India Business and Finance, Febuary 27th
What has happened in Indian business and finance in (roughly) the last week
What do Indians want
Could there be a more fundamental question? The government just released a consumption survey covering the years 2022-23. Putting aside my deep distrust of anything any government publishes and a more particular distrust of surveys in India (because it is so vast and complex, because answers can differ even in tiny towns between the people sitting on a main street and a back street 30 meters away, and because its informal distribution networks are beyond complex and consumption of key products including alcohol and gold are a source of some secrecy), the answers, broadly, are interesting for two reasons: what they reveal on a static basis and what they say about change.
Monthly consumption for rural households is Rs3,773, or $46, urban consumption is a bit over Rs6,459 ($78). India is a very poor country, and these low numbers need to be taken into account when discussing the prospects for sales, wages and innumerable other aspects of India. They underscore the need for an educational focus on practical skills, the brutal competition to get into highly rated universities that can lead to jobs that pay relatively well in India (but little compared to the rest of the world) and just how “core” the most basic expenditures are, notably food.
Food represents 46% of spending among rural households, and 39% of spending for urban. That is down from 53% for rural and 46% for urban and thus is an important trend. But the numbers are still staggeringly high. Data from the Retailers Association of India, which covers formal stores and thus not the tiny shops serving many people who are very poor, shows that in the past 10 months the fastest growing expense was food, up more than 10% from the same period a year ago.
In the government’s survey, the fastest rising non-food expenditures are, in order, conveyance, durables, entertainment, services, medical, education and clothing. That is not precisely what I would have expected, particularly the first category, but it could reflect a country whose people are, for reasons of work or education, expanding their scope beyond home.
And maybe they are getting a bit richer
A survey by AON concluded pay would rise 9.5% this year. Sectors with the top pay rises included finance, engineering and vehicle manufacturing.
New capitalists
The volume of trading on the NSE, India’s dominant bourse, is rising strongly. Overall trading, including derivatives, hit a new high in February and turnover in equities has been steadily rising, peaking at Rs25trn in January, before dipping to 19trn rupees in February. To place this in context, the equivalent was Rs9trn rupees in April. In an interview, the head of the NSE, Ashish Kumar Chauhan, said 20% of Indian households now have exposure to stocks and he hoped the number will eventually be 100%. Meanwhile Jefferies, a particularly bullish broker, predicts the current market capitalization of the Indian market will expand from $4.5trn currently to $10trn by 2030. This move should be understood both for the real benefits it will provide AND the accompanying intermittent risks. People with very modest resources will increasingly be in a position to accrue gains that were never feasible before but along the way there will be jarring losses that will not only be painful for individuals but inevitably provide ammunition for the socialists that have been a component, and sometimes dominant component, of India’s political structure since its independence.
The painful unwinding of the unicorn world
Shareholders of edtech company Byju, once India’s most highly valued startup, reportedly voted to oust the chief executive, Byju Raveendran, as well as the board. The vote, at an extraordinary general meeting on February 23rd, is the culmination of a long-running crash that is still far from concluding. Mr Raveendran called the vote “procedurally invalid” and there will be a court hearing on March 13. Whatever the outcome, it is hard to imagine how any company can survive this sort of fight. The implications go beyond Byju, which attracted marquee investors and was once said to be worth $22bn. Optimism surrounding India’s startup world stemmed from the country’s vast potential market, the ambitions of its population and the talent of a new generation of technologically well-trained entrepreneurs. Overlooked were the difficult prosaic challenges involved in building a sound company. That is no longer the case.
Building a business in India is beyond hard
In an interview with Infosys co-founder Nandan Nilekani, Uber chief executive Dara Khosrowshahi said India was the company’s toughest market: “The Indian customer is so demanding and doesn’t want to pay for anything”.
Big pharma might agree with Mr Khosrowshahi.
Novartis has announced a review of its Indian operations, seen as a prelude to a contraction. This follows major moves by AstraZeneca (selling Indian manufacturing), Pfizer, Sanofi, and GSK, which are all shrinking. It isn’t entirely clear why. Among the usual reasons are weaknesses in India’s intellectual property regime that discourages pharma investment but that is unlikely to be the full story. Drug production in India is highly competitive, meaning costs are paramount. But quality can be poor. Maybe the big companies want to limit their exposure to this dynamic.
But uplifting possibilities continue to emerge
The government announced new rules allowing 100% ownership by foreign direct investors in India’s space industry which really is gaining interest and traction because it is cost-effective and capable. The rules – no surprise – are still complicated but this reflects a major initiative and international companies that want to participate will, at least for now, receive an enthusiastic launch.
Employment fell at IT Services companies meaning…
After several booming years, employment at India’s big IT companies, including TCS, Infosys and Wipro, dropped over the past year. Mint, a newspaper, counted up a net decrease of 77,000 which, based on other information provided, indicates a decline of 4%. This could reflect a number of different factors, all of which have large implications. The most immediate is that slow economic growth outside of India is having an impact, though only a cyclical one. The most far-reaching is that artificial intelligence is having an impact, with algorithms replacing people. A third alternative is that as a consequence of global companies building their own technology centres in India they are leaning less heavily on outside firms. Among the varying estimates for hiring at these centres in 2023 is 364,000. If this is so, the decline among the IT services firms could be a result of a shift in how business is done rather than a change in technology or global demand for a crucial service provided by Indians.
The business of religion
A confusing squabble has broken out in Karnataka after the state legislature passed a new bill tied to the taxation of temples. One of the oddest semi-business discussions that is common in India but rarely receives any press is the financial status of religious organizations. Some temples are perceived to be extraordinarily wealthy. Karnataka began levying a temple tax in 1997 and, inevitably, there is controversy about the accounts, the amount of money raised by the tax and how money raised in this peculiar way should be spent - all of which is likely embedded in the current argument. The last bit, allocation, seems to hinge on whether funds should go from wealthier to poorer temples and even (reading between the lines) between religions. That conversation in today’s India will be, to put it mildly, fraught.