Dear Dave… game-changing ideas on India for the PM

Dear Dave-bhai,

Further to my last blog-post about the UK – India relationship, I wanted to offer two specific suggestions on how you could create a name for yourself on the UK – India circuit, which I know is what you and the remaining political class would love to do.

Whilst you’ve not announced it yet, we’re all aware that some people jumped the gun by letting it be known that you’re visiting India in July. In preparation, you may want to incorporate the following:

With the UK – India Trade & Investment relationship floundering rather than flourishing, your visit could mark a departure and arrest the decline if you did the following:

DITCH THE HIGH PROFILE CEO DELEGATION ON YOUR FORTHCOMING VISIT

As news worthy as they are, ditch the high profile CEOs that you’re planning to take along with you. What’s the point? They already have operations in India, they have the money to survive, and enjoy the access they so crave.

Instead, why don’t you take the Director’s of 20 SMEs ranging from widget manufacturers to regional retailers. It’s these guys that need the education and improved understanding of the opportunities a country like India provides. They fear the uncertainty of a very complex environment in India, but get the cost advantage of China, which is something your government needs to get right. After all, if you’re after a strategic partnership with India, you need to think a little beyond schmoozing the good & great from UK Plc on this much awaited visit.

EDUCATION, EDUCATION, EDUCATION

There’s no two ways about this, the world marvels in envy at our education system. We’ve known for a very long time that the education sector is as central to our global influence as the Bollywood film industry is to India, so let’s try and regain the lead that’s been stolen from us by the Americans and Australians in India.

We already have examples of success, such as Lancaster University that have set up a joint venture partnership in Delhi to provide accredited courses and degrees to students in India. They predict that in the not too distant future, they’ll have more graduates coming out of the Delhi campus than the mother base in Lancaster!

That’s just one example, but we could look at funding a new wave of research collaboration, educational exchanges at all levels, and perhaps could look at helping India in bridging its skills deficit as a result of our excellence in this field.

We know that India churns out more graduates that the whole of Europe together, but rather than get lost in such statistics, you would do well to understand that the Indian education system, on the whole, is not as great as we’re lead to believe. Why can’t UK centres of excellence enter into partnerships with struggling institutes of technology, science & engineering colleges, business schools etc which exist all over India to assist them actively?

Education could easily be the game-changer that you’re looking for.

Dave – the truth, as unpalatable as this may be to you, is that the previous government brought a paradigm shift to the way India is dealt with, here and in international quarters. However, the opportunity you have is also very clear to me. Put simply, exert some effort in making things happen and you’ll create a legacy that’s enduring.

With my best regards,

Vikas

Sunil Mittal – the poster boy of Indian entrepreneurship

Visiting my relatives in India when I was young, I was always struck, even then, by the stories that were told about India’s bureaucracy. For example, we were told that to get a fixed line phone, people had to wait over 5 years after lodging their application. Given this was the state of India and in particular of her telecoms sector not so long ago, one of the statistics that astounds people today, unsurprisingly, is the take up rate of mobile phones in India – which averaged upwards of a couple of million handsets being sold every month!

Coming from quite a mature western European market, I’m totally flabbergasted with the competitiveness of India’s cellphone market. In addition her innovative ways of winning and keeping customers, such as with low cost price plans, energetic (but melodious) ring tones, value added information services etc. all are refreshing and provide great case study material in MBA schools all over the world.

But, often people outside of India (and outside of business schools) fail in recognising Indian brands and their successes fully, which was a prime motive in my writing my recently released book: India Inc: How India’s Top Ten Entrepreneurs Are Winning Globally.

My biggest regret is not that I didn’t write about Ratan Tata, Mukesh or Anil Ambani, but in fact that I didn’t include Sunil Mittal, the man behind the telecoms boom in India. He’s often credited as India’s poster boy for entrepreneurship as he’s created a phenomenal juggernaut of a company in Bharti Airtel. My reasons for excluding him, despite having met him over the past decade at many occasions, is that until recently he was totally focused on the opportunity India’s domestic market provides for Airtel – not that you can hold that against him – and my book looked at the international success of India’s corporate titans.

But, finally, all has changed. As of this week, Bharti Telecom owns Africa’s Zain Telecom and therefore makes his success an international one in the truest sense. His acquisition is second only to Tata’s purchase of Corus and provides Mittal with a growing footprint in an additional 15 countries and 150 odd million subscribers. It would be misleading to suggest that Mittal wasn’t interested in internationalising Airtel, as we all know of his failed negotiations with South Africa’s MTN over the past couple of years. But, I’m glad its finally happened.

What excites me, and many more, is his focus on Africa as it is here that I believe he’ll really be able to leverage his Indian experience to much gain. We hear of China’s love affair with Africa, but seldom do you hear of India making a beeline to some of the world’s most stunning countries and for this reason look forward to charting Sunil Mittal’s international success as much as India watchers have kept a keen eye on his domestic conquest.

Please don’t be mistaken, his rise hasn’t been free of challenge, controversy, or criticism and I don’t intend on sugar-coating his rise, but I fundamentally believe, above all, he demonstrates some phenomenal entrepreneurial traits that could teach the Bransons of our world a thing or two.

UK – India Trade & Investment figures

The following figures were provided in the the run-up to the annual UK – India Ministerial Summit that took place in London on 4th Feb, under the ausipices of the Joint Economic & Trade Committee (JETCO) whose activity to date is principally delivered through a number of industry led sector specific bilateral working groups, such as Manufacturing and Innovation, Infrastructure and PPP, Education and Skills, Financial and Business Services and Fast Moving Consumer Goods and Supply Chain Logistics – the latter being a new Group that was launched at the JETCO on February 4th.

In broad terms those issues relating to the regulatory barriers to access are discussed at Government to Government level, and addressed directly by Ministers while the B2B working groups’ dialogue is focussed on understanding Indian business needs and with them the opportunities that they represent for British business. These groups adopt a project group approach, with a remit to tackle specific issues, within a time limit period and a requirement to report back to the next meeting

FACTS

The UK is India’s 3rd largest investor cumulatively – after Mauritius, and the USA. Bilateral trade is worth £12.6bn.

In 2008/9, the UK attracted 108 project investments from India (2nd only after the US), generating 4139 new jobs (again, 2nd only after the US).

There are more than 600 Indian companies with investments in the UK; about two thirds are in the ICT/software sector. The value of Indian investment in the UK is estimated to be £9bn. Taking the large acquisitions in to account, the UK receives more than 50% of India’s investment in to Europe. About 20% of India’s IT revenues come from the UK.

2008 TRADE FIGURES

UK exports to India of goods £4,125 million
UK exports to India of services £1,827 million
UK exports to India of goods and services £5,952 million

UK imports from India of goods £4,478 million
UK imports from India of services £2,229 million
UK imports from India of goods and services £6,707 million

THE INDIAN ECONOMY

1. Annual GDP growth increased from 6% in 1990s to around 9% in the last four years. This was well above Brazil and Russia but not China.

2. India is the world’s 4th largest economy (in purchasing power parity terms). It is expected to overtake US in the mid-2030s.

3. India achieved a growth of 6.7% in FY09 warding off the worst effects of the financial crisis. Despite a poor 2009 monsoon, the government is predicting 6.5-7% growth for 2009/10.

4. Globalisation and rapid growth in trade and capital flows had driven strong growth prior to the crisis. The crisis precipitated a domestic liquidity squeeze and collapse of export markets. Prompt monetary loosening and the lagged effects of pre-election government spending (in addition to modest post-crisis stimulus packages) have successfully supported growth.

5. The crisis saw a collapse in exports. Even with rising recent volumes it is still down 7% (yoy). But FDI has held up well and return portfolio capital has driven a stock market rebound. Reserves have been rebuilt to US$290bn.

6. The gap between rich and poor is growing; the richest third of the population is growing considerably faster than the poorest third. This is attributable to differences in skills and education, and deep-rooted social exclusion

7. Regional disparities are also growing. Economic growth has been slow in states where poverty is concentrated. For example, the states of Bihar, Madhya Pradesh, Orissa and Uttar Pradesh which are home to nearly a fifth of world’s poor and a third of India’s population generate only a seventh of India’s GDP. These states have average incomes more like those in least developed countries, ranging from $285 for Bihar, $474 for Uttar Pradesh and $537 for Madhya Pradesh, compared to the national average of $950.

BACKGROUND

The global financial crisis hit India squarely. Average growth of close to 9% levels decelerated to 6.7% in 2008/09. In the initial stages of the crisis, foreign investors withdrew from Indian stocks. Markets declined by more than 50% and the rupee depreciated against the US dollar by nearly 20%. India’s forex reserves fell from US$ 310bn in June 2008 to US$ 250bn.

The policy response was a swift loosening of monetary policy and massive liquidity provision to forestall a credit freeze. The government announced three stimulus packages between November and January, cutting VAT, easing firms credit access and facilitating infrastructure investment. Combined with the effects of pre-existing spending increases on wages and a farm loan waiver programme, India’s stimulus packages amount to 3.5% of GDP.

India has survived the global crisis better than most and indicators now show the worst has passed. Second quarter growth was an unexpected 7.9% despite a deficient monsoon. The robustness of rural demand, supported by government spending, kept the economy growing. Although the impact of the failed monsoon is likely to see growth moderate in the latter stages of this year, the government is predicting a growth rate of 6.5-7%.

The impact of crisis on Indian trade remains significant. Merchandise exports are still down 7% (yoy) and imports down 15%. However, despite a dip at the peak of the crisis, overall FDI flows have remained robust at US$35bn (p.a). Renewed portfolio inflows have stoked a doubling of the stock market since March 2009 and allowed a rebuilding of reserves US$290.

As external pressures subside, the government needs to unwind its supportive macroeconomic policies. The July budget from the new government continued a stimulus to support growth but ran a deficit of 6.8% of GDP (when the deficits of states and off-budget items are included the overall deficit is closer to 12% of GDP). This is unsustainable (80% debt to GDP ratio) and a return to fiscal discipline is promised by the government. The increase in government borrowing to finance the deficit has prompted the central bank to warn of risk of rising interest rates and crowding out private investment in the coming year if not addressed. Headline inflation is currently low, 1%, but rising quickly and food price inflation is at a politically sensitive 15% (reflecting supply side problems).

Fiscal reforms are needed to improve India’s ability to weather economic shocks. Higher international food, fuel and commodities prices increased inflation prior to the crisis. Administered prices limited the pass-through of international prices to domestic economy but increased fiscal costs where off-budget fuel and fertiliser subsidies are estimated at around 2% of GDP.

Both central and state government need to implement structural reforms—including land reform, infrastructure investment, trade facilitation, access to education, skill development and labour market reforms.—to unlock inclusive growth, especially in the poorest states. Although raising agricultural growth and productivity will be important for poverty reduction, in the long run India will need to manage a transition in output and employment away from agriculture.

The gap between rich and poor is growing; overall consumption inequality increased in the 1990s, particularly in urban areas, and within almost all states. This is attributable to differences in skills and education, and deep-rooted social exclusion. With rising aspirations, it is critical for the Indian economy to have more broad-based and inclusive growth, with job and income opportunities for all.

To do this the government needs to improve the quality of spending. Revenues have increased by 8.3% per annum (on average) since 1993 allowing government to increase development spending, especially over the past 8 years. India needs to make continued progress in reducing fiscal deficits and poorly-targeted subsidies, and reorienting public spending towards education and infrastructure to expand opportunities and address supply constraints.

India’s rapidly expanding private sector is trying to expand the market frontiers by tapping in to the market at ‘base of pyramid’: 800m consumers on less than $2 a day who can be potentially profitable suppliers to the corporate sector and a large market for its goods and services.