The 'Jugaad' story of India
The India, I know and believe in is, made of creativity, determination, hard work and a sense of ‘jugaad’. I am talking about the human advantage India has. I have been a long-time believer in the Indian success story and my belief has only proven to be true so far. I remember, coming to India as a kid during my summer vacations, setting up ‘Meetha paan’ and assorted candy store, running it from our ‘diwan Khana’ and selling to excited neighborhood kids, nagging their parents and grandparents for money. I have thus far continued with my investments in India.
The Indian consumer market is like a growing beehive filling with honey, attracting a lot of foreign investment. Businesses across the globe, all wanting a piece of it. The Indian market is a complex one, for an outsider to understand and function in. The workaround mentality of the Indian people, their super value conscious behavior, makes it hard for these foreign businesses to understand the consumer psychology, but, despite the challenges it poses and numerous failed attempts, these foreigners have not given up on India. They, like me, also believe, that India has huge potential and it only makes sense for them to be a part of its success…... and so, they keep trying.
McDonald came to the country in 1996. It tried to bring it, their menu from the west and sell it to the Indian consumers, thinking that because it is also an English-speaking country, its taste will be western as well. In a country, that’s mostly vegetarians and love the spicy taste of food, this strategy fell flat. It took McDonald some time to figure out the Indian customer.
Starbucks, came to India with a similar game plan, in 2012. They are fairly new in India. Starbucks has 2000 stores in China and expects to open even more this year, comparatively less in India. I remember, when the new Starbucks opened in Jubilee Hills in Hyderabad, back in 2014. I was in India on one of my visits. I waited in line for an hour, to get a ‘tall Americano with steam heavy cream’ (unfortunate for me, they do not carry heavy cream in Indian Starbucks). I do make sure, to try Starbucks every time I am in India, and I notice a tweak to their menu. I think the coffee is very strong for an Indian taste. It will take Starbucks some time to figure things and they will keep trying until they do because they know the Indian market is one they cannot afford to lose.
Indians are present in almost all countries around the globe. They are wealthy, educated and have adopted the local cultures and tastes. A lot of businesses assume, these NRI’s represent Local Indian tastes and preferences, something which isn’t necessarily true and that is why their products and menus from elsewhere, don’t work in India.
Another developing story is that of Vodafone. Vodafone entered India in 2007. So far India has contributed to Vodafone’s bottom line in the negative. Vodafone CEO says it’s been a challenge dealing with the government, but he is optimistic about the Indian market and says that Vodafone has no plans of leaving India anytime soon. They have recently partnered with Idea Cellular, which will help them cut costs and target a larger market share. Vodafone has great products in India. Its plans offer value and good service and I have personally used it. Reliance ‘Jio’ has upped the competition, for sure, but I think with Vodafone and Idea united, they can work some magic in India.
All these businesses, despite facing bumpy rides and losses, do not want to leave India. They believe India will contribute in a much larger way to their growth and success.
Up until November 2016 Indian GDP was growing at a rate of 7.4-7.6% annually. Much higher than the growth in the USA or other developed economies. Then came along ‘note band’- Demonetization. Overnight, the government announced that the 500 Rupees and the 1000 Rupees notes cannot be used anymore. This was their game plan to fight black money or illegal money. I do not know, how much of a success it has been so far, especially, when we do not have any data on the matter and when the truth of the matter is, all those people who have this significant amount of black money had already parked it in tax haven countries and not in India. The ones, left to face the consequences have been the lower and middle-class earners. People like the labors, mechanics, autowalas, whose earnings can only put food on the table for that day. In a country with the second largest population in the world. A country with a cash-centric economy, where the majority of transactions happen in cash, it came as a major shock to the markets and the system and brought everything to a standstill. How does one form such a policy, in such a massive economy and not expect it impact growth in a negative way? Or would you say sacrificing growth and progress, was the only way to fight black money?
I remember I was doing a warehouse construction project at the time, and the work had to be stopped because of lack of cash supply. I did not have money to pay the laborer’s, who worked on a daily wage. Then the workaround mentality of the Indian people kicked in. People started doing online transactions. A lot of vendors, who only took cash previously, now suggested, I pay them online. A barter system developed, where goods were exchanged for service. Suppliers also providing laborers, in exchange for construction material that I could purchase. Now, I know the policymakers say, this was necessary to push people to go digital and let go of the cash. But, a thoughtful and educated think tank, will not change policies overnight. Especially in a huge economy like India. It has shown its effect on the growth rate, which had slowed to 5.7% in 2017.
Real estate is an important sector in India and a major contributor to the economy. Shortly before note band, the government had introduced RERA (Real Estate Regulatory Authority), initially introduced in May 2016 and the remainder of the law came into effect in May 2017. The law focused on protecting buyers interest, which is great, however, came on too hard on the real estate developers. If real estate developers were a free bird before, RERA made sure, that every feather in the wing is now bound and locked. Rules, requiring registration of projects by builders, interest payments as part of late penalties to buyers, and heavy prosecution all good, but too much too soon!
This slowed down the real estate market of India even more. Take out the cash from a cash economy, and then bombard it with even more stringent rules. If it won’t stop growth then what will? And real estate markets saw that. Sales plummeted significantly. Projects stopped mid-way. A large inventory of unsold property has built up across states. It led to a quarterly drop in sales in the top 5 cities to an all-time low of 4.8 % in the third quarter of 2017.
Now, it was time to set the stage for GST (Good and service tax), which came into effect on July 1st, 2017, just 8 months after demonetization and 2 months after the final implementation of RERA. The timing was bad, but what’s worse the ill-planned tax rates. The rates that were set, were significantly high, touching 28-32% approximately. Think about the impact of these various policies now. You are trying to tax an economy, which is sort of still in the ICU, because, of Demonetization - draining the system out of cash, followed by RERA - targeting one of the most crucial sectors of the country and then we try to tax to the maximum, whatever is left with the businesses. Just like the developed markets of USA, Europe, who have high taxes too, but also offer citizens social security and Medicare.
Despite, all of this, the Indian market, stands tall. Trying to dust off, shake off the jolt and get back to work. Had these events happened in such a short time frame, in any other country, it would have been in a recession by now. This is the resilience and ability of the Indian people, I talk about, which makes India unique and leaves the world amazed.
All of these policies- the Demonetization, The RERA and the GST are great. But the timing could not have been worse. That has been the immaturity of the Indian leadership. India still has a growth rate higher than many other nations. Far higher than many other economies and so foreign money continues to flow in. But, if we want to become the number 1 market, then the trust factor plays an important role. The image, we build for the world to see. Don’t expect world markets to forgive us again and again. Sound policies, promises from the government, which it honors. Commitment to time. All are things that powerhouses like America do. It develops faith in the government and the system and encourages foreign investments.
The religious divide that has been building in India in the recent years, is yet another obstacle for the Indians to tackle. The Hindu and Muslim divide has been used and played at by many, bringing social unrest in the society. But, I believe, with the history we have, the struggles, we faced and the victories we achieved, when we stood united; the young population of India, the today's generation is smart enough to decide what is right for them. We achieved our Independence, when we stood together as one nation and every time, we were busy fighting amongst ourselves, someone else took the cake. So, let’s be smart about it this time. Let’s focus on this opportunity we have at our hand. Let’s not deter from our progress and give permission to anyone to toy with us. We have this unique opportunity to lead the world. To be one of the top economies in the world. To bring back yester years glories. The world is looking at us with optimism and hope because they see our potential. They all want to be a part of our growth and success. Let’s make the most of it.