As Asia’s third largest economy, the success or otherwise of India has an impact that resonates through the region and the rest of the world. As a part of BRICS, the country’s massive growth was a major help during the economic crisis after 2008. Despite this, the country’s slowing economy has caused concern from investors looking to India as the future.

1. 10th December 2012
India Failing: Hitting Another BRIC Wall?
INTRODUCTION
As Asia’s third largest economy, the success or otherwise of India has an impact that resonates through the region and the rest of
the world. As a part of BRICS, the country’s massive growth was a major help during the economic crisis after 2008. Despite this,
the country’s slowing economy has caused concern from investors looking to India as the future.
Over the past year, The Economist has run headlines such as “Farewell to Incredible India”, “India's economy: A BRIC hits the wall”
and “Indian banks: Hold your nose”, this theme is one which many outside India have adopted, but what about those from within
the country? To gain perspective from inside the country itself, we asked 185 IT & Business professionals based in India if they
thought the country was failing, and the reasoning behind their answer. This spotlight provides unique insight from professionals
on the ground, and shows how much faith locals have in their economy and where they think things can be improved.
Do you think India is failing? (Source: IDG Connect)
Yes No
43.2% 56.8%
NO - PROGRESS & POTENTIAL
Overall, a slim majority felt that India is still succeeding. The reasons for this were varied, but the comments were overwhelmingly
positive. Many pointed out that the current growth rate of 4-6% is still a good figure - one that many Western countries are unable
to reach - and anything higher is a bonus. One person explained:
“The Government is looking into implementing more policies which will lead to growth. India still has the advantage of a huge
pool of human resources which is being utilized appropriately in every sector. Agreed that last year or so has been a lull period, but
with the change in government stance, India is back on the growth path and will lead the way once again.”
Many admit that things have slowed down, but feel that things will return to normal in the future. “The Indian economy is still
doing much better compared to the rest of the world. And as soon as World Economy improves, India will again be in good shape,
so there is no question of failing,” one interviewee said. While another explained, “These are tough times and consumption levels
have gone down. Come the festival season and the New Year there will be a huge upswing in the economy driven by FMCG's,
consumer durables and automotives.”
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2. Other Comments included:
“ India is ‘slowing down’, and that cannot be ruled as ‘failing’. A little bit of slowing down will bring stability to the system
amidst breathless growth. ”
“ While Indian IT is slowing down,that the wayhuge number of people attempting to andstart-ups. There is optimism
there are a do
amongst people. We are all clear forward is by getting more educated by looking at starting businesses. ”
“ India is passing expect more transparency. Ratings given by analysts etc. are generally based on present less tolerance of
corruption. We
through a transition to become a society where entrepreneurship will be awarded with
situation, they
cannot translate the under current into future forecast even if they see positive signs. ”
“ Maybe by looking at the current economic situation India looks as if it failing, but a highly enthusiastic, entrepreneur-
minded young crowd is going to come like a storm to transform Indian IT sector. ”
“ Historically, India has always beentrue potential, it also has helpedhas beenover global crises better. Whenever things has
stopped India from achieving her
slow at accepting changes, and
her tide
reactive rather than proactive. While this
started getting tough, India has managed to come out better. It may not be the ideal way to do things, but it has always
prevented India rom failing. ”
YES - STIFLING POLITICAL PROBLEMS AND STAGNANT R&D
Reasons India is Failing,
Of the 43% who did feel that India was failing, poor legislation and regulation (Source: IDG Connect)
were cited as the main reason - almost 50% thought so. Comments were very
critical of the government:
“ Nothing has moved for the past 15 months. The central government is
paralysed. ”
2.7%
“ The government is stuck and cannot pass any new rules or regulations
to improve conditions. ” 4.1%
9.6%
“ Politicians and vested interests have created a powerful nexus of
privatising profit and short-changing the wealth of the country. At
every level of government, there is abject corruption and failure to 9.6%
provide services. Resources are available but they are being
26%
squandered. ”
47.9%
One respondent called the government “feeble” and “lacking vigour” in
implementing a growth plan. Corruption was also blamed, with many who chose
regulation as the main problem also adding that corruption was an influencing
Other
factor. “Whole country is swamped in scams, corruption and rampant disregard
for rules & discipline,” one interviewee said. Several people pointed to the Low pay
government’s long term plans, including its own future. One was concerned by a Global economic climate
“high number of uneducated ministers who do not have clear vision or drive in Corruption
planning for growth and aging bureaucrats and no clear succession planning” Lack of innovation
while another said to fix things, “India needs a political reform with young Poor regulation/legislation
generation taking on more responsibilities.”
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3. A lack of innovation was also a big factor for those who feel India was going in the wrong direction. A lack of government support
was one of the main reasons, as was an aversion to risk by older members of the business community. One interviewee said:
“Government regulations are the biggest hindrance to innovation and urge to do things in the right way. There is no room for
innovation. The moment one tries to do something differently, he/she will be considered mad. We as a community/country lack the
courage to do things in the right way and do not wish to find ways to do things differently.”
Another perceived attack on innovation was the education of those currently entering the job market. One interviewee described
the difficulty of trying to find the right employee; “innovation requires independent thinking and experimentation. Neither of
which is encouraged in India. I have come across several youngsters who have done very well in certification exams but yet they
perform very poorly in our quiz which focuses on ‘Application of Mind.’"
Other comments on a lack of innovation included:
“ People are not showing interest in R&D, neither is the government showing any encouragement. ”
“ Lack of innovation comes from older management adopting a risk-averse attitude, not adapting to the hectic changes
around the globe and sticking to archaic policies and methodologies in day-to-day activities. ”
“ We are still service-market oriented. This means that we are an always-dependent market. Innovation brings products and
that will ensure stability. ”
The global economy, low pay and over-saturation were also featured in people’s concerns, though less heavily.
BACKGROUND
The business media has all but written India off.
YoY growth in India’s real GDP, March fiscal year-ends, 2001-2012E (%)
“Farewell to Incredible India”, “India's economy: A
BRIC hits the wall” and “Indian banks: Hold your
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nose” have all graced the cover of the Economist this
year, and similar stories can be read elsewhere. And 9.5 9.7 9.2
on the front of things you can understand why. 9 8.5 8.3
8.0
7.5
The IMF recently lowered the country's growth 6.7 6.7 6.6
projection to its lowest point in 10 years and global 6
5.8
agency Standard & Poor's threatened to downgrade 4.4
3.8
India's sovereign credit rating from the already
low BBB - to junk grade within 24 months, after 3
it released a report entitled “Will India be the first
BRIC fallen angel?” while on the IT front, India's net 0
software exports have slid to a 10-year low and IT
2002
2005
2003
2001
2004
2006
2007
2008
2009
2010
2011
2012E
2013E
revenues for Q3 rose by just 2%.
So why the decline? Government regulation seems (Source: Central Statistical Organization, Kotak Institutional Equities estimates)
to be a major issue. For example, S&P said that it
could improve its outlook on the country if "the
government implements initiatives to reduce fiscal deficit, improves its investment climate, and increases growth prospects". In
its World Economic Outlook released this month, the IMF said, "India's activity suffered from waning business confidence amid
slow approvals for new projects, sluggish structural reforms, policy rate hikes designed to rein in inflation, and flagging external
demand." And although on the decline, corruption is still prevalent in many quarters of Indian society.
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4. Employment also seems to be hitting a wall. According to Naukri's Job Speak Index, the job market has slowed down and seen
three months of decreasing recruitment rates. While lower hiring levels don't mean crisis, it does indicate a lack of growth or
ambition from companies. The fact that Indian IT companies are one of the 10 worst-paying employers in the world is no doubt
also hampering growth.
Even in certain areas of business still enjoying rapid growth, there are Innovation Rankings 2012
deep-seated problems. India already enjoys 900 million mobile phone (Source: INSEAD)
subscribers, and penetration is expected to rise from its current 78%,
but chronic overcrowding of providers is causing troubles - while
the average number of mobile providers per country is four, India 31st
RUS CHN
has 12. The lowest average revenue per user per month in the world,
various corruption problems around 2G licences, and a low uptake 51st
of 3G means the industry has failed to reach its potential - when
the country's biggest mobile phone operator, Bharti Airtel, posts 10 54th
SA
straight quarters of decline, something has to be wrong.
58th
BRA
While India's top spot for outsourcing may be safe for now, times are
changing. The Indian BPO sector is still very strong, worth around
64th
IND
$63.2 billion in 2012, but competition from China, the Philippines,
South Africa, and a backlash against outsourcing have all eaten
away at the sector's growth. India's growth for the last few years
SNG
reads 25.4%, 23.6%, and 15.7%, compared to China's 43.5%, 63.6%, 1st
and 33%, topping revenues of $53.8 billion this year. As with other
areas, new ideas and avenues have to be brought to the table as other 10th
USA
countries start to move into ground traditionally held by India.
To prepare for the future, India needs to innovate. In this year’s Global Innovation Index, India was last of the BRICS, coming
in 64th out of 141 countries, two places lower than the previous year. Vijay Govindarajan, a professor of international business
at Dartmouth College, told TIME magazine, “Without business model innovations, India cannot solve the problems for 90% of
Indians.”
But it's not all bad by any means. Despite the employment slowdown, a survey by ManpowerGroup found the number of employers
who say they intend to hire in the fourth quarter outnumbers those who report they will reduce payrolls, by almost 20 to 1; various
Indian companies saw decent Q2 growth; and spending on smartphones and tablets continue to rise. And despite low levels
of growth for software exports, 4% is still a decent number in a slow economy. So the future still seems positive, with Gartner
predicting Indian IT spending to rise next year by more than 7% to $72 billion.
With India becoming a bigger player on the G20 stage, according to US Federal Reserve chairman Ben Bernanke, it sounds
promising that experts feel confident investing in the Indian economy after government reforms: "It is highly encouraging to
see the current wave of economic reforms being initiated by the Indian Government as they would help in restoring investor
confidence, thus reviving growth too," said US Treasury Secretary Timothy Geithner.
There are plenty of opportunities in India; you just have to look for them. Despite the bad news, growth is still growth, and it's a
reality that as the country catches up with more mature markets, those figures will be smaller. But as long as they don't turn into
minus figures, it's no bad thing, and if the government reforms take hold, maybe even double figure growth can appear again.
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5. Expert Opinion
Jayadevan PK,
Associate Editor,
NextBigWhat.com
India Isn’t Failing - Our Entrepreneurs are Hard at Work
Doing business in India is tough, but that has never stopped great entrepreneurs from building great companies in the past.
And it will not stop them from doing so in the future.
Passionate entrepreneurship is on the rise and it will have the biggest and furthest impact on the country's $1.85 trillion
economy. India’s $70 billion software services industry has given birth to a new generation of risk takers - a generation ready
to think big and bet bigger. They understand foreign markets. They understand complex domains. They understand India.
And technologies that will drive the future - Cloud computing, social media, mobile, big data and analytics – these are their
weapons of choice.
Entrepreneurial activity is perhaps at its highest. Grandchildren of Indians who went to America are coming back to India.
New airports, the metro and new roadways are being built. Mobile networks are expanding; broadband penetration, though
among the lowest in the world, is increasing fast. Large-scale technology deployment, like the Aadhaar project which has
never been attempted elsewhere in the world, is happening in the country.
Almost all of the worlds’ largest venture capitalists are scouting for the next Google or LinkedIn in emerging economies.
Storied Silicon Valley investors like Vinod Khosla are starting business incubators in India. Chamath Palihapitya, the former
Facebook executive who runs a fund backed by Mark Zuckerberg, and Peter Thiel, the co-founder of PayPal and many others,
are showing serious interest in India. More “angel” investors who help early stage ventures are coming to the fore; over a
dozen startup incubators and business accelerators have cropped up in the last four months alone. The famous Silicon Valley-
based startup accelerator, 500 Startups, has started in India and their fund to back Indian companies, 500 Startup Wallah, is
planning to invest in 50 startups in 2013.
Large tech companies, like Microsoft, Google and LinkedIn are increasing their focus on the country’s startups. For instance,
Microsoft’s startup accelerator in India is doubling their intake in 2013. Startup Chile, a program run by the Chilean
government, recieved more than 50 applications from Indian startups in 2012. State governments are encouraging student
entrepreneurship. In Kerala, an ambitious public-private partnership wants to incubate 1000 telecom startups in 10 years.
A recent study points out that about 1,000 new product startups will be born in India in the next 3 years. That’s a sharp rise
given that only 3,400 were created since 1990. The new land of opportunity is here. In a nation of billion people, there are a
billion problems to solve and entrepreneurs are at it. The nation is startup ready.
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6. CONCLUSION
From the results of our survey, it seems that despite what certain corners of the media & business community on the outside
think, the people on the ground feel that India is still moving in the right direction. Our results show that many feel that there are
important problems that need to be addressed in India, the majority of which lie on the doorstep of the country’s government. But
on the positive side, our respondents feel a keen sense of entrepreneurial spirit among the younger workers, growth figures that are
still higher than many Western countries, and a government that is slowly trying to improve the economy as plus points.
ABOUT IDG CONNECT
IDG Connect is the demand generation division of International Data Group (IDG), the world’s largest technology media
company. Established in 2005, it utilises access to 38 million business decision makers’ details to unite technology marketers
with relevant targets from any country in the world. Committed to engaging a disparate global IT audience with truly localised
messaging, IDG Connect also publishes market specific thought leadership papers on behalf of its clients, and produces research
for B2B marketers worldwide. For more information visit: http://www.idgconnect.com/
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