India Business and Finance, August 22nd

What happened in the Indian business world during the past week

Indians, but not India, rule the business world.

With the announcement that Neal Mohan will run YouTube, there are now 25 major American companies run by the Indian diaspora. It is, of course, well-know that people from India have done a remarkable job climbing the corporate ladder outside of India. A new twist is that the overseas Indian is now running Indian companies as well. A story in the Financial Express noted the application to the government last week by Tech Mahindra, a large Indian IT firm, for approval of its new, Delhi-educated CEO Mohit Joshi, which is required because at some point during in a long career in banking and technology he ceased to be an Indian citizen and resident. According to the newspaper’s calculations, 16 Indian IT company chief executives are now based overseas, including two of the country’s giants, HCLTech and Wipro. In the last 10 months, 11 new IT chief executives have been appointed; eight are based overseas.

The powerful, punishing, engine producing this success.

Most of the executives running these companies are the product of India’s highly selective educational system which culminates in the famed IITs. Admission to these IITs is so unlikely as to be a statistical anomaly – something like 0.3%. To qualify, students often leave the usual schools to attend more specialized ones for two years of 16-hour days at specialized institutions and “coaching academies” which is believed to dramatically raise the likelihood of admission – to a low single digit percentage. Pressure on attendees is relentless. The government of Rajasthan has commissioned a report to be delivered in two weeks on conditions in Kota, a key hub for these institutions, following a report that 20 students have committed suicide this year, including four in August, up from 15 last year. In the meantime, the mechanisms securing overhead fans are to be changed to break away in the event of an attempted hanging and the government’s education minister is pushing that cricket, music and yoga be added to curriculums. I met with several students who graduated from these institutions at IIT Madras on Thursday and will meet with more at other IITs. Both the preparatory schools and the universities are remarkable institutions producing remarkable people willing to face daunting odds at, sometimes, horrendous cost. In world increasing shaped by enormous intellects that are stretched and refined, they may represent the single most valuable resource.

The rewards

Luxury Housing

At a time when the housing market in China, among other countries, is tottering, a report by CBRE South Asia concludes luxury housing sales in India are up by 130% during the first half of the year with particular strength in Hyderabad and Delhi. It is not a large market and there is some indication that rising interest rates are dampening demand for lower and middle income housing. Behind the rise is, of course, India’s growth but equally important has been changes that led to a prior boom ending in disaster. Buyers of apartments in new towers were left with stakes in incomplete shells, their payments diverted to other projects that went bust. Developers have been jailed on charges ranging from fraud to murder. New laws to preempt what was, in effect, the theft of payments, were imposed in 2016. Banks, often implicated in the prior disasters, changed course under pressure from above. The industry remains fraught with horror stories but as with many aspects of India, things have gotten better and that genuinely matters.

Luxury cars

Sales keep climbing, albeit from almost none to almost none. In the first half of the year, 17 Ferrari’s were sold, compared to just seven in 2019 (I’m using the pre-covid-19 period as a base). The number of Porsche’s has risen from 179 to 347, the number of Bentley’s from 16 to 31.  More people in India may be getting rich, the rich ever richer but the visible signs remain sparse.

Secondhand phones

Data on this market is sketchy since most of the sellers are, to use the common phrase, in the “unorganized” or “informal” market but according to sellers and data research firms surveyed by Mint, prices are up by 50% and sales in mid-to-high single digits even as overall smartphone sales are declining. Some retailers who specialize in the market have seen sales double in the first half of the year. Prices range from 20,000 rupees ($241) to 6000 rupees ($72), with the sales growth coming at the costly end. A quirk in the Indian phone market is that because of tariffs, there is a huge black market for new smart phones which are brought in from overseas. The used market is different.  Frequent visitors tell me they now buy reconditioned secondhand phones in India to use with the inexpensive local networks and then use these sorts of phones in other foreign markets with cheap, temporary, local sim cards where they won’t be using many apps or interacting with sensitive data.

Pharma

While drug prices are cheap in India, Indians doctors often prescribe off-patent drugs manufactured by recognizable companies that cost a bit more. Indians often choose to buy these themselves, adding a market-driven component to a generic market. They do this for products in an industry that has had more than its share of horrendous product failures. It is the kind of choice that is not available to buyers in America who find themselves buying generics selected by a tiny coterie of largely unknown distributors used by their health insurers.

In newly enacted law, the Indian government is now requiring doctors to prescribe only the generic name of the medication under the premise that the doctors themselves have been corrupted by pharma companies. There have been many objections to the change. One group is doubtless comprised of doctors and the companies that paid them for sales. No one seems to doubt that corruption is rampant. But there are also arguments being made that the now-outlawed system reflected free choice, the expertise of doctors and the development of a market tied to brands. The underlying concept is that the more costly brands can develop their business based on the quality and trust attached to their names. Their brands, in short, do reflect value. This touches on an issue that cuts across many sectors of the Indian economy.

Crafts

In the past week, the Indian government allocated $160m to boost the sale of local Indian crafts. The failure of Indian crafts to sell is not the result of insufficient quality or skill, argues the Economic Times, but the fact that unlike Venetian glass and Belgian lace, Kashmiri papier-mache, Bengali Dhokra brass casting and other domestic products have never created a brand that suggests they should be seen in the same light.

Cars

Hyundai announced it will purchase GMs closed Maharashtra plant. The deal (no price announced0 reflects both the remarkable ability of the South Korean manufacturer to carve a niche in India – it is second in market share behind Maruti Suzuki (Japanese in management but Indian in terms of politically-driven inception). Since quietly entering the country in 1996 it has demonstrated it can survive the country’s brutal roads and outlast innumerable other foreign aspirants who came and went, sometimes multiple times, such as General Motors. The transaction is also a warning. The plant was closed six years ago with a sale impeded by endless negotiations with GM’s unionized workers who Hyundai does not want to employ. Getting into India is hard. Getting out of India is hard too, particularly because the legal system moves so slowly and can be capricious.

That requires the big and small to fight back

The Times of India reports that an 83-year-old woman who had never had a taxable income was fined 5,000 rupees ($60) for not filing taxes in 2012. She sued, pursued the case to an appellate tribunal in Delhi has recently ruled in her favour. The standard response in this situation is to just pay and the common suspicion is that Indian tax collectors are given collection quotas and will stretch to reach them, including this sort of assessment. The Times labelled the woman “gutsy” for standing up to the authorities, reflecting both how difficult it is to fight the system, how it is possible to do so (for some, some of the time), and for those who do, public praise may follow.

Where is enforcement when it is needed?

After a customer complaint of finding a rat in the food of a restaurant in Mumbai’s swanky Pali Hill neighborhood, an inspection revealed numerous safety infractions and inspections of other restaurants were initiated. Revealed in the process: 57% of the food inspector posts were vacant, reinforcing concerns that go far beyond a single restaurant. These sorts of failures of quality and protection resonate on many levels and, to some small extent, may explain why so many talented people (see above) chose to leave.

But then there is this

On Wednesday, India’s Chandrayaan-3 mission will try to place a landing craft near the moon’s south pole. After the crash of the Russian effort, it will be a huge accomplishment if India is successful and a statement about how, notwithstanding the glitches on earth, it has remarkable technological strengths that extend around the world (see the beginning of this note) and beyond.

For distribution in America