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July 31, 2012

Whither India?

by manojchughit

Manoj Chugh, India IT industry veteran

A lot has been written and will be written about the state of the Indian economy and how corporate dreams are going sour. GDP growth has slowed down from the heady 8-9% to the pathetic 5s. Shocking  industrial production growth numbers, high inflation,  a depreciating currency, reforms, tax policies, all seem to be hurting India. Many “pundits” and soothsayers, unfortunately, have chosen the path of declaring doom and gloom.

I cannot blame the bears. As they say, numbers speak louder than words. Apart from the growing middle class, all the numbers seem pretty scary! But, is it fair to re-paint the India story from boom to bust because of a few quarters of challenging numbers or because of the current state of the polity? It is a real fact that when there is a coalition Government, the ruling party cannot have it’s way all the way. The country voted and chose the structure of the government the way it exists. In a democracy, the will of the people must and will prevail. Again, is it fair to look at a country in terms of the Earnings per Citizen (EPC) on a quarterly basis and declare success or failure? It is a good point of discussion and debate and I welcome your thoughts.

As an investor or potential investor, the complexity of dealing with people who have the background of a 5000 year old culture deeply embedded into their conscience coupled with negative (recent) economic indicators can be a heady cocktail. After all money is the biggest coward and will go to the safest havens.

I have been the witness to the excessive euphoria/hype cycle followed by deep frustration several times over the last 30 years that I have been in business in India. It has always reminded me of the “sine wave” that my professors’ often alluded to in my Electrical Engineering class (and I did attend classes!). However, the reality also remains that even today GDP continues to grow at amongst the fastest pace in the world, the middle class needs goods and services. Education and healthcare continue to be important. India’s Gross Enrollment Ratio in higher education level is less than 14% (World Average of 26% and US at 83%). Drinking water, sanitation, quality, housing are all integral parts of what 1.2B people need on a day-to-day basis. So, the long-term potential of India cannot be under-estimated or wished away. These are real numbers, with real people who have real needs.

So, how does one grapple with this paradox? On one hand, the optimism of the future with a potential 1.2B customers who desire all the good things that their brethren in more developed countries have and  on the other hand, the challenges I mentioned at the beginning of the blog.

The answer (and you do not need to take a deep breath) lies in taking a long-term bet on India with a reasonable expectation in the short-term. Take life one day at a time, with a clear vision to remain invested for the long haul. If you take a short/medium-term approach to India (5 x Returns in y quarters), be prepared to lose your shirt and shorts! India is for the brave hearted who have the tenacity and staying power to brave the shorter term quarterly challenges and live to reap the benefits that the 1.2B citizens of this great country can bestow on you in the future.

Indian mythology has it that in the joint efforts of the churning of the milky ocean (Samudra Manthan), in which both the  gods and the demons participated, only poison oozed in the first wave. And I am sure that there would have been a lot of it. Over time as the churning continued, the best and most precious gifts were bestowed on mankind, in wave after wave.

(Photo Courtesy: Nayna)

India is about patience. Everything good will happen, in good time. But, you have to wait and be there at that time. Trying to jump in when the good results seem round the corner are fraught with huge risks as the entry barriers will be daunting.

A friend once told me that if success is about being at the right place at the right time. I might as well stick to where I am and just wait for the right time. We all know how complex it is to solve an equation with multiple variables. My friend converted one variable into a constant– place!

There are many examples of corporations who have done well in India, despite the challenging period we have gone through, over the last few years. ITC is one good example. One of India’s largest private sector companies which started operations in 1910 under the name of Imperial Tobacco Company of India Limited. This company has been in existence for over 100 years and has contributed significantly to the Indian economy. A well-diversified group which began as a cigarette manufacturer, today, has successfully diversified into ventures cutting across FMCG, hotels, paperboards & specialty papers, packaging, agri-business, and information technology. It is also amongst India 10 most valuable brands. ITC recorded a 17.2% growth in it’s topline for the FY 2011-2012 and a 22.4% growth in pre-tax profits (year ended March 2012). It’a ability to understand the Indian customer and establish itself as a credible partner at the grassroots level is laudable. It’s ability to align it’s social investments with the business value chain make it unique. ITC’s e-choupal project, brought it closer to the farmers, who are an integral part of the success story and supply chain of it’s tobacco, agri- and FMCG business.

(Photo Courtesy: The e-choupal initiative: ITC)

So– what is the mantra for success in India. In summary, it is about:

  • Investing for the long haul
  • A realistic approach for the shorter term. Do not be over exuberant.
  • Be seen to be a true and sincere partner in the social development of the country
  • Take time to understand the multitude of cultures and buying behaviors of the different markets. There is a different India every 100 km.
  • Leverage the tremendous local resource and manpower pool
  • Embed yourself into the fabric of the nation

…and I can promise, if you do it right and do not let the “quarter” urges overpower you, the pot of gold will wait for you…The ocean needs to be churned and churned long and well enough if you want the cream.

To learn more about guest blogger Manjoj Chugh, please read his bio and stay tuned for more posts.

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