India Business and Finance, August 16th

What happened in the Indian business world during the past week

India Business and Finance, August 16th

Hi, This is my first posting on Substack. The initial email alert list is an experiment: people who might have some interest and might not be excessively annoyed about receiving yet another email. The point of the posting is to provide information about India that is lacking in the scattered coverage that runs overseas. It is derived from an internal weekly memo I write for the Economist, is certainly not comprehensive and goes through none of the rigorous fact checking that applies to articles that the Economist publishes. I promise to be vexed at every typo, incorrect spelling or – worst of all – incorrect fact. Please feel free to comment. Perhaps a community will develop.

The post is not about politics, though politics are covered as an inevitable component of businesses and finance, and the post is not about me. Every weekly edition will likely begin with news regarding one topic in particular: growth. That is what has attracted so much attention, particularly at a time when it has become rare elsewhere. The news in India is usual filled with contradictions and I will try to capture the conflicting signals.

The past week

India up:

 A strong stockmarket has resulted in a revival of public offerings. Nine companies have announced their attention to list including a property developer (the property market is strong), four financial institutions including two small lenders (credit quality, broadly, has been good) and the manufacturer of pens (cannot explain).

India plateauing:

 Government policy has been focused on manufacturing but in this critical area year-on-year growth has been fading. Industrial production in June was up only 3.7%, compared to 5.2% in May and 12.6% in June of 2022. Reasons include the loss of the weak comparison that resulted from the covid-19 lockdown, the global slowdown and – not clear. Of particular concern has been exports which in July were 16% lower than they were in July of 2022. A bit of this is a consequence of a ban on rice exports imposed on July 20^th but something more is going on.

This has increased the attention paid to production-linked-incentives, the program announced by the government in 2020 that budgeted $26bn over 14 sectors intended to take advantage of the shift in production from China. Qualifying companies receive 4%-to-6% from the government based on revenues, a structure intended to generate sales. Data for the program is a bit muddled. The government says 333 applications have been approved generating $72bn in investment committed, $31bn in incremental exports, and 400,000 new jobs. That sounds positive but except for handsets, largely the result of iPhones assembled from Chinese parts, there hasn’t been the kind of evident change in production and exports that clearly demonstrates success. Meanwhile there is grumbling about the mechanics of the program. Samsung is being investigated for submitting incorrect involved to justify payments, a move many other companies find terrifying. Many Indian business privately say the paperwork and increased government engagement in their business is required to qualify for the rebates are simply not worth it. Still, it is early days and the scrutiny is vital if the program is to improve.

Back to the past?

The government’s announcement last week that permits will be required for the import of computers continues to create waves. The permit raj of 1951-1991 is widely viewed as utterly corrosive, depressing growth and increasing red tape and corruption. NASSCOM, the Indian trade association for technology companies has objected to the move, arguing that the costs and red tape involved may create impediments for the equipment that is at the heart of the country’s crucial IT industry. And computers may be only the beginning of a wider effort.

A report in the Economic Times says the government may extend the permitting system to urea, antibiotics, turbo-jets, lithium-ion accumulators, refined copper, machines and mechanical appliances, solar and photovoltaic cells, aluminum scrap, sunflower seed oil and cashew nuts – in short, the permit raj will be back.

Three reasons have been given for the move: to encourage local production, reduce the vast trade deficit (80% of computers are imported) and security. Companies will be encouraged by the rule to set up local production, and many no doubt will.  The security issue is both straightforward – to product control of data by a possible hostile foreign power (meaning China) and not straightforward.

India has a huge opportunity because of factories moving from China, in part because of the security concerns of other countries about anything that comes from China. The new term for this possible move to favourable countries is termed “friendshoring” by America. But is a country really a friend if it is just another conduit for Chinese innards? Ultimately, to qualify as a friend will require a filtering mechanism that goes beyond straightforward import barriers like tariffs. But India’s past provides a clear illustration of the disastrous consequences that can stem from the use of permits. A new framework needs to be developed.

Unlikely man and political party of the moment.

Chakravart Rajagoplachari died in 1972, the Swatantra Party he founded following him to the grave two years later. His long name may have something to do with his current obscurity, but he termed the phrase “permit” or “license” raj and articulated the associated problems in 1960, nine years after the key legislation enabling it was enacted. Briefly, the Swantantra party seemed like it might be a real force in India – his observations struck a chord with Indians who saw the power idealistically assigned to bureaucrats become toxic in their hands. Still, it still took another 31 years and a crisis to force the government to change course.

Boss watch

1)    The New York Post reports India’s richest person, Mukesh Ambani, has sold a $9m flat in New York. Mr Ambani’s most recent personal property actions were to spend more than $200m on two homes in the UAE. He is rarely if ever seen as a seller. Perhaps he has turned on New York, which is going through episodic troubles. Or maybe a $9m flat is just too small.

2)    Natarajan Chandrasekaran, the remarkably successful leader of the resurgent Tata conglomerate was paid just under $14m for the recent fiscal year. Though obviously a lot of money, he runs a staggeringly complex entity and has done it well with numerous divisions from autos to hotels to steel that in his five-years in office have gone from troubled to strong. Far less successful American executives (eg Goldman’s flailing CEO David Solomon) make considerably more. In India, though, the  big money across to people who control companies rather than those who run them.

Medical marketing:

New social media guidelines will ban doctors for dispensing advice on subjects they are unqualified to discuss. The new rules put a spotlight on both free speech and quackery both of which present are big issues in India.

An unequivocal Indian business success:

A report to parliament asserted that India is the world’s largest source of human hair with annual exports over the past four years quadrupling to $170m. Reason: the quality of Indian hair according to Anupriya Patel, Union Minister of State for Commerce and Industry.

Yesterday’s man:

Despite a concerted campaign by several of India’s news outlets, Air India’s longtime, much-loved mascot, a Maharajah with a pot belly, turban, elegant mustaches and enigmatic smile, has been largely bounced from a prime first-class seat on Air India’s new branding campaign. In his stead will be an unintelligible abstraction of a window. A new, slimmed-down, Maharajah will play a minor role. His unusual popularity was often said to be revealing about India – a statement, perhaps, that anyone could be served by a Maharajah merely by flying on the national airline. It was a nice idea.   

For publication in America