Arvind Singhal: Tsunamis and tidal waves

MARKETMIND

This New Year, unfortunately, has been ushered in in the wake of an unprecedented havoc caused by a hitherto unknown (to many of us in this part of Asia) phenomenon named tsunami.

High-energy tectonic shifts somewhere in the Indonesian archipelago wrought incredible devastation not only in many parts of South-East Asia but even in some coastal areas of Africa.

I am not a geo-physicist and hence have no idea about how long (days, years, centuries, eons?) the stresses were building up leading to the massive rupture of the earth's surface and the resultant earthquake of this magnitude.

However, the time lapse between the eruption of the earthquake and the resultant mass destruction was measurable in terms of just a few hours.

I would like to use tsunamis allegorically to hypothesise about some other ones that could be building up in India""for the country itself as well as for many businesses.

On the national front, one such tsunami could be a result of the very massive increase in our population base especially in the last 25 years, when we have more than doubled in numbers.

Hence, while in percentage terms, the poverty rate as well as some other human development indicators may have shown improvement during the last few years, in absolute numbers, we have hundreds of millions of Indians who are still mired in abject deprivation.

With many amongst these hundreds of millions very young, and despite poverty, having some access to the media-facilitated imagery that brings awareness about the good things in life and thereby creates expectations, if we do not get seriously involved in getting this bottom one-third mass of our population into the economic and social mainstream, the stress caused on account of shattered dreams and expectations could well erupt through massive social unrest.

Each one of us who is in the relatively privileged top one-third of society in India has to pitch in some way or the other rather than leaving the challenge to be tackled only by (largely) self-serving politicians and an increasingly politicised bureaucracy.

Another tsunami could be lurking somewhere on account of the rapid deterioration of the economic and civil order in two of the largest Indian states: UP and Bihar.

With over 250 million Indians residing even in the truncated UP and Bihar, India cannot make sustained progress unless these two states are brought into the mainstream of the economic, political, social, and civil order and then development.

There are enough early warning signs of some breakdown in law and order, blurring distinction between right and wrong, and an increasing corrosion of ethics and value system in these states. Unchecked, each one of us (not only our brethren from these two states) could end up paying a heavy penalty in years to come.

The inability of our public health system to keep pace with the needs of not only a large but much more mobile population has led to a situation where India may well have the largest (or amongst the largest) number of HIV carriers.

In percentage terms, these numbers may appear low, but in absolute terms, they are large enough to threaten most of India directly or indirectly.

Epidemiologists may also be able to highlight many other such lurking dangers. Again, a total revamp of the public health system using the very latest approaches and best practices is urgently needed.

Indian businesses have, by and large, faced some disturbances and disruptions on account of increased competition, both internally and externally, reasonably successfully in recent years. As we are now well aware, the services sector accounts for the largest component of our GDP.

Within services, some of the most promising ones in terms of their potential for creating employment, generating export income, and even adding very positively to Brand India include IT and ITES, healthcare, product design, research & development, and retailing.

Ironically, one potentially mass-disruption phenomenon is to do with the way our industry is managing the human resource challenge. Superficially examined, India has no likelihood of shortage of manpower due to the sheer size (and growth) of the population.

Yet, despite having one of the highest unemployment rates in the world, Indian salaries and wages have been galloping the fastest when compared with India's competitors (China being the most formidable one).

Many of our best-performing new-economy sectors have been, so far, enjoying unbelievably high operating margins on account of various factors such as "novelty of sourcing from India", wherein the cost-benefit benchmarks have been North American and European, rather than Chinese or Brazilian or Russian, lavish tax breaks by the central government, early cherrypicking from meagre good quality/ low cost infrastructure in developed cities, etc.

On account of these high margins, many Indian businesses have been unbelievably profligate and have created an unsustainable wage spiral that can threaten the very existence of some of these service industries.

The solution, once again, is to go back to the grassroots levels (rather than focus only on the top 40-50 higher education institutes) and make major investment in secondary and tertiary education as well as vocational training (across the hinterland of India) that can assure low-cost, relatively good-quality man-power for decades to come.

Many of these new service businesses can well be established closer to these man-power centres rather than only the metros.

If from the fifties to the eighties, some of our leading industry builders like G D Birla, J R D Tata, and Dhirubhai Ambani were able to go to the remotest areas of India to establish highly successful businesses even in (for that time) high-technology industries such as steel, textiles, chemicals and fertilisers, and petrochemicals /polymers, etc.

Why can IT/ITES/R&D services not be based out of far more developed centres such as Nagpur, Baroda, Agra, Lucknow, Indore, and Kozhikode, just to list a few? Of course, it needs far more determination and effort to succeed in not-so-developed areas but it can be done.

If we do not gear ourselves for this extra effort, we should be ready to accept this tsunami wrought by inadequate human resource development and unsustainable human resource cost escalation on a number of our currently thriving service industries.

arvind@ksa-technopak.com