Corruption in India

There’s absolutely no way getting around this issue. Corruption is a major problem in India, as it is everywhere else. In India, the issue’s been on the front page of its very watchful & critical newspapers for a very long time. In fact, some like Tehelka.com have built a reputation around exposing scams. The sheer fact is that corruption continues, and it seems not much can derail the gravy train in India.

From an international investment perspective, they all know that corruption exists. They all know that people need to be paid off or provided hospitality to. They all know the importance that the business world places in cementing its relationship with Government, so they try to replicate it – rather than take a stand as per their corporate governance rules in their own countries.

Or do they?

Evidence suggests that corruption is as much an issue in the western world as it is in places like India. In well known cases of British firms, the Government has blocked enquiries into trade deals (BAE Systems), been complicit in trying to sway deals by offering generous hospitality (FIFA World Cup bid) etc etc.

In the past when I’ve discussed India’s woes with Indian business leaders, their view is summed up in the following quote “as long as our work is done, why should we care if a margin needs to be paid”. I suspect most western business leaders would disagree with this on the face of it, but privately would concede that they’ve had to somewhere down the line compromise on their ethics.

Given that India has a free and (very) critical press, is a very (colourful) and vibrant democracy, the only hope it has of tackling this scourge, is that of inspired political leadership.

It’s fair game to be critical of Manmohan Singh, the Gandhi’s and the ruling party, as it is about LK Advani and the BJP lead NDA coalition.

What’s the point of being a man of character & integrity as Prime Minister, or having a vibrant democracy, when they keep quite on scams such as those witnessed recently – Commonwealth Games, Adarsh Society, and the massive 2G scam.

One can only conclude with such behaviour that they’re on the take. India needs inspired political leadership.

Who will that be?

Delhi’s Commonwealth Games – Will it be “alright on the night?”

Having just visited Beijing, I’m astounded with what they achieved as a result of the Olympics. In the same breath, I’m equally astounded with the manner in which the Indian Government has handled the preparations for the Commonwealth Games, which are due to open in the first week of October.

There’s been public outrage in Delhi with politicians being accused of corrupt practices, bad administration, and ultimately with squandering the great image it’s built up globally on the back of her economic prowess.

I’m told that Delhi still resembles a construction site, with massive traffic problems, and air pollution that’d make you want to be elsewhere, no surprise that some of the world’s biggest athletes, like Usain Bolt, have decided to stay away.

Indians are trying to salvage the situation, but I fear the damage has already been done. Suresh Kalmadi, the main organizer is reported to have said that “it’ll be alright on the night”. But really, is this the attitude to take when you’ve used hundreds of millions to deliver an event that we’ll most probably want to forget. Wouldn’t it have been better just to commit the money to tackling poverty, which blights India so badly?

If you look at this politically, cast your minds to the building of our Millennium Dome, in which Tony Blair and Peter Mandelson came under major criticism for what as described as a ‘white elephant’. Despite the monetary figure being so much lesser than what’s being spent on these Games in Delhi, they nearly lost their jobs.

If political conventions straddled continents, I’m sure Manmohan Singh’s head would ultimately roll, but as we’re taking about India, I can’t think of a more appropriate phrase than that devised by her tourism department for promote India – the Commonwealth Games are taking definitely taking place in“Incredible India’.

Lockerbie & Bhopal: How UK & India can take on the might of the US, together

This piece has featured on Reuters: http://blogs.reuters.com/great-debate-uk/2010/07/26/bhopal-and-lockerbie-on-the-agenda-for-cameron-and-singh/

With his admission last week that Britain plays second fiddle to America, David Cameron has an opportunity to get one over Barack Obama during his much trumpeted first Prime Ministerial visit to India.

That Britain is keen to forge a more strategic relationship with India is not in question. Who wouldn’t? The India of even ten years ago is a much different place to one that I see every time I visit. Whether we’re talking of the new Delhi airport, the Worli flyover in Mumbai, or the ever increasing number of middle class consumers armed with cash, there’s no doubt that India’s on the rise.

Facts and statistics aside, India’s influence needn’t be solely defined by economics. In real, I believe the biggest influence she can have rests in the realm of global politics.

Under Tony Blair, the British Government lead the charge to bring India to the top table. As cheerleader, Blair did the unthinkable; he changed the way India was talked about by stating his support for a permanent seat at the UN Security Council for India. Immediately, you saw India being invited to G8 meetings, where the world’s richest nations got together to decide the future course of global events. Like a new student in an old school, India observed attentively and said little.

However, as time has progressed; and as events have benefited India, Manmohan Singh is no longer the new student. He has an edge over Obama and Cameron. His experience in dealing with global finance and economics is proving to be a major strength for India. Not only is India at the top table, but it’s bringing its experience to bear by offering solutions to global problems, like it has with the debate around the imposition of a global bank levy.

But, what I believe is that Manmohan Singh has a lot to gain from this visit. Whilst it cannot openly speak of American double standards, it can certainly use this visit to flesh out some arguments that Cameron may wish to take the lead on.

With the media debate and focus on the release of the Lockerbie bomber during Cameron’s first official visit to the U.S., Singh would do well to point out the double standards being applied. He could rightly claim that Pakistan ought to have the same treatment as Libya, after all there’s compelling evidence that both states were complicit in terrorist outrages in Lockerbie and Mumbai. Do Indian lives matter less to America?

In a similar manner, Cameron ought to take the opportunity to raise the burning issue of Bhopal, especially in the light of the U.S. attitude on BP. The EU, in the past two weeks, has offered to fund a complete survey to assess what needs to be done to make the site safe, which Singh seems reluctant to take up. By making the offer during their forthcoming talks, Cameron would neatly be making the point that America cannot be allowed to berate a UK multinational without dealing with Dow Chemicals over Bhopal.

Whilst everyone speaks of the burgeoning trade and investment relationship, the real champion of the enhanced relationship in this coalition government, surprisingly, isn’t the British Business Secretary but the new Foreign Secretary William Hague, who understands that India’s potential lies in her engagement on multilateral political issues.

I’m sure India will receive Cameron in the only way it knows, with warmth, friendship, and mutual admiration, but he needs to keep in mind that he’s going to be judged on substance, and not style – something he’s often criticised of favouring. This visit offers a defining opportunity, the type that comes along once in a while. Let’s hope David Cameron seizes the moment.

Are foreign banks interested in the 1 Rupee loan?

Now that the dust from the Indian election has settled and portfolios have been allocated, with the Finance Minister going to Pranab Mukherjee, the question on everyone’s mind concerns whether we’re actually going to see reforms in various industry sectors. In particular, the one that interests me is the financial services industry.

In her joint address of the Indian Parliament last Thursday, President Pratibha Patil spoke of (a) the need to create a new pensions regulator, (b) easing foreign direct investment for international banks, and (c) the disinvestment of various public sector undertakings.

Whilst some of the largest international banks and insurance companies are already there, will the existing stakeholders – including the Indian banking fraternity allow this to happen? Lack of progress, only, holds back plans to make Mumbai an international centre for financial services.

It may be true that British insurers like Aviva, the Pru, Standard Life, Royal & Sun Alliance, and Legal and General have successful partnerships with Indian firms like Dabur, ICICI etc, but they’re held back from further expansion mainly as a result of the 26% cap on foreign ownership. Mr. Chidambaram, former Finance Minister, even commented that insurance penetration in India as being “pathetically low”. And that India must “move along with the rest of the world”.

With critical reforms not taking place, the insurance markets are dominated by inefficiency; stifling innovation and competition; and limiting expansion of life and health insurance to rural areas.

In the banking sector too, foreign banks have earned a good reputation . HSBC, Barclays, Standard Chartered all have a significant presence in India but the expansion of these and other international players is held back by high capital requirements, equity caps on foreign ownerships, restrictive limitations on new branch licenses, and burdensome licensing procedures.

With a population in excess of 1 billion, India allows only 12 new banking licences per year!

Indeed the need for further reform of the Indian banking sector is highlighted by the fact that only ten of the 27 publicly owned banks are fully computerised!

Whilst HMG will continue to push for change, I believe that the Indian financial services community also stands to benefit from reforms and should push for it.

Not so long ago, KV Kamath, ICICI Bank’s Chairman made a point to me that made me think. He argued that the Indian banking environment and opportunity is limited for international banks for the reason that he didn’t believe that a HSBC would be interested in providing a 1 Rupee Loan to a villager living in the remotest part of India.

In defence of globalisation, wouldn’t it be great if the option existed? They may not want to participate in the growing micro-finance opportunity, but surely that’s a commercial decision for them.

On the eve of Indian elections… new poll research

Thought you may be interested in the Indian election survey we commissioned.

What it shows:

• So far, the electorate have been treated to a ‘policy-lite’ campaign, with no real debate on substantive issues. Caste and religion remain defining issues in this election.

• Anyone can still make it. It’s all down to the post poll alliances that are struck at the end.

• The Congress & BJP will have an equal share of seats, it’s their coalition allies that will make the essential difference.

• Previous groupings like the UPA (Congress Party + partners) & NDA (BJP + partners) have more or less been disbanded. They remain convenient terms to apply, but mean little in the real sense.

• Regional parties are flexing their muscles by choosing to join together, under banners such as the Third Front or Fourth Front, avoiding grand alliances offered by the Congress or BJP.

Detailed breakdown of projected wins under four main scenarios is here: http://indiabriefingcentre.files.wordpress.com/2009/04/090414-sc-team-cvoter-election-survey2.pdf

Musings from last week…

The Congress withdraw a senior Congress MP over his alleged involvement in the 1984 Sikh riots that occurred after Indira Gandhi was assassinated by her Sikh bodyguards. At a press conference last week, a Sikh journalist threw a shoe at the Home Minister as a sign of protest, which snow-balled into the two MPs withdrawing their candidature and bringing media attention to the Congress Party’s record on communal politics, which was a huge relief for the BJP as this shifted media attention from Varun Gandhi’s “hate speech”, that was being played out in the media in preceding weeks.

Personal attacks from the Congress leadership have intensified. Manmohan Singh (uncharacteristically) and Rahul Gandhi have publically criticised Advani, the BJP’s Prime Ministerial candidate. Excerpts from a press conference below:

“Mr Advani has strength in speech with weakness in action.” – Manmohan Singh on LK Advani

“I would not have been found weeping in the corner, when a mob of hoodlums was destroying the centuries’ old mosque.” – Manmohan Singh on LK Advani when the Babri structure was razed to the ground in 1992.

In obvious reference to the Kandahar plane hijack episode Manmohan Singh said, “The difference between the UPA government and the NDA government is that they released terrorists while we killed nine and captured one alive.”

Referring to Mr Advani’s remarks that he did not know about the release of terrorists and the flight to Kandahar carrying Jaswant Singh, Rahul Gandhi said: “If he is such a strong leader, how come then the home minister did not know something…there are two possibilities. Either he is not telling the truth or his senior leader, Prime Minister Vajpayee, did not trust him”.

Likewise, LK Advani demanded an apology from Sonia Gandhi for her statement that India was in greater danger from people inside than foreign terrorists, which he said was an implied attack on the BJP. Advani said he was shocked about her remarks that “we are in greater danger from people inside than from foreign terrorists entering India”.

He said though Gandhi did not name his party, it “substantially accuses us and the comments were clear”.

On the third front, he said: “The so-called Third and Fourth Fronts were irrelevant as they were opportunists, who had no platform on their own or a common platform. The CPI(M) was trying to cobble a Third Front only to fight its own growing irrelevance.”

Briefing on Indian Elections

Following from the briefing that we’d organised yesterday evening at the House of Commons on the upcoming Indian elections, our inbox has been swamped with requests for the presentation made by Yashwant Deshmukh – who’s one of India’s top pollsters. Whilst we’re probably more immersed than others in keeping on eye on the machinations of Indian politics, I found the insights provided by the panelists and also some of the audience very logical and agreed with their analysis.

In particular, I felt that Lord Desai, who’s advised several Indian Prime Ministers, and clearly, has the inside track on politics, was exceptional in his comments. Despite the pro-Congress Party perception that people have of him, I felt he was very balanced and gave the Congress as hard a time as the BJP. He narrated a story to me of when he was awarded the Pravasi Bharatiya Sanman Award from Prime Minister Vajpayee and asked why, depite the stinging criticism of the NDA and of the BJP was he being awarded the honour. Vajpayee, in his response, said something to the effect of: “We take heart in the fact that you’re equally critical of the Congress”. 🙂

What Desai explained was that he expected the Congress to make it back and cited examples such as of the confidence that the Congress has shown through the very conservative interim budget a few weeks ago. He said that the lack of throwaway gestures and sops are a clear sign of their thinking. In addition, what I thought was a very personal insight, was his admiration for Sonia Gandhi’s long term strategic thinking – for example, her placement of Naveen Chawla (Chief Election Commissioner) and Pratibha Singh (President) in their current roles to coincide with the probable dates of the election and therefore strengthening her ability to fix the result, if required. I’m lead to believe that such moves are par-for-the-course across the political divide, but are less well thought through or executed.

Yashwant Deshmukh’s clear view was that he forsees a situation in which a minority party like Mayawati’s Bahujan Samaj Party could stake their claim to high office with the support of either principal party. What was interesting was that he termed the upcoming election as a ‘semi-final’ for the main event in 2012, in which he expects the contest to be between Rahul Gandhi and Narendra Modi.

I’ve placed his presentation for on our company website for you to download – www.saffronchase.com – let me have your views. Do you agree with his analysis?

The really interesting thing about the event was that apart from the panelists, there were several individuals in the audience who have been offered seats in the Indian parliament, or are involved in politics in India but make London their base. Such as, a past Mumbai region Organising Secretary for the NSUI; which is the Congress affiliated student body; a eminent businessperson who is regularly consulted by the Samajwadi Party and the Congress on various issues; a business magnate who’s been offered a party position in Delhi, a lawyer with equations with the gen-next of Indian politics etc etc.

In summary, all panelists agreed that in the next election, we’re going to see an overwhelming influence by regional parties, which may result in a minority government that is kept alive with the support of the Congress and will fall within two years.

On the foreign direct investment / commerce front, what was was clear was that there would be no rolling back of policy decisions, but you couldn’t guarantee the fast-tracking of initiatives such as the lifting of the caps in the financial services, retail sector and others. All agreed that they saw such decisions at a standstill for the next few years.

We’re organising a visit for those interested to India at election time to soak up some of the atmosphere by attending mammoth rallies (100,000 people minimum), and to see for ourselves the key issues that candidates face in their constituencies. We received great interest from the audience, please let me know if you’re interested in joining our delegation. We hope to take some UK parliamentarians, businesses, journalists and others to witness the largest democratic exercise conducted on the face of this planet.

Who's going to be the next Indian PM?

With India on the verge of general elections, I thought it may be useful to look into my crystal ball to find out who may become India’s next Prime Minister. In most democracies, elections come down to a couple of major political parties, but, as with everything in India, it’s not as straight forward as that (what a surprise!).

As a result of coalition politics firmly embedded in India, we not only have to keep our eyes on the national parties, but also on regional outfits that can return spectacularly low numbers of MPs to New Delhi but hold the sway of power.

So, who’re the main contenders:

SONIA GANDHI / MANMOHAN SINGH / RAHUL GANDHI
Representing the grand old party of India, the current Prime Minister – Dr Singh – has just had heart by-pass surgery – but hopes lead the next election campaign, seems unlikely to me. There are two other options for the Congress – ‘Madam Sonia’, or her son – Rahul Gandhi – who’s an unknown & untested entity, but given the Congress Party’s adulation for the Gandhi family, I wouldn’t be surprised if either name came to the fore after the election.

India likes nothing more than someone who’s made a sacrifice – think about Buddha, Ashoka, Mahatma Gandhi and other illustrious persons, to which you can add Sonia Gandhi’s name. For she, sacrificed the position of PM last time around (on the issue of her Italian origin) to install Manmohan Singh as PM and win over a new fan base and acceptability.

LK ADVANI
India knows Mr Advani very well. He’s been around for half a century or so and until the last election played an effective no2 to Mr Vajpayee, who’s since bowed out of politics. Being the numero uno, he’s finally the contender, but it seems the Obama effect has resulted in his chances being drastically reduced. A lot of people I speak to all say they want someone younger (Obama effect) to lead the BJP.

With the increasing acceptability of Narendra Modi, it seems the pressure on Mr Advani is that much greater. It’s lucky for him that he’s already been nominated as their Prime Ministerial candidate! I witnessed the tension just a few weeks ago when I attended the Vibrant Gujarat Investors Summit and on the following day, read in the newspapers the furore his success has caused within party ranks. After all, it’s not often that a politican receives the backing of India’s biggest businesses in such a visible manner. At the risk of saying something obvious, I have no doubt that Mr Modi will ascend to the national stage after the next election, however I don’t think he’ll take the post of Home Minister if the BJP win.

MAYAWATI, PRAKASH KARAT, AMAR SINGH, SHARAD PAWAR
In my view, any one of these could determine the next election, if not become the next PM. Mayawati’s increasing reach is unnerving everyone. She’s the Chief Minister for Uttar Pradesh, which returns the largest number of MPs and as she’s ruling, her chances of success are huge.

Prakash Karat’s monumental miscalculation of withdrawing its support to the Congress over the US – India Nucelar Deal has provided Amar Singh’s Samajwadi Party a huge advantage in the run-up to the polls. The Communists haven’t been able to extend their reach outside West Bengal & Kerala, but enjoy huge loyalty in these two states.

The Samajwadi Party lead by Amar Singh, as always, could upset Mayawati’s coronation. You can expect the unexpected when it comes to these two. Amar Singh, after years of hurling abuse at the Congress, decided to jump into bed with them and extend unconditional support to the Congress.

The Maratha vote, lead by Sharad Pawar, who’s NCP is a current coalition partner could also emerge as a victor. A former Congress leader, he split and formed his party focusing on his home state of Maharashtra. With charismatic operators like Praful Patel, I wouldn’t rule him out of the running. Of course, as President of the cricketing board, he’s used to taking on heavy weights in battle.

Elections in any country are interesting to watch. In India, you’re assured a fantastic contest in which a billion people make their way to the polling booths to cast their votes electronically over a six week period. India’s faith in democracy, itself, is worthy of celebration.

As for my crystal ball, it tells me that despite Congress winning the most seats, it see someone like Mayawati at the helm for a couple of years.

As I predicted… Vilasrao Deshmukh resigns

As predicted on this blog several days ago, the Maharastra CM has resigned.

 

The Singh government is still in place but there is still no plan. Talk of more coastal security, better intelligence and lists of terrorists being sent to Pakistan have not calmed the fears of Mumbai and the rest of India.

 

After 9/11, Bush set up a new security department – Homeland Security – changed aircraft and airport security and launched a strike on Bin Laden. It won him a second term in office and America has not had another 9/11 incident.

 

Will the relentless calls for the government to act from the Mumbaikars spurn on PM Singh, or will they give confidence to the opposition to call for vote of no confidence in parliament?

 

I believe that unless the Government takes firm action by this weekend, its future looks very uncertain. 

Manmohan Singh & The Civil Nuclear Deal

Any visitor to our planet who hadn’t been prejudiced by the cliched images in the media and school lessons on imperial history, would look at India’s landmass, population, economic status and automatically assume that it was a key player on the world’s stage. Well, now it is and we must applaud Manmohan Singh for his conviction and follow through on this policy.

Prime Ministers are, mostly, known for one thing during their premiership – whether its Blair, Vajpayee or Clinton, but it seems that Manmohan Singh has bucked this trend and emerged as a leader with two significant achievements to his credit.

Firstly, the liberalisation of the Indian economy (with all its benefits) and secondly, to gain the confidence of the Nuclear Suppliers Group (NSG) to allow India to participate in nuclear trade (which may bring India closer to energy independence).

The first time I met Manmohan Singh was when the Congress were in Opposition. I walked away with a regard for his intellect and for his personality, that makes him the erudite gentleman that he is. My second meeting reinforced the image that the media had created of him as ‘an accidental politician’.

In my view, the fact that the Indian lobby has arm twisted the NSG to put aside its rules, carefully developed over 40 years, to the benefit of India, and India alone is a significant victory, not only for Manmohan Singh, but for the Indian establishment. The greater victory is that the NSG have agreed to do this at a time when issues related to the transfer of high technology are being tightened and also when non-proliferation has become ‘the’ issue concerning geo-politics today.

Given the US’s need to bring some balance to South Asia by countering Pakistan, I don’t see the ratification of this deal as a huge problem. They’ll probably need to introduce an India specific bill to amend the US Atomic Energy Act.

Economic Reform Wish List

With the Communists jettisoned from the UPA, I hope that the limited time that the Congress have in this parliament is used to bring in legislation / initiatives that will make a huge difference to India truly becoming a global player. If anything, Indian people stand to benefit the most from these policy changes.

My wish list is as follows:

1. FDI for multi brand retailing – foreign investment into the retail sector can only be a good thing and will serve as an engine for employment.

2. Civil Aviation – allow foreign equity participation in domestic airlines, allow airlines to small airports, and create cargo hubs to assist exports.

3. Foreign Education Providers Bill – let foreign universities tie up and invest in setting up campuses in India. The country may  be producing huge numbers of graduates, but this would create extra capacity and improve research capabilities.

4. Insurance Sector – let foreign investors invest upto 49%. The extra 23% jump will serve as a catalyst and enable more access of capital for the insurance sector.

Like I said, the UPA has a limited timeframe. Their general election is due in the first half of next year. Everyone knows that Manmohan Singh initiated the reform process in the early 90’s, he can leave a huge legacy if he delivers on substantive initiatives before the country goes to the polls.