Posted by: John Elliott | February 11, 2008

Market realism hits Reliance and Emaar

India’s stock market is coming down to earth and, along with it, the dreams of companies that planned big market flotations to raise funds for projects that are yet to happen. Emaar MGF Land, a real estate joint venture 42% owned by Emaar of Dubai, decided on February 8 to pull its float, which had originally been expected to raise nearly $2 billion, because of “adverse” market conditions. A day earlier, Wockhardt Hospitals, a leading healthcare company, pulled a smaller float.

The trend was underlined this morning when Reliance Power, which raised $3 billion last month in the country’s biggest ever initial public offering (IPO), listed on the markets. During the day, it dropped as low as 21% below the Rs450 issue price and closed 17.2% down at Rs372.50. That was a marked reversal of analysts’ talk a short time ago of it hitting Rs900 or at least Rs550-600.

Reliance’s debut helped to pull shares overall down by 4.78% to the lowest level in nearly three weeks. The Bombay Stock Exchange’s key 30-share Sensex fell to 16,630.91, its lowest close since January 22, and 21.6% below its record 21,206.77 on January 10.
Reliance – which is part of Anil Dhirubhai Ambani Group (ADAG) and is controlled by Anil Ambani, one of India’s richest businessmen – mobilized bids totaling an astronomic $180 billion last month for its IPO, even though it has yet to produce a revenue stream. The future of the company – and the stock – depends on Ambani’s ability to turn plans for 13 power projects totalling 28,200MW into reality.

The company drained so much money out of the stock market last month that it helped to trigger the slide at a time when the market was being buffeted by downward trends internationally. So the irony is that Reliance’s own poor performance today was triggered by its almost unreal success last month.

The link between the Reliance and Emaar flotations is that both are built on dreams for the future. Just as Reliance had to admit in its prospectus that “we cannot assure you that our power projects will commence operations as expected”, so Emaar’s prospectus admitted that “most of our projects are in the preliminary stages of planning and require approvals or permits.” The prospectus added that 83% of the land required was still zoned as agricultural – a problem that will also hit Reliance’s projects.

Anyone who knows anything about industrial and infrastructure development in India knows that substantial resistance is building up against rezoning agricultural land, and the country has an appalling history on planned power projects. So it is scarcely surprising that both companies have been hit now in the current international market gloom.

India’s fundamentals are still strong, even though economic growth forecasts are down below 9%. Investors are looking for comfort to the Budget that Palaniappan Chidambaram, the finance minister, will deliver on February 28. When Reliance hit its high spot last month, he said that “investors are investing in the future of India.” He was right of course, though they are now more choosy than they were a month ago.

And, as I wrote in my last post on this subject, many market professionals seem almost relieved the Sensex has fallen from the “absurd overvaluations” of its peak and that dreams are now being questioned.

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Posted by: John Elliott | February 6, 2008

Lockheed leads American defense companies into India

The American government is rightly pleased about a $1 billion order that has just been agreed with India for six of Lockheed Martin’s Super Hercules C-130J military transport planes that will be used by the Indian army and air force. This is India’s first large order with an American defense company and it comes at a time when its traditional – and massive – defense ties with Russia are under increasing strain.

India has for decades been reluctant to buy defense equipment from America, fearing Congress’s power to block deliveries if it did not approve of Indian military activity or policy at some time in the future. This attitude has been changing in the past couple of years when ties between the two countries have improved dramatically – notably with talks on a nuclear deal, though that is now making little progress.

“With this sale, India is telling us it’s ready to buy top-quality U.S. equipment on its merits,” says James Clad, the Pentagon’s deputy assistant U.S. secretary for South and Southeast Asia. “It positions us to be in the Indian defense market for years to come”. But India’s worries remain, and they will affect how it behaves on other orders, and especially on a $10 billion fighter jet contract where Russian and European companies are bidding against America’s Boeing (BA) and Lockheed (LMT).

The significance of the C-130 order as a breakthrough in defense sales should not be over-stated because there was no rival aircraft on the market. India urgently needs the four-engine C-130 because it does not have a medium-sized transport aircraft that can land on short airstrips. Currently it relies on large and cumbersome Russian IL-76 transport planes and smaller AN32s, whose limitations were demonstrated during the mountainous border conflict with Pakistan in 1999 at Kargil. So it decided to negotiate a government-to-government deal without going out to international tender for the C-130s, which will be delivered from 2011, subject to final price negotiations.

For Lockheed, the deal is important, not only because it brings in $1 billion of business, but because the company will be able to demonstrate to the Indian government and air force how it handles orders. This will include meeting Indian government offset arrangements, which require a supplier to spend 30% of a contract’s value in India. There could also be further orders for two or more aircraft.

Boeing hopes to be in a similar position soon if it can clinch an order for its P-8 maritime reconnaissance aircraft. Other American companies such as Honeywell (HON), GE (GE), Raytheon (RTN), Northrop Grumman (NOC), Pratt & Whitney, United Technologies (UTX), Bell Helicopter Textron, and General Dynamics (GD) are actively chasing orders and tie-ups with Indian defense companies.

The C-130 order has upset Russia, which wanted to offer an upgraded – but not comparable – AN-32 if there had been an open tender. The complaint marks the current strained relationship between India and Russia, which have been traditional allies since India’s independence.

With over $14 billion orders currently in progress for military aircraft, ships, rockets launchers, helicopters and other equipment, Russia is India’s largest defense supplier (followed by Israel), and India is its biggest customer. But the easy days, when Russia saw India as an essential customer and was prepared to meet the county’s demands for specialized equipment and knock-down prices, are over. Late last year it infuriated India by saying that it was doubling the price of an old aircraft carrier, the Gorshkov, that it is refurbishing for the Indian navy.

Russia now has other significant defense customers and wants market prices. But it is not offering India competitive back-up services on quality, training, and spare parts, and this is seriously affecting the operational efficiency of the Indian armed forces. “The Russians now want to sell arms not at ‘friendship’ but commercial prices, without providing ‘commercial’ quality of after-sales service,” Kanwal Sibal, a former Indian foreign secretary and ambassador to Russia, wrote in the Indian Express newspaper yesterday.

This leaves the door open for American companies – led by Lockheed – to show what they can do. But they will have to overcome the problem that there is no history of trust between the two countries. As Sibal put it in his article: “Russia is a trusted partner and trust in defence matters has to pass the test of time and of difficult circumstances”.

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Posted by: John Elliott | January 23, 2008

India’s investors lack sophistication

India has unsophisticated investors. I’m talking about stock market investors of course following the stock market crash, with Mumbai’s key Sensex index plummeting 19% from an all time and over-priced high of above 21,000 on January 8 to under 17,000 by Tuesday. Such a remark, judging from past Riding the Elephant experience, will generate a furious tirade of comments, especially from readers based in the United States who are always anxious to protect India’s reputation.

But how else can you explain a market which swings from such extremes. Last week it mobilized bids totaling an astronomic $180 billion for the $2.9 billion initial public offering launched by Anil Ambani’s Reliance Power (which has yet to produce a revenue stream). On Monday and Tuesday, it crashed, seemingly ignoring the country’s strong economic fundamentals. As Palaniappan Chidambaram, India’s finance minister, pointed out when he tried to calm nerves during the slide, the fundamentals are strong. The economy, he pointed out, is growing at around 9%, and the prime minister’s economic advisory council is forecasting 8.5% for 2008-09.

It’s not just Indian retail investors, but foreign funds (many of them based in the United States) that have been rushing herd-like into Mumbai in recent months – and then rushed out on in the past days. This afternoon I spoke to a leading Mumbai banker who has close links with the United States. “If anyone thought that having strong foreign institutional involvement in the Indian market would bring stability, it is clear that that assumption was misplaced,” he said (anonymously because of his links). He complained about a “lack of conviction and analysis” by foreign funds which “on Tuesday told me they were ‘getting the hell out of India’ and today are saying ‘buy.’”

The same line came from Pradip Shah, chairman of IndAsia, a Mumbai private equity firm, who said there were “a lot of unsophisticated players” and added: “Many are naïve and felt left out of the growth so rushed in thinking India was the center of the universe and that nothing could go wrong.”

With earnings and economic growth scarce elsewhere on world markets, funds have been scrambling irrationally, with little analysis, to be part of the record 21,000-plus levels. But for some time there have been worries about when the bubble would burst and what would cause it. Now we know – a combination, as had been feared, of international market falls and a local factor.

The story of the slide in world wide markets is well known. The main local factor was the $180 billion bid for Reliance Power’s IPO – $120 billion from foreign and local funds and $60 billion from private investors. That took $27 billion “out of the system” in deposits and was not available to cushion the market’s fall, says Manish Chokhani, a director of Enam Securities, one of the IPO’s lead managers. As the market fell, it was consequentially difficult for investors to meet “margin calls” for them to top up advance-payments on share purchases. Investors then sold existing holdings to raise the money, which added to the downward trend. Chokhani expects some $20 billion of that money to be released within a few days, improving liquidity.

Today the market has recovered on the back of the U.S. Federal Reserve’s 75-basis-point cut. The Sensex rose to a high during the day of 17,997 – up 1,267 points from last night’s close, its biggest-ever one day gain. It finished the day at 17,594 – up by over 5% from Tuesday, ending a seven-day losing streak.

Across India, small investors are feeling badly bruised, even wounded, by the crash. But some professionals seem almost relieved that what they have long expected and feared has at last happened – and are glad that what some call “absurd over valuations” have now been rationalized. “This is now a much safer place to be,” said one. They just hope that today’s bounce will neither be reversed, nor be followed by too fast a climb back to irrationality. Some people, they know, never learn.

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Posted by: John Elliott | January 15, 2008

India’s largest-ever IPO boasts investors, but no sales

An Indian power company that has no completed projects and no income stream this morning picked up $3 billion within just one minute of it launching India’s largest ever initial public offering (IPO) on the Mumbai stock market. Within half an hour Reliance Power, controlled by Anil Ambani, had offers for four times its debut price – and most bids were at the high Rs450 ($11.50) end of the issue’s price range.

“Investors are investing in the future of India,” said Palaniappan Chidambaram, India’s finance minister, when I asked him, at a lunch he gave to mark the south Indian Pongal Virundhu festival, to explain how such blind investment (in the sense that the company has no track record) could be justified.

Chidambaram wasn’t just doing his job by making a PR point. He meant it. India is the flavor of the year. Economic growth is expected to stay above 8% despite a slowdown in industrial growth and international worries. The stock market is beating expectations –the Bombay Stock Exchange Sensex index broke through 21,000 for the first time last week – that was 50% up on levels last August, though today it closed at 20,251. There is enormous optimism about India’s potential and there is a huge demand for power – capacity needs to double to over 250,000 MW by 2015.

Ambani, who runs Anil Dhirubhai Ambani Group (ADAG) which controls Reliance Power, intends to help meet that demand by becoming the country’s largest private sector power producer in a currently public sector-dominated industry. He has plans for 13 projects that would produce 28,200MW of power on sites that he has identified. He will back that up by organizing co-operation agreements with international manufacturers of turbines and generators.

That is the positive spin that has today attracted the $3 billion. But there are some downsides. As the company’s prospectus says, “We have no operating history so it is difficult to estimate our performance” and “we cannot assure you that our power projects will commence operations as expected.”

Reliance Power only has power purchase agreements in place for 4,560MW of the 28,200MW, and its first project will not start producing power until 2009-10. It has massive land acquisition needs, which are becoming more difficult to achieve at a time when conversion of agricultural land to industrial use is becoming more socially disruptive and political controversial. Then the company has to cope with all the bureaucratic and environmental hassles that usually delay large-scale projects, and it also has to fight off delaying tactics emanating from its opponents.

Life has never been easy for Anil Ambani since he split in 2005 from his elder brother, Mukesh Ambani, who is one of the world’s richest men and runs the similarly named Reliance Industries (RIL), one of India’s two largest groups. There is now bitter rivalry between the two men and their companies, and there is a constant flow of stories about how they try to trip each other up.

As recently as last Friday, India’s Supreme Court passed a blanket order that today’s IPO could go ahead despite any interim orders that might be passed by lower courts. The Ambani group had argued that there was a “malafide and illegal campaign by certain interested persons to stop or delay the IPO.” A few days earlier, another regional court in Uttar Pradesh dismissed a plea against land being allocated for one of the power projects.

The brothers’ split followed the death of their father, Dhirubhai Ambani, who founded the Reliance business and built up massive support among small shareholders as well as a reputation for excellence in executing large projects. That dual reputation still clings to the Reliance name, despite the brothers’ split, and helps to explain why today’s issue has been so successful.

I asked Anil Ambani, when he came to Delhi on his IPO road show a week ago, how he could expect to raise so much money when he had no current operations and no track record, and when there were serious reservations in the market about his ability to deliver. Replying, he talked about how Shell had almost mocked his father years ago about plans to build a massive oil refinery in India when Dhirubhai had no experience and no assured customers. Shell was proved dramatically wrong, and Anil Ambnani said he was confident of doing the same now.

“Our mindset will enable us to execute these big projects,” he said. He also pointed out that he has successfully developed the Reliance telecom business that he took from his brother during the split. One of his bankers added later that the main things to be tackled on power projects were getting permissions, assembling land, and arranging financing – all areas where Ambani has proved his skill in the past.

There is one other factor that could assure today’s investors. Anil Ambani is a workaholic driven by massive ambition and will not allow himself to be seen by his brother and the wider public to fail. At 48, he is also fit, jogging several kilometres in the mornings and sticking to a strict diet. He will not run away from the challenge of proving himself as good as Mukesh.  That may be an unusual sort of fundamental to quote on an IPO. But it’s one of Anil Ambani’s main strengths.

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Posted by: John Elliott | January 10, 2008

‘Nano’ achieves Ratan Tata’s dream

Ratan Tata has achieved his dream. This morning the chairman of Tata Sons, one of India’s two largest companies, unveiled his “Peoples’ Car” at a pop star-style media circus staged at the Delhi auto show. He fixed the price of a basic 623cc model at the much vaunted level of one lakh (a hundred thousand) rupees or about $2,500.

That makes it the world’s cheapest car, though it may not be very profitable.

And he named it Nano – to conjure up high tech and small size images.

“A promise is a promise” he said, announcing the price. When I asked him whether the figure would otherwise have been higher, he said the promise had been a response to what had appeared in the media.

This had become “a challenge” that he felt he had to meet. He’s proud that he has launched “a means of transport that does not exist”, enabling families to move up-market faster from motor cycles that frequently carry three young children as well as parents.

Ratan Tata in the Nano

Ratan Tata in the Nano

The basic model of this handsome elongated bubble of a car will have the dealer price of $2,500 but will cost the consumer about $3,000 with tax and delivery costs when it is launched toward the end of this year.

That is about three times the price of an average motorcycle and half that of the Maruti Suzuki 800cc saloon, currently India’s lowest priced car. More luxurious versions, with air conditioning and other features, will be priced higher.   

The car is unlikely to be exported for three years or more but, when it is, extras such as air conditioning and power brakes and steering would be added.

Rajiv Bajaj, managing director of Bajaj Auto, claimed this week when he launched a concept $3,000-plus car to be developed with Renault and Nissan (NSANY), that Tata (TTM) had never said his one-lakh car would be profitable. Today Tata dodged the question, saying the auto show was “not the platform to talk about breaking even.” Margins would be “spread over several models” and, with variants, the car would be “a profitable proposition for the company.”

Contrary to recent mocking jibes, Nano would meet all emission, pollution and safety norms, though its basic India version would not be sufficient for full European emission and side-crash requirements, nor have an air bag. Its maximum speed will be about 65 miles an hour with regular gas (diesel will follow later) consumption of 50 miles to the gallon.

Tata would not say much about how the low price has been achieved beyond that his Indian designers had “shrunk the package of the car” so that less steel and other materials are used, along with a smaller engine. But it is only 8% smaller than the Maruti 800, though it has, Tata claimed, 21% more inside space.

Some savings will come from locating suppliers on the same site as the main Tata Motors factory in West Bengal (which has been hit by rows over use of land). Further savings might be made later by using subcontractors to assemble cars nearer the point of sale.

Overall, Nano is undoubtedly a major achievement for Indian design and manufacturing. It is also a huge personal success for Tata, whose ideas have been met with widespread incredulity since he first broached the idea nearly ten years ago of moving families off dangerously overloaded motor bikes and into the relatively greater safety of a low cost car.

He has said recently that he would like to retire before too long and that it would be a good time to do so when the Nano is fully launched. He is now 70 and is due to go by the time he is 75. “I do not want to go out in a wheelchair,” he recently told Business World, an Indian business weekly.

But first he has to find a successor who can provide the widely diversified and growing Tata group (currently bidding for the Jaguar and Land-Rover car businesses) with the type of strong leadership that he has achieved – and that seems to be posing him with a more difficult challenge than designing and unveiling the Nano.

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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 in dynasty, India, India general election, Rahul Gandhi, Ratan Tata, Tata | Tags: , , , , , , , , , , , , , , , , ,

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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