Hi everyone - we are celebrating India’s 75th Independence anniversary, and we all can agree that it is just the beginning. But this essay is focused on one of the economic growth drivers, why we should be careful about GDP contributors because not all contributors are good and listed India’s aspirations for the next 25 years.
I have been thinking hard and deep about why the prices of physical world products have been inflationary. Even there have been significant improvements in net production. Since my passion has been the food value chain, I apply Toyota's 5-Why framework – keep asking why till there is no WHY left to ask – to uncover the root cause of food price inflation. I have been writing on these topics for a while but in this essay - I have drawn a picture of the problem and why thinking in terms of Production, Distribution, and Consumption is the best way to approach India’s Grocery business for the Non-metro consumers.
But before going ahead and getting a sense of the problem, we should talk about India’s next 25 years - Amrit Kaal. India is 75 years old, one of the fastest growing economies and everyone is looking at India with the hope to multiply their money - good for India. We indeed need money to make India the world's largest economy - by creating more surplus.
I love History, but there is already a list of 75 achievements from India’s independence: you can find the list on the government's website. But here is 15 aspirations I have for the next 25 years - India and personal. This list is in no particular order, but you see, if we could achieve the first 9 - the 10th should be the byproduct of the above 9! :)
India will have the highest women workforce participation in the world.
India will have 50% of the world's top 100 educational institutions and R&D Centers.
India will publish the world's best and highest number of research papers on all advance and emerging technologies.
India will become the best place to innovate and R&D on the next frontiers of emerging technology.
India will have the world's top 5 highest valued companies with a valuation of over $5 trillion.
India will create its own version of IMF, WHO, WEF etc. and facilitates loans and monetary value to the rest of the developing countries.
India and Indian companies will build the lowest cost space transportation and also control the significant market share.
India will create and controls the Space Colonization Organization (SCO)
India will feed the rest of the world - the world's largest food exporter.
India will become the World economic leader by 2047 (Why? It feels good!) According to this report, India could be the World's third largest economy by 2036, which means we shall have 11 years to become the world's number one economy.
India’s GDP per Capita will cross $25,000 by 2047.
India’s Next 500 million and the bottom 700 million will contribute 60% of the newly created value to the economy.
Indian rupees will be the world's dominant currency - the rest of the world will use INR to facilitate trade. I hope my essay in 2047 will be in INR.
India will win the highest number of Olympic Medals in the 2048 Olympics.
I will contribute - directly and indirectly - $100 billion to India’s economy.
There is no particular order, and I don’t know how we will achieve all these in the next 25 years. But it feels good to have Big Hairy Audacious Goals and imagine India as the world's largest economy.
We should come back to the essay. How amazing is the power of growth - last year around the same time, I had zero interest in knowing the aspirations of the rest of the stakeholders (Government, Citizens, Producers, Consumers, connected industries etc). But today, I am a silent observer and track the activities of each stakeholder. There is enormous power in thinking long term - when we are truly long-term, we overcome short terms obstacles without worrying too much. In my last essay, I talked about it is relatively easier to predict the future but building that future is a step-by-step process.
Why do I track Government moves? a. Not many players in the ecosystem have this long-term thinking, b. Those who do are not ready to give clues or share enough.
I don’t hear any Indian founder saying, we are building for 50 years. There was a time when Sachin Bansal used to say, we are thinking Flipkart in terms of 100 years.
But if we look at the iconic companies such as Costco, Disney, P&G etc all of them were thinking in 50+ years.
Here is one Quote by Costco Co-founder James Sinegal: “Wall Street is in the business of making money between now and next Tuesday. We're in the business of building an organization, an institution that we hope will be here 50 years from now.”
Therefore, when I read government marked India’s next 25 years as Amrit Kaal, I was like damn - we have an organization that is thinking about development and economic contribution in 25 years.
Clarification: it is not the case that I appreciate Government’s every decision. In 2020, I wrote an essay criticizing Government’s lockdown move. In the past 6 or 7 months - I have found myself appreciating, more.
On Feb-22 when I read and decoded the Budget-22 for the very first time. I got some sense about the future economic contribution and growth opportunity but when I read the same essay, again - I was like WoW. In just five months
I have clarity of thoughts on how India will drive its economy from the next 500 million and the bottom 700 million.
Today, my work at ZILA demands the initiatives such as the Unified Logistics Interface Platform (ULIP) designed for APIs. The integrations of Postal and railway, personalized logistics products for Farmers and MSME etc. I see a clear need for these long terms focused initiatives and becoming key drivers in the growth of India.
A proper balance of Production and Consumption can accelerate India's economic growth.
I would be hesitant to comment on the other industries' GDP contribution. But when it comes to Retail, Supply Chain, and Agriculture - I can’t help myself except create a master plan for the next 25 years. For example, the picture of India’s Supply Chain forced me to question: what is happening boss?
In the last essay, I mentioned RBI’s white paper and India’s massive dependency on Supply Chain. I highlighted Supply Chain contribution has to come down to 7% from 14%. But I had not explained the WHY. While writing this essay, the first time I realised and understood why all GDPs are not good. There must be a proper balance. GDP contribution in the wrong industry can inflate the prices of physical world products in an unimaginable way, and we must be careful about using GDP terms without context and understanding - whether it is creating a net +ve or net -ve.
It is amazing how your irrational optimism starts taking shape into logical rational optimism. After a time, you do start seeing paths and ways. We (India) have the advantage of not being the first mover. We have references for almost all types of boom, bursts, mistakes and 5000 years of history to take the measured steps as a Nation. And become the world's largest economy - damn this feels good, every time I write, think, and visualize!
Let me explain why all GDPs are not good GDPs. Of course, my example shall be from retail, supply chain, and agriculture.
Here is a summary of India’s Supply Chain (2020) in three charts
Even sometimes, I pull my hair knowing that In 2020: India transported only $85.71 billion of inventories at a combined cost of $314.27 billion - $171.42 billion on Transportation, 114.28 billion in Warehousing, and $28.57 billion of order processing/admin. Even though Transportation, Warehousing, and Admin/Order processing are, actually, contributing to India’s GDP - 11%. But this is not a good GDP contributor because these GDP contributors are creating net –ve
Transportation alone is responsible for 6% of the GDP contribution. The First-Mile and Middle Mile costs can be controlled and eliminated by facilitating local production and consumption. This will ultimately create a massive surplus. Not all types of GDP contributors are good!
Massive dependency on roads for the First Mile and Middle mile is not sustainable. And therefore, UPI for logistics would be a key economic growth driver. You can understand the importance of Point -2 (above), and hence I find Government's work inspiring! :)
Today, I know why it is necessary to reduce Supply Chain contribution to GDP from 14% to 7%. Let’s understand this through an example:
The final price of products (inventories) = inventories cost + Transportation Cost + Warehousing Cost + Order Processing/Admin Cost + Added Margin at each layer (In ZILA deck, I have used a slide to explain the value chain from Poddy to Rice. Even though, this is a locally produced and locally consumed product)
How can we reduce Inventory Costs - by increasing production and reducing the wastage
How can we reduce Transportation and Warehousing Costs - by making the system efficient
How can we reduce Order Processing/Admin costs - by automating the repeating processes/systems
How can we reduce cost at each layer - by eliminating as many layers as we can
Developed countries have a 7% GDP contribution by Supply Chain, and India has a 14% - this means we have the opportunity to achieve a 50% efficient supply chain.
Caution: Since we are talking about making the Supply Chain efficient by 50%, we have 30 million employment dependencies on Supply Chain. The 50% efficiency means typically a 50% employment reduction from Supply Chain - more production should be able to absorb the freed human capital (15 million)
As we will produce more, reduce wastage, and facilitate local production & local consumption - eliminating First-Mile and Middle-Mile costs - this shall create a surplus. This means the prices of almost each food item shall deflate. WoW - this would be amazing.
Lower food prices mean the population will have higher savings. These savings will either be used to purchase non-essential items or FD in the Bank saving accounts or invest in stocks.
Banks will use this money to land businesses, businesses will use this money to create more value leads overall price deflation because the value creation will not be due to the artificially printed money but rather surplus generated by more production and efficiency - fit perfectly on net economy framework :). This would be amazing no?
In the Digital World, our bet is only on Efficiency - reduction of resources. But here is one sector in the physical world that is ripe to produce more and ready to be efficient with the help of technology. Sometimes I think the amount of money VCs have invested/investing in Web-3 if they could have invested even the 10% of that in India’s Agriculture, Supply Chain, and Retail - the value creation could have been 10X and created a massive surplus.
This is a wrap of this essay everyone! I hope we will turn the table and make physical world prices deflationary.
Happy Independence day everyone! 75 years back on the same day, it was a sense of happiness that we were in a free country, and I hope after 25 years - we will have a sense of pride to be in the world's largest economy!
Published on LinkedIn Newsletter on 15-08-2022 at 17:48 PM