Time To Short The Market

Time to short the market

Mr. D. Subbarao, our RBI Governor, about to remit office, has failed to control inflation with his tight monetary policy over the last five years. Three- times Finance Minister Mr. P.Chidambaram, has, over the one year since he moved from Home to Finance, failed to promote domestic growth in the economy. Nor has he managed to enthuse domestic players and foreigners to invest in India.

Mr. Anand Sharma in Commerce & Industry has fared no better at stimulating exports. Everyone, from the Prime Minister downwards, has been caught up in short term bureaucratic measures designed to fire-fight, without delivering the desired results.

So much so, that the economy is now in some peril of total collapse. The deficits are likely to spiral out of control at the macro-economic level, bringing on an unprecedented crisis. Price rises at the micro-economic level are becoming increasingly dramatic and causing great hardship to millions of people.

The welfare measures, motivated or well- intended as they might be, are inadequate, inefficient, and the financing of which are also putting a great strain on the economy.

And the key reason for this all around alarming situation is because the Government has not taken one bold step to stimulate the economy in the last five years! Nothing dynamic or effective has been done to promote growth, either on the infrastructure investment side or by way of consumption.

Inflation, that Governor Subbarao has tried  so hard to battle by choking off liquidity and throttling growth, is largely imported, along with 70%  of our petroleum needs, and therefore beyond our control.

As for the investors in the stock markets around the country, the clarion call has gone out from the experts to ‘short’ everything, meaning bet on lower and lower prices on even intrinsically good stocks. Foreign experts think only our ‘small-caps’, already beaten down to minimal levels, are long term good value, while the rest are over-priced at current levels.

The thumbs down has come as the rupee continues to lose value and company results are getting steadily worse. The pundits are therefore confident there is money to be made only as the market goes down.

How much downside is expected? Perhaps 14,000 or 15,000 on the Sensex, 4000 or 3,500 on the Nifty, in short order, and then who knows? The opinion polls that show no clear winner in the general elections are also depressing sentiment. It is important for the BJP and NDA to consolidate its lead in the coming months. Meanwhile, India is about to exit the $ 1 trillion mark in total size of market value as well.

China and Hong Kong together account for more than $ 6 trillion market capitalisation on their separate stock markets by way of contrast. Even Australia, with its limited population, has a stock market capitalisation of $1.3 million, ahead of us at $1.03 million today.

Mr. Chidambaram says he will be able to finance this fiscal’s ever rising current account deficit. But this is a desperate admission.  He is just about technically right, because our remaining foreign exchange reserves, lowest in years, can pay for seven months of imports at current levels, and the financial year ends in March of 2014.   

Mr. Chidambaram is credited with staving off a ratings downgrade by the international agencies a couple of months ago, but he did it by restricting and deferring expenses and cutting planned capital expenditure, thereby also slowing the economy.

Perhaps there are too many contradictory pulls and tugs on our economic thinking. Economist Prime Minister Mr. Manmohan Singh and his acolyte Mr. Montek Singh Ahluwalia at the Planning Commission, are instinctively liberalisers. But they are constrained by the thinking of arch- Socialists Mrs Sonia Gandhi and Mr. Rahul Gandhi in the Congress Party.

The Opposition and the allies of the UPA also have largely Socialist views. This is in addition to the perspective of the Ministry of Finance, the large PSU banks, the RBI, the tax authorities, all making for a thorough kedgeree of our economic policies.

Besides, the impact of the urban voter, most concerned with economic issues, is not yet fully appreciated by the political class. Will the 60% of the rural population continue to be seduced by traditional postures or will they also demonstrate rising aspirations along with the 40% of urban voters? Or will the fragmentation in the polity between the collection of the regional parties and the two national parties postpone serious consideration of the economic needs of the country? Will we descend into banana republic status in the meantime?

As far as the objective observer of our economy goes, we have failed to strengthen the capital account of the country by attracting long- term investment. Many things and services in India are over-priced. And India has continued to depend on short- term portfolio investment via FIIs to manage its current account obligations. This supported by the large and steady inward remittances from migrant workers, NRIs and PIOs abroad. The inward remittances actually rival the FII investments, and are economic life- savers because they are not volatile.

Recent Government steps to check the further fall in the value of the rupee impacted both the banks and the markets squarely. It resulted in a mass exodus of FII money in the debt and equity markets to the tune of over $10 billion in two months.

This exodus has also resulted in further pressure on corporate borrowers and lending institutions alike. The retail interest rates are also being forced up for individual borrowers and deposit rates may also have to be raised.   

The possibility of raising money abroad via external bonds being mooted now will expose the country to greater dependency on the circumstances prevailing in the global economy. Meanwhile we are projecting a further shrinkage in the GDP figures which casts doubt on its success beyond a committed NRI population.

The overall report card shows a total failure to manage the economy in UPA 2.Growth, already halved, is vaporising away. Inflation, partially because of the staged removal of subsidies on oil and gas, increase in the price of electricity, sharp upswing in all FMCG goods, let alone consumer durables and capital goods, is and will continue to play havoc. The price rise issue is getting ever bigger by the day.

Every person is being painfully affected; and the increase in the price of even ordinary food items across the board is not going to go away anytime soon.

(1,075 words)

August  1^st, 2013

Gautam Mukherjee

The Writing On The Wall

The Writing On The Wall

The substantial CNN-IBN tracker opinion poll broadcast concluded  on the 26^th of July, places the NDA  winning up to 180 seats to the Lok Sabha and at the pole position.

And it suggests, being an early poll, that the BJP has the momentum to take the tally higher, perhaps to over 200 seats on its own, making the formation of a government very much easier.

Mr. Rajdeep Sardesai, who anchored the poll discussions, said, several times, that this might be the last poll before the elections because the Election Commission is thinking of banning them.

But, everything depends, for the BJP and NDA, albeit on the pronouncements of an urban intellectual set of panellists, on not ending up reinforcing negatives that could put off the undecided and luke-warm .

The poll panellists all agreed that the concern of the voters is largely based on economic issues such as the huge and growing corruption, the massive price rise, the slowing economy, the policy paralysis etc..

The considered opinion of the panellists that included Mr. Swapan Dasgupta, Mr. Yogendra Yadav,Mr.Surjit Bhalla and Mr. Ramchandra Guha, was that if the BJP concentrates on addressing these key concerns of the voting public during the poll campaign, in the remaining months before the elections, it will do even better than the poll indications.

There was a possibility discussed, that the elections could come sooner than the 9 or 10 months that remain between now and April 2014.

This, if the UPA thinks it may be better to have the general elections before the forthcoming Assembly Elections. Of the ones coming up, they could lose at least three, if not all four of them, said the panellists.

To follow on to the general elections after several defeats may not be very encouraging to their prospects, which are already under siege. That means the general elections could be upon us in 3 or 4 months.

And while Mr. Narendra Modi is the preferred candidate for Prime Minister over Mr. Rahul Gandhi as per the poll, he needs to be supported more strongly by the various components and moving parts of the NDA to maximise gains. He is also ideally placed to push the NDA’s economic vision to enthuse the public, having done very well in his home state of Gujarat.

The loud assertion that the BJP is communal, a default posture when it comes to the Congress Party, is losing its power to influence, because the Congress is suffering from massive anti-incumbency negatives and is seen to be responsible for the nation’s troubles on multiple fronts.

The poll suggests Congress will lose as many as 70 seats on its own from its previous 2009 tally of 206. Hopefully, Election Commission permitting, there will be more polls conducted that will show this precipitous fall getting worse for the Congress, and BJP and allies gaining further ground.

There is no doubt that economics now leads the purely political in any country around the world. Man cannot live on political rhetoric alone and most people have shifted position to make it very clear that it is important for them to get ahead.

Aspirations now have top billing, as many Muslims in Gujarat have indicated and voted their conviction in favour of Mr. Modi, and the political formation which can deliver on this is expected to get the vote nationally too.

The NDA as a whole therefore, along with its supporting organisations, needs to submerge all its long pending political agenda issues towards communicating this singular objective in a convincing manner.  All NDA and allied voices must present a unified vision and commitment to the economic betterment of India as need of the day No.1.

It is very easy to get entangled in debates of secularism versus communalism, but it is not material to the cause of winning this election and forming the next Government.

Even the arduous task of coalition building after the election results are known, will be easier by far if the alliances are sought on the basis of an economic vision that potential allies can agree upon.

The other political point that could chime in very well with an economic main thrust is the issue of federalism. This is an election that will be won by a sum of states with the NDA being led by a Chief Minister of Gujarat, rather than someone from the BJP’s own “High Command” sitting in New Delhi. The poll panellists did remark on this aspect as well.

The States of India have been chafing under various pressures exerted by a Centre to extract conformity on various issues and to ensure compliance to a coalition dharma. The States have in turn, particularly if they are UPA allies but not part of Congress, extracted various concessions from the Centre including ministerial berths and so on.

A Narendra Modi led Government is likely to give teeth to federalism and its empowerment via decentralisation of many issues in a way that cannot be reversed in future.

Congress has never been very good at treating its allies with respect, once they have managed to get what they want. For that matter, it tends to treat its own Chief Ministers as so many branch heads and the Governors of States and even the President of India, as conveniences to do its bidding.

Misuse of central agencies to harass and confound state governments is also very much part of their political style. Even Union Ministers at the Centre and Ministers of State are kept on a leash by similar means. There are no doubt historical reasons for this, developed from the excessive centralisation of power brought about during Mrs. Indira Gandhi’s long innings.

But the 2014 election may end up changing this model to quite some extent.

Painting Mr. Modi out to be an autocratic Chief Minister and unsuited to Vajpayee style coalition management is also a canard, because no one can be this popular in his home state for over a decade, and now around large parts of the country also, without carrying people along with his vision and style.

As for strategic insight, not only has Mr. Modi, early in his campaign made an impact in Uttar Pradesh where the CNN-IBN poll puts  the BJP tally higher than any of the others, but he was astute enough to realise it was going to be crucial to his campaign from the start.

This is only the first of many intelligent moves expected from him, but he needs to temper his brilliance with caution and the discipline that no one in the BJP or its allies blunts his march to power with discordant notes that don’t belong in his economic symphony.

(1,114 words)

July 27^th 2013

Gautam Mukherjee

is it a good time when it is bad

Is it a good time when it is bad

The legendary wildcatter oilman J Paul Getty who went on to buck the big oil companies by offshoring his refining to the Gulf, invested one million dollars, his entire profit from a gusher he had drilled as an independent, into the US stock market after the Wall Street crash of 1929. That was when every dollar stock had plummeted into a ‘penny stock’ indiscriminate of pedigree and provenance.

It took nerve to do that in the aftermath of the slew of brokers and stock market millionaires who committed suicide when they comprehended the extent of their losses at the abrupt end of the ‘roaring twenties’. But we are talking about a very exceptional man here, a legend amongst legends.  This million dollars of J Paul Getty’s investment grew so much that it became a bedrock of his legendary fortune in years to come.

Our own cherubic market bull, Rakesh Jhunjhunwala, who calls his company Rare Enterprises, after himself presumably, says he has never seen so much pessimism about Indian equities as he countenances nowadays. And he agrees the retail investor has gone missing.

Everything that could have gone wrong already has- a market in the dumps for 5 years in a row, an FII investment flight with billions of dollars moving out of both equity and debt every month, other emerging markets seeming more attractive, including China. Then, bonds crashing, rupee free- falling, GDP growth stymied, IIP numbers at a stand- still, manufacturing negative, exports down, FDI in the doldrums, an RBI bereft of a good idea, a helpless Finance Ministry, and on and on.

Private equity, even from usually keen Singaporeans has also left the building, and venture capitalists have gone off to greener pastures. The Mauritius ‘round robin’ route is feeble because one needs to earn money to go round-robinning and even corruption is down of late.

For the uncomprehending it means sending black money out of the country via hawala or shell transactions. And bringing it back into the stock market via Mauritius because there is a nil- tax treaty in place for investment from entities registered there. And thereby laundering the black money white as well. But since all this can be expensive in handling fees along the route, the stock market must undo the damage, except it cannot at the moment.

But, says Rakesh Jhunjhunwala, this is an excellent time to buy chosen equities because the valuations are incredibly attractive. They could get even better if the markets fall further but there is intrinsic value in many of the beaten down stocks of companies with good products and services and not much debt. The highly leveraged have been punished mercilessly says Jhunjhunwala evenly.

Given a five year horizon though, says Jhunjhunwala, who thinks a return of 18 per cent annually is decent in usual times; he expects very much more from this distressed Equity.

Of course, he does have hundreds of crores that he made over the years following his hunches on the stock market, and has developed a certain self- assurance as a consequence. But he is signalling that India still has a bright future and the present troubles both here and in the West are temporary. Quite a clear voice in the wilderness, and not one that belongs to a Government spokesman.

Jhunjhunwala does not think 2013 is anything like 2000, when he also exhorted all who would listen to consider buying in, because the market was destined to rise. But what took a year then to double will now take five to deliver multiples he says. How does he know- well he has great hunches and follows them. He does not call himself a great economist, but he does keep up with what is going on in the markets around the globe.

Other contrarian strategies being applied by India Inc. and indeed some PSUs involved in oil and gas and mining too, is to seek opportunities abroad using our liberalised policies on making productive investments abroad.

In this regard, we almost have a convertible currency, especially compared to the years under very stringent capital controls that preceded 1991. This has resulted in more Indian FDI going out to acquire companies and raw materials abroad than has come in to India from foreign entities over the last eighteen months. Besides about 80 per cent of all FDI into India lately has been brought in by MNCs to strengthen their subsidiaries and JVs here, and has not gone into new green-field projects.

Business has a way of rooting out opportunities, and if they are considered lucrative enough, dramatic and dynamic action tends to be taken, even in an essentially laid- back Indian corporate bazaar.

The technology transfer that both the Government and private sector always seeks comes to us as part of the package when we stop pleading for it and simply ask how much for the whole company instead.

Indians do make an impact nowadays, and contribute, just from tourism, not secret bank accounts, and some 3 per cent of the Swiss economy for example. They also constitute the biggest private sector employer in the UK.

If one adds in the content of the Swiss bank accounts, with zipped lips on ownership, but without bothering about all the other tax havens which contain a good deal of Indian money too, we could  probably stop being considered an emerging nation.

Our cloak and garb of poverty works to define us a lot of the time because there is self-evident truth to the statement that millions of our people are abysmally poor.

But we also have a lot of wealth concentrated amongst very few people. And the millions in population tends to keep us competitive and, as yet, still a good ‘outsourcing ‘ destination.

So yes, it is sometimes true that it is good when it is bad. It is just very difficult to tell.

979 words

July 25^th, 2013

Gautam Mukherjee 

The Game Changer

The Game Changer

The starkness of the proposition that is Narendra Modi for prime minister, has served to awaken  a discourse never before given to such clarity. It is a discourse that takes on the hypocrisies and myths built up over 65 years since independence.

It covers the whole gamut from communalism, secularism, poverty alleviation, development and most importantly, governance as a responsibility to deliver results and not another set of empty promises. This has so set the cat amongst the pigeon s that the entire political class is having to adjust to a new paradigm in the history of Indian politicking.

Many in the BJP, let alone the UPA and elsewhere, are shell-shocked, and are trying to dilute the proposition. They are saying it is not at all certain that Narendra Modi will in the end be projected as the prime ministerial candidate.

What these good people miss is the fact that in the eyes of the public and in the eyes of the rank and file of the BJP and its ideologically compatible and supporting organisations, the vote has already gone in. The tryst with destiny has been logged on.

Whatever the outcome of the elections turn out to be, Mr.Modi has been given a chance to get as many seats for the BJP as he can. If he does well, it will be difficult to resist his bid to ultimate power, and if he fails he will go back to Gujarat. Mr. Modi himself  is not afraid of risking his arm and needs to be commended for his fortitude in the face of blistering opposition from within and without. And the campaign has not yet begun in right earnest.

Broadly speaking however, the need to project leaders and their ideas has become crucial in the age of 24x7 Television, Social Media, blogs on the Internet, the 140 letter Twitter, and a sharpened, even activist, editorial comment.

Not to mention some very motivated, if light- weight, headlines in papers that should be prouder of their work. In this wealth of choice of expression, every medium and moniker is fighting to influence, if not form, the opinion of its adherents.

It  has become all about news and views debated by ordinary people. The days of pundits talking down to an audience are largely gone. Today even a Nobel laureate like Amartya Sen is seen as a devotee of the establishment and the Congress Party, a blatant campaigner to his cause, and not as an oracular voice from the height of his tremendous intellect. And there are a good number of such partisan  ‘experts’ all pounding their pulpits and grinding their axes.

But fortunately, ordinary people go on social media at a minimum today, or on their mobile phones and Whatsapp,  on an interactive basis. And most of this discourse displays a growing dissatisfaction with the state of play on practically every item of governance, and the functioning of the polity, much of the vital and unvarnished commentary delivered with a sense of humour.

The High Priestess style adopted by Mrs Sonia Gandhi may be of a piece with a carefully cultivated mystery. But there is a certain impatience amongst the public, if not amongst the unasked rank and file workers in her own party, who expect her to win elections for them.

The impatience is with this consistent behind the arras statement from the ‘High Commmand’, subject to multiple interpretations as it is passed down via many hands. Inaccessibility, at least physically, amongst the powerful is understood in these dangerous times, but an absence of an electronic presence even as one clearly plays puppetmeister is seen to be a little offensive. Politician, one might say, explain thyself.

The silence and inaccessibility substituted by cohorts of  spokespersons strenuously parroting the party line, comes across as somewhat sly, because it is shadow- play, and does not compute on camera or admit to any clear attribution or accountability.

And British royalty style waving from the balcony, or the podium for that matter, does not do the trick, though the clung to urgency with regard to Welfare is expected to even in the face of adverse  Opinion Poll results.

After all, British royalty for all its quirks and stage management, does enjoy a crusty constitutional support, whereas the remnants of  the Gandhi family has devised a peculiar power without direct responsibility model all of its own . But there is a poignancy about this role playing against the backdrop of Time and Change. 

Prince William married a Commoner, and his son, 3^rd in line to the throne, has the blood of a Democrat and reportedly, even an Indian woman from Surat, flowing in his veins.   

On another familiar, Octavio Quatrocci, has died relatively early, but his ghost  along with the guns he allegedly had a hand in supplying, is still very much around. The Bofors scandal may now stay likewise shrouded in mystery, but its effects still have play.

This partially is a positive, because the now ancient Bofors guns, enhanced by some local jugaad, did acquit themselves very   well in the Kargil  skirmish in Mr. Vajpayee’s time.

At the receiving end, Pakistan and its formidable ISI intelligence apparatus admit, if in private, that sometimes two, or even a dozen wrongs, do make a right. It is all a matter of managing perceptions.

The Government has also thought fit, in desperate messaging, to drastically  reduce the poverty line based on some wizardry  in the Planning Commission. It is a time-tested Stalinist move, where statistics seek to substitute reality.

Not only that, it claims the best results on poverty alleviation have come from Bihar and Odisha. It is no secret that the incumbent Government is wooing both states and their current rulers for the post poll scenario. This is surrealistic jugglery of statistics, by excluding the last two years of drastically lower growth in GDP, say many sceptical economists. And determined propaganda to believe and claim the welfare spending is working.

Of course it is working, for many in the delivery pipeline, but not the poorest of the poor. If only anyone on 24x7 TV cares to ask them instead of relying on Planning Commission statistics.

 The Government, like all central and state governments elsewhere, is adept at projecting happy illusions seeking to replace reality, relying on acolytes in the well- inclined mainstream media via legitimate advertising spend.

And those flattering junkets/accolades, and the all- important access to power. It is a win-win for both,  designed only to amplify matters which tend to be in the public domain already, churned out  dutifully by the Government’s own  truth- and- lies publicity machine.

1,103 words

July 24^th, 2013

Gautam Mukherjee

Economics Indian Style is our pervasive impact on the world

 

Economics Indian Style is our pervasive impact on the world

Prominent Nobel laureate for economics Mr.Amartya Sen, erstwhile of Cambridge University in England and Harvard in the US, is much listened to in India at the highest echelons of power and in the National Advisory Council.

Mr. Sen’s views on ‘Welfare Economics’ and the urgent need to uplift the poorest of the poor are part of the ruling UPA’s blueprint. That his ideas may turn out to be responsible for the bankrupting of India, is, of course, another story.

 At less exalted but salt of the earth levels, you have the East African/ British Indians thrown out in the sixties and seventies, who took over the corner shop trade all over the UK and transformed it into the hard-working businesses that seemed, like the 24 hour super markets in the US, to never close. There was rarely any outside help employed in these shops, the various members of the family ran them in a demonstration of typical Indian thrift and effective economics.

The generations next, assimilated and confident as British Asians of Indian origin, have branched out very successfully into many more substantial businesses; the theatre, fashion, the media, films, television, authorship, medicine.

Mr. VS Naipaul, part of the diaspora, can also be claimed in this regard, along with his long anticipated Nobel Prize and his books, mostly to do with India.

Scientists have been making their mark in both the UK and the US from decades ago too, some going back to the 1930s. Their success, their struggles have distinguished the economic style of Indians who have come from adverse conditions to make their very significant contributions without abandoning their thrifty, economically sound, ways.

Indian origin millionaires and billionaires such as the internationally trading Hindujas, Steel king Laxmi Mittal and family, who specialised in taking over sick steel mills all over the world, pickle baron Patak,  diversified Lord Swaraj Paul and the Ruia brothers, others who have their bases both in London and India, have been prominent in the British  establishment for decades.

Across the Atlantic, you have an equally impressive showing of Indians risen to prominence in business, consulting, politics, even the space programme. A largish number of Indians run some of the best known US companies and multi-nationals, such as Indira Nooyi of Pepsi.

Tata is today one of  Britain’s leading manufacturers, and between its automotive and other interests in steel, hotels , beverages, IT as in TCS,  etc. is also the biggest private sector employer in British manufacturing, with some 45,000 employees.

Tata’s expensive acquisition of Jaguar/Land Rover/Range Rover, three iconic British brands, contrary to the expectations of many, has proved successful and profitable. Apart from a growing presence in India, with its overseas sales out of the UK, particularly to China, making all the difference.

It has been able to retain all 3 of its UK based plants and all its employees and is building a 4th as it gears up to make its own engines, instead of buying them from the previous owners of the marques, namely Ford. This despite the high wages and costs prevalent in the UK compared to India, where the rest of Tata Motors is located.

India Inc. may not be doing well domestically because of falling demand, inflation, high input costs, tight liquidity and political drift, but it continues to be appreciated in some quarters abroad struggling with tough economic conditions of its own.

Consider that Indian FDI projects for 2012-13 in the UK are likely to generate 24 million pounds in value to London’s economy over the next three years according to a report released by the Mayor of London’s Office. It puts India at the Number 2 spot in terms of investment and job generation after the US and ahead of China in Britain. And most of the business is coming from our IT Industry and Telecommunications.

In some ways the trans-national character of Indian business in a variety of fields is helping it survive a particularly difficult time domestically. In 2012, Indian firms invested 12 billion dollars in acquisitions abroad, up 27 per cent over 2011. This despite the fall in the rupee’s value, that has only worsened further in 2013.

At the same time, it must be admitted, that the venturing forth of Indian business and industry to the corners of the globe wherever it perceived an opportunity, was made possible by economic reforms in India. Our growing foreign exchange reserves were partially made available to India Inc. to go forth and multiply in a departure from our Socialist inspired protectionism.

The draw abroad can be attributed to multiple counts; access to monies at low borrowing cost, market share expansion, inorganic growth, diversifying away from India so as to not put all one’s eggs in the same basket, technology acquisitions and so on.

And also because the economy of India has been declining ever since 2008 due to unhelpful Government policies, at least in part

There are also bargain assets to be had all over the Western world today and not just in real estate terms. And Indian firms from the large, medium and ambitious smaller ones are increasingly taking the plunge. There is more Indian FDI going out of the country than there is foreign FDI coming into India presently, if only by a couple of billion dollars.

But the fact is, the world has stopped believing in the India story at home, and so have many of the Indian firms frustrated with the muddled business environment.

We have never managed to attract large capital because of policy paralysis, enormous red tape and rampant corruption. This is often difficult to prove but is nevertheless very much the case if the whispers are to be believed. Generally however, we blame it on the pulls and tugs of our functioning democracy and the rule of law, which is seriously over- burdened and therefore tardy.

The excuses however have worn thin, and many global players are taking their expansion plans elsewhere. Those who are already in the country through joint ventures and subsidiaries are still expanding their investment footprint, and actually account for 80 per cent of the FDI that does come in. But the green-field projects such as POSCO and Arcelor Mittal’s steel venture in Odisha, have sadly floundered.

But abroad, Indian management skills are in demand. Indians are appreciated for their ability to turn around troubled and sick industries and businesses. Used to a chaotic business environment locally, Indian managers are versatile and very good at multi-tasking. Many from the IITs and IIMs have impressed their peers and employers abroad with their calibre and highly developed quantitative and analytical skills.

Increasingly, international recruiting firms are actively placing Indians with the right skills in jobs abroad, even as expatriates are trickling into India to manage their India opportunity. The time may have come to start reckoning on the global Indian.

1,151 words

July 23rd,   2013

Gautam Mukherjee

 

India Inc. Spreads its Wings

India Inc. Spreads its Wings

The doughty Ambassador has been chosen, much as it may surprise, as the world’s best taxi by Top Gear. It might be a joke of course, because Top Gear likes its own very straight-faced drollery, but last year, only 720 of the vehicles were sold from the Uttarpara Plant in West Bengal .

 The tough, relatively easy to repair car, despite its Isuzu engine nowadays, has been in production from 1948. And till the Maruti came along in the early eighties, it certainly ruled the Indian roads. Now tough or not, very few people including those in the Government want it, being quite spoilt for choice. Top Gear may have found its longevity as a car in production over so many decades impressive in itself.

Tata’s expensive acquisition of Jaguar/Land Rover/Range Rover, three iconic British brands, contrary to the expectations of many, has proved successful and profitable. Apart from a growing presence in India, with its overseas sales out of the UK, particularly to China, making all the difference.

It has been able to retain all 3 of its UK based plants and all its employees and is building a 4th as it gears up to make its own engines instead of buying them from the previous owners of the marques, namely Ford. This despite the high wages and costs prevalent in the UK compared to India where the rest of Tata Motors is located.

India inc. may not be doing well domestically because of falling demand, inflation, high input costs, tight liquidity and political drift, but it continues to be appreciated in some quarters abroad struggling with tough economic conditions of its own.

Consider that Indian FDI projects for 2012-13 in the UK are likely to generate 24 million pounds in value to London’s economy over the next three years according to a report released by the mayor of London’s Office. It puts India at the Number 2 spot in terms of investment and job generation in the UK since London hosted the Olympics. And most of the business is coming from our IT Industry and Telecommunications.

In some ways the trans-national character of Indian business in a variety of fields is helping it survive a particularly difficult time domestically now. In 2012, Indian firms invested 12 billion dollars in acquisitions abroad, up 27 per cent over 2011. This despite the fall in the rupee’s value that has worsened further in 2013.

The draw is on multiple counts, access to monies at low borrowing cost, market share expansion, inorganic growth, diversifying away from India so as to not put all one’s eggs in the same basket, technology acquisitions and so on. And also because the economy of India has been declining ever since 2008 due to unhelpful Government policies, at least in part

There are also bargain assets to be had all over the Western world today and not just in real estate terms. And Indian firms from the large, medium and ambitious smaller firms are increasingly taking the plunge. There is more Indian FDI going out of the country than there is foreign FDI coming into India now, if only by a couple of billion dollars statistically. 

But the fact is, the world has stopped believing in the India story and so have many of the Indian firms frustrated with the muddled business environment domestically. We have never managed to attract large capital because of policy paralysis, enormous red tape and rampant corruption. This is often difficult to prove but is nevertheless very much the case if the whispers are to be believed.

It may be impossible to stem the decline and fall of India unless Government makes it its mission to promote growth. Till now, and particularly under the sway of the National Advisory Council, it is the ideas of Nobel laureate and Welfare economist Mr Amartya Sen and others that broadly agree with him that have control. Laudable as the objective of lifting up the poorest of the poor is, it should not be allowed to callously bankrupt the country in the absence of any real support given to the engines of growth.

692 words

July 21^st,   2013

Gautam Mukherjee

  

FDI can work well in defence production

Foreign Direct Investment Can Work Well In Defence Production

It turns out that most of the FDI coming to India is into subsidiaries of foreign firms. And so far, it has not been that huge. Indian Express journalist Ms. Shruti Srivastava quotes a Care Ratings analysis that shows a cumulative FDI inflow of just $195.6 billion between April 2000 and April 2013. That works out to a modest $15 billion per annum pro- rata. It is not the kind of investment to set the balance of payments right in this decade or the next.

Green- field FDI, such as the much anticipated Korean POSCO venture in Odisha, touted at some $12 billion when it was announced years ago, is now near dead in the water.  Arcelor Mittal’s Rs.50, 000 crore venture has just been cancelled because of interminable delays on every aspect. Of course, the demand for steel is down with the sharp recession in the West too.

But, irrespective of the external environment, our ground realities are inexplicably grim, and most unwelcoming of the things foreigners seek: transparency, predictability, consistency in decision-making, no retrospective taxes, and indeed a benign tax policy.

With our once buoyant domestic economy tanking and refusing to grow, FDI is not going to be forthcoming in all except the most lucrative areas, and of course, incrementally, to expand the foot print of a subsidiary when it is called for.

So the big bang announcements from the Government in the penultimate hour may largely find no takers. Telecom may have been opened up to 100% for FDI, but it is reeling under massive debts and huge costs, some of which are to do with Government licenses and spectrum allocations. So it is not going to be a shoo-in.

Vodafone which came in on the back of the India story, buying in at steep valuations, is now hoping for future profitability according to its expat CEO. It is also under threat with huge tax demands for its purchase of the Hutch holdings. Vodafone’s fate is no doubt being watched with trepidation by other would- be entrants. And in any case, no one and nothing is likely to come in before the general elections. This Government has simply left it too late.

The one place where we could score is in defence production. We have hedged our intentions with the case-by-case clause beyond FDI at 26%, but we have nevertheless shown the way up to 49%. This is not only good news for the world’s high-tech armaments manufacturers because India’s shopping list in Defence Purchases is amongst the biggest in the world, but also good for India’s security.

With the rupee tanking and our foreign exchange reserves depleting, the economy slowing, and deficits growing to the point of inviting an international ratings downgrade to junk status; we badly need to manufacture our high value defence items in- country.

We cannot afford to pay for them in the international arms market any more. This was the situation when we were closely allied to the USSR and had no foreign exchange, and it is rapidly coming around to a similar situation afresh today.

The other point is that the Government is possibly recognising at last, that it neither has the resources nor the know-how to run our domestic defence production without help. The track record shows a long list of delays, cost overruns, failures, and lack of technical know-how. This state of affairs has probably suited the middle- men and arms merchants just fine, but has done little good to the country.

Several leading private players have been keen to get off the ground in this lucrative area of defence production, and despite resistance from some quarters probably due to vested interest garbed in concerns of security, the matter has now been moved a little both conceptually and in terms of policy.

Consider the numbers: India’s defence purchases are expected to run up to $ 200 billion, up 54% on the current annual defence budgets, by 2021, according to  IHS Jane’s.

It is also the stated intent of the Government that the domestic defence industry should be able to produce the full-range of high-tech weaponry that Indian armed forces may require. But so far, the attempts of the Public Sector units, which have enjoyed an undeserved monopoly in defence production, have made a complete travesty of this objective.  We are still importing 70% of our defence purchases. The plan was to be largely self-reliant by 1991, a projected 85% to be made in India. Not only that, but what we do make is largely inferior, manufactured at inordinate cost and after humungous delay.

This cannot be all attributed to incompetence alone because there is quite a lot of evidence that points towards willful retardation of indigenous initiatives in order to serve the interests of foreign arms-merchants and nations.

With projected private sector involvement in defence production assisted by foreign players, this sordid and depressing scenario may begin to change. At any rate, if implemented vigorously by the in-coming Government, it promises to ramp up the quantum of FDI into the country substantially. Mr. Narendra Modi has spoken on his commitment towards making this happen if voted into power, and he is just the man to do so.

(869 words)

July 18^th, 2013

Gautam Mukherjee

The Debt Trap

The Debt Trap

Debt- based leveraged growth is what defeated the West once the bubble burst and demand evaporated. And now with our anti-growth policies since 2008, when the West collapsed, there is no denying that both PSU India and India Inc. is being driven to its knees. Institutional India is also funds- starved and marking time. Subsidies, particularly on fuel, are becoming totally unsustainable.

All of this is coming out of the woodwork, and has become apparent also because the GDP growth rate has halved, and is heading lower to sub 5% per annum levels.

Similar things are happening in China too where the growth has fallen to 7%. This is unsustainable in their populous and totalitarian economy which on the face of it does not tolerate criticism and dissent. But it is widely expected, unless there is an economic upturn brought about soon via massive Government spending. Otherwise social unrest and revolt is likely, particularly in rural areas and amongst traditionally restive sections of their population.

There is, at a minimum, a looming bad- debt driven banking crisis coming up in both of the Asian economies.  And because India and China were expected to help revive the West, it is also bad news internationally.

Not only that, in China the military is putting pressure on the civilian authorities, as it is unwilling to countenance austerity measures. Incursions into Indian territory are part of the PLA’s defiance to newly elevated Messrs Li and Xi who have weighty economic matters on their mind, and may not be in a position to crack down on the insubordination.

But in purely economic terms, what happens to businesses that are no longer able to grow at a healthy pace? They start feeling the pressure of the debt on their books assumed at a time and with the belief that it could be amortised from the future dynamism of the enterprise. This is true of small business of course, and the logic is that they are not in a position to sustain a prolonged period of low or nil growth, and their comparatively high expenses and debt pushes them under.

But today it is the big boys in India in the same predicament. Vijay Mallya’s flagship United Spirits is gone from his control. His airline Kingfisher Airlines is grounded under a mountain of debt. Other entities in the group too are under threat. And this in a cash rich liquor-sells-itself business, where we can regard every other diversification as essentially funded by the core competence

Once mighty Bharti, Vodafone, Reliance Communications, the one, two and three in the telecom space, are all reeling under thousands of crores of debt. The debt was taken on to build spectrum, subscribers and markets, but the yield per customer is down, and the expenses to maintain bandwidth and market share are relentless. The debt is eating away at what little profit there is.

The story is repeated in other major industries such as steel, automobiles, construction, all very worried about their debt burdens in the absence of growth. Unloading equity too is not easy when one is not doing well. Witness the Jet-Etihad deal that is still under pressure till the Government of India agrees to all the fine print.   

With the rupee falling and inflation climbing at an alarming pace mainly on the back of fuel imports and transportation costs, even tomatoes have risen to Rs. 100 a kilogram in retail markets.

People are operating with their backs to the wall, and the only remedy is to kick- start the economic growth afresh.

The lead in this should be the Government’s, but it is busy trying to garner investments on the strength of its words in the West. In the Great Depression of the 1930s in the US, and the floods and famines that periodically overtook Princely India, it was public works that helped people through their hardships. But there is no massive infrastructure projects being undertaken by the Government of India today. There is no Hoover Dam. Instead, there is a vote-seeking Welfare.

There is no one telling us that all we need to fear is fear itself. We are on our own because our Government is thinking only about how to be re-elected. And how to get so many judicially tainted but useful candidates to pass muster with the Election Commission given recent Supreme Court strictures.

Worse may follow unless something is done to stimulate the economy. Companies may have to change hands under distressed conditions. There may be spectacular bankruptcies. Insurance companies may fail to pay out. Managements may run away with company money. Commitments may be broken.

An economy cannot run itself without the Government that oversees it taking responsibility for its well-being, particularly when it has so many controls in place. The economy can find its path for itself according to market principles quite well in laisser- faire conditions.

But India is one of the most regulated business environments in the world, with bureaucracy, corruption, red-tape, restrictions and Government oversight on most aspects.  One or the other must change; either, as Mr. Narendra Modi says, Government must get out of the business area and let it fend for itself, or it must do everything in its power to help business grow.

(877 words)

July 14^th, 2013

Gautam Mukherjee

The Pips Are Squeaking

The Pips Are Squeaking

An insolent government that chose to ignore growth for all the time since 2008 is making us all pay with a free- falling currency. It is presently yo-yoing between 59 to 62 to the US dollar and it is wishful thinking to expect it not to head towards 70. There is very little by way of RBI intervention possible now that the rupee is crashing. You cannot stop a tidal wave or a mudslide when it is on the move. Because the real reason it is doing so is because the economy is in a complete mess.

So for inspiration the Indian stock market is clutching at global cues. One straw, very popular everywhere is the state of the American Union. We listened keenly to what the outgoing Federal Reserve Chairman Ben Bernanke said about the future US economy. He said there is some recovery  there and  more is expected and our stock market rallied on this opinion. Perhaps the mirage is if the US does better, so will we.  China too is slowing drastically, its exports down, its domestic demand sluggish. Are we going to benefit from this?

Our precariousness is not just about the yawning maw of the current account deficit (CAD) and runaway inflation alone.  With little or no growth in sector after sector, it will engulf everything in its grasp in system breakdown mode.

If you can’t manufacture anymore because of lack of demand it does not matter how good your product might be. Witness Mahindra staggering production. And Mercedes worrying about how their launches of the B Class and the new E Class is not making an impact. Even as Audi is busy raising prices in lakhs to compensate for declining margins.

And notice when 60 sq.ft. tin sheds in Dharavi Slum in Mumbai change hands for Rs.1 crore, a rate higher than the skyscrapers of hot destination Lower Parel. Of course there is a buzz that it is going to be redeveloped per a 1998 proposal come of age, and it is very centrally located in a long thin city.

But verily it’s all going a little topsy- turvy and unplanned when the as yet unprinted 12^th   Five Year Plan is already being reviewed afresh at the Planning Commission.

But here’s the rub-if you raise prices to compensate for the falling rupee you end up making matters worse.  Not that it will deter anyone from doing so. So manage or perish if you will.

The Government of India has never understood, except for the brief years of NDA rule under Mr. Atal Behari Vajpayee, the crucial importance of promoting growth. In the end, neither did the voting population understand any better, because they took objection to the proposition that India was “shining”.

Today many realise that it was a comparative thing being referred to. And the objective reality is that it was certainly shining compared to the dire straits we find ourselves in after 10 years of UPA rule. Every advantage of the Vajpayee years has been squandered with nothing to show for it.

Nothing moves now except Welfare and even that is not being executed particularly well. If helping the poor is the objective than surely it should not be at the expense of beggaring the rest of the nation. But this is a chariot, a juggernaut, that no one can stop. So may it serve the people that need it most.

But even here, the Food Ordinance may end up impacting the rural farmer as people start arbitraging between the subsidised grain and open market prices. It happens in every charity zone, the given away and donated goods turn up on the black market. Human nature will not suddenly change to accommodate lofty ideals. But most people think idealism does not enter into it. It is a simple poll- winning strategy being employed with a reported Rs 500 crore publicity binge to follow.

But meanwhile our balance of trade, never good, is tilting sharply against us. Mr. Uday Kotak says, symbolically, though truthfully enough, that our Ganesha idols now come from China.

Infosys can only think of resurrecting their retired Midas to try and breathe life into its malaise. The Banks are threatening to “name and shame” the guarantors of absconding loan defaulters.

Tax collections are down because even the big boys are not making much money today. Agriculture, at the root of the food politics today, is in crisis.

We cannot afford our guns and tanks, though it is claimed we will be spending more on defence purchases than Britain soon. Our role on the global stage will prove increasingly onerous without the money to fund it.

And yet, what are we planning to do about it? Not a lot as it happens, because there is too little time left to reap any harvest from policy changes that may take years to implement and benefit from.

Better therefore to deal with pent up demand that can be alleviated with a few deft strokes at the Gordian knot of red tape. One part was the regularisation of unauthorised colonies in Delhi thus putting legitimacy and money in the pockets of many. It is being trotted out still, and may take time to dot all the I’s and cross all the T’s, but prices and transactions have gone up substantially.

The next bit is about Agricultural land, Country Homes, Lal Dora land, Abadi land. All this will do likewise for the urban villages, hundreds in number, as well as the ‘Farm House” wallahs and wannabes.

It will roll out first in the Delhi/NCR region, recently expanded further, and can quickly be replicated all over the country wherever it seems appropriate, once the precedent is set and tested. And this by the state governments themselves so that they can promote their own bonanzas.

This is indeed a way to conjure millions and billions of rupees, albeit devalued, and has been an open sesame   and secret for the political classes and their rich friends for ages. But now, the idea is to spread the largesse and make a lot of voters happy almost instantly.  

It is a magic wand of regulatory easing of building, usage and zoning laws. It is expected to deliver explosive prosperity to many. And this sudden gain is expected to both lubricate the wheels of the election machine as well as trigger a consumption- led boom.

(1,065 words)

July 11^th, 2013

Gautam Mukherjee

Don't Degrade The Intelligence Agencies

Don't Degrade The Intelligence Agencies 

From time to time politicians tend to sharply subvert the working of the nation’s Intelligence Agencies to achieve narrow political purposes. Mr. Rajiv Gandhi, protected with crack SPG troops when Prime Minister, with every intelligence mechanism watching out for him, was killed on the campaign trail when out of power.

He was blown up by a human bomber from the LTTE in Sriperumbudur near Chennai in 1991, both because of inadequate, state level police protection, and intelligence failures. There were no Black Cats around him in Sriperumbudur that night, and conspiracy theories aplenty about the role of LTTE sympathisers and collusion in Tamil Nadu to this day.

The Government is once again merrily subverting the intelligence agencies in the run up to another general election. One that promises to be keenly fought by all contenders to bring about a change from some very alarming conditions today.

Meanwhile, the Terrorists, Maoists, the very effective ISI from Pakistan, The Chinese on the borders, some major international terrorist organisations, foreign intelligence agencies with agendas, fifth columnists and so on, are eagerly waiting for their turn in the sun.

Our Intelligence Agencies are meant to keep track of all of them effectively and share information to thwart their inimical plans. But we fail more often than not.

The recent bombings in Bodh Gaya by the IM according to the National Investigating Agency (NIA) are perhaps both a prelude and deja vu on what to expect. There was intelligence on this bombing too, which was shared in advance with the Bihar Police, but it happened anyway.

In India, the role of the Intelligence Agencies, like RAW and IB, the best known external and internal agencies amongst quite a number, is being compromised. Political interference designed to target specific politicians such as the BJP’s soon to be declared Prime Ministerial candidate Mr.Narendra Modi is liberally used.

The CBI is deployed in a manner that has turned it into something of a joke, going through narrow contortions currently in the Ishrat Jahan case. It was referred to as a “caged parrot” by none other than the Supreme Court in another matter dubbed Coalgate saying that it, “speaks in its master’s voice”.  

The CBI is best used to keep dossiers and tabs on corruption and scams and skulduggery of the prominent. It is used to intimidate and undermine recalcitrant state governments and political opponents. And restive allies alike.  Both Mulayam Singh Yadav of the SP and Mayawati of the BSP are said to be kept on a leash via the CBI.

Because of this devaluation of the CBI and its sleuths, just one example of an institution being destroyed, other intelligence agencies of the Government of India also tend to work in a circumspect manner rather than proactively. They want to protect themselves in bureaucratese rather than stick their necks out. They pass on intelligence inputs late or vaguely that are often not acted on adequately.   

This kind of interference with covert agencies concerned with the security of the country happens in other countries too and with less than salubrious results. The CIA has sometimes been promoted in the service of US interests and sometimes undermined as under Democratic President Jimmy Carter.  

But it needs to be understood that a secret organisation entrusted with espionage is not very effective if one attempts to render it transparent and responsive.

Similar things have happened to the FBI but not until the legendary J Edgar Hoover passed away.

In Britain, it was often the Judiciary and the Courts that undermined MI6 by demanding information from intelligence officers that end up compromising their sources. But till 1994, MI6 was not even known to officially exist.

In India we play politics even with the death of policemen like Encounter Specialist Mr. Mohan Chand Sharma killed while apprehending IM terrorists at the infamous Batla House in New Delhi. This demoralises our Police, Commandos, Armed Forces and Intelligence Community alike.

The UPA seems keen  to downplay Islamic terrorism and Maoism in equal measure, as it might, it is perceived, upset vote banks that they  are courting. The distortions caused by this political bias are visited on the people invested with providing security to the powerful and less exalted alike.

The worst part is not the creation of a Frankenstein in flawed security apparatus that can target the high and mighty who come out of their cocoons during election time. That might be seen as an occupational hazard.

The worst is probably that given the competence of our intelligence and security personnel, we can do much better if we improve the speed of our decision- making and let professionals do their job without interference.

Inconsistency of policy is bad enough, and India suffers hugely from this two steps forward and one step back syndrome, but a willful wrecking of institutions inclusive of witch-hunts against officers who are, and have been doing their jobs to protect us, is downright cynical. Today it is an IB Special Director Mr. Rajinder Kumar, nearing retirement. Tomorrow who else?

As Indian Express Editor- in- Chief Mr. Shekhar Gupta pointed out recently, Punjab might have been lost without a determined policy of degrading the Khalistani ability to wreak vengeance on the populace. He lauded the role of the IB in the field for finding and pointing out the would-be culprits. The secession movement in Punjab was the ISI’s biggest operation in India. And it failed.

As did the Naxalite movement in West Bengal in the sixties.  There was no tying up those encounters with justice bows. They were killings of the bad guys so that the good people might live in peace. That is what Intelligence Agencies and Security Personnel do. We should have the wisdom to leave them well enough alone to do it, instead of trying to fix matches with hypocritical calls for common justice when it suits us.

It is no surprise that there is so much instability and unrest in so many parts of the country today along with a truly lousy law and order situation. The politics of the ruling UPA has become ad hoc and desperately short- term. And surely with such an insecure leadership, the nether elements feel free to operate boldly.

In the end, there is not much one can say to a Government at nearly the end of its tenure. But the new Government, hopefully an NDA Government that comes in with Mr. Narendra Modi as Prime Minister, must restore the dignity of all our intelligence and security apparatus at the earliest.

(1,087 words)

July 9^th, 2013

Gautam Mukherjee

A Faustian Pact

 A Faustian Pact

The President, Pranab Mukherjee, long a good Congressman, has signed the “Food Ordinance” which will morph into the National Food Security Act after debate and amendments in parliament.

It commits the Government to feeding millions, with near- free grain, and extras in cash to pregnant women and lactating mothers, and hot meals to children, between ages 6 to 14.  

Much of the largesse is at a subsistence level, being just 5 kg of food grain per month which translates into rice, wheat, and coarse grains. But, it covers a gargantuan qualifying population of 800 million people, out of the total population of over 1.2 billion.

So two- thirds of the populace, 75% of the rural and 50% of the urban, are deemed to need subsistence rations at between Rs. 1 to Rs. 3 a Kg. God help the quality of what they will get, judging from “ration grain” in the past, but still it is a mammoth undertaking, probably the largest of its kind in the world. But two-thirds deemed to be needing this, sixty five years into the history of independent India, is a shocker too.

That this does not quite jive with the poverty- line statistics is baffling.  Because either two- thirds of the population is practically starving, or this kind of blanket coverage makes no sense. What about our claims of “food sufficiency” and overflowing grain store houses over the years?

We were always told there was plenty of grain after the Green Revolution and on-going improvements on the farm. But there was always talk of a shortage of storage space causing some of the Government “procured” grain to rot out in the open, and the rest to be somewhat rat, and rat dropping infested.

We have very few modern grain silos and not much by way of scientific modern storage systems. But we apparently do and did have a lot of grain which we even exported from time to time, usually with mixed reactions from the recipients due to low quality.

The Government has put aside Rs. 90,000 crores as food subsidy in 2013-14 and this includes a mere Rs. 10,000 crores for the implementation of the Food Security Act. As a consequence of the ordinance being promulgated, the Centre will have to find another Rs. 47,000 crores in 2014-15. It will cost a further Rs 1.25 lakh crores to roll out the programme nationally, and yet another Rs. 12,000 crores to pay for the maternity benefits incorporated. And these are just estimates.

The Food  Ordinance /Act is in addition to the plethora of other welfare schemes and subsidies thrust onto the camel’s back, probably to test its breaking point. This is the Indian economy being trashed, with no thought given about its sustenance or growth.

Our fiscal deficits are bound to soar out of control now and our international credit ratings will once again be threatened, more severely than ever before.

 But much of the impact will come only once the new Government comes to power after the general elections. So for the moment, no one in this Government is very worried, as is evident when one listens to the pronouncements of the Finance Minister, the Commerce Minister, the Prime Minister, the RBI Governor, the Planning Commission Head, The Chief Economic Adviser, the Congress Party President, the Congress Party Vice President, and sundry multiple spokespersons on  TV and elsewhere.

The farm- loan waivers of Rs. 60,000 crores are credited with winning the UPA the election in 2009. This time, what with the wall of bad news and tsunami of corruption allegations, the Congress Party is going for broke, somewhat literally.

Bankrupting the nation inclusive of the prospects of many future generations, is worth it if the Congress Party continue to rule and be seen  as the nation’s annadatas!

The Food Ordinance, rushed through recently, has its undoubted propaganda value, which makes it difficult for the Opposition to oppose it.  But, it may not yet save the day for the UPA because large as it is in its scope of works, it really is not very much to each voter on the ground. Aspirations have risen beyond coarse grains we may well find.

There have been several  versions of the Faustian legend. Goethe had his version. Thomas Mann had his. Germans seem obsessed with losing their souls to the Devil.

We in India have our own Faustian pacts. We are slipping and sliding down toward Hell on a path paved with hypocritical calculations on electoral dividends. And all the while, we are genuflecting our mea culpas and protesting our innocence, our desire to help the poor and downtrodden. Yes, but will it prove to be enough.

(780 words)

July 7^th, 2013

Gautam Mukherjee

Too Sweet For Comfort

Too Sweet For Comfort

The Jet-Etihad deal hinged on bilateral concessions on flight rights and seats granted to Abu Dhabi. These have been increased to 36,470 seats between several points in India and Abu Dhabi. And Etihad will be controlling the seat allocations, up from 13,330 till before April 22^nd, 2013.

Etihad paid a 32% premium on the share value of Jet Airways to garner a 24% stake in it after the bilateral seat enhancement went through. These developments are subject to final Indian Government approvals of course, but the crucial requirement of seat enhancements has gone through.

 And then, there is the rumoured sweetener of $50 billion in promised infrastructure development investment from the sheikhdom. The Government of India may be in desperate barter mode now with its entire FDI programme trailing inward remittances from NRI’s and PIO’s at some 30 to 40%.

Certainly, like an eager suitor, it chose to act with great if uncharacteristic speed on its concessions on the strength of a none too specific promise. And  despite the reservations of several of its watch-dog and regulatory Government organisations.

But many wagging tongues are suggesting the bilaterals were rushed through to help Jet-Etihad consummate their over 2,000 crore FDI deal, which followed almost back to back with the Government’s announcements.

They cite the Aviation Minister’s huge enthusiasm for the matter supported by the Prime Minister himself. There have been vocal objections from several senior politicians from various Opposition parties who have all written to the Prime Minister in this regard.

And the Parliamentary Standing Committee along with the FIPB, SEBI and the Competition Commission think that Jet is now effectively a subsidiary of Abu Dhabi owned Etihad. This is via the fine print of its working memoranda and articles, the management controls, the use of Abu Dhabi as a hub, the three Etihad Directors to come on to the Jet Board etc. despite Etihad’s  minority stake at 24%.

The Aviation Minister Mr Ajit Singh tried to put a spin on the deal in the face of controversy. He said he would offer similar concessions in any bilateral that involved foreign airlines buying into Indian ones. The irony in this attempt to deflect and distract lies in the fact that till lately it was expressly banned by the GOI.

The Government has scuttled several attempts of foreign airlines setting up in India in collaboration with Indian corporates, most famously the Singapore Airlines/Tata deal in the nineties.

Jet has always been rumoured to be financed by entities from the UAE, via its management, namely Mr. Naresh Goyal, who ostensibly owns 51% of the airline. The Jet-Etihad deal at some 2,058 crores for that 24% share now is of a piece with that.

Talk of compromising India’s security via this deal however is a bit of a red herring, as is outrage at the deal affecting the fortunes of a chronic under-performer like Air India. It is only a formalisation of a covert reality of long standing, and planes flying in and out of the country, no matter whom they are owned by or belong to, are not the threat in any case.

But if Abu Dhabi chooses not put in the $50 billion into Indian infrastructure projects any time soon,  there is precious little we can do. And yes, Mr. Ajit Singh is right- we could do with more such deals to liven up our civil aviation space, especially when they pump in money into our existing players.

Air Asia along with the much thwarted Tata will soon be functional, and provide healthy competition on many of the routes it will fly. It plans not to fly in and out of Mumbai and Delhi at first. And it is not joining hands with any existing airline, at least at first. How Kingfisher must be longing for a relaunch. And who knows, perhaps the beleaguered Air India too.

(646  words)

July  4th, 2013

Gautam Mukherjee