Governance : Can India have too much?

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In June 2008, Goldman Sachs issued a report titled ‘Ten Things for India to Achieve its 2050 Potential’.  On the top of the list was the clarion call to improve governance.  Fast forward to the present day and an interesting tapestry of regulation and regulatory bodies starts revealing itself.  

In the financial sector, the decks have been cleared for the creation of an interregulatory co-ordination body - the Financial Stability and Development Council, or FSDC. The FSDC has been set up with a view to strengthen and institutionalise the mechanism for maintaining financial stability and development. 

        

The Indian mining sector has occupied centre-stage in the media over the last few months.  The draft of the Mines and Minerals (Development and Regulation) Bill, 2010 seeks to give wide powers to the National Mining Regulatory Authority. The Bill lists as many as 16 powers granted to the mining regulator, in sharp contrast to the current situation.

In the aviation sector, the autonomous Civil Aviation Authority (CAA) is proposed to supersede the current regulator, the Directorate General of Civil Aviation. 

With respect to corporate governance, there is a proposal to create an over-arching regulator to oversee auditing norms in the country in the new Companies Bill. As per its proposed form, the body will be called the National Advisory Committee on Accounting and Auditing Standards (NACAAS) and require the Institute of Chartered Accountants of India (ICAI) to seek a go-ahead from the expert forum before prescribing any norm.  

In the domain of biotechnology, the Indian Cabinet has approved the Biotechnology Regulatory Authority of India Bill 2010. The Authority will be set up as an independent and autonomous body to provide a single window mechanism to regulate research, manufacture, import and use of products of modern biotechnology including biosafety clearances of genetically modified crops.

In view of India’s ambitious plans for education (see earlier blog), the Government is creating an over-arching regulatory body called the National Commission for Higher Education and Research (NCHER). 

In the realm of environment, the Minister in charge has taken it on himself to ensure environmental compliance and  preservation.  According to one estimate, he has halted 64 projects and held up 469 due to environmental concerns. Those projects include a US$10.9 billion steel plant proposed by Korea's Posco and two US$2.2 billion power projects.

The recent roll-out of the Unique Identification (Aadhar) project is an excellent example of the potential transformation in transparency in governance that is hoped will be catalysed across India.

The above will add to the 36 regulatory bodies already in existence in India.  More than anything else, it will be vital to ensure that these bodies are fair, impartial, transparent and effective in their functioning. 

While it is critical to have checks, it will be imperative to have balance as well. After all, we all know what absolute power results in.

If you would like to understand more about how you can increase the growth for your organisation by deepening its engagement with India, do write in at ratika.jain@whiteowladvisory.com.

Is India becoming the land of luxury?

Last week, I came across a news article that stopped me in my tracks.  Apparently, the world's fastest car – the Bugatti Veyron 16.4 Grand Sport, for the uninitiated – is all set to hit Indian roads on October 28th. While I appreciate the need for speed in the dynamic economy that is India, what really took me aback was the price tag – an eye-watering `120 million (i.e. approximately US$2.7 million). (That one can probably count on one hand the number of Indian roads where an owner will actually be able to test the car to its potential is a different matter and one that I will leave for another time.) 

The chosen date for the Bugatti India launch – October 28th – is an auspicious day.  No, I have not checked my crystal ball. Neither have I consulted an astrologer.  However, I am sure Mukesh Ambani and his family have.  It just so happens that October 28th is also the day that the elder Ambani and his family are having a house-warming party to celebrate their new, US$1 billion residence in Mumbai.  While the family is being as under-stated as you can be about a 27-floor house for a family of six, ‘Antilia’ (the mansion) is understandably attracting much attention.

So, are India’s rich simply getting richer and leaving their brethren behind?  Apparently not.

 

1. India has the fastest-growing population of millionaires in the world, according to Forbes.
2. India's wealth has tripled to US$3.5 trillion in the last decade, according to Credit Suisse. Their analysis highlights that by 2015, India's wealth could double to around $6.4 trillion. The report notes that, contrary to popular belief, India's wealth distribution is skewed towards the lower end of the wealth pyramid.
3. Wealth held by individuals in India is said to be growing at a 26 per cent compounded rate, more than four times the global average.

The implications for the luxury market are obvious in terms of potential, though not so obvious in terms of strategy.  In fact, study after study has shown that in order to succeed in India, luxury brands need to localise their marketing strategies. 

This begets the question, is Indian wealth becoming typified by the motto ‘if you’ve got it, flaunt it’?  Not necessarily. 

Technology czar Shiv Nadar has committed to put aside well over 10% of his wealth for philanthropic ventures. Soap-to-software magnate Azim Premji has recently announced that he will personally be setting up a US$1 billion education endowment fund.  Ratan Tata has announced a US$ 50 million donation to Harvard Business School, while Anand Mahindra has announced US$10 million to the same alma mater.

Yes, wealth is coming out of the Indian closet.  Is this unique to India? No.  According to a recent study by the Asian Development Bank, by 2030, Asia’s consumers will spend US$32 trillion, accounting for 43% of global consumption.

Perhaps M/s Bugatti’s parent, Volkswagen, hopes to realise its literal translation - ‘the people’s car’ - in the world’s most populous continent.

If you would like to understand more about how to increase the growth for your organisation by deepening its engagement with India, do write in at ratika.jain@whiteowladvisory.com.

Business Lessons from India’s Commonwealth Games

The ongoing Commonwealth Games in India have been truly record-breaking – both within the sports arena and without.  As this is a business blog, let me focus on the latter.

Personally, I think the Commonwealth Games have been good for India. 

Good because Indian sport, at the end of the day, has benefited in a myriad of ways.

Good because India has shown what it can do, literally, against all odds. 

Good because the Games have served as a reality check - for India and for the rest of the (business) world - on the complexities of doing business with India. What are these lessons?

1. Execution, execution, execution.  While I have written about this in a previous blog, the reality is that attention to detail and contingency planning is mission critical.
2. Governance is key. Some commentators have remarked that the CWG is a case study in the difference between Indian public sector ineptitude and private sector prowess. The reality is that this generalisation is simplistic.  Fundamentally, governance and accountability processes need to be water-tight.
3. Media and its management matters.  At no time in the history of the Games have they received so much publicity and column-centimetre coverage, in the Commonwealth and beyond, than in 2010. Thanks to the internet and real-time reporting, a common garden snake is able to morph into a King Cobra in a matter of minutes, if not seconds. Understand the dynamics of new-age media.
4. When traditional solutions fail, improvise (jugaad).  The CWG 2010 is probably the first international sporting event that has involved the official deployment of trained animals (‘langurs’) to ward off other stray animals.  Keep an open mind and think of innovative, ‘fit-for-purpose’ solutions.
5. Some things can not be controlled, e.g. Mother Nature.  When it rains, it literally does pour.  Delhi recorded its most intense monsoon season compared to the last 30 years, bringing with it the multitude of accompanying health hazards.  Anticipate, be prepared.
6. A lot can be achieved in 24 hours.  See linked article. Need I say more? 
7. A great test bed.  In an earlier blog, I highlighted the global challenge of managing complexity.  To borrow a phrase from the popular song ‘Empire State of Mind’ – “since I made it here, I can make in anywhere” could well become India’s new business anthem.

If you would like to increase the growth for your organisation by deepening its engagement with India, do write in at ratika.jain@whiteowladvisory.com.

FDI in Indian Retail : One step forward . . .

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As Delhi put its proverbial foot to the accelerator to gear up for the Commonwealth Games over the past week, the Indian economy at large was not delinked from the spirit of sport. Indeed, the Olympic motto of ‘faster, higher, stronger’ is easily apt for the some of the economic indicators and signals that were revealed.

1. The Bombay Sensex reached a 33-month high.
2. India now home to as many as 69 dollar billionaires, compared to 52 last year (Forbes).
3. 127,000 High Net Worth Individuals[1], whose cumulative wealth stands at US$477 billion resident in India (2010 Asia-Pacific Wealth Report, compiled jointly by Cap Gemini and Merrill Lynch Global Wealth Management).
4. India’s growth is likely to outpace China’s (cover story of the latest Economist).

Ostensibly sensing the mood, the Government of India decided to give greater steer to the economy. It announced an easing of the norms for foreign direct investment (FDI) for a few sectors including wholesale cash-and-carry trading.

The Indian retail sector is arguably the most watched and contentious sector on India’s economic horizon. With growth trends and forecasts being what they are (see earlier blog post), this is not surprising. The policy amendment removes the restriction for internal use by the foreign wholesale cash-and-carry segment. It, however, retains the ceiling, mandating that such companies could sell only up to 25 per cent of their turnover to group companies. The move has implications for several retailers such as Bharti-Walmart, Carrefour and Metro Cash and Carry.

This relaxation comes at a time when much debate is underway regarding opening up of the retail sector to foreign investment. Since 2006, FDI up to 51 per cent has been permitted in single-brand retailing in India. 100 per cent FDI has been allowed under the automatic route in the cash and carry wholesale business. A few months ago, the Indian Ministry of Commerce had released a discussion paper on the issue of multi-brand retail, soliciting opinions. While Commerce is in favour of easing norms with some restrictions, the Ministry of Finance is said to be in favour of a more cautious approach.

Some innovative players are not letting these current restrictions be a bottleneck. Instead, they are crafting innovative solutions within the defined goal posts while the patiently nudge the public policy eco-system.

Interestingly, the organised, domestic retail sector is keen to see opening up. Indeed, there are strong and vociferous proponents on both sides of the fence. At what pace the situation evolves and its implications for the economy only time will tell. Perhaps it will be a case of catching the tiger by its (re)tail.

If you would like to increase the growth of your organisation by deepening its engagement with India, do write in at ratika.jain@whiteowladvisory.com .

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[1] Has “investible assets of $1 million or more, excluding primary residence, collectibles, consumables and consumer durables”.