India Business and Finance, August 29th
What happened in India's contradictory economy during the past week
India’s government versus foreign companies
In a widely covered speech in Delhi on August 21st, Minister of Commerce and Industry Piyush Goyal whacked Amazon, terming its billion dollar losses in India (incurred while building a complex ecosystem of logistics and sales in an often hostile, chaotic environment) not an investment in the country’s future (as the company would doubtless argue) but predatory pricing that threatened small retailers. “When Amazon says ‘we are going to invest a billion dollars in India’ and we all celebrate, we forget the underlying story that these billion dollars are not coming for any great service or investment to support the Indian economy,” he said. His comments extended to ecommerce more broadly, and presumably to Flipkart, Amazon’s biggest rival, which has also had heavy losses in India and is owned by a foreign firm (Walmart).
These comments are not to be taken lightly. Mr Goyal is an important minister when it comes to business and his words are seen as reflecting government positions, if not driving them. For foreign companies attempting to operate in India, or considering entry, this will doubtless be taken as a warning. His comments drew a mixed reaction in the press and he appeared to pull back somewhat in a statement posted the following day on an official WhatsApp group of the ministry: “We are very clear that we want to invite FDI, technology, and we want the best of the world. We are not against online platforms at all."
This is not the first time Mr Goyal has been on both sides of an issue with international implications. He is in charge of India’s trade negotiations, a critical policy area for a country attempting to build export-oriented businesses. In public comments, he has supported the arguments of the 18th century economist David Riccardo for an open economy, while faulting past trade deals as unfavorable (and presumably too open).
Whatever the merits of Mr Goyal’s approach, it has not led, at least so far, to a surge in foreign direct investment nor the conclusion of major trade deals. That could make it a topic for a future leader. For business itself, the issue is less theoretical; no company operating in India wants to operate at odds with the Indian government.
Credit ratings
An irritant to many in India’s business world is the inability of the country to receive a significant boost in its sovereign credit rating despite having avoided default in difficult times and steadily improving its financial foundation. The major global agencies score India just a bit above junk. In a small sign hinting at future change, Standard & Poor’s has announced upgrades for multiple companies controlled by the Tata Group, the country’s largest conglomerate and a huge factor in its economy. None of the new ratings, however, are above BBB and even that rating is above the one for India’s sovereign bonds. Company ratings (with rare exceptions) are typically capped by the ratings of the countries in which they operate. Tata’s upgrade is stretching this boundary, suggesting the cap may soon be raised.
Demand for graduates
Salaries are rising for Indian graduates. The strongest growth has been in automotive (5.5%) followed by aviation (4.2%) followed by telecom (4%), with IT coming in fourth, according to The Financial Express, a newspaper. The relative rankings may suggest where Indian business has underlying momentum.
Consumption demand by the non-affluent
A key metric used by people who feel the Indian growth story has left Indians behind has been the sluggish rural sales of motorbikes, the basic form of transportation that allows Indians to be mobile. In the April through June quarter there has been a change, with 18% year-over-year growth, compared to 10% for urban growth. Motorbike makers, all of whom have seen sharp increases in their share price, see the trend continuing.
To be upbeat on India, skip Mumbai and visit Pune
As a distinctly second city in Maharashtra, Pune is separated from Mumbai by roads that look, and feel, as if they have been bombed. But Pune has many well-run companies. Some quietly verge on being remarkable because they produce unsung products that are vital to an expanding array of global clients. Kirloskar Brothers sells pumps to buyers in more than 130 countries and has recently registered strong growth in profits and revenues. Bajaj Auto recently expanded its distribution with sales to its 101st country (Yemen). While electric vehicles continue to receive vast subsidies and attention, Bajaj recently introduced a motorcycle that runs on compressed natural gas (which is vastly cheaper than petrol and better for the environment) and petrol (for when the lines at the limited number of cng-selling service stations are too long). The cost is under $1,300 and thus genuinely a product for the Indian common man (and family – it has a particularly long seat). Demand for these is already off the charts, with production limited (for now) by the production capacity for the high quality containers that are used for the compressed gas.
A 60-year process of entering the Indian market
The De Havilland Twin Otter seaplane was launched in the 1960s and has since dominated the (tiny) market for this niche business. Now, perhaps because Indian travel is booming, the Canadian company thinks the timing may finally be right to enter the country and is considering the creation of a support base to enable sales.
The difficulty of operating in India
Ceramic exports from Morbi, the centre of an industry in India that has soared in recent years (raising hopes that India can, really, build new successful manufacturing businesses) have crashed with as many as 250 of its 800 export-oriented entities shutting down, reports BusinessLine, a newspaper. The reason, according to the report, is a sharp rise in freight rates and decline in available containers – the kind of market failure that the country, with its heavy recent investment in logistics, had hoped to prevent.
And then there is….
A drip of negative stories has tarnished Tata’s oddly benighted turnaround of Air India. The 2022 acquisition of the troubled company from the government was intended to bring lustre to a tarnished national brand. Instead, there seems to be an unending series of problems. This week, passengers on a flight from America, one of the longest in the world, complained that water in the cabin ran out half-way through the trip. That is just sloppy. More seriously, the Directorate General of Civil Aviation announced a fine of Rs9m ($100,000) for operating a flight with a “non-qualified crew”. The airline’s director of training has been suspended.
Corporate crime
Reflecting the latest humiliation in a long decline, Anil Ambani, once considered the sixth wealthiest man in the world with a net worth of $42bn, was fined Rs25m ($1.2m) and banned from holding managerial or director roles in Indian listed companies for five year by the Securities and Exchange Board of India. He was described as “the mastermind behind a fraudulent scheme” to divert funds from a finance company, Reliance Home Finance, to other troubled companies in a business empire he inherited after the death of his father in 2002.
Pre-empting depreciation
Gujarat, a dry state, has passed a law allowing sale of vehicles seized from bootleggers even before they are found guilty. If they are exonerated, the amount received from the auction will be returned plus 5%. Apparently, the long lag time for processing cases in the Indian court system meant that seized vehicles were falling apart during the long wait for adjudication.
Insurance and sports
One of the more notable Indian athletic achievements occurs on the holiday of Jamashtami, which this year falls on August 27th, when young people create human pyramids climbing on each others shoulders in an effort to claim clay pots filled with curd and turmeric that seem to dangle from the sky. See the picture above of a little girl’s first effort in that direction with the help of her father. Apparently the pyramids can have as many as nine levels and, inevitably, there are many injuries. In another country, this activity might be discouraged but in Mumbai, the Oriental Insurance Company has come up with an economic solution to at least provide compensation, with payments of up to $120,000 for any participant who goes splat.
A way to deal with anti-capitalists Mao would understand
Home minister Amit Shah said 189 Maoists have been “neutralized” this year in the state of Chhattisgarh, a landlocked state on the eastern side of the country.
Seemingly bombed roads and extra long seats on two wheelers seem to be enduring features of life in India. When we were kids, there were multiple stories of wives and children who had to walk home because Appa drove over a pothole and unseated members of the family riding behind!
I thought the roads were much better now... but apparently not.
The Air India turnaround indeed looks like it will be a long slog. I wonder what happens during times of bad management that make it so difficult to turn things around. This week, I read an article about German elections and how East Germany still have very distinct political views shaped by it still being economically behind the former West. Investment alone seems insufficient... I hope Air India turns around faster than East Germany!