November 14, 2009

Women Empowerment

Filed under: Maharashtra,Small Businesses — loggers @ 1:21 pm

As we were traversing through Mr. Rohit Rathi’s cotton ginning unit in Amravati, we happened to meet his mother Mrs. Kanta Rathi. Her firm, Rukmini Creations is a handicraft manufacturing unit run by her 50 employees and a sales team. It is an ordinary story until you discover that the organization is run wholly by women. This is a heartening tale in a patriarchal society and a showcase unit for aspiring self-help groups in rural and urban India. Mrs. Rathi is the kind of entrepreneur we look for as part of our travels.

The group has been operational since 1992, a result of Mrs. Kanta Rathi’s work and her mother-in-law, Mrs. Rukmini Rathi’s encouragement (hence, the name). This makes the story even more noteworthy as this narrative is a polar opposite of the stereotypical (Indian) mother-in-law who is an oppressive figure.

Rukmini Creations specializes in the manufacturing of utility kits (jewellery bags, prayer meeting kits, saree bags etc.) for women and also makes bathroom accessory kits and tie bags, among others, for men. The designs are quintessentially Indian with paisleys and bright colors merging to create the mithai-box effect. Most of the products are exported to countries such as the UAE and South Africa, as the demand and rewards tend to be more favorable abroad. Only a small fraction is reserved for exhibitions held in India.

gents kits

Rukmini Creations' products

While on our way out, the affable Mrs. Rathi showed us her feedback book which has remarks from several dignitaries. She proudly shared her picture with the President of India, who hails from Amravati and has appreciated Rukmini Creations’ work. Not only do such encounters make for good blog posts, they represent the much needed optimism to the otherwise bleak realities of women in business in India.

Mrs. Rathi with the current President


September 28, 2009

Nezone Biscuit Factory

Filed under: Assam,Small Businesses — loggers @ 8:27 pm

On our way to Tawang and the Indo-China border, we passed through the town of Tezpur and paid a visit to the largest biscuit manufacturer in Assam, called Nezone (stands for North East Zone). Owned and operated by a Marwari family[i], Nezone produces more than 35 varieties of biscuits. In addition to producing biscuits under its own brand name, it also does so for major brands such as Britannia (India’s market leader in biscuits).

We were able to observe the entire production process, right from flour milling to mixing of the ingredients to baking. Apart from the two production lines present in this factory, Nezone also has another factory of the same capacity. Margins in the biscuit business have historically been very tight (~7%), and given the current environment of increasing input prices such as sugar, this has been reduced further to 2-3%. To maintain competitiveness in the volumes game, the factory runs 24 hours/day, 6 days/week. The supply of biscuits we were given at the conclusion of the visit served us well for our lengthy road trip ahead to Tawang..

Packing line at Nezone

Packing line at Nezone

[i] The prominent businessmen in the region are Marwaris and Biharis

Auctions in Assam — Crony Capitalism

Filed under: Assam,Economics,Small Businesses — loggers @ 8:15 pm

In Assam, business owners and traders have the option to participate in government auctions in order to source raw materials at a relatively low cost. Different government departments (army, railways, power, telecom etc.) hold these auctions to dispose off excess waste/scrap material, and for some, it turns out to be a significant source of revenue. For hazardous materials, the system requires participants to obtain certification from the central government in order to participate; i.e. only a registered lead smelter can bid for waste batteries from the government.

Auction Format

The format is that of an on-the-floor 1st-price auction, where a reserve price, R, is set by the hosting department. The highest bidder wins and pays a price, P, which is equal to his bid, given that the bid exceeds R. Officially, departments determine R by looking at market prices of the goods and set R < market price. However, since this can be tiresome for the government bodies when dealing with hundreds of goods, they often just determine R arbitrarily by gauging demand, using the previously held R as a benchmark. For example, if in the previous auction for the same good, R was INR30 and the good sold for INR50, the department is likely to set the next R > INR30 to take advantage of this demand.

Corruption in the System

While this system is designed to supply all business owners with cheap raw materials and to minimize waste amongst government departments, the local mafia groups (syndicates) are corrupting the system. Syndicates are groups of people with substantial influence in various departments of the government, who prevent the auctions from functioning fairly. These groups forcibly prevent local traders and business owners from participating in various auctions, and therefore, have control over the prices. With extensive experience they are able to estimate the reserve price before the auction is held, and then do not compete with each other during the official auction.

After the syndicate buys the goods, they meet privately to hold an unofficial auction. Here, members of the syndicate compete with each other, and then split the profits evenly after all the goods are exchanged. So technically, a syndicate member who does not actively participate in either auction will make money through this system. Finally, after the unofficial auction, the individual winners proceed to sell the goods in the market at a high price or use them in their independent scrap-dealing businesses.

Getting around the System

Our friend and local host, Rishi Todi, has a lead smelting business in Guwahati, Assam and has experienced this system first hand when trying to participate in an auction for waste batteries held by the railways department. Knowing that it was a complicated and risky process, Rishi visited a Railway official in Assam beforehand for advice on how to participate in such an auction. The official gave him a run-down of the system, and explained that the government is fully aware of the fact that syndicates are controlling the prices at departmental auctions. He then advised Rishi to meet privately with a member of the syndicate before the auction to reach an agreement to procure the batteries. The official even provided Rishi with a contact inside the syndicate. In making deal with a syndicate member before the auction, one would tell the member the maximum price at which he would buy the batteries. Then, the syndicate member would try to win the unofficial auction at a price lower than his buyer’s maximum price in order to sell it to him at a profit.

Rishi at his lead smelting factory

Rishi at his lead smelting factory


Auctions in Assam are a prime example of crony capitalism. They illustrate how intertwined bureaucracy, business and corruption are in India. In this case, both the government and the entrepreneurs are trying to create efficient markets, but independent syndicates are asserting their power over both entities. The tragedy is that either the government officials find themselves helpless in the face of these local gangsters, or that they are enjoying a mutually beneficial relationship with them under the table. In both cases, it is the entrepreneurs who are losing – the only group of people who have the ability to generate the employment and economic activity that the country needs.

August 16, 2009

Ludhiana, NREGS, Dr. Montek Singh Ahluwalia

Filed under: Conversation,Economics,NREGS,Punjab,Small Businesses — loggers @ 4:14 pm

Our stay in Ludhiana revolved around multiple factory visits. In the richest district and most populous city of Punjab, we toured a small (Rajnish International), a medium (Avon Cycles) and a large manufacturing unit (Vardhman Spinning). We were fortunate enough to meet the proprietors of 2 of the 3 factories and seek their thoughts on business conditions in India. Specifically, we asked them about the impact of NREGS on their concern.

The Chairman of Rajnish International (an automotive components manufacturer), Mr. Rajnish Ahuja, spoke candidly about the ramifications of NREGS. According to him, the scheme epitomizes “political corruption.” He lamented the inadequate supply of labor from states like Uttar Pradesh and Bihar, which has led to a sharp escalation of wages. According to him, salaries for unskilled labour have gone up by 200-300% as a result of the scheme. This increase in labour costs has compelled him to consider a move towards a capital-intensive production chain. This was evident in the factory as we saw that most of the labour was employed for low skill jobs such as alignment, material moving or handling. Mr. Ahuja believes that the labour force has become lazy due to the availability of free money and has been given unfair bargaining power. For over a decade, he paid INR 2,000/month/head. Now, he must recalibrate that figure.

Outside almost every factory in Ludhiana, we saw ‘wanted’ posters soliciting skilled labour. Due to the pre-existing shortage of skilled manpower, coupled with consequences of NREGS, wages for skilled labour have also gone up. Since factories are cutting down on labour usage in production and are moving towards a more mechanized process, demand for skilled labour seems to have also increased. Again, business owners are slow, if not reluctant, to accept this change. This, we think, is neo-capitalism in India – labour is no longer inexpensive.

In Delhi, we met the Deputy Chairman of the Planning Commission, Dr. Montek Singh Ahluwalia, in order to seek his thoughts on NREGS. He sees the scheme as a “social security provision”, one that is not supposed to train people. When asked about the impact the scheme has had on the industrial sector in the form of a higher wage bill, he acknowledged that this was an intended, and even welcomed, consequence. He did acknowledge that the lack of long term skill development was a concern. About the restrictive approved projects list that NREGS beneficiaries and contractors have to abide by, Dr. Ahluwalia pointed to other public welfare schemes that address the relevant issues. Dr. Ahluwalia urged us to visit a dozen districts where the scheme is being implemented in order to check the actual progress of the programme. This, he felt, would be a meaningful study.

July 28, 2009

Batting on NH1

Filed under: Cricket,J&K,Small Businesses — loggers @ 7:43 pm

On NH1A (National Highway 1A), on our way from Srinagar to Pahalgam, we passed several Kashmiri Willow cricket bat stores. We stopped at one just before the “green tunnel,” a road completely enclosed by trees on both sides- so much so that the sky is invisible. At the shop, we learned that what costs INR2,500 in a sports shop in Mumbai is available here for INR250 pre-negotiation. The bats are categorized into “tennis-ball cricket” bats and “leather-ball cricket” bats. You can find every possible brand logo from Kookaburra to Reebok and sponsors stickers such as MRF.

In the absence of a leather ball, the shopowner tested the bat strength by clanging two bats together, clearing our minds of any doubt whatsoever:

Interestingly, we also stopped at a saffron vendor who quoted INR300 per gram despite being located at the farm itself. Unlike the cricket bat store, there was no arbitrage opportunity here! One explanation is that we were probably charged a tourist premium. Another is that cricket bats are harder to transport for a tourist, than a few grams of saffron. The price to incentivize tourists to buy cricket bats must thus be lowered significantly in order to convince tourists to carry the bats home.

Shikara Ride on the Dal

Filed under: J&K,Leisure,Small Businesses — loggers @ 7:41 pm

After a meeting with Nisar Ali, Chief Coordinator of Post-Graduate Studies, University of Kashmir and member of the state Finance Commission (more on that later), we sat down for nun-chai (salty Kashmiri tea) with a friendly houseboat owner.

nun-chai and Kashmiri bagels

nun-chai and Chochuru (Kashmiri bagels)

The octogenarian houseboat owner told us that this was his family business and that his father and he had managed the business for 2 generations. He introduced us to his son, Basheer, who, despite his mother’s reservations, migrated to the US to pursue a career in medical technology. Basheer is now based in Los Angeles where he works in the radiology department of a local hospital. He lives in Srinagar during the summer months and is in the process of building a house here. Since we are interested in unearthing evidence of intergenerational economic mobility, we found his story compelling. When asked about his family, Basheer mentioned that he wants his children (2 daughters) to pursue their education in Srinagar until they are 15 to instill local cultural values.

After our rendezvous with Basheer we boarded our Shikara on the Nageen Lake. The 1.5 hour ride took 5 of us from the New Majestic House Boat to the Dal lake gate for INR 500.

Common Shikara

Common Shikara

During the ride we saw an active lake-community , which included shops for vegetables, handicrafts, carpets, telecom and pharmaceuticals. The majority of the population belongs to the Shia sect of Islam. The market was open despite the city-wide strike. A large part of the community has been developed illegally. As the lake economy is thriving, the size of the Dal lake itself is decreasing- a negative externality for a state whose primary industry is tourism.

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