Posted by: John Elliott | October 27, 2010

Planning of Obama’s India visit looks like a Kalmadi “monsoon wedding”

It looks as though Washington has the sort of Monsoon Wedding last-minute event management that India displayed with just-in-time results on Delhi’s recent Commonwealth Games.

In just ten days time, President Barack Obama will arrive in India for a three-day visit, but no-one involved seems able or willing to say officially, or even semi-officially, where exactly he is going, nor more importantly precisely what he hopes to achieve. The word from Washington is that officials there have only just started drawing up a “wish list” for the White House.

[[Oct 28: The White House has announced details of the trip – click here for brief report and click here for White House press briefing.]]

Indeed the White House seems to be behaving so much like the India’s procrastinating Commonwealth Games’ organising committee that despairing US diplomats in New Delhi have begun talking to journalists about the visit (albeit anonymously), without waiting for firm or final steers from Washington.

But what they are saying lacks detail, especially on the substance of the trip, and is indeed in tune with lines taken by Suresh Kalmadi, the games chief organiser, that it will all be marvellous when it happens.

The next ‘big thing’

In the last couple of days I’ve heard a very senior official say that the “next big thing” in the two countries’ relationship is to “deepen and broaden” the closeness that was achieved by President George W. Bush with his deal that opened up India’s nuclear power industry to international high technology. Wow!

Another official used a very broad brush to talk about co-operation on anti-terrorism and Afghanistan, while the lack of progress on defence deals led another to say that defence co-operation was based on people exchanges as well as equipment purchases.  Wow again!

Yet another official, faced with questions on the two countries’ sensitivities on trade and investment, ducked out by saying the aim was how to take the talents of people, universities and business to develop the relationship. Wow again, new wording on an old theme!

So what has gone so wrong with the run-up to the visit that it makes the invasion last July by Britain’s David Cameron, accompanied by an unprecedented troop of cabinet ministers, look a raging diplomatic success?

Basically it seems to be the fault of Obama’s advisers, who have insisted on an information blackout that has allowed mostly negative stories to circulate, focussing on what Obama will not be doing instead of what he will.

The officials seem to be terrified that what is planned for India will worsen Obama’s dismal prospects in America’s Congressional elections next week. In short, Obama is a president in decline and is more concerned, inevitably, with what happens in the US next month than how India sees his visit.

Rejected destinations

So he is not going to Hyderabad or Bangalore, India’s high tech capitals that were eagerly visited by Clinton and Bush, for fear of being seen back home admiring call centres and  the other information technology outsourcing that is stealing US jobs.

He isn’t going to Amritsar, the capital of the Sikh religion, because his advisers didn’t want him to look to Americans at home like a Muslim when he covered his head on a visit to the Sikhs’ holiest shrine, the magnificent Golden Temple. A survey has shown that 17% of Americans think Obama is a Muslim –  and that, in an age of terrorism, is not an electoral plus. (Actually, there was no real reason for him to go to Amritsar, but he was persuaded to do so by Sant Singh Chatwal, a Sikh hotelier in the US who has thrived on his closeness to the Clintons and other Democrat leaders.)

Obama has also reportedly decided against going to the India-Pakistan border at Wagah near Amritsar because of the risk that, in a speech on South Asian peace, he would have upset one or both of the two countries, probably over the disputed territory of Kashmir.

There are even reports that businessmen attending functions in Mumbai, where he starts his visit, are having to fill in questionnaires declaring their trade and investment links with the US. If true, that’s presumably so that those with sensitive businesses such as outsourcing can be kept away from the front line of  introductions. In Mumbai he is staying at the old Taj hotel, which was disastrously attacked by terrorists in November 2008.

Obama does of course start off a big disadvantage compared with Bush, whose popularity in India was only matched by his unpopularity in most other countries. Bush clearly loved India, and his visit was a triumphant mix of substance, built around the nuclear deal, and big-event stage management. Earlier visits by Bill Clinton were successes – those who watched him were impressed by his showmanship, and those who met him by his focus and apparent sincerity.

Obama seems from a distance to have neither’s easy charm, nor their fascination with India. It also looks unlikely that the sort of big-ticket items that the US would like will be forthcoming.

Few deals

Little progress is expected on big defence deals and agreements. American would love to bully its way into an $11bn contract for 126 multi-role combat fighter jets against competition from Europe and Russia, but it’s a least a year too early for that, and France’s president Nicolas Sarkozy and Russia’s prime minister Demetri Medvedev are both visiting later this year with similar ambitions. Two key defence agreements on co-operation for logistics support and communications, which the US has been pushing for a long time, are not ready because India does not want to be subject to close Pentagon surveillance.
 
Obama is expected to seal a $3.5bn contract for ten Boeing C-17 transport aircraft, but that has been in the works for a long time. He can also extol recent contracts for Boeing’s long-range maritime reconnaissance aircraft and a $2.1bn order for P-81 maritime reconnaissance aircraft. These contracts mark a significant shift towards America in India’s defence purchasing. They are the result of Bush’s nuclear deal – and Russia, India’s other big defence supplier, has also been doing well recently. 

A deal on dual-use high tech trade sanctions might be signed, which will help India, and there will also be deals and significant discussions in other areas, notably clean energy including shale gas, agriculture, food security, and legislation making foreign nuclear industry suppliers liable to accident damage claims  (India signed an international treaty on this today in Vienna).

In more secret talks, there will be India and America’s concerns about China’s growing role in the world, how that links with US support for Pakistan, and the future of Afghanistan. 

The US has been pressing India to relax its foreign direct investment (FDI) restrictions on multi-brand retail (jargon for supermarkets), insurance, and defence manufacturing. Wal-Mart’s top executives are in Delhi this week lobbying on retail, and are backed by some sections of the Indian government, including the sometimes-influential Planning Commission. But there are powerful vested Indian interests against any move on retail FDI, as there are on insurance and defence.

So let’s see how the visit pans out. It is clear that the public relations approach is partly to play down expectations so that what does happen looks significant rather than the reverse. And none of the current uncertainties reduces the importance of the developing and strong India-US relationship.

The fact that the American president is visiting will of course, barring slip-ups, create a momentum of its own, once he arrives. That will mostly silence the critics – just as the razamataz of an Indian wedding silences the in-laws and leads to a great tamasha.

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Posted by: John Elliott | October 17, 2010

It’s Dussehra!

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It’s the festival of Dussehra and I’ve just been to watch a huge effigy of Ravana going up in flames in Golf Links where I live in central Delhi – here are some pictures.

This is the start of a festive season that leads on to Divali, the festival of lights, which this year is on November 5. 

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Tonight, there have been fireworks displays, ending with a ceremonial burning of effigies celebrating Ravana’s defeat by King Rama. Ravana was a rival king, who had abducted Rama’s wife Sita to what is now Sri Lanka – signifying victory over hubris and ego, as I explained  in a post three years ago for some foreign visitors to Delhi when this blog appeared on the Fortune magazine website.

In the days before Dussehra, scenes from the ancient Ramayana epic have been enacted across India, especially in the north where every city has a large park area known as a Ramlila Ground.

 

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Posted by: John Elliott | October 15, 2010

The games end well – in a week of other incredible India scams

So the Commonwealth Games are over, finishing on a high at a closing ceremony last night. This colourfully marked the end of the games’ eleven increasingly good days as a stumbling administration got its act together, and Delhi people realised there were splendid events worth watching and gradually filled the initially very empty stands.

I went to the games on Tuesday – to a marvellous afternoon of sevens rugby at a Delhi University ground (below). There weren’t any tickets officially available, and I guess it’s better if I don’t say who sold me mine near the gate when I arrived there – but I only paid the standard Rs250 (about $5.50) for a ticket marked ‘complimentary’. The stands were at least one-third empty, but young Indian spectators along with expatriates roared their approval as New Zealand’s All Blacks won gold in the final against Australia.

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But what is it that makes India spoil such internationally significant successes? I’m prompted on this thought partly by the end of the games, which could have been so much better, and also by two other events this week.

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There has been a fresh crisis in the spectacularly successful though scam-ridden IPL private sector cricket league, and an appalling display of corrupt self-serving mis-governance by unruly politicians in Karnataka, whose state capital of Bangalore (now  Bengaluru) used to be seen internationally as the centre of modern Indian excellence.

The latest Outlook magazine [Oct 17] has a cover story (left) suggesting Karnataka is India’s most corrupt state, “Every government is more corrupt than the last” says an official investigator, Justice N.Santosh Hegde.

It is not enough simply to dismiss these three examples, as some foreign commentators do, by simply saying it is all because of India’s way of doing things. The problems run deeper in society than that. It is of course partly a lack of managerial focus and, in the case of the games, the unwillingness or inability of professional experts to challenge the often corrupt dominance of self-serving top officials and politicians. That then links with the over-riding drive of greed and corruption that bedevils progress in India.

It is now unfashionable to criticise the Commonwealth Games. The mood in India is upbeat because the country came second to Australia with 38 gold medals, just beating England,  and won a total of 101 including silver and bronze.

But at least four official investigations are now being started by government agencies, with reports of over 30 cases of alleged corruption being examined, so it remains to be seen how many of those responsible for massive mis-use of public funds (budgets exceeded $6bn) are caught and punished. Those in charge obviously hope to use the current euphoria to sweep away memories of the bribes and disasters, but politicians of non-government parties are unlikely to let this happen.

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Some of those involved are mounting public relations offensives to rescue their reputations – led by Sheila Dikshit, Delhi’s chief minister (left) who presided ineffectually over much of the chaos in the city, and Suresh Kalmadi, (below) head of the Commonwealth Games Organising Committee who is a primary target for the investigators. Dikshit’s state government and its agencies had a $3.5bn budget that was enormously bigger than Kalmadi’s and vastly over-spent. 

The games could have been so much better if only those involved had managed them well and not indulged in such all-pervasive corruption that delayed contracts and projects and led to massive cost over-runs. That would have then avoided the last minute completions and allowed time for all the facilities to be tested before the games opened. Most of the glitches such as problems with ticket sales, security equipment, food in the venues, and poor transport faculties, would have been avoided.

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Then there is the India Premier League (IPL) cricket league with its fast-paced Twenty-20 cricket matches, which as I wrote in April, must go down in history as India’s most popular and celebrated scam.

The league’s April crisis uncovered all sorts of shady investments and linkages and led to the ousting of Lalit Modi, who ran the league and is now reportedly evading arrest in the UK.

This week’s news is that the BCCI, India’s national cricket board, which itself has for years mired in murky politics and corruption, has unilaterally suspended two teams, the Rajasthan Royals and Kings XI Punjab, because of unclear foreign shareholdings. Some investors involved suggest this could spell the end of the league, but whether it does or not, the BCCI’s decision smacks of vindictiveness and what, in other areas, would be called insider dealing.

Karnataka blight

But perhaps the saddest event is the political crisis in Karnataka where regional politicians have been trying to unseat the Bharatiya Janata Party (BJP) state government’s chief minister.

They are not doing so because of any policy differences, but simply because of business-based rivalries, particularly involving scams in the state’s rich mining industry that surfaced last year and centre on the Reddy family of businessmen-politicians. Two brothers, Janardhana and Somashekara Reddy (below), who have been state government ministers and have become enormously rich in a decade with their  Obulapuram Mining company, are at the centre of the crisis.

Outlook magazine lists current state government ministers who have been involved in illegal mining, land scams and other crimes including rape.

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Karnataka used to be one of India’s most successful states, initially setting trends for social and education development in the early decades of independence.

Then its capital, Bangalore, grew in the 1970s around the success of public sector engineering companies such  as Bharat Heavy Earth Movers, Hindustan Machine Tools, Bharat Heavy Electricals, and others. In the 1980s and 1990s it emerged as India’s first internationally famous centre of technological excellence, spearheading the development of information technology, and spawning firms such as Infosys and Wipro as well as hosting foreign companies like Texas Instruments.

 When I first visited India in 1982 as the FT’s industrial editor, Bangalore was the first city I visited and it remained a source for good positive stories into the 1990s.

But the rot had already set in, with political corruption growing from the 1980s as the city boomed, boosting real estate development and the price of land. A dramatic change was evident in 2005 when I went back to look at infrastructure projects. These included an airport and highway that had been delayed partly by rival politicians making huge profits from land speculation. Deve Gowda, a former Karnataka chief minister who had briefly been India’s prime minister in the mid-1990s, was in the lead at the time, just as the current chief minister, B S Yediyurappa, and his family are now.

Now it is iron ore and other mining that could be making the state rich, but instead is pulling it down into greed and corruption-based politics, while the information technology and other industries that initially made Karnataka a success expand elsewhere, and the poor remain poor.

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Posted by: John Elliott | October 4, 2010

Kalmadi booed at Games’ opening for non-delivery not corruption

The boos, the cheers, and then the huge response to the thrills of last night’s brilliant gala opening of the Commonwealth Games in Delhi said it all. The message surely was that the past few weeks have been hideous, but let’s now greet what is good and enjoy the splendour of Delhi’s mega international sports event.

Boos, plus jeers and whistles, broke out twice against Suresh Kalmadi, head of the Commonwealth Games Organising Committee. He was not however being booed for corruption. The noise, which took everyone by surprise, reflected the pent up anger and frustration of Delhi-ites who see this blustering responsibility-dodging part-time politician as the focal point for failures that have blackened India’s international image in recent weeks.

If Kalmadi had delivered, and the misery had been avoided, he would not be the unpopular character he has now become. His corruption would not have been highlighted, and he would not have been booed.

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The biggest cheers from the 60,000 audience were for the Indian and Pakistani athletes when they paraded into the arena and for A.P.J.Abdul Kalam, a mildly eccentric boffin who was India’s last and hugely popular president.

The best picture on television, aside from the spectacle, was of Prince Charles, who was there to open the games.

Reuters photo

He stared sideways (right) at Kalmadi as the boos built up, with a long quizzical look that said “so how are you going to fix this one?”. (The answer emerged today when Kalmadi told a tv reporter he didn’t hear the boos).

There have been some criticisms in Delhi today that most of the displays were little more than India has put on in the past, and that the show looked far neater on television than it did on the ground; but to dismiss the success so roughly would be churlish. You can’t change India’s traditional dances and ceremonies but you can portray them on a new and massive scale, which was done last night.

Hovering above the stadium was the huge aerostat helium balloon (above) , with a constant change of pictures around its rim, which added high tech glamour.

The other good news was that a section of the Delhi Metro serving the Jawaharlal Nehru Stadium, where the opening took place, was opened earlier in the day. It was another example of India’s chaotic ability to fix things at the last minute, and it worked. I travelled on the line yesterday afternoon and, though the stations were still littered with builders’ debris and there were hold-ups because of signalling problems, literally thousands of people (below) were using the trains to get to the opening.

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Getting to and from the games however was difficult and took hours. I watched on television, but a friend who was there has told me about getting there “through swampy unfinished gardens, passing over a pungent gush of sewage and wading through discarded plastic bags“. There was  an “abandonment of attempts at crowd control” plus “broken steps, streaked and scruffy (often empty) private rooms, not enough garbage bins – and yes, filthy toilets”.

Kalmadi (below) is rightly being blamed for most of these and many other problems that have plagued the run-up to the 11-day event, including late completion of facilities and filthy conditions at the games village flats.

He has had a notoriously corrupt reputation for years and there have been many reports of jobs being given to relatives and friends. Yesterday’s boos stemmed from the fact that he and his friends have not delivered and that, as the pressure mounted in recent weeks, he has tried to walk away from problems.

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But he and his committee have only been responsibly for a fraction of the Rs30,000- crore ($6.6bn) or more that some estimates suggest have been spent preparing for the games (not of course including the metro railway).

The rest has been spent by five or six other authorities, mostly involved in running Delhi. These authorities, not Kalmadi, were responsible for building and renovating venues and many other works and involved massive corruption and delays. One of them for example is responsible for the footbridge that collapsed two weeks ago (and was quickly replaced by an army bridge).

The basic problem is that there have been too many people nominally in charge, with no real top-down co-ordination and leadership. Those responsible include Sheila Dikshit, Delhi’s chief minister (who received loud applause last night), Jaipal Reddy, Minister for Urban Development, and M.S.Gill, Minister for Sports – none of whom have the calibre or authority to lead such a mega event.

On top of all that, Manmohan Singh, the prime minister, and the Prime Minister’s Office (PMO) should have taken an early lead, but he has played his usual role of standing back from the fray and the PMO lacks punch. They should have been encouraged to step in by Sonia Gandhi, leader of the governing coalition and Congress party. As I pointed out on this the blog in July, her late husband Rajiv Gandhi took charge of Delhi’s 1982 Asian Games but she and her son Rahul have not deigned to become involved.

So as we watch the games unfolding, and having enjoyed watching Kalmadi being booed last night, let’s remember that responsibility for the faults that led to the crisis goes right to the top of the government and coalition.

It would be a pity if Kalmadi is the only person to be pilloried after the games. But, having watched a little how India works, I doubt if anyone else signficant will be  nailed. Long term lessons about accountability, management and performance, are unlikely to learned.

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Posted by: John Elliott | October 3, 2010

Ambani & Sons – revived from the Polyester Prince they pulped

There are several ways for an author to measure the success of a book, the most obvious being reviews, circulation, and royalties. Three others apply to The Polyester Prince, Hamish McDonald’s first book on Reliance, one of India’s two biggest groups, which was published in Australia in 1998, but not in India because of intense legal and other pressure from the Ambani family that controls the group.

Firstly, the non-appearance of the book in India boosted its value to such an extent that five copies are currently on sale on Amazon.com for between an astonishing $350 and $999, and two are on Amazon.co.uk for £250 and nearly £800. The book was originally priced in Australia at Aus$29.95.

Secondly, a scruffy and badly printed pirated version has been on sale for the last couple of years on the streets of Mumbai and Delhi (for around Rs300).

Thirdly, the first book and its subject have been regarded important enough for Mr McDonald to have written, and found an eager Indian publisher (as well as one in Australia), for this second work Ambani & Sons, which includes 16 of the original chapters plus six more (and a short epilogue) that bring the story more or less up to date.

This is a significant book because it details the controversies when Reliance Industries (RIL) was being built up by Dhirubhai Ambani, the founder who died in 2002. Unlike most other Indian businessmen, who prospered mainly by manipulating the country’s pre-1991 economic controls, he combined ruthless fixing of government decisions with strong and effective management.

Pramod Kapur of Roli Books, the publisher of Ambani & Sons, persuaded Mr McDonald to sanitise parts of the book by removing or trimming some controversial passages from The Polyester Prince. Many of them however still appear in a new Australian edition, Mahabharata in Polyester.

An alleged physical attack on Tina, a film star whose pending  marriage to Anil Ambani, Dhirubhai’s younger son was being opposed by the Ambani family, has gone from the introductory chapter, along with an attempted murder allegation (though the latter appears later).

Several references to the Gandhi family and their acolytes and senior ministers (including Pranab Mukherjee, now finance minister) have been toned down or deleted, along with reference to a “parting gift” given in March 1977 by the then prime minister Indira Gandhi. Just before a general election (that she lost), she exempted polyester yarn (a major Reliance input) from import duties, giving “a gift of Rs37.5m to Dhirubhai”.

Hamish McDonald

The most disappointing deletion is how Mr McDonald started work on The Polyester Prince but, after some initial co-operation, was blocked by Reliance and eventually received legal warnings –culminating in the Indian edition being abandoned by Harper Collins, the publisher.

But this does not detract from the value of Ambani & Sons. The book successfully chronicles the rise and rise of the Ambani’s both in terms of huge commercial success, and in terms of how government was suborned and policies bent, stock markets manipulated, competitors unethically harassed and undermined, opponents pursued with vendettas, and business partners and suppliers treated roughly. Politicians, bureaucrats, editors, journalists and others were corrupted and used to achieve monopoly or dominant market share at the expense of competitors.

The book’s new section reports that this is continued by Dhirubhai’s two sons, Mukesh and Anil, in the separate businesses (RIL and R-ADAG) that they run following their very public spats and eventual split five years ago. The book cites manipulating government officials and decisions on land for special economic zones and a seaport, and on other project approvals, plus possibly illicit use of some land in Mumbai where Mukesh Ambani, India’s richest man (worth $27bn), and his wife Nita are building an outrageously ostentatious multi-storey home.

The early years are chronicled in detail because Mr McDonald was in India for part of the time as the correspondent for the Far East Economic Review. Now living in Australia, he has inevitably had to be more broad brush with the new chapters.

There could for example have been more study of Reliance fixing government policy on mobile telephony, and the broader significance of the Ambani-sponsored Delhi-based Observer Research Foundation which, as the book says, cultivates influential figures such as Brajesh Mishra who ran the prime minister’s office and much else in the 1998-2004 Bharatiya Janata Party (BJP) government.

 There is little mention of Anil Ambani’s financial inventiveness and controversial stock market flotations, nor analysis of the significance of Mukesh Ambani’s problems with ventures in retail shops and stores, petrol stations, farm produce and special economic zones. Would Dhirubhai have allowed such calamities to develop, or were they inevitable when Mukesh Ambani moved out of RIL’s core areas, and in a changed economic era? Certainly the problems show that Mukesh Ambani’s clout has limitations.

The rights and wrong of doing business Ambani-style are still being debated. As the book mentions, some argue (amazingly) that busting government regulations, such as India’s old economic controls, is justifiable if they were bad regulations and were subsequently changed. That is an argument controversially put forward by Arun Shourie, a writer and former BJP minister, at a meeting to commemorate the first anniversary of Dhirubhai’s death.

But whatever the moral judgments, there is no doubt that the brothers – especially Mukesh Ambani – are emerging from the past in terms of image, and are being accepted internationally at the top table of business and government.  Perhaps to underpin that, Mukesh Ambani is rumoured to be writing his own book focussing on his father’s achievements

It is noteworthy that he has just been chosen by P.R.S. ‘Biki’ Oberoi as a white knight and 14.8% investor in East India Hotels (EIH), which runs the hotel chain and needs both cash for expansion and a guarantee of a long-term future. The Ambanis have not been seen in the past as reliable or comfortable joint venture partners, so this will be watched as a test case, as is a joint venture struck two years ago with Marks & Spencer, a British store group that nominally has control with a 51% equity stake.

And the Ambanis have not tried to stop publication of Ambani & Sons –  indicating perhaps a new level of maturity as well as acceptance.

* Ambani & Sons – The making of the world’s richest brothers and their feud by Hamish McDonald, Publisher: Roli Books, New Delhi

* Mahabharata in Polyester – The making of the world’s richest brothers and their feud by Hamish McDonald, Publisher: New South (University of New South Wales Press), Sydney

This book review also appears today in a slightly shorter form in the Mail on Sunday, a Delhi newspaper – http://epaper.mailtoday.in

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Posted by: John Elliott | September 27, 2010

Reliance and Oberoi – an unlikely duo for India’s best hotels

Is Mukesh Ambani, one of India’s top entrepreneurial businessmen, reaching a new level of acceptance and respectability that will gradually subsume the more negative aspects of his family’s Reliance group history?

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The question stems from two recent events. The most important is Mr Ambani (left) being picked as a cash-rich and apparently benevolent financial partner by P.R.S. ‘Biki’ Oberoi (below). At the age of 81, Mr Oberoi controls and personally runs India’s best hotel group of the same name with the vision and energy of someone half his age, but he needs outside support to keep up the momentum and plan for the future.

“He will be a strategic investor,” Mr Oberoi told me over the weekend when I asked him about Mr Ambani’s role following the Oberoi family’s recent sale to Reliance Industries’ (RIL) of a 14.2% stake in East India Hotels (EIH), the Oberoi parent company.

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“He has financial strength and contacts and can help us in many ways, especially with our international expansion. I’ll be meeting him soon to discuss this”.
 
The second event is the publication last week of Ambani & Sons*, by foreign correspondent Hamish McDonald, that traces the group’s history from its founding by Mukesh’s late father, Dhirubhai. The significance is that when Mr McDonald’s first book on the family, The Polyester Prince, was published in 1998, the family forced cancellation of the Indian edition. The new book includes 16 marginally sanitised chapters from 1998 plus more recent history, yet Mukesh and his younger (and estranged) brother Anil are turning a blind eye. This seems to indicate that they feel they have grown to such a level of acceptability that they do not need to try to bury and silence uncomfortable history.

The Oberoi Mumbai

Mr Oberoi has for many years been looking for a way to secure the future of his hotel group. His son Vikram and nephew Arjun are both top executives and board members, but are not seen as long-term successors. He therefore needs to plan for future control, management and family wealth – a problem faced generationally by all family-controlled businesses.

Mr Oberoi also has a more immediate ambition to find funds that will enable him to expand the Oberoi brand abroad. He told me that he would like to start hotels in London, Paris, New York, Shanghai and Singapore – home cities for the group’s India guests. Currently there are only six Oberoi hotels abroad – in Egypt, Saudi Arabia, Mauritius and Indonesia.

Mr Ambani can meet that need because Reliance is cash rich, generating more than $5bn funds a year. His current Rs1,000 crore ($220m) investment in EIH is, as one analyst put it to me, “just 15 days of cash”. So he could easily afford to a few more days’ cash to help set up some hotels.

The bigger question is whether this means that, sometime in the future, Oberoi hotels will be controlled and run by Mr Ambani. The answer, though no-one is saying it now, seems to be ‘yes’. It does look as though Mr Oberoi has chosen Mr Ambani not only to support him and let him run the hotels himself for the foreseeable future, but also as the businessman most likely to sustain and build the brand in the longer term.

Mr Ambani would not be making this investment simply as a white knight, though Mr Oberoi did need one to ward off unwelcome advances from the ITC, the Indian cigarettes-to-hotels group that owns 14.98% in EIH and might have had its eye on some of the family stakes.

Oberoi Udaivilas in Udaipur

He wants to get into the Indian services and consumerism sector, where RIL has no in-house professional expertise and no significant stakes apart from retail shops and stores. Buying into a top well-managed brand like Oberoi is exactly what RIL needs – and being chosen by Mr Oberoi enormously boosts the Ambani image.

Till now Mukesh Ambani he and younger brother Anil (who runs a separate group, Reliance-ADAG) have not been seen as wise choices for companies seeking joint ventures and investment partners in India. There was surprise two years ago when Marks & Spencer agreed a joint venture for stores, even though it secured nominal control with a 51% stake.

Mr Ambani will now have to be on his best behaviour because the business world will be watching. He is most unlikely to throw his weight around. RIL and EIH will probably each buy their full allocations of a planned $288m rights issue, leaving RIL with almost 15% and EIH with 32% (or slightly more if it mops up some surplus).

A report in the Business Standard that two EIH companies are to be formed, one controlled by RIL for the Oberoi assets, and the other running the hotels and controlled by Mr Oberoi, looks highly improbable, given RIL’s minority stake. “Absolute speculation,” Mr Oberoi told me, adding “We have never thought of it” when I pointed out that saying “absolute speculation” to a journalist usually means “yes”.

There have been reports that Nita Ambani, Mukesh’s wife, might join the EIH board at some stage. It would be logical for Mr Oberoi to invite someone from Reliance, now it has a strategic stake, and she would be the logical choice. Whether she’d be made vice chairman, which the Business Standard also suggested, is I sense probably a long way off.

All this is the story as the two sides would I guess, from their different vantage points, like it to be seen. [added October 8:  ITC it seems might have different ideas. It says it is keeping its stake. Gossip in Kolkata, where ITC is headquartered, suggests the company might be hoping for an eventual bidding war against Reliance]

Mr Oberoi gets what he needs in terms of control, management, and wealth because he stays in control and will continue managing the business, but now has a partner who could move into control much later and provide for family wealth by buying any available stakes, thus warding off predators.

Mr Ambani gets a fabulous brand and potentially added respectability, as well as the fun of opening up another competitive front with the Tata group that controls the bigger but less suave Taj hotel group.

Such partnerships do not however always lead to harmony. Both Mr Oberoi and Mr Ambani are famous for the single-minded personal determination with which they run their highly successful but very different businesses. It may be a marriage made in heaven, but whether it is or not, it will certainly be worth watching.

*My review of Ambani & Sons is on a later post – http://wp.me/pieST-14M

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Posted in Ambanis, Anil Ambani, India, India hotels, Mukesh Ambani, Tata | Tags: , , , , , , , , , , , , , , , , , , , , , , ,

Posted by: John Elliott | September 21, 2010

Are the Commonwealth Games falling apart – bridge collapses and village condemned

India is famously a country of contradictions where one can safely say that everything and its opposite is true. Rarely can that have been more evident than it is today, with India’s poor reputation for inefficiency, bad governance, shoddy work and corruption being demonstrated by international rejection of conditions at the Commonwealth Games village, just 13 days before the games are due to begin with 8,000 athletes – and by the collapse of a new steel arch footbridge at the main Nehru Stadium’s car park, injuring more than 20 people.

At exactly the time that this news was breaking, the stock market’s main Mumbai index breached 20,000 for the first time since January 2008, and it was reported that a US-based think tank has rated India the third most powerful country in the world after the US and China.

“Indian mujahideen issue a warning & despite that, stock markets climb to new highs. Indian resilience continues to astonish,” wrote Anand Mahindra, a leading and ever-optimistic industrialist (on Twitter), taking another slant by referring to the terrorist shooting of two Taiwanese in Old Delhi on Sunday.

The collapse of the footbridge is presumably (it is too soon to be sure) a result of India’s shoddy workmanship, especially in construction. There have been many reports in recent months of poor work at various venues, with parts of structures and finishes collapsing, and there has been a real fear that there could be a construction failure during the games.

My last piece on this blog was a spoof on the situation in India, as if I was visiting another country. But today’s contradictions beat my tale because here we see India’s huge commercial and international success and importance clashing with the corrupt governance and muddled indolent administration that has led to the disastrous run-up to the games.

This has ruined what was supposed to be a showcase event that would pitch India alongside China following the spectacular Olympics last year, and a month before the Asian Games in southern China in November.

Responding to the spoof, an old contact wrote from his retirement hideaway in the Himalayan foothills that “we have muddled through for sixty years and remain one nation in spite of the fissiparous pressures from within and without.” I emailed him a reply saying, “come down from the hills and drive round Delhi as I have this afternoon and see the mess that ‘muddling through’ has created!”

The mess in Delhi is indeed appalling with sidewalks and markets partially dug up, sports venues uncompleted, decorative placards being vandalised, and condemnation of the conditions at the games village that was opened with much self-congratulation last week, and the bridge collapse.

The bridge that collapsed today is one of a pair being built across parking areas and access roads near the main Nehru Stadium. The second bridge is only half built, so both were way behind schedule.

Anti-mosquito spraying by games village (Getty Images)

The city is being hit not just by threats of terrorism, demonstrated by Sunday’s attack, but also by the heaviest monsoon rains and floods for 30 years. Those rains, and pools of water on open construction sites, have led to a serious plague of mosquito-spread dengue fever – vividly illustrated last week by the FT’s Delhi bureau chief whose children became ill.

It is indeed beginning to look as if India’s ability to “muddle through” is collapsing. The government is of course not responsible for the rains, but it can be faulted for agreeing to hold them at the end of the monsoon season. “No worry, we’ll muddle through,” the politicians and bureaucrats no doubt said when they were bidding for the games to come to Delhi.

The authorities can also be blamed for not providing adequate drainage, and for ludicrously digging up huge swathes of Delhi’s roads, side-walks and markets  for beautifying “street scaping”, which has been an unmitigated disaster. Scarcely any completed area looks better than it did before, some are worse, and much is unfinished. “No worry, we’ll muddle through,” the politicians and bureaucrats no doubt said, as they eagerly collected contractors’ hefty kickbacks, with the prospect of more rewards when remedial digging begins after the games.

an excellent new state-of-the-art multi-purpose stadium – for netball in the games

Some of the venues are excellent – I saw three of them last week – but the authorities are responsible for the corruption and general mismanagement of the games’ facilities. “No worry, we’ll muddle through and not get caught,” the politicians and bureaucrats no doubt said.

And they are still saying it today, in slightly different words, after being lambasted over conditions in many of the games village’s 34 residential blocks by foreign teams, led by New Zealand and Scotland, and by the Commonwealth Games Federation.

England has also said that, though some general areas in the village are good,  the quarters it was offered were just not acceptable – some were flooded by monsoon rains.

Mike Hooper, the federation’s ceo, said that many of the residential towers were “filthy and uninhabitable”, a point echoed by others.

The problem is that the flats are either incomplete, or suffer from new buildings’ usual electrical, plumbing and woodwork snags, or have quickly become dilapidated. Bedrooms and bathrooms have not been cleaned after being invaded by construction workers (and stray dogs) seeking refuge in torrential rain from their own grossly inadequate labour camps.

Hooper said the village had the potential to be the best ever provided for the games, but some blocks were “so filthy you can’t occupy them”. The Scottish team said when it arrived that its flats were “unsafe and unfit for human habitation”.

“Are the Commonwealth Games falling apart,” asked a tv channel this evening. It’s a good question.

Would it be better for India if they were postponed, rather than the competitors having to face the problems of incomplete facilities, potentially dangerous construction, terrorism threats, incessant rain and flooding, and dengue fever?

It would probably only take one leading country to withdraw to create a landslide exit. Will that happen? India could blame the rains and terrorism. Or will everyone continue to suffer and muddle through for the next two weeks, and then for the ten days of the games?

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Posted in India, India corruption, India infrastructure, India politicians, India sport | Tags: , , , , , , , , , , , , , ,

Posted by: John Elliott | September 10, 2010

India as it is – a spoof eye view

“Imagine we’re sitting in, let’s say, a large country somewhere else in the world (other than India) that is attracting lots of foreign investment attention and plaudits for its emergence on the world’s economic and diplomatic scene. We’re on our first visit, and haven’t had time to learn much before we came – and now we’re wondering why we’re here.”

That’s how I started a talk at a dinner last night, when I had just got back to Delhi after six weeks away, observing India and all its troubles and contradictions from afar. Here’s what I said:

“ We’ve only been here a day or two, and already we’ve discovered that a quarter of the country we are visiting is controlled by left-wing rebels bent on gradually decimating democratic rule and established government structures as we know them. There is also occasional devastating religious terrorism by opposing faiths, plus a province in the north that is on the brink of its second foreign-backed insurgency.

There are two tiresome neighbours, one riven with religious-based terrorism that its extremists want to export. The other far bigger neighbour is a long-term threat, and has for years been encouraging the smaller neighbour to do its worst. The larger neighbour, by the way, is thought to be planting bugs in the country’s telecoms (and probably also defence) software systems, but our hosts don’t seem too worried.

We can’t travel very much round the capital because most roads and markets have been dug up by corrupt contractors feeding the greediness of municipal politicians and bureaucrats.

The prime minister is a nice well-meaning elderly guy, but he’s run by a foreign-born lady whose main interest is said to be to make sure her son becomes prime minister one day – or her daughter if he refuses to knuckle down and get married – that’s vital for dynasties.

The PM can’t control many of his ministers, who mainly want to make money for themselves and or their regional parties, thus undermining key areas of the economy such as airlines and airports, telecoms, and mining, and sometimes industrial and other policies such as foreign direct investment, special economic zones, petroleum, agriculture and food supplies

Most parliamentarians – a meaningless title we’ve discovered since most of them do little that’s constructive in parliament – are dynastically getting their sons, daughters, wives and even mistresses into politics. Somehow we can’t believe that’s done for the good of parliament or the country.

Elsewhere personal greed seems to govern sport, ranging from chaotic preparations for some imminent regional games to an astoundingly successful and lucrative private sector cricket league, plus illegal betting (along with the smaller neighbour) on cricket matches. Businessmen and politicians are also conniving to plunder the country’s mineral wealth with scant regard for the environment or the law.

And you can’t even believe what you read in the newspapers – well you can’t anywhere can you, but here the country’s biggest and most famous newspaper prints what it’s paid to print and also gets commercially involved with its advertisers by investing in their stocks and managing their advertising budgets. Paid News it’s called, and if you don’t pay when they want you to, then watch out for unpaid bad news about you.

Oh, and I almost forgot, the capital is wracked by a mosquito-spread deadly fever that’s sprung out of all those construction works I mentioned earlier.

And the other thing I almost forgot is that a few months ago everyone was worried about a terror attack next month during those regional games, but now they’re more worried about all the pot holes and collapsing venues and traffic chaos. Odd isn’t it how priorities change. Let’s hope the terrorists have left, deciding it’s not worth trying to break through all the bedlam – after all, could anyone ever do more damage to the country than it’s doing itself?

But it’s odd, the people living here don’t seem too worried about all this chaos and, even more surprisingly, nor do investors. After all, we haven’t yet fled.“

That was the end of my caricature of today’s India, and I balanced it by saying that there is of course good news. There’s a growth rate nearing 9 or 10%, an increasingly capable and internationalising manufacturing industry, and a highly competitive software and IT industry. India is a brainy country with huge human potential, amazingly achieving what it is with only about a third or so of the population actually contributing much to the growth.

Manmohan Singh, I said, is a caring thoughtful prime minister who tries to do good wherever he can. Italian-born Sonia Gandhi, despite her dynastic preoccupations, has done an outstanding job in transforming herself from a housewife into a national figure, saving the Congress Party and leading it to election victories.

There are also some excellent ministers genuinely trying to make India a better place – notably Palaniappan Chidambaram, Jairam Ramesh, and Kapil Sibal, all trying to overcome a decade of mostly poor performance in their ministries, while Pranab Mukherjee manages the stresses and strains of a mixed economy and an even more mixed coalition.

No one at the small dinner I was addressing (in the luxurious cocoon of a private dining room at China Garden in Delhi’s Hyatt Hotel) attacked my spoof. They all – Indians and expats – knew it was valid. We discussed the need for better more focussed politicians, the real causes of corruption and Naxalism, and the over-riding need for dramatic improvements in education.

The sad thing though was that my spoof could not be challenged. That is India as it is today!

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Posted in environment, India China, India corruption, India dynasties, India environment, India FDI, India manufacturing, India media, India mining, India Pakistan, India security, Manmohan Singh, Naxalite, Nehru-Gandhi dynasty | Tags: , , , , , , , , , , , , , , ,

Posted by: John Elliott | August 16, 2010

Indian industry sensibly wants curbs on big FDI in defence manufacturing

India does not want a surge of foreign direct investment (FDI) in the country’s defence manufacturing industry. That long-held basic view has become clarified and reinforced during the past few weeks in three statements – one from A.K.Antony, the defence minister, and the other two from the country’s leading private sector industry federations, FICCI and the CII.

This is a good and sensible stance for India to take, despite intense pressure from the US, UK and other defence supplier countries for more FDI access. India’s private sector needs a chance to develop its own defence manufacturing capability before foreign investment rules are significantly relaxed.

The least interesting statement came from Antony, who has merely restated the government’s current policy of generally limiting FDI in joint ventures to 26% equity stakes. His remarks reflect the defence establishment’s wish to keep that figure unchanged, but he failed to mention that the government is currently reviewing the figure. This review follows the Ministry of Commerce’s industrial policy department (DIPP) publishing a discussion paper that suggested 74%-100% figures – with July 31 as a cut-off date for comments. The government is now examining the responses and a Group of Ministers (GoM) is expected to be appointed to reach a final decision on what to do.

Constructive ideas

The two industry federation comments are far more constructive than Antony’s because they stem not from the defence establishment’s wish to continue its old inefficient ways, but from the ambitions of private sector companies such as Larsen & Toubro (L&T), Tata, the Mahindra group, plus many medium sized and small firms, to develop their own defence manufacturing expertise.

Till recently, the Indian private sector was only allowed a peripheral role, but that is now changing and the companies deserve a chance to prove themselves.

The question is basically whether the limit should be kept at 26%, or raised to 49% which would increase foreign defence manufacturers’ exposure to India, or go above 50% so that the foreign firms could gain controlling interests.

There has been a tough debate in FICCI, and even more so in the CII where foreign companies started a rear-guard action towards the end of July, pushing for at least 49% and possibly above 50%. That sparked understandable protectionist sentiment and some suggestions that the 26% should maybe be lowered to 25.5% so that foreign companies could not have the statutory veto power gained at 26%

The basic argument for a high figure is that it would increase a foreign company’s commitment to India, bringing in large financial investments and transfer of high technology, as well as managerial expertise.

Doubts on technology transfer

FICCI, and to a more muted extent the CII, however has argued that “raising FDI is no guarantee for true transfer of technology”. This line is pushed by foreign companies such as Lockheed, BAE Systems, EADS and others that either have already set up a joint venture at 26% or are waiting to see how the policy develops.

However, Indian industry doubts whether high FDI levels would necessarily bring in top-level technology and fears that 49% would allow foreign companies’ to dominate joint venture boardrooms and change the management style and culture of the businesses

“The fact is that leveraging latest technologies from overseas suppliers would be difficult even if the FDI ceiling is raised as the OEMs [foreign companies] exercise no control over the release of technology which is exclusively under their governments’ control,” says Amit Mitra, FICCI secretary general. Consequently, he adds, “we are absolutely clear that FDI should not be more than 49 per cent”.

India has always been very lax in the way it has opened up FDI, usually responding to foreign and Indian vested interests and welcoming the financial inflows’ contribution to the country’s economy, but without really ensuring that foreign companies bring in useful top technology.

The new FICCI and CII policies sensibly address this. FICCI points out that countries like Germany, China, South Korea, and Canada have revised their FDI policies in defence “making the policies much more stringent [with] methodologies to punitively scrutinize FDI inflows in this sensitive and strategic sector”.

 “It must be kept in mind that [defence] FDI will be directed for the purposes of making [foreign] companies money, not for the development of private Indian firms or industry. The global players would not be too keen to encourage competition so the aim would be to drown out Indian companies,” says the CII.

There is also a view, held by ambitious Indian private sector companies, that many of India’s defence needs – especially in the army – do not involve the sort of top technology envisaged by proponents of high FDI limits. “Our technology needs are quite different from western countries,” says one defence executive. “Foreign soldiers grow up with computer games – here they come straight out of the villages. We are still in a post-second war situation in many areas and that won’t change in technology terms for 20 years so let’s not get into technology-yielding levels of FDI that we do not need”.

49% with restrictions

After their long debates, both FICCI and the CII acknowledge FDI could go up from 26% to 49% (but no higher) if various conditions are met – they include: the joint venture is Indian managed and produces full defence platforms (not just components) with a minimum capitalization of US$100m; the technology involved is needed by India and can be developed indigenously; the foreign company’s government approves the technology transfer in advance, without any risk of retrospective cancellation, and also sanction global sales from India; 50-70% of components and subsystems will be made in India and  exports will amount to ten times the equity investment within ten years.

This is good constructive stuff and should be seen by foreign critics for what it is – a genuine wish by India’s private sector to grow in the defence field. It is quite different from the protectionist public sector’s opposition to any policy change and, indeed, could help to generate improvements in the public sector.

So let’s hope that Antony and the rest of the government give the private sector the stimulus it wants and allow strictly conditional 49% FDI. The risk is that Antony will not want to do anything, and that will help no-one apart from India’s lazy public sector-dominated defence establishment and the foreign defence companies that supply India’s increasingly obsolete defence preparedness with as much as 85% (the official figure is 70%) of its current defence purchases.

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Posted in India, India defence industry, India FDI, India industrial policy, Tata, Tata Motors | Tags: , , , , , , , , , , , , , ,

Posted by: John Elliott | July 30, 2010

Cameron in India blurs substance with a gaffe and false humility

Viewed from the UK, where I’m currently travelling, David Cameron’s visit to India looks like a public relations stunt gone wrong, mainly because the British prime minister fell into the trap of meddling in India-Pakistan issues while travelling on the subcontinent.  

Some 13 years ago the then Labour foreign secretary, Robin Cook, helped to muck up a royal visit to India by backing Pakistan during a visit to Islamabad just before he and Queen Elizabeth arrived in Delhi. Then, in January last year, the by-then Labour government foreign secretary David Miliband was rebuked when he lectured prime minister Manmohan Singh on how to handle Kashmir – remember Britain’s handling of Northern Ireland, Miliband was gently told. 

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Cameron said on his first day in India – in Bangalore – that “We should be very, very clear with Pakistan that ……we cannot tolerate in any sense this idea that the country is allowed to look both ways and is involved in promoting terror in any way in India, in Afghanistan or anywhere else in the world.” 

Cameron was of course on target with his criticism of Pakistan, but India was not the place to say it because it diverted attention from his investment-oriented visit – unless you take the Machiavellian approach that it increased media coverage of a trip that might have otherwise made few headlines.  It was also unwise to make such a snap remark without planning for the downside – in this case endangering Britain’s links with Pakistan’s intelligence services.

But what can Cameron or Britain do to show it “cannot tolerate” Pakistan’s decades-long “facing both ways” over terrorism? The answer of course is nothing – and nor can the US, despite its current breast-beating over recent Wikipedia leaks that document the Pakistan defence establishment’s support for the Taliban. So it was futile of Cameron to say it.  

One might have guessed Cameron would get it wrong because of the way he wrote in The Hindu newspaper a day or two earlier that he was going to India in a “spirit of humility”. This ex-public relations executive is hardly a humble politician, even though the Daily Telegraph this morning managed to rake up a story from Bangalore  – headlined “Mahatma Cameron” – about a hotel butler who was pleased he’d been thanked for his work.  

Apart from that, the British media stayed focussed on the Pakistan gaffe plus Cameron’s display as a batsman (above) and a wriggle when he was asked whether Britain would return the Koh-i-Noor diamond.   

There was little humility in the size of Cameron’s entourage – six government ministers and what the Financial Times called “a posse of business leaders, university chancellors and sporting heroes”. Britain was fighting far above its weight with such a delegation but, despite that and accompanying hype, there was some substance.  

A £700m Indian order for 57 Hawk jet trainers to add to its existing fleet was fixed just in time to be announced , and there were agreements on tackling terrorism and British exports of civilian nuclear technology. There are to be more education and science exchanges, a new business forum has been set up to link top executives from the two countries, and so on.  

All that of course could have been done without all the razzmatazz and, dare one say it, maybe even without Cameron being there. But at least he has done better than Tony Blair, who never bothered to make a dedicated trip like this one to India and only popped in on the back of some other world errand.  

John Major was the last British prime minister to be keen on the country. He was drawn by a love of cricket and curry – and on one visit chased Hawk orders, signed educational etc agreements, and set up a forum to link top executives and others from the two countries.  

Cameron’s aim with his big delegation has been to demonstrate that he is making India a priority, hoping to tap its potential for trade and for investment into the UK. This of course is not new – despite Blair’s lack of personal interest, there have been many British ministerial visits to India in recent years. But it was a good stunt to pull early in his prime ministership – it would have looked like a catch-up exercise if he had done it in a year or so’s time.  

What Cameron now has to do, apart from continuing with efforts he has already started to mend fences with Pakistan, is to show that the substance that was hidden behind the headlines really can produce increased trade and investment – and that will be much more difficult.

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Posted in British politics, India, India British relations, India Pakistan, Manmohan Singh, Pakistan terrorism | Tags: , , , , , , , , , , ,

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