India is not inexpensive!

For all those people who think that doing business in India is worthwhile because we are an inexpensive destination, please think again.

Let us go to the basics of Economics:

there are 4 factors of production needed for an enterprise – land, labour, capital, and entrepreneurship.

Land: by no stretch of imagination is land cheap in India. Wherever you go land prices have gone up substantially. Rents in urban India are high – in cities it is a demand pull price and in rural India it is  a supply constraint! Land for factories – say 500 acres for a car factory is almost impossible to get. The land acquisition has to be done by touts, politicians, criminals combination – they then add their margin and what you get is an expensive piece of shit. So land being cheap, banish the thought.

Labor: The qualified and mobile Indian is willing to work in all parts of the world. So a salary / wage arbitrage which India enjoyed long ago is already in the history pages. The unqualified labor requires a lot of training! Also there is a demand side inflation in urban India and a supply side constraint in rural India. Getting people to come on time and work hard is not easy. Maruti lost one manager to labor violence, and now it seems to be the worry for Hero Motors, and others in the North belt.

Capital: In a country where a hospital gets money from the banking system at 15.5% p.a. – money is not cheap. In fact the banking system will ensure that more companies end up in the CDR. Then there are many companies with such poor margins that they barely exist after paying the bank interest and bank installments. Why is money so expensive? bankers need margins to cover their mistakes – after all if they lend to Kingfisher Airlines, that full principal has to be recouped from the ‘good’ borrowers, right?

That brings us to the spirit of doing business….Aditya Birla, Ratan Tata, Mittal,…have openly said ‘It is easier to do business abroad….

Those businessmen who have put up power plants, fertiliser plants, sugar factories based on gas…are still waiting for RIL to give them gas. What can be worse? Ask EID Parry which has a sugar plant waiting for gas, ….

Tata Power is made to suffer…regularly….the whole infra scenario is scary…esp if you have fixed selling price contracts and variable input cost. The contractor will just stop manufacturing power..and imagine who suffers? the shareholder who thought this was an annuity! Tough situations call for tough solutions…..

To me the situation is desperate…and it will take 22 horses to pull the government in the right direction…..touch wood….

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5 Responses to “India is not inexpensive!”

  1. Both, very Sad and very True.

    🙁

  2. Nice article about land
    http://www.moneycontrol.com/news/business/why-property-is-biggest-con-jobinvestors_852422.html

  3. Hi,

    From which stock broker do you recommend us to open the demat account.

    I have heard Stock Holding Corporation of India Ltd is good.

    Also while opening the demat account what things should we consider, check, ask them?

    Would be helpful if you could do a post on this topic.

  4. True words, red tapism is not a history.

  5. You forgot energy and fuel costs that are much higher than most parts of the world.

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