Where is the promised FDI in Retail?

This is the reproduction of an article written about FDI in response to a request by Mr. Shreekumar, Editor of the Trade Briefs magazine.

It is about six months since the Central Government passed the Law permitting Foreign Direct Investment in Multi Brand Retail. This happened after a long and very hard-fought intellectual, political and very personal battle, taking close on 10 years for this decision to come through, and the expectation was that the Worlds’ finest retailers will be queuing at the door begging to be allowed to invest in the sector. Sadly instead, it seems to have just left the retail industry in utter confusion. Let us try to understand why…

Retail Politics – is this really justified?

Currently the biggest stumbling block to Retail in India is the politics of the issue. One wonders why Retail in India has become the unfortunate victim of a completely unjustified political focus, as it is highly undeserving of it. What ought to have been a simple technical decision based on sound economics has unfortunately become an unexpected high decibel all-stakes-on-the-table battleground, pushing the Government to adopt a forced hawkish position while drafting out the notifications. These notifications, over the past few months, have churned out some very investor-unfriendly guidelines while grudgingly permitting investments under two broad sub-divisions – Single Brand Retail and Multi Brand Retail, and added with the absence of clarity in those notifications, has rendered the entire environment muddied and seemingly fraught with risk. Thus, no major Multi Brand Retailer is queuing up at the Ministry’s doors begging or otherwise – not till date, anyway, leaving just a handful of Single Brand Retailers for the Government to showcase as successes of the policy.

So, why has Indian Retail become so embroiled in politics? I really do not have the answer to that. It will take a more diligent student of Indian Politics and apparently even of Indian Retail than I to answer that one. I can say only this. Retail is a very ordinary, low-tech, basic but capital (both fiscal and human) intensive industry and it is only the implementation of globally tested best practices, intelligently adapted to suit the Indian market, together with the investment of virtually unlimited resources in the form of promoters equity that could make retail work in India. Thus, the shrillness of the political debate that retail has attracted is quite unexpected. The NDA Government, in 2004 had the opening up of this sector in their Manifesto, but chose to 'U turn' on it in 2009. The UPA Opposition in 2004, who was then the shrillest opponent of FDI in Retail, is now the one who is saying it is the panacea for the nation in 2012. Neither position is entirely justified, as Retail is neither a bed of roses nor an instrument of destruction, but a simple, down to earth and an exceedingly tough business. The NDA opposition has even vowed never to permit this notification in States ruled by them and is even ready to bring down the Central Government for this law, despite it being promulgated at least 10 years too late by their own reckoning.

Thus, it is evident that both political alliances have been working only for their own short-term benefit than to formulate policy for the good of the industry and the nation for the long term. Poor politics has been killing good economics for over a generation now, and this has been proved true in the case of Retail in India too. Will politicians ever change and see the big picture? Will the UPA Government ever have the sagacity to seek the NDA’s support for a slightly modified bill and end this atrocious debate once and for all? Will the NDA show the required bipartisanship that would be necessary? Ultimately, can they agree to share the credit (or the blame), as the case may be? My expectations are unfortunately abysmal on that count.

Confusion in Single Brand Retail

Instead of the promised flood, investments in Single Brand Retailing have been dribbling in principally due to the rule that mandates 30% local sourcing from launch of business. Any retailer would find that a challenge, and virtually every one of the current applicants have requested a clarification on this rule. Even a cursory internet search on this subject throws up a number of stories that speculate that the rule will be diluted soon and an equal number that disdainfully insist that that will never happen. One is appalled that we as a nation have the gall to invite investment in this cloak and dagger manner, and one is equally amazed that the world’s finest retailers are still taking us seriously after all this! In my view, ‘Single Brand Retail’ is not even a genuine and cogent classification (more on this later), and if it were to exist, this rule that defines the quantum of local sourcing must be enforced in a phased manner over a 5-year period in the least. While the silly season on this rule is not in a hurry to end anytime soon, some sense needs to prevail and the Government must not insist that the sourcing should be made only from SME’s, and should be extended to cover any Indian manufacturer, regardless of size, as it would be difficult enough to launch with some quantum of local sourcing, and the larger corporates may be better placed than SME’s to match the specification requirements.

Further, as the rule currently reads, an SME who would be trained and developed with much effort to supply quality merchandise by a global retailer has to be dropped as soon as his turnover crosses USD 1.0 Million as he then becomes ineligible. The retailer, who spends a lot of time and effort in developing a reliable resource and enriches him in the bargain by sourcing from him, has to dump this supplier and search for a new one. Does this mean that we intend to punish success, or perhaps encourage subterfuge as vendors will open an unlimited number of new companies each having a turnover of less than a USD 1.0 Million to skirt around the silly law? Is this desirable?

The odd-ball rules of Multi Brand Retail

Multi Brand Retailing is in an even worse bind if that were possible. Apparently, this Government, which has been accused of policy paralysis for too long has decided that it is best to promulgate any ‘paralyzed policy’ with a view to just ducking some heat from the WTO and investor lobby groups! That is perhaps why a major policy reform announced by the Center requires the separate endorsement of every State Government. This is preposterous. This is perhaps the first Central Government economic policy that is not applicable by law all over the country automatically. Thus, this policy, which leaves the adoption of the rule or of dropping it to the States, is a very confusing and spineless one, and is scaring off even the most pioneering of foreign investors, as they have to ensure that all the States that they intend to operate in has adopted their version of the law, before doing business there.

Perhaps, a new retail entrant into the country will have a somewhat lesser cloud of confusion hanging over their heads, as they can in theory; pick and choose to enter only those States that have adopted the new rules. While this is possible in theory, it is highly unlikely for a major retailer to agree to invest in the country if he is not even sure of how many states he can operate in, and how many stores he can ultimately build in his chain. If one is not sure of one’s operational scale in the medium term, one is sure of nothing, how will the investment come in?

On the other hand, for an international Multi Brand Retailer who is interested in buying into an existing Indian chain the situation is simply hilarious. For instance, Future Retail* will have to perhaps split into multiple business entities each registered in various State Capitals and the investor can own 51% of only those entities that are registered in States that have adopted the new rules. Assuming this is done, what happens to the Brand name of the retail chains in question? You cannot have a 100% Future Group entity and a 49% Future Group entity both owning the same Brand Name, so the Brand Name cannot be sold off. Thus, without the ownership of the Brand Name and the goodwill it carries, what would be the use of investing in that chain?

Even if all the above is somehow navigated, the ever-present problem of multiple Taxation Circles and Entry Tax Rules continue to exist and complicate any investment proposal. The adoption of a uniform Tax Code and the GST Act will also be a pre-requisite for a retailer who aspires a pan-India footprint.

The politics of the Multi Brand Retail has also mandated that all retailers will have to invest a minimum sum of USD 100 Million, of which 50% will have to be deployed in the development of back-end processes. Where is the logic in this? Which retailer, other than a Food / Fresh Produce retailer requires any substantial back-end set up? Will an Electronics and IT Equipment Retailer ever require the investment of USD 50 Million worth in his back-end operation? Will that investment not be a millstone around his neck, dooming him from profitability in a low-margin business? Judging from this and other ham-handed rules, it is quite clear that the understanding of the sector by the Government bureaucrats is very poor and they have been guided largely by political dividend.

Debate on the relevance of the classification – Single and Multi Brand Retail

Another aspect of the debate that has befuddled me no end is the seemingly senseless and unnatural segregation of Retail into ‘Single Brand Retail’ and ‘Multi Brand Retail’. The business approach, the investment requirements, the mode of operation and products being sold in retail do not fall under the above classification and vast overlaps are seen. My reading is that this classification was conjured by the Government, on the premise that it expected less resistance to Single Brand Retail, and hence perhaps hoped that it could manage to get at least some investment through the back door. Obviously, the ploy has not worked, and one has learnt that less than ten 'Single Brand Retailers' of repute have made a formal application at the time that this was written. Many others would adopt a wait-and-watch approach and wait the situation out.

Looking at the minefield that the rules of Multi Brand Retail are, I do not expect even a single serious Retailer to put his money here, considering the serious risks involved. One has even heard the NDA politicians say that they will rescind the notification if they capture power in the next Lok Sabha. Investment will come only when there is complete clarity, and the investor is sure that his estate is safe. I have personally heard from a prospective investor that, even in a restrictive 26% FDI regime, that has a clearly framed rule structure, he would be tempted invest in India, considering the innate attractiveness of the Indian market, but with all the confusion hanging over our 51% and 100% regimes, he would be wary of putting in any money. Thus, it is clear that for both Single Brand and Multi Brand Retail, one would not expect the investment flood gates to open anytime soon. The Government will need to actively work with the industry and revise their approach to the regulation of FDI.

Food Retail and Non-Food Retail makes more sense as a Classification

A more logical and cogent classification of Retail in India would be one that is split along the lines of ‘Food Retailing’ and ‘Non Food Retailing’ which would be more appropriate for the Indian scenario. The back-end investments and Farm-to-fork initiatives are very relevant to Food Retailing, and insisting on investments in this sector would not be misplaced. State Governments would then be able look at the Retail industry from this paradigm and formulate the rules as required of them by the Central Government, keeping in mind all the local sensitivities to Food Retailing.

One can readily understand the political sensitivity of food retailing, as millions of small retailers’ livelihoods are apparently in danger by the advent of modern retail and hence requiring of some protection, but why do we have all kinds of retail clubbed together? What are the risks in permitting retail of let us say, Apparel, Accessories, Books, Stationery, Consumer Durables, Cosmetics, Jewelry and a host of other FMCG and Lifestyle goods and services by Multi-national Retailers? Why should we insist that they invest USD 50 Million in infrastructure? Would that huge investment be justified and pay for itself financially?

This artificial Clubbing together of all types of Retail regardless of the type of business structure or product cycle is ham-handed and ill-conceived as it would surely be counterproductive - both to the politics of the issue and for the retail industry, not to mention – to the nation as a whole too. While one can understand the social context of Food Retail needing to be restricted to ensure that the political agenda is adequately addressed, one firmly believes that Non-Food Retail should be simply removed from all unnecessary controls and allowed to propagate freely.

Retailers need access to the traditionally developed markets in India

Retailers also need to be assured that they can freely operate in all the developed markets of India, where modern trade has been in vogue for about 20 years like Tamil Nadu, Karnataka, Andhra Pradesh, Maharashtra, Gujarat and NCR. Without a presence in all these key markets, one would not want to venture into new and untried markets that have welcomed FDI in retail. One hopes that perhaps when provided with this new perspective, State Governments that are politically adversarial to the Central Government, but possessing an otherwise progressive outlook, may be more inclined to notify their own versions of the Retail rules and perhaps choose to closely monitor Food Retail while permitting Non Food Retail to proliferate as that poses no political concerns to be addressed.

For most International Retailers however, the markets of Tamil Nadu, Karnataka and Andhra Pradesh would be the most attractive, as modern Retail (FMCG, Food) has been extensively tried and tested here since the mid 1990’s, due to which the customers are expected to be more welcoming of the USP of Modern Retail. Further, as they are also progressive States, their denizens possess good purchasing power, while also enjoying a relatively politically stable and generally peaceful business oriented atmosphere. I wouldn’t be very surprised if many International Brands choose to postpone their entry into India until these crucial States notify their version of the rules. Sadly, currently only Andhra Pradesh has fallen in line.

This would be particularly critical for Karnataka, and it needs to look at this very closely and very seriously as many international retailers would be keen to be headquartered in Bangalore, considering the fact that it is the most preferred city to live in for expat managers. Thus, if Karnataka continues to choose political exigency over sound policy and economics, they will stand to lose a huge opportunity in the form of being the repository for all the investment and being the beneficiary of the tax revenues accruing out of such business entities.

In conclusion

Business and politics aside, I for one, truly believe from the bottom of my heart that modern retail will genuinely and substantially benefit India, especially with the rules mandating a 50% quantum of investment in the setting up of Retail Backend Infrastructure, if that is focused towards Food Retail. I draw attention to another article of mine, where I have written about the need for the betterment of the agricultural infrastructure (please see link below), which I feel large retailers would be most willing to undertake, if the rest of the rules are more investor friendly. I do hope that someone out there is listening….

Note.

* The Retail Entity has been named only for illustration purposes and not with any other intent. However, the scenarios mentioned above would be equally true for virtually all other Indian promoted retail chains too, and many of which are on the edge of financial ruin and a few of them may be open to an equity infusion at this point in time.

Additional reading.

http://sharmahemanth.blogspot.com/2012/02/grain-elevators-are-needed-in-india.html

http://dipp.nic.in/English/acts_rules/Press_Notes/pn1_2012.pdf

http://economictimes.indiatimes.com/news/economy/policy/fdi-in-multi-brand-retail-full-text-of-goverment-policy-approval/opinions/16398474.cms

http://articles.timesofindia.indiatimes.com/2011-11-29/india/30454303_1_multi-brand-retail-trade-retail-sector

http://ksbpartnersnewsletter.com/FileName/News_FE_a_Sep2012.html

Justice and Social Integration - The Suryanelli rape victim

One prided oneself on the fact that one was fortunate to be born into the worlds’ largest and arguably the freest democracy, where all citizens were assured of equality and justice. This pride has suddenly been punctured recently, as it became increasingly clear that equality and justice was available to only about half the population – the male half, that is. With depressing regularity one reads about how little girls, students and aged women are tortured, assaulted, brutally raped and even publicly humiliated to ‘punish’ their families, communities or caste. We see on TV how medieval minded Khap Panchayats ban women from wearing jeans, owning cellphones or are even ordered to forcefully marry their rapists. Disgusting. Perhaps this has been the situation all along, and we – educated India, have chosen to be blissfully unaware of it. Thanks to the concerted efforts of the Media, this sad state of affairs is now increasingly in the public domain.

A few weeks ago, I was saddened to read the article 'Trial and Error' published in the Week Magazine, in which the horrific experiences of a 16 year old victim of abduction, illegal detention and repeated rape read virtually like a sick X-Rated novel. The Magazine had started a campaign to lobby for justice to the Suryanelli rape victim - something I readily support. In fact, a lot more than just getting her the justice she deserves is necessary, and other critical actions that ensure her re-integration into a society that has chosen to shun her will be required.

It is quite tragic that except for her parents and her lawyer, virtually everyone seems to have deserted her. One learns that she had been given a Government job on compassionate grounds, and recently faced suspension on account of corruption charges – which she denies. One wonders if this corruption charge is some sort of retribution for daring to appeal to the Supreme Court? The timing of the corruption charge certainly seems to be a little too convenient, to say the least. Thus, it looks like every stone is being overturned and every trick in the book is being used to subvert due process. It is absolutely shocking to learn that such concerted attempts at denying justice in this manner is even possible in this day and age, which is also denying a victim the right she has of receiving the support of society.

It seemed quite apparent to me that a 'Grade A' cover up process has been achieved, and the entire Justice System - right from the Social Worker, the Police and the Judiciary seems to have failed the victim, leaving her to battle this horrendous experience virtually on her own. What a brave little 16-year old she must have been to take on the system that cared nothing for her. From day one, the Police investigation and the judicial process seemed to have focused only on protecting the political bigwigs allegedly involved. One can understand the spineless approach of the Police, but a lot is expected from the Judiciary, as they are entrusted with the responsibility of ensuring every citizen's fundamental rights. While the lower Courts may be less independent, one assumes nothing but the best support from the High Court. Despite that high expectation, it really shocked me observe the inexplicable Kerala High Court ruling that stated the victim had 'consensual' sex with her 42 rapists, and acquitted all but one of the accused! This strange ruling was given when the law is very clear on the Age of Consent being 18 years. One is no legal expert, but it seems plain as day that the judgment was faulty. As, even if the 16 year old had consented (a preposterous argument in itself) to having sex with each of those 42 men, every one of them, as adults, would have committed Statutory Rape, and should have faced the full might of the law. Instead of recognizing this, no less an institution than the High Court of Kerala has chosen to pass such a verdict. We need to hang our heads in collective shame for this. Each and every one of us – right from our founding fathers down.

This verdict has to also be seen in the context of a recent incident, the Delhi Bus Rape and Murder of a Paramedical Student. What a strange Juvenile Justice system we have in this country, that rules that a mere 16 year old child has attained the age of consent for sexual contact and ‘chose’ to be ravished and exploited by no less than 42 men, and was hence undeserving of justice, while at the same time, we have a 17-and-a-half year old Delhi rapist and brutal murder accused - an adult by any yardstick, being fed the 'milk of Judicial kindness' as it were, where he has been sent to a nice safe remand home, and is being provided every protection by law, including anonymity, and faces a maximum jail term of only 3 years if convicted. We live in a sick society if something like this can happen in our watch, and we do nothing to remedy the situation.

Our Juvenile Justice System has to be recast to ensure that never again will anyone who is accused of a heinous crime receive the safety net of society. It surprised me no end to learn that India has one of the most liberal Juvenile Justice Acts (JJA) in the world, where any person who is even a couple of days shy of the age of 18 years, enjoys the full benefit of being a minor. Both in the US and UK, on whom much of our Justice System is modeled on, have rules that exempt minors accused of heinous crimes from seeking refuge in the JJA. Children accused of Rape or Murder in these two countries face the same charges and could receive the same punishment as an adult would. Why we in India, in our JJA, choose to be so protective and nurturing of underage criminals? Of what use is our JJA that protects a sadist rapist-murderer, while failing to ensure justice to a 16-year old victim of another rape and sexual exploitation case?

Our Criminal Justice System and the Juvenile Justice System are both worthless if they cannot ensure that justice is meted out in the Suyranelli case. I sincerely hope that each and everyone accused of raping the minor victim will be soon finally brought to book and face the maximum terms of punishment. As thinking individuals, we need to also lobby for the identification of all the people involved in the alleged cover up, regardless of their position. Whether it be the policemen, the lawyers, the prosecutors, the judges or the politicians - anyone involved in a cover-up (if one can be proved) are given exemplary punishment that will deter anyone in future from contemplating such horrible a miscarriage of justice.

Finally, a concerted attempt needs to be made to reintegrate the victim into the mainstream society, and every person who chose to shun her is made to see the folly of their ways. Firstly, the victim must be suitably compensated financially both from the Government and from exemplary fines collected from each of the convicted persons. She should also be afforded an opportunity to face society with her head held high. This can be achieved by conferring on her a Bravery Award for the steely resolve she has exhibited in seeking justice - not only for herself, but for all women. She is richly deserving of that singular honor.

Why the people of Karnataka rejected the BJP

In the background of the decimation the BJP and the KJP faced in the Karnataka elections the other day, we hear a lot of people conducting Post Mortems attributing it to various reasons like infighting, the Yeddiurappa Factor and others. I believe that none of these are relevant. The people of Karnataka have voted out the BJP as it has failed them, just like every other political party since the last 10 years or so.

I remember the days when the last Congress Government was surprisingly ousted and JDS wrested power, I had felt a distinct sense of foreboding when they claimed that Congress lost power due to their urban centric policies and undue concentration on Bangalore, and vowed to ignore Bangalore and concentrate on Farmer issues when in power. While this may have given the JDS good political dividend for a few years, this policy shift killed the Goose that laid the proverbial Golden Egg by stifling investment in Bangalore, and consequently, the revenue generation for the rural focus works started dwindling. This was also the start of the downfall of Bangalore and since then, it has become an increasingly unlivable city.

Without going into the sympathy factor for the BJP when it replaced the JDS as the next Government, BJP had been given a mandate to rule the state on the claim that they were a ‘party with a difference’ and that they would usher in an era of development and growth. However, they frittered away that mandate by indulging in excessive corrupt practices wherein virtually every Government Department was covered in the muck of making a fast buck. Governance as a result suffered and the State started going rapidly downhill. For over 50 years, Karnataka had boasted of higher than National Average growth rates and also seen excellent performance on most social indicators. Sadly, today we have amongst the worst infant & young mother mortality and malnutrition rates in the country. We have fared badly even in terms of female literacy, gender ratio and safety of women and many other social indicators, leading to a drastic fall in the quality of life and outlook for the poorer sections of the state. People may forgive a Government for any ills, save for the absence of Governance. That is perhaps why the BJP and KJP have both been voted out.

I hope they will introspect on this.

Wrong? Mr. Kamalnath?

What a week we have had. Sigh, another scandal, more corruption, the Law Minister gets together Officials of Departments that are under investigation for possible wrongdoings and correcting the draft of the Affidavit the investigators are expected to submit in confidence to the Supreme Court, and the friends and family of Ministers make hay while the Sun shines, like the Railway Minister who has a nephew who offers to fix up a top post in the Ministry, collects an advance in cash, and the Minister is not asked to quit because he has denied being involved! Mr. Kamalnath even says 'it is wrong to demand the Ministers resignation before the end of the probe'.

I'm amazed at this brazen stand taken by the Congress. Despite being caught red-handed in this case, how can Kamalnath believe that it is 'wrong'? Wrong in whose eyes, pray? Definitely not in the eyes of the vast majority of the thinking public, who will want him to step down. Just to put things in perspective, let us consider the following:

The first point is that the nephew is able to convince a crooked Official that his coveted post can be purchased, who in turn gets a hard-nosed businessman to put up 90 lakhs as a first tranche of an eventual 2 crores of bribe money. Would these two have paid him the money if they had any doubt that he couldn't deliver? And, If he could deliver, can they make anyone who is not a half-wit, believe that it can be done without the Ministers' knowledge and blessing?

The second point is that this is the tip of the proverbial iceberg. If this is what happens for the fixing of a posting, what would be happening during the Tender process and the award of contracts? A businessman who is ready to put up Rs. 2 crores in cash on the word of a Member, will surely stand to gain multifold times? Sometime in the near future when he collects, we would never have 'seen' the Rs. 20 or 30 Crores loss caused to the exchequer!

Or, should we agree with Kamalnath that the amount was a ‘mere’ 2 Crores, and hence would be a pittance for a Minister as was recently claimed by someone in the defense of Salman Kurshid? A vast majority of us who support this nation with our taxes will never see such a sum of money in a lifetime! Further, speaking about the money trail, it will be interesting to know how the Rs. 90 lakh was collected, how much of it was tax paid, how was such a large sum safely transferred to Chandigarh from Bangalore, were Hawala Channels used, or worse, Banking Channels? Considering all this, and the fact that a Minister permitted such a criminal act to take place in his Department under his watch is inexcusable.

Finally, let us forget the criminality. What about the moral and ethical standpoint? Even if the Minister is innocent (I will personally never be convinced on that, regardless of ANY probe), is he not expected to ensure that his family and cronies do not involve themselves in the affairs of his Department? If the Minister himself is not vigilant and permits such flagrant nepotism, is mere deniability sufficient?

The moral fiber of this government is really in tatters and so will its fast-depleting credibility if Bhansal sits in his chair while the 'probe' is conducted. GO.

Elections in India... Transparency International, HELP!

Elections were announced in Karnataka yesterday, and soon, we will further have a rash of elections in some of the major states, with its citizens electing several thousand representatives. Over the past few years, the quality of the elected representative has been dropping quite alarmingly, giving rise to law-makers with criminal pasts and destroying the decorum of Parliament and the Legislatures with lumpen behavior, voting for a financial consideration, watching porn in the assembly and obstructing the conduct of House Business at the slightest possible instigation.

I believe that the time has come where India needs to show the way to the world that its people have no patience for corruption and corrupt politicians anymore, and I decided to write a mail to Transparency International seeking their support in making this a different kind of democracy from now on. The mail I wrote is reproduced below:

Dear TI,

I write this mail to bring to your attention that starting from May 2013, several states in India (Karnataka and others) will be going to the polls to elect new governments, culminating in the General Election expected in Mid-2014.

As you may be aware, the Indian polity has been plagued by corruption and election malpractice in the past, and seems to have crossed all acceptable limits in recent times, judging by the number of scams the media highlights each month. I understand that close to a third of all elected representatives in India face criminal charges or already possess criminal records. I believe that an organization like yours can help our country fight this cancer.

Please can you consider developing an India specific Charter and popularize the same by placing Mass Media Advertisements and propagating through other means a 'Charter Against Corruption' that every candidate should be encouraged to sign. There are anti-corruption movements like India Against Corruption and Loksatta, who may be happy to push this agenda. Similarly, media houses like NDTV and CNN-IBN could be roped in to support this initiative.

Extensive and intense media coverage of every candidate's stand via-a-vis corruption, judging by whether or not they sign the TI charter will let the voters know if they deserve to be elected or not. With such a movement in place, I'm sure many more deserving candidates will get elected and candidates who do not demonstrate an active abhorrence of corruption find it harder to win.

I do hope you will be able to take this initiative and help clean up the politics of the world’s largest democracy. Even in the international community, your involvement and services in this regard would get much attention and acclaim.

Regards,
Hemanth Sharma

Sent from my iPhone

If you have chanced upon this blog and agree that something needs to be done to bring about changes in the Indian political scenario, please do leave a comment in the comment section below mentioning your stand on the same. Sharing this article in your social media page will also be welcome and will go a long way in helping the anti-corruption movement gets the attention and support it deserves.

Do we Indians observe the Quality paradigm?

I have just had the pleasure of being drawn into a fairly detailed technical discussion in one of my forums that discuss issues concerning Civil Engineering and Construction Management, when one of the members asked a seemingly innocuous question as to what needs to be done when he faces a failed Cube Test.

Cube Tests for the uninitiated, is basically the casting of a few standard sized cubes of concrete using the same mix as is used in the building concrete pours, and testing them for compressive strength in the lab. Thus, if a cube fails to achieve the required strength in 7 days, the concrete members cast with that mix are considered suspect.

I am firmly of the opinion that one needs to ensure a 100% Quality Control Regime in our sites, and also feel that in India, we seem to be happy to accept failure and shoddy work as something inevitable, akin to perhaps being a part of ones’ karma – an attitude I personally abhor. My recommendation would naturally be – to establish a Zero Tolerance Policy towards Controllable Errors, and asking the contractor to demolish the faulty section and re-cast. Thus, when I suggested this, I was quite shocked to find almost every one of the other respondents attempting to minimize the impact on the contractor, saying that one must only demolish as a last resort, and have suggested various (expensive) methods of testing and corrective measures lasting from 28 to 75 days to retain a flaw that should not have been permitted in the first place. I feel that our Engineers sadly, are sometimes too over confident in their views, and are incapable of a balanced view to perceive the problem from the clients’ perspective too. Perhaps an expectation that they also consider the ethics of the issue while giving decisions is wildly unjustified? Should it be so?

Speaking of Civil Engineering Construction and Project Management in India, I’m sorry to say that we have not imbibed the true Quality Philosophy that we ought to have since independence and we are quite happy to condone and even defend poor quality work, perhaps overlooking the fact that our actions may have repercussions on the safety, utility and life of the building, and also that it is ethically wrong to pass sub-standard work never seems to occur to many us.

In my experience of having worked abroad in South East and Far East Asia, and thus being able to compare the knowledge level and skill level of the Chinese Engineer and Workman and Indian Engineers and Workmen, I must say that the differences are quite stark. Most of the Indian Engineers are brilliant (and cocky!), full of theoretical knowledge and are mostly looking to find short-cuts rather than doing the job right. Of course, one cannot generalize, but Indians unfortunately seem to need a very high degree of constant supervision and review, sometimes just to ensure that they are seeing the project from the correct perspective, while Chinese Engineers (or Koreans and Japanese) are respectful, studious and measured in their approach. It is a pleasure doing business with them.

Similarly, a Chinese workman I once interacted with, really managed to impress me. It was for a Retail Store Fit-Out project in Jakarta, and considering the fact that I had to handover the project to Operations in 48 hours, I had asked him to complete a task (plastering) expeditiously, not bothering too much about the finish as it was not going to be visible above the false ceiling. He was visibly shocked at my suggestion, and rejected it outright saying that his conscience would never permit him to do a shoddy job, and that he would ‘lose face’ if another worker discovered his slip-shod work in future. How many Indian Workmen will have the same work ethic? Your guess!

(What follows is a verbatim reproduction of the discussions. It really makes for interesting reading. Please note that all the persons mentioned herein are actual persons and their comments have been reproduced without specific permission, but as this is also an academic discussion, I do hope none of them will object to such usage. Further, some portions have been edited to improve clarity and remove typos and grammatical errors).

What does one need to do if a cube test fails to achieve required design strength after casting a slab or any other R.C.C. work?

Added by: Ashutosh Sonawane on: 17 Feb, 2013 | Views: 118 | Comments: 27

Comments

Showing 27 recent comments

R. Sundara Raman: Best possible solution is to take 3 core samples and test its compressive strength, but this can be done only after 28 days of casting the element. Posted: 10 days ago  

Dileep Kumar: Check the concrete strength after 28 days. If the strength is within allowable factor of safety of the design criteria we can continue with further construction. We have to redesign the structure. If the results are poor, we have to break and recast. Posted: 9 days ago  

Narendra Kumar Mishra: I do agree with Mr. Dileep Kumar. The final strength is to be ascertained by core tests only. Posted: 9 days ago  

V K Gupta: One can also conduct nondestructive testing to ascertain approximate strength. Load tests can also be done before acceptance of structure. However, payment terms would be governed by agreement. Posted: 9 days ago  

Rajveer Singh: Conduct NDT by Ultrasound Pulse Velocity Test after that, a final decision can be taken by the designer. Posted: 9 days ago  

Satendra O. Saxena: While Testing of Cubes, if trend is towards failure, some cubes minimum 3 or more should not be tested for 28 days strength. They may be tested for 56 or 75 days if further construction can be held up. Alternatively, Cores taken from structure may be tested for acceptance. Best Criteria for acceptance is to conduct Load test for Design Load, and if satisfactory accept or reject. Posted: 8 days ago

Hemanth Sharma: Technicalities apart, if the cube test fails, one must demolish and re-cast. Ethically, this is the best approach as it is a question of safety of the occupants. Further judging from the cost of delay in handing over projects these days, it may also work out cheaper than delaying the project by 28 days + testing time + decision making process. Posted: 8 days ago

Narendra Kumar Mishra: Demolishing the structure must be last option. But we should go for load test of the structure or other suitable tests to confirm the failure. Merely cube failure should not be the reason to demolish the structure. Posted: 8 days ago

Hemanth Sharma: Mr. Mishra, I would generally agree with you, however in this case, the concrete is most probably batch mixed in-situ and is not RMC, hence the veracity of the cube is also sometimes in doubt. I used to jokingly ask in my sites whether the cubes have been cast with a representative sample or a 'special Cube Mix', as the mason has the tendency to reserve his best concrete for casting his cubes. Thus, if the cube itself has failed, the chances are that the concrete cast was of even lower strength. Demolition of one pour of batch mix would be just a few Cmtr of concrete and its removal in its green state is much easier than when it has reached virtual strength. Projects are run with very stiff penalties these days and to wait for 30 odd days for testing, during which one cannot pour on that section of the structure, and then be asked to demolish if the strength test fails is too large a risk to take. Thus, demolition of one days' worth of pour is an option of minimal risks.  Posted: 8 days ago

Narendra Kumar Mishra: Hemanth Ji, you are correct but my point is - we test the cube after 7days and within this period, concrete attains 60-70 % of its strength and further lifts are been cast. So it becomes difficult to dismantle the particular pour without affecting preceding / succeeding lifts. In all, it depends upon actual situation at site and decision regarding dismantle / retain should be taken accordingly. Posted: 8 days ago

Satendra O. Saxena: Responding to comment of Mr. Hemanth. Failure of concrete is evident only after testing of Cubes normally after 7 days, at this stage dismantling of structure may not be feasible unless the strength is very low. Normally it may be preferable to conduct Load test after 28 days to verify whether structure / component is stable. Posted: 7 days ago

Uday Joshi: It is also possible to wrap more reinforcement and use epoxy concrete to cover it and strengthen the member, after proper review of design. Dismantling is wasteful in time, material and money. Why waste if safety is taken care of?

Pethanna: Additional strutting / strengthening measures with structural beams can be handy if the site condition permits so. If the failure is due to some poor concreting / compaction, cement / epoxy grouting will be good enough. Posted: 5 days ago

Arvind Savant: Checking of the concrete strength at every required number of days as suggested by IS code is important, as we know that normally concrete attains only 60-70% of its strength in 7 days result. We also know that later the duration after its cast the slower is the speed of gaining its strength by concrete. If the strength is within allowable factor of safety of the design criteria (± permissible allowance as per IS code) we can continue with further construction. But, if the results are failing even after 30 days, we shall switch over to conduct core tests of concrete strength / load test etc. We can also conduct NDT (Non Destructive Test) by Ultrasound Pulse Velocity Test, even after the final tests have failed. It is also possible to wrap more reinforcement and use epoxy concrete (as mentioned above) to cover up its lost strength and to improve upon its ability on its behavior as per the concrete member (for ex. slab - a horizontal member has completely different load behavior when compared with column - a vertical member). Then a combined decision needs to be taken on mutual & proper peer review over design requirements and its re-execution feasibilities. Dismantling shall be kept as the last option which brings in a lot of impact over time & cost. Posted: 3 days ago

Rohit Mallaiya: Conduct NDT test eg. Rebound Hammer Test, also the same concrete mix design trial can be redone and conduct ACT Test, check result parameters, workmanship failure or design failure. Posted: 1 day ago

Naresh Chandra Arya: I fully agree with Mr. Hemanth Sharma. Posted: 1 day ago

Buchhi Sundararami Reddy Gangadhara: I believe nowadays the minimum accepted strength of RCC is M25, but to my knowledge, 20 years earlier M15 was accepted for all structures, I believe that structures are stable for average of 50 years (this is my knowledge and supervision), so correlating strengths with that day to present strengths, we need to ensure the pass of the structures of that load taking capacity, still if you are not convinced and if client is having too much money, then you can go for other tests as stated by various readers here. (or) if the results are well below M15, Then it should be dismantled there is no secondary opinion.  Posted: 10 hours ago

Hemanth Sharma: I'm really happy to see the animated discussion taking place in response to the question. I would like to post my final views for the consideration of the forum. Everyone seems to be viewing this problem only from their perspective and answering while wearing their Structural Consultants' cap / Contractors' cap. I think we should view the problem primarily from the perspective of the end-user or client organization, and our considerations then would be quite different from the designers’ perspective.

1.   When a contractor is carrying out batch mixing and not using RMC, the concrete manufacture is normally done by volumetric mixing. Thus, if he can go wrong in mixing in a ratio of 1:1.5:3 or some other specified by the consultant, it is a poor comment on either his capability or integrity. Thus, first and foremost, we need to have a Zero Tolerance Policy towards such a shortcoming in a contractor and he needs to reverse the damage caused to the building, by demolition of the pour relating to the failed 7-day cube test. Please note that I mean no disrespect to anyone, but I feel that we in India do not place a sufficient focus on quality and the 'First Time Right’ paradigm, and that needs to be urgently addressed.

I see comments justifying the failed test, and advocating post-facto corrective action. This is okay only in theory, as the building is not just a structure that has to satisfy basic design considerations, but is a living space, and hence has many more roles to play than that one, which simply satisfies the basic test of strength. Can one assure me that a failed pour that still satisfies the factor of safety will continue to behave in the same manner as a pure concrete structure would for the life of the building? For instance, will the slab be as impervious to humidity as sound concrete would and prevent the corrosion of the reinforcement for the expected life of the building? Or, will we have an assurance that we can safely suspend by anchor-fastening all the services loads like AHU’s without any failure, which can have catastrophic, life threatening consequences? Or, can we all assure the occupants (or even the designers) that during a future alteration (introduction of a staircase / escalator) the structure will remain stable and continue to meet design parameters? Surely not?

2. I would like repeat here, that as I mentioned before, as Engineers, we all have an ethical responsibility that far outweighs our technical ones - to build the best structure that we are capable of building using every ounce of our current knowledge to benefit the client. Giving him a building while knowing it has sub-standard elements is not what is expected of us as professionals, as the client does not pay a reduced rate for the volume of failed concrete poured, does he? Can we repair a clients’ professional status when a portion of the building fails, or repay the loss of life or property? If we do not want to take chances that endanger the client in any manner, we have no option but to demolish and rebuild. It is also unfair to expect the client to bear the costs of all the high tech tests that are being recommended, is it not? 

3. I do however agree that corrective action can be taken if there are compaction problems or other construction errors with the guidance of the consultant, but quality failure of concrete established on day 7 should be sufficient reason to commence demolition. If the faulty pour has occurred in the slab, then the subsequent work will be minimal and may typically consist of a few column starters and lifts by day 7, and will not mean large-scale demolition. I do not therefore subscribe to the view that one needs to wait for 21 or 28 days before taking a view, as by then, the progress would be too far advanced to consider demolition. 

4. A comment also suggested additional reinforcement and epoxy treatment, which may be fine in the realm of design, but such corrective action will alter the surface of the slab, add additional thickness, render it unacceptable to have as part of an exposed ceiling plan, cause problems in laying of under-deck conduits / raceways due to level difference and cause the surface to be unfit for laying of certain types of flooring above, and certain type of paint finishes below. Do we as Engineers have the right to place such constraints on the client or his tenants? Do they not deserve a 100% compliant building considering the money they have spent? 

5. Finally, I would like to make a point that all of us seem to be so sure of our knowledge or specialties that we perhaps tend to forget that Civil Engineering is not an exact science by any stretch of the imagination. There is still so much we do not know about the behavior of materials, especially when they age. Modern Concrete itself has been studied for just over a 100 years, and its properties with advancing age are still being determined and defined as we go along. Thus, I would like to advocate a certain amount of circumspection and a spirit of inquiry, rather than over confidence in our current knowledge. Let us know that our knowledge is yet very far from complete and hence recommending the retention of a known flaw is both unethical and unprofessional on our part. Perhaps, only God knows how many unknown flaws one has to live with in a building, that is built with our current incomplete knowledge of our materials, attention to quality and quantum of supervision, so why add a flaw willfully?! Posted: 1 hour ago