Obama’s Indian Odyssey

‘Should the West be scared?’

This question was posed on a BBC panel discussion earlier this week, in the light of President Obama’s recently concluded visit to India and Prime Minister Cameron’s trip to China. While this particular discussion was limited, it has been interesting to observe the somewhat dismissive coverage in the British media about the visit. Interesting, given the takeaways from the Cameron visit to India in July this year (see earlier blog).

Having personally been involved with a number of head of state visits to India over the last two decades, including President Clinton’s visit to India in March 2000, here is my take on the messages for business – both overt and covert – from President Obama’s game-changing and mesmerising visit to India.

1. Recognition of a new world order. During his trip, President Obama has peppered each of his speeches with unequivocal assertion to the fact that relationships have changed and that ‘we need to change with them’. His comment that the US-India partnership will be the ‘defining partnership of the 21st century’, his description of India as ‘indispensable’ and a ‘cornerstone’ of US policy in Asia and his wish to see India take up a permanent seat on the UN Security Council, speak volumes of the paradigm shift that has taken place in the mindset of the world’s largest economy. To quote President Obama, 'India isn't emerging, it has emerged'.
2. It’s (also) the economy, stupid. A country’s chief executive is responsible not only for a country’s physical security but also its economic security. A point that President Obama has not been allowed to forget for a single day since he embarked on his journey to 1600 Pennsylvania Avenue. The result – consciously choosing to kick off his historic visit with India’s commercial capital – Mumbai – announcing business deals worth US$15 billion, supporting 70,000 jobs in the United States, by the close of the three days of his visit.
3. Knowledge is the new global currency, technology the game-changer, people the glue, youth the catalyst.
4. Protectionism doesn’t pay. Growth will come through trade with Asia. It is inevitable and not a zero-sum game. Global economic integration has promise and potential. We need to negotiate this changing relationship.

Or, as President Obama’s icon, Mahatma Gandhi, succinctly observed, ‘be the change you want to see in the world’.

Governance : Can India have too much?

           Image via Wikipedia

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.

FDI in Indian Retail : One step forward . . .

                                 Image via Wikipedia

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”. 

Of Land, Marx and Landmark judgements

Till the 1980s, private enterprise was somewhat of a social pariah in India.  Economic liberalisation in the 1990s reconfigured the equation.  As the Indian corporate sector became the ‘poster boy’ for the India growth story, a number of policies were drawn up to support corporate growth.   Recent announcements are signalling an interesting directional shift in Indian policymaking towards industry, investment and its interaction with society at large. 

1)   Environment matters. In a landmark decision to safeguard the environment while implementing industrial projects, India’s Environment and Forests Minister, Jairam Ramesh, announced that the bauxite mining clearance given to Vedanta Resources and the Orissa Mining Corporation in Orissa had been withdrawn. He also said an initial approval for a six-fold expansion to Vedanta’s aluminium refinery in the state was being suspended.  According to a source, the Saxena Report on the matter had said that allowing mining operations would mean a loss of 121,000 trees, affect the region’s water supply and will shake the “faith of tribal people in the laws of the land”. The Ministry has also barred the Vedanta refinery from buying bauxite — the main raw material needed to make aluminium — from 11 other mines in the state of Jharkhand, pointing out that these were illegal.

2)   Property rights. Anyone who has heard of Singur or Nandigram will know just how sensitive the issue of land, and its acquisition, can be in India.  As the race for economic growth is intensifying across states in India, so are the pulls and pressures on land.   

The Indian Government’s ambitious road-building programme aimed at laying 18,637 km of expressways by 2022 has hit a road-block as well on this count. According to some estimates, delays in land acquisition are hampering 70% of the projects under this programme.  Towards addressing this issue, the Congress President, Sonia Gandhi has intervened and sought annuity benefits for displaced farmers.  These are likely to be woven into in the Land Acquisition (Amendment) Bill, 2010 and the Resettlement and Rehabilitation Bill, 2010.  Individual states, such are Haryana and Uttar Pradesh, are experimenting with compensation formulae blending cash, annuities and equity.

Towards addressing concerns regarding fair compensation in the mining sector, the Indian Government is likely to make it mandatory for mining companies to hand over a part of their revenues and make annual payments to those displaced.  The revenue sharing model combined with annual payments is likely to find its way into a proposed legislation - the Mines and Mineral (Development and Regulation) Bill - setting the rules for investment in minerals.

3)   CSR = compulsory social responsibility.  According to news reports, the new Companies Bill will make it mandatory for large companies to earmark at least 2 per cent of their net profit for corporate social responsibility (CSR) activities in the new Companies Bill. The new provisions are expected to apply to companies having a net worth of `500 crores (approximately US$109 million) or more, or a turnover of `1,000 crores (US$ 218 million) or more, or a net profit of `5 crores (US$ 1.1 million) or more, during a year.  The revised Bill is expected to be presented in Parliament for passage in the Winter Session. 

That the intention exists to foster social contribution is commendable.  Whether this is the appropriate intervention is moot.

These shifting sands reflect India’s desire for inclusive growth.  How these, and similar policy shifts, will play out in a company’s calculus remains to be seen. 

If you would like deeper insights to India and what it means for your company, do write in at ratika.jain@whiteowladvisory.com.

Seven trends defining India’s growth story

In the last one week, I’ve come across some very interesting research – some slightly dated, the majority quite recent.  Yet, each of these individual threads, coincidentally, supports the other.  What does the emerging tapestry reveal?

1. The undisputable re-emergence of Asia, specifically China and India (see Angus Maddison, Hans Rosling, McKinsey, International Monetary Fund).  China’s recent eclipsing of Japan to gain recognition as the world’s second largest economy is par for the course as is increased intra-regional trade.

2. Increasing domestic prosperity 

• For the first time ever, the number of high-income households in India has exceeded the number of low-income ones (reference NCAER);
• Sales of trucks and buses — an indicator of economic activity — rose 37 per cent to 51,481 units in July 2010;
• Overall automobile sales grew at 31.50 per cent to 1,237,461 units in July 2010; and
• Mobile penetration is projected to reach 55.9 percent in 2010, increasing to 72.5 percent in 2012. 

3.  India’s growing engagement with the world

• Expanding share of world trade - 2.8% in 2009 compared to 0.6% in 1998
• Foreign direct investment (FDI) flows increasing steadily

4.  Heightened business focus; less emotional baggage

• India Inc's merger and acquisitions have touched nearly US$ 50 billion level over January-July 2010, over three times the total in 2009. 
• Strategic rationale driving corporate expansion (Fortis, Piramal Healthcare)
• Robust succession planning process (Tata Sons, Larsen and Toubro, Infosys)

5.  An aspirational, entrepreneurial, young talent pool

• 72 % of India's population is below the age of 40, 47% of Indians are under the age of 20 and 10% of the world population is an Indian under 25
• According to Goldman Sachs, India will add 110 mn people to global workforce by 2020.
• The Indian Government plans to increase the gross enrolment ratio from the current 12.4% to 30% by 2020 and further up to 40% by 2025. 

6.  Increasingly pervasive influence of technology and media

• Reverse / low-cost innovation – Tata, GE, Nokia leading the way
• The media and entertainment sector is estimated to be growing at a compounded annual growth rate of 13 per cent over the next few years; rollout of 3G by the private sector over the next few months is expected to be a game-changer for business and society.

7.  Growing economic maturity and self-confidence

• India has become the fifth country to have a unique symbol (`) for its currency
• Foreign exchange reserves total US$ 284 billion
• Is forging its own set of strategic partnerships – USA, Singapore, Myanmar, Africa, Afghanistan - to name a few.

In sum, the tapestry presents much potential.  Yet, as anyone remotely familiar with India knows, it is far from being an easy market to do business with.  Any truthful case study of an international company doing business with India is peppered with anecdotes about how they have had to revise their India strategy.  Poor governance and infrastructure remain areas of concern.  

But then again, if India were an economist’s ‘perfect’ market, it wouldn’t be witnessing the extraordinary growth rates it has.