Thursday, December 22, 2011

Why the Lokpak Bill will not work

I would like to use a a scenario familiar in the Computer Software industry to explain why I think the Lokpal Bill is not the solution to the problem of corruption.

A project was initiated with two incompetent programmers. Soon enough, the project was in trouble and in order to fix the problems, a Lead was drafted in. The problems continued and so an Architect was brought in as well. But despite bringing in the Architect, the problems persisted, so finally an external consultant was brought in. But alas, the problems did not go away.

Finally, someone in the organization decided to replace the programmers. The replacement programmers were competent. Within days, the problems were fixed, and the project was taken to its logical conclusion.

Now replace "incompetent" with "corrupt", "programmers" with "govt officials", "Lead" with "CBI/CVC/CAG", "Architect" with "Judiciary" and "External Consultant' with "Lokpal" and you see why this is not going to work.

No matter what we do, as long as the incompetent programmers are there churning out junk, the project will continue to have problems. So next time we vote, let us select a "competent developer".

It is also true there may not be many or any "competent developers". It will need several generations of sacrifice before India gets them. Question is, are you and I ready for that sacrifice?

Tuesday, December 6, 2011

Remembering Dev Anand

It is easy to mimic those that set themselves apart. Perhaps few have been mimicked, caricatured and parodied as much as Dev Anand and that too over several generations. It is testimony to the longevity of the man, the actor, the writer, director, and producer. To be considered as one the triumvirate of the Indian film industry in the 50s and 60s along with Raj Kapoor and Dilip Kumar speaks volumes of his popularity and contribution.

Dev Anand's career spread over three innings. The first innings was pre-70s and defined him really and catapulted him as one of the three superstars. I have little re-collection of this period, except for a few movies I saw much later in life.

His second innings, started with a bang with "Johnny Mera Naam" in 1970. Some film historians also claim it was this movie that made Hema Malini famous. If Rajesh Khanna had teenage girls and married woman swooning over him, Dev Anand had his fair share too. And then were guys like Amar, my next door neighbour, who would insist on wearing these ghastly yellow bell-bottom trousers that Dev Anand wore and made famous in one of his movies.

1971 saw the release of the cult movie "Hare Rama Hare Krishna". I recall being on a boat ride at the "Gateway of India" with my family on a dark Sunday evening and they were playing "Dum Maro Dum" the famous song from the movie during the ride. It was a surreal experience. A very topical film (showcased hippie culture), based on a terrific and moving storyline, backed by excellent acting and music that achieved instant cult status, it also gave the Indian film industry its first glamour girl - Zeenat Aman. I dare say, I consider this to be one of my personal favourites.

Dev Anand continued to make several movies through rest of the 70s, but the one that I enjoyed was the 1978 Des Pardes. Again, highly topical, the movie was based on illegal immigration and exploitation of labour from Punjab to the UK, the movie had everything that one came to expect from a Navketan starrer (the name of his production banner). Above all, it shot to fame Rajesh Roshan, the music director, and introduced Tina Munim.

Dev Anand's third innings that I place in the 80s and onwards is pretty much forgetable. True to his production banner - Navketan, which means newness, he continued to make movies that had different and topical storylines, but somehow he seemed to have lost his ability to connect with the audience. Some of the movies were so bad, I could not sit through its entire length. When asked on his reaction to repeated box office failures and criticism, he would often respond that he did not care as such and would continue to make movies based on his convictions. An artist that does not care for audience feedback is a narcissist, but I dont think Dev saab was one. I think his sheer passion for film making overshadowed everything else, and he just had to go on and go on till death stopped him.

It was on a Shivrathri night, that my college hostel gang and I were watching Guide at a theatre in Vadodara. The song "Aaj phir jeene ki tamanna hai" burst forth on the screen. In unison, most of us were out of our seats, throwing coins at the screen - it was the first and only time, I did such a thing, but now, looking back it perhaps was a good way of paying tribute to this evergreen entertainer.

Saturday, December 3, 2011

Impact of Organized Retailing on the Unorganized Sector - May 2008 study conducted by ICRIER

I have produced an extract of the study published by the ICRIER in May 2008. The study does not distinguish between foreign and domestic players and rightly so. Readers may draw their own conclusions and inferences from the findings listed below. A link to the detailed report is included at the end of this post.

The real GDP is expected to grow at 8-10 per cent per annum in the next five years. As a result, the consuming class with annual household incomes above Rs. 90,000 is expected to rise from about 370 million in 2006-07 to 620 million in 2011-12. Consequently, the retail business in India is estimated to grow at 13 per cent annually from US$ 322 billion in 2006-07 to US$ 590 billion in 2011-12. The study shows:

  • The unorganized retail sector is expected to grow at about 10 per cent per annum with sales rising from US$ 309 billion in 2006-07 to US$ 496 billion in 2011-12.
  • Given the relatively weak financial state of unorganized retailers, and the physical space constraints on their expansion prospects, this sector alone will not be able to meet the growing demand for retail.
  • Hence, organized retail which now constitutes a small four per cent of total retail sector is likely to grow at a much faster pace of 45-50 per cent per annum and quadruple its share in total retail trade to 16 per cent by 2011-12.
  • This represents a positive sum game in which both unorganized and organized retail not only coexist but also grow substantially in size.
  • The majority of unorganized retailers surveyed in this study, indicated their preference to continue in the business and compete rather than exit.
 The Empirical Basis

The study comprises the largest ever survey of all segments of the economy that could be affected by the entry of large corporates in the retail business. The findings are based on a survey of 2020 unorganized small retailers across 10 major cities; 1318 consumers shopping at both organized and unorganized retail outlets; 100 intermediaries; and 197 farmers. In addition, a “control sample” survey was done of 805 unorganized retailers who are not in the vicinity of organized retail outlets in four metro cities.

Detailed interviews were also carried out for 12 large manufacturers, 20 small manufacturers and six established modern retailers.

The study contains an extensive review of international retail experience, particularly from the major emerging market economies.

Main Findings

Impact on Unorganized Retailers

  • Unorganized retailers in the vicinity of organized retailers experienced a decline in their volume of business and profit in the initial years after the entry of large organized retailers.
  • The adverse impact on sales and profit weakens over time.
  • There was no evidence of a decline in overall employment in the unorganized sector as a result of the entry of organized retailers.
  • There is some decline in employment in the North and West regions which, however, also weakens over time.
  • The rate of closure of unorganized retail shops in gross terms is found to be 4.2 per cent per annum which is much lower than the international rate of closure of small businesses.
  • The rate of closure on account of competition from organized retail is lower still at 1.7 per cent per annum.
  • There is competitive response from traditional retailers through improved business practices and technology upgradation.
  • A majority of unorganized retailers is keen to stay in the business and compete, while also wanting the next generation to continue likewise.
  • Small retailers have been extending more credit to attract and retain customers.
  • However, only 12 per cent of unorganized retailers have access to institutional credit and 37 per cent felt the need for better access to commercial bank credit.
  • Most unorganized retailers are committed to remaining independent and barely 10 per cent preferred to become franchisees of organized retailers.

  Impact on Consumers
  • Consumers have definitely gained from organized retail on multiple counts.
  • Overall consumer spending has increased with the entry of the organized retail.
  • While all income groups saved through organized retail purchases, the survey revealed that lower income consumers saved more. Thus, organized retail is relatively more beneficial to the less well-off consumers.
  • Proximity is a major comparative advantage of unorganized outlets.
  • Unorganized retailers have significant competitive strengths that include consumer goodwill, credit sales, amenability to bargaining, ability to sell loose items, convenient timings, and home delivery.
Impact on Intermediaries
  • The study did not find any evidence so far of adverse impact of organized retail on intermediaries.
  • There is, however, some adverse impact on turnover and profit of intermediaries dealing in products such as, fruit, vegetables, and apparel.
  • Over two-thirds of the intermediaries plan to expand their businesses in response to increased business opportunities opened by the expansion of retail.
  • Only 22 per cent do not want the next generation to enter the same business.
Impact on Farmers
  • Farmers benefit significantly from the option of direct sales to organized retailers.
  • Average price realization for cauliflower farmers selling directly to organized retail is about 25 per cent higher than their proceeds from sale to regulated government mandi (market).
  • Profit realization for farmers selling directly to organized retailers is about 60 per cent higher than that received from selling in the mandi
  • The difference is even larger when the amount charged by the commission agent (usually 10 per cent of sale price) in the mandi is taken into account.
 Impact on Manufacturers
  • Large manufacturers have started feeling the competitive impact of organized retail through price and payment pressures.
  • Manufacturers have responded through building and reinforcing their brand strength, increasing their own retail presence, ‘adopting’ small retailers, and setting up dedicated teams to deal with modern retailers.
  • Entry of organized retail is transforming the logistics industry. This will create significant positive externalities across the economy.
  • Small manufacturers did not report any significant impact of organized retail.

Link to the pdf version of the detailed report of the study

Thursday, December 1, 2011

Traders protest FDI in retail - not entirely justified

The internet, tablets and book readers such as Kindle are driving newspapers and book publishers out of business. Gmail and other electronic mail are driving postal office workers out of their jobs. These are just two areas that modern technology advances are driving people out of work. So how come, there are no protests? Is it because they are too small a group to organize themselves and create pressure groups? That they are so small in numbers that they do not constitute a vote bank? But is their job not a job and their livelihood not a concern for the rest of us? The march of commerce and technology cannot be stopped, it can be delayed, it can be controlled and manipulated but not stopped.

Instead of worrying about what Walmart and Tesco will do to us, this nation of 1 billion plus should be thinking of how we can use them to our advantage, NOT THE OTHER WAY AROUND. And that mode of thinking is exactly the difference between the Chinese and we Indians.