The Supply Side Deficit

I am not an economist though I must confess that I attempt to understand the subject every once in a while.

However I run a business and therefore spend a disproportionate amount of my time meeting analysts, investors, economists, reading business newspapers, watching business and news channels etc.

At almost all fora I get to hear that India is the next China.

That India will grow at 9-10pc for the next 20 years.

That Indian growth will outpace China by 2012.

That Mumbai will be like Shanghai soon.

That India will be a US $5tn economy by 2020.

Most speakers at these events believe that India's time has come.

While I am an optimist I do feel that we seem to be losing our way.

You need to be globally competitive in what you do to survive and prosper in this increasingly flat world.

Economically speaking you need to keep moving your production possibility curve as an economy forward. This means getting more and more out of the ageless factors of production - land, capital, labour using the more modern tools often not discussed in economic textboooks - technology, management, governance and entrepreneurship.

Capital should be made easily available (read as banking and financial sector reforms) and efficiently deployed (read as end to subsidies, creation of infrastructure), land allowed to become more productive (read as agriculture reforms, easier land acquisition laws) and labour made more efficient (read as primary, secondary education, technical and vocational education,health infrastruture.).

And unless and until the tools which can help us do the above in the modern world are made widely available - high quality education in management and technology (more iits and iims, superior faculty) a more efficient governance machinery (police reforms, judicial infrastructure, less corruption, safer borders), and promotion of entrepreneurship (easing of laws to setup a business, an end to the big business-government nexus, more competition) this won't happen.

India suffers from a supply side deficit in virtually every area - governance, implementation of existing laws, infrastructure, quality of education, land. Unless these supply side factors are adequately addressed, instead of 10pc growth and 5 pc inflation we risk getting 7pc growth and 8 pc inflation.

Like all Indians I am disheartened at the erosion of moral standards, the lack of governance, the inequitable development. This is an opportunity to end poverty in this country in our lifetime. We should not miss it.

The Bubble in Engineering and Management Education

Mr. Sibal is a highly educated man with noble ambitions. He wants to increase the percentage of Indian students opting for Higher Education from the current 11pc to 30pc in the next 10 years. All very well but only if done the right way.

Lack of options, corrupt government education bodies, the IT Boom and 9pc growth for the last five years have led us to build massive capacity in 2 major areas - Engineering and Management. Anyone in India who wants to become an Engineer or an MBA can now become one. We have an estimated 20L(over 4 years) students pursuing Engineering and another 4L(over 2 years) doing Management in over 7000 Engineering and Management Institutes today.

At an average expense of 1L per year for Engineering and 2L per year for Management this amounts to 28000 crores being spent by these 24L students every year. Add another 15000 crores being spent on Higher Education abroad by another 2-3L students every year and you have anywhere between 40000 crores being spent by Indian parents on mostly poor quality educational institutes every year.

Most of these institutes have mushroomed and added a large number of courses and students in the last 3-4 years. Many of them are yet to graduate even a single batch. They dont have good faculty. There are probably 300-400 Management institutes within 50 kms of Delhi and an equivalent number in Pune. Most students who study in these institutes are there not by choice but because they have no other option. Many of them scored less than even 60pc in Class XII and failed to get into a government college to pursue a non science course. Now they are stuck. With IT slowing down most engineers outside the Top 150 Engineering Institutes will struggle to find a job this year. Ditto for Management Students outside the Top 100 Management Institutes.

Does Indian Industry need so many MBAs and Engineers every year ? By some estimates less than 1.5L engineers and 25,000 MBAs are employable. The rest are even less suited for Industry than most BA graduates from Delhi University. Absence of options has however ensured that students end up following the herd. They consider an MBA or an Engineering Degree a ticket to success.

This year is different. Students passing out will realise that there are no employers queuing up to hire them. Many Engineers and MBAs who passed out last year havent found jobs as yet.Suddenly after 4 years of engineering and 2 years of MBA many will be lucky to even get salary offers of 10-15K a month. Some will go back to their family business. But many prospective students applying to these colleges will suddenly start asking serious questions about whether its worth it.

In all likelihood many of these colleges will find it difficult to get student enrolments going forward. Some will shut down, some will be forced to lower their fees, many others will have to start focusing on the hard task of getting good faculty, building brand, improving student quality etc.

Many others will hopefully adapt and start offering courses which are more relevant to industry. Many entry level jobs require little more than basic arithmetic, english communicaton, presentation and computer skills and not the fancy economics and quantitative methods courses taught at these institutes. Many will hopefully start providing vocational training.

In addition to Higher Education, Mr. Sibal needs to reform primary and secondary education and improve the quality of teaching at schools. This should be his top priority. Garbage in, Garbage out. If the government can provide good school education, vocational training and basic graduate college education, parents may not need to spend this 40,000 crores every year in the hope of providing their kids a better future.

Will Portals Make Money from Advertising ?

Life is tough for Portals, Content and Social Networking Sites. The Display Ad Businesses of these sites are struggling to make money. Billions of Page Views, Millions of Users but Profits are still a mirage.

Consider this. The large Indian Portals today have more daily users than the readership of all English Newspapers put together in this country. But revenue is a different ball game. No Portal
makes even 5pc of what the TOI rakes in every year.

So what are the issues here ?

Search is taking everyone's cake. The CPMs on Search according to some estimates are 30 times the CPM on Regular Display advertising. "Intent" is a great targetting tool and gets high clickthroughs. Allow for 2 ads on a Portal Page and you can say 70 Million Search Views = A Billion Portal Page Views. The reality is Google India makes more money through advertising than Rediff, Yahoo India, Indiatimes and Orkut put together.



Most Large Advertisers use google as a benchmark and demand the same rates from Portals. While you can debate that Google Ads are a lead gen tool and not advertising; to advertisers its not very clear that there is a branding element to most display ads.

So how will publishers survive if they dont make money ?

Its a big IF but clearly massive progress needs to be made in the following areas..


1) We need better targeting. Most Portal Display Advertising is largely untargetted. Its at the same stage as advertising in Print. You target by publication/site and not at a user level. There is information available about the person (his age, sex, location, salary etc) on the internet. There is information on his surfing habits, which site he came from, what he is reading on the Portal, his search history etc. Privacy Concerns need to be handled but Adnetworks or 3rd Party Information Providers need to aggregate user data across websites and invest in algoritms to help Portals show more relevant ads.



2) Portals clearly need to get more brand advertisers to bite. They need to be able to clearly differentiate Banner Ads from Google Ad Links. This wont happen with regular display ads. Portals and Content Sites need to create High Quality Rich Display Inventory on the site. Easier said than done in India atleast with BroadBand penetration being what it is.



3) Lastly in India atleast Portals need to do a better job of getting Marketeers on the site. Most traditional marketeers still dont understand CPMs and Clickthroughs the way they understand TRPs and Readership. Some Investment in 3rd Party Research Studies and Education to help Advertisers compare the long term impact of Brand Advertising on the Internet vs Advertising in Print or TV is absolutely critical.

Bing is Prince

Unlike a lot of engineers in my company who swear by Firefox, Google and Apple I have a lot of respect for Microsoft. Google is my default search choice, I own an Apple iPhone and an iMac but I am also on Windows 7 and IE8. Infact I am the guy who forces the engineers in our company (much to their annoyance) to ensure that all our Products work on IE really well.

If you are a business person you cant but not respect a company which has dominated the world of computing ever since I was exposed to it. So after not such a great experience with Live (I must be the only guy in India with a personal page on live.com) I was shocked and awed by Bing.

Bing is good looking, refreshing, fast, clutter free and interesting. The video and image search is great.The dynamic clusters, related searches and short summaries on mouseover help you save time and actually encourage you to search and explore more. The results are not bad either. On User Experience Bing is a big move forward.

Does this mean that Microsoft will now gain share in Search ? From Google or Yahoo ? Is Bing the Xbox of Search ? Microsoft has a history of not giving up. They have great technology in almost all areas of computer science in their labs. They have talented people and they have done it before. Will Microsoft be able to divert high quality resources to Search and the Web and fend off the threat from Google and Apple to its core platform and apps business ? After all these companies now have Market Caps which rival Microsoft's unlike the smaller competitors which Microsoft has crushed in the past.

I am going to stick my neck out and say we have a fight on our hands. Search will now see innovation like never before and not just in areas like Relevance. Bing needs distribution and a large advertising network along with Branding to be a serious challenger. The ad campaign will help with the Branding bit. Yahoo could provide the distribution and scale on the advertising side. If Bing succeeds a deal with Yahoo may be imminent.

Is this the turning point ?

The Indian voter has rejected the politics of caste, religion and region. Faced with external and internal threats he has voted for stability. But has he voted for a particular party or a particular leader or a particular issue ?


The reality is that India is truly shining. Even the recent urban recession which most people do realise is more a result of external forces beyond the government's control has been taken by people in their stride.

India started to shine under Mr. Vajyapee, SM Krishna and Chandrababu Naidu but only in pockets, in the cities and not in the villages.

A decade of 8pc growth along with smart policy decisions like Higher Prices for Farm Produce, Debt Waivers for Poor Farmers, the NREG scheme which seems to be finally working (Apparently there is a huge shortage of harvest labour in Punjab this year because the Bihari migrants for the first time have jobs in Bihar) and revised pay packages for government employees have finally resulted in the trickle down effect economists used to talk about but was seldom seen in real life. The key learning here is that "trickle down" is not automatic. You need policies and delivery mechanisms to ensure inclusive growth.

Wherever honest and competent governments ensured good governance irrespective of the party, they have been rewarded. Infact one is now tempted to use the election numbers as a proxy for real development in a state more than the development metrics touted around by social scientists.


For the first time the Indian people see hope. Lack of opportunities earlier meant Hindus needed to fight Muslims, OBCs and Dalits the Upper Castes to get their share of a limited pie. A decade of 8pc growth means that there is now enough for everyone.

With this vote the Indian voter has set the stage for 10pc plus growth for the next 10 years. A nation to grow needs security and good governance and for it to be stable it needs inclusive growth.

For the last 20 years now 40pc of the country - UP, Bihar, Orissa, MP, Rajasthan, Chattisgarh, North East and Jharkhand has been growing at 5pc even when the rest of the country averaged 8pc. If these states can get to even 8pc growth that will lift the secular rate of growth from the current say 7pc to 8.5pc. Its about time the government fast tracked reforms. Legal Reforms, Improvements in Education and Healthcare, Financial Sector Reforms in areas like Banking, Insurance, Pension Reforms, Labour Reforms, Land Reforms, Improvements in sectors like Agriculture, Power, Roads and Infrastructure, Police Reforms, Urban Renewal Schemes have all been pending for long.

With new reformist policies each of these sectors can add on an average an incremental 0.25pc to GDP growth. 10-11pc growth is now within reach. Good governance is the need of the hour. Dalits, Muslims, the Eastern States dont need tokenism. They need real policy interventions which will educate and uplift their entire lot.

All governments irrespective of party have the opportunity of a lifetime. If they can capitalise on this moment they would have delivered the 750 million Indians who live on less than US $2 a day from poverty forever.

Indian Internet is happening as we speak

People often ask me if the internet will ever happen in India and whether the Mobile Phone is India's internet. When will 200 million Indians get on the internet ? Will internet companies ever make money ?

I have a slightly different viewpoint here. I dont think you need 200 million or even 100 million people on the internet for internet companies to become big and profitable. The total readership of all English newspapers in the country is probably in the 20 million range. A TRP of 4 which is what IPL matches routinely average translates into a viewership of less than 10 million people per match.

What is different however is the following
1) People spend 30-45m per day reading newspapers on the average
2) People spend 3 hrs watching an IPL game
3) Both English newspapers and IPL have a substantial audience base which is 35+. These are the people who have a lot of money read purchasing power

The most conservative estimate of the internet population in this country is 40 million. However the number of people who have access to broadband and spend over 30-45m on the net browsing everyday is probably in the 5-10 million range. 35+ people accessing the internet is increasing steadily but still nowhere close in percentage terms to the people who read newspapers.

So what does all this mean ? With broadband now becoming increasingly ubiquitous, access speeds are improving dramatically. At 256kbps access you can now view 4 times the number of pages you would have been able to view at 64kbps in the same time. Penetration and time spent on the internet in every age group (including the 35+ group) is improving steadily.

The metrics to track are therefore not internet users but
a) Time spent on the internet
b) Average Internet access speed
c) No. of 35+ people on the internet

My view is that all the above metrics will atleast double in the next 2-3 years. Together they will have a multiplier effect on all internet businesses. The internet is exploding as we speak. Its not about getting to 100 or 200 million users. Its about the time spent on the internet.

Why another blog ?

I must confess  I am not into blogs. 

Except for the occassional Amitabh Bachhan post or the fakeiplplayer blog off late I dont really end up reading blogs. And so I thought about blogging for a long time but never got around to doing it. Why will anyone want to visit my blog ? There is no shortage of opinions and views out there - why add to the confusion ?

I had the same opinion of books. Everyone seems to write one now a days. A few days ago I met someone who also wants to write one. When I bluntly asked him whether he really thought anyone would want to read it he said he wanted to write one for himself. To clear the thoughts in his mind. To put everything down on a piece of paper.

And so here I am. Not because I want people to know what I think but because I want to clarify thoughts in my own mind. Because I want to know what I feel strong enough about to put it down in writing.