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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Posted by: John Elliott | November 1, 2007

The plight of India’s landless is overlooked

 My colleague Jo Johnson, the Financial Times’ south Asia correspondent, writes this morning that the “chief executives cocooned in the sandalwood-scented splendor” of Fortune’s Global Forum for the past three days would have learned more if they had left the grand old Imperial Hotel, where the Forum was being held, and met 25,000 landless workers “from the bottom of Indian society” who marched 320 kms to Delhi to highlight their plight.

“From the stunted and wasted frames of the landless, they would have observed how malnutrition rates, already higher than in parts of sub-Saharan Africa, are rising in many places, as wages lag behind soaring food prices. They would have learnt how the 120m families who depend on the land for subsistence agriculture, generating no marketable surplus from one season to the next, live in terror of expropriation by state governments operating land scams in the name of development,” Johnson says in his on-line column.

He has a point, a serious one, even though people at the Forum did learn a lot about India. But, with the Indian stock market zooming past 20,000 on Mumbai’s Sensex, this march of “indigenous tribes people and ‘untouchables’ from the bottom of Indian society,” who are excluded from the booming economy, aroused little interest when it arrived in Delhi on Sunday.

Newspaper front pages gave more space the next day to a local marathon run, and then focused on the stock market and iconic (India loves icons) visitors to Delhi – Angela Merkel, the German chancellor, Henry Paulson, US Treasury secretary, and Henry Kissinger, former US secretary of state. Kissinger became involved in lobbying for America’s proposed nuclear deal with India, but he was primarily in town for a convention organized by JP Morgan (JPM), the US investment bank, which took over the Global Forum’s elegant conference facilities in the Imperial Hotel today. That conference is also unlikely to focus on the plight of those sad disillusioned marchers.

Yet many of the executives attending both conferences are at least partially involved in the growing problem of the landless. Their finance and property companies are piling money into Special Economic Zones (SEZs) and other development projects that deprive the poor of their land and livelihood, once land use regulations have been changed (foreign investment is not allowed in agricultural land).

Low prices are paid for land whose values then rise rapidly, benefiting developers, politicians and bureaucrats who are often involved in land scams, while the poor are swept aside. Such people have little chance from birth of being anything but losers and, while disputes over land grabs do sometimes hit Indian newspaper headlines, the stories rarely leave much of an imprint.

The main issue is the plight of farmers and landless laborers, plus tribal people who live in remote areas, many of whom have had their land for generations. The authorities frequently claim that they will be fully compensated – last April it was announced that SEZs should provide one job for every family displaced. But, as I wrote then, that scarcely begins to tackle the scale of the problem, especially for the landless, those without ownership rights, and millions who have never had proper legal ownership documents. Even those with some paperwork fear, as frequently happens in such situations, that they will be cheated by local government and bank officials and their henchmen.

This is growing into a crisis. Land looks like it is becoming India’s most explosive social issue in the future, as those who benefit from land grabs become more greedy and those who lose out feel even further left behind. Industrial companies are also hit. Posco, the Korean company, has been having problems in Orissa on a planned $12 billion steel project that has become caught up in local protests, fermented by local activists and led by one of India’s Communist parties. Four Posco officials were kidnapped recently.

On Sunday, as the march came into Delhi, there was unrest in West Bengal at Nandigram where a 10,000-acre chemicals SEZ planned by Indonesia’s Salim group ran into trouble earlier this year. Four people were killed in a bomb blast on Sunday, that was believed to be connected to the dispute, and a political leader’s convoy of cars was fired on.

One could dismiss these as isolated incidents, but they reflect growing anger and unrest that could explode. The government this week responded to the march by announcing the creation of a National Land Reform Committee to develop a new policy, but it is unlikely to achieve much – such committees rarely do.

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Posted by: John Elliott | October 31, 2007

Fast growth – plus losses – in retailing

Kishore Biyani, founder and chairman of the Future Group, which is India’s largest and most successful retailer told us at the Fortune Global Forum yesterday about how he avoids clashes with old traders who dominate India’s current farm-to-shop distribution system.

He invites local wholesale traders who specialize in various fruits and vegetables to bring their produce to his Food Bazaar supermarkets and sell it themselves. That seems to have prevented them mounting the sort of opposition to his Bazaar outlets that has grown against the Reliance Fresh stores of the Reliance Industries (RIL) group. But other speakers on a panel at the Forum agreed that this was not a model that could be generally applied. Other groups would want to have more control over their stores and will have to find different ways of handling traders, who fear they will lose their jobs as supermarkets expand.

The general mood of the Forum session on India’s booming retail business was positive, including the prospects for foreign direct investment (FDI), even though it was agreed that there is no prospect of the government allowing FDI in on a broad basis before the next general election.

Meanwhile, foreign firms can operate franchises and invest directly in single-brand shops and wholesale cash-and-carry businesses, subject to case-by-case government approval. One of the speakers, Mr H.B. Lee, regional CEO of Samsung Electronics, seemed happy with the 100 franchised Samsung outlets that his firm has opened across India.

Earlier, in another Forum session, Sunil Mittal, chairman of Bharti Enterprises which has a tie up with Wal-Mart (WMT) for wholesale stores and logistics, warned that rising land prices mean that new retailers might have to bear losses for up to four or five years. Arvind Singhal, chairman  of Technopak, a Delhi-based retail consultancy, forecast that big-company retail would grow from 3.8% now to 16.7% in 2012 and 26.3% in 2017, by which time sales would have more than doubled. So there is a lot to play for.

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Posted by: John Elliott | October 30, 2007

Bajaj near deal with Renault for $3,000 car

Rajiv Bajaj, managing director of Bajaj Auto, India’s second largest motor cycle manufacturer, was in a buoyant mood when I met him at the Fortune Global Forum in New Delhi this morning. Fortune invited him to speak at the Forum yesterday about the feasibility of producing a low cost car, but he had to pull out because, he wrote in a letter, “the CEO of one of the world’s largest automotive companies” was visiting his headquarters in Pune and a nearby factory at Chakan.

That CEO turned out to be Carlos Ghosn of Renault, who is talking to Bajaj about producing what colloquially is known as a “one lakh” car, though Ghosn has said he’s thinking of a $3,000 price tag, which is about 1.2 lakhs of Indian rupees (Rs120,000). I checked the price with Bajaj this morning and he replied:  “Yesterday he (Ghosn) said $2,500 (roughly one lakh) – he’ll be giving it away free by the end of it!”

Bajaj said today that his aim is “not to produce a mainstream four wheeler”  but something that “takes forward our skills and cost structure as a two and three wheeler manufacturer.”  It will be a car which is “under four meters long” compared with the more usual five or six meters and will use a “unique breakthrough engine technology” that would “have its roots” in the two and three wheeler area. Bajaj plans to unveil that technology at India’s motor show in New Delhi next January.

Ghosn took some executives from Nissan, which he also controls, to Pune yesterday and the plan, said Bajaj, is a “three-way exclusive global alliance” between Bajaj, Renault and Nissan for manufacturing and marketing. Ghosn, who is also producing the mid-size Logan saloon with Mumbai-based Mahindra & Mahindra, and is planning a light commercial vehicle with Hinduja-controlled Ashok Leyland in Chennai, hopes to finalize the Bajaj deal soon.

There is now a race to see who can produce what fastest for the bottom of India’s four-wheeler motoring pyramid, enabling people to move up faster from scooters and motor bikes – the cheapest car currently on the market is a 23-year old 800cc model from Maruti Suzuki priced at Rs220,000.  Ratan Tata, head of the Tata, one of India’s two largest groups, has also been trying to produce a “one lakh car” (about $2,500).

But he has admitted it will cost more and is believed to have failed to produce his dream of a revolutionary vehicle – for example with a plastic body and bars instead of doors, according to some reports. Bajaj also wants to cut customers’ maintenance, fuel, and hire purchase spending to a monthly “cost of ownership” of $150, which he says is not much more than half the cost of keeping a current small car and twice that of a motorbike.

So let’s how he and Ghosn adapt the Bajaj two wheeler engines and three-wheeler auto-rickshaw bodies into a four wheeler – that could be an interesting vehicle.

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Posted by: John Elliott | October 29, 2007

A breakthrough in the India-US nuclear deal

India’s nuclear deal with the US might be saved. After weeks of bad news, with the Indian government failing to get its Communist-led parliamentary allies on side, the ground is at last shifting and it looks as if the Bharatiya Janata Party, India’s main opposition which has been objecting to the deal, might save the day.

It is of course too early to be sure, but I’d put money on a parliamentary debate quite soon where the Left gets isolated and there is a consensus – or maybe even a vote – in favor of going ahead. That would enable the deal to proceed via the International Atomic Energy Agency (IAEA) and the Nuclear Suppliers Group (NSG) and meet the January deadline that the US is aiming for.

So what’s happened to lift the pall of gloom that was falling last week over the deal and over India-US relations? Basically, US diplomats in Delhi – plus former Secretary of State Henry Kissinger who is visiting the city – have been calling in favors from old contacts in the BJP who they have been nurturing for years. The US has always felt more comfortable with the right-wing Hindu-nationalist BJP than with the Congress Party, which leads the current government. The BJP, which started defense and nuclear talks with the US when it was in power from 1998-2004, has traditionally been seen as more pro-business than Congress, which comes from a Socialist background and built India’s Cold War alliance with the former Soviet Union.

The US has also seen the BJP, with its base among India’s majority Hindu population, as a bulwark against Islam. So for years American diplomats have been courting young aspiring BJP politicians, as well as their leaders. Now, as I said, is the time to call in favors – and the calls are beginning to yield results.

BJP leaders have begun to say that they are prepared to back the deal if they receive certain assurances about the security of India’s nuclear weapons. There is no way, for example, that they would give support if the deal might upset progress made since the former BJP-led government staged India’s historic nuclear tests in 1998.  The BJP also wants to be assured that India’s sovereignty and autonomy in foreign and defense policy will not be compromised – though that might be difficult because the US is trying to persuade India to abandon a possible gas pipeline project with its old ally, Iran.

Rajnath Singh, BJP president, set the line yesterday when he said the BJP is ready to have talks with the government, and a parliamentary debate, on the deal. David Mulford, the US ambassador to India, who saw L.K. Advani, the BJP’s veteran leader a few days ago, meets Singh this afternoon. Another senior BJP leader who I spoke to this morning took the same line. And a senior Communist Party official, speaking on television last night, almost invited defeat when he said parliament should have a debate and “let’s take a consensus of the House”.

Hank Paulson, US Treasury secretary, who is visiting India and speaks at the Fortune Global Forum tomorrow, yesterday urged India to “move forward as quickly as possible, though, he acknowledged, “you all have to work through your internal political decision – that is up to India.” 

So the deal, which would lift a 30-year ban on India’s access to nuclear power and other sensitive technologies, could be saved – and, with it, the current Indian government and prime ministership of Manmohan Singh – ironically not by the government and its allies but by the BJP.

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Posted by: John Elliott | October 28, 2007

Hurdles ahead for India’s retail

We will be tackling some of the basic issues raised by the massive surge of activity in India’s retail industry at Fortune’s Global Forum in Delhi on Tuesday. Kishore Biyani, founder and chairman of the Future Group, which is India’s largest and most successful retailer with Pantaloon and other stores, will explain how he’s managed to expand quickly without running into the sort of opposition faced by Reliance Fresh stores, whose windows have been smashed and stores ransacked in some areas.

Arvind Singhal, who runs Technopak, a leading consultant who has advised many retailers, will add breadth to the discussion, which I will be moderating. Mr H.B. Lee of Samsung Electronics will bring the perspective of a foreign consumer goods manufacturer that has successfully entered the Indian market.

When the Forum organizers decided to put retail in the program, they probably thought that it was going to be a “good news” session, with foreign investment as the only controversial subject (foreign retailers are not allowed to invest directly, except for in single-brand stores). But Reliance’s troubles show that the good news is riddled with problems – the company has even withdrawn from the two key states of Uttar Pradesh and West Bengal because of the risk of customers and employees being harmed. The “why” is simple to explain. How to solve it is more difficult.

The reason for the problems is that Reliance, plus Bharti Enterprises which is joining up with Wal-Mart (WMT) and will open stores next year, is challenging established wholesale and farmer-to-retailer distribution channels run by avaricious public sector employees, middle-men, money lenders and others. Along with all fast-growing retail groups, they are feared by family-owned kirana mom-and-pop shops, but it is these middle-men traders, supported by the political Left and some other local politicians, who are adding destructive muscle to a broader based “anti-bigness” campaign.

Biyani’s ambition is to “deliver everything, everywhere, every time to every Indian consumer in the most profitable manner,” and he is not doing badly. His first-comer advantage is that he bought sites for his stores a few years ago at a fifth of the prices now being paid, according to industry sources. He already runs 6 million square feet of retail space in over 450 stores of various formats in 45 cities.

The outlets vary from the company’s original fashion stores called Pantaloon (which used to be the name of the group), to Big Bazaar hypermarkets, and Food Bazaar supermarkets as well as stores specializing in home improvement, furniture and furnishings, consumer electronics, and books, music and gifts – plus futurebazaar.com online retailing.

Reliance Industries (RIL), which launched its retail activities with Reliance Fresh, is chasing him in all those areas and has over 370 stores. It will also have jewellery and “wellness” shops, and even plans to put modern art galleries in its biggest hypermarkets by 2009.

But Biyani has not attracted much attention because, like others including the Aditya Birla group, he has expanded relatively quietly. And his shops are broad-based, not focussed on food. Reliance on the other hand started off by launching dozens (now over 360) fresh-produce based stores across the country, and its plans have been splashed in newspaper headlines for more than a year. Similarly Bharti, through a high profile export-oriented joint venture with the Rothschild banking family called FieldFresh, started direct involvement in farming, which immediately aroused opposition from local vested interests (and has now been scaled back, partly because of delivery hassles).

The problem is how to placate the vested interests that take produce from farmers and deliver it to retailers. That will have to happen before retailers will be able to link up with farmers to improve the unreliable quality of their produce, and replace antiquated distribution systems.

So it should be a good discussion on Tuesday – and I’ll report back on this blog afterwards.

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