Monday, June 10, 2013

India's 12th Five Year Plan

India’s 12th Five Year Plan
Amy McDougall
Primary Question: What are some of the main overarching implications of the most current Five Year Plan that are likely to affect businesses operating in India (both domestic and Western)?
One of the main overarching implications of the most current Five Year Plan is the energy quota that will be needed in India to support its projected economic growth objectives. The Five Year Plan estimates that India’s energy needs will increase by 6.5% over each of the next five years and import dependence will most likely increase to 80% for India’s energy needs.[1] In India, along with the rest of the world, this is a pertinent conundrum for the realm of business. There is a limited amount of oil in the world and in the expected expansion in many business sectors, particularly manufacturing, will need significant sources of new energy to match its growth. The IEA, estimates that global demand for energy is going to increase over 8% over the next few years[2] and thus the companies/ countries that will do well in the face of this alarming shortage will be the ones that prepare in advance and invest in either alternative sources of energy or in business models that do not rely heavily on energy for economic growth. India proposes five main measures to promote energy efficiency within its borders, including Energy Efficiency in Industry where 467 industrial units have been identified as high energy consumers and through a plan of tradable credits are expected to reduce their energy needs as a whole. Reducing energy reliance is going to become even more crucial in the next five years for businesses to succeed and develop long-lasting business models that will prevail even in times of energy shortage.
Another overarching implication for business in the next five years is who will be the leaders in the world’s manufacturing sector. In both of President Obama’s State of the Union addresses, he addressed manufacturing as a top priority in the United States in order to stay competitive globally. In March 2012, according to a White House transcript of a speech by President Barack Obama, Over the past two years, the U.S. manufacturing sector has added more than 400,000 jobs, the first period of sustained job growth since the 1990s. The President’s proposals to revitalize American manufacturing build on that momentum and recognize that a growing and vibrant manufacturing sector is central to our ability to innovate, to export, and to create good-paying American jobs. Over the previous decade manufacturing production and investment stalled, and we lost ground to our competitors. To create an economy that is built to last, we must ensure that the next generation of products are not only invented here, but manufactured here as well.[3]  India has also realized that it must have a strong manufacturing sector if it is going to be able to compete in a global economy. With the ease that businesses have in outsourcing their manufacturing to global leaders such as China, the world is finding that countries must maintain a competitive edge in manufacturing or they are going to be left behind. Manufacturing as a percentage of GDP is only 15% in India, whereas it is 34% in China and 40% in Thailand.[4] India is hoping to utilize the manufacturing sector to provide the additional 250 million jobs that are projected to open up in the next 15 years.[5]  In order to do so, businesses must be investing not only in their technological capabilities, but they also must be spending the time to eliminate efficiencies in their existing plants to create core competences in efficiency and quality that cannot be met by international competitors.
And finally, a third overarching theme for businesses in the next five years is the ability to capture the rapidly growing tourism industry. According to World Travel and Tourism (T&T), expenditures related to travel and tourism is going to grow from $7340 billion to $14,382 billion by 2019.[6]  There is no other industry that is so directly tied to the image and reputation of the country of residence. The travel and tourism industry, which accounts for 7.6% of global employment, is largely dependent on the locations that have positioned themselves as attractive and safe locations for both leisure and business travel. As incomes continue to grow, the percentage of disposable income that can be delegated towards leisure tasks is becoming a lot more significant, providing large business opportunities, especially for developing countries. These business opportunities are largely connected to government spending on infrastructure projects and community development. Thus, one of the largest ways a country can help develop business in their home countries is to essentially “clean up” the country so that the tourism industry can thrive. India, an exotic and exciting destination for many travelers, would benefit significantly from investment projects that will transform India to a hub of international and domestic travel. Hotels, parks, museums, and cultural centers are all areas that can be further developed to attract business and investment.  In India it is estimated that the tourism and travel sector will add an additional 78 jobs per million rupees of investment (as opposed to 45 jobs per million rupees in the manufacturing sector).[7] Today some are the largest areas of growth for business are not in “useful” sectors but rather “leisure” sectors.
- What are some of your key observations and takeaways from the 12th Five Year Plan?
For someone who did their entire Senior Project on the significance of national re-prioritization of hunger, I was first shocked to see that hunger was mentioned 0 times in India’s Five Year Plan. Although it briefly mentions health and has occasional references to nutrition, it was appalling to me that a country that is ranked number 94 out of 119 on the World Food Program’s Global Hunger Index, with North Korea and Sudan scoring better than them, India would not specifically discuss hunger as a top policy initiative for the next five years.[8] Although I highly respect India’s Five Year Plan strategy, one of my main criticisms is that it over-projects and spreads itself very thin. It tries to focus on everything and improve everything all at once, which has proven to be largely ineffective. I would have appreciated seeing India prioritize its objectives, analyzing where the root causes of India’s under-development lie. I personally think that hunger is one of the top priorities of India. Having such a large population that does not have its basic human needs met, makes the country as a whole in a perpetual state of underdevelopment because it is not capitalizing on its human potential. Growth in India will continue to be extremely dichotomous between the rich and poor in India if the marginalized are not made a top priority.
That being said, I did think that the overall Five Year Plan was a good projected snapshot of the next five years in India. I think that its projected growth of 9% per year is achievable and the plan does propose some strong strategies for achieving that 9% growth.[9] I think that perhaps the most compelling strategic goal of India’s 12th Five Year Plan was under the realm of infrastructure and urban development. India has one of the largest populations in the world and in order to sustain its economic growth, it must be very careful and particular to create strong foundations (literally) to prepare and sustain long-term growth. The Five Year Plan rightfully emphasizes that a “whole city” approach to planning an improvement must be taken creating ‘city master plans’ that take into account both hard and soft infrastructure.[10] With how fast India has and will continue to develop, it would be tempting to get caught up in the whirl of growth without putting in the discipline of mapping out its success. A good example of this is the slums. As large masses of people flocked to the cities seeking employment and a better life, there was no plan in place for this vast flood of people surging the cities, and as a result overpopulated slums emerged to house the masses who had nowhere else to go. If India plans to continue on this path of rapid development, it must be matched with clear and organized processes to assist in periods of rapid expansion. If it doesn’t India will be left to go back and try to fix problems that surfaced due to poor pre-emptive planning.
I think that another key element of India’s 12th Five Year Plan is the level of government assistance and will to see these objectives through. Any country can map out an idealized vision of where they would like to be in 5 years, but if they do not have the leadership to see the nation through the difficult transitions that must occur for their goals to be met, the country will be headed down a very dangerous path. India has compared itself to its Asian neighbors on many instances, but it has failed to demonstrate how a very different political structure is going to meet the same goals of their Asian counter-parts. A good example of this is India’s manufacturing sector. I agree with Rajeev Sibal of the London School of Economics and Political Science when he says that India’s goals of making manufacturing 25% of GDP in the next 10 years is lofty at best.[11] India has a very fragmented and scattered political structure that makes large national transformations almost impossible. Although it has the human and resource capital to become a manufacturing giant, India’s tight political grip on the economy makes it difficult for any industry to “take off” like it hopes for. Economic policies, trade policies, tariffs, and political mobilization are all important factors that would have to be put in place simultaneously alongside the infrastructure and industry investment and development. India’s Five Year Plan does address political corruption and organization, but it fails to see that this is another one of those areas that should be highly prioritized or all other goals will be stunted.
- Some economists argue that 10% GDP is the minimum growth floor India needs to achieve to create enough jobs for its markets and stability. The most recent plan appears to shoot for growth for most of 2012-2017 at 8.2%. Can India achieve such growth over the next four or five years? What may happen for them, and for us/the USA, if they come in lower than that number?
Although the world has been excited for India’s rapid growth over the past decade, it still is a developing country who in my opinion will not reach 10% or more GDP growth in the next 5 years. India in my opinion has come to a standstill. Some major investments need to be made if long-term growth will be sustainable, and these major investments may not demonstrate immediate GDP growth. That is one of the dangers of these 5 year plans. They give a short term view of development and growth but are at risk of disguising long-term implications. Although they were touched upon in the latest Five Year Plan, areas such as education, health, human resource development, and infrastructure projects all need to take precedent in India if long-term sustainable growth is the goal, but these areas of growth are not going to result in automatic economic growth. For example, it is estimated by the National Skill Development Corporation that 8,664,000 new teachers and trainers will be needed to meet demand by 2022.[12] Training that many employees takes time and funds; however once those investments have been made, the new human capital available acts as a development multiplier for future Five Year Plans.
This is where I would argue though that it is ok if India doesn’t see a 10% growth in its GDP for each of the next five years, because the opportunity cost of this automatic growth, may be a more sustainable long-term growth model. However, based off of India’s 12th Five Year Plan, it is uncertain if a lack of immediate economic growth will actually be a result of these long-term investments. In many ways India is like a giant boulder that has been pushed down the hill, and no matter how hard people try to steer it, its size and speed is difficult to control.
What will be difficult to predict however, is the international implications if India does not meet that 10% growth. If a giant like India were to collapse, markets across all different sectors could also crash. The world, especially the United States, has begun to rely on India for its large number of consumers and investment opportunities and a crash could create financial chaos for many MNCs and trade partners with India. India also already has one of the largest impoverished populations of the world which creates a financial and moral burden amongst developed nations who feel they have a responsibility to invest in India’s growth for the sake of human rights. If India cannot meet the needs of its own people, then states like the USA are going to have an even larger responsibility of taking care of a growing impoverished population.
- What are some of this plan’s targets and longer-term priorities? How do these differ from our priorities in the USA, and why?
Approximately ¾ of India’s population is reliant on rural incomes, which is why agricultural development is one of India’s longer-term priorities. The USA on the other hand has only about 1% of its population that claims to have a farming occupation. Thus, the U.S. and Indian goals towards agriculture differ significantly. Also, according to Issues, Priorities, and Challenges for Indian Agriculture: a Worldbank View by Rashid Faridi, India is a global agricultural powerhouse. It is the world’s largest producer of milk, pulses, and spices, and has the world’s largest cattle herd (buffaloes), as well as the largest area under wheat, rice and cotton. It is the second largest producer of rice, wheat, cotton, sugarcane, farmed fish, sheep & goat meat, fruit, vegetables and tea. The country has some 195 m ha under cultivation of which some 63 percent are rainfed (roughly 125m ha) while 37 percent are irrigated (70m ha). In addition, forests cover some 65m ha of India’s land.[13] In India’s 12th Five Year Plan it has recognized that it has enormous capital when it comes to agriculture, and thus it must become a large source of development in order to bring millions out of poverty. According to the 12th Five Year Plan, “ Expansion of farm incomes is still the most potent weapon for reducing poverty.”[14] Thus, some challenges that India must prepare for according to Rashid Faridi are raising agricultural productivity per unit of land, reducing rural poverty through a socially inclusive strategy that comprises of both agriculture as well as non-farm employment, ensure that agriculture growth responds to food security needs, improving water resources and irrigation, facilitating agricultural diversification, promoting high growth commodities, and developing markets, agricultural credit and public expenditures.[15]
Another long-term priority of India’s 12th Five Year Plan is urbanization vis-à-vis centrally developed city and regional plans. Projections show that over 600 million of India’s populations will be living in cities by the year 2030 and in order to prepare for that mass flooding to urban areas, India must be proactive in its developmental plans.[16] Strengthening government structures that can circumvent chaos with the mass inflow of citizens to the cities will be crucial for long-term development. Failing to provide sewage, water, transportation, housing, and roads that are organized and fluid in structure will only result in an increase in Indian slums that are very common throughout India. Slums create a whole slew of new sociological issues that India now has to combat and by being pro-active in developing “master plans,” these slum situations can be reduced or in some cases eliminated. This long-term policy objective differs from the United States because the US is in a different stage of development. Instead of massive urbanization, the United States is witnessing more a transition to suburbs which are easier to regulate and control. Thus city and regional planning is important in the United States as well, but it has already made most of the infrastructural investments needed to make these sociological transitions more smooth.  
- What were some of the accomplishments (and failures) from some of India’s previous Five Year Plans?
In the 10th 5 Year Plan agricultural growth was at 2% and in the 11th 5 Year Plan it increased to 3%; however this growth does not match the growing agricultural needs of India in which over half of its population is dependent on agriculture for its livelihoods. Agricultural investment though does represent one of India’s accomplishments. As a percentage of GDP, agricultural investment has raised 11% since 2002-2003.[17]
Infrastructural development is also one of the successes of the 11th 5 Year Plan. Infrastructure investment increased as a percentage of GDP from 5.7% to 8%.[18] This increase in funds went to projects such as oil and gas pipelines and telecommunications; however targets in electricity and transportation were unfortunately not met.
India has also almost doubled its exports in the last 10 years demonstrating policies of openness.[19] Breaking down barriers and opening up India to the international economy is a way to stimulate economic growth and enable India to capitalize on international opportunities.
One of the major failures of India’s previous Five Year Plans is combating hunger. In the most recent 5 Year Plan, hunger is not mentioned once. Although it discusses agriculture and health, it avoids the topic of hunger. From my own personal research I know that India has one of the highest hunger rates in the world and so it is absolutely shocking to me that hunger is not addressed in these 5 Year Plans. It seems that hunger is the elephant in the room that policy makers are unwilling to talk about.  
India also failed in its 11th Five Year Plan in its capacity expectations for energy. The 11th Plan targeted 78.7 GW of capacity and did not achieve over 50GW. This was largely due to “poor project implementation, inadequate domestic manufacturing capacity, shortage of power equipment, and slow-down due to lack of fuel, particularly coal.”[20] It’s 12 Year plan projects capacity creation of 100GW, but in order to achieve that goal, it must learn from the mistakes of its past Five Year Plan.[21]
For manufacturing, India did well in its 11th Five Year Plan with its auto industry, pharmaceuticals, and IT engineering services. However it did not succeed in other manufacturing sectors because it was unable to provide the cheapest option for companies to outsource value stream activities too. Although manufacturing investments were made, compared with its competitors, namely China, it has not been able to keep up in its previous five year plans.
- Do you think this type of strategic planning is possible in the USA? Would the pros outweigh the cons, and what would be some of the pros and cons of a Five Year Plan in the USA? If a Five Year Plan option was presented to American voters as a constitutional amendment, would you vote for or against it, and why?
I think that this type of strategic planning is definitely possible in the USA. It is a significantly smaller country than India and it has had a lot more practice in making goals and measuring their success against the benchmarks made in the past. However, in the United States the difficult part would be deicing the “how” of the the 5 Year Plan. The United States is so split along the party lines that the Republican-Democrat tug-o-war would make it extremely difficult to agree on one 5 Year Plan. The election of a different president every 4 years would make it even more difficult to even create a 5 year plan.
This leads us however to what role the Five Year Plans play. If the goal is for a nation to look ahead at the next five years and establish a vision of where the nation should be, then I think Five Year Plans are very useful. If the goal however is to create a step by step road-map for the next five years, I think that is highly unrealistic and would never pass as a constitutional amendment. It would be highly intriguing though if a third neutral American body was in charge of creating a 5 Year Plan that policy-makers would then be required to cooperate and achieve the goals and objectives of the 5 Year Plan together. Under those circumstances, as a US citizen I would definitely vote the 5 Year Plan strategy into the constitution. That raises issue though of how would this body be created and who would be in charge of appointing its members, placing some realistic restrictions on that becoming possible.  
Overall though, I think the United States would benefit from creating 5 Year Plans that are not tied to whoever is in office. I think that it is very easy for policy-makers to work aimlessly and realize four years later that nothing ever got accomplished. So much time and effort is spent tearing down the other party that our political system in many ways has become extremely unproductive. I think that India is in a sense realizing this as well as it uncovers that having a democratic political system places road-bumps in the way of progress that citizens feel is necessary to uphold their constitutional values and their personal freedoms. A nation like China benefits a lot more from its 5 Year Plans than a democratic state such as India or the USA because its government can pursue the 5 Year Plan with no accountability nor debate.
China however, has proven to the rest of the world that despite its differences in governance, it has lifted more people out of poverty than any other nation and has taken its place as the most rapidly developing nation in the world. Is there a democracy/ development trade-off and if so, how does a nation like India or the United States compensate for the time delays of democracy in order to deliver the same levels of growth as an authoritarian state like China?

[1] India’s 12th Five Year Plan: Energy
[2] US oil ouput to meet world’s new demand in next 5 years. Khaleei Times. 15 May 2013.
[3] President Obama Speaks on Manufacturing. The White House. 9 March 2012.
[4] India’s 12th Five Year Plan: Manufacturing
[5] India’s 12th Five Year Plan: Manufacturing
[6] India’s 12th Five Year Plan: Services: Tourism, Hospitality, and Construction
[7] India’s 12th Five Year Plan: Services: Tourism, Hospitality, and Construction
[8] Kounteya Sinha, "India tops world hunger chart." The Times of India, February 27, 2009. (accessed June 6, 2012).
[9] India’s 12th Five Year Plan: An Overview
[10] India’s 12th Five Year Plan: Urbanization
[11] Sibal, Rajeev, “India’s Manufacturing Sector: New Policy, No Progress.” The London School of Economics and Political Science.
[12] “Human Resource and Skill Requirements in the Education and Skill Development Services Sector.” National Skill Development Corporation.
[13] Faridi, Rashid. “Issues, Priorities, and Challenges for Indian Agriculture: a Worldbank View.” Rashid’s Blog. 16 January 2012.
[14] India’s 12th Five Year Plan: Farm Sector
[16] India’s 12th Five Year Plan: Urbanizaton
[17] India’s 12th Five Year Plan: Farm Sector
[18] India’s 12th Five Year Plan: An Overview
[19] India’s 12th Five Year Plan: An Overview
[20] India’s 12th Five Year Plan: Energy
[21] India’s 12th Five Year Plan: Energy

Thursday, March 21, 2013

Book Review #2: The Elephant and the Dragon

The Elephant and the Dragon:
Book Review #2
By: Amy McDougall


Robyn Meredith, author of New York Times bestseller The Elephant and the Dragon, outlines the rise of two of today’s major world players, India and China, highlighting the international implications of their rise along with important changes that need to occur if India and China are going to continue in their rise.  The two animals in the title are indicative of the different processes China and India have gone through in their rise.

The Dragon: From its Maoist start, when 40 million people starved to death in between 1959 and 1962 (Page 19), China has had record amounts of growth in the past 50 years with its GDP currently growing at approximately 9.6% each year (Page 37). This rapid growth is largely attributed by Meredith to be a product of China’s communist spin on Capitalism.  If a mountain needs to be moved, the Chinese government will find a way to make it happen. As a result, China has taken the lead as the most rapidly modernizing nation in the world, moving with the speed and fire of a Chinese dragon.  

The Elephant: India on the other hand, although not as impressive in terms of numerical growth as China, has been lumbering not too far behind China. According to Mr. Das, “[India] will never have speed, but it will always have stamina,” (Page 56).  Gandhi and Nehru’s ideals of self-sufficiency and simplicity were deeply engrained into the Indian memory, but after serious financial reforms, India’s educated and English-speaking population drove India into the 21st Century not too far behind China. According to Mr. Nath of the Indian Commerce Industry, “China is winning the sprint, and we are going to win the marathon” (Page 57).

The Relevance of The Elephant and the Dragon

There has been much fearful hubbub surrounding the topic of China and India’s rise (especially China’s).  With populations that dwarf that of the United States, it is easy to see why the rise of two Eastern nations would cause the West to be cautious. Although both China and India emulate some aspects of Western ideals such as liberalism, capitalism, and in India’s case, democracy, the deeply rooted Eastern cultures that both of these countries emulate are often dichotomous with Western ideals, and as they rise, they are going to be less inclined to succumb to American or Western hegemony.  China already has permanent member status with the UN Security Council and has used its position of power to protect its interests, such as veto-ing economic sanctions on Iran (a main source of Chinese oil) (Page 165). India is in the process of being considered for permanent member status, and although it aligns more heavily with the United States, particularly in Eastern affairs, it is less inclined to bandwagon with the West. On top of that, China’s human rights abuses and the persistence of communistic ideology and India’s growing rich-poor gap along with persisting caste system are major causes of concern for international norms. China’s growing military and the persistence of nuclear power in both nations amplify fears from the West.
This book thus is relevant because it highlights a shift in international power and politics that the rest of the world needs to be prepared for. Both India and China are a force to be reckoned with and it would be naive to not embrace and capitalize upon this new source of opportunity. It also emphasizes a growing trend in international business and so for MBA students it is crucial to understand how the world is now doing business differently in order to succeed in our own personal business careers. 

Where Meredith Excels:

The first area I believe Meredith excels in is in her ability to tie in the history and culture of India and China and explain how these cultural and historical differences will either impede or encourage India and China’s growth.  China, with its history of strong authoritarian leaders has been able to make big strides in economic development because decisions can be made quickly and the people don’t have to be in support of any proposed change.  Meredith though displays also how this might be a potential downfall for China in the future.  Her particular portrayal of the Tiananmen Square incident is a pertinent picture of China that is important to recognize (Page25-27).  She does a good job portraying that there might be a glass ceiling on China’s development if they are unable or unwilling to make political and sociological changes amongst their people. 

Incidentally Meredith claims that this is India’s strategic edge.  Although India has not been as rapid in its growth and development, it has the political foundation that is conducive to long lasting change.  For India however, Meredith does not downplay the persisting caste system that has perpetrated a large rich/poor gap in India that must be reconciled if further growth is in order, or else this prevailing caste system may impose a glass ceiling upon India’s development.  

Meredith also demonstrates that these cultural differences are not the only factors that have indicated China or India’s development.  China indeed made some strategic policy initiatives that India failed to institute from the start, including China’s primary initial objectives such as infrastructure projects, a strong educational foundation, and a focus on rural incomes (Page 156). I think that Meredith is correct in attributing these three factors as the primary underlying triggers of change that resulted in a much faster rise in China than India.   

Meredith also excels in her ability to take India and China as case studies for an even larger argument of how the world of business and industry is rapidly changing.  Her chapter on the Disassembly Line was particularly relevant for MBA students.  Henry Ford revolutionized manufacturing and industry through his assembly line.  Bringing talented and well-paid workers together to see the development of a product all the way through was one of the biggest turning points in economic history.  Today however, the disbursement of different steps to different countries where people of different cultures put together a conglomeration of different products is the next big turning point in economic history.  Our perceptions of modern business have been transformed by this chapter and Meredith highlights the growing internationalization of trade and what those implications are even on American businesses. Today business has become a sort of black hole, where no one can really comprehend the depth and complexity and reach of a business cycle. This web of interconnectedness is getting even more difficult to navigate, making it more complicated to compete in this age of globalization.

Where Meredith Falls Short:

The main flaw of The Elephant and the Dragon is the fact that it is a little bit outdated.  Published in 2008, almost all of its major themes are still relevant but there have been a few significant events that have happened in the past few years that would be extremely additive to Meredith’s work. Issues such as China’s role in the South China Sea, along with the 2008 and 2011 food crises, the financial crisis, and the democratic revolution spurred by the Arab Spring all have lasting implications on the roles of China and India. 

Meredith also primarily had an economic focus to her book. She discussed politics in the domestic context, but failed to demonstrate how China and India’s economic power was going to transfer over into international political power.  For example, how can China and India take on new diplomatic roles with North Korea or Iran? Or will India and China partner with other developing countries to assist with their rise? Or will the size and power of China and India make them exempt from many international norms, similarly to how the U.S. plays be an entirely different set of rules than  the rest of the world?

Finally, Meredith’s book is an accurate portrayal of the growing competition between China and India; however she does not propose how these two models of growth and development will serve as benchmarks for other developing countries.  Will developing countries be more prone to take on the Chinese model or the Indian model?  Which process is more sustainable, or are these two models of development only going to be successful in India and China because of the cultural foundations that these countries had before them?

My Recommendations and Closing Thoughts:

Overall I think that Meredith’s book The Elephant and the Dragon, was an important book for MBA’s to read, particularly before travelling to India.  It is important to understand the role India and China will play in the context of international business. Today, almost all business is international and it would be naive for Americans to fall behind in this competitive world because they are unaware of the cultural difference between the world’s economic power-houses. I personally think that both India and China are noteworthy examples of development, but I agree with Robyn Meredith.  There are several key factors that both India and China must focus on or they are going to max out in their development. Already, Brazil, Russia, Mexico, South Korea, Turkey, Indonesia, and South Africa are following closely on India and China’s heels and so the competition is only become more intense in the next few decades.  China and India will soon find that it isn’t enough to rely on macro-economic development as their sole measure of progress.  Meredith’s note of the younger generations and her reference to Thomas Friedman’s “Demographic Dividend” will indeed be a crucial determiner of 21st century power.  This up-in-coming generation who are already growing up in a world vastly different from their parents, are going to set the stage for economic, sociological, political, religious, and cultural change.