Challenges and opportunitiesIND

IA:

Kevin HasselDana Wei

Nick LenardBen Knudsen

The macro-economic

environment

India At a Glance

1.21 billion people

2nd largest workforce at 478.3 million people

Competitive advantage is centered around labor

More than half of the Indian work force is in agriculture (52%), but its major source of economic growth comes from the services industry (34%)

An estimated 25% of Indian’s live on less than $2 a day, making inequality and quality of life real issues for India.

Unions exist in India mainly in smaller

concentrated industries and have declined over the past few decades, so poverty is rising

Protectionism exists overwhelmingly within India, which has led to the takeover of a majority of the private sector by the government.

India At a Glance (cont…)

India is currently involved with multiple trade agreements that include: SAFTA, APTA, BIMSTEC, and PTA in efforts to: Hasten economic growth through increased trade Increase national security and protection for local

cultures.

However, challenges with labor and infrastructure remain the key hindrances to

India’s growth.

India At a Glance (cont…)

Labor Challenges

Overview of Indian Labor

Labor is India’s competitive advantage

6% economic growth through the 1990s Job growth decelerated during the same time

Estimated 30-40% of manufacturing jobs have been lost from over regulation

45 Central Laws and 170 State Statutes that regulate Labor

Labor Inefficiencies

15 million human days of work lost from work stoppage Unions have little power

Less than 10 million workers are employed in the private sector Indian firms are forced to be inefficient by the

labor laws

Lack of Economies of Scale India’s Industrial Disputes Act: 1947

Regulation Reform Allow the market to take control

Eliminate inefficient processes

Stop Over-Regulating 6 attendance logs, 10 overtime accounts, etc.

Stop Protectionism Allow creative destruction Allow more efficient businesses to develop

Limit Government Takeovers/Allow market to naturally eliminate jobs Leads to inefficient practices

Unions

Trade Union Leadership

Too Many Unions & Too Much Rivalry Not enough power 68544 Unions with 893 average membership

Firms do not have to recognize Unions Limited negotiations

Opportunities and Challenges

Jobs will be lost as inefficiencies are eliminated Similar to China’s privatization

Lost jobs, unemployment, etc.

Reduce Inequality 25% of Indian’s live on $2 a day

Natural Balance of Union/Firm Power

Able to exploit both skilled and unskilled labor

Incorporate labor in current and future trade agreements

“Countries that assume that their physical resources sustain prosperity are economic dwarfs. Countries that

regard their human resources as their eternal wealth are economic

giants.”

Labor reforms

India gained independence in 1947

Trade Union Act 1946 Allows for the formation of a trade union by 7 or more

workers, including outside members under different employment, which causes disputes to span many years.

In 2000: 533,038 disputes pending in India's labor courts 28,864 had been pending for over 10 years

Independence: 1980’s

India’s heavy regulation includes over 45 national laws and 200 state laws that derive the Industrial Disputes Act of 1948.

The Act requires organizations in the formal sector, as well as any organization with more than 100 workers, to seek government approval before firing an employee.

Industrial Disputes Act: 1948

Jobless growth in organized sector

Organized: accounts for 6% GDP seeking more capital-intensive methods of

production set up several plants instead of a single

large one to get around labor laws

Unorganized: accounts for 94% GDP

Effects of Rigidities

Infrastructure challenges

Key Improvements Necessary: Transportation Power Water

Transportation

Airports, bridges, and highways in short supply and crumbling away, placing the country’s citizens at risk.

Lack of efficiency a big issue: Absence of mass transit system has led to

overcrowding In turn, overcrowding has led to traffic jams In turn, many laborers spend up to 4 hours a day

commuting

Ports are incompetent Turnaround rate is 3 days in India vs. 8 hours in

countries like China Cannot handle many of the world’s largest cargo ships

Power

Power failures are a major obstacle Last up to multiple hours are also an obstacle Can and should be expected daily Prevalent even in the highly commercial and

developed areas such as Delhi, Mumbai and Bangalore

India is losing out investment opportunities as a result Last year, Intel Corp. chose Vietnam over India as

the site for a new chip assembly plant

Water

Availability Steel production, chemical manufacturing,

and India’s rapidly growing population all require huge amounts of water

Shortage of water will devastate the agricultural sector as well as industrial sector

Global warming and reduction in size of India’s glaciers have had a hand in this

Sanitation

Source: World Bank Report on Water in India

In 1980

India ChinaGross National Income ($ current billion)

182 188

Average Annual Growth Rate 3.30% 6.90%GDP Per Capita (2000 Constant $) 223 186Populaiton Less than $1 day (million) 382 634Poverty at less than $1 day (%) 54.40% 63.80%

Policy Making:

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

0

2000

4000

6000

8000

10000

12000

14000

Air Transported Freight by Year

Air transport, freight (million ton-km) ChinaAir transport, freight (million ton-km) India

Year

Tota

l A

irtr

ansport

ed F

reig

ht

(millions o

f to

ns)

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 -

20,000,000.00

40,000,000.00

60,000,000.00

80,000,000.00

100,000,000.00

120,000,000.00

140,000,000.00

Container Port Traffic by Year

Container port traffic (TEU: 20 foot equivalent units) ChinaContainer port traffic (TEU: 20 foot equivalent units) India

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

0

500000000000

1000000000000

1500000000000

2000000000000

2500000000000

3000000000000

3500000000000

4000000000000

Electricity Production (kWh)

Electricity production (kWh) ChinaElectricity production (kWh) India

2007 2008 2009 2.50

2.70

2.90

3.10

3.30

3.50

3.70

3.90

4.10

4.30

4.50

3.98

4.32 4.28

3.49

3.33

3.47

Quality of Infrastructure

Quality of port infrastructure, WEF (1=extremely underdeveloped to 7=well developed and efficient by in-ternational standards)Quality of port infrastructure, WEF (1=extremely underdeveloped to 7=well developed and efficient by in-ternational standards)

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

40,000.00

45,000.00

50,000.00

55,000.00

60,000.00

65,000.00

70,000.00

Total Rail Lines (km)

Rail lines (total route-km) ChinaRail lines (total route-km) India

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

-

100,000,000.00

200,000,000.00

300,000,000.00

400,000,000.00

500,000,000.00

600,000,000.00

700,000,000.00

800,000,000.00

Cellphone Subscriptions

Mobile cellular subscriptions ChinaMobile cellular subscriptions India

The Results:

India China1990 2005 1990 2005

Gross National Income ($ current billion) 313 800 356 2244

Average Annual Growth Rate 6.50% 6.40% 10.40% 10.90%

GDP Per Capita (2000 Constant $) 317 588 392 1449

Populaiton Less than $1 day (million) 357 327 375 173

Poverty at less than $1 day (%) 42.10% 30.70% 33.00% 13.40%

Questions?