Now running successfully worldwide – “India Sorry”

In the corporate board rooms of many multinational corporations the “India Story” which was weaving itself has now given way to “India Sorry” with accompanying pathos.  The overwhelming feeling is of a wholesale deprivation of the aspirations of the talented Indians by their political masters. “Incredible India” is desperately ‘in’ need of a ‘credible’ script, actors, technicians and the works. Flash back to the 2003-06 time frame, thanks to the easy money flowing in from the developed markets to emerging markets that included India, the markets were on fire. Pundits and others claimed that a GDP growth of 7-8 % is the base line rate of growth, come what may and if Govt. and administration did its bit (and If China gets to host events like Olympics 🙂 ), we could head towards 9 – 10 % growth.  The party was briefly interrupted by “the Lehman shock” the tremors of which shook the world – developed, developing and others. I say briefly because within a year or so markets like India and China not only recovered but were again breathing fire. This time the stimuli announced by developed countries like the US, Germany,… injected funds into the monetary system and once again easy money found its way here.  This was when the “India Story” was running full houses worldwide.

I recall seeing and hearing of many multinational companies having their Board meetings in India that time. Expansion plans for global companies seldom excluded India. Forex reserves were booming whether it was thro FDI or FII money. If you look at it now, that kind of over the top India focus and fuss became detrimental to India’s future. For, the rulers(UPA-I) started imagining and talking of India which is “decoupled” from the world without realizing that if structural reforms are not put in place, the “India Story” will turn apocryphal when the flow of easy money stops. And that’s exactly what happened. This is explained beautifully in Ruchir Sharma’s book –“Breakout Nations – In Pursuit of the Next Economic Miracles”. While he analyses many emerging markets and gives his verdict, as far as India is concerned his verdict is a 50:50 chance for India to breakout. I suspect that his own patriotic “Indian at heart” feeling came in the way of saying that the chances are pretty dim for India to become a breakout nation. Ruchir also says that we will have to get used to the “New Normal” of Pre 2003 GDP Growth which is 5.5-6%.

My own sense is that if India had focused on Governance, the situation would not have been as bad as it is now inspite of the global liquidity party getting over long while ago.  However in India the politics of economics is a deadly game. So instead of focusing on Governance, the Govt. headed by a Cambridge educated Economist was economic in Key decision-making and thereby introduced “policy paralysis” in the lexicon of the opposition/Industry and corporate reviews. Many observers are in unison when they point out that the Union budget presented by the present President of India in the year in the year 2012 as finance minister was the tipping point that led to world relegating India as a foot note in their strategy documents. Pranab Mukherjee amended the Income Tax Act, 1961, to impose a retrospective provision for tax on some types of global mergers, including Vodafone’s 2007 acquisition of Hutchinson’s assets in India. Even for a lay man it is difficult to fathom how somebody in the Govt. can think of passing an amendment with retrospective effect when companies have taken decisions to invest based on prevailing laws of the land.  That this controversial provision passed through the FM, the bureaucracy and even the PM is till today a shocker for me.  From then on it’s been a downward climb with downgrading of ratings, pulling out of money, slowdown in investments, falling off the Rupee,..,..  India got demoted while Pranabda got promoted 😦 😦 To compound to the situation, delay in environmental clearances for new projects, banning of mining, Telecom imbroglio, corruption charges all this made Indian investors to look for avenues outside of the country to invest.

As a rearguard action, Chidambaram was brought in as the Finance Minister to succeed Pranabda and frankly speaking he has been trying his best. The decision-making wheels in the Govt. have started moving. The “Rajan effect” has been just short of magic. From the time Raghuram Rajan was made the Governor of RBI, there has been some great things happening in the economy the most important being the strengthening of Rupee.  But the “Sir Newton effect” has been overpowering. Newton said “For every action there is an equal and opposite reaction”. So the reaction from the world now is of a wait and watch.  With the Government in the December of its term, it makes little sense to investors and others alike to jump into the fray. For them it makes more sense to wait and see if India presents a credible and durable “Change” come 2014.

And it is not just the world which is looking for a change in India but even within India the mood is the same. Though it is still not clear what the opposition’s clear economic agenda is, Narendra Modi the PM candidate for BJP is attracting attention all over.  This can only be due to an overwhelming yearning for change. If that change happens, it will be interesting to see how they tackle the economy differently. Yashwant Sinha an Ex and potential finance minister in his book calls himself a “Swadeshi Reformer”. As oxymoronic as it sounds, except for opposing what the Govt. is doing, even he has not yet spelt out clearly BJP’s stand on key economic reforms.

Shankkar Aiyar a reputed columnist in his book “Accidental India” says and I quote “It would seem that everything the country has achieved has arrived by accident, catalyzed by calamity”. Turning points in the country like the liberalization of 1991,.. as per him “were not the result of foresight or careful planning but were rather the accidental consequences of major crises that had to be resolved at any cost”. For quite some time now I was of the same opinion but dismissed it as a streak of a cynical Indian. But reading this fantastic book has confirmed my worst fears around policy making which is by nature reactive rather than proactive.  As the country is in the throes of another economic crisis if not collapse, we await another “accident” which will bring the “India story” back to the global theatres. Till then it looks like there is no escape (velocity) 🙂 🙂

MANJUL_010712pol_economy_pranab_manmohan

Also pls. read my earlier post on reforms “The Politics of Reforms” written in Sep 2012 –  http://wp.me/p1dZc2-bQ

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A New Year’s Wishlist !!!

“In the last few days of his life, my predecessor earned the sobriquet of Annus Horribilis – regrettably so.   Blaming him for all that happened in that 365 days is unfair. But that’s how it’s always.   Like the ‘Mayfly’ insect which lives for few hours, our life span is fixed for 365 days. And in that short span we are expected to bring great amount of good to humanity.  We don’t have the fortune of being known by great names – just numbers and that too in a sequence.  So in spite of carrying a supposedly unlucky number 13 as part of my name, I am supposed to bring in loads of luck to people. So here I am, born just few days ago – 6 days to be precise as ‘2013’ – carrying the expectations of a few billion people. With my predecessor’s innings not going so well or so people have concluded the pressure on me seems to be immense.  I don’t have the time to grow up.  However I’m resolute.  While the world has its expectations from me, I’ve my own set of expectations from the people as well.  Particularly I’ve expectations from India and its people who by their acts of omissions and commissions contributed to the ignominy of my predecessor –2012.  The expectations span across from the leadership i.e. the political class to the common man – ‘aam admi’ and here they go: (some of the important ones)

  • The Ruling class:  The Government in India for most part of few years has been in a state of paralysis. It shook itself up few months ago and I sincerely hope that the Ruling class focusses on the unfinished legislative tasks in hand and work over-time to pass a few bills as early as the budget session of the Indian parliament.
              • A New Anti-Rape law as per Verma Committee’s recommendations is passed sooner than later.  I fervently hope that one doesn’t get to hear of what happened in Delhi in Dec ever again in India or elsewhere.
    • The Lokpal bill – now that a score of standing committees, GOMs and  parliamentary committees and what have you have value added to the bill, please table it in both the houses and get it passed.
    • Land Acquisition bill: This was again missed during 2012 but I hope I will be fortunate to see this bill passed in my life which can prevent another ‘Nandigram’ or a ‘Singur’. The key is adequate compensation, transparency in acquisition and of course re-settlement and rehabilitation.   I’ve high hopes on the passionate minister Jairam Ramesh who is piloting this bill. But I hope his colleagues in the ministry don’t put spokes in his wheel to stall the bill once again.  If passed, this can make India Inc. once again to start focusing on capacity expansion, new projects,..  in India or  Bharat rather than in Indonesia!
    • GST reform: ‘PC’ as India’s finance minister(FM) P.Chidambaram is fondly known is sharp, intelligent and articulate and hopefully with a good memory too.  It was he as FM in 2007 announced that GST will be introduced in India by Apr 2010. My predecessors were not that lucky. And I don’t want to be labeled one either. So, I hope PC can use his persuasive skills to address the concerns of the states in migrating to GST.  This will be one ‘Game Changer’ as per me in simplifying the Indirect Tax regime in India. So, Go PC Go!!!
    • Again I expect PC to come up with if not a ‘Dream budget’ but certainly not a nightmare of a budget like his predecessor. I hope he and his team are not either in a ‘regressive’ or a ‘retrospective’ frame of mind while preparing the budget of my life.

The Opposition: In India they have an opposition which performs it duty religiously by its definition i.e. it opposes anything and everything. Even initiatives which were conceived when they were in power few years ago – are not palatable to them now.  My predecessor years had to bear the brunt of their whims and fancies – which delayed reforms like FDI in retail, GST,.. and thereby removed the sheen out of India’s shining story.

  • So my expectation is that the Opposition performs its role of opposition constructively and value adds to the Governance.  Please don’t oppose for the heck of it. Soon the roles may reverse and you may have to face the situation of walkouts and boycotts. Please support the Government in key legislations which will finally bring goodwill to you.

Civil Society (Aam Admi): The last few years have been witness to some positive activism and energy of the civil society and I’m glad to see this development. I hope that this will continue which will keep the ruling class on its toes. Ofcourse I do hope that they save precious water by not using those water canons on common public!

Men: Just one thing. Please leave women alone in Delhi and everywhere.

Others :  Apart from the above there are quite a few hopes and expectations like :

  • India’s Prime Minister will speak/read less and communicate more with people. Teek Hai? !!!
  • Indians will buy less of the yellow metal and help to reduce the Current Account deficit
  • Rupee will strengthen against the dollar and come to near 50 levels
  • RBI finally cuts the interest rate at least once!
  • Indian Cricket team learns the spelling of the word “WIN” once again!  And a certain God retires from all forms of cricket!
  • Bollywood puts an end to the torture of ‘Sequel’!  Kamalhaasan acts in a movie without make up and Rajnikant well at least appears in a movie in my time!
  • Fewer politicians suffer from foot’n mouth disease !!!
  • ,…
  • ,…

The wish list is certainly long. And may get longer as I get older. I can hear you saying “If only wishes are horses!  But I’m desperate. I don’t want to be another ‘horribilis’. I as 2013 want to end up as ‘Annus Mirabilis’.  Please help.

With that hope, here’s wishing you all a happy, successful, peaceful and healthy ME!!!”holiday 2013

The Politics of Reforms!!!

Gurcharan Das, the erstwhile head honcho of Procter & Gamble, India is not a politician.  If he was one, I wouldn’t have to struggle so much to come up with a name of one politician who has been steadfastly and consistently pro “economic reforms” in India.  The last few days, since the UPA government announced some bold economic decisions, the debating society is back and busy discussing ‘Reforms’.   We had the normally reticent Prime Minister Dr. Manmohan Singh addressing the nation with an aim to take the public into confidence on some of the tough decisions his Govt. finally took.    There he was, espousing the need for such decisions if economy has to get back to the high growth path of the recent past years.

The question is why it took so long for the Govt. to wake up when the writing was on the wall.   In India it is an ironical fact that our leaders were and are always reformers under duress.  And Governments pursue reform path only when push comes to shove.  Since 1991, the year in which liberalisation of the economy was flagged off, successive governments in the centre and the major political fronts have always flip-flopped on the question of reforms.   Switch ‘On’ the reforms when pushed to a crisis and Switch ‘Off’ if there is none – has been the approach.

During UPA-I, the economy was on a roll due to the global economic situation overheated by excessive liquidity which helped India as well.  So UPA-I was not under pressure to perform oops ‘reform’.  As the global slowdown and the effects of “no reform” hit the shores now, It is not surprising that the government (UPA-II) decided to unleash its ‘Animal spirits’ on reviving the economy.  And it is also not surprising that you have the opposition led by BJP, opposing initiatives like FDI in Multi Brand Retail or dragging its feet on GST implementation which it had championed when it was part of the ruling front.  And this seems to be the emerging pattern for any political formation – “Reform while in power when in trouble and Oppose Reform while in opposition!!!”

 Already there is a pervasive anti UPA mood in the country as depicted by surveys of late thanks to the corruption scams, high Inflation and the rudderless economy in the last 2 years.   The few decisions taken by the Govt. in the death overs ( not calling it reforms ) like diesel price hike and the opening up of Multi brand retail to foreign chains though welcome – may not yield immediate tangible results. The impact of such decisions is always felt long-term.  They will certainly help to talk up and lift the moods of the markets which are also important.  So come 2014, it is quite possible that UPA loses power and an alternate dispensation – most likely the NDA comes to power.

When that happens – we are most likely to see a ‘Deja vu’ of the UPA –II rule.  Picture this:

  • Under the false impression that UPA –II was rejected as it pursued tough economic decisions, the NDA train will chug along in the 1st 2-3 years with “no economic reform”.  The economy then goes through turmoil due to no growth impetus.  And in the 4th year the Govt. is shaken up from its dogmatic position on reforms and announces reluctantly a few reforms.
  • The Opposition – now the Congress smarting under the defeat opposes the very initiatives it took!

So the “Start – Stop” saga of economic reforms continue and we never get to experience the benefits of uninterrupted economic reforms.  A Start – Stop system may be helpful in automobile technology to save fuel but not in economic reforms.  This means that our economy will see growth in phases and then dipping into crisis for a while before picking up again. And this may potentially stop India from becoming a “Strong Developed” nation which we all aspire to see.

How do we come out of this?  Well, here is a Utopian 5 point programme:

  • Under the leadership and initiative of the President a 5 year/ 10 year/ 15 year/ 20 year milestone document for the country should be prepared.  The President should take all the major party and their leaders into confidence while arriving at these milestones. (This can be something like the formation of the constituent assembly which worked on drafting the Constitution of India post-Independence)  These milestones obviously will be related to ( preferably limit to Top 5 issues )
  1.     Poverty Alleviation
  2.     Infrastructure development
  3.     Job creation
  4.     Health
  5.     Sanitation
  6.     ,..
  7.     ,..

(I do hope that parties and their leaders will not have major disagreements in coming to a consensus on this – atleast in public)

  • Once the milestones are decided by consensus, the government of the day along with the major opposition leaders, key bureaucrats and civil society must arrive at a doable plan to achieve the milestones.   While arriving at the action plan debates and discussions can happen and a consensus must be arrived.  It is obvious that ‘for reaching’ certain milestones like infrastructure development, job creation,… ‘far-reaching’ economic reforms are essential.
  • And once a consensus is arrived on the action plan, the government of the day should be empowered to either take the legislative route or executive route to implement those decisions.
  • A regular review of the milestones and the action plans and their progress must be carried out by the incumbent President (My mantra – What gets reviewed gets done)
  • A regular and continuous report to the Aam admi by powerful communicators in the Government on the progress of the milestones.(Regular and forthright dialogue with people – a must to assuage any misconceptions)

 Important point: These milestones are by and large supposed to survive any change in the Government or even the President.  These action plans arrived at by consensus are also supposed to survive any change in the Government or the number equations in the parliament.

By this, the reforms will be given a longer rope and chances are that they will succeed without falling into the trap of the “Politics of Reforms”.    (The side benefit is that the President will no longer be playing just a ceremonial role)

For the “Politics of Reforms” to stop we need a major “Reform of Politics”.  Can this happen?

Also pls. read my earlier post : “Blame it on India Shining” on the subject of Reforms.

I look forward to hearing your comments and feedback.

The “Emerging” Mirage !

A peek into any of the corporate board rooms today across continents is more likely to show “Focus on Emerging Markets as a bullet point in their company’s strategy slides.  The reasons are understandable and more than obvious. Developed countries of yore after years of driving consumption and growth are showing fatigue and companies have no choice but to look beyond G5 to get their “G”rowth.  Depending upon the individual companies reach, the scope of “Emerging” markets may vary but it’s almost certain to have ‘Incredible India in its list. This is not surprising though.

  • A population of 1.2 bn., almost 1/6th of the world population
  • 65% of population under 35 years
  • GDP growing at 7-8 % annually in the last decade
  • Ever growing middle class population which is hungry to lap up products and services with a vengeance

The above numbers on India are mouth-watering for any head honcho hoping to take his/her business to the next orbit.  However very few are familiar with the challenges and uniqueness of doing business in India and hence unable to see thro the ‘Emerging’ mirage!

Having cut my career teeth and got my feet wet in India and also having been exposed to doing business in other countries, I’m of the view that India is one of the most complicated and toughest countries to do business and survive and here are some of the reasons why:

  • Though India is one country, it is in fact many countries within a country
    • Every 300 kms. the speaking dialect changes, the food habits and tastes vary and more importantly the taxes govt. charge gets different!
    • As you travel within the country, the cultures are different, different people types emerge
    • There is one New year ( 1st Jan ) as per English Calendar and you have the several regional / local New years spread throughout the year  so much so that many foreign companies having subsidiaries in India are bewildered that they have to follow different holiday calendars for their different branches! ( Even in China there is only 1 lunar New year )
  • The tax structure is never straight forward and is full of complications.  For example for IT peripherals – though the basic customs duty is 0% (India being a signatory of the WTO Trade treaty), the effective duty could be as high as 15 – 20 %!  There are other duties and levies like CVD (Counter veiling duty), SAD (Special Additional duty), CESS on CVD, Higher education CESS on CVD, Customs educational CESS, and Customs higher educational CESS!  The cascading sad story doesn’t end here.
  •  On the same product you pay taxes while producing, pay taxes while moving the goods from one state to another and pay taxes while selling!  If you are a salaried employee, your income which is used for buying such products is already taxed mind you!   So much taxing of the brain isn’t it?
  • Due to federal structure the above taxation rates and structure can be different from state to state.
  • The prevailing legal system in India is supposed to be strong and fair. But everybody in India knows that taking legal recourse is the last resort for settling business disputes.  Considering the time taken to settle disputes in courts companies give up or try to settle them out of court at higher costs.
  • In 1991, India got its 2nd independence i.e. freedom from the license/permit Raj and the country started warming itself to foreign investments.  However reform has become such a bad word today that there has been no re-run of the reforms since then!
  • Add to this, one cannot ignore the Govt’s  recent bungle like deciding to retrospectively change the law allowing it to tax indirect transfers of Indian assets through deals struck overseas
  • Govt.  Policies can be so very unstable that a successful policy initiative undertaken by one regime could become a monstrous scam in the next regime.  The telecom policy turnarounds are a good example of the same.  While the Uninors and the Videocons wind up their mobile business, there have been 1000’s of hapless youngsters who have lost their jobs in the process.
  • Dealing with Govt. agencies to get business done could be a nightmare and I need 100 blog posts to just explain some of the complexities.  The general impression is that the procedures/rules have all been kept deliberately complicated so that they are subject to convenient interpretations.

So any foreign company contemplating to ride into this Emerging market bandwagon may be in for some real shock and awe!

If the environment is so hostile for doing business, how’s that many of the Indian companies manage to do business and also grow and that too for years?

  • They have managers in their ranks who have it in them what I call as the “Indian Instincts of Management” which enable them to precisely think in such adverse conditions
  • Most of the companies over a period of time have developed a core competency mandatory for doing business in India which was famously called as “Managing the Environment” by Dhirubhai Hirachand Ambani (so we hear)

So if a foreign company wants to emerge successful in India it is not impossible if it can follow some simple rules:

  • Population figures, GDP numbers are all fine but the crux is business potential for your product will depend upon whether it is “essential” or it is “desirable” for the Indian consumer in terms of category.
  • Pricing strategy and requirements may completely vary depending upon if the product/service is a utility product or a lifestyle product
    • So if you conclude that you can get away with premium pricing of your highly feature rich product because Indians also are lapping up iPhones and iPads you may be in for some surprise.
    • Between value for money and lower price – lower priced products may sell more ( again could be category dependent)
  • A typical Indian consumer gives a damn to your worldwide presence.  What matters to him / her is the company’s demonstrated commitment to stay long-term in India, produce/sell quality products, provide decent after sales support and keep reinforcing that commitment
  • Between a product of Global quality (“0” defect product) and “Chinese” quality there exists an acceptable Indian quality which is – products functioning properly, not failing so often, and being serviced promptly in case of failures (I would like to believe that this is changing and more and more Indians are beginning to be more demanding. I still reckon that this is just an urban trait as of now)
  • Many of the services which involve manpower which are chargeable in other countries are expected to be “Free” in India.
  • Because of the inherent weakness in infrastructure in Indian cities, the staff productivity in India will be lower than in other countries. So better not to follow global benchmarks while planning headcount.
  • Being flexible is key to survive whether it is in Strategy, Go to Market or in planning
  • Have a solid “Indian” team to manage the business in India since for those most of the above issues are not really issues but realities of doing business in India.
  • Look at India only if you have the staying power and patience is your virtue.  For some of the reasons mentioned above even for a globally strong brand it may take a while for it to make its presence in India.

The above list may not be exhaustive. The bottom line is “In India – think like an Indian” which is to in short “Expect the Unexpected” and prepare yourself for the Incredible Indian Experience. Welcome to jugaad.in!

Post Script:

For its signature edition (next day of budget) Economic Times commissioned the biggest names in Advertising like Piyush Pandey, R.Balki, Prasoon Joshi, Joshy Paul,..to create ads on how they see India in the midst of a global slowdown.   For the same, Balki created this ad and I liked it the most and would like to share. He commented on the ad thus :

“It’s not in any brief for an ad agency to tell the client to change the product. But modern India is a ‘product’ that could do well with some change. The ad highlights the necessity as well as the opportunity to change India— to make it the real Incredible India”