India Business and Finance, January 10th
What happened in Indian business and finance during the past week
India’s economy. How up?
Government data suggests India’s growth for the fiscal year concluding at the end of March will be up 7.3% in real terms, up slightly from 7.2% last year. Along with being strikingly better than the lackluster numbers being reported elsewhere, it is also higher than had been forecast. Many industries are certainly expanding (eg cars, construction and their suppliers, including steel); and corporate revenues are up. Even IT services firms, which were expected to be hammered by the cost cutting of hard-pressed overseas customers, seem to be muddling through–indeed, a just released survey of purchasing managers in services indicates expanding demand.
But the good news is greeted with skepticism by many. One bit of this falls on the quality of Indian statistics which have been met with mounting criticism. Even in the best of cases, I am never confident about national accounts. The entity to be measured is simply too large and too many factors are unknown. Given the discretion involved, the intervention of political factors is inevitable. Perhaps because of this or perhaps because of the intense electoral campaign now unfolding in India, the nominal number used by India for gdp is now the source of a large debate that deserves (and receives) attention. Instead, it is worth focusing on a component that gets less attention, the real number, meaning the gdp number after inflation.
It is hard to find anyone who thinks the inflation numbers used by the Reserve Bank of India (RBI, the central bank) fully capture cost increases. Anecdotes vary. A restaurant owner says December is traditionally the cheapest month for fruit and vegetables but this year prices are as high as they were in June, when they traditionally peak. An ever-expanding array of tariffs means that Indian travelers, even to wealthy and notably expensive countries, return home with suitcases packed with common foods, electronic products and clothing.
Given the degree of skepticism, the lack of open debate is somewhat striking. As has often been noted, Indian business has long felt it unwise to publicly fault the current administration. This reluctance may be even more true for banks. One possible reason is the control the RBI has over the lives of bankers. Consider the case of Federal Bank, a “private” institution (meaning the government is not an owner, as in the case of many competitors) founded in Kerala in 1931 with a large business in remittances. Its current managing director, Shyam Srinivasan, took over in September 2010. Since his arrival, the bank has avoided various systemic crises and its share price has risen from Rs37 to Rs154, which would seem to be a cause for unending praise.
That is not how events have played out. The bank’s board submitted to the RBI a request for Mr Srinivasan’s contract to be extended for another year, which would be within a permitted 15-year term, and last week an announcement was made that the request had been rejected. Instead, Federal Bank was ordered to submit new names for consideration, which it will do. The message was heard clearly by other top bankers, who routinely note they serve at the pleasure of the RBI and have no intention of incurring its displeasure. A consequence is that the discussion of India’s single most important price – for money – is muted and the credibility of the institution most responsible for its credibility, the central bank, is less than public comments may suggest.
Business Success
Adani. A year after a report by Hindenburg, a New York short-selling firm, rocked the Adani group and cost Gautam Adani his position as India’s richest citizen, there has been a recovery and Mr Adani is once again seen as the country’s wealthiest, worth $97.6bn, just ahead of number two, Mukesh Ambani. Behind the recent surge was a decision by India’s Supreme Court to leave the investigation of the issues raised by Hindenburg in the hands of the country’s financial regulator, the Securities and Exchange Board of India, a ruling seen as meaning that any legal ramifications will not be material. This was a necessary but not sufficient condition for recovery. Key Adani entities, notably its port operations, produced good results and major projects, such as the Navi Mumbai Airport, have gone ahead as planned, without being derailed by whatever threat the report presented. New financing has been found through a few key global equity investors and Middle Eastern sovereigns, reducing leverage. Many believe with some reason that in retrospect, the Hindenburg report has led to a stronger organization.
Murugappa group. A ranking of the 10 leading business groups by the Business Standard had the usual names. Coming in at number 9, however, was the rarely discussed Murugappa Group, a vast entity located in Chennai which controls companies providing insurance, manufacturing components, and agricultural products (tea and sugar), among other things. The most striking element of the group’s net worth is that it rose 53% during 2023 to just a bit more than $40bn. The increase is substantially higher than any of the better known groups such as Tata, Reliance (Ambani), Bajaj, Birla, etc.
Business Failure and oligopoly
American Tower sold its Indian cell tower business for $2.5bn to Brookfield. The move was precipitated by the payment woes of its critical customer, Vodafone, whose cell business has been thrashed by Reliance’s Jio. Brookfield is already a key supplier to Jio and with the deal the infrastructure behind India’s cell phone industry will be controlled by a tiny group of participants (just like the cell service sector).
Betting on India
The number of investment accounts held by Indians rose from 110m in January to 139m in December 2023 as investors were drawn in by India’s bull market and, perhaps, by its tax system, which imposes a rate as high as 39% on the interest from bank deposits and a rate as low as 10% from capital gains on stocks.
Interest in the Indian bet
The first day of a conference in Chennai seeking investment in the state of Tamil Nadu drew panelists from many big companies and a (loosely) estimated crowd of perhaps 20,000 people, including students. More than 10,000 are believed to have attended the second and final day (January 8th). While Tamil Nadu may be the best at putting on this sort of event, they are not unique, with others popping up throughout the country. A curious aspect was that the crowd, almost all of whom seemed to be local, seemed to be attending not to invest but rather to see who might be expanding their operations and thus producing opportunities for employment.
The domestic bet
A front page story in the Times of India notes that disease has sapped the vitality from roosters in Andhra Pradesh, undermining the energy needed to prevail on popular “cock fights” which have a vast audience among bettors. To rejuvenate the birds, breeders are providing them with Viagra. The Times of India went on to say that this use of Viagra may affect breeding and be harmful when the birds are consumed by people.