Posted by: John Elliott | February 23, 2009

Slumdog’s eight Oscars are a win in India’s success story

Flying into Mumbai, many visitors’ first view of India is of a mass of corrugated-roofed slums on the approach to the airport. For decades that has been seen as an example of the miserable and hopeless side of Indian life – the grinding poverty and class and caste-riven society that defies success and keeps perhaps two-thirds of the population poor.

But this has always been an inaccurate image because Dharavi, one of two slums near the airport, is Asia’s largest and has grown over 60 years into a vast centre of entrepreneurial success with some 600,000 people in 500 acres.

Now Dharavi has become India’s latest hit with the film Slumdog Millionaire sweeping the Oscars this morning (India time), winning eight awards including the prize for best picture about a poor Indian boy who defies poverty and corruption to compete on a TV game show for money and love. The film is not specifically about Dharavi, though the place provides the location for many of the scenes.
Watching the Oscars on tv in the Garibnagar slum where two child actors in the film live - pic from AFP

Watching the Oscars on tv in the Garibnagar slum where two child actors in the film live - pic from AFP

 

As I write, reporters and commentators on every India tv news channel are tumbling over themselves in an ecstasy of superlatives as they try to match the success with words. Television sets are on all over India, including in Dharavi and Garibnagar (see pic), whipping up a mood of national celebration that is usually reserved for cricket victories against Pakistan

Inevitably the tv commentators have gone overboard, claiming the film puts India’s Bollywood film industry on the map when in fact it is a British film (a nice post-colonial contribution to India’s success!).

That is a point made by Indian film people such as Amitabh Bachchan, India’s top film actor – that the West only rewards stories about India’s poor when a film is made by the West. Whether that is true or not, the combination of Indian and British talent has brilliantly brought to international focus the massive sense of self-confidence and hope that forms the basis for the India’s growing international importance and success.

As A.R.Rahman, the Indian composer, who won two Oscars for the best score and for his hit song Jai Ho, said after receiving his award, Slumdog is all about “optimism and the power of hope in our lives”.

And that is the mood of Dharavi and of India’s millions of budding success stories. I visited Dharavi in 2005 and reported how alleyways a few feet wide lead to bakeries, metal workshops, and sheds that recycle discarded plastic goods ranging from medical syringes to telephones. Pottery kilns burn wood and other polluting garbage including tyres. Lorries crammed with buffalo, goat and other skins collected from abattoirs push through narrow lanes to grimy tanneries.

Workers – including under-age children – spray-paint, cut, and press strips and sheets of leather and vinyl that eventually finish up as cheap wallets and bags plus, in some cases, up-market luggage (often fake international brands) that are exported all over the world. Families live in over-crowded lofts over the tiny workshops, and few workers earn more than $2-$4 a day.

Success and Protest - slum children protest at the film's title - pic from huffingtonpost.com

Success and Protest - slum children protest at the film's title - pic from huffingtonpost.com

Much of this is not a pretty sight, and much in the film is more ugly than happy, but then so is the life of the poor.

Perhaps inevitably, Slumdog has been widely criticised in India because the flip side of all the success is a national unwillingness to accept anything that is even slightly negative or critical (as I have often discovered on this blog). So both the words slum and dog have been attacked, as has the portrayal of the uglier side of Indian life.

But that is now being overtaken and India is in party mood. Rajeev Sethi, a leading promoter of India’s arts and artists, once said to me (talking about modern Indian art) that “every successful economy needs a tangible celebration”.

Today Slumdog, and its story of India’s poor children, is the tangible celebration.

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Posted in India entrepreneurs, India films, Mumbai | Tags: , , , , , , , , , , , , , , , , , , ,

Posted by: John Elliott | February 18, 2009

India’s FDI changes reveal weaknesses in industrial policy making

One of the biggest weaknesses affecting India’s  economic liberalisation is the way that industrial and allied policies are made. Changes affecting industries that range from telecoms and banks to aviation and retail stem far more from the pressures of vested interests and lobbies than from reasoned analysis and debate.

Foreign or domestic companies push for changes, which are then resisted by rivals, supported, if opposition to foreign investment is involved, by leftist parties that often reflect vested interests as well as their own creeds. Ministers and bureaucrats are persuaded to tilt one way or another, sometimes nudged by various inducements and sometimes by legal action. Eventually someone wins and reforms are introduced – or aren’t.

This has been glaringly evident since the government announced on February 11 that it was introducing major changes to its rules on foreign direct investment (FDI) and other forms of foreign equity.

Sectional interests dictate norms

There was little open discussion (apart from a series of confusing newspaper leaks) before the announcement, and the changes are so complicated and confusing that The Economic Times newspaper dubbed the policy “irrational”, adding “don’t let sectional interests dictate norms”. It pointed out that even ardent supporters of FDI are “asking only one question – for whom is the government doing this?”

A friend, who has long watched companies bend policy rules, emailed me last weekend: “First this is meant to recycle politicians’ and bureaucrats’ money. Second, it is to fund elections. Third it is short sighted – rather then curbing the black money [used in FDI] it is only going to bring more unknown money, leading us to a spiralling downward whirlpool”.

The Business Standard last week said, when the announcement was first made, that “critics will …. question the propriety of reforms by sleight of hand” because “definitional loopholes are being used to change foreign investment by executive order” in sectors previously regarded as controversial. It then dismissed “the manner and timing of the decision” as “side issues”, and said it was more important to ask whether the changes were beneficial.

Why do it now – and make it so complicated?

The questions that need to be asked are why the government has suddenly introduced what potentially are the most far-reaching FDI rule changes for several years and why, as several critics have said, do it at the “fag end of the government” – and in such a complex way.

The changes broadly allow an Indian majority-owned and controlled holding company, which is 49% (ie minority) foreign owned, to invest in a “downstream” subsidiary or associate company without the 49% counting against the new company’s FDI limit – which enables more FDI to go in. In FDI jargon, the restriction on cascading investment has been removed. That looks like good sense, but there is a widespread suspicion – illustrated by the comments above – that foreign companies intend to use it as a loophole to exceed permissible holdings.

The other major change is that various forms of foreign investment are to be merged for assessment purposes. This means that funds from foreign financial institutions (FFIs), foreign stock markets (in the form of depository receipts – ADRs and GDRs) and bonds, and non-resident Indians (NRIs), are all counted together with FDI instead of being assessed separately under different headings. That is also sensible, except that it will lead to countless complications, and therefore loopholes, as existing permissions and investments are re-scrambled.

Doubts about the effects

There is doubt about what the net effects will be. It appears that many limits on foreign investment will disappear in various sectors, barring defence where a 26% (but variable) FDI limit will be maintained for some time, and insurance where legalisation is needed to change the 26% FDI cap.

But many government officials seem unsure, or are not admitting that they are sure, what will happen for example to:

– the ban on FDI in multi-brand retailing such as supermarkets,
– the 74% cap on telecom (for years a tortuous rule bender),
– the 26% cap on foreign newspaper companies (though 100% FDI was approved on February 14th for facsimile editions of foreign newspapers in a nice Valentines Day present for the well-connected Wall Street Journal that will soon appear in India).

Will currently banned investments creep in – for example could foreign companies owning 49% in an Indian holding company take a large stake in the operating subsidiary of an airline, newspaper, or supermarket chain?

There are also problems for companies that are already foreign owned when FDI and FII investments are assessed together. Two Indian banks – ICICI and HDFC – for example come into this category and are looking for ways to remain Indian.

There are three possible reasons why the government has created this muddle:

One is genuinely to open up FDI, especially in areas such as retail and the media, now that the government is no longer constrained by the communist-led Leftist parties that blocked such changes until the end of last year.

FDI inflows totalled over $21bn in the nine months of the current financial year to the end of December, but have been declining since that month, so it might be logical for the government to try to revive the inflow. But, in the current world financial crisis, little extra FDI is likely to come in, however far the rules are relaxed, so that is not a very good reason.

In any case, if that is the aim, why not say so and keep the changes simple, instead of issuing (as the Industry Department has done) ten pages of unintelligible officialese in two “press notes” that refer to so many other press notes and laws and regulations that it is impossible to work out what is intended.

The second also laudable but surely misdirected reason, is to enable companies that are strapped for cash in the current economic crisis to bring in equity from abroad. Fair enough, but should industrial policy be permanently changed to meet individual companies’ short-term financial problems?

The third possible reason is to help foreign companies that want to gain bigger FDI stakes than are currently allowed – but that will not happen quickly.

Whatever the reason, it is surely wrong for the government to have allowed such negative media speculation – and party gossip – to grow in the past week.

The announcement first came as a press release and statement after a cabinet meeting. That was followed by a not very clear statement from Kamal Nath, the commerce and industry minister. Then came the two “press notes”, one of three pages and one of seven pages, which are indecipherable to nonprofessionals, and further explanations yesterday. (Curiously, the government has issued FDI policy change since 1991 as “press notes”, not official regulations).

Why I wondered, talking to a contact, was it all made so impenetratable. He replied: “This isn’t for public understanding but is designed as fertile ground for specialists and lobbyists who will know exactly where the loopholes are”.

This post is also on the Financial Times‘ website – http://www.ft.com/cms/s/0/60936f90-fd8e-11dd-932e-000077b07658,dwp_uuid=a6dfcf08-9c79-11da-8762-0000779e2340.html

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Posted in India economic reforms, India economy, India FDI, India industrial policy, India industry | Tags: , , , , , , , , , , , , , ,

Posted by: John Elliott | February 12, 2009

Obama scores in Pakistan on Mumbai terror attacks – but the Taliban wins Swat

Barack Obama appears to have scored his first international policy success as America’s new president (though, see a comment below added Feb 16, the Taliban has won a worrying peace-deal agreement for Sharia law in the Swat area, just after President Zardari said it was trying to take over the country).

After more than two months of see-sawing denials and prevarications, Pakistan has today admitted that at least part of the planning of the November 26 terrorist attacks on Mumbai was done in Pakistan.

“Some part of the conspiracy has taken place in Pakistan,” Rehman Malik, Pakistan’s interior minister, told a press conference in Islamabad this afternoon. He said that six suspects were in custody and were being charged, and two more were being sought.

The admission came a day after Richard Holbrooke, Obama’s special emissary to Pakistan and Afghanistan, had his first talks with the country’s leaders.

Obama also spoke yesterday by phone to Pakistan’s president, Asif Ali Zardari, and the two men agreed “to start an active engagement for the resolution of problems facing our region through a holistic strategy,” according to a Pakistan foreign ministry statement.

It seems likely that the first step in that “engagement” had to be Pakistan admitting that the Mumbai attacks had been planned on its territory, which it had been avoiding till now despite repeated demands from the US, India and elsewhere.

This is the first time that Pakistan has admitted that a foreign terror plot was planned in the country and it raises questions about the relative importance now of Pakistan’s three rulers – Zardari, who appears weak and vacillating, Yusuf Raza Gilani, the prime minister who is not much more impressive, and top officials of the country’s Inter-Services Agency (ISI) equivalent of the CIA who have been dictating the hard-line policy.

It now has to be seen whether today’s announcement marks a decline in the power of the ISI and the army, many of whose senior officers take a militant line on India and are soft on the Taliban that they helped to create.

The army has generally wielded its power over civilian (and military) governments with the blessing of America, especially under President George W. Bush who was conned by Pakistan’s former President Pervez Musharraf into believing that Musharraf was doing his bidding in curbing terrorism. It now looks as if Obama has successfully broken with the past and is demanding that the ISI and Army change tack on Afghanistan and India.

Pakistan has handed its information over to India which will be responding later. Underlining that India also shares some of the responsibility for the attacks which led to the killing of approaching 200 people, Pakistan has asked how the terrorists managed to obtain local mobile phone cards, and why the boat carrying them to Mumbai’s waterfront had not been apprehended before it landed.

Malik said the announcement “proves our sincerity and we have gone an extra mile”. He said to India: “We are with you and we have proved that we are with you”.

That sounds good – though it will not have pleased Pakistan’s hard-liners.

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Posted in India Pakistan, India terrorism, Pakistan politics | Tags: , , , , , , , , , , , , , , ,

Posted by: John Elliott | February 9, 2009

Sri Lanka’s government needs to make peace out of military victory

Will Sri Lanka’s President Mahinda Rajapakse replicate George W.Bush’s famous 2003 “Mission Accomplished” aircraft carrier performance and declare “victory” when his forces finally defeat the last of the Tamil Tiger rebels?

Does he, like Bush after the Iraq invasion, assume that a victory by the military will be the end of the story, and that the great mass of the Tamils will quietly go about their daily lives, causing no problems for the majority Sinhalese who run the government?

President Mahinda Rajapakse

President Mahinda Rajapakse

It looks as though he does, judging by his virtual silence and that of his brother, defence secretary Gotabhaya Rajapakse, about what will follow a military victory – and their lack of concern for the plight of Tamil civilians caught in what looks like the last stages of the fighting. If that is so, there will only be a temporary victory.

One must however give the Rajapakse brothers credit for what they have achieved. It looks as if they are on the brink of defeating the Liberation Tigers of Tamil Eelam (LTTE) which has waged a guerrilla war and launched terrorist attacks for just over a quarter of a century since the Tamils’ campaign for some sort of autonomy or independence in the north and east of the island escalated in July 1983.

When I was last there 13 months ago this victory seemed almost impossible, but that was because, like others, I under-estimated the government’s determination and the dramatic improvement in its military capability.

With military success in sight, it is not surprising that the government has ignored most of the pleas from the West for cease-fires that would give tens of thousands of Tamil people a chance to escape from the final battle areas. Too often in the past 25 years, potential military success has been undermined by cease-fires, the last of which ended in 2006. It is logical therefore for the Rajapakse brothers to continue the fighting until they have wiped out the rebels.

But sympathy and understanding for what the government is doing can go no further than that.

There is a huge humanitarian crisis in the areas where the final battles are being fought. More than 15,000 civilians are reported by the government to have fled from the war zone in the last three days.

Aid agencies have claimed that more than 200,000 civilians are trapped by the fighting in the area. The government disputes those figures and accuses the Tigers of preventing the non-combatants from leaving, and of using them as human shields.

V.Prabhakaran

V.Prabhakaran

Rivalry had been simmering for years before 1983 between the minority mostly-Hindu Tamils, who had been favoured under British rule that ended in 1948, and the Sinhalese majority who regard their island as a sacred Buddhist homeland.

Velupillai Prabhakaran, the reclusive and powerful leader of the Tigers, began a militant campaign in the early 1970s. In 1983,  Tamil Tigers killed 13 Sinhalese soldiers in the north, and Sinhalese rioters retaliated by burning and looting carefully selected Tamil homes and shops in Colombo.
I was there soon after, reporting for the Financial Times, and wrote that “troops and police had either joined the rioters or stood idly by” . A few days later, the then President Junius Jayawardene told me that “everything is back to normal”. But it wasn’t. Weeks of ethnic clashes followed, and then the years of guerrilla war that has led to over 70,000 people being killed.

It should have been possible to broker peace several times in the past quarter century, but efforts have repeatedly failed because of two seemingly immovable forces.

On one side has been Prabhakaran who wants nothing less than independence and only agreed to ceasefires when he needed to regroup and rebuild his forces. He whereabouts are now not known, but he no doubt hopes to fight back some time in the future with renewed attacks.

On the other side, Sinhalese self-serving and competitive politicians have tripped each other up over possible peace deals. They have seemed unable to resist hard-line anti-Tamil Buddhist monks whose backing for a military victory belies their religion.

No doubt the monks and other hard line Sinhalese will now celebrate the military success, and will be in no mood to concede anything to the Tamils in terms of autonomy.

This means that there is an urgent need for the government to take the lead and map out a constitutional future that will give the Tamils at least some form of regional autonomy. President Rajapakse has set up a commission to look into devolution possibilities and has talked of Tamils being given “equality and all rights”, but that will not be enough.

He should learn from Bush’s mistakes, and be ready to work for peace when a war is won.

This post is also on the Financial Times’ website – http://www.ft.com/cms/s/0/16a2238a-f75e-11dd-81f7-000077b07658.html

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Posted in India, Sri Lanka | Tags: , , , , , , , , , , , , , ,

Posted by: John Elliott | February 2, 2009

India’s top-selling young author Chetan Bhagat wants to make change happen

Chetan Bhagat speaking in the Diggi Palace's Durbar Hall

Chetan Bhagat speaking in the Diggi Palace's Durbar Hall

I was talking at the Jaipur Literature Festival  to Chetan Bhagat, the 34-year old Deutsche Bank executive who has become one of India’s best-selling authors by writing about modern India in an easy provocative style way that strikes a chord with young readers.

Chetan Bhagat

Chetan Bhagat

While we were chatting in a quiet corner of Jaipur’s Diggi Palace that Bhagat had discovered as a retreat from autograph-hunting schoolchildren, two young guys aged about 18 discovered us and asked him to sign copies of his three books. They were not new copies bought from the festival’s bookstore, but were well thumbed and had been passed round friends and families.

One of them, Priyansh Sharma, said he had read One Night @ The Call Center, Bhagat’s most famous book which has been turned into a film, 100 times. They both said their copies had been read by ten or more people.

Multiply that by the one million copies that Bhagat claims have been sold of his first book, Five Point Someone (written when he was 29), and the near one million claimed for both Call Center and his third book, The 3 Mistakes of My Life that was published last year and is also to be filmed, and you have an idea of his reach. 

Some people in the book trade say his figures are exaggerated, but the popularity of this cheerfully unassuming and approachable writer among the young , in a country where half the population is below 25, is beyond doubt and was evident at Jaipur.

Attended by 10,000 or more people over five days, the festival (which ended on January 25) was open to anyone and has now become a significant event on the international literary calendar. It drew names such as the historian Simon Schama, editor and writer Tina Brown (who has just launched the Daily Beast news website), and Vikas Swarup, an Indian diplomat who wrote the book Q&A that has become the award-winning and Oscar-nominated Slumdog Millionaire film.

Bhagat had never ventured into this literary world before because he did not expect that he or his books would be taken seriously. Namita Gokhale, an author and publisher who is one of the directors of the festival, persuaded him not to be so shy, and he amazed himself by drawing crowds that almost outdid those mobbing India’s top film actor, Amitabh Bachchan.

V.K.Karthika, the head of Harper Collins in India, told Bhagat that he had “created many more books”through his writings. “He has struck a chord,” she told me later. “People who were waiting and wondering whether to write have started to do so”.

But Bhagat wants to do more – not for the money because he earns well as a banker – but to change Indian society. He aims to make the young break free of traditional restraints, and to encourage them to widen their horizons.

He wants to move “beyond the 10% who get into ok colleges and the 2% who get into the best”, and appeal to the “aspirational values” of the rest who get into medium colleges or disappointing jobs. He says they find in his books “a world where people can do what they like”. He’s telling them “to question Indian norms” and “to make things change by standing up against parents and the bosses”.

He hasn’t thought this through fully yet, and he admits he is still in an “analysis mode” as to why he is having such appeal. “We have 75-year olds running the country – how do they know what 25-year olds want?”

But even though he aims to sir up his readers’ emotions, he makes sure all his books “have happy endings”. He can’t, he says, “make everyone successful”.

Bhagat wrote the first two books while working for Goldman Sachs bank in Hong Kong and the third in Mumbai, where he deals (topically) with distressed debt at Deutsche – Reserve Bank of India officials come seeking his autograph for their children when they visit on inspections.

The books sell in paperback for just Rs95 ($2), which is about a dollar or so below what one would expect. That partly explains the massive sales. Aravind Adiga’s Booker award-winning The White Tiger (also set around a call centre theme but too critical and less reader-friendly for many Indians), is Rs395 in hardback. It has sold something over 100,000 copies.

Bhagat has very long term dreams of emulating India’s best-selling author, the late Mahatma Gandhi, father of the country’s independence movement, because of his ability to generate change.

He says that over five million people read each of his books. “The day it gets to 50m, then you can make change happen,” he declares. “My ambitions are changing – I’ve had the thrill of best sellers – maybe it’ll be politics long term.

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Posted in India, India books | Tags: , , , , , , , , , , , , , , , , , , , , , , , ,

Posted by: John Elliott | January 27, 2009

India raised Ulster when rebuking Miliband on Kashmir

It is now nearly two weeks since Britain’s foreign secretary, David Miliband, upset senior Indian ministers with both the content and style of his behaviour while he was in Delhi. I am writing about it now partly because I was busy on other subjects while he was here, but mainly because of something I have just heard from a highly reliable source.
David Miliband in a north India cowshed - PTI pic

David Miliband in a north India cowshed - PTI pic

 

I have been told that a very senior government official was so outraged by Miliband’s lecturing on how India should handle the Kashmir issue that he said, in a very quiet but stern voice, “We did not tell you how to handle Ulster and I do not expect you to tell me how to handle Kashmir”.

In diplomatic terms, that was one of the bluntest remarks made to a visiting dignitary for a long time, and Miliband and his misguided advisers from London should not have ignored it.

Miliband and Pranab Mukherjee

Miliband and Pranab Mukherjee

At the end of last week, a Foreign Office spokesman in London said that Miliband was “not off message” when he urged that the Kashmir problem should be solved so as to reduce the incidence of terrorism in India. Miliband delivered this line in both an article in The Guardian newspaper and when he was in Delhi.

 

But he was clearly off-cue when he wrote: “……resolution of the dispute over Kashmir would help deny extremists in the region one of their main calls to arms, and allow Pakistani authorities to focus more effectively on tackling the threat on their western borders……”.

To describe Kashmir in that context is wrong – but it is in line with propaganda that Pakistan deployed to influence Barack Obama’s advisers as they prepared policies before his inauguration a week ago. The fact that Obama has not included India in the Pakistan-Afghanistan brief given to Richard Holbrooke, his special envoy to the region, shows that the US has realised that it is counter-productive to approach India and Kashmir on the Miliband line.

But as I understand what happened, it was not so much the Miliband’s broad statements that infuriated Delhi and provoked the personal rebuke, but the arrogant insensitive way in which this wet-behind-the-ears politician delivered his message – first by writing the Guardian article just as he was about to arrive, and then by his personal and disrespectful style in Delhi.

Miliband and Rahul Gandhi on their rural tour

Miliband and Rahul Gandhi on their rural tour

Publicity on what happened was partially overshadowed by the village sleepover organised for him by Rahul Gandhi in rural Uttar Pradesh – presumably two guys who both expect to be prime ministers one day doing some advance bonding, having first met when Gandhi was living in London.

However, the event is still erupting in the newspapers. the Mail Today on January 24 had an article by its editor, Bharat Bhushan, on “The damage we inflict on ourselves”, complaining that India’s diplomacy has failed to such an extent “that everybody and his dog can come and do as they please in Delhi”.

“David Miliband demonstrated that he was yet to be house trained when he let loose a peremptory lecture to the prime minister of India,” wrote Bhushan.

There is also an odd story doing the rounds about a letter that Manmohan Singh was reported to have sent to Gordon Brown, Britain’s prime minister, complaining about Miliband’s “behaviour and comments”. The prime minister’s office (PMO) denied that such a letter had been sent, but I understand that it was sources in the PMO who first alerted Indian journalists to the letter. Presumably, such a letter was sent, but not quite in the strident terms deployed by the over-eager PMO sources.

As soon as Miliband left, Lord (Peter) Mandelson, Britain’s political-accident-prone business and enterprise secretary, flew in and behaved badly at a CII conference. He made his speech and then left before Pranab Mukherjee, India’s foreign minister, and Kamal Nath, the commerce and industry minister spoke, without making any public apology or speaking quietly to them on the platform. He apparently had an important engagement to do with British firms trying to sell nuclear wares to India, and officials say he had told the CII and Kamal Nath – but that does not excuse the insensitivity of his departure from the conference.

Miliband and Mandelson are clearly supremely self-confident British ministers. They are also supremely insensitive, and Miliband should be seen historically alongside the late Robin Cooke who, as British foreign secretary in 1997, helped to make a hash of the Queen’s visit to celebrate India’s 50 years of independence – again by clumsily trying to tell India off over Kashmir.

Representatives of such a former colonial power need to adjust to the times. It is of course correct to say that India should do more on Kashmir – not least on granting it more autonomy – but not in the context of the Miliband message.

See also my article on The Daily Beast website, which expands on the US-India aspects of Obama’s presidency http://www.thedailybeast.com/blogs-and-stories/2009-01-29/india-scores-with-obama/full/ 
 

 

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Posted in India British relations, India Pakistan, India UK, Rahul Gandhi | Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , ,

Posted by: John Elliott | January 24, 2009

Manmohan Singh’s health raises questions about the next prime minister

Manmohan Singh’s heart operation today raises questions about who will emerge as prime minister if the Congress Party leads the next coalition government after the general election due by April.

People can make full recoveries from this sort of triple bypass, but the prime minister’s 76 years, and the fact that he had bypass surgery some years ago, complicates matters.

He is likely to be away from fully active work for more than the two weeks that are currently being forecast – that is the minimum and it could be more like a month or even longer.

This will give Pranab Mukherjee, the highly capable foreign minister who is the acting finance minister, and in effect the unofficial acting prime minister, time to display his abilities, and his loyalty to the Gandhi dynasty’s current leaders Sonia Gandhi, the Congress leader, and her late-30s son Rahul, who is seen as a future prime minister.

But will Manmohan Singh want to serve again as prime minister after the elections? If he is fit enough, the answer is certainly yes. But if his health is ailing, he might want to opt for retirement, much as he would like to remain in office till Rahul Gandhi is ready, perhaps in two years time, to be prime minister.

So who would Sonia choose? Probably not Mukherjee because the dynasty would worry that, like Narasimha Rao who became prime minister in 1991 after the assassination of Rajiv Gandhi, he would emerge as a strong wilful prime minister reluctant to hand over to Rahul.

Dynasties don’t trust outsiders unless, like Manmohan Singh, they have no personal career ambitions.

Who then? Could it be that Sonia herself would take over, with Rahul at her side? Or would Rahul step in? Time will tell!

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Posted in dynasty, India, Manmohan Singh, Nehru-Gandhi dynasty | Tags: , , , , , , ,

Posted by: John Elliott | January 19, 2009

Satyam will not trigger changes in Indian companies’ DNA and culture

Two of India’s leading high tech entrepreneurs have both made the same point about good corporate governance in the past few days – it is either in a company’s culture and DNA, or it is not. The inference of their remarks is that it was not in Satyam Computer Services, the leading Indian software company whose founder and chairman, B. Ramalinga Raju resigned on January 7 and admitted to years of fraud.

One of the entrepreneurs was Narayana Murthy, chairman and a founder of Infosys, probably India’s most admired software company, who I have just spoken to for an article on Fortune.com about the longer term significance of the Satyam crisis. He says that corporate governance “is a mind set, not a check list – it’s about culture, aspirations, transparency, and striving for respectability”.

The other was Kiran Mazumdar-Shaw, founder chairman of Biocon, India’s best known biotech company. In an article in the Times of India on January 15, she wrote that it was important to check a company’s DNA rather than just relying on official regulations:

“Investors and observers need to be able to assess the DNA of the company to establish the real state of governance and resultant assurance that evolves from this……..I believe the answer lies in decoding the good and bad genes that make up the DNA of any company.

“Once this understanding is obtained, the defence against these potential temptations lies in the DNA of the company. This includes the underlying governance principles, the integrity of the board and the senior team, and the values of the organisation which are embedded in the decisions taken. 

“Many boards today are cosmetic boards with directors that add little value and are irrelevant to the specific field of the company. The Satyam board certainly had familiar well-known names that were seen to lend credibility, but failed to navigate Satyam into clear waters”.

Narayana Murthy believes businesses have generally been “evolving towards better governance and transparency and a realization that good governance is in your own interest”. Satyam’s scam however illustrates that the evolution is slow and India’s culture is a long way off what Murthy calls “corporate democracy, pluralism and transparency”.

Raju gathered in his board room impressive names who included a former top bureaucrat (a cabinet secretary), a management school dean, and a US-based IT specialist, and also floated the company in New York which is regarded in India as another badge of respectability.

He ticked the items on the good governance check list and even won awards for what he was doing, but clearly did not have the culture.

And with all respect to the bureaucrat involved, no company in any country hires such a person in order to care for the interests of the shareholders or good governance – he is hired for his government contacts and potential as an influence peddler.

Murthy says that companies in India have come to realise in the past ten years “that if you fiddle your accounts you can get away with 100 crore rupees ( approx $20m), but if you make your company stronger and have good governance you may get 1000 crore rupees – good governance is in your own interests”.

He is proud of the way that Infosys shares information. “When we review progress there are 20 people in the room, then we consolidate the information we gather so no one person can decide what the revenue for the last quarter has been”.

What we still don’t know of course is how many people there were “in the room” when Satyam did its figures. Just the Raju family? Plus one or two top executives, and/or the non-executive board members, and/or the business heads? How many people are culpable?

The question now is whether the Satyam scam is enough of a watershed to propel India into the sort of reforms that are needed – most importantly transforming the ethics of (mostly) regional politicians who invested in Satyam, protected it, and helped it and the Rajus’ Maytas infrastructure and construction companies to obtain business.
 
I suspect not because there is no moral outrage in India about what has happened, and because the existing partnerships between corrupt politicians, bureaucrats and businessmen is too good a gravy train to stop.

Sadly, I believe life will go on as it has in the past, with some companies following genuine good governance but many family controlled companies continuing with Satyam’s DNA and culture.

See also on this blog:
https://ridingtheelephant.wordpress.com/2009/01/12/satyam-rebuilding-begins-but-indian-corporate-fraud-runs-deep/
and
https://ridingtheelephant.wordpress.com/2009/01/07/satyam%e2%80%99s-raju-lifts-the-lid-on-indian-corporate-fraud/
and
https://ridingtheelephant.wordpress.com/2008/12/17/markets-kick-satyam-into-line-%e2%80%93-but-india%e2%80%99s-reputation-for-corporate-governance-is-hit/
and
https://ridingtheelephant.wordpress.com/2008/09/22/%e2%80%9cfamily-silver%e2%80%9d-at-risk-on-hyderabad-metro-project/

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Posted in India corporate governance, India corruption, India politicians, India software, Satyam | Tags: , , , , , , , , , , , , , , , , ,

Posted by: John Elliott | January 12, 2009

Satyam rebuilding begins – but Indian corporate fraud runs deep

At last some progress is being made to sort out the future of Satyam Computer Services, the Indian software company that was rocked last week when its founder and chairman, B.Ramalinga Raju, resigned and admitted fraud that started several years ago and exceeded $1bn in recent months.

Raju and his brother have both been arrested and the company’s chief financial officer is being questioned by investigators. But these moves happened slowly after last week’s revelations, indicating that the Rajus’ political and  bureaucratic friends were trying to protect the two men and slow down investigations – as they will no doubt continue to do for many months and years.

Even now Raju is being treated as a hero by supporters who rallied round a magistrate’s house when he was being detained. DNA, a Mumbai-based daily newspaper, reported yesterday that they included dozens of Satyam employees, plus people from the large Raju clan. “Raju is not a cheat. he has not defrauded anyone. We don’t know why he is being shown as a fraudster,” said one of them. Others blamed the media for over-stating what  has happened – an accusation that was thrown at this blog in several comments when I first wrote about Satyam’s problems last month.

This afternoon three new board directors, appointed over the weekend by the government, met in Hyderabad, the south Indian high-tech city when Satyam is based. Led by Deepak Parekh, one of India’s most respected bankers and finance industry leaders, the three took over responsibility from the previous board which has been dismissed. They decided to appoint a new accounting firm, plus a new ceo and chief financial officer. More board directors will be appointed soon and the full board will then take over running the company – maybe with the help of government funding.

Many questions have to be answered. How many people inside and outside Satyam were complicit in the fraud? Did top non-family management know what was happening? Did top managers realise that Satyam’s publicised results far exceeded the work that their businesses were carrying out? What was the role and culpability of PwC, the auditors who approved accounts, which should have been questioned because of massive and unaccounted cash holdings?

But the tentacles of this crisis go far wider than Satyam and its software business and, as I wrote last week post in a post titled Satyam’s Raju lifts the lid on Indian corporate fraud, this story illustrates much that is wrong with companies in India (and many other countries).

I have been talking to friends and contacts over the past few days about how many family controlled groups switch funds between businesses, and how this is practiced by some of India’s best known groups. “Everyone knows that,” I was told, “they’ve always done it!”, when I mentioned one famous name that obviously cannot be written here.

A large software company (not one of the big three) was also mentioned as having well known fraudulent practices.

But where Raju seems to have exceeded his peers is in the scale of his cooking-the-books. Not only did he brazenly switch funds, but – as he admitted last week – he massively inflated earnings figures in order to keep Satyam ranked as India’s fourth largest software business.

There has been concern for many years of the Rajus’ deals but, as happens in India (and elsewhere), nothing was done by regulatory authorities, presumably because of close political connections.

The Raju family runs other companies, notably Maytas which has large-scale infrastructure and construction businesses. Maytas finances are closely inter-linked, privately, with publicly-quoted Satyam, even though there was no public declaration of those links.

Both companies have extensive political and bureaucratic contacts in Delhi and in the state of Andhra Pradesh, where Hyderabad is the capital. Rajus’ close contacts include Chandrababu Naidu, the state’s last high profile and tech-savvy Telegu Desam chief minister who was in power during Satyam’s main growth period, as well as Y.S.Rajasekhara Reddy, the current Congress Party chief minister.

Often when such companies grow quickly, and especially when they have activities in industries such as infrastructure, their equity investors frequently include regional and national politicians, who always need somewhere to park the massive bribes that they gain while in office. The politicians usually choose companies that will produce good returns, which can be used to fund political and other activities.

But  the politicians do not expect their money to decline in value. Business World, an Indian business weekly magazine, reported this weekend that a politician with a stake in Maytas told Raju to “make up for the fall in the value of his equity with cash”.

This story has a long way to run…………..

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Posted in India, India corporate governance, India corruption, India software, Satyam | Tags: , , , , , , , , , , , , , , , , , ,

Posted by: John Elliott | January 7, 2009

Satyam’s Raju lifts the lid on Indian corporate fraud

Satyam's offices - a Reuters photo

Satyam's offices - a Reuters photo

I have often mentioned to businessmen visiting India how remarkable it is that many of the appalling business practices of the country’s traditional old family-controlled companies do not seem to have spread to the booming software sector – and then add that I wonder whether there are some skeletons in unopened IT cupboards.

If I am talking very privately, I have mentioned Satyam, rated till today as India’s fourth biggest software and outsourcing company, as one whose governance has been frequently questioned.

This morning’s resignation and confession of fraud – vastly inflating company results for “several years” – by  Ramalinga Raju, Satyam’s founder chairman, means the company can now be openly named for dubious business practices that have concerned (some) investors in the past. (It also means that Satyam is presumably not India’s fourth largest IT company and should not have been rated along with the other market leaders Infosys, Wipro and TCS.)

Raju has admitted inflating the figures – for example by well over $1bn in September – and has admitted that his attempt to merge the family’s Maytas construction companies into Satyam last month “was the last attempt to fill the fictitious assets with real ones“. (The Maytas attempted merger, aborted after about ten hours triggered a series of events that culminated in today’s news).

B.Ramalinga Raju

B.Ramalinga Raju

It was, wrote Raju, “like riding a tiger, not knowing how to get off without being eaten.”

This raises the question, not only about the software industry, but about how many other Satyams there are lurking in India’s hugely corrupt and politically-linked corporate world, its manipulated stock markets, and sometimes dubious auditing practices.
Raju’s is most certainly not the only family behaving in such a corrupt and fraudulent way.

How far up the league table of India’s top companies are such practices prevalent?

And how many of the family-controlled busineses that make up about half  the top 20 or 30 biggest Indian companies could one definitely rule out of the list of possible culprits? Not many, I guess! Even the Confederation of Indian Industry has today shown itself to be worried.

The Raju’s, for example, have close connections with politicians, as do many other groups, especially those in the power and construction industries. The Raju’s are very well linked in their home state of Andhra Pradesh. This was most recently visible with the chief minister, Y.S.Rajasekhara Reddy, defending the award of a Hyderabad metro railway contract to the Raju’s Maytas construction company after the award had been criticised last September by E. Sreedharan, who heads the Delhi Metro Corporation (DMRC).

Today’s astonishing confession by Ramalinga Raju stated that (this is a quote from the letter courtesy of Reuters click here for the full letter) :

“ 1.  The Balance Sheet carries as of September 30, 2008
           a. Inflated (non-existent) cash and bank balances of 50.40 billion rupees ($1.04 billion) (as against 53.61 billion reflected in the books).
          b. An accrued interest of 3.76 billion rupees which is non-existent.
          c. An understated liability of 12.30 billion rupees on account of funds arranged by me.
         d. An overstated debtors position of 4.90 billion rupees (as against 26.51 billion reflected in the books).

”  2. For the September quarter (Q2) we reported a revenue of 27.00 billion rupees and an operating margin of 6.49 billion rupees (24 pct of revenues) as against the actual revenues of 21.12 billion rupees and an actual operating margin of 610 million rupees (3 percent of revenues). This has resulted in artificial cash and bank balances going up by 5.88 billion rupees in Q2 alone. ”

As commentators today are saying, this is India’s Enron. It is also an unexpected result of the world financial crisis that is making foreign investors curb their irrational over-excitement about Indian stocks and query business practices. This raises many questions – most notably:

–      Can India’s slow and corruptly-infuenced legal system cope adequately and punish such fraud, or will the case drift away with fading memories? 

–     Where will the Raju trail lead, and who else will be implicated?

–     How implicated are company non-executive directors – who on Satyam’s board (as is often the case) include a former top bureaucrat – and auditors (PwC for Satyam)?

–     Which other company will be exposed next? There must be many candidates.

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Posted in India, India corporate governance, India software | Tags: , , , , , , , , , , , , , , , , , , ,

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