Posted by: John Elliott | January 4, 2008

Sri Lanka looks set for a rough year

Sri Lanka seemed so peaceful over the recent holidays, especially near the city of Galle where I was staying on the southern tip of this beautiful island. Fishermen (see picture) perched on their sticks every evening just off the beach till sunset, while lazing western and other tourists sipped drinks and watched them from nearby terraces. The hotels were full, all doing brisk business, with prices up to $475 a night being charged by top boutique places in the old fort area of Galle. The talk was of famous authors such as Gore Vidal who are due at Galle’s second annual literary festival in two weeks’ time.

Fishermen at sunset, south of Galle

Fishermen at sunset, south of Galle

Along the three-to-four hour drive to the capital of Colombo, everywhere looked busy with many shiny new buildings. Property prices are rising, especially along the coast where foreigners are buying plots of land fronting beaches which just three years ago were pounded by the tsunami tidal wave that devastated the area with tragic loss of life.

But this tranquility is in many ways a mirage. On Wednesday morning, while I was ending my holiday with breakfast on the terrace of Colombo’s graceful old Galle Face Hotel, Liberation Tigers of Tamil Eelam rebels blew up a military bus just a kilometer or two away, killing five people and wounding 28. A navy boat was patrolling off the shore, on the look-out for possible attacks from the sea. A day earlier, a leading politician had been shot dead in a nearby temple. In the evening, the government announced it was cancelling a six-year but long-irrelevant ceasefire agreement with the Tamil Tigers.

It was clear that stories I had heard over the previous few days were quickly coming true. President Mahinda Rajapaksa and his brother Gotabaya, the defense secretary, are bent on tough military action, backed by a 20% increase in defense spending, to defeat the Tamil rebels in the north. It could, I had been told, be a rough year for Sri Lanka.

It is now over 24 years since bloody clashes began between Sri Lanka’s militant Tamil minority and the majority Sinhalese. Some 70,000 people have died since the start in July 1983, but the story remains the same. The Tamils, mostly Hindus and Christians, feel they are a beleaguered minority who were treated unfairly by the Buddhist Sinhalese majority and want to win independence for the north and eastern parts of the island. The Sinhalese fear that, unless they resist the Tamils, their island, which they regard as a major centre of Buddhism, will be overrun by India’s Dravidian hordes.

It should have been possible to broker peace but all efforts have failed because of two seemingly immovable forces. On one side is Velupillai Prabhakaran, the reclusive and powerful leader of the Tamil Tigers, who seemingly will settle for nothing less than independence and only agrees to ceasefires when he needs to regroup and rebuild his forces. On the other side are Sri Lanka’s mainstream self-serving and competitive politicians who seem unable to resist hard-line anti-Tamil Buddhist monks.

The economy is in poor shape. Economic growth of only 5% is expected in 2008-09. Consumer prices rose nearly 20% in the year to last October. Overall inflation is forecast at 11-12% next year, and there is little sign of the government restricting populist economic policies and tightening fiscal controls. Tourism is an important foreign exchange but – until the recent holiday boom – had been declining because of the 2004 tsunami and increasing Tamil Tiger violence that included an air attack on military installations at Colombo airport last March.

That’s a sad record for a country that started capitalist economic reforms at the end of the 1970s, around the same time as China, and long before they became fashionable on the Indian subcontinent. Instead of becoming a rich Hong Kong-style entrepot off the southern tip of India, its limited successes have been hobbled – and there is no solution in sight.

 

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Posted by: John Elliott | January 3, 2008

Musharraf sets stage for election rigging

President Pervez Musharraf made a strange television broadcast last night to the Pakistan nation in the wake of the assassination a week ago of former Prime Minister Benazir Bhutto. Dressed in civilian clothes, as he now has to be, having retired from his army post, he looked far from confident.

But what was most surprising – at least initially – was the long-winded and painstaking way in which he spelled out details of the widespread riots, violence and damage to property that happened mostly in Sind, Bhutto’s home province, over the weekend.

“Daily wagers could not go to work,” he said. “The petrol pumps were set on fire due to which the public transport remained off roads and it was the general public which suffered….. rail engines and bogeys were torched, so much so that even the rail track was uprooted at some places.”

Also “jewelry and ammunition shops” had been targeted and “arsonists” had released prisoners from jails and destroyed election offices. Finally, “all the development work that was carried out there in the last few years has greatly suffered during those two days of violence.”

Then the reasons for the catalog of disaster became clear. They gave Musharraf an excuse for the Election Commission to delay a general election, which was due to be held next Tuesday, till February 18. The speech was also designed to try to justify deploying the army and paratroop forces “all over Pakistan to ensure that there is no violence during the elections.” Ominously, the forces would remain in place afterwards – doubtless to quell post-election protests.

That is not a very long delay and, initially, looks like a good compromise between mainstream political parties such as the Bhutto family’s Pakistan People’s Party (PPP) that wanted no delay, and Musharraf’s Pakistan Muslim League (Q) that wanted longer. But some of the sympathy vote that will go to the PPP following Benazir Bhutto’s death may get dissipated in the next six weeks and, more importantly, there will be plenty of time for Musharraf, the army and other forces to gain control of election arrangements and rig voting to try to prevent the PPP leading a coalition government.

Meanwhile, a few more thoughts on the Bhutto dynasty that has been re-established since Bhutto’s death with the naming of her 19-year old Oxford undergraduate son, Bilawal Bhutto Zardari, as the PPP’s chairman, and his father Asif Ali Zardari as the caretaker co-chairman. This has not happened because there are no other capable politicians in the PPP – there certainly are, notably Aitzaz Hassan who I first met 20 years ago when he was leading lawyers’ protests against the military rule of the then-President Mohammad Zia ul-Haq.

Now a prominent lawyer (currently under house arrest), Hassan, and others like him, could easily lead the party and run an effective government. But none of them dare challenge the dynasty for fear that, if (when) they failed, they would be banished from the inner circle of leadership. Such courtiers’ and acolytes’ fears of exclusion help sustain dynasties everywhere.

Ironically assassinations, personal tragedies though they are, only enhance dynasties’ immortality because they raise the height of the pedestals on which the families perch and make it increasingly difficult for capable outsiders to take over, irrespective of the quality of the dynastic leadership.

“It is certainly not brilliance, foresight, erudition or heart, but rather the experience of living with violence – facing it and using it – that separates political families from the rest,” writes Dipankar Gupta, a leading Indian sociologist, in this morning’s Mail Today daily newspaper.

While Bilawal finishes his studies at Oxford, the party will be headed by Asif Zardari – a man aptly described by my colleague Jo Johnson in the Financial Times yesterday as “a roguish bon vivant whose reputation for corruption has been only partly offset by a sense that he has paid his dues during an eight-year spell in jail.”

Who would vote for such a man, one might ask. The answer, as we will surely see next month, is “millions” – in awe, memory and sympathy for the Bhutto name – even though Musharraf and his forces will try to divert the votes. That is when Pakistan could face serious social disorder because, if Musharraf overdoes the poll rigging, the PPP and other parties will organize massive and violent demonstrations that will be far more damaging than last weekend’s mayhem in Sind.

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Posted by: John Elliott | December 31, 2007

Dynasty Brand Bhutto lives on in Pakistan

History has been made in Pakistan this weekend, not just because of the general political fallout from the assassination of former prime minister Benazir Bhutto, leader of the Pakistan People’s Party (PPP), but because the Bhutto family has firmly secured its future as the country’s leading political dynasty.

The family of Pakistan’s other top political leader, former prime minister Nawaz Sharif, is not nearly so well established, while the Army, which is the most powerful political organization and currently runs the country through President Pervez Musharraf, passes the baton of command to successive generals who have not been related to each other.

For a few hours it seemed as if the Bhutto dynastic grip might loosen with Asif Ali Zardari, Benazir Bhutto’s widower, stepping into her shoes and weakening the blood line – something the relatively insignificant Zardari family no doubt wanted.

But a 19-year old son, Bilawal, was quickly brought into the picture and installed as the chairman of the PPP and thus as party leader. Significantly, Bhutto was added to his name – he is now Bilawal Bhutto Zardari.

Asif Zardari will be the PPP co-chairman, and political power will be shared with mainstream PPP politicians – neither Bilawal Bhutto, who is at university in the Britain, nor Zardari, will be the PPP’s prime ministerial candidate in coming elections.

There is of course a lot to play for. Zardari, who has been accused of corruption following Benazir Bhutto’s two terms as prime minister, will no doubt try to exert as much political influence as he can.

Some PPP politicians will also emerge as top leaders but, in the way of South Asian politics, Bilawal Bhutto has been firmly established as the head of the dynasty – and therefore as a future prime ministerial candidate, unless he decides later to opt out, which seems extremely unlikely.

That puts him ahead of India’s Rahul Gandhi, who is in his mid-30s. Gandhi is being groomed – but has not yet been officially named – to take over the leadership of the Nehru-Gandhi dynasty one day from Sonia Gandhi, his Italian-born mother and current head of the Congress Party. This marks him out as a future prime minister, though he is showing little enthusiasm for the role and has a much more politically capable sister, Priyanka, who currently stays mostly behind the scenes.

There seems to be inevitability about these dynasties. In India, while the Nehru-Gandhis demonstrate all the confidence of people born to rule, a growing number of lesser national and regional politicians are bringing their sons, daughters and sometimes other relations, into politics. This strengthens their own position because they have people they can (usually) trust and it also helps with the management of wealth that usually accumulates.

Most important of all, it is the family name that matters – Brand Bhutto and Brand Gandhi generate instant recognition. The brands may not always pull in the votes, but leaders of both the Congress Party in India and the PPP in Pakistan reckon they gain from them.

Certainly there will be a huge sympathy vote for the Bhutto’s and thus the PPP in the coming Pakistan general election, no doubt echoing what happened in India in 1984 and 1991 when the Congress Party was swept to power with otherwise unlikely massive victories following the assassination first of Indira Gandhi and then of her son Rajiv (Sonia’s husband).

But are dynasties good for the countries? The answer is almost certainly not. India’s Nehru-Gandhi dynasty has a mixed record and Benazir Bhutto did little useful for her country during her two prime ministerial terms.

The dynasties also block the emergence at the top of other possibly more able politicians, and thus stymie their countries’ political development.

Such considerations however are largely irrelevant – the dynastic brands are well established, as we have seen this weekend.

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Posted by: John Elliott | December 27, 2007

A Hindu nationalist win in Gujarat

One of India’s most controversial politicians, Narendra Modi, scored a notable victory last weekend when the Bharatiya Janata Party (BJP) won assembly elections in the state of Gujarat and he was sworn in (on December 25) as chief minister for a third term.

The result is good for business; whether it is good for social cohesion and harmony between Hindus and Muslims is another matter. Modi represents the hard Hindu-nationalist wing of the BJP and is widely regarded as being strongly anti-Muslim – especially following Gujarat’s devastating Hindu-Muslim riots in 2002 when more than 1,000 people died. He is one of India’s most charismatic politicians and is seen as a potential future prime minister, but he is widely feared for his communal views, and is resented by many other BJP leaders because of his autocratic and often arrogant style.

His main success is that, as chief minister, he has built on Gujarat’s strong business and entrepreneurial traditions, bringing new foreign as well as Indian investment to the state and winning the support not only of famous Gujarti tycoons, notably Mukesh Ambani of Reliance Industries (RIL), but also other such as Ratan Tata, head of the Tata group. Much of this investment, however, has been in large-scale and urban projects that have done little for the rural poor who desperately need better services and job-generating investment. It is a personal tribute to Modi that he has won despite failing in this area.

The main political significance of the election result is the failure of Congress, India’s leading national party, to add significantly to its tally in a state assembly where it has only 59 the 182- seat compared to the BJP’s 117. That is not only bad news for Congress’s national image. It is also a resounding defeat for the Nehru-Gandhi dynasty that has played a leading role in Indian politics since independence in 1947. Sonia Gandhi, Congress’s Italian-born leader and the current head of the dynasty, campaigned widely in Gujarat, but seems to have had little impact. Her son Rahul Gandhi, who is being groomed to be a future prime minister, made one campaign appearance in the state and also failed to motivate voters.

There are two points here. One is that the result illustrates the limitations of a dynasty – that the family involved rarely if ever allows alternative leaders to emerge. Congress, which currently means Sonia Gandhi, always names its chief minister after assembly elections, not before, and usually only after that person has shown due obeisance. So in Gujarat there was no strong Congress chief ministerial candidate to challenge Modi head on. Instead the Congress main campaigner was Sonia Gandhi, who was never going to be chief minister and, while pulling crowds to her meetings, couldn’t generate votes.

The second point is that Congress nationally is now likely to be more wary of risking an early general election over India’s proposed nuclear deal with the United States. Leftist parties that support India’s Congress-led government are threatening to withdraw support if the deal goes ahead, and that could trigger a general election within months. Following the Gujarat result, Congress seems more likely to go slow on the deal than risk an election.

So the Gujarat result is good for the BJP and even more significant for Modi. It is bad news for Congress and the Gandhis, but good for political continuity nationally because it makes a general election in the next few months less likely.

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Posted by: John Elliott | December 20, 2007

Tata hits back at Orient-Express

The Tata group’s Indian Hotels company, which runs the Taj hotel brand, has sent an angry riposte to Orient-Express (OEH), a UK-based hotels-to-trains company that last week said an association between the two companies would reduce the value of OEH brands. Krishna Kumar, vice chairman of Indian Hotels and a director of Tata Sons, the parent company, last night accused Paul White, OEH’s president and CEO, of being “highly misinformed and unduly aggressive”. A letter sent to him by White was “pejorative, inaccurate and libelous.”

This escalation of exchanges between the two companies could be building up into a major row unless OEH backs down. Kumar denies White’s claim that Indian Hotels had launched a takeover bid for OEH and insisted he only wanted to develop joint activities in areas such as sales and human resource initiatives. Kumar pointed out that Indian Hotels’ 11.5% stake in OEH makes it the largest shareholder. He added that OEH “does not respect the most basic tenets of corporate governance” because it was refusing a dialog with his company and with Dubai Holdings, a Dubai government investment company that is the other largest public shareholder.

He ended the letter saying that “those with a fossilized frame of mind risk being marginalized” – which looks more like a warning that Indian Hotels will beat OEH on the ground rather than trying to take it over. Time will tell.

It’s not the job of this blog to track all the moves in such corporate battles, but I have returned to this one as a follow-up to what I wrote last Monday, which provoked dozens of fiery comments.

Answering some of those comments, I live in India (as I have explained before) and I have stayed in many Taj hotels over many years – at Pune, Hyderabad and Chennai in the past few months. And I do drive a Tata car – I have a slightly battered but lovely old Sierra (born out of the Tatamobile that someone mentioned, and related to the Sumo), which I have driven happily for the past 12 years. Sadly I’ll have to replace it soon.

All comments are most welcome – that’s what blogs are all about – so thank you everyone. But most of the attacks have been over things I did not say.

I have also written in Fortune magazine recently that Indian manufacturing is now transforming itself. No one I know in India disputes how appalling quality has been in the past, so I am amazed by such angry comments (mostly from outside India) about what in India is undisputed.

My views on Taj hotels stemmed from my own and many visitors’ experiences. My comments on Jaguar and Land-Rover were limited to the impact on their image of possibly being Indian owned– I did not comment myself on whether the best owner is or would be Ford (F), Tata or One Equity Partners.

Happy Holidays

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Posted by: John Elliott | December 17, 2007

Tata hits image problems in the U.S.

After a string of successes, India’s industrial giant, Tata, has hit a rough patch in the United States. Advances made by Indian Hotels, which runs the Taj brand, to Orient-Express (OEH), the U.S. owner of luxury hotels, trains and cruises, have been firmly rebuffed. And American dealers selling Jaguar cars have objected to Ford selling the British luxury brand to Tata Motors (TTM).

The setbacks are a blow to Ratan Tata, chairman of Tata Sons, the group holding company, and one of the world’s 25 most powerful people in business. Early this year, he scored his biggest triumph when Tata Steel bought Corus, the British steel company, for $12.1 billion, defeating a strong rival bidder, CSN of Brazil, in a dramatic knock-out contest. Now Tata is bidding along with Mahindra & Mahindra (M&M), another leading Indian autos-based company, to buy the Jaguar and Land-Rover brands from Ford (F).

Some analysts question whether Tata Motors can handle Jaguar and Land-Rover, especially their difficult trade unions. Critics also point out that Tata is more focused on smaller cheaper cars – including a low-end model now in development that it plans to sell for around $3,000. That feeds U.S. dealers’ worries that Jaguar would lose its upscale image if it were Indian-owned – whether it’s bought by Tata or M&M. 

Ken Gorin, chairman of the Jaguar Business Operations Council, which represents Jaguar car dealers in the U.S., has said that Ford should sell the two brands to another bidder, One Equity Partners, a private equity arm of J.P.Morgan Chase (JPM). He’s reportedly concerned that the American public won’t accept a luxury-car brand such as Jaguar “out of India.”

Gorin, of course, doesn’t get to decide who buys the brands, and the deal is still open – with Tata being tipped to win in some reports. But he has a point: Indian manufacturing is only starting to gain acceptance internationally. Foreign car companies are increasingly looking to India for supplies of components and even complete cars – Suzuki Motor announced last week that a factory near Delhi will supply its planned A-Star car to Europe and elsewhere. But A-Star is not a luxury model.

Perceptions about the low quality of Indian products are also behind Orient-Express’s rebuttal of Tata’s moves for a closer relationship. Indian Hotels increased its stake in Orient-Express to 11.5 percent recently, prompting Paul White, the CEO of Orient-Express, to say a combination was not in his company’s interests. “Any association of our luxury brands and properties with your brands and properties would result in a reduction in the value of our brands,” he told Indian Hotels, which is expected to respond to the rebuff shortly.

White’s remarks shocked officials at Tata’s Taj hotels, who deem their hotels to be one of Asia’s, and maybe the world’s, best. Taj hotel guests, however, do not always rate them so high: There are frequent complaints about the quality of service and inferior finishes. The group’s award-winning Taj hotel on the waterfront in Mumbai is one of Asia’s most splendid buildings, but service there does not always match the elegance.

 So it is perhaps not surprising that White has serious reservations. What is more curious is that Tata has pursued the company despite the cool reception. Ratan Tata recently said in a television interview that he does not like hostile takeovers.  “We walk in the face of opposition on an acquisition bid,” he said. What’s more, he denied that Indian Hotels is seeking to acquire the Orient-Express. Tata approached Orient-Express management “basically to seek an alliance and were misunderstood,” he said.

Meanwhile, Indian jingoism is on the rise in the media and among the country’s politicians. “Racism can’t halt Indian takeovers,” declared the Economic Times, a leading business daily, slamming “quasi-racist slurs.” Kamal Nath, India’s outspoken commerce minister, said “there cannot be any discrimination against outward investment from India.”

The bluster is unfortunate. A more effective tack for Indian officials would be to accept that their country is just beginning to lose its decades-long reputation for dreadful quality — and to vow to show the world that it can do even better.

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Posted by: John Elliott | December 11, 2007

An Indian Suzuki car will sell in Europe – but not Japan

India’s auto industry has been gaining favor internationally as a source of components, but no-one has showed as much faith in its completed cars as the Suzuki Motor Corporation, which announced today that India will be the only production centre for its planned small “world car”, currently called the A-Star. Production will start at the company’s Manesar plant near Delhi next October and build up to 150,000 a year – 100,000 for export to Europe and 50,000 for India. A slightly modified model will be marketed in Europe by Nissan under a supply-contract between the two companies.

The A-Star will be unveiled at India’s motor show in Delhi next month. It is to be a five-door hatchback and sales will be spread beyond Europe after the launch. A new one litre aluminium engine and manual transmission will be produced in India by Maruti Suzuki and Suzuki Powertrain, a Suzuki subsidiary.

Osamu Suzuki, the company’s 77-year old chairman, would not put a price on the vehicle when he announced it in Delhi yesterday, nor comment on whether the company might produce what is euphemistically called the “one lakh car” planned by Renault and by India’s Tata Motors – the more likely price is around $3,000 or 1.2 lakhs of rupees (Rs120,000) according to Carlos Ghosn, CEO of Renault, who is talking to India’s Bajaj Auto about co-production.

Suzuki visibly brightened up when I asked him about this car. With eyes twinkling, he queried what sort of car it would be. He didn’t quite go so far as to doubt whether if it would have an engine or wheels, but he did say that ”we don’t know about safety and Co2 norms, nor production norms”. Having just explained that the A-Star would have “world-class environmental compatibility and comfort” with emissions “lower than European competitors” he asked “does it have an air bag or not” – knowing presumably that the answer is probably no. Teasingly, he added: “We don’t even know if $3,000 is the parts’ cost or the retail cost”, so it was “difficult to respond” whether he could produce it or not.

The significance of these remarks is that he does not seem to be worried about the “one-lakh” car eating into the 54% market share enjoyed by Maruti Suzuki, the Indian company that started out 24 years ago as a joint venture with the Indian government and is now 54% Suzuki owned. Maruti was a trailblazer when it began because there were no adequate component suppliers, and the country’s potential manufacturing strengths that had been suffocated by government controls. That has now all changed and auto component and vehicle manufacturers are now leading Indian manufacturing industry in terms of quality and, as I said, world acclaim. Suzuki plans $1.8 billion investment in the country between now and 2009

But Suzuki was shy about why he has no current plans to sell the A-Star in Japan. On that he would only say: “Suzuki already has a mini car on sale in Japan so it is not required”. Surely he can’t be avoiding sullying his Japan sales with a “made in India label?

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Posted by: John Elliott | December 3, 2007

Iran nuclear crisis puts Delhi and Mumbai at risk

A session on global risks at the annual Delhi conference of the World Economic Forum (WEF) was jolted out of a discussion on demography and health this morning when Robert Blackwill, a former US ambassador to India, warned that the country’s economic growth could be derailed by a looming crisis over Iran’s nuclear weaponry.

 

Delhi and Mumbai could become targets for a nuclear attack, he said.

 

“I’m not forecasting a war but we are going down that river by about four knots,” declared Blackwill, who became deputy national security adviser to Condoleezza Rice after he gave up his ambassador’s post in India in 2003. He now works as a consultant and is president of Barbour Griffiths and Rogers in Washington.

 

Speaking before news emerged in Washington that intelligence agencies now suggest Iran may have halted its nuclear weapons as early as 2003, he said that a U.S. attack would lead to “a long war……alienate the Islamic world…… and increase terrorism globally.” On the other hand, if Iran acquired nuclear weapons, it would “change the world.” Other Sunni states would acquire weapons and India would be “a prime target,” with the “risk of nuclear attacks on Delhi and Mumbai.”

 

India has of course been building up its own nuclear capability for 30 years, because it feels vulnerable in the long-term to a nuclear attack from China, and maybe in the shorter term from Pakistan. But Blackwill’s warning significantly widened the risk into the unknown.

 

“Within the next year or two, this president (of the United States) or the next president might face a decision to attack Iran’s military and nuclear facilities, with disastrous results, or acquiesce in Iran becoming a nuclear state,” he told the conference.

Later he said to me that there would be a “binary choice for the president to pull the trigger or acquiesce” in Iran’s nuclear arms capability, unless sanctions become “much stronger.”

That apocalyptic analysis from a former diplomat, who is well known in India for speaking his mind, usually in support of the country and its future, silenced most commentators at the conference. But Shamsher Mehta, director general of the Confederation of Indian Industry, said he would look differently at what was often regarded as a “clash of civilizations.”

Hinting that the United States and other western powers should handle Iran differently, he said that “India represents an opportunity for a confluence of civilizations”.

Mehta, who is a retired army general, was reflecting the fact that India does not want a possible nuclear energy deal that it is considering with the United States, to force it to give up decades of friendly relations with Iran. It also wants to complete an agreement with Iran on a gas pipeline, which the United States opposes.

Blackwill introduced the Iran issue by pointing out that India’s annual economic growth rate of 8-9% was vulnerable to the risk of rising oil prices. He referred to an Asian Development Bank report, which said that for every US$10 hike in oil prices, India’s growth rate would be cut by 1%. So if oil were to hit US$150 per barrel, India’s growth could plummet to a “disastrous” 3-4%.

He was speaking at a conference session on six areas of risk to India’s economic future. Apart from the Iran and oil, the most serious risks were linked with India’s large population and health prospects. A report at the conference pointed out that, while India had 18% of the world’s population, it had only 4% of its water resources – with deteriorating ground water supply systems and dangerously polluted rivers. HIV and AIDS plus tuberculosis killed large numbers of people, and malaria was more prevalent than in neighboring Pakistan and Sri Lanka.

For India, the difference between these health risks and the Iran risk is that it could do a lot on its own to improve water supplies and reduce the growth of killer diseases. But it is nowhere near doing enough, mainly because of corrupt fractured governance with responsibilities split between Delhi and individual states.

On Iran, it could also do a lot to temper growing aggression in the US, acting as an intermediary between Iran and the West and aiming at Mehta’s “confluence of civilizations.” Till now however, India has failed to rise to such diplomatic challenges, partly because it has neither the self confidence to speak out internationally, nor the diplomatic skills to mediate.

Critics in India who fear that the proposed nuclear deal would make the country a client state of the United States, would have less to worry about if India became visibly involved in Blackwill’s looming crisis and insisted that it should stay close to Iran in the next crucial year or two, as well as striking deals with the United States. The question is whether India could master such “confluence.”

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Posted by: John Elliott | November 20, 2007

Poor governance in Indian states

It’s often easy to despair of Indian politics and politicians, and the behavior of top figures in two important Indian states – West Bengal and Karnataka – make this is one of those times.

In both places, political leaders have in the past week shown scant regard for the good of their states and the people who live there, in one case choosing to support the brutal muscle of political cadres above forces of law and order, and in the other putting opportunities for potential graft above stable government.

Meanwhile the central government, led by prime minister Manmohan Singh and Congress Party leader Sonia Gandhi, is saying little because it wants to avoid upsetting sensitive political alliances and vote banks ahead of coming state elections and, possibly, a general election.

The story starts in Nandigram where plans for a 10,000-acre special economic zone led to violent protests and at least 14 deaths last March and April. Trouble has broken out again in recent weeks. This time it has been caused not by the poor trying to protect their land but by armed cadres of the CPI-M, India’s biggest Communist party which leads West Bengal’s Left Front government, re-establishing its traditional control over the area by ousting rival political groups that had moved in during the earlier troubles.

Houses and shops were burned and ransacked and fear was spread by patrolling motorbike convoys carrying red flags. Reports said at least eleven people were killed and more than 100 beaten up and injured. Last week the government kept para-military forces, which were supposed to have stepped in, out of the area till the armed CPI-M cadres – or goons to use a more apt word – were back in control.

That is bad enough, but what has shocked people of all shades of opinion is the behavior of CPI-M chief minister Buddhadeb Bhattacharjee, a mild looking man who has been feted internationally as a forward looking economic reformer.

Instead of trying to rein in his party’s activists, he endorsed what they had done, saying they were “justified”. Referring to earlier violence by the opposing groups, he said that ”the opposition has been paid back in the same coin”. Commentators have been noting that this puts him almost in the same camp as Narendra Modi, the much-criticized Bharatiya Janata Party (BJP) chief minister of Gujarat, who allowed rampant anti-Muslim violence in his state in 2002 without ordering police action.

It is being suggested that this was not a Bhattacharjee aberration but the CPI-M being seen in its true colors. Vir Sanghvi, a widely read columnist, wrote in the Hindustan Times last Sunday that people who have lived in West Bengal “recognize the party for what it truly is: a rigidly disciplined totalitarian outfit which depends on murderous cadres and which has no real patience with democracy and dissent”.

Such reports of the Left Front’s toughness with opponents, and its firm grip on West Bengal’s politics, have often been heard during the 30 years that the CPI-M and its allies have run the government, but no-one expected such an open endorsement of lawlessness.

(Ironically, the Nandigram events appear to have eased the path of India’s proposed nuclear deal with the US. The CPI-M has been leading opposition to the deal and has threatened to withdraw its parliamentary support for the Congress-led coalition government if the deal went ahead. That could have provoked a general election, which the Left is now in no condition to face because it would almost certainly do badly in West Bengal and elsewhere. So it has toned down its opposition and agreed at the end of last week that the Indian government should take the next step towards a deal and hold talks with the International Atomic Energy Agency (IAEA) in Geneva. It is however insisting that the government reports back after the talks, which might lead to another impasse and more delays.)

Meanwhile in Karnataka, a BJP-led state government that took power just a week ago was brought down yesterday by its coalition partners because of a disagreement over allocation of ministerial portfolios.

“Fight over rich ministries fells Karnataka Government” said a neat Hindustan Times headline this morning (Nov 20). The Janata Dal (S) party, led by former prime minister Deve Gowda, pulled out of the coalition because the BJP would not agree to let it have lucrative ministerial posts covering housing and development, and mining – posts that are always coveted in governments across India because of the largesse they bring from would-be licensees and contractors.

Karnataka has now had three governments in as many years and is sinking rapidly into the sort of administrative torpor more usual in the blighted northern state of Bihar. That is bad news for a state which has as its capital the showcase city of Bangalore, where big IT names such as Infosys and Wipro are located. No wonder IT companies are expanding elsewhere.

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Posted by: John Elliott | November 15, 2007

India’s Warren Buffett: A bullish long-term outlook

I’m back on the road — not among the India’s manufacturing companies that I visited a two months ago (http://ridingtheelephant.blogs.fortune.cnn.com/2007/09/07/on-the-road-why-india-can-win-on-some-points-against-china/ — but talking to finance people in Mumbai where the performance of the stock market defies short-term worries.

Yesterday morning I went to see Rakesh Jhunjhunwala, the market’s leading one-man market mover and one of India’s richest men. I asked him where the market was heading. “I’d be circumspect and careful,” he said, swinging on his desk chair away from me to look at flashing lights on four screens on his desk. “There is a lot of uncertainty ahead with a US economic slowdown, troubles in the U.S. credit markets that will affect the world settlement-wise, and some signs of a slowdown in India’s industrial growth.”

That was at about 11:30 in the morning. I don’t know where he put his money for the rest of the day, but the market astounded most experts with the key Bombay Stock Exchange (BSE) Sensex 30-stock index making its biggest ever single-day gain of 893 points to finish at 19,977, almost back to the 20,000 mark that it crossed last month after a sudden bull run (http://ridingtheelephant.blogs.fortune.cnn.com/2007/10/16/rich-valuations-for-players-in-mumbai%e2%80%99s-bull-market/). Today there has been some minor adjustment down to 19,789, but not enough to disturb sentiment.

A large man in his late 40s, Jhunjhunwala was described earlier this year in a magazine as the “pin-up boy of the current bull run”, and he is always in the news when times are good. Sometimes dubbed “India’s Warren Buffet,” he is a chartered accountant who had a “childhood love of stocks.” He started as a trader and investor in 1983 and now runs his Rare Enterprises company from smart offices in Mumbai’s teeming but scruffy Nariman Point business district. “Buy right and hold tight” is one of the mottoes in his office.

Yesterday Forbes rated him as India’s 51st richest man with wealth of $1.1 billion, far below the $49 billion held by Reliance Industries’ Mukesh Ambani, but not far behind Nandan Nilekani, one of the founders of the Infosys software company (INFY), who came in at number 45 with $1.26 billion.

Jhunjhunwala says he is “well invested” in key growth areas such as banking, retailing and infrastructure, all of which are based on India’s domestic performance. His private equity interests, which he said make up 20% of his investments, offer more detail — education (private schools in Mumbai), hospitals and health care, a security company, pharmaceuticals, and dredging.

“What did he say?” people asked me when I said I’d met him. “Long-term optimistic, short-term cautious” was how I summed it up — and it’s his long-term optimism that’s significant. “The factors driving the Indian bull market and economic growth are very much alive and kicking, but these are testing times in the short term,” he said.

When I asked him what factors, he briefly mentioned the usual list of a young population, liberalisation and skills, but then quickly broadened the conversation — a friend had told me he was a thinker, not just a punter. “It’s the culture in terms of society — we are a tolerant people — the world needs people (like Indians) who anticipate change and benefit from it,” he said. “Everything in India is bottom up, not top down — it is chaos, but growth comes out of chaos”.

Yes, I thought, understand that, and you understand the country!

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