Three Important factors that determine the growth of any country

Three Important factors that determine the growth of any country

When I wondered why some countries in this Earth have developed so fast and so rich while many others are still poor and struggling for survival.  Then I made a small research myself and found there are some thing which these rich countries have done rightly that the other countries haven’t.  There were many thing that can be elaborated for the growth and rich status they have attained.  But to my mind these three were and even today stands as the most compelling factors in their status.  The aim of this short article is to find these three factors and elaborate on those taking few countries as example.

1. Education

I strongly believe this is the most important factor which makes the difference between rich and poor country.  When the people of the country become more educated, they become more skillful and their look and work culture changes.  Western counties like USA, UK and Germany have achieved their developed status because of the high education of their people.  Right from their making these countries had better education than many other countries.  This made them to grow and develop industries and they were able to rule the whole world in different period of time.  Then came countries like Singapore and Korea.  During the beginning of the century their economic status was even below many other Asian and African countries, due to education they have attained the status now they are.  

These East Asian countries currently have higher national per capita income than the developed countries like UK and France.  Their governments insisted on the importance of education and quality and free education were provided even at primary level.  Then countries like China and Taiwan started to know the importance of education.  They started to pump in billions of dollars in primary and higher education and now we see their effect.  These countries are performing extremely well and their growth was inclusive unlike India.  India created world class institutions and was limited only to few elite.  There was mass education movement lacking in India until late 20th century.  Only in the beginning of the 21st century many engineering colleges were opened particularly in South and West India.  We see the result on mushrooming of these institutes, IT sector has grown exponentially in South and West India and around Delhi region.

Middle East countries are very rich due to oil, but despite that they couldn’t grow or attain the position of Western countries due to lower level of education among it’s population.  But now they have realized the importance and started to invest on education by bringing world’s best institutions to their countries.

Then we have the next category that are still struggling in growth like most of the African countries and some parts of India and few countries else where in Asia, Americas and Europe.  These countries lack proper policies in education and their spending on education will be minimal and their governments prefer status quo due to political and cultural reasons.

2.   Infrastructure

This is another factor which will determine the growth and status of any country.  Strong infrastructure means higher growth.  Infrastructure includes the transport, communication, power and construction industries.  Transport will in turn have road, railways, air and water/sea ports.  When there are no proper roads or railway how can the raw materials and finished goods transported internally within the country and if there are no proper air port or sea ports it becomes difficult to transport the export commodities.  Any country requires world class facilities in transport to attain fast growth.  

Again we can see the countries that are developed have excellent infrastructure.  One country the whole world is envied on the growth is China.  They have been continuously growing at more than 8 per cent growth rate for last 30 to 40 years without any break.  This was possible mainly due to their building of excellent world class infrastructure with low cost.  This made the foreign countries to start their manufacturing there because China had low cost and technically trained people with world class infrastructure provided at comparatively low cost.  They gave uninterrupted power and highest bandwidth internet and communication facility.  Their infrastructure in even better than Western countries like US and Germany.  They have the best and fastest rail transport.  There is no wonder that they have rightly become the world’s factory.

Even countries like US and UK are losing manufacturing to East Asian countries because they are unable to provide the superior infrastructure which the later countries were able to provide.  So when a product is manufactured in China or Taiwan and exported to US and other Western country the cost of the products are much cheaper despite high transport costs included.

Still most of the African, Asian and other countries situated in South Americana and East Europe lack this world class infrastructure.  Until they create this infrastructure it is very hard to compete with East Asian countries.

3.  Government policies and support

Until there is proper and supportive government policies, no country can reach high growth rate.  Foreign investors and for that reason even the domestic investors won’t invest until there is a stable political climate with clear policies and government support.

Countries can have skilled labour with low cost and good infrastructure, but if the government policy is not supportive and conducive to the industrial growth, investors will not come and invest in that country or industry.  

China though is a communist government was able to reach today’s level of growth due to the supportive government policies.  They had red carpet treatment for most of the industries.  In some industries they were not interested in foreign companies to come, so their policies were anti- foreign in those industries, so only domestic industries were able to grow in those areas.

Germany is another manufacturing power house of the world where the government is instrumental in bringing their industries to grow.  Their industrial policies are high class with trying to provide the best labour force and easy for starting and running the manufacturing business.  Government has started many technical institutes for industry to have more trained people and created policies that suit the industry to get trained personnel.

India had lot of problems in creating conducive industrial policies and though had some they were not properly implemented at bureaucratic level.  There were maximum obstructions in fulfilling those policies.  It is not only creating a proper policy that matters but more importantly implementing those policies at lower level is important.  The judiciary is also highly corrupt so that it is a nightmare for companies to start, operate and close a manufacturing business in India. Government should try to reduce the permits and licenses and possibly make them digital so that it becomes easier for business.

The tax policies of the government is also very important.  Why do the foreign companies queue up to start a business in Singapore or Dubai, it is due to their low tax structure and clear policies.

Any policy implemented should be business oriented and should be clear without any ambiguity.  More importantly they should be implemented and practiced at lower level as they were intent.

Still many countries in Africa, some parts of Asia and other places like South and Central America still the governments have no stability or proper supportive policies for the industries to grow.

There are number of other factors that will determine the growth, but these are the three most important factors for the fast growth of an economy.

Why India couldn’t become a manufacturing hub though it is the world’s second most populous country?

India’s manufacturing capacity is dismally poor compared to China and other East Asian countries.  There are many reasons behind this poor performance.  Let us see what are the chief reasons hindering the growth of manufacturing sector in India.

1. If there is one reason which can stop the manufacturing growth in India then that will be Bureaucratic obstacles.  India ranks 142 in ease of doing business.  There are hundred of license and permissions to got before starting the business.  These hurdles actually increases the chance for corruption.  For instance getting construction permits in India involved an average of 25 procedures that took 186 days and cost 28 percent of the warehouse value.  Whereas in countries like Singapore and Scandinavian countries it takes less than a week for starting a business.   
2. Infrastructure bottlenecks are the next biggest problem for the business india.  Both raw materials and finished goods have to be moved to and from the factory.  This to happen smoothly with less cost the transport infrastructure like road and rail have to be of world class.  Indian road and rail network are over crowded with poor quality.  The ship and air ports are also over crowded and the service rendered by the authorities are of poor standard and corruptive in nature.  Telecom services like phone and internet services have improved a lot but the bandwidth have to be increased to reach the global standard.
3. Land shortage is another important problem that is holding back the growth of manufacturing in India.  Land prices in cities and towns have shot up in-exorbitantly  due to heavy shortage.  Acquiring agricultural farms is a nightmare today with it becoming a big political issue.
4. Labour laws are strict in India and they encourage unions and whereby the output and quality of the products are dampened. When a labour is not working properly and if the management want to fire him, it is almost impossible today.  
5. Power shortage is so acute that lot of manufacturing companies in India need to have their own generator backup.  This increases the cost of manufacturing.  In some southern states the power cut per day goes even up to 10 hours.  The cost of power supplied to manufacturing facility is also high compared to international cost.  Power companies have high distribution loss and theft and they give the electricity free or for very less cost to agricultural customers.  To compensate this cost, the price levied on manufacturer are high.  They have to pay high price for unreliable power.
6. Shortage of skilled labour is another hurdle in the growth of manufacturing.  Illiteracy is rampant in many states of India and though they are educated in some states, they are not trained for manufacturing.  They have basic high school education or college education is more on arts course. So there are no sufficient technically qualified people for manufacturing to grow.
7. Technology is another important factor in growth of high end manufacturing capacity.  India’s Research and Development expenses compared to the western countries and even the East Asian countries like China and Korea are only in fractions.  Except few sectors like automobiles and pharmaceuticals, still India is lacking the advanced technology.
8. High tax compared to countries like Singapore is also one of the reasons for manufacturing companies not coming up in India.  Countries like China and Korea give lot of subsidies and create special economic zones for the particular type of manufacturing facility, like zone for only pharmaceutical companies.   These zones gives financial subsidies along with low cost and continuous power with low or no tax.  India has very few SEZ compared to manufacturing tigers like China and Korea.
9. Government support before and after starting the business is another important factor in growth of manufacturing facilities in China, Singapore and other East Asian countries.  Government policies should be clear with out any ambiguity.  Though India had a stable government for last few decades their policies were not geared to the growth of manufacturing capacity in the country.  Government officials in China were personally involved in bringing the companies to their city or province, whereas in India most of the politicians and officials were more interested in getting corruption from these companies.  They were not helping in setting up or running the factory efficiently.
10. Attitude and efficiency of workers are poor in India compared to manufacturing tigers.  This will create higher output with best quality products.  When a foreign manufacturer has a choice between China/Korea and India, he will see the quality of the labour and their output capacity compared to the cost per worker.  Thought the constant cost per labour may be less in India compared to China, but the output and quality of the output is comparatively lower here.  This may be due to inadequate technical skills and the work culture.

These are some of the hindrances in why India could not achieve the manufacturing capacity which countries like Korea and China have done in last few decades.  Even countries like Malaysia, Vietnam and Indonesia are doing good compared to India in creating manufacturing capacity.  As the cost of the labour in these countries are starting to go up, international manufacturers and local manufacturers from these countries are looking for other available options to set up their manufacturing facilities.

India has the right time now to act in overcoming these above mentioned problems.  Modi has become the Prime Minister with great hope and has brought lot of programs like “ Make In India” campaign.  But the government has not really stroke the actual problems that create hurdle in setting up manufacturing facility or to run smoothly in long term with high efficiency and quality.

Not only the central government can do it solely everything to create manufacturing atmosphere in India, state governments and government officials in various fields have to put their maximum effort in bringing the “Make in India” campaign a reality from it’s present dream.

Six Sigma

Six Sigma is a quality standard and improvement program developed by Motorola that focuses on generating fewer than 3.4 defects per million manufacturing or service operations. The Six Sigma Management system drives clarity around the business strategy and the metrics that most reflect success with that strategy. It provides framework to prioritise resources for projects that will improve the metrics, and it leverages leaders who will manage the efforts for rapid, sustainable and improved business results.


Six sigma tries to improve the quality of process outputs by identifying and removing the causes of defects and minimising the variability in manufacturing and business processes. Six Sigma is used to improve customer satisfaction, eliminate waste and increase profit. It is a structured, data driven technology that can be applied to any aspect of business. A sigma level is the number of standard deviations we can fit between mean and the nearest specification.

If a company operates at 3.4 defects per million manufacturing or service operations it is said to be operating at Six Sigma level. It will be 99.99999998%. Usually lot of companies operate between Sigma and 3 and 4 levels. Six Sigma was developed with the inspirations from quality improvement methodologies of the past, such as, Total Quality Management (TQM), Quality Control and Zero Defects. Initially Six Sigma was developed only for manufacturing operations but later on was extended to service and other type of operations also.

Six Sigma is a registered service mark of Motorola and it is reported to have saved more than $10 billion US dollars for Motorola on implementing and practicing Six Sigma. By the starting of this century it is reported that two-third of Fortune 500 organisations had began to use Six Sigma with the aim of reducing costs and improving quality. The Six Sigma approach is rigorous, requires total commitment from top management and requires a tolerance for endless questioning of validity of management’s belief.

What does Six Sigma does in company practice, it is cultural change and requires mental toughness, tenacity and highest dedication to achieve the best result. Training is the core in implementation of Six Sigma in an organisation. This methodology encourages and requires teams and its leaders to take responsibility for implementing the Six Sigma processes.

Features of Six Sigma

• A clear focus on achieving quantifiable financial returns from the particular implemented Six Sigma project

• A clear cut commitment to making decisions on the basis of verifiable data

• Full support from top management

• A special support from trained personnel, namely Champions, Master Black Belts, Black Belts and Green Belts

Each of the people who are involved in implementing Six Sigma in the company is responsible and it varies according to their position.

Green Belts: They are the employees who are trained to implement the process and are supervised by black belts.

Black Belts: They contribute 100% of their time to make the Six Sigma program success and they operate under Master Black Belts. They are mainly involved in execution of the project and helping the green belts to reduce the defects and improve the quality of the operation or product.

Master Black Belts: They are involved in identifying the projects and they find solution to any troubles in the operation. They work under Champions Belts and supervise the Black Belts and Green Belts.

Champions Belts: They take the chief responsibility in implementation of Six Sigma projects in different divisions of the company. They act as mentors to Master Black Belts and coordinate the overall program.

Executive Leadership: Top management including CEO are responsible for setting up a vision for Six Sigma implementation.

There is Six Sigma institute giving training and certifying personnel with appropriate belts according to their knowledge and skills.

Six Sigma emphasis on the methodology named DMAIC (Define opportunity, Measure performance, Analyse opportunity, Improve performance, Control performance and Transfer best practice). The first of these (DMA) is the understanding of critical elements of the process. The last two I and C is a dynamic process optimisation. Motorola emphasise for Six Sigma to achieve breakthrough improvements in sustained and continuous timeframe, these process metrics and structured methodology must be practiced and linked to company’s strategies.

The rate of defects in the operations will determine the Sigma level offered to that organisation. If a company has only 3.4 defects for every million operations, it is operating at 99.9999998% level and earns Six Sigma. If there are 233 defects, it is Sigma 5 (99.98%) and when there are 6210 defects for every million operations it is Sigma Level 4 (99.4). Any company that is in Six Sigma program should try to be within these limits. Anything below this will earn lower Sigma levels.

There are some critics for Six Sigma program as they strictly quantitative and not taking any subjective details. As earlier said, Six Sigma was initially implemented only in manufacturing operations but later on were practiced in service operations also. Six Sigma uses statistical tool normal distribution to find the standard deviation between the process mean and the nearest specification limit to find whether the operation or product in normal or defective.

To achieve Six Sigma, organisations must focus and deploy all the resources and energy so that the key business priorities and strategy are aligned with the program’s objective. The personnel have to be trained to get the belts for implementing the Six Sigma program. Six Sigma has helped many companies to achieve their target and thereby reduce the cost and wastage and increase the profit.

Balanced Scorecard

Balanced Scorecard is one of highly used strategic evaluation tool that is extensively used in business and industry, government and non-profit organisations. Balanced Scorecard is defined as ‘ A strategic planning and management system used to align business activities to the vision statement of an organisation’. Balanced Scorecard evaluates both financial and non-financial performance indicators.


The term Balanced Scorecard was coined by Art Schneiderman and became popular with article by Dr. Robert Kaplan and Dr. David Norton in 1992. Again in 1996 they published the book named The Balanced Scorecard. Both this article and the book on Balanced Scorecard made it popular and started to use by both business and government organisations. Initially the Scorecard was around the four perspectives that were labelled as “Financial”, “Customer”, “Learning and growth” and “Internal Business Processes”. Five or six good measures were selected in each perspective and these measures were evaluated and given a score against the strategy.

Later the Balanced Scorecard was interpreted according to the needs of different organisation. The visions of the top management are written as strategies and these strategies are broken into different measures for each perspective of strategy and the score card is formulated. Once the actual performance is happened, they are compared with the strategic measures listed in the Scorecard and each measure is given score according to the performance. The measures need not be only financial, it can also represent measures such as acquire a company, complete 2 projects within the particular time and so on.

Business Scorecard is only a measuring tool and usually does not replace the Company Strategic planning tools. The four steps appeared in Kaplan and Norton’s article were

1. Translating the vision into operational objectives.

2. Communicating the vision to all concerned employees and link it to their individual performance.

3. Business planning

4. Changing the strategy according to the current situation by getting the results and feed backs.

The Balanced Scorecard was initially used only for measuring the company’s performance or particular division of the company. But later it became popular to evaluate the individual performance and their bonus and benefits were given according to the scores in the balanced Scorecard. Even now many companies both in West and developing nations use Balanced Scorecard for employee bonus and benefits.

In 1997, Kurtzman found that 64 percent of companies in America were measuring performance from a number of perspectives in a similar way to Balanced Scorecard. The strategies are broken into different categories and the important measures in each category are listed. The categories may be according to the set of criteria which the top management feels important.

These are some of the measurements that can be used in Balanced Scorecard.

Finance- Return on investment, cash flow, Gross Margin for each customer, Net profit for each division for each period, returns on particular project and so on.

Internal Business process - Number of process per function, process automation, process bottleneck, aligning the different processes and so on.

Customer – Customer satisfaction rate, delivery performance and quality performance to customer, Market concentration and penetration rate, customer retention rate and so on.

Learning and Growth – Employee satisfaction rate, employee retention rate, career opportunities for employees, correct match of job to employee, proper training and learning opportunities and so on.

These are some of the points were the company can have a strategy and be measured in Scorecard.

Balanced Scorecard not only acts as measurement tool but it can also be used as strategic tool for the organisation. It will immediately show the places where the company is going out of track and corrective measures can be taken. This tool, if effectively used will give amazing results for the organisation.

Fear of world economy entering recession

Major economies have been crippling with weak growth during last year.  Along with the developed economies the emerging markets have joined the stagnancy creating a great fear of world economy entering into recession.  The world didn’t see any real growth after the 2008 recession and had just been crawling over.

Among emerging markets, India has seen a sharp decline in the growth and industrial production.  The growth rate has come down below 7 percent from high growth rate of 9 percent.  The economists expect the growth rate may go even below the average growth rate of 6 percent.  The real problem in Indian economy is the high inflation and exorbitant interest rates.  The central bank kept on increasing the interest rate, as the inflation could not be tamed within the acceptable limit.

The Chinese economy have started to cool down and the growth rate is expected to be below 9 percent.  As the economy mainly depends on the export growth, the main destinations US and European economies in deep trouble, the export is not expected to pick up largely in the near future.  The occupancy rate of office buildings in main cities is well below the standard and there is chance of real estate market collapse any time soon.  The bad debt among banks has also started to increase due to firms going bankrupt without enough demands.  There is over capacity in almost all the industries due to higher number of firms started to capture the export market. 

As Chinese economy starting to cool down and western countries in deep recession, other emerging markets such as Brazil and Russia that are dependent on resource markets are also affected.  The main culprit on pulling down the world economy down is European economies.  The economies are almost stagnant and unemployment rate is more than 10 percent in many countries. 

The only bright spot amidst this depressive mood is the quite revival of US economy.  The unemployment is coming down slowly and the economy has started to change the gear to better growth.  Along with US, Germany has also started to grow faster than the other major countries. 

As Chinese economy becomes larger and even expected to overtake US economy in a decade, the demand and consumption of China is very important for the balanced growth of world economy.  Instead of solely depending on feeding products to the international markets with its cheap and efficient labor force, China has to take some strong measures to revive its domestic consumption. 

In most of the cases, the growth is stalled due to inappropriate political actions or inactions.  For instance, the growth in India is stalled due to the government not taking any important decision due to its minister’s mix up in corruption scandals or populous political spending done in Europe.   So the countries have to take a lesson from these real experiences to properly manage the economy without any bad political decisions.

The outlook for the world economy is not as bad as thought, it is only some countries in Europe that are under real economic pressure.  This may be due to their tight control of currency movements and policy restrictions.  As Europe manages its affairs properly, it can be expected the world economy to slowly come out of the recession fear and start to grow faster.  Once the developed economies start to grow, the emerging markets and smaller countries will follow suit in the revival.  Each country may need small corrective measures according to the internal economic and political situations and once these actions are taken, the world economy can be expected to go back to 90’s growth rate.

Steve Jobs – Is he a magician

Economist cover displays Steve Jobs as a magician in its recent issue. All the celebrities in the political world and IT world have talked about Steve’s contribution to the world. Even many wonder he is this century’s Thomas Edison. Is all this media coverage and articles on Steve is really valid and worthy.


When Steve Job’s introduction of products to world are analysed, they are not new inventions as Edison’s invention of products, but even then they have revolutionised the world in their respective fields. When ipad was introduced by Steve in early part of this century, MP3 players were already there in the market, but the way the product was designed and the marketing of the product made a big difference. Along with ipad he also introduced itunes for downloading the songs for the instrument, this created the big difference.

Steve was not an engineer or a scientist instead he himself stood as customer and this along with his guts to introduce the new designs was the critical factor in his success. Another important factor is that his determination in providing quality product and quality after service with its Mac stores located all around the world created a huge impact in success of his products. In the history of any computer and electronic world and for instance in any business in the whole world, there is no special place for customer to go and learn how to use the product they bought with all technical and general help in person. This idea of starting up Mac stores throughout the world is one of the striking features of success of Steve and Apple.

The products Steve introduced to the world are not new instead he took other’s invention and made it more stylish and user friendly with best product quality and excellent after service and repackaged the product and put it in the market. Another important factor for success is the marketing of Mac products in the initial years.

Steve Jobs should be considered as one of the greatest innovator in the computer industry as he is the only person to have made such an impact both in hardware and software of the products he has introduced. There is no other IT company which has created so many new hardware designs for the products and also supplied all the software to run those products. This has made Steve different from all other successful technologists.

Smartphone maker blackberry had introduced smartphone far ahead of iphone by Apple. But how could iphone become such an outstanding success in the history of cell phones. It was the design which made it a pleasure for the users to use. It is the ease of use of his products and the value created in the customer’s mind that made Steve a magician. Though Steve cannot be compared with Edison as he didn’t invent anything as Edison, Steve Jobs has his own greatness in the business and IT field of the world.

Still how long will the gold shine brighter.

As gold is an asset that doesn’t carry any tangible returns as machinery or investment, in normal course the gold price increase should be equal to the inflation. But due to the uncertainty in the world economy and thereby bigger purchase of gold by central banks to have better returns on their reserves have further pushed the gold price higher.

Gold price started to increase from $272 in Oct 2001 and went up to $1900 in August 2011 and now hanging around $1700.

The gold prices have been have been going steadily higher from 2000 and started to go volatile with 2008 recession. Some people predicted gold to touch $2000 before three to four years when it was hovering around $1000. It was felt absurd at that time since gold already had gone up by more than four times higher in span of less than 10 years. But due to the uncertainty in the world economy and instability of American dollar which is the reserve currency for the whole world, everyone started to pile up gold.

It is the central banks of different countries which started to increase their portion of gold in their reserves due to the appreciation and increasingly to the stability of gold value. Even countries like Saudi and China with abundance supply of reserves started to invest heavily on gold instead of American dollar. American dollar and the European currency Euro are the two biggest reserve currencies in the world.


Both America and Europe are in deep economic trouble and uncertainty and this has created a vacuum in finding a reserve currency with stability and better returns. The other optional currencies are British pound and Japanese Yen for the cash rich countries to hold their reserves. Again these currencies are performing almost same as the US$ and Euro. This has led the cash rich countries like China no other option or choice to invest their huge reserves. So these countries have started to put their money in gold that is considered to be the most stable investment. This is the reason why the neutral currency Swiss Franc has appreciated considerably against other currencies.


Now the main question is how far the gold is going to go up and another important question is will the gold price will stabilise at that high price. Here the answer will be quite easy. As long there is uncertainty in the growth and stability of the world economy and particularly the developed countries, the gold price is going to be on upward trend. The central banks of the cash rich countries should have other options to invest their surplus money with decent returns. Even if they don’t get decent returns they should not lose their money as it happened in investing US$ for last 5 to 6 years.


So the current situation in both US and Europe are not looking great and it is not expected to change big in the near future. In the present situation the chance of gold price retreating back is very less and there is all chance for the gold price to go further higher. It also much depends how these countries are able to manage their economies and come back from the current debt trap. As the economic and political situations are not conducive the gold price can be expected to soon surpass $2000 mark and go up northwards.


Another question will the gold price stabilise or retreat back from that high level and it again depends on the economic factors of inflation chart and demand and supply at that time. Considering the moderately high inflation and loss of currency value, it is sure that we can’t expect the gold price to retreat back to where it was 10 years ago, but as any other product has its own cycle and as such gold can be expected to come back in long future. With stable economies created and more instruments like stocks and bonds starting to give higher returns, the mad rush towards gold can be expected to go down and thereby the prices should come down.

Is proper forecasting vital in production and financial planning

There is a considerable difference between budgeting and forecasting in financial planning. Budgeting is done at the beginning of the year and considers only the historical figures in extrapolating the sales and volume for each product and customer. Whereas the forecasting is done in quarterly basis for each month and considers along with the historical factors the current situation and requirements for the volume and sales according to each customer.

Accurate forecasting is vital not only in production planning but also financial planning of any company. When the volume numbers are under forecasted the impact will be the production of those products will be produced in short and the customers will be short shipped. In current business environment this is not advisable as continuous short shipment will not only lead to huge penalty charges by the customer but also ultimately loose the customer.

Against this is the over forecasting of sales for the products against various customers. Here again the inventory increases and funds become unnecessarily arrested in idle products. This not only increases the inventory cost but also carrying cost, to keep this inventory safe and in saleable condition will go up. The cost of borrowing in developed countries is still low but in developing countries the interest rate is exorbitantly high and the management cannot accept funds being wasted in carrying higher inventories without proper reasons.

In this situation, the sales personnel should try to concentrate on knowing the exact current requirements of each customer for each product on monthly basis. This has to be fed up in the system where the production manager is adequately informed about the requirements of each product. Any intermittent changes have to be immediately updated and made known to the production department.

There are many instances where the production department is not properly informed or they are not aware of any intermittent changes that may be higher or lower forecast for a particular product. There are also some cases where production department is careless by ignoring the forecasting and in few other cases the production department fail to plan their material requirement adequately. All these unacceptable behaviours of personnel lead to huge penalties and in long run loosing the customer’s business.

Accurate forecasting is vital in the success of any corporate planning. All the concerned department personnel should have co-ordinated effort right from knowing what products are required for each customer in every period to shipping those products at right time. Only this orderly implementation will make forecasting and sales planning a successful exercise.

Anna Hazare and corruption – India

Last month, there was a big revolt against the government by a single man named Anna Hazare in India. Anna Hazare wants the corruption to be stopped in India that made him popular among the common people who are now tired of corruption in every sphere of Indian administration and political level. Hazare’s intentions are noble and in reality if India has to grow faster and its citizens want to have better standard of living, corruption has to be rooted out from the system.

In India, corruption is not there as in other countries. In developed countries, corruption may be there at high political level. In other developing countries like Malaysia and China, corruption is made to get some favour or to do something against the law or policies of the government. But corruption is totally at different level in India. It is a norm or unwritten law to give corruption to government employees for doing his routine and normal duty. Corruption is at all levels, but the corruption at the lower level of the government administration like getting ration cards, land and property registration, government hospitals etc. much affect the common man.

Corruption has become an institution by itself. Corruption not only does affect the common man, it is rampant in business and political level. Fixed percentage of corruption has to go at different stages of business approval. One Indian Prime Minister had asserted that only 1/6th of the fund spent goes to the actual project or people for which the planned fund is assigned.

Corruption drags the growth of the country to a set level (may be 10% to 25% of its actual growth rate), but more than the growth of the country it is the quality of life of common people that is very much affected. People are tired of corruption and its evils in the society. It is sad to note that it has not only confined to government organisations, it has spread to private sector like education and other service industries also.

There are many laws added every now and then to curtail the corruption. But in reality nothing has stopped it or even reduced its level. The liberalisation of economic policies in 1991 had some positive impact in reducing the corruption. The licence raj was stopped and the bureaucratic hurdles or the number of licences to open a business were reduced and in some industries like Information technology, bio-technology and advanced industries the licences were more open with very few hiccups.

Current government’s Right to Information Act passed in 2005 had a small impact in reducing the corruption by giving the citizens to get information from different government offices. This has at least opened up a chance for the ordinary people to know what is going at government level.

There are already numerous ant-corruption laws and courts set up. Each state government have set up anti-corruption police and vigilant units. The central government have set up anti-corruption vigilance cell in important departments such as Income tax and also have special court for anti-corruption. What is the impact of all these anti-corruption government organisations? It is sad to see that corruption has not come down and all these organisations have no or very little effect in controlling the corruption.

From the past experience in India, it is much questionable how Anna Hazare and his team’s new Jan Lokpal bill can do to reduce the corruption. Though the intention of the bill may be noble and truthful in controlling the corruption, it again has to depend on the bureaucratic set up. As we have seen there are already hundreds if not thousands of laws and bills passed to control the corruption that has been only a failure due to its bureaucratic dependency.

To control the corruption in India there are two important steps needed. As we have seen in 1990’s the liberalisation has reduced the corruption at least in the upcoming industries due to the limited government requirements. Reduce the government requirements to minimum. In case of tax department, make the law easy with little allowances and deductions thereby the scope for corruption is reduced to great level.

In other cases like normal government administrative works, it is not possible to reduce the legal requirements due to its necessity. In these cases, make the anti-corruption laws which are already there in the constitution more adaptable to the present situation and implement them effectively and efficiently. It is implementation of these laws which is lacking.

Anti –corruption police and vigilant force, judicial and the media are the three important institutions that have to play important role in controlling the corruption. When there is compliant from a person against any corruption, the police and the vigilant force have to take fast and effective way to trace out the corruption and make a solid case to present it before the judicial. The judiciary for its part have to make the verdict as fast as possible and take the corrective and punitive actions. The media have to play a purposeful supportive role in these cases without discrimination and favourability.

When these policies and anti-corruptive practices are implemented with truth and commitment by the concerned three forces there is chance for rooting out corruption. It is possible to remove corruption in India as another independent body named election commission had done it in the past by conducting free and fair elections with very less irregularities and corruption in elections. If there is commitment from all the sections of the society and political level, corruption can be at least reduced to great level.

The fast and revolt done by Anna Hazare against the corruption may itself not totally stop the corruption but at least it is a starting point for the corruption to be removed from India and if not fully eradicated but at least reduced to low levels in reality. Another point by Hazare to include all including the Prime Minister and the Supreme Court Chief Justice is valid. Everyone should fall under the gambit of law and should not allow any individual whoever and whatever position he holds to escape from the law.

Can India overtake Chinese economic growth in this decade

This is an interesting question always raised by many people around the world and particularly by Indians in common. India and Indians like to be compared its economy with China, whereas Chinese and its government don’t like them to be compared with India. Chinese believe they are far more superior to India and its economy. An attempt is made to know whether it is possible for Indian economy to outpace the Chinese economic growth in this century. Here there should be clear distinguish between the economy as a whole and the growth rate.

Chinese economy is almost three times bigger than Indian economy. China has got nearly 6% of the international trade compared to only 1.2% of India’s share in international trade. All the social indicators like education, infant mortality rate, infrastructure and so on China outpaces India by leaps and bounds. The main difference between the two economies is the productivity. Chinese worker is almost two times more efficient than Indian worker in similar industry. China has got one of the best infrastructures in the developing world compared to broken Indian infrastructure.

With all these material and economic comparisons India is far back compared to China. Along with these sharp socio-economic differences the decision making process in the top government level is very fast and effective in China compared to slow and chaotic decision making in democratic India. Bureaucracy and corruption are prevalent in both the countries but in China it is in occasional cases whereas in India the corruption is so rampant that it is a different institution by itself.

In these prevailing circumstances and economic facts one could very easily come to conclusion that Chinese economy is far better than Indian economy and it is impossible for the Indian economy to overtake the Chinese economy in this century.

There are two important factors that give a chance to India for performing better than China. The first one is the demography. Chinese population have become older and with their one child policy the population growth have stunted thereby reducing the working age people. Whereas India is relatively a young country and its young population can be a big resource for Indian economy to grow. Here again it depends upon on how these young people are utilized effectively and productively for the growth of economy.

The second most important factor is the free entrepreneurial spirit and the information technology skills of the young urban population. This spirit has created a positive energy among the entire country and now there is lot of confidence among the business and common people. This is totally from private enterprises and government has nothing to claim success for it. As said, Chinese growth is government induced growth whereas the Indian growth is private sector based growth.

These two important factors give a chance for India to overtake the Chinese economic growth rate later. May be it can happen in 10 to 20 years provided India government doesn’t hinder with political instability and policy changes. Here it is only the economic growth rate and not the economy as whole. Far Indian economy to overtake the Chinese economy it may take quite more time and not sure about the time. Again there are multiple factors that have to be determined and it is really hard to factor everything for correct forecasting.

The Indian government has to lay a path by creating cordial business climate with low bureaucracy and corruption less administration so that the already energised private sector can avail the situation and help the economy to grow to Chinese level of 10% growth rate. The other two important sectors that the Indian government has to concentrate are the education and infrastructure. It is well known that human skills are the biggest resource for India’s growth, so educational sector have to be made world class and encouraged by the government.

Infrastructure is in pathetic level compared to China. The freeways and the new airports in Chinese cities are better than developed world and India to compare it’s infrastructure with Chinese should feel shameful. India has to harness all its effort in improving the infrastructure to help both the goods and service exports to grow faster.

Focus on the sectors where you have competitive advantage is the best management practice. India has competitive advantage in information technology, pharmaceuticals and research and development. So government has to put more emphasises and resources in these sectors for higher growth its economy. If corrective actions are taken in these sectors and as already discussed reduce the bureaucracy and stop the corruption the private sector with its huge human skills and innovative potentials can create a growth rate that can surpass Chinese growth rate sooner within this decade itself.

Can US come out from its financial debt problem – If yes, how?

As we all know American economy is in real mess. The expense of the government is more than the revenue it earns. The US debt currently runs to around $15 trillion compared to its Gross Domestic Product (GDP) of $16 trillion. When compared with other developed countries US is in moderate position. Japan’s debt to its GDP is 225% and even other European countries have more debt percentage than US. The problem is worldwide phenomena and not predominantly relating to US.

The government has fixed a ceiling for debt amount and it is now allowed to cross it. If it wants to cross the ceiling limit, it has to be approved by both houses and the president. The current American debt problem was mainly due to the problem in getting the approval from the house, which is controlled by majority Republicans against the democrat president. The Standard and Poor have clearly mentioned in its report that the lack of political will and co-operation is the main reason for downgrading the US rating and not due to its capability.

Though the problem may not be as bad as other developed countries such as Japan, Spain and Italy, American debt is growing fast and is not sustainable in the long run. America has to find a way to bring down its debts. Already government is spending around $400 billion on interest payments for the loan. There has been a lot of noise and reporting from media regarding the debt faced by the developed countries, which has made the investors panic and the result the equity markets around the world crashed. Investors started to put their money in gold and other safer investments like Swiss Franc.

Anyone from other developed countries such as France, Italy and Spain would wonder how could American economy face the same debt problem as their own countries with no or very less state benefits compared to them. The answer to this question is just simple, the other side of the equation, tax is very less in US compared to any other developed country in the world.

America is one of the richest country in world having highest per capita income and quite good standard of living. Does it mean that all Americans are earning the highest income in the world and living with best standard of living. Sadly, the answer is big no. There is very huge difference in the income of people and among the developed countries, US has got the highest disparity of income among its population.

One could wonder why there is huge disparity of income in US. The rich and super rich are not taxed properly according to their income. Any president or politician is scared to tax this group due to big political influence and the way America was built and developed. The free enterprise and low taxation for the entrepreneurs and innovators are thought the main reason for the development and growth of America. This belief may be the main reason that any president coming fears to increase the tax so that America’s basic instinct for innovation and entrepreneurism would be killed.

Does it mean that countries with high taxation like Germany and France don’t have enough innovations and commercially successful new enterprises. It is a false thought running among the American people and politicians. They can structure it in a way that people with higher income are taxed without affecting the entrepreneurism.

For bringing the debt lower, the government has options both on the revenue side such as increasing the various taxes and also has a way to reduce the spending. Already US has got the lowest welfare schemes among the developed country, so reducing the spending should be quite tricky.

Reduce the spending of US federal government

Army
US have got the largest army and its defense budget is more than all the countries in world together. Acting as the guardian for the world requires huge defense spending. The current administration has much restrained from unnecessary ventures compared to previous administration. The government should try to reduce further the unnecessary spending like bringing down the force stationed in peaceful countries.

Administration
If one compares the salary of the politicians and government employed with ordinary Americans there is a huge difference. Both federal and state governments have large scope to reduce the expenses. In the name of homeland security big portion of the budget is spent. Government has to seriously examine on the expenses and try to reduce wherever possible.
There is thinking among the particular section of Americans that Medicare introduced by the present administration has increased the spending and been one of reasons for the debt crisis. This is a separate topic to be analyzed to know its validity.

Increasing the government revenue is the other side of the option to reduce the debt, increasing the revenue is strategic in case of reducing the American debt. As said earlier, America is the least spending welfare state. So this is contrary to European debt crisis, where the irrational spending of the government created debt crisis.

America lacks adequate income or revenue for it’s spending. How to increase the revenue of American government? Increase the tax, but people are against it, republicans are against it. Is it possible to increase the tax without hurting the people and get the politicians co-operation. One could analyze the various available ways to increase the tax and find a solution to this problem.

Increase the tax on fuel
America has got the lowest retail fuel price among the developed countries. Increase the tax by 3% every year for 5 years. This will give 15% tax increase after five years on fuel. In real terms, this may not increase the retail price since even on the news of retail fuel price increase the international oil price will go down. The ultimate losers will only be oil producing countries. By this way, two big concerns of American economy will be dealt with. One, revenue for the government and the other, the biggest scarce resource oil consumption would be controlled and may reduce the import bill. Alternative energy utilized vehicles and small vehicles with low consumption of fuel will become necessity for the auto companies. There will be initial protest against the government by the people and politicians, but with debt crisis explained properly, this move could be accepted.

Increase the tax on rich
Any person above the national income average should be taxed 10% more. This could bring the revenue for the government as well brings the equality of income among the population. 10% increase is not a big deal for people who are earning much higher than the national average. The actual percentage of increase and impact on the tax increase on government revenue is a field to be further researched.

Introduce Federal sales tax
Many countries with two tier governments have two type of sales tax. America has got only state sales tax and there is big scope for the federal government to increase revenue by introducing the federal sales tax. This will make the Americans to buy less. Politicians and economists may argue this will reduce the production and will lower the GDP. But there should be clear understanding, most of the manufactured goods people use are imported. So by taxing these goods, the imports will be reduced and the foreign country’s exports will go down. It is only the foreign country’s GDP that is affected by lower exports. There should be a way found, by which the locally produced goods are not taxed by this sales tax without discriminating the world trade agreement. These types of policies are practiced in many countries and are not affected by the world trade agreement. Two benefits for the American government, one, higher revenue and another lower import bill and thereby reduce the trade deficit.

Strong Policies and Framework
Lay out strong policies and framework for the financial institutions and business organizations to work efficiently and effectively without falling into debt and bankruptcy. The housing policy in US is a good example for a weak practice and policy followed by US laws. This has created the housing industry along with the banking industry to collapse. This has pulled the whole US economy and the world economy into the previous 2008 recession.

There are always many more ways for the government to increase the tax. But it should be clear that the people and nation’s growth are not affected by these new taxes. The government should be diligent in introducing the new tax. Some of the avenues of increasing the tax were discussed. Other than these fiscal policies, government can take some actions in immigration policies and foreign policies to reduce the spending and increase the American income. Foreign immigrants working in US are sending huge money from here to their own country and this is equal to importing goods and services.

These are some of the remedial measures that could be taken by the American government for coming out from its debt crisis. It is not limited to these discussed ideas, there are many more thoughts and ideas which could bring back US from its present debt crisis. As said in the starting, with it’s advanced companies and innovative people it is not a big issue to find the money and come out of its debt crisis, but as said by Standard & Poor, it is the political co-operation and will power that is important at this hour.

One would question, with economists already predicting America entering the recession again how would the government be in position to tax the people. Actually what happened when former American President reduced the tax, it just temporarily revived the economy and America did not grow in long run, as it should have with low tax and low interest and ultimately it ended only with recession. Again, after the present administration took over pumped in lot of liquidity and reduced the interest rate to lowest in history and again this failed to reduce the unemployment and revive the economy.

Whatever America does, the end result is faced in other exporting countries particularly China. When US keep the interest rate low, the Americans borrow more and buy products that are mostly manufactured in China, Germany and other exporting nations. How can America benefit with low tax and low interest. It is only going to pile its loan and make its currency a waste paper by printing and circulating lot of dollars. Sensible thinking and action is wanted by the American government and its people to come out from the current debt crisis. The government needs to create a policy for sustained growth.

European debt crisis and its consequences

The European debt crisis started in Greece and spread to Ireland, Iceland and Portugal and moved to most of the European countries in the monetary union. Along with its huge welfare programmes and bureaucracy in administration and tax collection lead to large revenue leaks, government also borrowed heavily for the Athens Olympics games. This was the starting point for Greece debt crisis. Today, even big European economies like France and Italy are in serious debt problem.

The main cause for the debt crisis is heavy spending without having equal revenue by the European states. Though the problem looks only due to huge welfare programmes and unnecessary government spending, the underlying cause is the loosing competitiveness. This has created low production and low economic activities which has increased the unemployment and reduced the government revenue. This is the main problem in most of the European countries that are facing debt crisis today.

The problem in Ireland is quite different from other nations in Europe. Ireland has enough surpluses and its national economy was handled far well than many other European countries. The unscrupulous lending by the banks led the Irish government to support those financial institutions and had to face itself the debt crisis.

The impact on the European debt crisis is not only going to affect the European monetary countries but the entire Europe and thereby pull the world economy into recession. This is what is actually happening now. The debt crisis in all these smaller European countries has to be borne by the European Union and its bigger partner Germany. This makes the majority of Germans to think for dismantle of the Union and become independent with its own national economic policies. Germans feel why they should sacrifice for other nation’s mismanagement of economy.

The European Union has to lend money and make these countries financially stable by printing money. This creates inflation in countries which are doing strong in their economy. The value of Euro will eventually go down creating high inflation in few countries and few countries which are still in recovery stage will find the value still high.

How can there by sustainability of a currency when group of countries have same currency and follow totally different economic policies with different political and social conditions. The currency impact will be different and it will be very hard for the Euro to sustain in its present economic and political situations. Problem in one member nation will affect the currency and all other nations have to bear the burden of that nation.

Compounded with the European debt crisis the world economy has to face the American financial crisis together at the same moment. To balance these developed nations’s crisis, Asia and other developing countries have to grow faster to keep the world economy not to fall into recession again within couple of years.

With knowing the current European debt crisis situation one has to find how these nations can and the European Union can do to come out from the current situation. It looks simple and said by many to increase the revenue of these nations and reduce the government expenses. If it is so easy then by now the European Union should have come out of its crisis as the debt crisis started more than 3 years ago.

Euro is the main problem for all the countries in European Union, because the countries with debt crisis have to devalue their currency for increasing their competitiveness in the world market. Instead for stronger nations the Euro should be stronger otherwise it creates unnecessary inflation and flow of money. Striking a balance in value is really hard to do than said.

The steps that could be taken by the individual European nations.

1. Reduce the welfare programmes according to the intensity of the financial burden each nation has. Already many steps have been taken by member nations including Greece, Italy, Portugal and others. Even Britain has taken strong measures in reducing the welfare programmes. The main point to be noted in the curtailing measures is it should not normally hurt the common people. It should minimum be structured in the way that the poor section of the society is least affected, otherwise there is chance for revolt and fighting against the government as it happened in Britain recently and France earlier.

2. Control the administrative expenses and other big expenses in defence, sports and entertainment events and such unnecessary expenses for the normal running of the government and society. Reduce the government headcount and also reduce the salary for high earners in the government.

3. Increase the competitiveness of the nation. Most of the developed nations and particularly European nations except like Germany have lost their competitiveness seriously against the developing nations like China and Korea. Since they have Euro with high value, its countries find it really difficult to survive economically. In the long run they have to strive hard to increase their competitiveness in the area they have competitive advantage. The spending in education and research and development has to steadily increase according to the international level for creating more skilled labour force.

4. All the leaks in collection of revenue have to be sealed. Serious steps have to be taken in this area to ensure there is adequate and budgeted revenue is collected. European nations already have one of the highest taxes in the world. So it doesn’t make sense to increase the tax further which may create avoidance of tax, so it is important to increase the tax base. Many individual entrepreneurs and small businesses both in the industry and service sector avoid the tax and these people have to be brought into the tax net.

5. Bureaucratic delays and obstacles in issuing business licences and other administrative corruptive practices have to be totally stopped so that new businesses are set up easily and incoming investment both domestic and foreign is encouraged.

6. Most of the public sector enterprises and assets should be tried to disinvest to private sector for better and efficient management. This will also bring much wanted funds for clearing the debts instead of borrowing them for interest.

All these actions have to be seriously implemented along with proper economic and financial policies to boost the economy. The structural programme created in accordance with the European Union and IMF has to be properly implemented. As said, Euro is big deterrent in devaluing the currency of these debt-affected nations. Their economies with many economic problem doesn’t support the currency value they have now. The currency has to be depreciated and devalued, but with uniform currency how is it possible. It is better for The European countries to have their own national currencies than a uniform currency such as Euro. The current mechanism adapted by the European Monetary union is not sufficient to keep the books of individual member nations in balance. A separate analysis has to be made on whether euro is sustainable in long run without affecting the member nation economies and the entire EU.

When all the policies and ideas are seriously implemented there should be hope for the European nations to come out faster from the debt crisis and eventually become stronger than ever before.

Markets Panic – Where will the DOW be at the end of 2010?

The Greek and other European countries debt problem have been hanging around few months, but why did the market react suddenly in pessimistic way last week. There has been fear among the investors that the European crisis may spill over to entire European Union and as such spread to the world economy and pull it down. In this inter connected world there is all the chance to this happen. The main fear among the investors is how this crisis is going to be handled by the European Bank and the European Union. Whenever the main European countries like Germany were not supportive to help the debt ridden countries the markets strongly reacted in opposite manner. I think this created panic among the European stock markets and easily spread throughout the world.

Due to this market panic, US dollar and gold started to move upwards whereas all other currencies and resources started to go opposite direction. There is a solid reason why the gold went higher. It may be due to a feeling that gold is a safe haven. Why in this world the US dollar gained strength. We could again infer that investors think that in this uncertain condition it is better to put back their money in green back which is a standard currency where the risk associated to their money is less. This is only investors assumed feelings. It is highly debatable whether the risk associated to US dollars in this uncertainty is less or not.

DOW after peaking around 11,300 during April 2010 end have pulled back to 10,380 last Friday. In matter of few days the index has lost around 9%. The European markets in Germany, France and UK have lost more than 10% of their value. After gaining around 35% to 40% average in 2009, this pull down may be not be equal to the fall in 2008 during American mortgage crisis. We could take this as a correction of stock market.

But now the main question among investors is how the markets are going to react in remaining period of 2010. These types of economic shocks keep coming and going every now and then. It is the economic fundamentals which are going to decide the movement of markets in long term.

Markets lost more than half their value in 2008 American and British mortgage crisis because there was a conception among investors that the basic economic fundamentals of these countries were shattered. It was not just the conception but in reality there were some solid backings which put the economies in bad shape. Banks lost billions of US dollars and British pounds in providing loans without adequate security and their debts have to be finally taken by the ordinary tax paying citizens. Moreover the crisis in US and UK means the problem is huge as they produce and consume more than quarter of the world’s output. This can create ripple effect in each and every country which directly or indirectly deals with them.

Currently the crisis is centered in some small European economies like Greece, Portugal and Spain. To an extent UK is also in this debt crisis. But the bigger economies like Germany, Canada, China, Brazil and India have started to change their gears of growth. The growth in most of these bigger economies with the exception of US has started to perform well in 2010. US economy is still in cross roads due to their own past economic policies and political actions. The stock market was unable to go up further high until April 2010, which may be due to mixed conceptions among investors relating to the recovery of American economy.

After every economic crisis such as the Asian Currency crisis in 1999 or Russian crisis the markets after initially backing up strongly start to recover calmly and slowly back to its level and even move higher. Even after this European debt crisis, the markets should soon start to recover to its previous high level touched in April end. The level of going further higher may look little uncertain due to the complex situation of the world economy.

Since most of the larger economies have started to pick up, we can expect the market to move on average up to 20% to 25 % of their present value. As earlier discussed, it also much depends on how fast the US economy can create jobs and its economy can grow without any new financial problems coming out.

Since the US financial system is quite liberal and free in control, the chance for manipulating the system is high. There is a huge concern among investors that is there anything big still buried and may come out anytime further hampering the growth of the market. It is very important that there should be higher transparency and regulation in the financial system of these developed countries so that there is safety and stability among the markets.

As the economic fundamentals of the larger countries are strong now, the US economy also starts to pick up and the long term technical chart showing a positive growth, any investor may feel confident now that there is a higher probability of minimum 20% return in their investment in the US stock market in 2010. The DOW can be expected to cross 12000 in the end of this year.

As we know there will be high volatility as always seen from the markets. With more globalization of the countries and with such a complex global economic environment there is always chance for some crisis hitting the world frequently. It is more important now that how the world is ready to take and fix this crisis. If the framework and the systems are made more transparent and strong, the volatility of the markets could be significantly reduced.