India as 5th largest economy - Subtle facts

India has done itself proud by becoming the world`s 5th largest economy ~ $3.8trn . A long way from $274bn GDP (as per IMF data) in 1991 when economic reforms were unleashed. Many pundits are hailing India having reached an exalted level on the economic front.

However, these pundits should look at the other 2 main critical indicators for an economy -

1. GDP per capita - Shows prosperity per person in the country. 
2. Gini coefficient - Indicates the level of inequality in economic development. Between the rich and poor / haves and have not!

India`s GDP per capita of $3,100 / person, as per IMF data, ranks it a lowly 140 rank. Gini coefficient score of 43.3, as per Worldeconomics.com, ranks it a very low ranking amongst its peers!

While we can celebrate the 5th ranking milestone but the real story of development and the way forward needs to be highlighted and worked upon. India needs to chart a completely different growth story as compared to its peers in the top 5 club !!

How Green is your Personal EBIDTA ?

World Environment Day was celebrated recently on 5^th June amidst much fanfare with the usual pledges by governments and corporate firms. Usual buzz words in the business and economic space, like climate change, global warming, greenhouse emissions, net-zero carbon, etc. were extensively discussed.

However, at the ground level, the magnitude of the climate change problem has reached huge proportions as exemplified by the heatwave across many countries, including in my own country India. Heatwaves have led to various destructive patterns like destruction of crops, scarcity of water, etc. The intense heatwave across India has led to such a huge surge in power demand, that the government has been forced to import additional coal to meet the demand!

Food scarcity already exacerbated by the Ukraine war has been further intensified with the heatwaves severely affecting food crop yields across the world. India, one of the world’s largest wheat producers, has been forced to ban wheat exports as crop yields have been affected due to the recent heat wave.

Green activists are having a field day now with their targets being mainly governments and corporates. Business firms globally, are under scrutiny and pressure from critical stakeholders like government agencies, financiers, and the public to focus on reducing their “Carbon Footprint” or in other words focus on their “GREEN EBIDTA”. Undoubtedly, corporates and governments have a large role to play in this endeavor. Top global firms like BP, Shell, etc. have taken a pledge to move to zero carbon emissions by 2040.

However, in this fight against climate change, it's time to target the segment which is most affected and whose consumption and behavioral patterns play a key role in the actions of corporates and governments – people like you and me – consumers, mass public- who pay the taxes finally !! After all, if we all demand carbon-free goods, corporates will take heed. If we vote for public leaders who are serious about climate change, then we can get the right policies being implemented. If we buy shares, despite paying a premium, of firms that are serious about sustainability then publicly traded firms will be forced to pay attention. Fossil fuel companies like BP, Shell, Exxon, etc. were forced to modify their business strategies as they feared a backlash from the investors’ community as well as damage to their brand image.

Consumers, however, can also play a major role, in this fight by paying heed to their personal lifestyles also and the carbon footprint left by their consumption patterns. It’s time that the public also starts measuring their “Carbon Footprint” and make their lifestyles “Greener”!!!

An interesting article was published, in Economic Times, on the same topic by Arijit Burman titled “Is your Is your EBITDA black, grey, blue or green?”. In this article, the author emphasizes the need for the public to pay heed to their consumption patterns and throws perspectives at the carbon footprints left behind by our day-to-day consumption patterns.

The recent World Economic Forum at Davos had climate change as one of the major topics of discussion. An article on the World Economic Forum platform published by Maciej Kolaczkowski titled “What can consumers do to help solve the climate change crisis”  states some interesting facts-

• Consumers are responsible for 60-70% of global emissions. After all,  consumption by consumers will lead to corporates making products leaving a  carbon footprint!
• Majority of the household carbon footprint comes from transportation, housing, and food choices.
• High-income households naturally consume more and hence higher carbon footprint. More money you have, more is your luxury consumption as compared to your basic needs consumption.
• Luxury consumption, as reflected by increased demand for goods and services, leads to a higher carbon footprint.
• Education plays a vital role in optimizing the carbon footprint of households. Probably many people are still unaware of the trails of their consumption patterns and need to be shown a mirror of their actions.

What can consumers and mass public do to control the increased carbon footprint?

Like corporates, consumers too will have to take carbon footprint reduction targets and modify their lifestyles. Some major areas can be:

Use public transport systems: Globally most of the major cities have very efficient public transport systems like London, Singapore, New Delhi, etc. Local authorities want people to travel more by public transport systems and lesser by private vehicles as it achieves the double purpose of a lesser carbon footprint as well as reducing pressure on the roads. In Singapore, due to high local taxes, it is very expensive to own a private vehicle, and hence people prefer to use the public transport system. In fact, I ‘am personally looking forward to the full-fledged rollout of the metro system in my city of Mumbai!

Reduce luxury spending and consumption: This recommendation may sound odd given that it looks to be against the capitalist theories especially as the world is facing recessionary trends. Today if people spend as per their needs its sustainable, however an excess of spending above basic needs leads to additional consumption which in turn leads to additional usage of natural resources. 

Clothing usage patterns are an interesting example. Fashion trends keep on changing and consumers are inclined to buy more in keeping up with the trends. The additional spending however lies unutilized after some time but has left behind a carbon footprint that is irreversible. 

An interesting graphic I saw recently in the Times of India, indicates that having a well-defined wardrobe means reducing new clothes purchases by 75%! Having a sustainable wardrobe means ditching fast fashion, embracing slow fashion, and importantly being a part of a clothes exchange ecosystem.

Embrace recycled products: Footprint of products already produced and lying in a heap across the world, like plastic waste, needs to be addressed. Products made from plastic waste are great examples. Segregation of household waste and proper disposal for efficient recycling is the order of the day. An India-based start-up - Recharkha (https://www.recharkha.org/), dealing with plastic waste products, has shown the way in this endeavor by upgrading plastic waste to various consumer products like bags, purses, etc.

The global problem of climate change that we are facing needs to be addressed on a war footing, as the world did with the Covid pandemic. Today corporates have started reporting the share of their earnings that is from sustainable resources- “Green EBIDTA”.

Consumers like you and I also need to shoulder responsibility and play our part and not leave the fight only to governments and corporates. Hence it's time that everyone like you and me measure our “Personal Green EBIDTA”!

Invite critical views !!

References:

1) “Is your Is your EBITDA black, grey, blue or green?”

(https://economictimes.indiatimes.com/opinion/et-commentary/view-is-your-ebitda-black-grey-blue-or-green/articleshow/90785853.cms?frm=mailtofriend&intenttarget=no).

2) What can consumers do to help solve the climate change crisis”  (https://www.weforum.org/agenda/2021/02/consumers-help-solve-climate-change/)

India`s wheat export ban - Is it in right direction?

Having built up 3 major global marketing bases from India in chemicals, metals, and telecom cables businesses, one of the questions that I was constantly asked was whether Indian companies will prove to be reliable and consistent suppliers over a long term in the international markets.

In all products that I dealt with, due to import duty benefits in India, profitability from the domestic market was higher than the international markets.

Secondly, with the Indian market size growing normally every year, allocation to international markets was always under pressure every year.

Thankfully, all the businesses that I built up have sustained over the last many years.

The Indian government has been highlighting India`s exports crossing $400bn in the last fiscal year. If India has to sustain this performance consistently, Indian companies will have to prove themselves to be reliable and consistent suppliers over a long term.

In this background, the Indian government`s decision to ban wheat exports isn’t in the right direction. This move by the Indian government to curb exports will have the following repercussions-

1. Construed as a bad signal for India`s global market ambitions. True, it was done to ease inflation, but a phased movement to curb exports would have been better.
2. Detrimental to its ambitions as a global superpower and playing an influential role in global politics.
3. Indian Government could have used these high export prices to push through the contentious “Farm Laws” with the farmers' unions, as Indian farmers were earning more by selling to private exporters, which was exactly the basic motive of the farm laws.

Indonesia, a global major in the palm oil business, should be taken as a cue. It had banned exports for a short period of time but reversed the ban as prices cooled off and she was earning a bad reputation in the global market.

I sincerely hope that the wheat exports ban is revoked by the Indian government in a short time as prices cool off in Indian markets. Hopefully, good monsoons will provide the much-needed boost to wheat production.

I also hope that structural reforms are ushered in the agriculture sector to make India a global major in the international food supply chain.

Invite critical views and thoughts.

India`s new Non -Aligned foreign policy

India`s recent so-called "Non-Aligned Foreign Policy (NAFP)", in the context of the present global turmoil, is completely different from the Non aligned foreign policy propounded by Jawaharlal Nehru and Indira Gandhi in the 1960`s / 1970`s.

1) Previous NAFP was an inward-looking policy that shut India off from global markets and pursued nation-building efforts that bore little fruit.

2) Present NAFP followed by the present NDA government has its tenets on -

(a) Geopolitical issues with neighbors,

(b) Energy security,

(c) Defense security,

(d) India`s trade in the global arena.

3) India's neighbors are a powerful China which is slowing down a bit, Pakistan which is in a political turmoil, Sri Lanka whose economy has collapsed completely and a growing economic star in Bangladesh. It was not very far in the past when the situation was completely different - China with its economic clout, Pakistan with its belligerence towards India and backed by China, and Sri Lanka too backed by China.

4) India`s growing economy needs to secure its energy imports and hence non alignment helps it to get cheap Russian energy as well as other sources from USA, Middle East, etc

5) Russia is India`s major defense supplier. However, India has USA, France and other western majors too as its strategic arms suppliers.

6) India refused to join global trade blocs like RCEP but has signed FTA`s with UAE and Australia and many more to come.

Hence it's a new "Non-Aligned Foreign Policy" embracing India`s needs as well as its external ecosystems.

Invite critical views

Language policy in India – advantages to be highlighted rather than imposition

 The debate over learning of Hindi across the country has led to strong reactions from the non – Hindi speaking states especially the North East and South India!!

The national NDA government should adopt a different strategy rather than make it look like an imposition – similar to the hugely successful digital payments strategy

Instead, the national government should run a mass campaign highlighting “Advantages of learning different languages”.

Like learning English is seen as a passport to better job prospects, learning a foreign language is construed to lead to better prospects globally, learning Hindi can be highlighted as a major advantage in a huge and diverse nation like India.

Major advantages that need to be highlighted –

Better job prospects across the country- any company will prefer to recruit a Hindi speaking competent candidate from South India as they can give varied exposure to the candidate across the country

Enhanced ability to connect with more people across the country for business people – business people from say Kerala can converse with a business connect is say UP.

·       Easier for students whose parents are in a transferable job

·       Ability to connect with more diversified set of people across India and understand         different cultures

 

As a part of the same strategy, the national government can also make learning non-Hindi languages as an option in Hindi speaking states – why can’t a student in Himachal Pradesh learn Tamil or Bengali for a couple of years?? This will lead to better cultural sensitivity across a diversified country like India. Lack of teachers needn’t be constraint as it can be overcome using technology.

From my own personal experience of hailing from Tamil Nadu but having lived mainly outside TN and outside India, I have reaped the benefits of learning different languages especially being a fluent Hindi speaker. During my first overseas stint in China, me and my wife learnt Chinese too understand China better.

Time to have a holistic approach to the language debate!!

Sustainability can start affecting new age businesses - like fossil fuel businesses

Preamble

New age businesses like renewable energy, electric vehicles, social media technology giants, etc. are the talk of the world with their businesses attracting very high valuations.

These new businesses are expected to usher in a new business models attarcting high valuations. However, these business might start facing different type of sustainability issues in the days to come very similar to the issues faced by traditional fossil fuel firms

In this article, I explore some issues and trends relating to sustainability for these new age business.

Invite critical views

Main Article

A few weeks back I was attending an online webinar on Electric Vehicles and got connected with a retired gentleman who had worked in the automobile industry in his entire career. When I quizzed him about his views on the advent of electric vehicles and especially on its effect on climate change, he said he wasn’t sure! I was perplexed. After all, EV`s were supposed to be the panacea for the pollution that we all face from normal combustion vehicle engine car!!!

He told me a story. When cars were first introduced more than a century back, they were actually solving a pollution problem!! Before cars, horse carts were used by people to travel, in which the biggest issue was the cleaning and disposal of horse dung! Hence when combustion vehicles cars were introduced, people were happy that the dung problem will be a thing of the past. Now when the world is talking about solving climate change issues by replacing fuel powered cars with electric vehicles, he said he wasn’t sure of the downside effects of the EV`s !!

Recent sustainability concerns with new age businesses

The above story made to think about some of the sticky events across the world involving the new age businesses – especially the global digital technology giants.

• Recently, the famous Chinese company, Alibaba was fined $2.8bn by the Chinese government as the Chinese government wasn’t happy with the monopolistic tendencies wielded by Alibaba`s digital reach!

 

• China recently introduced a Personal Information Protection Law (PIPL) that lays down a comprehensive set of rules around data collection and protection. Along with a new antitrust law, the data protection law is seen as part of a broader effort by Beijing to rein in the power of its technology giants such as Alibaba and Tencent and creating a regulatory model for the next-generation internet.

• European Union (EU) introduced the General Data Protection Regulation (GDPR) in 2018 to regulate citizen`s data collection and privacy concerns. Many of the EU countries have also implemented a digital tax levy on digital services at point of consumption which has added to the controls on the global digital firms.

• Closer home in India, the Indian government recently had a faceoff with Twitter over blocking some accounts associated with the farmers protest. Twitter had to take some quick action to avoid facing a total blockage by the Indian government.

 

• Google and the Australian government have had a tiff on whether news on Google feed needs to be paid for by Google or not. It was resolved only after Google acceding to the Aussie governments concerns.

 

• USA law makers are so highly concerned about the power wielded by the technology giants like Google and Facebook, that they are talking about breaking up the companies like the telecom major AT&T many years back. Regular Congress sessions, in which the digital technology majors CEO`s are grilled, give an insight into the seriousness with which the USA government is looking warily at the influence of these companies over the general public.

 

• Cobalt and Lithium, which are the essentials to make batteries for Electric Vehicles’ face mining labor issues especially in Africa which can constrict the supply of these products in the days to come.

All the events described above, might be seen as discrete events in a common man`s eyes but the common thread is that all the new age businesses will very soon face a sustainability wall block very similar that the fossil fuels businesses have faced. The movie “The Social Dilemma” portrayed how the digital companies use algorithms to manipulate the general public`s thoughts and purchasing decisions.

Oil and Gas companies were global economic stars till sustainability backlash...

Oil and gas propelled the growth of global economy in the second half of 1900`s with geopolitics too affected by oil business dynamics. Downstream products of oil like fuels and plastics gave a boost to industries like automobiles, heavy machinery, and consumer products. However, soon these businesses were accused of being primarily responsible for the various society ills like global warming, climate change, oceans pollution, emissions, etc. Importantly capital markets too have been highly influenced by these trends with markets according higher valuations to firms with better compliance to environmental norms.

Backlash has been higher in Europe as compared to the USA, till last year which has forced European oil and gas firms like BP, Eni, Total, etc. to announce aggressive zero carbon target dates and move to renewables. In fact a leading company like BP sold of its prized chemical business assets in 2020 in order to be seen as a “green” and “environmentally compliant” company.

New age companies have phenomenal valuations Vs traditional firms…

Comparison of valuations of new age firms like Tesla, Google and Exxon over the last 10 years shows that new age firms have far greater valuations with the key reasons being - wider geographical reach and highly scalable, asset light models.

 What lies ahead?

With the recent sustainability backlashes facing the new age firms, will this run of higher valuations continue? Will there be roadblocks like what the oil and gas firms faced? Will capital markets start reducing the future cash flows as business model scalability becomes a question mark?

Interesting times ahead.

Indian cricket win Vs global Indian companies

Being an ardent lover of the game of cricket as well as business/ economics, Iam inclined to find parallels between the recent insipid third cricket test match between India vs England (which ended in less than 2 days as compared to the stipulated 5 days) And development of the Indian economy over last 30 years since economic liberalisation since 1991.

The recent cricket test match at Ahmedabad saw one of the most bizarre test cricket matches I have ever seen. It was the shortest test match since 1940. Pitch used was sub standard to favour the home team India. Test pitches normally break from day 4 but this pitch broke down on day one itself. Intention  was to favour the Indian spinners and hence win the match. Well home team advantage is given in cricket but one shouldn't overdo it. Local umpires ( officiating referees to use a parallel to football) used were sub standard and some ludicrous decisions were taken which favoured the home team.

In all, conditions were doctored , protectionist environment created to favour the home team !!

Indian economy was highly protected till 1991 to favour sub standard local companies. However once the economy started liberalizing, most of the local Indian companies stood up to shape themselves up and face global competion. Many of them now are world class companies now and aren't afraid of competing in the global business environment now.

The Indian cricket team, achieved global respect a month back when a team ravaged by injuries but led by an humble but astute second in command captain beat a full fledged Australian cricket team in Australia beating all odds. Very similar to a global Indian company beating  global competition in their own backyard.

Young and globally competitive India isn't of afraid of taking on the global big boys !!

Hence the recent conditions, under which the recent Ahmedabad test cricket match was played and won by India, is very similar to Indian companies playing in the pre 1991 license raj era where everything was doctored, using a pliant inward looking government, to favour uncompetitive, inefficient Indian local companies which thrived under protection.

Indian cricket team now consists of world class players . Hence it doesn't make sense to create hugely favourable conditions to suit them to win matches.

Hence I would urge the Indian cricket authorities, under the cricket board BCCI, to not resort to subterfuge methods like in the recent test match . On the other hand, they should create sporting even conditions so that the competitive Indian cricket team,very similar to their business counterparts who faced global competition, can prove and mantain their dignity as world beaters and not be branded pusillanimous local heroes.