cut the value of its Indian arm by $3.2 billion.

Once number portability starts then customers will find it easier to switch from one operator to another. Customer retention is very important for all of these operators. Under 3G/4G spectrum it is data service which is a major source of income to operators. Operators are crafting their strategy to roll out high end data based VAS to their customer base.
On the other hand the voice communication need of the consumers is not fully met by most of the operators. When we did a survey for our academic project, we found that still basic voice communication plays an important role because of huge potential rural market. According to Gartner India at present have more than 660 million subscribers and estimate that it should grow to 993 million by 2010 with penetration reaching 82%. So there is a clear gap in what people want and what firms in the industry perceive to be important for consumers.
But according to PricewaterhouseCoopers’ analysis aggregate EBITDA margin for core voice services is decreasing. It dropped from 33.3% in year 2003 to 29.5% in year 2009. It is largely because of drastic fall in the call services price due to tight competition. In spite of growing market in to rural area operators are still targeting some of the lucrative circles and making every effort to snatch the share from competitors through price cut.
So it is important for operators to equally focus on voice services even after commercial launch of 3G/4G specific services for three reasons. First it ensures a critical mass of consumer base to launch 3G/4G specific service in a cost effective way. Secondly, call service is the basic feature sought after by every individual so focus into growing part of the market is important. Last but not least, consumers are willing to switch to better serving operator once number portability is in place this helps operators to gain market with least effort.

Source: http://www.gartner.com, http://www.dot.gov.in/, http://www.pwc.com

The Government Business - Talk from Dr. Jaijit Bhattacharya, Director, Hewlett Packard

In the recent edition of Leadership Talk Series, we got opportunity to interact with Dr. Jaijit Bhattacharya, Director, Government Advisory at Hewlett Packard. We all found the session to be quite an eye opener in terms of opportunities that are available for private sector in doing business with government and also typical challenges that are there in this area. Businesses today definitely can’t afford to overlook tremendous potential that is there in providing goods and services to government given the fact that government is largest procurer in the country. 

Dr. Bhattacharya highlighted the need for businesses to be impartial and neutral towards political establishments so that change in government doesn’t put you out of business. Another interesting point that I noted was how can we factor in typical challenges like delayed payments, beaurocracy etc. in our business model itself so as to ensure a successful execution. 

Dr. Bhattacharya also shared his experiences regarding how Brazil chose to deliver cable TV through standardized CAS set top boxes and provided internet services as well through same boxes with the strategy to increase internet penetration as well as to deploy the resources efficiently within the country. He talked about open source revolution and how businesses today are leveraging it in government sector by providing services around open source solutions. He ended the session with food for thought for all of us: ‘Can India develop its own Microprocessor one day?’