The Conservatives & India: Politics of climate change

So, I was invited to the launch of the UK – India Business Leaders Climate Group on Friday at the London Business School, in which David Cameron MP launched a new forum that links businesses in UK & India to find synergies and technologies that fight global warming.

Amongst the good and great, Lord Chris Patten – one time Chairman of the Conservative Party, Baroness Hogg – Chairman of 3i and former Head of John Major’s Policy Unit at Downing St, and Sir Stuart Rose of M&S – all rubbed shoulders with almost half a dozen Shadow Tory Ministers and approx 50 business folks.

On the face of it, great idea… but I can’t help thinking that DC’s statement that the group was an apolitical force for good, is slightly misleading given the make up of the room and the critical remarks of the current government.

Looking at this from the Indian side, this represents a much cleverer manner to court the Conservatives, rather than the approach they’ve adopted in the past few years of going after them in a more aggressive manner. This, the more subtler approach is probably a reaction to the narrowing in opinion polls, in which it seems we’re headed into hung-parliament territory and not a certain Tory win.

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.

Houston, we have lift off…

So, here we are. The big day’s arrived and it’s put in perspective the efforts of the past three years to research and write this book.

Coincidentally, the Financial Times has also carried a balanced review of the book, of which the best quote that summarises the rationale with which I started this endeavour, is:

“The interviewees chosen in India Inc. represent an interesting cross-section of today’s Indian business leaders, beyond the largest industrialists. It will be welcomed by many readers in a country that has a voracious appetite for business books, particularly biographical accounts of how a successful entrepreneur or businessperson overcame the country’s notorious red tape and poor infrastructure to make millions.”

“For readers who want a light introduction to these personalities, India Inc provides an easy read with occasional vignettes.”

Shall write about the launch event tomorrow…

Launch week – update

I promised to send regular updates on the progress of the book, so here goes:

I was asked to write a guest column for Business World, in which I offer some nuggets from the interviews I conducted with the entrepreneurs – such as how they are fundamentally different to their Western peers. You can read the article here: http://www.businessworld.in/bw/2010_01_15_Enterprising_India_Inc.html

I’ve also been asked to write a comment piece in the Economic Times of India on what India Inc can teach the world. Let me know if you have any views or ideas to incorporate. On the issue of PR, Real Business Magazine is going to feature two extracts from my book, as are a number of various trade magazines.

With regards to events, we had a small family ceremony this weekend at the legendary Hare Krishna temple in Watford, which used to be George Harrison’s home, where my family invited some close friends to share the moment. Later this week, we have the main UK launch event in which we expect around 150 of our clients, associates, and friends to attend – should be great fun.

On India Inc, the story that caught my attention is the proposed bid by Anil Ambani to acquire the beleagured Hollywood studio, Metro-Goldwyn-Mayer (MGM), whose back catalogue includes the James Bond series, Ben Hur, The Wizard of Oz and Gone With The Wind – all major blockbusters. Last year, Ambani inked a deal with Steven Spielberg to produce some films together which raised some eyebrows – it’s also one of the major conversations I had with Kishore Lulla, Chairman of Eros, who’s featured in my book.

Feel free to send me your thoughts on what I should write in the Economic Times piece.

If you haven’t already so, you can join the Facebook fan page by clicking here: www.facebook.com/indiaincthebook

Tell Google, India NOT China is the future

Google should shift its focus to India, where a free press exists and is encouraged – unlike China, which censors almost everything, and uses it’s heavy hand in dictating terms, with the “national interest” in mind.

With a middle class the size of the entire US population – armed with disposable income; with a fundamental belief in democracy and the rule of law; with a free and critical press – most businesses would be better off in the longer term looking at India, rather than targeting short-sighted revenues in the “people’s republic”.

Despite it’s obvious failings and comparative slower growth rate (6.5%!), I could go on & on to offer my view on why India is a much better suited place for Google, but I’m interested in what you think. Do you think India is a better bet than China?

Let your comments flow…

A few years ago, a wordsmith conjured up the following phrase which encapsulate, at least for me, why Google ought to shift its focus: ‘India: the fastest growing, free market democracy”. Case closed, as far as I’m concerned.

What’s wrong with the Aussies?

I’m going to keep this short. Australia needs to get on top of what is obviously more than “a law & order issue”. Else, they’re going to find upto $2bn wiped away from their economy, and subsequently find themselves out of favour with one of the world’s most powerful economic players.

Australians are warm, hospitable people. If they don’t stop the mindless violence being dished out to Indian students, they place at risk their reputations – which no media / PR campaign can overcome.

We know you’re not thugs. But, please for your own sakes, get a grip on this situation.

A Dubai Born Brand Going Global

It’s not often that you witness history, but last night, I observed just that. I’m in Dubai at the moment – a place I must say is not the most endearing for the simple reason that it’s all quite new and sparkly – despite the emirate of Abu Dhabi having to step in to help it honour its financial obligations.

There’s approx 1.5million people residing here, of which the local community constitute approx 15%. The vast majority seem to be from the southern states of India, who work in all capacities from maids & servants, professionals in corporates, and are also major investors with large enterprises in Dubai – all of whom, which have enabled its skyline to be as extravagant as it is.

It’s for this reason that I was truly taken aback to learn that the Ruler of Dubai, Sheikh Mohammed bin Rashid Al Maktoum went to his first ever non Emirati (local population) event in Dubai, and he couldn’t have picked a better one. The event marked the 50th anniversary of an Indian family having invested in Dubai, whose company – GEMS – is a world beater in the education sector.

What’s remarkable about this family and firm is the way they’ve taken the best of being Indian and have fused it with Arabic culture, to set it on it’s path to global success. As an internationalist, I’m going to use this post to not only congratulate the Varkey’s, but importantly to applaud the Sheikh for taking this small, but important step in strengthening Dubai’s ties with the future.

As for GEMS, having looked at them closely, I’m convinced they’re at the cusp of truly becoming a global brand. They may have a 100 schools and educate 100,000 kids, but the landscape is so, so wide for them to paint. Yes, they’ll go through the pain of becoming a business that moves beyond the identity of its owner; yes, they’ll also make mistakes – but having witnessed their flair, ambition, and drive to recruit the best talent, it’d be hard to bet against them becoming “the” first global private education brand.

In Dubai, we may have just seen the future…

Goodbye to Bajaj Scooters

One of my fondest memories of visiting India as a child, was that of jumping on my cousin’s Bajaj scooter and going for a spin. That scooter was his pride & joy, just as much as the fridge freezer was my aunt’s – both items spoke volumes in their neighbourhood about their social status… just as owning a Chelsea tractor or a private education does in mine today.

Given the near iconic status of the scooter in India, I was surprised to learn that Bajaj are going to stop manufacturing it. You can read all about it here, as there’s been acres of coverage in India about this decision: http://www.reuters.com/article/idUSBOM32109320091210

Apart from getting nostalgic about the demise of the scooter, what I wanted to comment about, more than anything else, was the manner in which one of India’s most prominent firms is handling this. In one corner is Rahul Bajaj, Chairman & father of the Chief Executive, Rajiv Bajaj who disagree with the decision to stop making scooters.

Bajaj Snr is an outspoken guy who enjoys roughing people up. He’s known for lashing out by speaking his mind but I didn’t think he would dish out the same treatment to his own son on prime-time TV. Rajiv Bajaj came across very impressive and said all the right things, whereas his father looked exactly the opposite.

The take home for me from this episode is as follows:

1. With India’s increasing affluence, consumer tastes are shifting… resulting in people wanting better products and services, like motorbikes instead of scooters. Just as Bajaj exits an important product line, others do exist and will take the opportunity to innovate.

2. What Rajiv Bajaj is saying is that he can’t add any more to this business, with profits declining, he believes the greater opportunity lies in motorcycles. He added that the day he figures out how he can add value to an overcrowded market sector he’ll re-enter the scooters sector.

3. We often hear about owner / promoter types of businesses being wedded to their original concept, here we see the future – a family firm that is in disagreement but decides that logic trumps emotion. Also, that the governance and leadership in India’s firms isn’t as bad as what others believe. Rahul Bajaj should be congratulated for playing the role of Chairman to the tee by questioning whether this decision benefits its shareholders.

Whether he needs to do so in such a public manner is a matter for debate. I, for one, may miss my cousin’s Bajaj scooter but you can’t really fault the firm for the decision its arrived at. All in all, for me it demonstrates how mature and responsible Bajaj is as a company.

Leave a comment to share your thoughts on what the hallmarks of a progressive company should be.