Downgrading "Causes and Consequences"

ALARM FOR THE INDIAN ECONOMY. Just a week before India overtook Japan in GDP in PPP (Purchasing Power Parity) and became the third largest economy after US and China. Before two years India was one of the fastest growing economy after China. India's GDP is growing at the rate of 9.1%. But, what happened to the current scenario. India's GDP growth reduced drastically and now it's growing at the rate of 6.1%. There are various factors are responsible for this like inflation, tight monetary policy etc.., 

Now, a new threat has come. The treat is from S&P (Standard & Poor). S&P is the credit rating agency in US. They warned India that they would downgrade the credit rating of India from STABLE to NEGATIVE (BBB-). This is the worst credit rating. This won't happen now. If India doesn't take any step to improve its growth by controlling the inflation and make certain changes in economic policies of India, after two years India will be in a great trouble. If we see the Index of Industrial Production (IIP) in February, it was forecasted to 6.1%. But, it was only 4.1%. Indian government should also have to take a look into it.

What will happen if S&P downgrade the India's credit rating? What are the causes and consequences? The first thing happens is it will create a cataclysm in FII (Foreign Institutional Investors). The foreign investors invested billions of dollars in Indian market. If this downgrading happens, the investors will pull back their money from the Indian market. Actually the downgrading indicates that the risk of India repaying the loan is high. This will create some sense of fear among the investors. This will further affect the Indian economy.

Suppose if we take US, every year they have allocated certain amount of money to invest in other countries through FII. If they allocated 25% of money to invest in South Asian countries, in India they will invest approximately around 4%. Because of this downgrading, this percentage will get reduced from 4% to 2% or 1%. This is only from US. Not only US investing in India. Other countries like China, Japan, and European nations are also investing in India. This creates a huge set back in infrastructure, technology, real estate and etc.., development in India.

Another major issue is the depreciation of India rupee against US dollar. Before two day it was around 52.17 rupees equivalent to 1$. If this downgrading happens, rupee will depreciate further. This will affect the importers of India. But, it is good for the exporters.

This downgrading will create a domino effect. Indian government has to take necessary actions to reduce the impact of the effect and boost the growth of the economy. Otherwise, it will create a chaos and it further suppresses the development of the Indian economy.

Supply Chain - "DevelopED Nations VS DevelopING Nations"

Is there any difference between supply chain between the developed nation like USA and developing nation like India? Of-course, there are lots of differences. The differences are in terms of flexibility, speed, innovation, the way the supply chain is designed etc..,

The major difference between the two economies is the GROWTH. India is growing in a faster rate when compared to USA. The GDP growth rate of India is 6.1% YoY. In case of USA is only 1.6% YoY. But the real GDP of USA is US$14.5 trillion and India is only US$1.73 trillion. USA market is almost reached the saturation point. Per capita income of USA is greater than India. Here, we can see the contradictory things. They are high per capita income versus slow growth rate and low per capita income versus high growth rate. So, obviously the supply chain approach is different for these two nations USA and India.  Source: http://www.tradingeconomics.com/

In case of USA, if the company wants to make money or to increase the margin, reducing the price of the product or cost cutting in the supply chain doesn't make any sense. The customers in the developed economies always seek for some innovative products that make some difference in the way they are living. Their main concern is no money. Their main concern is about the availability of brand new product. So, the supply chain in the developed nations should be agile enough to meet the demand of the customers. The supply chain should be efficient. 

Suppose, let’s take an example a brand new tablet enters the market. Customers want that tablet and the demand is so high for the tablet. At that time, if the company things of reducing the cost in supply chain, it will lead failure in meeting the demand. The company should think of how fast I can provide my new product to the customers. The customers are also willing to pay a premium for the new product. The only way for the company to make money is by charging more money to the customers by increasing their margin in case the demand is not high. But, in the above case of tablet, the demand is high and also the people are willing to pay a premium. The company will be beneficial if they increase the price and it ultimately leads to increase in the bottom line.

In case of India, the majority of the population always looks for a low cost product. The challenge for the companies in India is how they are going to provide products at low cost. Economies of scale play an important role. Apart from it, the other way of reducing the cost is by supply chain activities i.e., starting from the procurement of raw materials, logistics and distribution channels. In contrary to the developed nations, the bottom line can be increased not by increasing the price but by increasing the quantity of goods sold in developing nations.

Another important challenge the developing nations facing is predicting the demand. In case of developed nations, they don't have much difficulty in predicting the demand when compared to the developing nations. There are various reasons behind it. The most important thing is developed nations are technologically advanced. Everything is computerised and each and every activity that is happening in nook and corner of the supply chain are electronically recorded. They have inch by inch information about the business. In case of developing nations, nevertheless the technology is in developing stage.

Another important reason for the efficient supply chain in the developed countries is their transportation facilities. They have well laid roads, railways and frequent air transport. Developing nations are still lagging in it.