Opportunity to DOUBLE India’s GDP in 3 years and achieve Food Sustainability
The achievements by the Government till date have been applaud worthy and the new social infrastructure initiatives such as Pradhan Mantri Jan Dhan Yojana, Pradhan Mantri Jeevan Jyoti Bima Yojana, and all the others enlisted on the ‘http://www.bjp.org/modiatone/’. It is commendable given the social infrastructure aimed to be created; which was lacking for more than 5 decades.
Further, I have been over the NITI Ayog presentations on infrastructure, etc., and must applaud that various projects or initiatives are growing at 100%.
However, the question I am posed with today after going over the achievements are:
- “Is that enough?” or
- “Is that the best we can do?”
- “As a government or country should we be satisfied with progress?”
I believe and you would agree that this is not enough and India has a potential for more than 100% GDP growth on its base. I am a chartered accountant by education and an avid follower of politics, geo-politics, economic affairs, as well as ground realities.
However, the following section contains a write up on the possible solution on some of the fledgling problems of the economy and some novel methods to solve them.
Doubling India’s GDP: AGRICULTURE SECTOR
I will not delve into the agriculture statistics and tell how critical or important the sector is for India and how much it is needed to be looked up. I applaud the government initiative on the Irrigation initiative and the Maharashtra government’s Jal Yukta Shivar. However, the problem faced by the agriculture cannot be solved by merely these initiatives, lot more needs to be done urgently and on pan-India basis. Let me bucket the agriculture oriented problems into following sections
|Right price for produce||High price paid||No major infrastructure||Opposition parties make life hell for the ruling party|
|Dependence on rains||Non availability of quality food stuff||Pricing issues||Loss in local elections|
|Loans / inability to feed family||Sector seeing a deceleration in production||Loss of credibility on grass root level|
|Heavy fertilizer use killing the farm fertility slowly but surely||Uneducated youth and given their inability at doing anything else, increase in crime rate|
|Farmer suicides||Move to urban cities creating further employment|
|Import of food and leading to loss of foreign exchange|
Some basic question & answers
|Observation / Implication||Root cause|
|Youth moving to city||Because they are condoning agriculture, selling land|
|Why condoning agriculture||Because, they are not getting the right price|
|Why are they not getting right price||Because,|
1. They are not adequately organized
2. There is no right storage mechanism
So, I believe root causes for farmers’ plight are:
- Dependence on rain
- Inadequate guidance
- No proper storage mechanism leading to food wastage
- No strategic planning
On a strategic level, the government should understand the country’s strength and understand what are the primary reason for growth in each major other economies. Thus, for example, Middle East grew fast on account of oil, Russia and countries in the neighbouring region on sitting on vast mineral reserves, US (initially, before corrupting and controlling Middle East) from oil, then manufacturing excellence, innovation and then financial capital, China infrastructure led development, Australia / Canada mineral and related reserves, among others.
In this scenario what India has is great alluvial soil and on strategy level the moto on the country should be “FEED THE WORLD”. India needs to devise not just policy with clear roadmap aimed at achieving not just food sufficiency for the country but for the WHOLE WORLD.
Just like “MAKE IN INDIA”, we must aimed at “FEEDING THE WORLD”.
Reading of the RHP of Snowman Logistics Ltd., I saw that India has the lowest cold storage penetration in the world. No doubt the sector is seeing a huge growth in fact, various report suggest that cold storage is the fastest growing sector.
However, I believe there is need for “MORE”. Accordingly, to solve this food crisis of storage I suggest the following novel methodology:
The government needs to build cold storage at “ONE GO”; when I say ONE GO, means ONE GO so for example that fix a date say “1st Apr 2016” and mobilize the manpower to build COLD STORAGE across the country. I will not get right now in the land acquisition question, it is addressed later
Project: Operation Cold storage and Food Protection
|Particulars||Nos||Purpose||Size (MT) *||Cost per MT||Cost **||Total cost (Rs. in cr.)|
|Village level cold storage / grain silos||645,856||Cater to the farmers of the said village or the next door village||10,000||10,000/MT||10.0||64,58,560|
|Taluka / Blocks Level cold storage / grain silos||6,612||Cater to the bunch of villages in the taluka / block and production in the said block||50,000||9,000 / MT||45.0||297,540|
|District level cold storage / grain silos||651||Cater to the bunch of taluka / block and production in the said district||100,000||8000 / MT||80.0||52,080|
|% of GDP||54%|
Note: * to be based on study; ** Rs. in crore per warehouse
The amount of investment due to this initiative shall be Rs. 68,08,180 crores. This should be spread over the remaining tenure of the current BJP’s tenure i.e. say 3 years with the aim to target across the nation. This singular activity is 54% of the India’s GDP.
These cold storages shall act not only as aggregators but also distributor.
The project of National Cold Storage should be under a separate PSU which shall be comprise of following equity shareholders:
|Particulars||%||Exit Mode||Target IRR||%||Amount||Y1 (Amt)||Y2 (Amt)||Y3 (Amt)|
|Government of India||33%||7,56,464||2,52,155||2,52,155||2,52,155|
|Private Equity fund / Hedge Fund||33%||Buyback after 12 years||12%||7,56,464||2,52,155||2,52,155||2,52,155|
|IFC / World Bank||33%||Buyback after 12 years||12%||7,56,464||2,52,155||2,52,155||2,52,155|
|Global bonds||50%||Buyback after 12 years||8.0%||22,69,393||7,56,464||7,56,464||7,56,464|
|Bonds to Indian organization||25%||Buyback after 12 years||8.0%||11,34,697||3,78,232||3,78,232||3,78,232|
|Bonds to Indian citizens, PIO, NRI||25%||Buyback after 12 years||8.0%||11,34,697||3,78,232||3,78,232||3,78,232|
Note: Amount in Rs. Crore
The total outlay of the project can be bridged by the above modus operandi.
Now, initially, the products required for this unit shall probably be imported and procured domestically. This company shall in turn create a huge economic demand for:
- Power (electricity)
- Technology provider
- Digital need
The government may have a major holding company for this activity and each further divided into subsidiary level SPV for each region.
This company shall hire right professionals, technocrats targeting youth employment and growth in the sector. The action should be swift in the region. The government should ensure local employment for each construction actity and local Agriculture Institutes such as Krishi Vikas Kendra (in Maharashtra) should be involved in the activity.
Doubling India’s GDP: Operations / Mode of earning / revenues
Prior to storage, each product shall be properly packed with right food grade packing and stored bar-coded.
The whole of operations of storage and order shall run as a Factory with proper food storage and monitoring ERP system in place.
Since, products shall be stored in a warehouse / cold storage properly packed with correct accounting for each product and farmer, there shall be right track of food produced along with farmer-wise inventory monitoring.
But, what shall be the revenue model of the cold storage?
- Whatever price the product is sold, the cold storage shall take 15% of sales value.
- The logistics shall be further 10% of the sales value.
Taking 2014-14 production statistics, the company shall have to manage the entire food production in India as under; with the following chargeability on per KG basis:
|Production (mn MT)||264.38||280.8||9.45||132.43||687.06|
|Charge of Cold storage per KG||8||3||3||3||5.82|
Basic financial model
|Year||Revenue||Prd. Increase||EBITDA||Target EBITDA||Annual obligation||Gap|
The cumulative gap shall be Rs. 29,79,332 cr., which should be met by additional charge on exports. Thus, the cold storage shall charge certain premium on sales for exports.
Further, to the above, the NHAI should connect all the cold storage adequate number of cold storage vehicles should be created at each cold storage level whose route management should further. These vehicles should be either CNG or Ethanol run which shall reduce the overall cost per KM of carriage. These amount shall additional be charged to ensure the said activity is run cost to cost.
Now, consider that there shall be ~653,119 cold storages across India of various sizes and each cold storage has ~2 large refrigerated vehicles for transportation, the expected order size for this transportation activity shall be:
|Total number of cold storage across India (nos)||653,119|
|No. of reefer van per storage (nos)||2|
|Total number of refeer vans (nos)||13,06,238|
|Cost of 1 refer vehicle (in Rs.)||1,00,00,000|
|Total cost of entire fleet (Rs. in crore)||13,06,238|
|% of GDP||10.4%|
This order alone shall boost the India’s GDP by 10.4% The work should be distributed across top companies such as:
- Tata Motors
- Mahindra & Mahindra
- Ashok Leyland
With a primary condition of “MAKE IN INDIA”
This order shall have a cascading effect on overall economy creating multiple jobs, consumption and boosting the India’s overall tax collection.
The operation of vehicle shall be via CNG or Ethanol run to ensure dependence on the Diesel is reduced.
Job creation – Direct jobs
|Average salary per person||20000|
|Total salary income (Rs in crore)||39187|
|Expected consumption %||60%|
|Consumption growth in economy (consumption of food, white goods, consumer discretionary, housing, etc)||23512|
|Indirect tax collection boost (15% of consumption)||3526|
|Current indirect tax collection||546,000|
|Boost in tax collection||0.65%|
The actual tax collection boost mixed with the overall indirect and direct jobs created across the country shall be hugely different and more.
Given that currently the price difference between what a farmer gets and what consumer pays is anywhere between 100% to 200%, the charge of mere 10% to 30% for overall transportation, storage and logistics shall greatly reduce the Food Price Inflation.
Moreover, with a global ERP system to manage the food logistics, and food stock, the company shall always know what location what product is available.
Payment to farmers: Directly to their account by way of PMJDY Bank account
Government role: Set MSP to ensure cost of production along with farmer profit is protected
Further with this level of information and integration the government shall always be a step ahead in controlling food prices, food production and ensuring no farmer is in trouble.
|Huge investment||This needs to mobilized fast, the government should set a reverse target date and ensure that investment comes in. Further large PE Funds, Pension funds are already deploying tonnes of monies in real estate, this project should be highly viable for them rather than that investment. India is the only silver lining in the overall global growth. The government may appoint top investment bankers for raising funds.|
|Mobilizing people||With right salaries, right professionals come into play. Since, this is a new organization it shall be fully transparent. Moreover, the government should hire young team much as possible. Each region should have right mentors from industry who have worked in corporate world such as Narayan Murthy, Ratan Tata, Anand Mahindra, Ajay Piramal, etc., who have a vision to build such huge organization|
|Data monitoring||Robust ERP system either Indian companies or overseas companies along with digitization should be brought in play.|
|Land acquisition||The government should start with whatever land they have or take land on long lease from Gram Panchayat or farmer by paying rent adequately. No point in haggling or waiting for the Land Acquisition Act.|
|Red Tapism / Corruption||The entity should be free from political clutches, the business should be adequately monitored on Key Performance Indicator level and video monitoring of all activities.|
|Sensitivity of Information||Food security is a matter of national security, accordingly the intelligence bureaus should be keenly involved in ensuring there are no untoward elements trying to sabotage orders|
|Existing machinery / current traders||Current trader can purchase produce directly online. A website like Flipkart say ‘Agrikart’ shall be launched where everyone in the country shall be free to procure food online. The trader may purchase in bulk order online itself.|
|Control / Internal controls||Continuous audits, data monitoring etc. to ensure there are no pilferages, leakages, and input output analysis|
|Power requirement||This is not a challenge but a “HUGE OPPORTUNITY”. (Explained below)|
Doubling India’s GDP: POWER GAP AND SOLAR ENERGY
India / government needs to set things up like there is no tomorrow and they will not be in power after three years. So, step one, ensure all villages are connected with POWER GRIDS and all power grids is moved to Smart Grids in a span of 2 to 3 years. Gaps in power requirement should be created by way of ‘SOLAR POWER’. The price of Solar as per latest report is already at Rs. 5.0 per unit. The government on the same lines of financing as above, should create an entity in collaboration with the solar titans in the world such as:
- Trina Solar
- Yingli Green Energy
- First Solar
- Canadian Solar
- Jinko Solar
The solar project should be jointly financed by:
- Government of India
- World Bank
- China Exim Bank
- Canada Exim Bank
Land for the project: The government can take idle acquired lands for state industrial parks. For example, in Maharashtra, there are lot of parcels of land which are acquired by the MIDC which are not sold account of lack of demand or lack of industrial output. These land should be converted into Solar Parks and the said Solar park and solar panels needs to be built in.
As per news article by Indian Express: “Following the survey, 4,292 show-cause notices were issued to various industries in the state. The total area that are non-utilized was calculated to be around 7951.99 hectare.”
I believe this 7952 hectares of land provide huge opportunity for SOLAR PLANT as under:
|1||Area un-utilized by MIDC||Hectares||7,952|
|2||Area un-utilized by MIDC||In Acres||19,880|
|3||Area for 1 MW of solar plant||In Acres||5|
|4||Total MW of solar possible (3 / 4)||3,976|
|5||Cost per MW of solar (Rs. in crore)||6.00|
|6||Total cost of project (Rs. in crore)||23,856|
|7||Installed solar capacity in MH as on 31 Mar 2014||MW||5630|
|8||Expected addition vs., current level (4 / 7)||70%|
Power scenario in MH
|Particulars||MW of power|
|Additional Power Capacity from Solar Initiative||3,976|
However, I believe this would not be case on actual basis, the requirement of power for the state should be computed assuming a 24×7 power supply to the last house in each village and there would huge gap then. If the state was facing only 5% gap in power demand, the villages would not be subjected to power cuts.
Point of debate is the not power numbers in state, but as of today, MIDC itself has adequate land to host 3.9 GW of renewable energy.
This can be a case only the state of Maharashtra; imagine the potential for such installation in other states for example, Madhya Pradesh, Rajasthan, Gujarat.
I believe in these areas, the government should take a proactive role by “putting money, where the mouth is”. The government should devise policies to ensure private participation, however given the lack of growth initiatives, the government should take growth initiatives head-on.
These green energy initiative shall go a long way in ensure energy security and safety. I have read and followed the 100 GW solar plan of the government and would be happiest person if the same is achieved.
Doubling India’s GDP: BUILDING AN ECO-SYSTEM
Based on the above measure, government like MUDRA Bank or SIDBI should start a venture capital firm which shall invest in such companies bagging orders for the work to be done. This should be carried out in transparent manner along with right and timely AUDITS in place and reports placed in public domain for perusal. The project should be a novel one to show the world, the degree of transparency under which India operates.
The point I would like to draw is that the while the government is drawing up strong policies but also “DO”. The government needs to take head on. This shall be instrumental in governing, reducing crime rate and instilling confidence. The need of the hour is URGENCY and a view that WE won’t be in power after 3 years. With that intention in mind and planned capex above, the Government can ensure more than 100% growth in GDP over next 3 years.
I believe, India has the greatest opportunity for doubling the GDP over next few years, the need is fast execution in whatever areas possible with the right money, men and material.