(Written By Dr VP Singh, Professor of Economics, Great Lakes Institute of Management, Gurgaon)
The world of business may not be a zero sum game but quite often loss of one becomes gain for other. Loss of Ukraine farmers benefitted many African and Asian farmers. For centuries, the European economies dominated the business world. The Second World War saw dominance of US and other NATO nations. As the western world moved more towards services and high technology products, rest of the manufacturing drifted towards Asia through significant rise of Japan, South East Asian Tigers and China. The global financial crisis in 2008, Covid-19 and the Ukraine war have altered the business landscape once again. Long periods of loose monetary policies of US, EU and Japan made money cheaper. Such low opportunity cost of money made venture capitalist finance scores of businesses during this decade.
Asset lite companies burnt huge amount of cash to chase market share. Paytm, Zomato, Nykaa and many more hailed as great start ups failed on the test of stock markets. Looking at these names one may be tempted to take it as India specific affect, but, loss of value has been seen all across the big tech companies too. CNBC reported that in one year the industry experienced a decline of $7.4 trillion.
These companies have best of resources available to advise them, but all the king’s horses and all the king’s men could not save them from falling again and again. The pandemic and the Ukrainian war has altered the world order. The Russian oil and gas flow has changed and so have the partners. Changing trading partners and geopolitical interests are throwing many new opportunities for Indian businesses. Growing acceptance of Rupee trade will usher a new era for Indian trade.
Global Headwinds Pose Threat To Business
Population growth has historically supported global economic growth. Unfortunately, it is receding now. Declining population growth has coupled with declining global productivity to reduce the output growth. Global productivity has been falling since the global financial crisis of 2007-08. Technological progress and its implementation in production systems has slowed in US and EU. China is fighting its own domestic battles – economic as well as pandemic. India appears to be one source of productivity gains that may provide some relief from global inflation. Can India accelerate the skill building process? Can it take advantage of the changing world order?
Disruptions in global supply chains initiated by the pandemic and sustained by mercantilist approach of many countries has reduced the availability of factors of production as well as output. Burgeoning debt of many advanced as well as developing nations puts a constraint on investment and hence production. All these factors put together imply a need for today’s entrepreneurs to understand that the global headwinds need to be countered with fine microeconomic decision making.
Domestic Macroeconomic Factors Are Relatively Strong
As the fastest growing large economy of the world, India may not be shining but it does outshine other countries. In the otherwise debt laden global economy, India’s banking sector experiences 7-year low Gross NPA of 5%. The net NPA is at a decade low of 1.3%. The Financial Stability Report (FSR) presented by RBI in Dec 2022, states that the bank asset quality for the industrial sector has improved. Such developments trigger new investment cycle, and the signs of investment revival are visible. Relatively lower inflation in the country helps in maintaining export growth momentum.
The encouraging economic outlook for India got ratified by World Bank, improving its GDP growth forecast from 6.5% to 6.9% for 2022-23. Population and demographic dividend also favour India. But, productivity needs to be improved manifolds. Good macroeconomic conditions do provide tailwinds to businesses, but it brings intense competition too. The Indian businesses need to improve the productivity in order to cut through the increased competition created by better macroeconomic environment.
Increasing Productivity Of Indian Businesses
World Economic Forum in one of its communications in June 2022 stated that productivity growth is the solution to cut the inflationary challenges. Indian businesses that adopt digitalization to a larger extent will be able to enhance productivity manifold. Recently, Siemens reported its wonderful experience of digitalization resulting in reduction of capital expenditure and space while increasing the output as well as the quality. It used to produce 80 variants on three production lines, now they can produce 180 on a single production line. Production time decreased from 21 seconds to 9 seconds and quality checks could be increased from 13 to 52. Digitisation in a way creates the base of products and machines to communicate and lead to smart automation. Such efficiency improvements truly serve the Sustainable Development Goals. Aligning with SDGs adds to the appeal of products and services for the Gen Z.
Increasing digitisation leads to generation of more data. Indian entrepreneurs must train themselves well on using this data for Demand Planning and Forecasting. Digital Marketing and Customer Relationship Management are the other two very strong outcomes of digitisation. Today it is possible to have large amount of information from the supply chain and the market. Does one get overwhelmed by the deluge of information? Businesses have thrived on gut, but, that was a time when information wasn’t available. Indian entrepreneurs need to relish data and data analytics to make winning decisions in an otherwise VUCA world where even the FAANGs seem to be failing.
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