Posted by: John Elliott | April 17, 2008

New Delhi in lockdown over Olympic torch run

More than 15,000 police and paramilitary security forces today patrolled the center of New Delhi and successfully protected the Olympic torch – and China’s sensibility – from interference and upset as the flame passed briefly through the capital on its way from Pakistan to Thailand.

Under intense pressure from China following the Olympic protests elsewhere, the Indian government sealed off a large part of central Delhi. No spectators, apart from small groups of school children and invited guests, watched the torch being carried along the grand Raj Path processional avenue.

A rival pro-China march was allowed a couple of miles away, but the torch itself had a cocooned and sanitized – and uninterrupted – journey. That may be contrary to the Olympics’ traditionally inclusive spirit, but it pleased China.

India has been wary of upsetting China since it was defeated in a border war amid the Himalayan mountains in 1962. That is the only time India has lost a war since independence in 1947 (it has defeated Pakistan three times) and it has been wary since then of upsetting its larger neighbor.

That virtual fear has been more evident in the past four weeks than for many years, with parts of New Delhi being barricaded to defend China’s embassy against Tibetan protestors. Delhi has not seen such a progressive lockdown – at least since the early 1980s – not even to protect a visiting head of state or to fend off terrorist attacks.

The nearest equivalent is the annual Republic Day parade of massed bands, guns, missiles and dancing children, when Raj Path is closed and nearby buildings emptied – but with a much smaller police presence than was deployed today.

The boundary wall of the Chinese embassy compound has been surrounded with huge rolls of barbed wire and masses of police since Tibetan protestors scaled the wall on March 21. Roads around the embassy have been partially closed for four weeks, including an entrance to Malcha Marg, an elite housing area. From yesterday afternoon, 1,100 security forces guarded the embassy perimeter.

No other country has such a tortuous relationship with China. Many nations try to please the emerging superpower for commercial reasons – to ensure their companies have access for major contracts and trade, and so that they can try to influence China’s economic policies. India mixes a continued stand-off on the disputed Himalayan border with rapidly expanding trade and economic links.

Two-way trade is currently worth over $30 billion, and China has overtaken the United States as India’s biggest trading partner. Cross-border business investments are also increasing – Chinese telecom companies like Huawei and ZTE have made substantial inroads into the Indian market.

But India has never been comfortable about allowing Chinese investments in sensitive areas such as ports and high technology, and has frequently delayed Chinese business visas and investment permissions.

The fraught relationship was demonstrated after Manmohan Singh, India’s prime minister, made what appeared to be a successful and friendly visit to Beijing in January. Two weeks later, he visited the state of Arunachal Pradesh, in the far northeastern corner of India that China still regards as disputed territory. He described Arunachal as “our land of the rising sun,” which immediately brought diplomatic rebukes from Beijing.

Regular talks are held between the two countries on the border issue. India knows China has no intention of reaching a settlement, but plays along with Beijing’s tactics.” India gets nowhere in these talks,” a former Indian participant told me recently. “We make our presentations in detail. China listens impassively, and concedes nothing, and we issue a joint statement saying progress is being made. India is soft and China knows it.”

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Posted in India, India China, India China war, Manmohan Singh, Tibet | Tags: , , , , , , , , , , , , , , , ,

Posted by: John Elliott | April 15, 2008

India’s savers mean big bucks for insurance companies

India is a country of big savers but meager investors. While more than 80% of the population of 1.1 billion save regularly, one-third prefer to keep money at home and over 50% opt for local bank deposits. As a result, two-thirds of savings are kept in safe liquid assets, while less than 25% is put into stock markets, insurance policies and other financial instruments.

These findings, reported recently in a study by an Indian life insurance joint venture run by New York Life and Max India, illustrate the country’s vast potential for structured savings’ plans and life insurance when risk-averse attitudes change.

Unlike most countries, India has no state-supported social security to provide safety nets for the aged, sick and needy – so, says Max New York Life, there is “potential for life insurance as a risk-mitigating tool”.

But why do Indian people seem happier with their money under their mattresses than in insurance and other financial instruments? A foreign banker will probably put it down to India’s position as an emerging economy with a predominantly poor population that is not yet sophisticated enough to understand the benefits of other forms of savings. But that is only part of the story.

Most families want to have their savings ready for emergency and other immediate use and are not saving for old age. More than 80% of 63,000 respondents covered in the survey, which was run by Delhi-based NCAER, a leading economic policy center, said they saved for emergencies, children’s (usually extravagant) marriages, and other expensive social events, plus children’s education.

There are also other reasons, not mentioned in the report. Women often do not trust the men either to save or invest wisely, so they keep the family’s money at home. There is also a huge underground economy, so many people might be shielding their savings from financial reporting and controls.

The result is a precarious situation in which few families can provide sufficiently for the future. The study found that 96% of households cannot survive beyond a year on their current levels of savings, if they suddenly lose their chief earner. Yet a majority “expressed confidence in their financial well-being” says the report, because they expect to find new jobs, or obtain loans from friends and relatives.

Families have traditionally assumed that they will be looked after by younger generations as they get older, but that is being upset by two social changes. First, life expectancy is now over 65 years (with many living far longer). That is more than 15 years higher than in 1970 and more than double the level at India’s independence in 1947. The young do not have sufficient funds to look after both parents and grandparents.

Secondly, the tradition of extended families, with several generations living under the same roof, is breaking down, especially in urban areas where many younger family members move out after marrying – or even before, which was very rare until the last few years.

There is a sharp divide between the rural areas, where 70% of the population live, and those in urban areas. Cash savings predominate away from the big cities, while knowledge about financial instruments such as life insurance policies is more common in urban areas.

But overall, the message is the same. There is huge business for life insurance and other savings instruments as attitudinal changes accelerate. The report says that the average household in India has an annual income of $1,626 and expenditure of $1,222, leaving $404 to save and invest – with urban incomes being 85% higher than those in rural areas (though there are wide regional disparities). Mutual funds’ assets under management have grown by nearly 800% in the past four years, though the growth slipped last year as India’s 8-9% economic growth has slowed.

Yet only 24% of households have life insurance coverage, and the report estimates that there are immediately 21 million households “that could be a lucrative target for life insurance marketers.” That is attracting foreign companies such as AIG (AIG), Metlife (MET), and Prudential Financial (PRU) as well as New York Life and others that include Allianz (AZ), ING (ING) and Standard Life from other countries, with more queuing up to enter.

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Posted by: John Elliott | March 26, 2008

Tata buys into 40 years of trouble

Ratan Tata, who runs the Tata group, one of India’s two biggest conglomerates, is buying into a history of trouble with his $2.3 billion cash deal, announced today,  to acquire the Jaguar and Land-Rover companies from Ford (F). Transfer of ownership to Tata Motors is due to be completed by the end of June, and the  question is whether Tata can then break a cycle of decline.

It’s been 40 years since the British government, in a bid to rebuild the country’s automobile industry, cobbled together ailing car brands such as Jaguar, Rover, Austin, Morris and Riley into a giant called British Leyland. BL, as it became known, was a failure, mainly because of endemic labor problems, uninspired products and poor quality.

[Added Dec 10 ’08: See http://justbritish.com/2008/12/10/auto-industry-bailout-lesson/ 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]

Since 1968, there have been many rescue attempts, but only rare short bursts of success. Several of the once proud names are long forgotten and none is British-owned; the iconic MG brand was bought three years ago by China’s Nanjing Automobile to make sports cars in China and the U.K., and the Morris Mini cult car is with BMW.

So could Tata succeed where others have failed? Market and industry analysts have their doubts, fearing the companies do not fit and that Tata’s optimism about growth could be hit by worsening economic problems in the United States and elsewhere. Tata Motors shares lost 4.4% on the Mumbai stock market today as brokers awaited the announcement.

But there is some reason for optimism. Ratan Tata isn’t expected to treat Jaguar and Land Rover like a traditional takeover: He says he’s not planning to overhaul senior management, close factories in Britain, or cut workers.

He said today: “We have enormous respect for the two brands and will endeavour to preserve and build on their heritage and competitiveness, keeping their identities intact. We aim to support their growth, while holding true to our principles of allowing the management and employees to bring their experience and expertise to bear on the growth of the business.” Ford will continue to supply Jaguar and Land Rover with powertrains and other components, in addition to a variety of  environmental and other technology and support services.

Tata also doesn’t seem all that concerned about instant profits – just as he doesn’t expect instant returns from the tiny Nano car he hopes to launch by year’s end. Instead, he is expected to use the brands and their U.K. plants, executives and labor to help build Tata Motors, which had $7.2 billion sales in fiscal 2007, into a global car company. He’s been on this mission for several years, buying Britain’s Tetley Tea in 2000, a Korea-based Daewoo truck plant in 2004 and steel giant Corus (previously British Steel) last year.

Ratan Tata’s hands-off ownership could win him crucial support as he tries to fold the Jaguar and Land Rover brands into Tata. Mark Norbom, the head of General Electric in Japan, wrote recently in the Financial Times about the importance of the “soft side” of a takeover deal. The “look in the eyes that (the buying) company is worthy” has special value, said Norbom, and is something that “does not come naturally to the typical western-trained dealmaker.” Well, it seems to come naturally to Tata and his people. It was evident in the Corus deal, and it seems to be at work again in their Jaguar and Land-Rover plans.

This could, of course, mean that Tata is seen – especially by British trade union leaders – as a soft option who will let workforces carry on as usual. Land Rover has had three years of record sales for Tata to build on. But there’s no telling how long the status quo can last, especially if demand slackens in the United States and elsewhere and Ratan Tata has to institute cutbacks at the luxury car makers.

Tata has said that Land Rover and Jaguar will benefit from India’s low-cost design and IT ability – and boost sales in Asia. His company will “add value in co-operating on engineering and development which are considerably cheaper (in India) than in the West,” he said. Tata Technologies, the group’s advanced industrial design house, is based in Pune and operates in twelve countries, with international headquarters in Singapore. It has been involved in the design of Tata Motors’ cars and vans, but does about 75% of its work for foreign clients, including Chrysler, General Motors (GM), Boeing (BA) and Airbus.

There’s another question hanging over the deal: Tata’s future once its 70-year old patriarch retires. He is not due to step down until he’s 75 – in December 2012 – but has said he would like to go earlier, and there are rumors it could be at the end of this year.

That seems unlikely, if only because there is no clear successor. From inside the Tata family there is a reclusive cousin, Noel Tata, who runs some of Tata’s retail businesses, but there is no sign of him being groomed for the corporate and public life that goes with the top job. One or two top executives from outside the family, and even outside the Tata group, have also been rumored, but none has been publicly held out as a successor.

It is Tata who has provided the personal drive and leadership to turn Tata Motors into a business that can produce the Nano and buy two world famous brands – in the same year. There’s a big job waiting for someone – and Tata is not yet saying who. Until it does, the era of uncertainty at Land Rover and Jaguar won’t be over.

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

Posted by: John Elliott | March 25, 2008

Tata buys into 40 years of trouble

Ratan Tata, who runs the Tata Group, one of India’s two biggest conglomerates, is buying into a history of trouble with his $2.3 billion cash deal, announced today,  to acquire the Jaguar and Land-Rover companies from Ford (F). Transfer of ownership is due to be completed by the end of June, and the  question is whether he can then break a cycle of decline.

It’s been 40 years since the British government, in a bid to rebuild the country’s automobile industry, cobbled together ailing car brands such as Jaguar, Rover, Austin, Morris and Riley into a giant called British Leyland. BL, as it became known, was a failure, mainly because of endemic labor problems, uninspired products, and poor quality. Since 1968, there have been many rescue attempts, but only rare short bursts of success. Several of the once proud names are long forgotten and none is British-owned; the iconic MG brand was bought three years ago by China’s Nanjing Automobile to make sports cars in China and the U.K., and the Morris Mini cult car is with BMW.

So could Tata succeed where others have failed? There’s reason for optimism. Ratan Tata isn’t expected to treat Jaguar and Land Rover like a traditional takeover: He says he’s not planning to overhaul senior management, close factories in Britain, or cut workers. And he doesn’t seem all that interested in instant profits – just as he doesn’t expect instant returns from the tiny Nano car he hopes to launch by year’s end. Instead, he is expected to use the brands and their U.K. plants, executives and labor to help build Tata Motors, which had $7.2 billion sales in fiscal 2007, into a global car company. His been on this mission for several years, buying Britain’s Tetley Tea in 2000, a Korea-based Daewoo truck plant in 2004, and steel giant Corus (previously British Steel) last year.

Ratan Tata’s hands-off ownership could win him crucial support as he tries to fold the Jaguar and Land Rover brands into Tata. Mark Norbom, the head of General Electric in Japan, wrote recently in the Financial Times about the importance of the “soft side” of a takeover deal. The “look in the eyes that (the buying) company is worthy” has special value, said Norbom, and is something that “does not come naturally to the typical western-trained dealmaker.” Well, it seems to come naturally to Tata and his people. It was evident in the Corus deal, and it seems to be at work again in their Jaguar and Land-Rover plans.

This could, of course, mean that Tata is seen – especially by British trade union leaders – as a soft option who will let workforces carry on as usual. Land Rover has had three years of record sales for Tata to build on. But there’s no telling how long the status quo can last, especially if demand slackens in the United States and elsewhere and Ratan Tata has to institute cutbacks at the luxury car makers.

Tata has said that Land Rover and Jaguar will benefit from India’s low-cost design and IT ability – and boost sales in Asia. His company will “add value in co-operating on engineering and development which are considerably cheaper (in India) than in the west,” he said. Tata Technologies, the group’s advanced industrial design house, is based in Pune and operates in twelve countries, with international headquarters in Singapore. It has been involved in the design of Tata Motors’ cars and vans, but does about 75% of its work for foreign clients, including Chrysler, General Motors (GM), Boeing (BA) and Airbus.

There’s another question hanging over the deal: Tata’s future once its 70-year old patriarch retires. He is not due to step down until he’s 75 – in December 2012 – but has said he would like to go earlier, and there are rumors it could be at the end of this year. That seems unlikely, if only because there is no clear successor. From inside the Tata family there is a reclusive cousin, Noel Tata, who runs some of Tata’s retail businesses, but there is no sign of him being groomed for the corporate and public life that goes with the job. One or two top executives from outside the family, and even outside the Tata Group, have also been rumored, but none has been publicly held out as a successor.

It is Tata who has provided the personal drive and leadership to turn Tata Motors into a business that can produce the Nano and buy two world famous brands – in the same year. There’s a big job waiting for someone – and Tata is not yet saying who. Until it does, the era uncertainty at Land Rover and Jaguar won’t be over.

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

Posted by: John Elliott | March 20, 2008

Tony Blair joins Al Gore on climate change bandwagon

Former British Prime Minister Tony Blair plans to build on what former U.S. Vice President Al Gore has achieved on climate change and pull governments together in a global deal. “Al Gore’s persuaded everyone that it’s a big problem and now we need to find a solution to it,” he told me in Delhi this evening, at the end of a six-day Asian tour launching an initiative called “Breaking The Climate Deadlock.”

Blair and Gore both recognize that there is deep skepticism in India, and in China, about the developed world’s intentions on climate change. These countries suspect, understandably, that western countries will try to force them to slow their economic growth while doing little themselves to stem emissions.

Al Gore was in Delhi a week ago – sounding much better briefed on detail than Blair’s broad political sweep. He dismissed the idea that “saving the environment slows growth.” Speaking at a conference organized by India Today, a news-weekly, he said that the U.S. had in the past given a world lead in rebuilding Germany and Japan after the Second World War; now it needed to do the same on climate change. But it needed to be able to tell its people “that India and China are doing something.” India should for example switch subsidies it gave coal to solar energy.

“The India position is understandable,” Blair told me after a day meeting political and business leaders in Delhi. “They say, ‘Yes it’s a big problem but don’t just tell us we can’t grow – if you tell us to stop growing, forget it.’ So we must give them a reasonable sense that the West is going to table an action plan.” That meant the developed nations taking action themselves, while also ensuring that developing countries accelerated the use of advanced technologies that could be transferred from the west.

This was the basis, he said, of the “global deal” he wants to construct around “common but differentiated obligations” that recognize the different imperatives and needs of rich and poor nations. He had pushed the same agenda in Japan, where he felt there was a growing awareness that action had to be taken.

Both Gore and Blair know that converting Indian politicians and business leaders must be a prime target because of India’s growing world importance – and because, currently, it has a sympathetic prime minister in Manmohan Singh. Both men met Singh, and today Blair also met Rahul Gandhi, the 38-year-old heir to the Nehru-Gandhi dynasty who is being groomed to be a future prime minister. Gandhi was also no doubt sympathetic to what Blair was saying, but he has little chance of converting many Indian political leaders who, having escaped from British colonial rule just 61 years ago, are deeply distrustful of pressure groups from the west.

On his Asian tour, Blair has been launching his new initiative, “Breaking The Climate Deadlock,” that he will run alongside his role as an envoy to the Middle East. About six months ago, not long after finishing as British prime minister, he approached an organization called The Climate Group and asked if it would provide him a platform to develop his global deal. The group works internationally with government and business leaders to push climate change and encourage low carbon emissions. It has brought together a group of experts to try to work out the framework for Blair’s deal.

The Climate Group was formed in 2004 and is based in the United Kingdom, the United States and Australia. Its members include companies ranging from Goldman Sachs (GS), J.P.Morgan Chase (JPM), HSBC and AIG (AIG) to Bloomberg, Dow Chemical, Starbucks (SBUX) and Tesco. It includes the municipal authorities of New York City and Greater London, plus regional governments from America, Canada and Australia. It is working with the HSBC Climate Partnership, which has set up a $100 million fund to encourage action by individuals, businesses and governments.

It’s easy to be skeptical about former world leaders who latch onto big issues that give them a role with wide publicity, especially when they are as role-conscious as Blair, who thrives in the limelight. But Blair does have some track record on climate change, having forced it onto the world agenda at a G8 meeting in 2005. Now he needs to show he is not just riding a bandwagon – “until he becomes the European president,” as one cynic put it this evening.

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Posted by: John Elliott | March 13, 2008

Is India’s economy losing its shine?

The business mood is gloomy in India this week as fears about the economy slowing gather pace. An announcement Wednesday that year-on-year industrial growth dropped by more than half in January – 11.6% recorded a year ago to 5.3% – pushed the stock market into the sharpest of today’s Asia falls. The key Mumbai Sensex finished 4.85% down at 15,346, almost the lowest for six months and far below the dreamy 21,000 levels of just two months ago.

Finance Minister Palaniappan Chidambaram said – inevitably – that one month’s figures should not be seen as too depressing. That is the sort of comment that politicians make when things are going badly, but rarely say when they are going well. And he would not want to say anything else just 12 days after announcing his budget, which did not seem to acknowledge serious declines.

Of course Chidambaram is right, up to a point. But the figures continue a trend that has built up over many months, with tight monetary policy and high interest rates pushing average industrial growth down to 8.7% between last April and January, compared with 11.2% a year earlier.

Especially worrying is a decline in capital goods production trends with growth down to 2.1% in January compared with 16.3% in January 2007. Consumer durables growth has gone into a negative figure of minus 3.1%, pushed by a decline in sales of motor scooters that weigh heavy in the statistical model.

This is not good news for a government that is looking for an opportunity later this year to call a general election ahead of the possibly final date of May next year. November is being talked about as a possible date – after the fortunes of the Congress Party, which leads the current coalition government, have been tested in state assembly elections in Karnataka and perhaps elsewhere.

With highly experienced officials such as Chidambaram and Prime Minister Manmohan Singh in key top positions, the government is expected to produce a buoyant economy that benefits the poor and boosts business. That image might be hard to sustain as the year progresses, especially with inflation at around 5%, which is close to the politically uncomfortable figure of about 6%. Slowing growth might help to curb some prices, but inflation has a momentum of its own, driven by sharp increases in the cost to consumers of basic foods such as rice, wheat and edible oils – all items that touch the pockets of the poor.

The government is well aware that, like its predecessor, it will be judged in the election by how the poor, and especially the 75% of the population in rural areas, have fared. That is why Chidambaram’s budget contained loan wavers and concessions costing an estimated $15 billion over three years for 40 million farmers who have defaulted or are having serious problems with repayments.

The overall effect of this idea is now being questioned, partly because it could encourage others to default and also encourage state government to introduce similar costly concessions.

But the key criticism is how the tens of millions of farmers who have struggled to keep up with payments, and so do not qualify for Chidambaram’s largesse, will feel when they see defaulters being baled out. That could generate a bigger anti-Congress vote than the one that might be generated by the loan write-offs.

It’s never easy to help the poor in India. More than half the aid that is pumped down to rural areas is lost and never reaches its intended destinations. And now this new initiative could misfire – just as the pace of inflation increases and growth slows.

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Posted by: John Elliott | February 29, 2008

India waives $15B in loans to rural poor

India’s Finance Minister Palaniappan Chidambaram produced a populist annual budget this morning, aimed primarily at helping the rural poor, whose plight contributed in 2004 to the defeat of the country’s last Bharatiya Janata Party-led government.

In a dramatic gesture that almost eclipsed the rest of his 30-page speech, he waived overdue loans totaling an estimated $12.5 billion that are owed by 30 million farmers who have less than two hectares (five acres) of land. He pledged another $2.5 billion to help 10 million more settle loans.

Chidambaram also boosted the government’s spending on education by 20% and on health by 15% – both initiatives that will help the poor if they improve frequently dilapidated and under-performing social services.

With an eye on other income groups, he raised income tax thresholds and provided stimulus for cars, motor bikes and other consumer durables that would help sustain India’s current growth rate of around 8.7%. Growth last year was 9.6% and there is a fear that it will slip further.

Chidambaram did not shy away from accusations that this was a pre-election budget. Speaking to journalists this afternoon, he produced a characteristically laconic reply to a questioner who asked whether he was trying to win votes and said: “If you have nothing else to say about the budget, then I suppose you could call it an election budget.”

That is not surprising because there is widespread belief that Sonia Gandhi, the Italian-born leader of the Congress Party that leads the current coalition government, forced the loan scheme on him. She publicly called on him last week to deal with the loans, and this afternoon her party managers bussed farmers from the nearby state of Haryana to her Delhi house to thank her.

The timing of the election is uncertain. Polls have to take place by May next year, but could come this year if Leftist parties decided to withdraw support from Congress. They might do this if talks that are now being revived on India’s proposed nuclear deal with America, which they oppose, seem to be nearing agreement.

Alternatively, they might break away for some other reason in order to re-establish their independent identity before the polls. That could even happen with the tacit agreement of the Congress Party, which might also want to separate itself from the Left before the polls.

When the current government came to power in 2004, it promised to help the 70% of the population who live in rural areas and who are mostly involved in agriculture. Votes from these groups helped to bring down the BJP government that claimed India was “shining.”

But the government’s efforts to provide financial and other support have fallen short of targets because of corruption and leakage in delivery systems. Today’s $15 billion package is an attempt to break through that impasse and help farmers hit by bad loans – a problem that has led to tens of thousands of farmers with sub-standard cotton and other cash crops committing suicide in the past decade.

The government will announce how the scheme will work in the next few weeks. It will start in June and provide registered banks and cooperatives with funds over three years to support their liquidity and compensate them for writing off and settling the loans.

The plan has met with some criticism, partly because research shows that the most suicide-prone farmers are in debt to unauthorized money lenders and middle-men, who account for some 40% of rural lending and charge as much as 30% interest. Bankers are pleased because it will help them clean up their balance sheets, but there is concern about whether the scheme can be efficiently managed.

The stock market was unimpressed – the key Mumbai Sensex fell sharply during Chidambaram’s speech and then recovered to close about 1.2% down on the day. The question now is whether the $15 billion will not only help alleviate the misery of 40 million rural poor but will also buy their votes when India goes to the polls – and that is not certain.

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Posted in India, India general election | Tags: , , , , , , , , , , , , , , , , , ,

Posted by: John Elliott | February 25, 2008

Reliance issues bonus shares to save face

Anil Ambani, one of India’s richest businessmen, hit the world’s market headlines for the third time in just over a month yesterday when Reliance Power, which he controls, announced a bonus issue. Under the new offering, shareholders will receive three Reliance Power shares for every five bought last month in India’s largest-ever initial public offering.

That issue picked up $3 billion in just one minute when it was launched on the Mumbai stock market, even though the company has completed no projects and has no income stream. But, when the stock listed on the market on February 11, it was hit by world market conditions and, initially, by a lack of local liquidity. It fell 17.2% to Rs372.50 from the Rs450 issue price on the first day’s trading.

Ambani claimed that the price was being driven down by interests trying to undermine his business. The price recovered to Rs416 after the bonus plan was mooted and today it hit its original price of Rs450.

So has Anil Ambani, whose umbrella business is the Anil Dhirubhai Ambani Group (ADAG), done well or has he stepped into a legal and regulatory minefield, as bankers and analysts in Mumbai are saying privately?

He certainly seems to have succeeded – though maybe only temporarily – in rebuilding some shareholder confidence. This is important because he does not want to lose small shareholders’ faith in the Reliance brand that was built by his father, the late Dhirubhai Ambani.

He needs that confidence because of future IPOs – ADAG’s Reliance Communications is planning an issue for its Reliance Infratel telecommunications’ towers business.

He also doesn’t want to seem the loser when judged against the successes of his elder brother, Mukesh Ambani, who controls Reliance Industries (RIL) – the two brothers split their father’s empire in 2005. And he needed to counter suggestions that some investors might not complete payments for their shares.

But Anil Ambani has not created any new shareholder value even though the cost of the shares has nominally come down by around 40%, and he still has to gain approval from his shareholders, and from the regulatory authorities. Analysts are now saying that the share issue could run into problems because it is only being made to new shareholders, not the company’s promoters which include ADAG’s Reliance Energy (with a 45% stake) and other Ambani investment companies that have another 45%.

There are also potential profit tax issues linked with Ambani’s decision, announced yesterday, to transfer 2.6% of his personal stake in Reliance Power to Reliance Energy in order to prevent the bonus issue from diluting Energy’s stake.

Analysts and the Indian media are rarely willing to comment adversely about the Ambanis’ business and they have yet to get their teeth into these issues publicly. The broad view tonight, however, seems to be that Ambani has applied some sticking plaster to Reliance Power, and the future is still to play for.

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Posted by: John Elliott | February 22, 2008

Tata joins forces with Boeing, EADS and others

At India’s DefExpo defense show this week, Tata announced a string of tie-ups with foreign manufacturers from the United States, Israel and Europe that set it apart from other emerging Indian defense manufacturers like Larsen & Toubro (L&T) and Mahindra & Mahindra.

The Tata group is becoming well known around the world for its low cost car, its bids for the Jaguar and Land-Rover brands, and for taking over Europe’s Corus steel company. Now it is emerging as the Indian market leader in a new area – defense equipment.

The company is transferring India’s proven ability to produce low-cost software and international-quality auto components and cars to the defense and aviation industries, persuading companies like Boeing (BA), European Aeronautic Defense & Space Company and Israel Aerospace Industries that they can benefit by buying from India.

The pairing with IAI is probably the most important announced in the past week. A joint-venture company is planned to develop and manufacture defense and aerospace products such as missiles, unmanned aerial vehicles, radars, and electronic warfare and security systems. With EADS, Tata will be bidding for a long-delayed $1 billion Army communications system, while it is to supply Boeing with aerospace components – including orders for the United States Air Force – totaling $500 million over five to eight years. There is also a helicopter cabin order from Sikorsky Aircraft Corporation.

The main prize that everyone wants is a $10 billion Indian Air Force order for 126 multi-role combat aircraft (MRCA) that is now out to tender. Robert Gates, America’s defense secretary, will push Boeing’s and Lockheed’s bids when he is in Delhi next week to try to revive slow-moving joint defense and security collaboration agreements.

India’s private sector has historically played a very minor role in the country’s $10 billion-plus annual capital expenditure on defense equipment. Up to 70% is spent abroad because the Indian public sector cannot deliver in terms of quality or speed on either research or production. Only about 30% of the orders placed in India (around 10% of the total) goes to firms like Tata, L&T, and Mahindra because the public sector-dominated defense establishment has never allowed the private sector to develop. That is beginning to change, but only slowly.

In June last year, I wrote a post saying India would soon announce names of a small number of Indian private-sector companies – Raksha Udyog Ratnas or, literally translated, “defense industry jewels” – that would be allowed to compete for big research, development and production projects on equal terms with the public sector.

I should have known better, as I wrote last October when it was becoming clear that the policy would be blocked. The names have still not been announced, and it doesn’t appear that they will be, at least until after the general election  next year, because of opposition from Leftist political parties, encouraged by trade unions and the defense establishment.

There is also a new offsets policy which requires foreign defense suppliers to spend 30%-50% of their orders in India. The government has forecast this could generate $12 billion in orders in the next four to five years – among the first will be business from Lockheed (LMT) for six Super Hercules C-130J military transport aircraft costing $1 billion that India ordered earlier this month.

It will be some time however before offsets produce orders that provide economies of scale, so Tata wants to build manufacturing capacity independent of how the Ratnas and offsets develop. Tata Advance Systems has been set up to manage the manufacture and integration of orders, and Tata Industrial Services will match Tata’s and other Indian companies’ capabilities with offset and other requirements from abroad. For large projects, various group companies such as TCS Aerospace (software), Tata Power, Tata Advanced Materials and Tata Motors will pool capital raising and risk management resources.

This will enable Tata, one of the country’s two largest business houses, to build up capacity and scale so that it is ready to manufacture in quantity for the Indian defense forces when it is allowed to do so. It also enables foreign defense companies to get used to working in India at a time when they are about to be forced to use Indian components through the new offsets policy. Other companies are also making similar moves, though none is so wide-ranging as Tata which, so far, is winning.

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Posted by: John Elliott | February 13, 2008

Demand from China kills India’s vanishing tigers

One of India’s greatest natural assets is wasting away. Or, to be more precise, it is being killed off because of political and bureaucratic corruption and inertia. That asset is the tiger, India’s national animal and the grandest of creatures living in the wild. Figures produced by the government yesterday estimate that there are only about 1,400 tigers left in India, down 60% from an official figure of 3,500 in 2002. If that rate of decimation continues, there will only be a couple hundred left in ten years time, so urgent action is needed.

Why am I writing about tigers on a Fortune magazine blog that focuses on business and, occasionally, politics? Mainly because their future is one of many ecological and environmental problems that are being ignored in a greedy rush for wealth and growth, and partly because it demonstrates how ineffective the Indian government can be when faced with vested interested at home and abroad. If the government cannot get to grips with this issue, then it seems unlikely to protect other parts of India’s heritage, and much of the country’s magic and culture will gradually vanish.

There is money to be made by poaching tigers and transporting them out of India, usually to China, where their bones and other body parts are used for traditional medicine, and their skins for trophies and (until recently) to adorn coats worn by officials and herdsmen on the Tibetan plateau. The Indian poacher makes relatively little (though their price is going up), but on the international market an animal can account for tens of thousands of dollars. Meanwhile politicians and bureaucrats grow rich on the kickbacks that are paid for them to facilitate, or at least ignore, the poachers and traders.

Conservationists have been warning for at least three years that India’s tiger population was down to 1,400-1,800, but this was not accepted by the government. But yesterday’s report, based on a new census, puts the figure at 1,411 (plus maybe another 80 in two states not included). It admits that the margin of error means the real total could be anywhere between 1,165 and 1,657. The government is trying to reduce the shock of the 60% loss by saying its 2002 figure was over-estimated. It is also trying to soften the blow by claiming that tigers living in protected areas are doing well and only those elsewhere are being killed, which conservationists say is wrong.

The government has, however, made some important statements. For the first time the report accepts that tigers are being lost because of encroachment into forest areas for wood-cutting, animal grazing and even mining, which means both loss of habitat and prey. It recognizes that “it is essential to set aside inviolate areas devoid of human presence” for tigers and other wild animals and adds: “Tigers are a conservation dependent species requiring large contiguous forests with fair interspersion of undisturbed breeding areas.”

The report also accepts the wider picture, explaining why the tiger is more than just a tourist attraction. “[The] tiger is not only a flag bearer of conservation but also an umbrella species for majority of eco-regions in the Indian subcontinent. Its role as a top predator is vital in regulating and perpetuating ecological processes and systems.” Put more simply, if India makes a real effort to save the tiger, it will at the same time be saving areas where other animals can live and where rivers can flow naturally. If such areas are deforested , they are lost to nature – forests are cut down, animals vanish, rivers are diverted, and the ecological balance is upset with consequential siltation and floods.

Sadly few people see that link, and the tiger does not grab the sort of widespread public admiration in India that it has abroad, even though it has a place in the Hindu religion with the goddess Durga being worshipped riding a tigress. So it is easy for the government to issue reports and then do little. What it should be doing is revamping its grossly under-staffed and unmotivated forest guard service, and strengthening enforcement and prosecution of poachers and traders.

But the problem will never be solved by tackling the supply side. This is a demand-driven trade and the only really effective way to protect tigers is to persuade China fully to implement – and continue – a ban on the use of their skins and body parts. “If India wants wild tigers, it not only has to improve enforcement but stem the demand by talking forcefully to China,” says Belinda Wright, one of India’s leading tiger conservationists.

India however seems scared of tackling China on this issue, probably because it has sensitive border differences with its large neighbor that defeated it in a war in 1962.

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