MSMEs Big Potential of Pushing IT Spending: NASSCOM Study

Nasscom has come out wiht a study pointing towards huge gap in IT adoption Micro, Small and Medium Enterpises (MSMEs). It has has also pointed the huge untapped potential. According to Nasscom the IT penetration in manufacturing sector is abysmal and SME companies hardly make any major investment in IT.

The IT adoption amongst SME & MSMEs is very high in financial and accounting domain but lag behind in areas of CRM, procurement, production planning and supply chain management. SME companies hardly invest in automation and IT solution for enhancing production efficiency. The study found that though rate of IT adoption was at 75% in finance & accounting amongst companies but it just 18% in manufacturing process and even lower rate of 16% in ERP solutions.

Such low adoption of new technology imperil the chances of gaining competitiveness not just domestically but also in global markets as a lot of these SMEs compete in export markets. According to the study Indian SMEs & MSMEs spent meagre 1% of their total revenue on IT adoption, which was way below the global average of 4.5%. Lack of IT spending is crucial challenge for government which wants to improve both efficiency and competitiveness of Indian manufacturing and make India leader.

The Nasscom study also highlighted both demand side and supply side issues resulting in poor IT adoption amongst SMEs. While lack of internal IT expertise, affordable solutions, complexity of adoption, and lack of service providers was the issue with demand side, the supply side constrains were lack of last mile connectivity, support costs & qualified systems integrators.

Government Announces Rs 1,000 Bn Investment in Infrastructure

After it announces generating profit from seaports

The government came out with two separate announcements relating to infrastructure industry. The government announced that it has made a profit of US$ 577.4 mn out of revenue through its 12 major ports across the country during 2007-2008. it achieved stupendous growth of 159.8% over the period of last three years.

After pronouncement of its own achievements in the infrastructure sector, government announced to invest Rs 1,000 Bn in infrastructure projects in next 100 days. The Union Minister of State for Industry, Dr Ashwani Kumar, declared the government’s intention to invest in infrastructure projects not only to boost the economy but also to indirectly safeguard the jobs in infrastructure and construction sector.

Avoiding Unemployment as Poll Issue

Employment has suddenly emerged as the issue that is jolting the confidence of both politicians and businessmen alike. The government once again caught off-guard, is in mood of denial as it did in case of credit crisis and economic slowdown. The government seems to not woken up to the reality or it’s the Prime Minister Manmohan Singh, who wants to divert the attention by making claims about the economic growth. Mr Singh once again in a summit last week said that India would achieve next year’s growth target of 8%, when a few weeks back they were claiming it would be 7%.

Rising unemployment rate during elections are major embarrassment to any government, UPA recognises this fact and thus avoid any talk on the issue to prevent its escalation in media. The government and PM has kept on making statements about India’s miraculous future growth despite global slowdown. Finance Minister has severely criticized reports on layoff by industry and suggested industry could manage downturn without downsizing. The government has been trying to hush-up the matter. It want to keep the issue of unemployment under carpet to avoid any further jolt to its chances of winning election.

Almost every sector in the industry be it retailing, technology, automotive, textiles and exports are under pressure to shed labour and bring down production to avoid any closure. Government has no business in directly supporting industries in this business cycle, it should have taken steps to boost economic growth but it has even failed on this count.

Textile, Jewellery & Auto-components- Unemployment rises amongst India’s Forex Earners

The global economic slowdown has impacted different sectors with varied degree of severity. Textiles and Gems & Jewellery sector, which are one of the biggest contributor’s of India’s exports earnings, are in shambles. Both the sectors are tied with discretionary consumption of global clientele for their produce thus heavily dependent on global market. With discretionary consumption taking nose dive with economic uncertainty all over the world, consumptions of products likes jewellery and garments have fallen dramatically.

This has direct impact on the economic viability of business units related to these two sectors. As a large number of units in these sectors are small and medium size units and most of the workforce belong to unorganised sector. As the new orders have dried out, a large number of these SME units have shut shops leaving workers in lurch. Around 50,000 works have lost jobs in gems & jewellery industry, which expects job losses to go further. Textile industry also expects to cut 5 lakh employees in next five months. Adding to the woe is auto components industry, which in last few years had become darling of global automotive giants, as automobile industry faces question of declining demand the small components manufactures are already showing door to the contact labourers.

Montek and Chidambaram mock India’s Economic Scenario

Montek Singh and Mr. Chidambaram for past few days have been giving some really exaggerating statements about the economy. They continue to assert that Indian economy will grow at 8%. Now, how that suppose to happen. The global credit lending is expected to come down drastically during next year and India desperately needs it to continue its infrastructure and capex. Indian companies were already raising debt for international market as credit rates in India were high. How are Indian companies expected to grow at same rate in this inconducive economic environment? Plus they were quick to add how fundamentally strong Indian economy is.

How come economy be fundamentally strong where commodities are playing havoc to the economy, crude prices have endangered the aviation sector and is pushing inflation, housing boom is about to go bust with high credit rates and our exports are threatened due to global slowdown. They were not done yet, they made another comment on liquidity situation.

Yes there is liquidity problem, there are not many ready to lend to consumers and corporates are finding it hard to credit at lower rate (which is next to impossible). There is credit problem in the economy, but what about the money that FIIs have brought into the market by selling share and converting them into dollars! The problem, we don’t think is of liquidity in the capital markets but of leveraging and speculation on cheaply borrowed money. Now that it is difficult to leverage and get cheap credit there aren’t many players to do so in the stock markets. So, we have more and more selling and less numbers of buyers.

Plebiscite to solve farmer’s plight and land acquisition for industrialisation?

Maharashtra’s decision to hold plebiscite for MahaSEZ is radically different from WBengal’s decision on land allotment for Tata. This is evolutionary attempt in land acquisition policy for industrialisation. The news of plebiscite is bound to give sleepless nights for corporate, who will find it difficult to deal with the new situation. The new arrangement brings in a new party into the process.

The process gives farmers/land owners right to decide whether they would like to part of an industrial project or not. This is a good step in reducing the backlash over industrialisation in rural areas. It would also give farmers better say in rejecting any proposal to acquire land without a good and sustainable package.

However, there are also chances of manipulation of farmer’s interest as any misinformation would jeopardise interest of both stakeholders. Also unclear is what would happen when a minority of farmers oppose the project. The present policy provides that government will buy only 30% of total land for the project. Will government buy that small portion of land in case of opposition by farmers? This would add more uncertainty.

Government needs to bring in more clarity to the acquisition process, it should take notice of the new experiments and concepts, but until and unless government brings in new measures and rationalise the land acquisition, it will remain contentious issue.

Business of waste in India

As the penchant for low cost services has grown, some country’s habit of getting things done at low cost has also risen. Now its not just local people who are after raddiwala/bhangarwala it is municipal corporations in UK which are interested in washing off their dirt in India. It costs upto £148 to recycle a ton of rubbish but in India its costs only £40 almost a third. So, now British subcontractors are dumping waste in cost effective India as part of green and clean UK. The news has infuriated the country, which finds it difficult to get rid of its own waste, but not the businessmen.

India, like most of the developing country, has always been good dumping ground of waste, especially industrial waste. India for long has been hub of ship breaking industry. Most of this industry is located in Gujarat followed by some work in Mumbai and kolkatta; and together these places accounted of almost 90% of all ship breaking in the world till some years ago. There are around 170 yards in Alang, Gujarat, the nerve centre of ship breaking industry in India and it employs around 50,000 people. The ship scrapping activity contributes more than 200,000 tones of scrap every year to the re-rolling mills and thus accounting for 60% of domestic production of metal bars. This is the primary reason why government hasn’t banned the ship scrapping industry in India despite environmental concerns.

The Indian government is yet to ratify Basel Convention, but if it does than it will help a lot controlling unwarranted industrial waste into India and will also help in making this industry more organized.

Consumer Durable Industry top line to grow at 10% in FY09

Confederation of Indian Industry’s (CII) recent report has thrown a surprising as well as heartening result, wherein even after the Consumer Durable industry grew marginally in the recent past, the industry expects to grow at 10% in FY09. A snap poll conducted by CII on non-automobile based consumer durables sector showed that 92% of the CEOs expected 10% top line growth in FY09. On further dissection of the 92% positive CEOs, 31% of them expect top line growth to be in the range of 15-20% and another 31% of the CEOs expect the top line growth to be more than 20%.

On the profit aspect, the poll showed that. 69% of the CEOs expected profits to increase during FY09 and of these, 33% of the CEOs expected profits to increase by more than 20%. While on the export front, 90% of the interviewed CEOs expect exports to increase during the year 2008-09. Among those, 50% of the CEOs expected it to increase by 10% and another 20% of the CEOs expected an increase in exports by 10-20%.

The optimism of the CEOs may also stem from the fact that even though the sector grew marginally, it has seen progressive growth; the sector grew 3.8% in first three months of FY09, as compared with growth of 0.7% in the first quarter of FY08.

The poll also gave out impediments that the interviewed CEOs thought were plaguing the industry. Among the barriers to higher growth decked out in descending order were, infrastructure bottlenecks, rising raw material costs, high interest rates, regulatory burden due to multiple compliance formalities and frequent inspections.

However the snap poll is a positive sign for the industry as well as the economy, this confidence is further augmented by the recent ‘Mahabachat’ sale organized by leading retail chain company Big Bazaar, which saw record sales during the period.

Automotive Engineering Offshore activity gaining ground in India

India is steadily gaining ground in almost all kind of outsourcing and offshoring services. Automotive engineering offshore activity is also gaining ground. Currently automotive offshoring has been a small component of engineering offshoring activity in India. As per one of the estimation global engineering offshoring activity amounts to $10-15 bn and India accounts for just around 12% of this market. The global offshore engineering spend is expected to grow to anything between USD150-225 Bn by 2020 and India could have around 20-25% share of this industry. Automotive offshoring is expected to contribute a big chunk of this engineering offshore pie.

As per another recent survey by Frost & Sullivan, Indian automotive engineering service outsourcing industry is expected to clock a 32% growth by 2012-13 and is likely to generate USD 2.2 bn in revenues for the country in next two years. The report also emphasized on spin-off of automotive engineering services from IT sector to realize better growth opportunities.

Leading global automakers like Toyota, Daimler-Chrysler, Fiat, Ford etc source components from India. Both Toyota and Volvo source gear box for the automobile range from India. Daimler-Chrysler not just sources components but also uses IT services for integrating electronic gadgets in their cars. In fact Daimler-Chrysler sourced USD125 Mn worth of such components and software from India.

Tata & Ambanis: Ethics Vs Acumen

In span of few months we have seen that one industry house has failed in its dealing with the government while other has succeeded in its endeavor to gain business. While, Tatas are sulking at the failure to break the political deadlock over its ambitious small car project; Ambanis have successfully negotiated with their political adversaries and twisted proposals for windfall tax.

Irony exists between the two industrial houses (well its three now but thinking more or less unites Ambanis). One of the oldest business houses, Tata, believe in more old fashioned way of creating wealth, setting up private ventures with financial institutions. But, they are quite modern about business ethics and governance. Ambanis, on the other hand are more flamboyant with creating wealth for themselves and public through public investment. Though, the same public (and even government) doesn’t have a hint about the company structure and shareholding pattern.

Both Ambanis and Tata pursue policy matters but Ambanis do it more aggressively, they manage to get politicians on every committee to lobby for them. The Ambanis have been maneuvering policies for their good; if something would adversely impact their business they never hesitate to reach out to the top. Tatas on the other hand wait for the policy announcement to come out. Tatas had to scuttle their aviation project with Singapore Airlines due to policy hurdle but Ambanis never had to. One Ambani kept windfall tax at bay; the other prevented scrapping of dadri power project and got into Pension Fund management, where it was not even shortlisted.

But, Ambanis had to pack up their retail biz in many states. Tatas to had trouble with land acquisition in past but not as much as it is in Singur. Also, Tatas seem to have been unable to use their experience in dealing with states that have had inconsistent economic policy (i.e.Bihar, Chattisgarh) with respect to Bengal. They really believed that communist would replicate china’s model without any trouble. Ambanis have been cleverer in continuously amending their offer for land acquisition in case of MahSEZ in new Mumbai. One thing that is visible is none of the Indian industrial houses have learned lesson to tackle is public unrest over industrial projects.

India ranks poorly in the top 50 of UNIDO’s global Industrial Competitiveness; Automobiles and Textile industry make it to the top

India has been ranked 41st in the latest industrial competitiveness report prepared by United Nations Industrial Development Organisation (UNIDO). The ranking is based on the competitive industrial performance of countries. It is based on two sets of components viz., industrial development indicators and the competitive industrial performance index. It benchmarks a country in the backdrop of liberalization and globalisation. The scorecard suggests about competitive performance of a country, which is measured in terms of manufacturing value added per capita and manufacturing exports per capita.

The scorecard also takes note of industrialization, which suggests share of manufacturing value added in GDP and of medium and high technology in manufacturing.
UNIDO, in an accompanying statement said, that the scorecard brings out a persistent pattern of performance over the years among regional groupings of countries, with industrialized countries leading the rankings and transition economies tightly grouped in the middle ranks.

Singapore topped the ranking followed by Ireland, Switzerland, Japan, Belgium, Sweden, Finalnd, Germany, Republic of Korea, Taiwan, France, USA, Hong Kong SAR, Austria and Slovenia in the top 15. India although ranked 41st fared better than its neighbours with Pakistan ranking at 55, Bangladesh at 67 and Sri Lanka occupying the 75th position.

However, India made it to the top 15 automakers of the world, and among the top five in the leading developing countries category of a separate UNIDO report on motor vehicle manufacturers, thanks to a growing auto industry. According to the report, India ranked 12th in the list of world's top 15 automakers, which is led by Japan followed by the US and Germany. In the leading developing countries category, India ranked fourth. The list is topped by Mexico, followed by Korea, Iran. Brazil held the fifth position.

Also, Indian textile industry came fifth amongst top 15 textile producing countries in the world and India also made it to the list of world's top 15 producers of chemicals, electrical machinery, basic metals (iron and steel, non-ferrous metals) and other products.