We came across an article in the Wall Street Journal that shared some alarming facts. Apparently, in the first five months of 2015, the US FDA rejected more snack imports from India than any other country. In fact, over 50% of all snack products that were tested and blocked from sale in the US were from India. And if you are willing to think that this year might be an anomaly, let us tell you that last year too India topped the list of snack rejects.
This is worrying because India is not even a large trading partner of the US. For instance, China's exports to the US are worth ten times as much as India's. Even then, China ranks eighth when it comes to snack rejects.
An even more distressing fact is that it is not just Indian snacks that face a high rate of rejection in the US. Be it cosmetics, or ceramics or drugs, in every sector India faces high rejection rates.
As an investor, this is something that should worry you. We often talk about 'economic moat' or competitive advantage in the context of companies. A company is said to have an economic moat when it is able to maintain or expand market share without compromising on margins or return on investment. That concept can be extended to countries as well. If a country wants to grow at a healthy rate, then it has to have some edge in a highly competitive globalized economy. Else, it faces the threat of losing market share. India cannot afford to rely simply on its low cost advantage for too long. As an economy, we should aim to develop 'pricing power'. And that is possible only if we make our manufacturing infrastructure world class and follow stringent quality standards.
The above is from the newsletter I receive from Equitymaster.
This does not speak very highly of our quality especially when you find out that the main culprit seems to be Haldiram.
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