In one of the earliest speeches after becoming prime minister of India in 2014, Narendra Modi had highlighted 3Ds (demography, demand and democracy) as India's key strengths; and rightly so. He emphasised that the world must respect and value India for these strengths.Sixty-five months later, all the Ds are facing serious challenges and may be arguably placed in slightly worse condition as compared to 2014.
Institutions that are considered foundations of our democracy (judiciary, Election Commission, media, law enforcement agencies and federal cooperation) all appear facing a crisis of credibility. The youth of the country is disillusioned with degeneration of political discourse, lacking education and training ecosystem, lack of adequate productive employment opportunities, cracks in the social fabric and misplaced aspirations. The private savings and demand both have declined materially, and are in need of continuous fiscal and monetary stimulus. The household expenditure structure has got unduly skewed in favour of aspirational expenditure, leaving essentials like housing, health, education, and training at the mercy of government, making the task of fiscal management even more challenging.
Besides, another D -- disintermediation -- has emerged as a serious economic challenge.
The fourth D -- Disintermediation is emerging as a new challenge
Disintermediation or elimination of middlemen and replacement of manual services with mechanised service delivery in the market place is a global trend. This trend has gathered significant pace in the past one decade or so.
Tighter compliance rules, strong need to cut costs and improve operational efficiency (automation), technological improvements, and new normal level of profitability (which is much lower than before) in the wake of the global financial crisis, are some of the factors that are driving disintermediation in the global financial services sector. The increasing role of technology in the execution of financial transactions has aided in the acceleration of the disintermediation process. Rise in automated stock and currency trading platforms, online retailing and automation of post-sales services is visible to all.
E-commerce is driving disintermediation in trade and commerce across the globe. The trends in festival season sales in India are a clear indication that online sales platforms have become popular in the remotest parts of the country. As per media reports, some online platforms have reported deliveries to over 99 percent of Indian pin codes during Diwali sales period.
To extend the argument, I would say that even driverless car is an extension of this trend and the popular mode of self-photography (selfie) is a popular acceptance and celebration of this trend.
In the context of developed markets, it may be an encouraging trend, given the poor demographics and high wages. However, in the Indian context where the wages are still low and workforce is growing fast, it is a serious disruption. Though, in my view, this disruption is not at all unwarranted, but it still does need adequate policy intervention.
In financial services this trend has been rather conspicuous in the past one decade. The consequences are almost stagnant wages, lower employment and massive underemployment. The positives are a lower cost of transaction, improvement in transparency and standardisation of services and processes across vendors.
There are many other developments that are leading to disintermediation in the Indian economy. For example, e-tendering for government purchases could lead to elimination of scores of traditional government suppliers and contractors, whose primary expertise was their ability to manage the officers concerned, which the actual supplier of goods and services dealer was either not good at or was unwilling to do.
Growth of organised retail has necessitated direct procurement from the producers. RERA is likely to make a large majority of real estate brokers redundant.
Major disruptions ahead
But the largest disruption is being caused by the Goods and Services Tax (GST). A uniform tax structure across states is eliminating the need for having multiple production facilities. This shall create huge amount of redundancies in the entire supply chain. Many distributors, stockists, whole-sellers, who were acting as financiers of the inventory for the producers are already finding themselves redundant.
Another area where I see major disruption in terms of disintermediation is the sales and service of automobiles. This function presently is performed largely by family-owned entities operating in their local jurisdiction. A few large corporate nationwide auto dealerships could render thousands of people unemployed.
The worst part of this disintermediation process is that most of the people rendered redundant due to this may be unemployable elsewhere, unless they are retrained and re-skilled. While we have seen the government and markets focusing on the 3Ds of demand, demography and democracy, the fourth D is still begging for attention.
Vijay Kumar Gaba explores the treasure you know as India, and shares his experiences and observations about social, economic and cultural events and conditions. He contributes his pennies to the society as Director, Equal India Foundation. Read his columns