Posted by: John Elliott | July 23, 2008

Bribery claims cloud India parliament ahead of U.S. nuke deal

Three major events happened this week in New Delhi. The first, of course, was that the Congress-led United Progressive Alliance coalition (comfortably) won a confidence vote in parliament, which means that India’s proposed and long-delayed nuclear deal with the United States has full parliamentary approval.

The second was that the rampant extortion and bribery that have swept across Indian politics in the past few years were paraded in parliament and on television. Members of the Bharatiya Janata Party (BJP), the main opposition party, stormed into the central area of the Lok Sabha (lower house of parliament) waving thick wads of rupees that they claimed they had been offered to abstain from voting.

The third – and equally significant – event was the emergence of 39-year old Rahul Gandhi, who is widely regarded as a future prime minister, as a credible parliamentary performer. When the fallout of the latest drama has cooled down, this will be seen an important step in Gandhi’s development as the heir apparent to three former prime ministers: his father Rajiv Gandhi; his grandmother Indira Gandhi; his great grandfather Jawaharlal Nehru; and his mother, Italian-born Sonia Gandhi, who leads the Congress Party and UPA coalition.

Rahul Gandhi with his sister, Priyanka

Rahul Gandhi with his sister, Priyanka

Until now, Rahul Gandhi has failed to emerge as a competent politician, despite having been a member of parliament for four years and being projected as the Gandhi’s heir. In recent months, he has been laboriously touring the poorest parts of India, meeting people and hearing their problems – preparing himself, he has said, for his political future.

This week, for the first time, he spoke with confidence in parliament about energy security and the benefits of nuclear power. He parried interruptions and coped calmly with the parliament having to be adjourned because opposition MPs objected to some things he was saying.

The bribery allegations were made when BJP MPs threw bundles of notes totaling one crore of rupees ($230,000) onto the Lok Sabha table. Three MPs alleged that they were offered nine crore of rupees ($2 million) to abstain by the Samajwadi Party, the Uttar Pradesh party that has provided the basis of the government’s support since Communist-led Leftist MPs withdrew earlier this month. They said that this had been endorsed in a telephone call with Ahmed Patel, Sonia Gandhi’s political secretary, thus implicating her and the Congress Party.

Both Patel and the Samajwadi deny the allegations. The Speaker of the Lok Sabha will now hold an inquiry. But whatever the truth of the MPs’ claims, it is widely accepted that many offers of ministerial jobs, political favors, and cash have been demanded by, and awarded to, MPs to switch sides or abstain. These attempts at coercing MPs have been much more blatant than in the past, and they illustrate how corrupt politics in India has become. It is not just the fact that big sums of money were offered, but that political parties have – through extortion and bribery – gathered sufficient funds to be able to afford them.

Despite all that, India can now move ahead with the nuclear deal at the International Atomic Energy Agency (IAEA) and the 45-nation Nuclear Suppliers Group (NSG). It hopes that it can overcome some opposition in these two organizations fast enough for the U.S. Congress to approve the deal before President George W. Bush leaves office.

This will open the way for large-scale nuclear power contracts for companies from the United States, Russia, France and elsewhere. The United States also hopes it will improve the chances of its companies winning big defense orders involving companies. Companies such as General Electric (GE), Boeing (BA), Lockheed Martin (LMT), Honeywell (HON), and Raytheon (RTN) stand to gain.

This week’s vote was a major success for Manmohan Singh, the prime minister, who forged the deal with the United States and has taken the initiative in recent weeks to push it through parliament. A shy and retiring former bureaucrat, he has emerged as a capable politician.

He is expected to try to introduce long-delayed economic reforms in the coming months, now that he is no longer shackled by opposition from the Leftist parties. The reforms could include liberalizing pension funds and banking as well as divesting stakes in some public sector companies. He will, however, run into opposition from various vested interests and is likely to avoid anything that needs parliamentary approval because the coalition’s majority in the Lok Sabha is shaky due to the the hodgepodge of small and unreliable parties that formed the majority this week.

But the overwhelming image at the end of a tumultuous two days of debates in the Indian parliament was not the government’s victory, nor Rahul Gandhi’s emergence as a credible politician, but of the MPs waving the bundles of rupees in the air, alleging they had been offered mammoth bribes.

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Posted by: John Elliott | July 17, 2008

Big payouts aim to swing votes in Indian parliament

The future of relations between India and the United States – and the future of the two countries’ proposed nuclear deal – partially hangs on changing the name of Lucknow airport in the state of Uttar Pradesh. It also hangs on how six members of parliament, jailed for murder and other crimes, vote July 22 on a confidence motion that will determine the fate of the current Congress Party-led coalition government.

The gap between the coalition and its opponents in the 543-member Lok Sabha (lower house of parliament) has narrowed this past week since the Communist-led bloc withdrew the support of its 59 MPs over the nuclear deal. There is now a risk that the government could be defeated, and this has led to horse trading that exceeds anything seen before.

Bribes as high as $6 million have been offered to some MPs to switch sides, according to widely believed newspaper reports.

Welcome to politics in India where worries about inflation and an economic downturn have had no effect on political parties’ spending.

Bribes have been paid to MPs to change parties for many years, but the sums have now become enormous because of huge amounts of money collected through extortion by top politicians, especially in regional parties.

MPs and their leaders usually want cash or favors, or both, but re-naming an airport is new. The government has agreed that Lucknow airport (the capital of UP) should be called Charan Singh Airport after a farmers’ leader and regional politician from the 1980s. It hopes this will persuade his son, Ajit Singh who leads the regional Rashtriya Lok Dal party, to cast his three MPs’ votes for the government.

It is also usual for major companies to become involved in political horse trading, but bigger stakes are involved this time – summed up in a headline “Govt’s Reliance is on Sahara” in the New Indian Express daily newspaper on July 14. This referred to a battle between Mukesh and Anil Ambani, brothers who control business empires called Reliance, plus a UP businessman, Subroto Roy, chairman of the Lucknow-based Sahara group.

Anil Ambani and Roy are close friends of the Samajwadi Party, which last week partially replaced the 59 Communist-led MPs as the coalition’s main supporter, giving the government confidence that it could win a parliamentary vote and save the nuclear deal. It is widely believed, as I suggested last week, that Anil Ambani is using the Samajwadi’s new links with the government to swing policies against his brother. Roy also wants favors from the government. The Reserve Bank of India is trying to curtail lending to his para-banking companies, on which his vast property-based empire depends for funds.

Mukesh Ambani is reported to have countered his brother’s lobbying by trying to persuade some of the Samajwadi Party’s 39 MPs to defect to parties opposing the government, which would lead to the defeat of the government and limit his brother’s political leverage. He met Manmohan Singh, the prime minister, earlier this week in what government spokesmen insist was a routine meeting.

Meanwhile, six MPs jailed for crimes from extortion to murder are being freed for a few days so that they can take part in the confidence vote. Convicted MPs are allowed to vote in parliament and the government hopes to win their support. One of the MPs has been jailed for life for murdering a political opponent and faces 40 other cases of murder, abduction and extortion.

Virtually none of the small parties’ leaders and MPs involved in this horse trading have any interest in whether the nuclear deal goes through or not. They are simply interested in personal power and riches. The Samajwadi Party, for example, was a vitriolic opponent of the government, and was against the nuclear deal, till a week or two ago. Now it sees political advantage in tying up with the Congress Party, both for short-term gains, assuming the government survives, and in alliances for the general election.

The horse trading will continue for another five days till the July 22 vote. No one is sure who will win, apart from those who receive big payouts and are temporarily released from jail – and have an airport named after their father.

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Posted by: John Elliott | July 9, 2008

Manmohan Singh wins the first stage of his nuke gamble

At last, he has done it – after looking like a weak prime minister of India for most of his four years in the job, Manmohan Singh has exerted some authority and forced his Congress Party-led government to go ahead on its long-delayed, proposed nuclear deal with the United States. In the process, he has driven Communist-led Leftist parties from their government-supporting role and is actively courting new allies so that the administration can stay in power.

This has been going through the works for the past week or so, but was visibly confirmed today in Toyako when, on the margins of the G8 meeting, Singh discussed with President George W. Bush how the deal can be brought to conclusion before the U.S. elections in November.

“I am very pleased with the state of our relationship, which has truly acquired the characteristic of a genuine strategic partnership,” Singh said after the meeting, using words that underlined the main point on which the anti-U.S. Leftist parties base their opposition to the deal. He had threatened not to go to the G8 meeting if he did not have the draft deal in his pocket.

India’s next step is to seek approval from the United Nations’ Geneva-based International Atomic Energy Agency (IAEA), which confirmed today that the deal’s draft nuclear safeguards have been submitted to the agency’s board of governors. There have been reports that it will be formally considered on July 28.

Then India will need approval from the 45-nation Nuclear Suppliers Group (NSG), where there might be some opposition because India has not signed the international nuclear Non-Proliferation Treaty, and finally approval from the U.S. Congress. There will be opponents at each stage.

The government is pinning its not unrealistic hopes of survival on support from the Uttar Pradesh-based Samajwadi Party, which has suddenly become a friend of the Congress Party after four years of bitter personal animosity between its leaders and Sonia Gandhi, who heads the Congress Party and governing coalition.

But the Samajwadi’s 39 MPs will not be sufficient on their own to make up for the 59 Leftists, so the government is pulling in other smaller parties to make up the numbers. Some of the 39 are showing signs of defecting and other parties are playing hard-to-get. Extensive horse-trading in terms of personal favors, policy changes, election deals, and what are euphemistically called “suitcases” (of money) is already under way to secure the votes.

The support will probably be tested in a parliamentary confidence vote sometime in the next two weeks so that Singh can demonstrate he heads a stable administration in advance of the IAEA formal meeting. President Pratibha Patil is meeting Singh on July 10 to discuss a confidence vote.

If the government were defeated, India would have an early general election – maybe in November – instead of on its due date of April-May next year.

The deal would lead to contracts worth billions of dollars for European and U.S. nuclear power companies, with France and Russia currently in the lead alongside the United States. Slowly, it would help India to expand its currently tiny nuclear power generation at the same time as maintaining a controversial nuclear weapons program.

Singh is probably privately pleased to be rid of the Leftists. In addition to trying to scupper the nuclear deal, they have blocked many economic policies including cutting subsidies, allow foreign direct investment in general retailing and in defense manufacturing, as well as raising foreign investment limits in insurance companies.

The Left’s exit does not mean that all these policies will now be implemented. In each case, it has been allied with vested interests such as big Indian retail groups and the defense establishment which still wield blocking power.

Some people however will benefit quickly. Anil Ambani, who heads ADAG Reliance companies is close to Samajwadi leaders and has lost out to his rival brother, Mukesh Ambani who runs the RIL Reliance companies, while the Samajwadi has been at loggerheads with Gandhi. He might well now find it easier to iron out any foreign direct investment wrinkles on his proposed merger with MTN, the South African telecoms company, and he might also gain an advantage on other government projects.

It has always been arguable whether the deal is good for India because, as the Left and others say, there is a serious risk that India will have to toe the U.S. line on foreign policy. That would be tested quickly if the international confrontation with Iran escalates because India does not believe in the use of force against its ally.

Most of the nuclear power gains will take many years to be realized, although India’s current nuclear power stations will be able to obtain supplies of much needed uranium. There will be other gains for Indian companies involved in nuclear-linked technology because they will find it easier to obtain components, and tender for contracts, internationally.

But before all this can happen, the government has to get through the next couple of weeks and prove it has a parliamentary majority. My bet is that it will succeed – although it will probably be a last minute cliff-hanger as potential supporters hold out for as many benefits as possible.

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Posted by: John Elliott | July 7, 2008

India’s education is a $120bn business opportunity

There’s a new business opportunity opening up in India that could become as big and popular for investors as telecoms and retailing.  It is education, which is one of the biggest blockages to India’s growth and development because standards are currently so bad.

Even poor families spend 20% of disposable income on private schools and universities, rather than expose their children to 950,000 mostly ill-equipped and under-staffed government schools. Independent surveys have suggested that absenteeism by teachers (yes, teachers!) averages 25%, rising to more than 40% in the poorest and least regulated states. Absenteeism by children is also high — 20% among those aged between 15 and 16.

The availability of secondary education is vastly below demand, and many graduates are ill-equipped for employment. Only 7% of young adults between the ages of 18 and 24 go to universities compared with 16% in China and far more in the United States and Europe. Many that do go emerge ill-equipped for employment. NASSCOM, India’s software trade organization, said in 2006 that only 25% of graduate engineers and 10-15% of ordinary graduates applying for IT jobs were employable, echoing statistics in a 2005 McKinsey report. Kiran Karnik, who was then NASSCOM’s president, primarily blamed obsolete curricula and equipment

Although there are a few signs that school attendance is improving, this dismal record shows that India risks missing its widely trumpeted “demographic dividend”  — 40% of its 1.2 billion-population are under the age of 18. There’s not much point in having one of the youngest populations in the world if they are under-educated.

Technopak, a Delhi-based investment consultancy, estimates that the current private-education market is worth $40 billion a year, and that this could roughly triple to $110-120 billion in ten years’ time. The potential is attracting foreign companies such as Pearson Education (PSO), part of the UK-based publishing group, and McGraw-Hill (MHP), as well as private equity firms that include Blackstone (BX), New Vernon, and Deutsche Securities, part of Deutsche Bank (DB).

Government regulations, however, restrict what Indian and foreign private-sector companies can do. For-profit investment in schools and universities is banned, but it is allowed by charitable trusts, which run some 50,000 schools. Many of the trusts have been formed by companies that theoretically plough back the profits, though many siphon money into other businesses. One of the largest companies, the family-controlled Amity University, has 50,000 students across the country.

There are also about 50 for-profit schools, which are allowed to slip through the controls because they are affiliated with international bodies like the International Baccalaureate (IB) examination program. Some private-sector groups run a profit-making IB programs alongside (notionally) Indian-affiliated nonprofit programs.

Real estate companies have also found a way into the country’s education business by linking up with firms like Educomp (considered to be India’s biggest education provider) and foreign firms to equip and run charity-registered schools for children of families that buy their homes.

There’s a debate in the government about whether formally to allow private-sector companies to investment in education for profit – instead of tolerating these sorts of loopholes – but the idea has been blocked by Leftist Communist-led parties, which oppose limiting the role of the public sector.

This leaves two major areas where the private sector is not restricted.

One is vocational training, which is attracting several major Indian companies like Larsen & Toubro, the Singhania family-controlled JK group, and Bharat Forge, the world’s second-largest forgings company. These companies are not after profits so much as a steady stream of young people who are educated and trained in urgently-needed subjects and skills. They have found that the only way to fill the void left by the public sector’s failures is to act themselves, supplying colleges with appropriate curricula, and guaranteeing jobs for successful students.

Bharat Forge has an engineering college on its factory campus in Pune that runs a masters degree program with Britain’s Warwick University. It also has a bachelors’ program run with an Indian institute that, says Baba Kalyani, the chairman, “enables workers to become engineers.” Below that there is a “talent pipeline project” with technical colleges in small rural towns, developing work-related courses and identifying bright students to work in his company during vacations.

The second major area for private-sector investment is providing educational systems and support services to schools and colleges of all types. This is the opportunity that has attracted international companies such as Pearson and McGraw-Hill, as well as universities like Oxford from the United Kingdom and the Georgia Institute of Technology from the United States. The services range from teaching aids to teacher training, examinations, and language tuition.

Indian companies are also active. Delhi-based Educomp, founded in 1994, is a Indian market leader. For five years starting in 2000, it had a small private-equity investment from the Carlyle Group. It has 4,000 employees and is boosting teaching standards in Indian private schools by providing a range of IT-based distance-learning aids. It also provides learning labs for 6,000 Indian government schools. It has just bought Learning.com in the United States, which gives it access to two million American students, and has expanded in Asia, including China, through a link-up with Raffles Education Corp of Singapore.

So there are plenty of companies with the skills and the interest in boosting India’s education. Since there is little chance of government schools and colleges improving significantly on their own, the only sensible course is to open up the system to the private sector. But for that to happen, the government needs first to recognize that there is a real risk of losing what it grandly calls its “demographic dividend!”

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Posted by: John Elliott | June 26, 2008

Crunch time for India’s government and U.S. nuke deal

After months of shilly-shallying, the future of both India’s Congress-led coalition government, and its proposed nuclear deal with the United States, will probably be known by the end of next week.

That’s quite a brave forecast in India’s current political firmament. It seems that the government will have to decide by then whether to do what Prime Minister Manmohan Singh wants, and pursue the deal – even though that would mean losing the support of Communist-led Leftist parties that give it a parliamentary majority.

It looks as if it will do so, if it can muster enough votes to replace the Leftists – but that is a big “if”.

Why the end of next week? Because Singh has been telling colleagues that he is not prepared to go to a G8 meeting in Tokyo on July 7 and 8 and face George Bush and other world leaders as a prime minister who has failed for three years to seal the nuclear deal. There have been widespread reports, which I am told by good sources are correct, that he has threatened to resign if the government does not back him.

This has put Sonia Gandhi, the Congress president who heads the United Progressive Alliance (UPA) coalition, in a difficult position because her regional party allies are reluctant to risk an early general election for a deal that has little electoral resonance. It’s not a good time to hold polls – inflation is rising at over 11%, the stock market is sliding, the bank rate has just gone up to 8.5% and there are fears that economic growth is slowing.

Gandhi could let Singh resign, but she has no-one capable and trust-worthy to replace him because her 38-year old son Rahul, who is being dynastically groomed for the job, is not yet ready.

She and the other parties would therefore prefer to avoid crises and hold the general election when it is due around April next year. Singh, on the other hand, believes that the deal and India’s credibility (and his place in history) are more important than the risks of an early general election. He argues that the deal has been approved by the cabinet and the UPA and that the Leftists should not be allowed to stop it.

The outline deal was signed by Singh and Bush in Washington in July 2005. It would allow India access to nuclear technology and equipment from America and other countries for the first time in over 30 years, without India having to sign the Nuclear Non-Proliferation Treaty. Currently India has 14 reactors supplying about 3% of its electricity. The aim is for nuclear generation to rise to 25% by 2050, so India needs the deal, which would also give it access to urgently needed uranium for its existing reactors.

The deal has been criticized by several senior figures in India’s nuclear and science establishment because they fear it would not be able to pursue its nuclear weapons program effectively. This program is needed to give it strategic defense against Pakistan and, more importantly in the longer term, China. There is also a considerable body of opinion that fears India’s foreign policy would be restricted by the U.S. – for example, by interfering with its long-standing friendly relations with Iran and possibly with links with Russia.

But the most significant opposition – which is causing the current political crisis – has come from the Leftist parties that are ideologically opposed to any close relationship with the U.S. Singh had hoped that they would back down over the past three years, but their stance has if anything hardened. Yesterday (June 26) they made it clear at a meeting with the government that they would withdraw the support of their 59 members of parliament if it went ahead and ratified the deal at the International Atomic Energy Authority (IAEA), the U.N.’s nuclear watchdog.

Theoretically, that ratification could happen soon, but it could also be blocked if the UPA loses its parliamentary majority and becomes a minority government. China is believed to have been arguing that only a strong government should be allowed to go ahead.

After the IAEA, the deal would have to go to the Nuclear Suppliers’ Group (NSG), whose 45 member-countries all have to agree. Then it has to go to Congress in Washington for ratification.

The United States has been warning for months that time is getting short, given that there is a presidential election in November. “We are kind of playing in overtime right now,” Richard Boucher, assistant secretary of state for South and Central Asia, said nearly three months ago. Officials now say however that it could still be possible to get the deal through (by arranging for a 90-day voting process to be waived), but that India should move quickly.

The first step is for government to overcome its domestic political problems. It is courting the Samajwadi regional party from Uttar Pradesh to give it support. The Samajwadi has 39 MPs who, together with votes from some other small unaligned parties, could give the government the majority it needs without the Leftists. That could save the deal.

If the Samajwadi Party, which Congress has treated unkindly since the last general election, refuses to join in, the government will have to decide whether to go ahead at the IAEA, and risk an early general election, or risk losing its prime minister.

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Posted by: John Elliott | June 20, 2008

Ambani brothers’ rivalry reaches Hollywood

Ever since Anil and Mukesh Ambani split the Reliance empire three years ago this week, the tension has heated between the brothers and their respective companies – ADAG and RIL – as the two try to show each other up in every area from construction to telecom to fine art and now… Hollywood movies.

As I’ve written before in this blog, Anil Ambani, who controls India’s Reliance Anil Dhirubhai Ambani Group (ADAG), is a consummate dealmaker. How many other tycoons are there around with the stamina and flair to stun the business world with a headline-grabbing international financing deal in a totally new area just as another deal runs in to problems? That is what Ambani has done this week.

His elder brother, Mukesh Ambani last week tried to scupper a plan by ADAG’s Reliance Communications to merge with MTN of South Africa in a $20 billion telecoms deal. Mukesh Ambani claimed he had the right of first refusal if the telecom company shares were to be sold.

Mukesh Ambani has successfully upset the progress of talks with MTN, and Anil Ambani is now hitting back by threatening to sue three senior executives of Mukesh Ambani’s Reliance Industries (RIL) for criminal breach of trust in an agreement struck in January 2006 over supply of gas from RIL to a planned ADAG power plant. This breach of trust allegation might be spread to a similar allegedly one-sided agreement over RIL having first rights to the telecom shares.

But the real headline grabber is that Anil Ambani is now in talks with Hollywood’s Steven Spielberg and the founders of the DreamWorks (DWA) film studio about his Reliance Big Entertainment providing $500-600 million that will help DreamWorks manage its current split from Viacom’s (VIA) Paramount Pictures.

Reliance and DreamWorks would form a joint venture with $1.5 billion in debt and equity for DreamWorks to make movies in the U.S.A. that would be distributed by another Hollywood studio.

This would be a major break for the film industries in both countries, coming at a time of increasing tensions between Hollywood’s filmmakers and powerful studios that want to reduce advanced mega payments to stars. Studios are trying to cut back on so-called first-dollar gross deals that guarantee stars a box office pay-out before the films themselves become profitable.

India’s Bollywood is the world’s most prolific movie centre with more than 1,000 releases a year but it has not till recently begun to formalize its operations under big corporate financiers like Ambani and look abroad.

On top of all that of course, as I reported last week, the Harmony Art Foundation, run by Tina Ambani, wife of Anil, stunned the art world by paying a record $2.5 million at a Christie’s auction in London for a work by the late F.N. Souza, one of India’s greatest modern artists.

Mukesh Ambani couldn’t do much about that headline-grabbing event but, as the Financial Times’ Lex column read Thursday morning “Expect big brother Mukesh Ambani…… to enter stage left with another attempted spoiler” over the Spielberg deal.

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Posted by: John Elliott | June 12, 2008

Tina Ambani pays $2.5m Indian art record price for Souza’s “Birth” at Christie’s

This article first appeared in a slightly different form on “FORTUNE” magazine’s website

LONDON: Anil Ambani hasn’t been seen in public much since his Mumbai-based Reliance Communications started negotiating to merge with MTN, the South African telecoms company last month. However, both he and Amitabh Jhunjhunwala, his group managing director and close adviser, have put in brief appearances at Christie’s art auction rooms in London during the past few days, where Tina Ambani, Anil’s wife, has been exhibiting.

Yesterday a selection of paintings collected by Tina Ambani’s Harmony Art Foundation formed part of a Christie’s auction of modern and contemporary South Asian art that netted £5.4m or $10.6m (including buyers’ premium).

souza_-_birth Christie's NY

Harmony stole the show by paying a record £1.27m ($2.5m) for “Birth” (above) by F.N.Souza – 56% higher than the previous record price for any modern Indian work. Souza, who died in 2002, was one of India’s greatest modern artists, along with others that include M.F.Husain and Tyeb Mehta.

“Birth” is a monumental (8ft by 4ft) painting that embraces many of Souza’s main themes of extravagant female nudes, gaunt male faces, still life, religion and townscapes. Christie’s put an estimate of $1.2-$1.6 million on the work, but Yamini Mehta, a specialist in Indian art at the auction house, refused to guess in advance what it might go for. “Putting a value on it is rather like trying to value the Mona Lisa” she said.

The buyer is listed by Christie’s as “anonymous”, but yesterday I saw Preeti Ambani, a cousin of Anil Ambani and president of the Harmony Art Foundation, make the successful bid at Christie’s King’s Road auction rooms in London .

A film star before her marriage, Tina Ambani is modest about her background in Indian art, even though her annual Harmony shows in Mumbai of younger as well as established artists have become well known over the past 12 years. “I am not academically well-versed in art but I go with instinct,” she told me.

Proceeds from six works that Harmony sold yesterday will go to help young artists. The objective of the Harmony foundation and its exhibitions, says Ambani, is to “provide centre stage for emerging artists.” Two projects include reviving old Warli tribal art in the Indian state of Maharashtra and fine Pichwai paintings in Rajasthan.

Tyeb Mehta Rickshaw figure Christies '08Two other records were also set at the auction. A Tyeb Mehta painting, part of a dramatic series he has done to mark the miseries of rickshaw pullers (left), went for £982,000 ($1.9m). That beat his previous record price of nearly $1.6m paid in a New York auction in 2005 for a work in his “Mahisasura” series.

India’s leading contemporary artist, Subodh Gupta, hit a personal record of £601,000 ($1.2m) for a large  installation of stainless steel kitchen pots and pans (below). Last month, his painting of a man pulling an airport luggage trolley was auctioned by Christie’s for almost $1.2m in Hong Kong, which set a new record for India’s younger contemporary artists.

M.F.Husain, now aged 92 and the doyen of the Indian “progressive” painting group that started in the 1950s, also hit a record price recently for a monumental work, “Battle of Ganga and Jamuna.” This was sold for $1.6m in New York in March, beating Mehta’s 2005 figure and holding the India world record till yesterday.

These sales underline claims by Christie’s and other auction houses that Asian art is bucking the current economic gloom and recovering after some leveling off in prices last year. ArtTactic, which surveys the art market, said last month that, after a 38% drop in auction volume last year, the modern Indian art market was regaining some of the confidence it had lost.

Several other Husain and Souza paintings however did not do well in yesterday’s auction, along with those of another prominent “progressive”, Syed Haidar Raza. More than 15 of their works failed to meet reserve prices and were not sold, though Hugo Weihe, Christie’s international director for Asian art, says there is already interest in a key Raza work, “La Terre”, to be auctioned in London on June 30 for about $2m.

This shows that it is younger contemporary artists like Subodh Gupta, Atul Dodiya, T.V.Santosh, and Rameshwar Broota who are grabbing the attention of buyers at international auctions. Only the best works of the older modern artists are doing well, as buyers become more discerning.

Subodh Gupta record pic Christie's June '08 - 24715560E_001Modern Indian art started to hit high prices about four or five years ago, driven by sales to overseas Indians (NRIs) who wanted to display their wealth and origins on the walls of their smart pads, usually in the U.S.A. There was little concern for quality. ”Every new collector wanted an Husain,” says Weihe.

It is no longer the NRIs who are driving the prices – even though yesterday’s Tyeb Mehta went to someone of Indian origin living in the U.S. Collectors of other nationalities are now moving in, along with art funds and museums, attracted partly by prices that are far below the $9m achieved by leading Chinese works. India’s growing visibility internationally in business and other areas is also helping to focus attention on what, in an article at the end of 2006 in London’s Royal Academy Magazine, I described as the latest manifestation of India’s ancient cultural heritage.

Buyers are coming from China and elsewhere in East Asia, as well as from Dubai, where Arab collectors are looking for new cultures, and Europe. In Britain, interest is growing. Charles Saatchi, famous for his advertising agency and as an art collector, is launching a new London (Chelsea) gallery this summer with an Indian contemporary exhibition titled “The Empire Strikes Back.” A large Manchester gallery is showing “A Passage to India”, and extravagant prices are being demanded by smaller galleries.

See 2009 articles on Indian art auctions and the market – more have followed since then.

https://ridingtheelephant.wordpress.com/2009/06/18/has-the-modern-indian-art-market-found-its-bottom/

https://ridingtheelephant.wordpress.com/2009/06/10/art-auctions-adjust-to-a-tougher-climate/

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Posted in Ambanis, Anil Ambani, Indian contemporary art, Indian modern art, Reliance Communications | Tags: , , , , , , , , , , , , , , , , , , , , , , , ,

Posted by: John Elliott | June 11, 2008

Ranbaxy makes Indian corporate history with Daiichi deal

The $3.4 to $4.6 billion planned sale of Ranbaxy Laboratories, India’s largest pharmaceuticals company,  to Daiichi Sankyo of Japan that was announced this morning marks a huge milestone in the internationalization of Indian companies.

The recent trend has been for Indian companies to take over foreign businesses – ranging from Jaguar cars to Corus steel – but this is the first time that a major successful Indian company has suddenly agreed to sell control to an unassociated foreign company.

This parallels Anil Ambani’s current negotiations to merge his Reliance Communications telecom company with MTN of South Africa.  Sunil Mittal, the entrepreneur who built Bharti Airtel into one of India’s two largest telecom companies (Reliance is the other), could not stomach losing direct India-based control, which was partly why he walked away last month from the deal.

This points to the true internationalization of Indian companies, because two leading business families have now shown they are willing to sell as well as buy abroad. It must be making Mittal wonder if he did the right thing in letting his archrival step into a deal that could create a real global telecoms company

Indian families tend to treat their main businesses as treasures that are to be held until, as often happens, they decline after the second or third generation. They frequently take in foreign equity partners to help them grow, but a sense of pride combined with insecurity prevents them from selling out.

Malvinder Mohan Singh, Ranbaxy’s chief executive and managing director – and the head of the Singh family that founded the company – has therefore made Indian corporate history. His decision to sell will be closely questioned and debated as people ask whether he has done the right thing – and whether he has some as yet unexplained motive.

His family will sell its controlling 34.8% stake in Ranbaxy to Daiichi, which will make an open offer for a further 20%, in accordance with Indian take-over rules. Singh will remain the chief executive and become chairman, with a five-year term, as well as joining Daiichi’s senior global management. This will make Singh an employee – albeit a rather exalted one – of the Japanese company.

Today he said that Ranbaxy had to sell in order to “clinch the deal” – which sounds as though Daiichi pushed a hard bargain, and raises questions about why Singh was so desperate to do the deal. “This is not a sell-out but a strategic deal to position the company and transform us to the next level,” he said, slightly implausibly. He added that the future of the company was more important than family ownership.

Singh chose to describe the link-up as an “association” that, he said, would put Ranbaxy “on a new and much stronger platform to harness our capabilities in drug development, manufacturing and global reach.” It was “a significant milestone in our mission of becoming a research-based international pharmaceutical company.” The main immediate pharma advantage is that Ranbaxy will have access to Daiichi’s branded drugs expertise while contributing its low-cost production facilities and global distribution. Analysts say that consolidation of the international generics business has been inevitable and it would have been difficult for Ranbaxy to grow significantly on its own.

Ranbaxy was started by Singh’s grandfather and then built into one of the world’s top ten producers of generic drugs by his late father Parvinder Singh. With manufacturing operations in 11 countries and sales operations in nearly 50, it is now run by Malvinder Mohan Singh with his brother, Shivinder Mohan Singh, who concentrates on other family businesses in healthcare. Growth has come partly from an aggressive international take-over and today’s proposed deal values the company at $8.5 billion.

The Singh family will receive 34.8% of that – almost $3 billion – and it is assumed that at least part of that will be used to develop Fortis’s hospitals and other healthcare businesses and a fast-growing financial services company, Religare, that is controlled by the family and advised on the Daiichi deal.

The deal is the second-biggest foreign sale of an Indian company. Last year Vodafone of the UK bought control of a telecoms company then called Hutch Essar by buying a controlling stake from Li ka Shing, the Hong Kong entrepreneur.

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Posted in India, Reliance Communications, Tata | Tags: , , , , , , , , , , , , , ,

Posted by: John Elliott | June 5, 2008

Indian government tries to cope with oil prices

At last, after weeks of dithering, the Indian government has begun to deal with the crippling financial consequences of rocketing oil prices. On Wednesday, it announced that it is raising the price of petrol and diesel by about 10% and cooking gas by 17% to save three state-owned oil companies from looming bankruptcy. Only kerosene, used by hundreds of millions of the poor for cooking and lighting, was spared.

The government had to do something because the oil companies – Indian Oil, Bharat Petroleum and Hindustan Petroleum – are facing a multi-billion dollar hit (some estimates put it as high $60 billion) in the current financial year due to the soaring cost of crude oil. India imports 75% of its oil.

Wednesday’s move will worsen India’s already high rate of inflation, which is edging towards 9%. As Prime Minister Manmohan Singh has already acknowledged, the current 8.1% rate is socially and politically unacceptable.

In recent weeks, the government has tried to stem the inflationary tide by cajoling and bullying steel and cement companies to hold prices for at least three months, and introduce some cuts. More controversially, it has banned rice exports and has also stopped (since last year) futures trading in food commodities, most recently potatoes and chick peas.

This has led to allegations of pointless political gimmickry. The next step might be a hike in interest rates, which would curb growth and might have little effect on what is largely internationally generated inflation. But it will be difficult to do much, given the current world-wide food price crisis and the fact that India imports most of its oil.

The direct inflationary impact of yesterday’s petrol and fuel price hikes is the being softened by the government scrapping customs duties on crude oil and associated imports. That however will cost $5.5 billion in lost revenue, which will worsen the fiscal deficit. Nothing is easy in this economic balancing act.

Inevitably, the government has few supporters for its announcements, apart from the oil companies which welcomed a partial reduction (around 25%) of their financial problems.

Many economists and newspaper editorials took the easy line that what the government had done was “too little too late”. Singh seemed almost to agree, saying it was the “modest bare minimum” needed. What he meant was that anything more would have endangered the stability of the government because of opposition from leftist parties that support the Congress Party – led United Progressive Alliance coalition in Parliament (now safely in the summer recess).

The parliamentary opposition was outspokenly critical – one of its more headline savvy spokesmen called it “economic terror” – and the leftist parties are taking to the streets with countrywide bandhs (political strikes that shut down parts of cities) that started Thursday in three states.

The growing economic crisis is especially embarrassing for the government because it has presided over strong growth of 9% or more, and limited inflation, since it took office in 2004. Now, with various state elections due in the coming months – and a general election by next May– it is facing internationally generated economic problems that may prove impossible to contain.

This is leading to criticisms of what was once called the “dream team” of economic reformers in charge of government policy – Singh, who is a former finance minister and a respected economist; Palaniappan Chidambaram, the finance minister (by profession a top international lawyer); and Montek Singh Alhuwalia, an economist-turned bureaucrat who runs the Planning Commission.

Dream they may be in terms of believing in economic reforms, but they are not a dream politically. Sadly, they have little idea how to pull the strings of government and handle difficult coalition allies such as the Communist-led left. And Sonia Gandhi, the Italian-born leader of both the Congress Party and the coalition who ultimately calls the policy shots, does not have enough experience to handle difficult political and economic issues.

As a result, economic reforms have been stifled by the left for the past four years, a key nuclear deal with the United States seems doomed, and now the government is looking less than confident and astute in its handling of inflation.

Unless its luck – and political savvy – changes, Congress’s chance of being returned to power next year at the head of a new coalition will decline sharply. The last Bharatiya Janata Party-led coalition lost the 2004 general election because voters did not believe that, along with regional political party allies, it had done enough to help the rural poor. This time, it is Congress and the left that face a risk of the same fate, with urban voters joining what last time was a rural-led protest.

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

Posted by: John Elliott | May 29, 2008

Greenpeace targets Tata over rare sea turtles

India’s Tata is running into trouble with Greenpeace and other environmental groups. Environmentalists accuse Tata – which has recently made world headlines with reports about its takeover of Jaguar and Land-Rover cars, and the creation of its tiny Nano car – of causing harm to rare sea turtles off India’s east coast.

The groups claim that Tata began construction of a new port at Dhamra in the state of Orissa without obtaining proper environmental clearances and without honoring commitments made by Ratan Tata, the company’s chairman, to take care of the environmental problems before the project was started.

After weeks of silence, Dhamra Port Company Ltd (DPCL), a 50-50 joint venture between Tata Steel and Larsen & Toubro (L&T), an Indian construction company, rebutted the accusations at a press conference earlier this week. But this does not seem to have stemmed the tide of criticism and it looks as if Tata’s generally good international image as one of India’s most caring and responsible business houses will suffer.

Dhamra is a small ancient port, which the government wants to develop with a $600 million project so that it can handle large deep-draft ships that are needed to serve mineral-rich areas of Orissa and two other nearby states, Jharkhand and West Bengal.

The environmental dispute has been building up for several years because the site is less than five kilometers from India’s second largest mangrove forest. More importantly, it is less than 15 kms north of one of the world’s largest mass nesting grounds used by literally thousands of endangered Olive Ridley sea turtles every year. At night, the turtles crawl out of the sea up sandy beaches where they dig holes to hide their eggs before disappearing back into the sea.

The Orissa coastline

Environmentalists agree with the company that the port is not located in a nesting area, but claim that the turtles forage and mate in waters near the port site and the Dhamra river mouth, and thatthey will be killed by dredging and shipping. This has been supported by various international experts and by a specialist committee appointed by India’s supreme court which said four years ago that the project would “seriously impact” the nesting.

Santosh Mohapatra, DPCL’s CEO, told me earlier this week that some turtles might go close to the port site, but that all the turtles come from the south and that the vast majority will not go anywhere near the port and its ships. The environmentalists have also claimed that the turtles will be scared away by the port’s bright lights. On that, Mohapatra says his company is testing non-glare lighting and will, if necessary, turn the lights off in the nesting season for ten to 15 days a year.

But the environmentalists are not satisfied. Greenpeace says that more than 70,000 people have signed internet-generated letters of protest to Ratan Tata. Last week volunteers lit thousands of candles in a vigil outside his Mumbai home.

It looks like an impasse because DPCL says 20% of the construction work has been done. It is clear that there is no chance of it abandoning the site. The environmentalists seem however to have some of their facts wrong, now that Greenpeace has moved in on a subject that was being handled by Indian wildlife groups, led by the Wildlife Protection Society of India (WPSI) and the Wildlife Society of Orissa (WSO). They claimed that BNP Paribas bank cancelled a planned loan (which I gather was for about $125 million) because of the row, whereas Mohapatra says the loan has been suspended because it would exceed limits allowed by India’s foreign currency regulations.

Tata has been caught up in other development and environmental controversies, and not all, it has to be said, of its own making. Tribal people have clashed with police at a site in Orissa where it is building a steel plant and there has been continuing and sometimes violent unrest since last year at Singur in West Bengal where it wants to build a factory to make its Nano car. It has also been accused of causing poisoning from chromate mines at Sukhinda, also in Orissa, and a pesticides plant in Andhra Pradesh was criticized four years ago for dumping toxic waste.

It is probably inevitable that a group as big and diversified as Tata will have some such difficulties, but the problem for it now is that they are likely to be highlighted if it does not break the Dhamra deadlock and work out a solution that will allow the port to be built while protecting the turtles.

India has an extremely rich wildlife heritage ranging from tigers to turtles, and both government and industry need to find ways of working with those who want to protect the best of that heritage, preferably before professional international protestors such as Greenpeace move in.

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Posted in India, India environment, Orissa, Ratan Tata, Tata, Tata Motors, West Bengal | Tags: , , , , , , , , , , , , , , , , , , , , , , , , , ,

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