INDIA - PROBLEM OF PLENTY

Does the doomsday theory hold water? With the kind of news that is hitting the newsstand on daily basis, the answer to my mind is - "MAY BE". From a vehement "NO" I have changed my stance to "MAY BE". Due to the World economic turmoil, The lay-off scared employee set are at faceoff with opportunity cost, be it in terms of low or no bonus, which was a important salary component, or be it in terms of no salary hikes inspite of a high inflation.

Consider this Percentage increase in price data compilation from various ministries of government -

Food products: average price increase of 3.43% (in 2007) to 22.55% in January 2010.
Food commodities: 5.60% (in 2007) to 19.42% in January 2010.
Foodgrains: 6.27% (in 2007) to 17.89% in January 2010.
Pulses: 2.14% (in 2007) to 45.62% in 2007 in January 2010.
Dairy products: 6.08% (in 2007) to 12.87% in January 2010.
Eggs, fish and meat: 6.38% (in 2007) to 30.71% in January 2010.
Sugar: (-)14.69% (in 2007) to 58.94% in January 2010.
(source - rediff.com)

Absorb this: Iceland, Greece and Dubai are already walking on razor sharp edges with Greece being told to sell its islands to reduce mounting debt. Sultans are already eyeing the eponymous "Acropolis". Germany is touted to bailout Greece but Germany itself is facing the worst ever recession (post war). As I write, I hear Spain, Italy & Portugal are slated to join the Island selling club. USA's economy playing hide and seek with a "W" level growth & degrowth is not helping either. Google may be surely eyeing buying a part of Venice to set up a Google resort. 10% budget deficits are talk of the town.


And now absorb this - Nick George use to earn 60000 Indian rupees in 2008 with a five Lacs bonus and now in March 2010 still earns the same with 1 Lac bonus. Nick George use to send his child in a SSC board school but due to education competitiveness now sends his child to a ICSE / CBSE board school having 200% more fees. He has a demanding wife and life, both of which he cannot compromise. Weekends still has to be happening to put brain into proper gear for coming week.

Average Weekly Expenses of Nick George -

Child Fees - 800 Rs
800 Cc Car Weekly installments - 800 Rs
Petrol expenses - 1000
Core Food Bill - 1000
Amnesia Night Club Entry - 2000
2 Vodka Shots - 300
2 Beer Pints - 300
Sunday Brunch - 1000
Holly / Bolly Wood blockbuster ticket cost - 1000
Travel Expense extrapolated /week basis - 1500
Shopping Expense extrapolated /week basis - 500

Around 40,000 rupees from salary are already accounted for, in the expenses above. If Nick George happens to be a migrant from a countryside town to a metropolis in India; he will surely contemplate going back to his MOTHERLAND, with around 3000 Rs of weekly installment towards owning a small nest in metropolis. And if Nick George has dependents, he surely will look for rapid job movements to make his salary touch 75000 Rs in hand at least. (IN HAND salary is the right way to talk to employers these days; As much as 50% of the salary can be variable and in these times variable salary is never paid). Nick George's earlier option to find a job abroad is routed out because of the word "W" earlier stated. Even abroad on last country 1,00,00 Indian students went USA to study in the year 2008 and around 30,000 to UK.

The irony is luxury car manufacturers have rolled out considerably higher number of models this year vis-à-vis earlier years. Though Indian Salary levels have increased, but the kind of population base our country carries, we will always be amongst lower strata in the Human Development Index. Even in upper middleclass levels too much education is leading to too much competition and lower salary base. An African returning to his country also can negotiate salary equivalent to the one he /she would get in say a pound dominated country like "United Kingdom", sadly but Indians can't.

Bottom line - For salaries of Indians as a whole group to rise (taking all classes of Indians) and match salaries of European or even other Asian counterparts, a "TAB" on population needs to be put. Population and salary are always on a seesaw and problem of plenty is the pillar. With every inch of land in metros are being carved into residence space, 25 lacs of vehicles in a 50 sq.km space metro cities, Indians will have to reach Moon soon. This problem is paramount for 'India', above all the fiscal deficits issues, above selling its Islands, and also above Growth. Fundamentals have to be tightened first to create a robust platform for long term growth.

BANKS RED QUEEN EFFECT

Mere survival in current recessionary times should be lauded. Year 2008-09 went down as one where 'Red Queen Effect' was in full force. The red queen advices Alice (from 'Alice in Wonderland') that "in this place it takes all the running you can do, to keep in the same place" i.e: work twice as hard just to maintain the current position, growing requires a different pace altogether. Further, it would be interesting to see how financial Industry will continue to face market correction, green shoots and recoveries, In a nutshell how will banks 'MANAGE THE CHAOS while maintaining THE SPEED' ?

According to me following should define the speed at which banks will run in the forthcoming year -

BRAND - At the time of recession, customers are looking for a extended support from banks. Trust on banks have taken a hit. More and better products for genuine customers (lost during the recession) is the single most important initiative that will help rebuild the brand. Efforts other than pure advertising are need of the hour for maintaining the brand equity. As Suntzu said "It is a great mistake to waste men in taking a town when the same expenditure of soldiers will gain a province."

BENCHMARK - Banks will have to study other more successful banks (if any) at a very micro level to understand what the successful banks are doing right (at the same time studies of banks which failed to learn from the mistakes should be conducted). Why did we have an NPA and others did not ? What are rival banks selling now to SME/MME vis-a-vis us? Have they been successful?

Every bank should indeed take a decision in isolation but as Suntzu said "If you know the opponent and know yourself, you need not fear the result of a hundred battles.If you know yourself but not the enemy,for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle"

STAKEHOLDERS - While external strategies are required, recession takes a toll on the most valuable resource of organisation - 'The Employees'. Transparency, continued career growth, belief etc will ensure the stakeholders put all pressure to support the bank in any future crisis. As Suntzu said - "A Moral ruler makes the people to be in complete accord with him, so that they will follow the ruler regardless of their lives, undismayed by any danger"

Finally if we say the worst is over, i say it's just a beginning, where lot of gear shifts will be required. Running at controlled speed to grab the green shoots at the same time being vary of falling in same trap again should help to ward off the crisis. "In peace we prepare for war and in war we prepare for peace"

(This article of mine was published in HSBC Journal. I am currently preparing a research paper on this subject which will be sent to MBA business reviews & quarterlys)