Posted by: John Elliott | December 3, 2008

Will the current crisis lead to Narendra Modi as PM?

The most depressing aspect of the debate that is swirling around India in the aftermath of last week’s Mumbai terrorist attacks is that no-one has an answer to the problem of what to do about the dire failings of India’s government and security services.

No-one has an answer because of the corruption-driven incompetence, and complacent inefficiency, that pervades all levels of government from the security agencies and government ministries down to officials running local fire brigades. This is so deeply entrenched that there is no simple answer.

How can you quickly introduce change in a society where, as I have written before, few politicians have any care for the future of the country, when caste and prestige rivalries block co-operation at all levels of government, and when selfishness dominates public life.

On the 24/7 television channel last night, Vikram Mehta, chairman of Shell companies in India, talked about a “collapse of decision making” and “systemic failure”. He spoke of the horror, watching last week from his Mumbai flat, the slow response of fire fighters at the Oberoi Trident Hotel – they took three hours to arrive at the site and pump water.

In the past day or two we have heard how warnings of an attack from the sea on Mumbai targets, including the Taj Hotel, came in the days and weeks before the attack from sources ranging from US intelligence officials  to local Taj waterfront boatmen. Even Ratan Tata, head of the Tata group that owns the Taj, says he was warned – the hotel’s front entrance was partially barricaded but, he added, simply, the terrorists came in the back door.

So it is not just national and state governments that are to blame. It is the whole country that seems to regarding security merely as a ritual (as I wrote on Sunday) – even though there have been 12 major terrorist attacks this year.

But even more worrying than the failures is the fact that no-one has any viable answers. The despair and anger against politicians, bureaucrats, and procedures – and the corruption that governs many policies and actions – is so deep that people are clutching at straws.

After delivering a damning indictment of the government machine last night, Mehta had no instant solution because there isn’t one. He fell back on what is a nice thought, but nothing more, saying “we need 40 or 50 young people as politicians to be in parliament and hold the balance”.

On the same tv program, Milind Deora, the 31-year old MP for South Bombay where most of the attacks took place, said he was “ashamed to be a politician”. Commenting on the way that politicians had reacted with indifference and a lack of leadership to the outpourings of grief and anger in Mumbai over the past few days, he said it was as if “they had rubbed mud in our faces”. The son of India’s petroleum minister, Deora is the sort of young MP that Mehta had in mind, but what can he and a handful of other similar young politicians do!

Palaniappan Chidambaram, the new home minister, is to produce an initial security plan on December 10. That might address some of a list of ten points listed in the Times of India on December 1, maybe including: unifying coastal and Indian Navy security operations, removing “turf walls” between the various security agencies (easier said than done), setting up National Security Guard (NSG) units in major cities, reviewing VVIP security so that it does not help politicians “strut around and flaunt their status” (something I mentioned recently), create a quick-response disaster and crisis management system, and introduce measure to de-politicise and improve policing.

It will be near impossible for Chidambaram however to execute many such reforms quickly, certainly not with a general election due by next March or April. Politicians and officials – including senior officers from the armed forces and security forces – will realise that he will probably not have the same job after the election so will delay changes, hoping he is replaced by a softer option that they can ignore.

Narendra Modi

What is needed is leadership from the top, and that cannot happen with this government because of the dual-leadership role performed by Manmohan Singh, the prime minister, and Sonia Gandhi, the government’s de facto political leader. She does not have the stature and there is little point Singh trying because Gandhi’s courtiers will warn her that he is becoming too self-important and is challenging her role.

So what to do?

I have heard two extreme ideas this week.

One is to have a state of emergency or even military rule. That is surely unthinkable.

The other is that the country needs tough rule by the Bharatiya Janata Party (BJP) led by its highly controversial Gujarat chief minister, Narendra Modi.

I wonder how long it will be before the failings of more acceptable politicians leads to Modi becoming prime minister?

9 Comments

Posted in India, India politicians, India terrorism, Manmohan Singh, Ratan Tata | Tags: , , , , , , , , , , , , , , ,

Posted by: John Elliott | November 30, 2008

Chidambaram is a good choice as India’s Home Minister

This is good news, at last.

Palaniappan Chidambaram has been made India’s home minister, replacing Shivraj Patel. He is one of India’s most focussed and analytical politicians, and he was a wasted resource at the Finance Ministry, now that the international financial crisis has switched the economic focus to Manmohan Singh, the prime minister, himself a former finance minister, and his office (PMO), along with Montek Singh Ahluwalia who runs the Planning Commission.

Chidambaram had security responsibilities as minister of state in the 1980s, so he knows his way around the security apparatus. He is also a top international lawyer, so can bring that skill and knowledge to the job.

He is not the most tactful of politicians, nor always the most polite, but these are not traits that are needed at this time. What is needed is that he establishes himself as the sole top authority on security and that he commands those down the line to follow his directions and perform. He then needs to put effective security systems in place and ensure they are implemented efficiently

This would be a tough test for any minister and Chidambaram needs to be allowed to get on with it, without interference from the PMO or other departments.

News that has emerged in the past day or so indicates that an attack from the sea had been expected for some time before Wednesday night’s terrorist assault on Mumbai, and that the waterfront Taj Hotel had warnings that it was likely to be a target.

This indicates that there was disastrously poor direction and management from the Home Ministry and PMO down to the targeted buildings. There were reports this afternoon that M.K.Narayanan, the national security adviser who works in the PMO, offered to resign, but PMO sources say he is staying.

Dynastic considerations

As an aside, it is worth noting that dynastic considerations (see my last post) have not played a part in these changes. Patil was protected for a long time because Sonia Gandhi saw him as a Nehru-Gandhi family loyalist – whereas Chidambaram, who was once part of a breakaway Congress party, is an outsider.

I wonder who is influencing Sonia Gandhi to make such a decision.

And who persuaded her to allow Sheila Dikshit, Delhi’s Congress chief minister, to play a leading role as the apparent chief ministerial candidate in the current Congress Party’s state assembly election campaign? Usually Congress politicians have to wait for the elections to be over before being announced by what is euphemistically known as the “high command”

Is Sonia Gandhi’s son Rahul, who is a general secretary in the party, influencing such events? It’s good news if he is.

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Posted in India, Manmohan Singh, Tata | Tags: , , , , , , , , , , , , , , , ,

Posted by: John Elliott | November 28, 2008

Indian security is a ritual and a political tool – not an anti-terrorism weapon

“Security in India is a ritual and rituals don’t need to be efficient”, a friend said to me this afternoon (Nov 27) as we talked about the continuing terrorist activity in Mumbai.

That came home to me as I walked through a crowded market adjacent to Delhi’s Janpath this evening. There were barricades and check points at either end of the market, but there was no checking – at one end a policeman was strutting around aimlessly, and at the other end a policeman, holding an electric scanner, was playing with a small child..

When I was in Mumbai a few weeks ago there was little visible security at the Taj and Oberoi hotels that are at the centre of last night’s terrorist attacks. One could walk in with being checked – in the case of the Taj through three different entrances. In Delhi, cars at some hotels have to open their boots (trunks) for inspections that are so cursory they are a waste of time.

Security is also something that politicians use primarily as a prestige badge of importance, employing government (or private agency) security staff and fleets of jeeps and cars to follow them around and boost their image. Regional politicians are the worst – especially some chief ministers of Punjab and Haryana, one of whom I have seen arrive at Delhi’s Khan Market with ten jeeps and saloon cars packed with AK-47-toting guards for a visit to a bookshop.

Security is also a political weapon. Those in power promote allies’ security grades (which earns them more public displays of importance), and demote it for opponents, with little care for individuals’ actual security risk.

But what security is not is a serious business of protecting people efficiently in a way that would minimise the chances of terrorist attacks like those in Mumbai last night.

Compounding the problem is India’s disastrous home minister who is widely regarded as useless, but seems to keep his job because he is trusted by Sonia Gandhi, the leader of India’s Congress Party and the ruling coalition – dynasties like the Nehru-Gandhis often appoint people to sensitive posts more because of their family loyalty than their competence.

A televised address to the nation this afternoon by Manmohan Singh, the prime minister, made some of the right noises, but Indian ministers are always better at statements than execution.

He said instruments like a National Security Act would be “employed to deal with situations of this kind”, laws would be tightened, and a planned Federal Investigation Agency would “go into terrorist crimes of this kind and ensure that the guilty are brought to book”.

He even made the inevitable criticism of un-named neighbouring countries (Pakistan and possibly Bangladesh) and said that the “use of their territory for launching attacks on us will not be tolerated” – not that India is likely to be able to do much about it.

Nothing will really change – and India will not begin to get efficient protection against terrorism – till security stops being a ritual and a political tool and becomes a serious business.

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Posted in dynasty, India, India terrorism, Manmohan Singh | Tags: , , , , , , , , , , , , , , , , , , , ,

Posted by: John Elliott | November 27, 2008

Mumbai Taj and Oberoi attacks go to the heart of India’s pride

There is something specially symbolic about a terrorist attack on a major hotel, especially one which is a haven for foreign visitors.

Two months ago it was Islamabad’s Marriott Hotel that was hit by a massive truck bomb in one of the worst attacks to happen as the battle between the Islamic militants and the Pakistan establishment escalated. For years the Marriott – earlier a Holiday Inn – had been a symbol of some sort of normalcy in an increasingly dangerous country. No more!

Tonight the majestic and historic Taj Hotel on the waterfront in Mumbai has been besieged, and some of its splendidly gracious corridors and rooms set on fire, in one of several terrorist attacks on the city.

Flames rising from a wing of the Taj hotel - Reuters pic

Flames rising from a wing of the Taj hotel - Reuters pic

The Oberoi Trudent hotel, on the other side of the peninsula that constitutes south Mumbai, was also attacked along with other targets including a popular restaurant near the Taj.

There is the additional factor that foreign passport holders – especially American and British – seem to have been targeted, and some held hostage.

There is the tragedy of the deaths totalling over 80, with more than 200 injured, as I write.

This takes terrorism to a new level in India, which has been accustomed to various types of attacks for some 25 years – including the killing in 1984 and 1991 of prime minister Indira Gandhi and her ex-prime minister son Rajiv, plus attacks on the parliament in Delhi and Mumbai railway trains in more recent years.

There has been obviously careful and highly competent planning of the attacks, plus the combination of bombs and shooting in two of India’s most famous hotels, and the targeting of foreign tourists.

For Indians the Taj – now a favourite top price business and tourist location – has a special signficance because it was opened by Jamshed Tata in 1902 as a hotel where Indians could go and avoid British-only rules that applied elsewhere.

India has tonight become a much less safe place to be than it seemed just a day ago. That of course is what the terrorists intend.

8 Comments

Posted in India, India hotels, India terrorism, Indira Gandhi, Mumbai, Rahul Gandhi | Tags: , , , , , , , , ,

Posted by: John Elliott | November 24, 2008

Is it time to re-examine Tata’s Jaguar and Land-Rover purchase?

It has been reported over the weekend that Tata Motors is asking the British government for a £1bn loan to rescue Jaguar and Land Rover (JLR) from financial collapse because of falling demand and the company’s problems raising finance to cover debt.

The story originated in The Sunday Times (UK) and has this morning been reported world-wide, though without confirmation (or denial) by the company, which has only confirmed it is involved in industry talks with the government.

We have been here before. As I pointed out when Tata – headed by chairman Ratan Tata – bought the two companies for $2.3bn earlier this year, it was buying into 40 years of troubles. In 1968 British Leyland was formed by the UK government to rescue ailing car companies – including Jaguar and Rover – and most have since collapsed.

[Added Dec 10 ’08: See http://www.nytimes.com/2008/11/18/business/economy/18car.html?_r=2&em=&pagewanted=all for more details of the history, including  how the British government had committed £11bn at today’s prices by the 1970s to save BL, and Ford spent another $10bn later before it sold Jaguar to Tata]

I was highly sceptical last year about Tata’s purchase and was viciously attacked by readers, mostly overseas Indians (NRIs) living in America, for saying Jaguar in particular might be a bad fit.

It is not the fault of Tata management that the world is in financial crisis. Other far larger car companies – notably GM and Ford – are in far worse straights.

But the appeal for help does underline how Tata has over-stretched itself with JLR, and in buying the Corus steel company for £11.3bn. Now the market value of Tata Motors – and Tata Consultancy Services, the group’s cash cow – have fallen sharply.

This seems therefore to be a good time for a reappraisal of whether Jaguar and Land Rover are worth rescuing – and whether Tata (which has its own problems in India with falling demand and its delayed low-cost Nano car project) is the right company to do it.

The British government should surely analyse that before it makes a decision, reportedly expected in two weeks’ time.

Should it be using British taxpayers’ money to bail out the Indian owner of two companies that several other owners have failed to turn round in the past 40 years?

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Posted in India, Ratan Tata, Tata, Tata Motors | Tags: , , , , , , , , , , , , , , , ,

Posted by: John Elliott | November 23, 2008

“Bed and Bhai” rules India’s aviation

It was an extraordinary session yesterday afternoon at the Hindustan Times’ Leadership Summit when  three men, who between them more-or-less control India’s airlines, assembled on the stage and play-acted their way through a 45-minute session. They told us little, but revealed a lot about how well they get on together

There was Naresh Goyal, founder chairman of Jet Airways, who has got on famously with successive aviation ministers for years. Also Vijay Mallya, founder chairman of Kingfisher Airways (named after his United Breweries’ beer), who gets on well with all sorts of people, including ministers. Between them the two have 55-60% share of India’s air traffic.

And there was their ringmaster –  the urbane minister of aviation, Praful Patel, the government’s top Teflon Man, who controls Air India which has an 18% market share. He is clearly a good friend of Goyal and Mallya, though he mostly kept himself teflonically detached on the stage.

The theatre started well. The moderator had said that Jet and Kingfisher were now “in bed together” –  a reference to the two airlines co-operating to make savings. The two men would “not go to bed because we still like girls,” commented Goyal.

Goyal respectfully greeted “Patel Bhai” (bhai = brother). A few minutes later Patel said: “I hope you don’t misunderstand when Naresh Goyal said Praful Bhai” – scarcely surprisingly given the phonetic connotations, and that bhai can mean an underworld don in Mumbai.

The only slightly serious moment was when Patel asked them to lower airfares, now that fuel prices have come down dramatically, and they both said No. I suspected that was scripted, though Patel has hit back this morning with a story in the Business Standard that Air India will be reducing its prices – subsidised by the government which will inject more equity into the ailing carrier and will no doubt give more to bale it out if necessary.

The air fares point led to more jokes yesterday. Mallya said there was a similarity between his drinks and airlines businesses –“they both make you fly”. Goel commented later that he only had an airline to run, whereas “Vijay can live on the liquor” if reduced airfares lost him income (Kingfisher Airlines has never made a profit).

But the most interesting part of the session was the way that Patel managed (as he always does) to talk about India’s airline problems as though they were someone else’s responsibility, without acknowledging they are really his failings. The problem, he said, is infrastructure and a lack of a world-class “hub” like Dubai or London. The country needed more efficient airports, and it needed a school for pilots. Without those things, he seemed to be saying, don’t expect things to get better,.

Patel proudly said that there are now 400 passenger aircraft flying in India compared with 100 in 2004, without of course acknowledging that he has done little to make their operations efficient on the ground.

In the four years that he has been aviation minister, he could have done much more to improve the infrastructure at countless chaotic inefficient airports around the country, instead of just basking in the glory of having privatised (through highly questionable procedures) Delhi and Mumbai airports. And the government could have encouraged the formation of a pilot school.

The audience loved it. All good theatre but no substance!

3 Comments

Posted in India, India airlines, Vijay Mallya | Tags: , , , , , , , , , , , , ,

Posted by: John Elliott | November 21, 2008

Sonia Gandhi leads Congress to the Left for the next election

We heard in Delhi this morning the gist of the Congress Party’s manifesto message for the next general election that is due by March-April next year but could come sooner.

It will be that India has been served well by the party’s mixture of protectionism and liberalisation, including state ownership, that has been implemented in various forms by the Nehru-Gandhi dynasty for 60 years.

Most importantly, this approach has protected India from the financial contagion that is wreaking havoc with the US and European financial systems and economies. Trust Congress therefore, and vote them back into power!

This became clear when Sonia Gandhi, the Congress president and leader of the ruling United Progressive Alliance (UPA) coalition government, addressed the annual Hindustan Times Leadership Summit in Delhi.

There’s always been a suspicion that, at heart, she is what in Britain we would call an “old Leftie”, instinctively worrying (rightly) about the plight of poor farmers rather than pushing industrialisation, and very much at home with the softer of India’s communist party leaders.

Bank nationalisation defended

She confirmed that this morning when, with only the slightest hint of humour, she defended what many people regard as undefendable – nationalisation of India’s banks that her mother-in-law, Indira Gandhi, implemented in 1969.

“Our prudence has been most marked in the case of the financial sector,” said Sonia Gandhi. “If you allow me the liberty of showing what is to you the proverbial ‘red rag to the bull’, let me take you back to Indira Gandhi’s much reviled bank nationalization of 40 years ago. Every passing day bears out the wisdom of that decision. Public sector financial institutions have given our economy the stability and resilience we are now witnessing in the face of economic slowdown”.

Vir Sanghvi, a leading editor and columnist who was chairing the session, referred jokingly to her “Brezhnevian” remark (a reference to the old Soviet leader) but seemed convinced that her speech had been mapping out a Trust Us theme for the manifesto.

Indirectly condemning what has happened in the US and elsewhere, Gandhi said: “The poor had nothing to do with the hubris of the rich”. They had “nothing to do with the fancy-sounding financial instruments” that had ensnared so many. “Should the avarice of a few be allowed to inflict misery on the many?”

The “inviolable” objectives should be: an open society and economy, but not an unregulated one; the freedom to pursue prosperity but not at the expense of social justice; individuals’ rights to fulfil their potential but not with “conspicuous consumption” that overwhelmed “simplicity and restraint”.

Her defence of bank nationalisation horrified many businessmen. They knew she was not advocating further nationalisation, but they were worried that she should choose that example to defend India’s position. Many would like the government-owned banks, which dominate the sector, gradually privatised so that they can shake off decades of cumbersome and costly inefficiencies, but that doesn’t now look likely any time soon.

One famous tycoon rolled his eyes to the heavens and said to me, despairingly: “Her role model is not her husband (Rajiv who pushed liberalisation in the 1980s) but her mother-in-law”.

A commentator pointed out that Indira Gandhi’s views on protecting the poor rather than opening up would have been absorbed by her daughter-in-law during Sonia Gandhi’s early formative years in Delhi in the late 1960s and 1970s. So it was not surprising that she referred to the banks, even though she also backed her husband’s liberalisation efforts.

But another businessmen angrily said: “Doesn’t she realise Indira Gandhi only nationalised the banks to gain control of the country’s financial institutions to use them to her own ends”.

Not everyone was anti. M. Damodaran, who headed SEBI, India’s stock market watchdog till earlier this year, said it was “music to his ears” to hear someone defending the merit of government ownership of important financial institutions that could guard against wide disparities of wealth. “I’ve been almost a lone voice saying this for 40 years,” he said.

Two other company heads also saw the need for some state control. One said the State Bank of India had saved their company. Another, now heading a big foreign multi-national in India, said a mixture of state and private sector control was needed in a country like India.

The Gandhi message is powerful. The Congress-led government has (though she didn’t put it quite like this) prevented India’s greedy would-be private sector bankers from behaving like those in the US and elsewhere, who personally pocketed millions of dollars a year and led the international system into disaster.

That of course will not resonate with India’s vast rural electorate in the same way that it would in the cities or in the West, but it is a useful line when the government cannot claim to have done much to improve the lot of the poor in the past four years.

4 Comments

Posted in India, India economy, India general election, Nehru-Gandhi dynasty | Tags: , , , , , , , , , , , , , , ,

Posted by: John Elliott | November 19, 2008

“Yes we can” but “No we don’t” – Businessmen hit at India’s failings

The economic crisis is beginning to flush out some of the frustrations felt by India’s top entrepreneurial businessmen, who are saying how appalled they are by the way much of the country is run.

This began to emerge this week in the wings of the otherwise mostly-boring annual World Economic Forum (WEF) in Delhi – a Geneva-based public relations-driven institution that has thrived in the boom times but showed this week it has yet to learn how to structure its events in a crisis.

Most people did not want to admit there are serious problems – especially Palaniappan Chidambaram, the finance  minister, and Montek Singh Ahluwalia, head of the planning commission. There were of course exceptions – including speakers in software outsourcing, real estate and airlines.

Broader worries came from two of India’s top IT entrepreneurs. One, talking in the wings of the conference, was Nandan Nilekani, a founder and now co-chairman of Infosys, a software market leader. The other was Pramod Bhasin, founder and ceo of Genpact, a top ranking call centre and BPO operation that began life as a GE company.

Bhasin made his remarks in a WEF session and then repeated them to me afterwards. Commenting that India “is in serious crisis – in denial” he said that “politics are not getting any better and public services don’t work”. India was good as “repositioning” itself but could not “execute” what it decided.

“Fraying at the edges”

“Can we get power organised – water to the right places – roads, drainage,” he asked rhetorically, adding his punch line: “This country is fraying at the edges.”

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Nilekani is thoroughly enjoying himself now that he has shed his line management responsibilities at Infosys and has joined the ranks of international opinion formers and commentators – a ranking that opened up after he inspired the title The World is Flat for Thomas Friedman’s best-selling book.

The world of course is not flat – at least not in the usual sense of a level playing field, as Mani Shankar Aiyar, a politician and polemicist, memorably told Friedman at the book launch in Delhi three years ago.

Nilekani is in a way picking up Aiyar’s theme in his new book “Imagining India – ideas for the new century that is to be published on November 24. He looks at what he calls “horizontal” themes. These are basic failings such as poor education, health, environment, and infrastructure that need to change if India is to begin to operate in a flat world. More on all that next week.

Meanwhile, though Nilekani is clearly an optimist, he was scathing in an article he wrote in the Times of India last Sunday.  It was headed, courtesy of Barack Obama,  “Yes We Can”, but one section should have been sub-headed “No We Don’t”.

“Play a waiting game with an Indian, and you will always lose,” wrote Nilekani.  “Indians – inured to serpentine queues, traffic jams, foundation stones laid for bridges never built – have long adapted to an economy that moves slowly and that has, in key reforms, struggled over the last mile.
 
“India’s policy makers and politicians have been great at forming agendas and presenting blueprints, and our five-year plans have been nothing if not exhaustive. Our big weakness has been in execution…….

“This response-led strategy has not been a good model for growth. It has made chaos the rule in our crumbling cities, our highways that meander into deadends and mud roads, and in schools with failure rates of 100%.

“In essence, while the Indian economy has changed over the past 25 years, the state has not. Our public institutions function under the same rules and incentives as they did in 1980 and under standards that date back to colonial India. What is required is a fight to remove long-rooted interest groups and bring about fundamental changes to our governance.”

When I haven written things like things like this in the past, especially when this blog was on Fortune.com, I was assaulted verbally by irate readers – mostly it seemed NRIs living in north America.

Let’s hope that the cries for change from Nilekani and Bhasin, both highly successful entrepreneurs based in India, are heard and picked up. If you want to join the debate, please comment here – and on Nilekani’s blog – welcome to the blog-sphere Nandan!

Nilekani’s Penguin promotion

ps: Nilekani’s blog is part of a website forum where he hopes Imagining India’s issues and ideas will be taken forward. The site has a detailed breakdown of the book, and leads on to a site (Indiaplaza) to buy copies online. Nandan’s book also marks the launch in India of Penguin’s Allen Lane imprint, which is designed to cater for ideas. Promotional plans around the book include a tieup with a coffee chain and a contest on ‘Imagining the India of your dreams’, and a link with a mobile service provider.

2 Comments

Posted in India, India economy, India education, India environment | Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

Posted by: John Elliott | November 14, 2008

Kingfisher dives towards United Spirits’ piggy bank – and DoCoMo helps Tata

A month ago we all knew that the world’s financial crisis was hitting India when the unthinkable was splashed across newspaper front pages – Kingfisher Airlines was talking to its bitter rival Jet Airways about co-operating in order to curb the drain on its funds.

This week Vijay Mallya, Kingfisher’s chairman, has done it again by talking to Diageo, the world’s largest liquor group, about selling maybe a 15-20% stake in his United Spirits company. His aim is to raise $400-500m (or more). He hopes to find a way of using that to help his ailing airline, which is said to be leaking $2m a day, even after the recent cuts in aviation fuel prices.

He has defaults, payment disputes, and over-due payments for charter aircraft, airport handling and oil supplies – and (along with other airlines) has to cope with an appeal from the prime minister’s office (PMO) not to lay off staff.

Now he is trying to raise more cash by persuading the government (Financial Times report) to allow foreign airlines to invest in Indian carriers – something Jet Airways has successfully persuaded the government not to do for years.

Vijay Mallya’s low spirits

United Spirits, a wholly-owned subsidiary of Mr Mallya’s UB group, is the world’s third largest liquor company and is regarded as a major UB cash cow. For a foreign rival to be allowed a slice of its equity illustrates graphically what is happening to companies like Kingfisher Airlines that over-reached themselves in the boom.

No-one is saying publicly what people at United Spirits think about a major rival cashing in on their business because of the airline’s misery. Rumours suggest they are far from happy and wish their ebullient – but currently depressed – boss would forget his airline and his cricket and Grand Prix racing teams. They would like him to forgo ego trips for a bit and focus on the core beer and liquor business that he has built up in the past 25 years from his father’s inheritance.

In any case, it is far from clear that Diageo will buy a stake. The story appears to have been planted on The Economic Times yesterday morning to inject some buoyancy into UB’s share price.

Diageo commented, rather stiffly I thought, that it was “reviewing a possible collaboration” with United Sprits, but – significantly – there was “no certainty at this stage that these discussions will result in a transaction”. That suggests that the story is very premature

Some reports say that valuation of a stake is the main stumbling block but there are other problems – not least how the two businesses would co-operate  – specifically, how Diageo would achieve its major aim of using United Spirits’ excellent distribution networks and supporting relationships for its leading Johnnie Walker whisky and Smirnoff vodka brands that compete with UB.

But why would anyone would want to buy around 15-20%? Such a stake would carry no clout under Indian company law, where 26% is the key figure to have some say in company decisions – as DoCoMo clearly realises (see below). Go for 26% Diageo, or don’t go at all!

 Tata’s getting worried too

Ratan Tata is also getting concerned about the impact of the crisis on his group, especially after splashing out in the past year or two with Tata Steel the buying Europe-based Corus steel company, and Tata Motors picking up the UK’s Land Rover and Jaguar brands. With both purchases, he was gambling on a buoyant world economy boosting demand for steel and for cars at the luxury end of the market.

Now the tide has turned. Two weeks ago Tata Motors had to prop up a Rs41.5bn (approx $1bn) rights issue designed to refinance a $3bn loan for its $2.4bn purchase after investors, including leading Indian and foreign institutions, shied away. It has also cut back production.

Mr Tata has  warned senior management “to be sensitive and conscious of the difficult financial circumstances existing today”. A spokesman said they had been “requested to be proactive to focus on cash flow and conserve expenditure wherever prudently possible”.

Media reports say – no doubt correctly – that Mr Tata has gone considerably further in a memo to senior staff and warned that failure to manage the crisis could lead to “irretrievable positions”. Acknowledging the problems faced in raising funds at home and abroad, he said companies should put any planned acquisitions on hold unless they were strategically critical.

That sobering news was quickly offset in pr terms with an announcement that DoCoMo, the Japanese telecom company, is paying $2.7bn got a 26% stake in Tata Teleservices, one of India’s least successful mobile operators. Though less than Tata would have got for the stake a year or two ago, that is a good price and a welcome injection of funds for the group. Presumably it had been planned for some time, unlike Mr Mallya’s reach for a Diageo lifeline.

1 Comment

Posted in India, India airlines, Ratan Tata, Tata, Tata Motors, Vijay Mallya | Tags: , , , , , , , , , , , , , , , , , , , ,

Posted by: John Elliott | November 11, 2008

India’s telecom minister “should be fired” for a company’s 700% profits

It’s good to see a newspaper coming out with a clear line – and one which is equally clearly right. Mint, a leading India business daily, ran a front page comment this morning headed “Raja should be fired”, pointing out that decisions taken by A.Raja, the telecom minister, “have cost the government dear”.

Mr Raja’s “mistake” (a kind euphemism if ever there was one) was that he did not auction new spectrum (needed for mobile communications). Instead, he allocated it early this year to companies that applied, on a first-come-first-served basis, for fees that were fair in 2004 when there were only about 50m mobile phone subscribers in India – now there are 310m so the fees should be much higher.

The Business Standard ran an editorial on October 31 headed “Licensed to make a killing”, and mentioned how spectrum had been “handed over” to a few “select” (another neat choice of words) firms.

Two of those companies, Unitech and Dynamix Balwas’s Swan Telecom, had absolutely no telecom experience but have now made huge profits out of the allocations.

When the awards were made, I asked a contact why such infrastructure and real estate companies were entering telecom. I was told that Mr.Raja had previously been environment minister – a job that brings contact with real estate companies, which become close to ministers and officials so that they obtain all the permissions and advantages that are available. So what could be more logical than to see such companies following Mr Raja to the telecoms ministry – and benefitting so royally.

Unitech paid $350-400m for its spectrum allocation, and then sold a 60% stake to Telenor of Norway two weeks ago for $1.3bn, putting a valuation of $2.1bn on the company. That’s a profit of about 700% in less than a year – and just for owning the spectrum without any customers or experience.

Swan similarly paid about $340m and sold 45% of its equity for $900m, giving the company a valuation of $2bn – a six-fold increase. In both cases, the extra funds more than filled coffers depleted by the dramatic turn-down in the real estate market.

The alarming point about this story is not just that a cabinet minister has been conducting these events, but that nothing is being done to stop him. Mr Raja was chosen for his ministerial slot not by the prime minister, Manmohan Singh, but by the chief minister of his Tamil Nadu-based DMK political party – such is the way in coalitions that depend for their continuation in office on the support of regional parties that have no national perspectives.

Manmohan Singh has publicly said that spectrum should be auctioned, but can do nothing to rein in Mr Raja – such is the way in coalitions.

What a way to run a would-be super-power!

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