Six years ago I arrived in India. Anyone with ties to The Economist has reason to be wildly optimistic about the impact they might have in the country. To see why, visit the rubble-strewn graveyards of Kolkata, formerly “Calcutta” and India’s colonial capital. There, a single grave in particularly good condition stands out (see above). It is for James Wilson, founder of The Economist and the Chartered (now Standard Chartered) bank, as well as, in 1860, the creator of India’s national income tax. They also have reason to be a little nervous. Four months after this great advance, Wilson passed away—a victim of what was described as “climate anxiety and labour”.

On the lower right-hand corner of Wilson’s tombstone is a plaque noting maintenance courtesy of the IRS, India’s tax-collection agency. Wilson is perhaps the only colonial figure with a continuing fan club, albeit one with a modest membership. He was, as noted in the chiselled epitaph, “sent from England to restore order in the finances of India at a period of disastrous confusion”. Good for him. Less good is that in the intervening years many in India have come to believe the country’s tax code has itself become a source of disastrous confusion or, to use the common phrase, “tax terrorism”. A position in the department Mr Wilson created is seen as a ticket for the unscrupulous to extract money for their own revenue rather than India’s.

As I prepared to leave India, I saw one way in which people respond to this disastrous confusion: they emigrate. Behind the local headquarters of Standard Chartered in Mumbai sits an American facility where thousands of people gather every day to apply for travel rights. After being injured in a motorcycle crash, and in need of assistance from an Indian friend on the way home, I had the curious privilege of participating in the process.

Petitioners sit on the dirty kerb clutching documents. When called, they are fingerprinted and their documents checked; if successful, they must return another day to queue with hundreds, and possibly thousands, of others outside the high, forbidding walls of the American consulate. There are no complaints because even reaching this point is difficult. Appointments are made via a crash-prone portal with almost incomprehensible requirements. Success means an appointment in March 2026.

To live in India, however, is to understand that this sort of chaos represents just the surface of a more interesting system; one that is, at turns, beguiling and maddening. Fraudulent sites resembling the American one prey on the confused. The ability to navigate these sorts of systems is essential to success in India. It is, for instance, widely believed in Mumbai’s elite circles that the skill possessed by the Ambanis, the country’s richest family, for traversing such systems extends to getting their visa applications processed quickly.

For non-Ambanis, an industry of software-adept locals exists to obtain the initial appointment and then move it along with either technological dexterity, influence or what appears to be magic. As an American, I return to my homeland merely by waving a passport. Standing in line with the applicants, I felt somewhat spoiled.

Plenty of Westerners in India become jaded. In my case, what offset any cynicism was the fact that the same talent which enables India to navigate dysfunctional systems is also enabling it to create new, better ones. The Mumbai I arrived in six years ago was a mess. A metro system was years behind schedule and remains incomplete. While walking to the main train station soon after arriving, I was too lazy to take an elevated bridge. Several hours later it collapsed, killing six people. In contrast, a new road around the city’s western coast has emerged quickly, as has a 22km-long bridge on the city’s eastern flank, connecting it to a soon-to-be-open airport on the city’s outskirts. Skeleton frames have become occupied skyscrapers. New technology hubs are emerging. It is now possible to get small scoops of ice cream delivered in a matter of minutes. To be in India is to see, and even taste, progress.

If I were to suggest one change on my way out, it would be to shine even greater light on these efforts by following the example of the IRS. Next to new projects should go plaques (or, on the ice-cream cups, labels) that list the names of all the people who contributed. India is now a country of builders. Such acknowledgements would highlight the hidden strength that is transforming disastrous confusion into order.

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Death of Ratan Tata, a boss who succeeded and failed and in the process captured India’s affection

Ratan Tata died late Wednesday night. For a straightforward obituary written in the early morning hours, see: https://www.economist.com/business/2024/10/10/ratan-tata-a-consequential-and-beloved-figure-in-indian-business. After filing for the weekly edition, I went to Nariman Point on the southern tip of Mumbai and joined the crowd that had technically come to view Mr Tata’s body but really, I think, just wanted to pay their respects. Like thousands that did not make it past security, I was crushed against a fence (see photo) and initially just slithered away, forgetting to ask everyone around me why they came. After returning I heard stories. There were many Tata employees and descendants of Tata employees and relatives of Tata employees and people who knew Tata employees (you get the point) all of whom attributed their well-being to the company and the man who had led it. That is perhaps the best illustration of the particular way Tata is seen in India and I wonder if it could be said about any other company. One man told me his father survived three years because of treatment provided (at I think little or no cost)at a Tata cancer hospitals. He wanted to talk about this. A woman told me that Ratan had visited her school when she was a child and was kind and humble. Another said that Mr Tata was the rare Indian bigshot who wasn’t corrupt, a comment that seemed to emanate as much from the hunger of many Indians for a non-corrupt, modest, elite than any particular person.

Purchasing power parity

A sharp-eyed reporter from The Core, an online Indian news site, noticed that a dozen iPhone 16s were recently seized from passengers entering India from Dubai and 26 were seized from a passenger entering from Hong Kong. What made these events striking is that these are now made in India. Why should they be smuggled into the country? The obvious answer is the high cost of buying anything in India because of high taxes (and often tariffs). From Googling prices online, it appears that the same iPhone that costs $1170 in Dubai costs $1428 in Mumbai.

Writ large this explains why anyone traveling from India is given a lengthy shopping list by friends and why manufacturers contend tariffs and taxes make it difficult to compete with China and Vietnam. The Economist has compared prices in different countries using an index compiled by the prices of Big Macs because they are a consistent product comprised of multiple ingredients sold everywhere. Big Macs, however, are actually not consistent – the Indian version, for instance, does not include beef. Perhaps iPhone are, by themselves, a better measure of purchase power parity.

The declining importance of big shots

The many initial public offerings and the relatively stronger rise of mid-sized and smaller companies have combined to reduce the dominance of the so-called Indian nifty-fifty – an index of the largest and most prominent Indian companies. In 2021, they comprised 59% of the National Stock Exchange’s market cap in 2021. At the end of August, they comprised 44%, the lowest level in 25 years.

Investment bank earnings from IPOs

So far this year, bankers have pulled in $192m in fees, putting them on track for their second best year ever, trailing on the $318m of 2021 and the year is hardly over. There have been 62 offerings so far (along with many more tiny ones not captured in the calculation) and another 22 have been approved, with 53 more in the pipeline so buckets more in fees to come..

Financial scandal

Former executives of the National Stock Exchange, which was set up in the early 1990s in response to scandals at the Bombay Stock Exchange, paid fines of $77m, the largest in India’s history, to settle charges it allowed some traders to have preferential access to transaction information and thus earn huge untoward profits. Like many cases in India, the judicial trail is so long that the matter is largely, though never entirely, forgotten before it is resolved. In this case, the charges  seem to date back to 2017 and the settlement terms were submitted in 2023.

Manufacturing

Jobs in the manufacturing sector rose from 16.6m in the fiscal year immediately prior to the lockdown in 2020 to 18.5m at the end of March 2023. The just released numbers are quite old but may reflect a positive trend.

New projects

Announcements of new projects tracked by the Centre for Monitoring Indian Economy, a consultancy, rose in the second quarter (July-Sept), reflecting a turn after four quarters of contractions. These new projects involved Rs5.5 trillion, or just under $60bn, in investment, up 43% from the September quarter last year.

Higher pay

A survey by Aon of Indian companies reckons pay increases will average 9.5% in 2025, led by engineering and manufacturing.

Where Indians work

A table in Mint showed where manufacturing employment in India has been focused. Largest by far is food products (11.4%) followed by textiles (9.3%), followed by basic metals (7.6%), apparel (7.1%), motor vehicles (6.8%), machinery (6%), chemicals (5.7%), nonmetallic minerals (5.7%), rubber and plastic goods (5.1%), and pharma/ medical products (5%).  Missing is electronics which draws the most attention both because of what it has meant for other emerging economies, and perhaps because of what India has missed.

Venture finds less of interest in India

Peak XV (formerly Sequoia Capital’s Indian operations) announced it was reducing the size of a $2.85bn fund raised in May 2022 by $465m and possibly reducing partner compensation as well. The move reflects problems with existing investments, as well as the fact that valuations in the private markets have still not been written down to levels at which new investment is attractive, and an overall loss of enthusiasm about a large number of industries including electric vehicles, gaming and edtech.

But but but

India tracks a “core” sector comprisingf industrial products. It was down year-over-year in August for the first time since the lockdown. Only fertilizer and steel rose.  Cement, electricity, coal, crude oil and natural gas all contracted.

Mortality risk in India’s financial capital

During the recent (and maybe ending) monsoon, 12 Mumbai residents died from dengue fever and another 18 from leptospirosis (some say this is related to leprosy, but that’s not clear) and five from malaria.

The Indian diamond industry is being ground down

Surat quietly became the world’s diamond polishing capital. By some estimates, it accounted for 90% of global production. In recent years, the local industry included 1m workers in 4,000 factories. Surat’s success went a long way toward wiping out competing centres in Israel and Europe. Conditions recently, however, have been bleak. A reporter for the Economic Times spent a day meeting street vendors whose common denominator was that they once worked in the diamond factories.

America-India trade

One of the large economic issues for India has been its inability to boost exports in goods. The exception has been with America, which was once again the leading country in India’s bilateral trade in the first six months of the year. Exports to the U.S. grew 9% to $48.2bn and imports fell 5%. The Biden Administration and its various outward facing agencies has put little if any effort into pushing India to relax its many impediments to American exports beyond, perhaps, for splashy deals for defense companies and other big companies that know how to lobby. This has not attracted much public comment, possibly because of the ongoing tension with China, possibly because coverage of India’s relationship with America remains light. But if Donald Trump wins the election it likely will receive attention. That could result in trade tension but it could also lead to more fruitful collaboration between the two countries.

Foreign companies in India

Foreign companies often make money in India by having the central entity collect royalties from the local subsidiary. For ten large multinationals examined by The Economic Times, this number has grown 45% over the past five years, to Rs80.1bn  ($961m). Typically, these payments amount to several percent of sales and they are not always appreciated by the local affiliates who often have separate Indian stockmarket listings. Nestle’s efforts this year to increase the royalties it collected from its Indian operations were rejected by local shareholders.

The 15 largest Indian subsidiaries of global companies

An interesting table in Businessline ranked the Indian operations of multinationals by revenues. The largest was Accenture, followed by Apple, Cognizant, Dell, Good, IBM, Amazon, Microsoft, Facebook, John Deere, Caterpillar, Cisco Systems, Pepsico, American Express and Hewlett Packard

Black markets

Tickets for Coldplay concerts taking place in Mumbai in January that originally went for Rs2,500 ($35) to Rs35,000 ($416) are apparently going for thousands of dollars a piece on the secondary market. It isn’t clear whether this is illegal, but charges have been filed against multiple individuals for illicit sales. No arrests have been made or cases presented.

The end of the colonial era. Really.

Singapore has now ended horse racing, after 181 years, with the land that was used for it being handed back to the government for new homes. As previously noted, the tracks in Mumbai and Chennai (the site of India’s oldest track) seem to be on the verge of some vaguely similar fate. China was first mover in the anti-racing stakes, transforming the Shanghai track into a park back in 1952.  Now, one by one, all of the other British built tracks, which are often large stretches of green in now dense cities, are disappearing. Apart from India, Hong Kong is a notable exception.

Bovine stipends

After the Maharashtra government announced a daily subsidy for each cow of Rs50 rupees, the cabinet upped the number to Rs70.

Now, crocodiles are dancing in the streets

Vadodara (formerly Baroda ) is known for its nine days of garbas, big dances following the monsoon. This year, however, visitors have included at least 60 crocodiles, who have slithered/crawled/whatever on to the city’s streets and presumably want to take part in the celebration.

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Indian Business and Finance, October 2^nd

The usual news plus America’s sloppy approach to the “foundation of American democracy” for its overseas voters in the upcoming national election

An Indian obsession

The IPO filing of the week was by Swiggy, one of many Indian companies that promises to deliver stuff, usually small stuff, remarkably fast and provide the just-in-time delivery that in a place with larger homes would be less necessary because of closets and storage. The result is the streets of Indian cities are filled with buzzing scooters “breaking” (to use the local term ) lights to deliver prescriptions, pencils and even single cups of ice cream. Really. The company loses money (of course) but one of its competitors, Zomato, has become profitable and it will be a very large offering by Indian standards, possibly valuing the company at $15bn. Growth numbers spread out across the 526-page prospectus are striking. The number of customer transactions over three years has expanded from 243,000 to 323,000 to 393,000, the number of users from 35m to 43m to 47m. The number of gig workers making deliveries has almost doubled since 2022 to 457,000 while their payments have remained relatively flat at 58 rupees, or $0.69, for each order. They deliver on average 463 orders each month.

Business is evolving almost as quickly as orders are delivered. The number of restaurants whose orders were delivered through Swiggy has grown from 129,000 in 2022 to 224,000 at the end of June. Four warehouses in 2022 have expanded to 50. It has begun building “dark stores”, meaning ones that have no retail customers but are packed with common items and positioned to enable fast delivery. There were 12 in 2022; there are 538 at the end of June. 

India is up

Commercial leasing activity continued apace in major cities through the first three quarters of the calendar year, according to data from Colliers, a real estate consultancy, as reported in The Economic Times. The hottest market by far in the third quarter was Bangalore, with 6.3m square feet leased, followed by Hyderabad with 2.9m square feet, Delhi-NCR with 2.4m, Mumbai with 1.7m and Chennai with 1.4m. The data reflect many different trends. It likely captures the emergence of global capability centres, the technology development outposts of non-Indian multinationals, which congregate particularly in Bangalore but also Hyderabad and the area surrounding Delhi. The numbers also capture the relative allure of Mumbai as a business hub, which is fading largely because of how poorly it has been run. Transportation is terrible and even poor housing is expensive. Mumbaikers will say it survives despite everything for one reason: them..

An economic statistic that may mean something

Indian household financial assets as a percentage of GDP rose from 78% in 2013 to 158% at the end of the first quarter, according to a study by Motilal Oswal, a brokerage. At the same time, household debt rose from around 26% in 2009 to 42% at the end of the first quarter, all of which suggests that in the new financial era, Indian households are richer and more leveraged.

Lack of jobs/lack of workers/lack of exports

Bangladesh’s problems have naturally raised the prospect of gains for India as businesses look for less fraught surroundings. A long story in Mint, however, says that in Tamil Nadu, which has traditionally been responsible for a high percentage of the country's yarn and garment exports–Bangladesh’s main export–, production is crippled by a lack of labour.

Why this shortage exists is not clear. Manufacturing is a key prong in India’s plan to follow the usual development path from agriculture (which employs 43% of the Indian population) to manufacturing (which employs under 12%). Suggested causes include low wages and how the industry is organized around clusters of small companies. In a well-functioning economy, both of these factors should adjust as companies consolidate and in the process of become more efficient and able to cover the required higher wages.

Another reason could be that the available workers are shifting to the state’s emergent electronics assembly industry but that raises questions about why factories are not relocating to other areas of the country where advanced industries have yet to take root. India’s biggest problem is often said to be an inability to create jobs. Oddly,  what is unfolding in Tamil Nadu suggests the problem is an inability to produce labour.

This leads to another issue. As underscored in a leader in The Financial Express, India has an export problem. Exports grew just 3% in the fiscal year concluding at the end of March and shrank in August. Some of this is due to the slow global economy but surely not all. It is simply still too hard to do business in India. Since the national election earlier this year, reforms have seemed to slow down. What does seem to emanate from Delhi–threats to foreign companies from a competition policy or border taxes or the creation of new production zones based on a Chinese model–seems only to aggravate concerns about a chaotic operating environment.

Future case study

Campa Cola was a popular brand in India in the 1970s and 1980s after Coca-Cola was forced to leave because it refused to give up its formula. It subsequently disappeared but has been acquired by Reliance, India’s biggest private company, and is being relaunched in the Reliance way, which means cheap prices and wide distribution, to take on Coke and Pepsi. It will be interesting to see whether it succeeds. The American giants are no strangers to low-end competition and Reliance, notwithstanding its dominance of oil refining, telecoms and the gargantuan weddings of its promoter’s children, seems, anecdotally at least, to have never developed the same level of trust among Indians as Tata, Bajaj, TVS, HDFC Bank, Hindustan Unilever and a handful of other major companies operating in India. That is because its success has relied on other factors. The refining business depends on engineering and scale and ensuring cheap supplies of oil from controversial sources are available and not blocked by countries with opposing foreign policies. The telecom business succeeded with the broad public based on very cheap prices. In theory, fizzy drinks are just soda, sugar and a bit of flavouring. Reliance will certainly provide that at a very low price and it has hired at least one former Coke bigshot. That would seem to be a compelling package. But others have failed pursuing similar strategies. To succeed, Reliance will have to become genuinely liked by the public. That will be an interesting test.  

Economic hubris

India’s “informal” sector, comprising agriculture, hawkers, watchmen, sweeping, loading, and innumerable other industries, survives in part because it is outside of the government’s reach. Thus, in a striking move, the government has imposed new minimum wages which, of course, differ for various categories and consequently will lead to issues of enforcement. The range, according to The Times of India, seems to be from Rs425 a day ($5.07) to Rs1,035 ($12.35) a day.

India’s troubled pharma industry

Tests by the Central Drugs Standard Control Organization, a government entity, found 48 drugs from 35 companies failed quality tests.  

News (almost no) one can use

Rolls Royce announced its new Cullinan Series II will be available in India for Rs105m to Rs125m (in excess of $1.3m). The company reportedly sells a few more than 60 vehicles a year in India and for that sort of buyer, prices may not matter.

The criminal side of public offerings

Bank of America has apparently suspended two employees for leaking information on secondary public offerings. A request for comment was not returned. Will tweak if I do hear back. Meanwhile, the Bombay Stock Exchange has warned investment banks to tighten up on due diligence, with hints that there have been failures in site visits and monitoring of odd accounting issues, such as sharp rises in inventories or sudden changes in results.

Could there be a weirder product in the universe of legal and illegal international trade?

Two men were arrested at the Mumbai airport for bringing in five baby crocodiles from Bangkok. Police told The Times of India they have yet to arrest the kingpin behind the operation.

American (non) voting overseas

American tax policy means Americans overseas face a vocational disadvantage and consequently even large outposts of big “American” companies employee few of them. A consequence is that absentee voting among people who really are absent does not get as much attention as theoretically might be the case.

But voting in particular is a big deal in any democracy and in recent years it has been a particularly big deal for America. It defines the direction of a country and who holds power. For citizens, it theoretically provides voice. Realistically, though, the voice of an individual citizen is unlikely to make a difference and consequently it is not worth their time to vote. That is why a difficult process can preclude engagement. But if everyone takes that position, democracy is lost so it is vital that the process be fair and efficient.

As a reporter, I do not vote if any of my coverage touches politics because I believe the press should not take sides. For a similar reason I am not registered with a political party. But I am by any definition a “natural born” American citizen, to cite Article 2, Section 1 of the American Constitution, and thus uncontrovertibly entitled to my country’s electoral rights. Consequently, the upcoming presidential election, which I am not covering, is an interesting moment for that right to be explored.

Much of the controversy in America this time around concerns the use of absentee ballots. One interpretation of this debate is that is serves as a pretext for the existing administration to use federal resources to harvest votes from people it believes will support its continuance power rather than any fundamental belief in universal democracy. But overseas voters do get a mention, albeit a relatively brief one, in the executive order announced by President Joe Biden on March 7^th, 2021 to use federal resources to ensure participation (see https://www.whitehouse.gov/briefing-room/presidential-actions/2021/03/07/executive-order-on-promoting-access-to-voting/). That made it interesting to see what would happen to an American voter in Mumbai.

The easiest way to ensure participation in what President Biden said in his order called “the foundation of American democracy” would be the participation of the American consulates and embassies in the distribution and receipt of ballots. They are, after all, outposts of the American government. Instead, following the instructions, I applied online for a ballot which never arrived. A friend who applied while in America had a similar result. That may be America’s fault or it may be the Indian postal system but in defense of India, it never volunteered to be a key pillar of a fundamental American right.

There is a backup plan online which I downloaded included various mis-labelled pdfs, such as one that said “security envelope” which was not an envelope, and some verbiage discouraging the use of tape in refashioning the paper because it would gum up postal machines. How then to vote? There was a number on the relevant website for the Mumbai consulate, but calls went unconnected. I decided to visit the consulate which can best be described as a well-fortified and provisioned bubble within Mumbai’s traffic-clogged new business district. Getting there from only a short distance away can take hours. The consulate had left on an outside wall of its main building a small box with a cheap lock and stickers that had faded in Mumbai’s brutal heat and rain where ballots could be crammed (see photo) but that still left open the question of how a ballot should be prepared and sealed.

Calls from a guard to a consular official for help led after much delay and resistance to his making it down to the air-conditioned interior side of a bullet-proof window from which he could speak through a hole to petitioners who were left to wait in the heat. He advised using glue and lots of tape to bundle up the forms but that seemed sloppy and contracted other instructions. He said it was just the way it was done. I asked about New York’s requirements for an envelope within an envelope, but he replied that sort of knowledge was beyond him which would make sense but for the wording of President Biden’s executive order which says federal government agencies shall promote voter participation by “assisting applicants in completing voter registration and vote-by-mail ballot application forms in a manner consistent with all relevant State laws” - see Sec. 3. (a) iii (A).  Perhaps that sort of thing should go on the foreign service exam.

I asked if I could have some glue or tape or appropriately sized envelopes (Indian envelopes are a bit different than American ones) but was told to go away and find them elsewhere, which inevitably meant a round trip possibly lasting hours on the traffic-clogged roads. And even then, it wasn’t clear if the package I managed to construct would work with the American postal service or qualify under the state and national rules Struck by the indifference to this fundamental right, I asked the diplomat: “how do you vote”?

He replied: “by diplomatic pouch”.

Could I do that as well,” I responded. “No”, he said.

A distinguishing characteristic of American democracy is that those in public service should not have privileged access to anything and certainly not the polls. But clearly in Mumbai, they do.

In India, voting is celebrated with the submission of a ballot accompanied by the staining of a finger with a special ink, which people then photograph. For the many in Asia, and particularly in India, American statements about democracy are often seen as grating hypocritical talking points to batter other countries while not being enforced at home. This crowd would see the consulate’s approach and respond with a laugh and an “I told you so”.

For Americans who think President Biden’s executive order was merely a strategy tied to use federal power to harvest the votes of voting groups he thought would favour his party rather than a heartfelt principle about fundamental rights, there would be a similar reaction, though maybe without the laughter. Because of this expectation, the order is now facing a serious legal challenge. And for those Americans living in America who think their State Department has become detached from the state it represents, it serves as just another little example that is metaphorically hugely important (what exceeds “the foundation of American democracy”?) even if, in reality, the non-votes of those in distant places are unlikely to matter.

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The value of a place to stay

Oyo, once among the most hyped Indian startups, agreed to purchase the American Motel 6 chain for $525m from Blackstone, which acquired it in 2012 for $1.9bn. A report says Blackstone still managed to profit from the transaction because of the sale of numerous properties in the intervening years and to still generate returns without holding the underlying property so, perhaps, clever financial engineering. In Oyo’s case, optimism about its ability to create value through its approach to the business has taken a major hit, though it largely played out on paper rather than in the market. In 2019, it was said to be worth as much as $10bn but now, who knows. It may finally be turning an operation corner. During the most recent fiscal year it produced a profit of announced of $27m, albeit only because of extraordinary items and only after room counts increased by 40% but revenues decreased. That is less than encouraging.

The deal means different things in India and America. For Oyo, the deal reflects the most recent in a string of operating models draped around a core pitch of a hotel company built around technology (ie an advanced reservation system) rather than an operator of physical assets. The appeal of this core component ebbed when the two core constituencies for Oyo–those who booked rooms through it and stayed in its properties, and the underlying owners of those properties– became unhappy. Complaints from annoyed customers are easy to find on websites. Notwithstanding its problems at home, Oyo aggressively expanded overseas. A particularly ambitious  move into China was a disaster and has been shuttered. The acquisition in America represents another facet of this plan.

Venture capital funds came up with many new ways of defending the company’s worth, notably that even a one-star operator in a large country like India could be worth in excess of $1bn. Recently, though, Oyo has been opening higher-end hotels under a new brand, Sunday, and acquiring properties that at least appear to be opulent. So the thesis will need to be rethought. Twice in the recent past, most recently in May, Oyo has pulled filings for an initial public offering, suggesting something isn’t right. The IPO market in India at the moment is beyond hot. Instead, Oyo has raised money in the private markets, which are cold. Odder still.

Meanwhile, Blackstone has hardly distinguished itself as a manager of modestly priced hotels. Motel 6 is an iconic brand built around a reassuring, ubiquitous advertising message (“we leave the lights on for you”). As with Oyo, there are numerous complaints online. But unlike Oyo, it has apparently decided it is best to check out.

Start-up funding

Expanding on the facet of the item above concerning Oyo’s odd move to find private rather than public funding in the current environment, recent statistics show how badly this area of the financial markets has contracted. Only $140m was invested in September, by far the lowest number in a year and based on average monthly numbers derived from annual numbers, the worst since 2014.

There has been, however, a recent exception: Physics Wallah, an edtech company, is said to be in the process of raising $210m. The success is striking not only because the overall conditions are so difficult but also because the edtech industry has been hit particularly hard, with other companies on the verge of collapse. Physics Wallah began as a series of tutorials on Youtube but seems to have done a particularly good job. 

Other unpopular areas

After many reports about a post-lockdown recovery in cinema attendance, bleak reports are coming out about the state of Bollywood. Thirty to forty major productions have been shelved in the past year and a half, according to The Economic Times. Straight-to-digital releases have dropped from 105 in 2022 to 57 in 2023. The Financial Express says box office revenues have dropped 39% since 2022 for the stretch of the calendar years. A story in Mint says film producers are scrambling to find outlets for as many as 200 films made in recent years that remain unsold.

In many reports, high prices for actors are blamed for Bollywood’s woes but the bigger issue  seems to be that the Indian film industry, like much of America’s (looking at you, Disney), has lost the plot. The films aren’t touching the audience. In many Indian theaters, classic films are once again being screened.

The odd part is that this is occurring at a moment when India is packed with big themes and talented people who would shine on the global stage. Local Youtube productions are irresistibly distracting because of funny, popular, short takes tied to the contradictions, tension and love in the Indian family.  The Indian office is also a popular setting, built as it often is around tyrannical leaders and carefully seditious employees, innovative strategy, ubiquitous corruption, extraordinary ambition and sloth. Cunning bigshots manage to make vast piles of money from the Russia-Ukrainian war while managing to skirt criticism; cunning small shots manage to survive by circumventing innumerable obstacles in the Indian system. Can none of this be worth the price of a ticket?

What India wants

Coldplay. Fans crashed the biggest online ticket seller as 13m people attempted to get tickets for concerts being held in mid-January.

Weddings.The Confederation of All India Traders (CAIT) has announced its annual projection for India weddings, a number that may have a light factual foundation but nonetheless is widely cited because everyone is obsessed by weddings and knows they are important to the economy. During the key period between the beginning of November and mid-December, CIAT says there will be 3.5m weddings, up 9% from last year, with spending of $55bn which, if my calculations are correct, mean an average cost in excess of $15,000 in a country where the average per capita GDP is under $3,000.

Bank employees. Hiring at banks in many parts of the world has flattened out as technology replaces people but a study by The Economic Times and Zpheno, a staffing firm, found that employment at India’s ten largest private banks has grown dramatically over the last four years. HDFC Bank’s headcount expanded from 117,000 to 214,000, ICICI’s from 99,000 to 142,000 and Kotak Mahindra’s from 71,000 to 116,000.

Indian bosses. The Business Standard noted that multiple global private equity firms are appointing Indian nationals, as opposed presumably to westerners, to head their Asian operations, and they are often based in Mumbai, rather than in Singapore and Hong Kong as had been true in the past.

The Indian shares of multinational companies. A study of valuations given to the shares of multinationals and of their separately listed Indian subsidiaries showed sharp divergence with the Indian operations often trading at multiples of earnings that are double those of their parents.

Productivity

India wants to improve productivity and output. The Olive Ridley Sea Turtle embodies this notational goal. In the past, it was common for it to lay 10,000 eggs on the Goan beaches annually. Last year, however, they laid 16,000; this year 45,000.

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The epicenter of India’s IPO boom

Bajaj Housing Finance listed on the National Stock Exchange (NSE) to an appreciative audience. Its share price more than doubled over an offering price that had already been set at the top end of expectations. With the opening bell and two cannons firing graffiti, the IPO probably created the 9^th largest private financial institution in India with a $17bn market cap.

There are many reasons for the reception, all of which say a lot about India at this moment. The first is that the cyclical enthusiasm for new listings is at peak levels. The company is the 32nd to qualify for a primary listing this year and hundreds of other smaller companies have listed on secondary platforms. Prices may have gotten out of hand - Bajaj’s valuation is by any conventional measure a stretch and possibly a stretch too far - but there are nonetheless good reasons for why this deal has created unusual excitement, notably that India’s housing market is finally finding its feet - the second reason. Mortgages have grown dramatically as a percentage of gdp over the past five years but still only comprise 12% of GDP, as opposed to more than 60% in America and Britain. It isn’t unreasonable to expect both the housing market, and the housing finance market, to grow at a remarkable rate.

Third, Bajaj, is among very few companies in India considered to be a superb operator. It initially came to prominence as a producer of motorcycles and rickshaws that are inexpensive and all but unbreakable. Then, it created a subsidiary to finance vehicles which expanded into multiple areas of consumer finance generating strong growth, high returns and low credit losses. Many consider Bajaj Finance to be the best run financial company in the country. The housing finance component, which is being spun off for regulatory reasons, is considered to carry with it the Bajaj virtues. . Profits have grown 30% annually over the past four years. Credit losses have been tiny.

In theory, Indian banks should own the mortgage market but though they are engaged, they often enter indirectly by providing credit to housing finance companies which operate with less bureaucracy.

Foreigners and India

Should America share advanced military technology with India?

At a meeting in California, key entities involved in advanced defense technology in America and India were reported to have signed an agreement to expand cooperation on innovative products. That presumably will allow technology transfers from America to India which is attempting to build a vibrant arms industry for domestic consumption and export.

 While a deal will be hailed by both sides as a reflection of closer relations, it puts America in the odd position of potentially providing valuable military knowledge to a country that has had strong defense ties with Russia and strong relationship with Iran and which may choose to export products to numerous other countries that, like Russia and Iran are broadly seen to be potential military threats to America. It is hard to imagine that this effort will avoid being controversial.

Investment. Foreign portfolio investment, after drifting down for most of the year, has suddenly perked up, with Rs278.6bn ($3.3bn) coming in during the first two weeks of September. The change of mind is ascribed to expectations of interest rate cuts but it is very possible other unique factors are responsible, including ones that do not reflect a shift in confidence such as the need to increase holdings in response to higher allocations for India in various indices for stocks and bonds.

Strikes and antitrust litigation. Workers at a Samsung plant in Tamil Nadu have gone on strike. Job actions are not uncommon in India, but far far less common than they have been in the past and this is a first for Samsung in its 16 year history in the country. It produces many products including phones, televisions and appliances. Slowing sales have, however, resulted in announced job cuts of 200 people, about 10% of its overall workforce. Growing in India is hard. Shrinking may be harder.

Samsung, Xiaomi, Amazon and Flipkart. Meanwhile, Samsung and Xiaomi, as well as several other smartphone manufacturers, were found by India’s Competition Commission to reportedly be colluding with Amazon and Flipkart, large electronic marketplaces, for product launches. The move will inevitably be understood as part of the Indian government’s ongoing attack against foreign e commerce companies.

Foreign entities returning. Carrefour, the French retailer which withdrew from India in 2014 after a difficult four years, will re-enter next year in a franchise agreement with Apparel Group, a Dubai-based company that has opened other stores in India for smaller companies under a similar arrangement.

Ford, which sold cars in India prior to the country’s independence, was squeezed out with other manufacturers thereafter, returned in 1995 and then in 2021 left again following $2bn in losses. It has now, apparently, reversed course and will try again. Since ceasing to sell cars in India, it disposed of a large plant in Gujarat but it retained a very large technology centre with thousands of people in Tamil Nadu. Negotiations with multiple car companies to sell a key assembly plant in Tamil Nadu were never concluded and now it appears that Ford wants to keep it, with the intention of manufacturing cars for export. Details of its new project, and possible partners, remain unclear.

Blocked foreign acquisition. When Yes Bank, a major Indian financial institution, fell apart four years ago, a bailout was arranged with the huge government-controlled State Bank of India acquiring 49% and lesser stakes acquired by two private equity firms, Carlyle and Advent International and five other Indian financial institutions, Axis, ICICI, HDFC Bank, Kotak Mahindra and the Life Insurance Company of India. Now, various lockups have expired and the bank, though hardly a model of excellence, has survived. Two possible buyers have emerged, Dubai’s Emirates NBD and Japan’s Sumitomo Mitsui. All of the smaller stakeholders presumably would like an exit but the Reserve Bank of India, the country’s central bank, has reportedly blocked any foreign institution from buying 51% or more, throwing a wrench in any deal from a company that would be likely to impose a thorough sweep.

The internal Indian debate over tariffs and whether it is important to tolerate China

V Anantha Nageswaran, the chief economic advisor to the government, told a conference in Tamil Nadu that for the country’s economy to rise, tariffs must be reduced on components. It is an argument most of the country’s manufacturers would agree with, unless they are trying to build a business manufacturing components in which case, they want protection. The argument becomes particularly heated when China enters. It remains by far the largest exporter of products to India, which is a source of great consternation to the country’s government which feels it is supporting a country that is literally a military threat on its northern border and whose industrial policy often targets Indian industries, from steel to pharma. The annual economic survey said more purchases from China would be positive for Indian manufacturing. This surely true, but so too are the concerns.

The business of crime: Indian gangsters go global

The Economic Times reports that a new generation of Indian crime bosses, mostly from Punjab, are now operating in Canada, Australia, Greece, Portugal, and the Philippines, among other countries, as well as in multiple Indian cities. The men involved seem to be young, ranging in age from 22 to 37, and their activities have grown rapidly since 2019. Among their activities are extortion and protection rackets, arms transportation and murder. There has even been a marriage between two, one of whom, Anuradha Choudhary, is known as Revolver Rani. Her new husband was given a special sixhour parole for the wedding in Delhi. Security was provided by the Delhi police who were concerned that rival gangsters “operating from the shadows in Canada” might use the occasion to gun down the bride and groom.

High profits and low investment

One of the most striking characteristics of the recent period of high profit growth and overall growth for the economy has been the unwillingness of businesses to increase their bets. A study of non-financial corporate profits and investment over the past four years shows annual earnings have risen 32% while investment has increased only 8.5%

 Expropriation

The 99-year lease signed in1946 for the 160-acre Madras Race Club, calling for a rent of Rs614 (US$7.34) a year, has been cancelled by a state agency asserting that the termination was  “in the public interest that such an invaluable green area be made accessible to the larger public of Chennai  by provisioning of public utilities, public offices, public gardens and public open spaces.” 

No surprise, the matter is in the courts, as is so often the case in India, particularly in the case of property. This one, though, resonates on many levels. The race track in Mumbai is similarly in the midst of some form of government take over and there are many questions about whether the green space will provide a good for the broader public or for clever politicians and developers. Moreover the abrogation of an agreement, even one signed just before India’s independence in 1947, sends a chilling message in a country that has nationalized and expropriated assets in the past. 

 The business of food

Finally, a rival to pizza. Some fast food? products seem to have already hit their saturation point years ago but a story that grabbed a lot of attention in the Indian press recently was the rise in demand for basmati rice driven by the country’s love affair with biryani, a dish with a million different recipes (many secret) that entered India from Persia or central Asia (many want to claim credit for this miracle) that then spread to the rest of the country to become fast food, available from rapid delivery services in just a few minutes at all hours.

Coffee. Multiple coffee chain startups, some just a few years old, are raising millions of dollars and opening outlets throughout the country. Included in this list are Blue Tokai, Subko, abCoffee and Third Wave. All of the cafes seem to have attracted large, devoted followings, either for their coffee, their sweet pastries or as workplaces. Their rise, curiously, follows the bankruptcy of Café Coffee Day, which is still struggling to survive in a diminished form.

  If there is a difference between Café Coffee Day and the upstarts that captures a transition in India, it is that the newcomers are a bit more, and sometimes far more, expensive. Some put tremendous effort into food. Others, notably Third Wave, have become favourites by adding a single sought-after feature – an abundance of laptop friendly plugs.

Given the above…

Perhaps in a world focussed on biryani and coffee and cakes, it was inevitable. The Economic Times reports that India Inc wants employees to be more fit and companies are even tracking health metrics in performance reviews, including weight loss.

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US diplomats lobby American public pension funds to invest in corporate India

Can this possibly be a good thing?

Foreign companies pay a fortune to lobbyists for access to American business and the country’s government. The allegations of Biden family corruption rest on how important it is for foreign companies to have these sorts of ties. Making introductions matters. In India, where everything seems to revolve around knowing the right guy, and more importantly the right guy with who can work through the government, it really matters.

This week, the American Embassy in Delhi and the consulate in Mumbai hosted a handful of large American state pension funds representing in excess of $1 trillion who heard from India’s “business leaders”. The intention was explicitly to encourage these semi-public American entities to invest in Indian companies. Any business leader in India would be thrilled by the possibility of pitching that much money. Getting on the list would be seen as a coup. A request for a list with the names of the funds and business leaders to the American Embassy and consulate was declined.

There are many reasons to think this approach is, at the very least, problematic. Many Indians will view it as (further) proof that some business people get favoured access to the government and its well-endowed affiliates. It is a form of crony capitalism that may be legal but is nonetheless corrosive. That the government and the institutions in this case are American will naturally be seen as proof that this group of privileged companies have power even outside of India. There will be inferences that this power likely extends to other areas such as securing contracts, joint ventures, and help in fraught areas. Many will also suspect, perhaps without reason, that it will enable some Indian companies to maintain ties with America while simultaneously doing business with countries that are in opposition to American foreign policies (but not India’s), notably Iran and Russia. After all, the possibility of America threatening to sanction these sorts of companies in the future after encouraging American state pensions to invest in them now, would be, at the very least, complicated.

The American officials involved in this round of Indian business promotion will doubtless be personally seen as good friends both by the Indian businesses that are helped and the ones that aspire to be helped. There will surely be efforts by Indian businesses to be included in this amiable circle. That sort of position for a government official can be deeply corrupting, even if the quid pro quo is structured in ways that do not break rules and/or cannot be seen.  There are good reasons to separate the transactional and sales side of business from the state.

That said, there are many areas where governments play a key role in international commerce and the understanding that surround it. A past ambassador, Daniel Patrick Moynihan, returned from his assignment in Delhi to write an extraordinarily important article on India’s economic evolution and its position in relation to America. It still has value a half-century later. See: https://www.commentary.org/articles/daniel-moynihan/the-united-states-in-opposition/ Many of the Mumbai consulates take a highly visible and effective role in promoting companies based in the countries they represent. The bilateral exchange of goods between America and India is deeply slanted toward India with meaningful impediments for American products. That is the sort of issue that feeds sentiment in America that its political class has lost touch with America and does nothing to bring the two countries together.

For those who believe in the value of trade, as does the Economist, diplomatic can play a key part in arranging trade agreements lowering barriers. It is widely believed negotiations between India and America have stalled. Diplomats can also advocate for clear laws governing taxation and investment and the fair treatment of companies based in their home country. Those too are big problems for foreign companies operating in India.

The common line in advancing trade and better laws and the like is that they are a something of a slog. They require disinterest and if done without favouring any particular entity, may not be much as much fun as pleasing a country’s entrepreneurs with the prospect of buckets of overseas money. It might, though, actually do a better job of encouraging investment into India because it would improve the underlying environment. America’s smart investors and companies are always looking to find changes like that.

The changing market conditions for foreign companies in India

The Economic Times reported on meetings with two global chief executives who showed up at an investment conference sponsored by Barclays, Unilever and Colgate. Each said much about doing business in India. Unilever’s boss, Hein Schumacher, said the company had the leading market share in 85% of the categories it is present in, and that its share would likely decline as Indians move away from neighborhood stores to online shopping and grocery stores. The comment underscores just how remarkable Unilever’s reach is–it touches every corner of India, very unusual for a “foreign” company–and how that might not matter as much in the future. Noel Wallace, the boss of Colgate, another western multinational with huge reach in India, said his company had been “distracted” by a segway into Ayurveda, natural Indian remedies, a cateogry which has stopped growing, and it would refocus. Implicit in his statement is that for Colgate, which has 50% of the Indian market for toothpaste, dental care has extraordinary opportunities for further growth as India becomes wealthier, and healthier.

Booming: 

Tata Sons. Profits of the parent entity that controls India’s most important conglomerate rose 74% to Rs740bn ($9bn) and the compensation of its chairman, Natarajan Chandrasekaran, increased 20% to Rs1.4bn ($16m). Neither number drew much attention, possibly because Tata, with its finger in everything that is important to India, is so complicated people are amazed it can be run at all and consider that whatever its chairman is paid is worth far more than the alternative.

IPOs.There may be no better place in the world to bring a company public than India. It had the most public offerings of any market in the world in 2023, according to a report by Ernst & Young, and conditions are still heating up. Sixteen companies are expected to go public this week, adding to 179 so far this year. Behind the boom have been high returns. Post offering gains for small and mid-sized companies average 72%, according to The Financial Express. A study by the country’s market regulator says half of the buyers flip their allotments in less than a week.

Will India build a sovereign wealth fund?

A report in Mint says the Indian government intends to pool its direct investments in the 48 publicly traded companies in which it is a majority shareholder into a new fund. While the economic value of these companies will provide the initial underlying assets, the government will not transfer the voting rights of these shares, thus retaining control. Additional money for the fund will be raised through share sales, and the amount raised will be used for future investments. The venture, if true (it is not confirmed), will be complicated, with big operating challenges and will thus be much like many Indian government projects to participate in the private sector.

Threatening government move of the week/Tax as a weapon

Piyush Goyal, the minister of commerce and industry, in what seems to be a sustained campaign to terrify international business, raised the prospect of “border adjustment taxes” to be imposed on imports in addition to existing tariffs. The move would be justified as compensation for the disadvantages faced by local firms because of multiple Indian taxes. A better approach would be to reduce local Indian taxes.

Amazon’s efforts to disarm last week’s threatening government move

Amazon, which Mr Goyal attacked by name for its impact on the Indian retail market, told Reuters it plans to export $5bn worth of small items, up from $3bn in 2023. This resulted from an effort done in conjunction with Mr Goyal’s ministry, it says, which suggests diplomacy as well entrepreneurial zeal.  The announcement was, presumably, part of a calibrated strategy. Amazon clearly faces resistance in India, if not from the government then from well-connected competitors. Its ability to avoid being clobbered by regulators rests on showing that it plays a role in the country’s broader intention to export. A similar move has been made by Walmart, owner of the other big Indian ecommerce platform, FlipKart, which has committed to purchasing billions of dollars worth of Indian manufactured goods to be sold overseas. 

Oligopoly in India

Revenues for India’s insanely popular Indian Premier League cricket have doubled over the past year but the collective valuation of the league has dropped by Rs827bn (just under $10bn), down 11% from 2023. The downgrade is a reflection of consolidation among media channels, meaning fewer frenetic bidders for broadcast rights and hence lower revenues in the future.

Meanwhile, what India wants

Weddings weddings weddings

While apparel sales overall have barely budged, The Economic Times surveyed leading wedding designers and found percentage gains in sales growth ranging from the high teens to triple digits.

Ice cream

Per capita consumption of ice cream has risen four-fold over the past decade, the fastest growth in the world, according to the president of the Indian Ice-cream Manufacturer’s Association (who knew an organisation like this existed?) Recently, a court in India rules that ice cream was a fundamental human right and thus should be exempt from taxes and this suggest the court understood Indian politics, if not law. The Hindu BusinessLine caught up with the association’s president at a trade fair in Gujarat which was attended by 300 companies that have come to India from 20 countries. There are in excess of 1,000 flavours offered. Another report noted that two promising ones that have just been introduced are Pink Guava and Baklava Delight.

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India is up

Inferring this from taxes:

The collection of goods and services tax rose 10% in June from a year earlier, suggesting growth in consumption.

Inferring this from growth in key sectors:

During the quarter ending in June, key sectors showed solid growth from the year earlier period, with mining up 7%, manufacturing 7.2%, electricity 10.4%, and construction 10.5%. The one area of particularly weak growth was agriculture, up just 2%. Although the sector has declined in importance in terms of its share of India’s GDP, it still employs about 46% of the working population and thus its stagnation has a vastly disproportionate impact on incomes.

Inferring this from the emergence of more wealthy people:

The low to non-existent growth for the many working in agriculture is in sharp contrast to the rewards being reaped from other segments of the economy. At the very top, two newly released rich lists, one by Hurun India and one by Fortune, each underscore the expanding wealth. Hurun reckons that the number of people with more than  $1bn now stands at 334, up by 75 since its report last year. The number of Indians who clear its minimum bar of $120m is 1539, up by 272 from last year.

The valuations distilled by the two reports differ in many cases, most notably in the case of the Adani and Ambani families who lead the list. Mr Ambani leads in the Fortune list, with $125bn compared to $124bn. Mr Adani leads in Hurun’s, $139bn compared to $122bn. But the differences are almost irrelevant in the bigger picture, which is just how large these fortunes are. Behind these two are a handful of other extraordinarily rich people who measure their fortunes in tens, rather than hundreds, of billions of dollars including Shiv Nadar, the low-profile head of HCL, an IT services giant, Cyrus Poonawalla, head of The Serum Institute, a large vaccine producer, and Dilip Shangvi of Sun Pharma.

While the rise of these families has been extraordinary, the Indian story has enabled many ordinary individuals to reap staggering gains on the stock market from companies in conventional businesses that have done unconventionally well over the past 20 years. A report in The Business Standard lists JSW Steel (up 94, 361%), Bajaj Finance (up 87,250%), Titan (up 52,741%), Eicher Motors (up 26,281%) and Shriram Finance (up 12,310%).

Inferring this from the emergence of better paying salaries that are now being paid by the Indian tech centers of multinational companies:

A new report from TeamLease Digital cited by The Times of India says “global capability centers” pay from 12% to 20% more than the equivalent salaries paid at domestic Indian IT services companies that have traditionally been used as a form of outsourced operations. The emergence of these operations and the higher pay is because the services multinationals want from India are increasingly sophisticated, proprietary and important.

But then:

How quickly the promise of a business can change 

India’s electric scooter market is very competitive, with four large producers. At the end of March,Ola, a startup focused only on electric vehicles (unlike the others), had 49% of the market. That set the stage for an initial public offering in early August that was well received by the Indian market, with the company’s shares now trading at double the offering price. But there is reason to believe enthusiasm is cooling. The company’s valuation, though still a significant $6bn, is down 14% from its peak in mid-August. Recent sales numbers indicate it now has about one-third of the market, still a large number but the contraction is sharp. Ola’s approach has been to sell scooters at a steep loss, approaching $1,000 a vehicle, to build scale. Money raised in the offering gave it breathing space. But the older producers seem to have found their footing, with Bajaj, TVS and Hero all now offering appealing products. Ola’s impact on the Indian market has been positive – its early success was a screaming wake-up call and the resulting competition has been fierce, with the beneficiary being the vast number of Indians who are poor and are dependent on scooters for transportation. Whether Ola’s new investors benefit as well is a more difficult question. In recent years, an array of tech companies have briefly been seen as transformative only to stumble as loss-driven strategies to push early sales did not convert to profits.

Foreign direct investment is down:

In the fiscal year concluding at the end of March 2022, foreign direct investment was $56bn, for the 2023 fiscal year it was $42bn and in 2024 it was $26.5bn. There are multiple reasons why this trajectory is important and jarring. India’s government has been emphatic about wanting foreign investment and has seen money coming from overseas as an endorsement of its policies. Some of the decline is doubtless because the global economy has slowed, reducing, perhaps, investment courage and surely affecting demand for Indian exports. But the declining numbers say more than that – they suggest that the impediments to putting money into India and taking it out, as well as how it is treated while in India, remain a concern.

Prime Minister Narendra Modi is a superb salesman but others in the administration can be terrifying, attacking foreign tech giants who have been willing to enter the country or raising the prospect of new rules or taxes in future, or even retrospectively. In post-independence India, with its history of explicit expropriation and economic expulsion, this isn’t seen as just noise. To attract investment, the government has provided “tax holidays” under some conditions, but the holidays, whatever their intentions, make the competitive playing field even more complex and even unfair.

Many big investment firms have begun making brief trips to India but these can have a Potemkin quality. Inevitably, there are references to the recent heavy and successful  investment in infrastructure. But the monsoon-related flooding this summer has underscored how poorly many cities are run and how adequate drainage and water storage has yet to be built, despite the annual reminders. Poorly executed construction projects have turned critical roads into parking lots.

Mr Modi appeared last week at a conference on digital finance held in Reliance’s new Jio Centre in Mumbai’s newish business district, the Bandra Kurla Complex. Many would-be attendees never made it. Instead, they were stuck for hours in traffic jams because of poorly designed roads and sloppy, delayed construction. Overloaded phone networks, including the largest, Reliance’s Jio, meant that people stuck in these jams often could not make calls or send messages. Local retailers were similarly unable at times to get a signal allowing electronic payments to be processed.

If the aspiring conference attendees came from abroad, they perhaps concluded digital India was surely part of the future, if only because physical India was so hobbled, and in itself that was a positive sign. But as they may have also experienced, digital India, in theory a seamless network of connections, can be similarly broken.

A key regulator is under fire:

Madhabi Puri Buch, the boss of the Securities Exchange Board of India (SEBI), the country’s financial market regulator, has suddenly become the target of attacks on her impartiality and management. These began in mid-August when Hindenburg Research, a New York short-selling firm, blamed the lack of regulatory sanctions on the Adani Group on Ms Buch’s investment in a fund that subsequently invested in Adani Securities (both she and SEBI put out statements calling the accusation groundless). Hindenburg said as well that she had other conflicts of interests because of her husband’s ties to Blackstone which benefitted from favourable actions taken by SEBI toward an area in which it is heavily involved, real estate investment trusts (again denied by Ms Buch and SEBI which said any possible complex was disclosed and Ms Buch had recused herself from related matters).

Now, three other claims have arisen. The first of these is from the promoter of Zee Entertainment, Subhash Chandra, who accused Ms Buch of bias and corruption that led to the failure of his company’s merger with Sony. The second line of attack is from the opposition Congress Party stemming from retirements payments made to Ms Buch from her former employer, ICICI, while she has been working at SEBI contrary to its rules (ICICI issued a statement saying the payments were appropriate).

The issue has resonated because ICICI was permitted earlier this year to buy back a 25% slice of its securities arm, ICICI Securities that had been separately listed, without haggling with minority shareholders, as the rules would seem to require. And any suggestions of inappropriate conduct involving ICICI touches a sensitive nerve because its former boss, Chandra Kochhar is in the midst of a longstanding criminal trial in which she stands accused of conflicts of interest and fraud (she has denied all charges). In recent years, the bank has maintained a low public profile and consequently when it is in the news for anything beyond earnings, it is often for the Kochhar case. Its brand remains a work in progress.

Lastly, the Economic Times reported that SEBI officials have complained to the Finance Ministry about a toxic work culture that has emerged under Ms Buch. The string of attacks on a public official is unusual. Ms Buch has been an unusually articulate head of a government agency and thus stood out in many positive ways from the cautious bureaucrats who often populate these positions. She has, however, clearly made enemies. Some of this is doubtless a consequence of the current political climate in India, in which the opposition’s strategy is to raise a barrage of accusations against Mr Modi and his administration. The question is whether these accusations are soon forgotten, which is possible, or gain traction. India’s financial system is in the midst of numerous regulatory changes and any issues consuming the agency in charge matter.

On a final, positive note, India is battling to become the coconut king.

In a speech delivered on World Coconut Day (who knew that even existed?), a senior executive at the Indian Council of Agricultural Research said India vacillates between the second and third largest producer in the world, with 350 coconut-based products that could be exported. This, he said, gave it the potential to top the Philippines and Indonesia and be the largest coconut factor in the world.

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India’s government versus foreign companies

In a widely covered speech in Delhi on August 21^st, Minister of Commerce and Industry Piyush Goyal whacked Amazon, terming its billion dollar losses in India (incurred while building a complex ecosystem of logistics and sales in an often hostile, chaotic environment) not an investment in the country’s future (as the company would doubtless argue) but predatory pricing that threatened small retailers. “When Amazon says ‘we are going to invest a billion dollars in India’ and we all celebrate, we forget the underlying story that these billion dollars are not coming for any great service or investment to support the Indian economy,” he said. His comments extended to ecommerce more broadly, and presumably to Flipkart, Amazon’s biggest rival, which has also had heavy losses in India and is owned by a foreign firm (Walmart).

These comments are not to be taken lightly. Mr Goyal is an important minister when it comes to business and his words are seen as reflecting government positions, if not driving them. For foreign companies attempting to operate in India, or considering entry, this will doubtless be taken as a warning. His comments drew a mixed reaction in the press and he appeared to pull back somewhat in a statement posted the following day on an official WhatsApp group of the ministry: “We are very clear that we want to invite FDI, technology, and we want the best of the world. We are not against online platforms at all."

This is not the first time Mr Goyal has been on both sides of an issue with international implications. He is in charge of India’s trade negotiations, a critical policy area for a country attempting to build export-oriented businesses. In public comments, he has supported the arguments of the 18^th century economist David Riccardo for an open economy, while faulting past trade deals as unfavorable (and presumably too open).

Whatever the merits of Mr Goyal’s approach, it has not led, at least so far, to a surge in foreign direct investment nor the conclusion of major trade deals. That could make it a topic for a future leader. For business itself, the issue is less theoretical; no company operating in India wants to operate at odds with the Indian government.

Credit ratings

An irritant to many in India’s business world is the inability of the country to receive a significant boost in its sovereign credit rating despite having avoided default in difficult times and steadily improving its financial foundation. The major global agencies score India just a bit above junk. In a small sign hinting at future change, Standard & Poor’s has announced upgrades for multiple companies controlled by the Tata Group, the country’s largest conglomerate and a huge factor in its economy. None of the new ratings, however, are above BBB and even that rating is above the one for India’s sovereign bonds. Company ratings (with rare exceptions) are typically capped by the ratings of the countries in which they operate. Tata’s upgrade is stretching this boundary, suggesting the cap may soon be raised.

Demand for graduates

Salaries are rising for Indian graduates. The strongest growth has been in automotive (5.5%) followed by aviation (4.2%) followed by telecom (4%), with IT coming in fourth, according to The Financial Express, a newspaper. The relative rankings may suggest where Indian business has underlying momentum.

Consumption demand by the non-affluent

A key metric used by people who feel the Indian growth story has left Indians behind has been the sluggish rural sales of motorbikes, the basic form of transportation that allows Indians to be mobile. In the April through June quarter there has been a change, with 18% year-over-year growth, compared to 10% for urban growth. Motorbike makers, all of whom have seen sharp increases in their share price, see the trend continuing.

To be upbeat on India, skip Mumbai and visit Pune

As a distinctly second city in Maharashtra, Pune is separated from Mumbai by roads that look, and feel, as if they have been bombed. But Pune has many well-run companies. Some quietly verge on being remarkable because they produce unsung products that are vital to an expanding array of global clients. Kirloskar Brothers sells pumps to buyers in more than 130 countries and has recently registered strong growth in profits and revenues. Bajaj Auto recently expanded its distribution with sales to its 101^st country (Yemen). While electric vehicles continue to receive vast subsidies and attention, Bajaj recently introduced a motorcycle that runs on compressed natural gas (which is vastly cheaper than petrol and better for the environment) and petrol (for when the lines at the limited number of cng-selling service stations are too long).  The cost is under $1,300 and thus genuinely a product for the Indian common man (and family – it has a particularly long seat). Demand for these is already off the charts, with production limited (for now) by the production capacity for the high quality containers that are used for the compressed gas.

A 60-year process of entering the Indian market

The De Havilland Twin Otter seaplane was launched  in the 1960s and has since dominated the (tiny) market for this niche business. Now, perhaps because Indian travel is booming, the Canadian company thinks the timing may finally be right to enter the country and is considering the creation of a support base to enable sales.

The difficulty of operating in India

Ceramic exports from Morbi, the centre of an industry in India that has soared in recent years (raising hopes that India can, really, build new successful manufacturing businesses) have crashed with as many as 250 of its 800 export-oriented entities shutting down, reports BusinessLine, a newspaper. The reason, according to the report, is a sharp rise in freight rates and decline in available containers – the kind of market failure  that the country, with its heavy recent investment in logistics, had hoped to prevent.

And then there is….

A drip of negative stories has tarnished Tata’s oddly benighted turnaround of Air India. The 2022 acquisition of the troubled company from the government was intended to bring lustre to a tarnished national brand. Instead, there seems to be an unending series of problems. This week, passengers on a flight from America, one of the longest in the world, complained that water in the cabin ran out half-way through the trip. That is just sloppy. More seriously, the Directorate General of Civil Aviation announced a fine of Rs9m ($100,000) for operating a flight with a “non-qualified crew”.  The airline’s director of training has been suspended.

Corporate crime

Reflecting the latest humiliation in a long decline, Anil Ambani, once considered the sixth wealthiest man in the world with a net worth of $42bn, was fined Rs25m ($1.2m) and banned from holding managerial or director roles in Indian listed companies for five year by the Securities and Exchange Board of India. He was described as “the mastermind behind a fraudulent scheme” to divert funds from a finance company, Reliance Home Finance, to other troubled companies in a business empire he inherited after the death of his father in 2002.

Pre-empting depreciation

Gujarat, a dry state, has passed a law allowing sale of vehicles seized from bootleggers even before they are found guilty. If they are exonerated, the amount received from the auction will be returned plus 5%. Apparently, the long lag time for processing cases in the Indian court system meant that seized vehicles were falling apart during the long wait for adjudication.

Insurance and sports

One of the more notable Indian athletic achievements occurs on the holiday of Jamashtami, which this year falls on August 27^th, when young people create human pyramids climbing on each others shoulders in an effort to claim clay pots filled with curd and turmeric that seem to dangle from the sky. See the picture above of a little girl’s first effort in that direction with the help of her father. Apparently the pyramids can have as many as nine levels and, inevitably, there are many injuries. In another country, this activity might be discouraged but in Mumbai, the Oriental Insurance Company has come up with an economic solution to at least provide compensation, with payments of up to $120,000 for any participant who goes splat.

A way to deal with anti-capitalists Mao would understand

Home minister Amit Shah said 189 Maoists have been “neutralized” this year in the state of Chhattisgarh, a landlocked state on the eastern side of the country.

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India slowing

The single largest question for the Indian business and finance world at the moment is the country’s growth rate. Bit by bit, evidence is emerging that suggests a deceleration. Year on year net profit growth has dropped from 37% in the April-through-June quarter of 2023, to 33% in the subsequent quarter to 32% to 9% to – in the quarter that concluded at the end of June, 7%, according to calculations by Mint, a newspaper. While the downward trend is clear for profits, it is not for revenues. Over the same series of quarters, they have grown 7.3%, then 2%, then 8.7%, then 10.6% then 9.4%.  Foreign investors may be picking up on this. They sold $2bn worth of Indian equities in the first half of August, a tiny number when measured against total holdings in excess of $500bn, but nonetheless suggestive of concern.

What’s up

There has been no surprise in the list of big earners. Top position is State Bank of India, followed by Reliance Industries, followed by HDFC Bank, followed by Tata Consultancy Services, followed by ICICI Bank. These are all closely followed because of their own importance and what they say about India’s economy. On August 29^th Reliance will hold its annual meeting. At one time this was held outdoors with thousands of attendees, coming as close as India has ever come to a capitalist Woodstock but, in what perhaps does say something about shifting interests, this year there seems to be absolutely no anticipatory buzz. It will nonetheless run in the background at every financial firm in case details are released about public offerings for slices of the empire or there is a surprise, such as a shakeup in management.

In the broader reports on earnings, one sector that continues to stand out with strong growth in profits is pharmaceuticals, with ancillary information disclosed by the Ministry of Commerce and Industry indicating ever increasing exports. The key to the industry’s success is not entirely clear. In India it is highly fragmented, sells a commodity product, and must be distributed through highly regulated, often concentrated, overseas channels – all of which would seem to compress profits if not sales, but that is not the case.

Perhaps the same could be said about India’s small, fragmented, competitive liquor industry. Proprietary information from a trade group given to Mint said alcohol exports had grown from just over $200m in 2020 to almost $400m this year. Another industry said to be accelerating, according to The Economic Times of India, is men’s underware. Sales have begun to rise after six slow quarters. That, the paper said citing various theories of inferential indicators, might suggest broader consumption and growth, notwithstanding the trends cited above, may start accelerating as well.

What’s down

India’s exports of goods dropped 1.5% and its trade deficit widened in July. This is a source of genuine concern and perhaps not surprisingly, concerns primarily focused on China's role in both imports and exports. The most recent flash point is steel. Revenues for metal and mining companies dropped just over 1% and profits 9% at the same time as steel prices fell by a third, the cause likely being cheap imports from, of course, China.

While lower prices will be welcomed by at least three critical Indian industries– vehicle manufacturing, property development and infrastructure–they have  resulted in India’s three biggest steel producers, JSW, Tata Steel and Steel Authority of India (SAIL)  asking the government to reimpose new dumping duties, adding to those imposed in September. China Inc (meaning the combination of its companies and government) is increasingly assumed to be a single entity in the economy that must be actively managed so that benefits can be extracted and damage minimalized.

What may be up or down

Within a broad and somewhat confusing reconfiguring of its many indices, MSCI will include seven more Indian stocks in its standard index, expand the allocation of HDFC Bank, and reduced restrictions on the share held by companies in the Adani Group tied to their limited free float (meaning shares held outside of the controlling stockholder). The change will occur at the end of the month and it could result in another $3bn being invested in India’s stockmarket by “passive” funds, according to one estimate.

The change seems somewhat administrative and ignorable. It is not. The funds that follow the MSCI may be passive, but MSCI is, in a sense, an active manager whose decisions have the effect of reallocating capital to and from numerous companies and countries. This surely has implications for their cost of capital (though measuring the impact with any precision would be hard and perhaps impossible) and may even have an impact on shareholder votes as passive investment funds build large corporate holdings. That is an issue that is now understood in America but not discussed in India.

India is sensitive about foreign entities having an impact on its markets. Its regulatory apparatus already looks closely, in an unfriendly way, at the international credit rating firms and big auditors, notwithstanding their assertions of independent, disinterested decision making.  Large stakes in MSCI are owned by BlackRock and the Capital Group, both large, American-based fund manager.  Indices play a role in each of their businesses even though, in Capital’s case, its funds are actively managed. Both companies doubtless say they don’t meddle. India might wonder whether they nevertheless have a voice.

At the moment, interest in MSCI in India is limited to two issues: the practical, immediate impact of its decisions on the companies involved and  whether those decisions suggest that India’s importance in the global economy has expanded. Next up will be more attention to how MSCI makes decisions. In India there is a particularly large discretionary component to the index because family control of many companies reduces the amount of tradeable shares, which can affect MSCI’s rankings in controversial ways. MSCI decisions will, if passive shareholding grows as it has elsewhere, affect shareholder votes. MSCI opines on many areas, including ESG and climate, that are at the very least debatable and many in India will find objectionable.

The somewhat surprising investor buying into India (regardless of the above)

Among the largest, if not the largest, foreign investor in India during the recently concluded quarter was the Canada Pension Plan Investment Board, with $838m. Though nominally independent, it is a semi-public institution, meaning it is aligned with, if not to say tied to, the Canadian government. And the Canadian government is in a very cold war, of sorts, with India because Canada houses a group that the Indian government views as harbouring revolutionary objectives in India. The tension has been aggravated by the June, 2023 assassination in Canada of one of the group’s leaders, and allegations by the Canadian government, rejected by India, that the Indian government was involved. Diplomats have been expelled from each country. Apparently, Canadian capital is seen in a different light.

Ecommerce and small stores

Ecommerce has had an impact on India as on everywhere else. Scooters carrying meals and small deliveries fill every gap between the cars stuck on the country’s clogged streets. A study cited by The Financial Express reckons that 75% of daily shopping continues to go through kirana stores, the tiny mom and pop shops  that exist everywhere. Their strength, not surprisingly, is in the most inexpensive items though the study is striking in as much as it shows just how inexpensive these items are: 45% are priced at under Rs20 ($0.24) and only 15% of purchases are over Rs100 ($1.19)

Import substitution in action

Last week Classic Motorcycles, an independent company with a large stake held by Mahindra, introduced a new version of the old BSA 650 Motorcycle it revived in 2021 for sales in overseas markets. Although all the bikes are assembled in Indore, the initial version used an engine made by Rotax, an Austrian company owned by a Canadian company. Its engines are renowned for their  durability and have been used in the past by BMW among other companies. The version of the BSA unveiled in India will use an Indian-made engine and this version will now be exported as well.

The official reason for the shift is the need to address stricter environmental standards. There is doubtless something to this and Indian companies don’t, as a rule, cite Indian industrial policy for decisions. But there is almost certainly another reason related to industrial policy. Had the Rotax engine been imported and not re-exported for sale, India’s high tariffs would have been imposed, vastly inflating the motorcycles cost and making it unfeasible to sell in India. There is a huge debate unfolding in India now about reducing tariffs on manufacturing inputs to invigorate the competitiveness of the broader economy. The BSA engine is an example of the other side of the argument – how tariffs result in import substitution and, ideally, the creation of products that can be exported.

Retrospective taxation

If there is any consensus in India about a universally bad approach to taxation, it is about the government’s willingness to do it retrospectively. And yet, it cannot be snuffed out. India’s Supreme Courts recently? granted rights to states to retroactively tax mining companies, reversing policies that had restricted these payments decisions? to the central government. Shares of all big miners and industrial companies – including the large steel producers – fell. The total bill could exceed $1.2bn and as with India’s other assessments of retroactive taxes, sent every company and citizen in the lens of India’s revenue service to wonder if, in the future, they will owe because of the past.

Elite deadbeats

The wait lists to join India’s faded colonial clubs are endless, perhaps none more so than the Delhi Gymkhana. This reflects not only their rare acreage in the midst of congested cities but their snob appeal and the sense that they represent superior values. All of this makes news of seamy internal disputes particularly appealing. The current dispute centres on the introduction of pre-paid smart cards. A member wrote an article for The Hindustan Times, a newspaper, saying this was an “ungentlemanly move” since “an unwritten but well-known code of conduct prevails”, including bill payment. People honour their debts and thus should not be asked to pay in advance. Sadly, the underlying presumption is not the case, writes the chairman of the club, who says the move “is a practical response to…routine non-payment of dues”. Since 202?, 2,933 people have defaulted on payments of Rs30,959,371 ($370,000). As a result, the memberships of 557 people have been terminated. The dispute is doubtless being followed as a rare window into the state of the Delhi elite.

Property right

Property rights in India are the source of unending fights. In a particularly extreme case, The Times of India reports that a civil court (location not disclosed) ruled that three babies sold via an illicit adoption service will remain under the custody of their current families, using the argument that the children were abandoned and placing them with the new families, regardless of the method involved, was in their interest.  

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Hindenburg pokes India

Businesses operating in India whether based locally or abroad are usually terrified to even mumble criticism of government agencies, fearing regulatory retribution. That has made Hindenburg Research, a New York-based short-selling firm, a huge presence in India’s securities markets almost overnight. In January 2023, it issued a report calling the Adani Group, a major Indian conglomerate, “the largest con in corporate history” and late Saturday night it slammed the investigation that followed which has, so far, led to no action.

The new report takes aim at the head of the Securities Board of India (SEBI), India’s market regulator, Madhabi Puri Buch, asserting the agency’s “unwillingness to take meaningful action” is because she herself had investments in a fund that participated in the odd trading of Adani Group securities. As an added shot, it suggests Ms Buch has additional conflicts because her husband has a business relationship with Blackstone, a company that benefited from changes in rules involving REITs supported by Ms Buch.

The charges were taken beyond seriously by SEBI. Indian bureaucracies can take forever to respond to anything; within hours of Hindenburg issuing of its report, both SEBI and Ms Buch (jointly with her husband) issued its own response denying any pejorative implications. Their involvement in the fund, the statement asserted, was before it held any Adani securities. SEBI said proper disclosure of holdings had been made and Ms Buch had recused herself appropriately in the case of conflicts. The Buch response accused Hindenburg of “character assassination”. The Adani Group went further, saying “the allegations…are malicious, mischievous and manipulative…with wanton disregard for fact and the law.

On Monday morning, the value of Adani Group publicly listed companies had dropped 8% - a large number but the shares are thinly traded and often volatile. By the end of the day, eight of the 11 publicly listed Adani entities lost value but not much. As of this post, after the close of the market on Thursday, they are off a bit less than 3% - which is meaningful, but not very. The key thing to note was that there was no wipeout.

Key issues

It is worth looking at the two core issues raised by Hindenburg initial attack and how they are playing out now:

1)         Odd trading through offshore funds.

This is where Hindenburg was probably right, at least sort of:

At the time of the report, several of the Adani companies had stratospheric valuations. This, Hindenburg alleged, was a product of share manipulations stemming from off-shore funds in which the Adani family was involved. The use of off-shore funds for Indian investment is common and awful. The India government sees them as vehicles for tax evasion and opacity. That is doubtless part of their appeal but they also exist because the constantly shifting rules and taxes imposed by the Indian government makes even the most honest investor search for circuitous ways into India that offer clarity and stability. Ms Buch invested while living overseas, doing what overseas investors into India typically do. Since she has joined SEBI, the government has imposed increasingly onerous rules on off-shore investment but would do better to improve the rules for investing directly into India. Ms Buch now has abundant incentive to make this a priority.

A twist her investment was that the fund was run by a childhood friend and college classmate of her husband, Anil Ahuja, who has a glittering resume including having worked at western banks as well as – and this is where it gets tricky – having been a director of Adani Group companies. He too had left the fund during the controversial period but this, at the very least, seems awkward. The best framing is that it reflects how India, at the top of its commercial pyramid, is a small place.

2)         Where Hindenburg may have been less right: the largest con.

Hindenburg’s charges boil down to the Adani Group being an over-leveraged house of cards. This simply does not seem to be true. It is seen as a strong operator of important assets, notably air and sea ports, and its financial position has improved since the report was issued with profits of its 11 listed entities increasing from $2.7bn in the 2022 calendar year to $4,331bn over the past four months. Certainly some entities were overvalued, but others appear sound. A consequence of the report was that Adani Group has been more transparent and a bit less aggressive, all of which may have made it better.

A takeaway is that beyond the acrimony, Hindenburg’s impact has likely been good both for the immediate target of its attack and India’s broader capital market. This sort of praise, however, is unlikely to be forthcoming from elsewhere.

Macro matters

Inflation.

The top line number continues to fall, with the year-on-year July number at 3.54%, under the target average (which is too high) of 4%. The report comes just after the RBI declined tot cut its 6.5% headline repo rate. This is most likely because it was rattled by the election and the possibility that a contributing cause to the ruling BJP’s rather poor result was food inflation. It suddenly began focusing on this facet of the Indian economy. The RBI is run by people who have the usual incentives to survive which means it is not in the interest of its leadership to blow up support for the politicians that appointed them. Tightening earlier would have been smarter – there was no question that prices were rising, but it preferred to risk inflation more than lost growth. That has changed.

Growth seems to be slowing a bit.

The survey of manufacturers remains distinctly positive but not as distinctly positive as several months ago. And questions have been circulating about how much growth, really, India has been experiencing. One indication that it has been at least good, if not stratospheric, is freight traffic. Yes, this sounds old fashioned, given India’s avowed strengths in software and related services,  but freight reflects consumption and manufacturing, both areas India wants to expand. According to data released in the last week, rail freight traffic volume during the 2024 fiscal year (concluding at the end of March) grew 5.3%  and air freight grew 18%.

Micro matters

What sectors are doing well?

Calculations drawn from 1,440 company results in the quarter concluding at the end of June by BusinessLine, a newspaper, conclude that revenues grew 7% and profits 10% year-on-year, excluding power generation (revenues up, profits down) and financials (up and up). Bank revenues grew 22% year-on-year, profits 18%; pharma revenues grew 10%, profits 21%. One reason for the improvement is perhaps explained by data showing that of the Rs9.9trn ($12bn) of bad loans written off between the end of the 2020 fiscal year and the 2024 fiscal year (concluding at the end of March), only 19% has been recovered. The write-off, almost exclusively for banks run by the state, reflects a huge bailout.

Coal endures despite endless opposition

Indian companies love to talk about investment in renewables. The best investment would have been to look the other way. Coal India’s share price is up 140% in the past year in the face of small but steady increases in revenues and profits and hints from many energy producers that they may build more coal-fired generation capacity.

Beautiful numbers

The market for apparel, beauty products and footwear should grow from $130bn now to $210bn in 2028, according to a report by Bain Consulting that, if taken seriously by foreign companies in these areas, will likely have a similar growth impact on Bain’s consulting prospects.

The fate of foreign companies in a key Indian sector

Market share statistics compiled by Jato Dynamics, a consultancy, show that the market share of European car makers in India has dropped from 4.8% in 2019 to 2.8%. Japan’s leading market share has dropped as well, from 62% to 50%, doubtless because of the fading dominance of the single biggest Indian producer, Maruti Suzuki, which remains huge (more than 40% market share) but not as huge (well over 50%) as it was before. The biggest share gain has been Indian producers, presumably Mahindra and Tata, which have dramatically improved the quality and appeal of their cars. Ford left India in 2021 but is apparently thought to be on the verge of a return, reflecting how India, notwithstanding its hurdles, is too big a market to ignore.

What foreign companies operating in India make Indians happy

Two of the most attractive companies to work for in India are foreign, according to new survey. Microsoft is the most appealing foreign company (second overall), and Amazon is the third most appealing. The other three rounding out the top five are all controlled by Tata: TCS first, Tata Power fourth, and Tata Motors fifth.

India’s (and the world’s) enduring affection for communists who try unsuccessfully to become capitalists.

Many nice obituaries ran in the India press for Buddhadeb Bhattacharjee, the last explicitly communist chief minister of West Bengal. To visit West Bengal, and Kolkata, is to see a section of India that long ago lost its economic dynamism. Businesses shun it. And surely Mr Bhattacharjee played a role. And yet the obits were quite sympathetic. He was literary. He developed cultural life. He died in a modest home. The Economist praised him in 2004 as evidence of a reformist wind, “the cherry on the top” of the effusive compliments he received, according to The Business Standard. Maybe The Economist should run a retraction. An obituary might have lots to say about failed Indian efforts since its reopening in 1991 (as opposed to other states that are at least showing signs of possibly working).

What products do foreigners buy in India?

Organ transplants, according to The Times of India. Of 18,336 done in India, 1,851 of the recipients, about 10%, were overseas patients.

Is India becoming more American?

The Indian ammunition market is expected to expand from $844m this year to $1.4bn by 2032 according to KPMG, a consultancy.

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The most important business story of the week disappeared

Infosys, the IT giant, was hit with a massive $3.9bn bill for not paying a goods and services tax on services it essentially provided for itself overseas. As with all of these things, the details are bewilderingly complex. The assessment shows the reach and aggressiveness of India’s revenue service and how it can impose a destabilizing hit. Infosys’s share price seemed to take a genuine hit.

For an individual or ordinary business, the next step might be years of litigation and possibly a partial settlement. Even tycoons like Mukesh Ambani have tax cases that go on for years (though he always seems to win in the end). The attack on Infosys followed a different path. Infosys denied the validity of the claim and it was joined by NASSCOM, the industry trade group. Implicit in the objection was the threat that the tax can gut the IT services industry, one of India’s most important and one whose growth has often been ascribed to the notion that it is too complex to attract the meddling of the government (and the revenue service). Nasscom reportedly said the claim reflected a lack of industry understanding by the tax authority.

Complaints in India are common; fast results are not. This time was different. The revenue service put out a muddled message revising the claim radically downward with vague statements about more information requests to come. This is widely interpreted as a face-saving retreat. The message for any company doing business in India is to be prepared for what can happen and understand what comprises an effective response.  It is possible that Infosys is one of the few Indian companies that could have pulled this off. No sooner had this matter gone away than a report emerged of a tax case against Mahindra & Mahindra, a conglomerate producing tractors and cars among other products and services. It has reportedly received a notice from the revenue service for taxes due from the value of allowing its name to be used by subsidiaries.

Total number of taxpayers

Even if resolved amicably, these tax issue will continue if only because of the squeeze India finds itself in. This year, according to information released last week, a record 73m income tax returns were filed, up from 68m in 2023. The gain is significant but the overall number, in a country of 1.4bn, is tiny. The country’s poverty and the expansive goals of its government are incompatible, resulting in constant pressure to extract ever more revenue out of the very few entities that can pay.

Asking the big questions

Has the Modi Administration lost its mojo? Since the election big proposals have been all but missing as have key details to enable ones raised in the past to go forward. In India getting things done in the best of circumstances is hard. There are reasons to be happy about a coalition government but expedited reform may not be on the list.

Employment

A new government survey of informal business shows a slight expansion in the number that are headed by women–22.9% in the fiscal ending at the conclusion of the 2023 fiscal year compared to 19.5% in the year end in March of 2016.

Formal business

The number of new businesses registering with the Employees’ Provident Fund, a measure often thought to reflect the growth of formal companies, reached 294,256 in the most recent fiscal year, concluding at the end of March. That is certainly the best result in five years and may be a record.

Family business

McKinsey reports that Indian family-controlled businesses, which are most businesses, have higher than average returns. That is somewhat surprising and requires closer examination but is interesting if true. Slowly, many families are bringing in merit-based outside management to replace entitled children but it is a long process. Ultimately, it is hard to imagine many of the largest family businesses will stay in family hands. The largest question hangs over the Ambani children. The wedding of the youngest of the three, Anant, has been endless. Do the children even want to run a company or will Reliance shift to outsiders, as with what happened with the Rockefeller’s as they moved out of Standard Oil. Gautam Adani, patriarch of the other major conglomerate, disclosed that his vast empire will remain intact under the succeeding generation after his retirement, though no one really expects him to retire. Other families, notably the ones controlling the large TVS and Godrej industrial empires, have recently split to enable different branches to have their own operations. 

Chinese steel dumping

Steel imports rose 38% in fiscal 2024. The domestic steel industry is investing heavily and contends cheap imports from China will derail their efforts. This is merely the most recent flash point in trade and business between the two countries with the added twist that the steel, though originating in China, might be routed through South-East Asian countries - further complicating trade relationships.

Where capital is going in India

The real estate sector has been hot and global money has played a role. A survey by Knight Frank says India has a 9% share of all money going into APAC, trailing Australia, Japan, Singapore and Greater China. The biggest single recipient has been Mumbai, largely for warehouses. Bangalore has received the largest residential investment and Hyderabad the most for offices.

Stockmarket

Another record (followed by a slight slip in the global route), another big round index number exceeded if only briefly, in this case 25,000 for the “nifty 50”, which includes the largest Indian enterprises. The index crossed the 20,000 mark in September, 2023. So far this year, the biggest changes have come from the auto sector, up 43%, followed by realty up 37% and then energy, up 34%.  The index overall has been up 15.1%, with lagging sectors including IT, up only 14.5%, financial services, up 9.1%, consumer goods, up 9.1%, and banks, up 6.8%.  Writing about things like cars and motorcycles seems like it is business coverage from  a different era but as the sharp price appreciation shows, these companies are dynamic components of the Indian economy.

Gridlock

Or maybe too dynamic. The Economic Times reckons there are now 4.8m vehicles in Mumbai, with another 721 being added every day. Much of this is because of the poor alternatives. Passenger trains are famously overcrowded with riders often waving at each other across the tracks (see picture above) but also reports of people falling out of carriage doors to their deaths. In the face of this, the local government is introducing, or reintroducing, another mode of transportation, by revising a 2018 effort to bring back the horse mounted police unit that was put to rest in 1932. They will now need to squeeze onto the roads along with the cars, pedestrians (who often lack sidewalks) and, of course, the cows, goats and stray dogs.

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What an electric scooter public offering says about India

In the largest public offering of the year, Ola Electric will sell in excess of $730m worth of shares, valuing the company at $4bn. The price is down significantly from what was discussed last December when an initial draft of the prospectus was filed and down from the $5.4bn valuation during September, its last funding round with venture capital money. The decline reflects the broader trend in India’s startup world, which took off in 2021-23 and has since been notable for disappointing announcements. Ola’s founder, Bhavish Aggarwal, said the lower price was to “make sure we price it attractively for the entire community of India” which sounds democratic but actually means he needed to find a new group willing to put up money. The offering price will leave the most recent venture investors with significant losses but those who got in at the very beginning will still have made large returns.

The offering raises several different issues, the first about the ability of an aggressive startup to squeeze itself into a highly competitive business that may be undergoing profound change (from petrol to electric power), the second how India’s capital markets have changed in just a year. To answer the latter question first, the Indian stock market has been hot and open to new offerings at the same time as the foreign investors who dominated the private venture market have pulled back after being badly burned. The Ola share sale is unfolding at the same time as an insolvency battle is unfolding over Byju’s, an edtech firm that in 2022 was valued at $22bn at what in retrospect was the peak of the market. An Ola sister company, a once highly touted ride hailing app, has suspended its own public offering while sacking staff and closing foreign operations to cut costs.

Of the money Ola is raising, $77m will be extracted by current owners, including the largest chunk, $34m, but its founder and boss, Bhavish Aggarwal. But the real importance of the offering is that the company needs capital at a time when the private market has shut. In the fiscal year concluding at the end of March, Ola lost $573 on each of the 330,000 electric scooters it sold. Borrowing has risen 45% to $285m. It intends to spend $191m on r&d and another $147 on its manufacturing facilities to enable battery production. At the very least, the offering shows the fortuitous flexibility of Indian capitalism, at least in the case of this particular electric scooter company.

As for the company itself - it turns out that the market is quirkier than might be imagined. The formidable electrical vehicle competition in cars coming from China is limited because of Chinese regulations, either for safety or to protect its car industry, limit speeds on electric scooters to something like 25 kph. Indian anarchy is not so fussy. Scooters are routinely stacked with boxes and entire families who zip through gridlock traffic at remarkable speeds. Ola’s scooters top out at 120 kph, a crazy number given the country’s poor roads but it isn’t entirely unusual to see a tiny blue or orange Ola zipping past a lumbering Mercedes. Though initially plagued with mechanical problems that were heavily documented on You Tube, they have extensively filmed during the current monsoon, partially submerged, ploughing through India’s flooded roads.

To Ola’s credit, it recognized a promising niche and it moved quickly - and thus is emblematic of an appealingly entrepreneurial new India. It has a market share of 35% which, presumably, can be sustained by a combination of innovation and ( because of the continued outside funding) losses on each sale until economies of scale kick in at some point in the not too distant future. On the flip side, it now faces competition from some of India’s most adept companies, notably TVS and Bajaj, with far better resources, superb engineering and excellent reputations for reliability, along with several other upstarts. The optimistic case is that the Indian market is so large – on the order of 20m or so two wheeled vehicles are produced a year – that there is room for entry at a moment of technological change. The pessimistic case is that Mr Aggarwal’s decision to be a seller (albeit of just a sliver of his holdings) in the current offering is a message about what a truly informed person might do.

India’s confused approach to China

The annual Economic Survey released by the Indian government on July 22^nd argued that it was in India’s interest to have stronger ties with China, the underlying premise being that Chinese investment, manufacturing expertise and links to global supply chains could accelerate India’s own development. This is a particularly sensitive subject because the two countries are involved in a sometimes hot but usually cold war along their mutual border, because China is already India’s largest trade partner almost entirely because of Chinese exports to India and because India considers China a threat to be a ruthless commercial competitor. A consequence of Indian suspicion is that Chinese investment undergoes an especially rigorous review and the usual Indian barriers to outside business seem to be even more strictly imposed. The Economic Survey was taken by some as an indication that the views of the Indian government had changed, and restrictions softened. Absolutely not, responded the country’s key commerce and Industry minister, Piyush Goyal, in comments before the Confederation of Indian Industry, a key trade group, on July 30th. Mr Goyal has in the past made supportive comments about the virtues of unequivocal free trade of the sort that would be familiar in a classically liberal western university class (assuming any still exist) but when it comes to China, the internal struggle within much of the Indian government is to create an entirely new paradigm for China that captures benefits without corrosive accompanying economic consequences.  

Is the Ambani/Reliance brand faltering?

While the Ambani brand was the source of unending attention because of the world’s costliest wedding, the Ambani retail business seems to be losing momentum. In the most recent quarter it opened 331 stores, the lowest number in years, and it closed 249. The Ambani family, through Reliance, has clobbered competitors in businesses with heavy regulatory/government involvement, notably telecom and refining. In retail, though operating under provisions that are more favourable than available for foreign firms, Reliance faces a vast array of domestic competition that is easy to underestimate. The overstuffed, modestly furnished stalls run by hawkers seem to draw the kind of wildly excited crowds that are absent in Reliance malls. The potential customers for its most expensive offerings – the things that would not be sold from a street stand - may prefer to shop overseas, where, because of heavy Indian tariffs, prices are lower.

Trade wars

Only America, which began 64 anti-dumping investigations, had more than India, which began 45. These battles presumably will only increase as countries try to replicate, or to protect themselves from, a Chinese mercantilist approach to economic growth.

Justice delayed

Mohandas Gandhi and Jawaharlal Nehru, two of the founding figures of modern India, were both lawyers trained overseas. They would not be welcome in the country today. The Advocates Act of 1961 began the construction of legal impediments for foreign lawyers in India. It was followed by a supreme court decision in 2021 blocking them entirely, and then a parliamentary decision allowing them limited rights to practice resulting in 2024 – effectively no change. Numerous enabling rules have not been adopted. It has been argued that India’s clogged legal system benefits local lawyers who can string a case out for years. The same self-interest would explain the impediments to outsiders.

The virtue of vultures

Reflecting its ongoing focus on the non-human participants in Indian life, a story in The Times of India links the decline in vultures to excess human deaths. In the absence, festering carcasses have led to an increasing number of rats and feral dogs, which in turn has led to more rabies and other serious diseases.

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Hope the Substack was missed while I was away. I have returned to a monsoon sodden Mumbai where the best business opportunity is in umbrella sales.

The best-read boring document in the world

For anyone tied into India’s formal economy, the single most important annual statement by the government is the publication of its budget which this year was announced on July 23^rd.  It touches everyone from gold smugglers (an apparently expansive group whose margins will now be squeezed by the reduction in tariffs from 15% to 6%) to the 100m people who have begun investing in the country’s hot stockmarket (who must now pay higher taxes on capital gains) to buyers of products costing in excess of $12,000 (who will pay an added 1% sales tax) to small tax payers (who will now see more of their earnings exempted.

Clearly the administration of Narendra Modi took away a message from its disappointing seat count in the recent election that resulted in the need for a coalition. It concluded that a critical segment of the Indian population believed it was not participating and benefitting from India’s fast growth and that required visible steps. The most prominent features of the new budget were to pay off the new coalition partners in Bihar and Andhra Pradesh (both poor states) and to announced incentives for expanding employment.

Previously, the approach of the Modi Administration was to focus on improving operating environment in India which it felt would prompt increasingly successful companies to hire more people and broadly lift the country’s prosperity. To be fair, much of this underlying effort will continue even if the measures are no longer as evident. One key continuing provision is heavy spending on new infrastructure, which will make India an easier place to produce and to live. Another key provision is to keep spending within limits and thus reduce the country’s high fiscal deficit which, over time, will reduce the high costs businesses must pay for capital.

But more direct actions were clearly seen to be needed. The headline efforts of the new budget are intended to push employment. There will, for example, be subsidies available for the first month salaries of new employees. And large Indian companies will be able to use a bit of their mandatory corporate social responsibility expenditures (2% of net profits) for apprenticeships (a step that implicitly acknowledges social responsibility for business is business. The ghost of Milton Friedman will be pleased.).

Whether sustained hiring occurs will likely hinge more on whether the initial plans of the government finally bear fruit. What has likely been lost in the process is emphasis and priorities. Earlier in the year, it was widely expected that the third Modi administration would initiate, finally, big, long-awaited economic changes. These begin with longstanding reforms of India’s land and labour law. That goal remains but the process now hinges on “collaboration between the Centre and the states, and building consensus”, said Finance Minister Nirmal Sitharaman. While true now, and true before (the states play a large role in labour and land laws), her comment underscores that a Modi administration in a coalition is in no position to demand change and must work through an Indian political system prone to bogging down. Similarly, before the election there were hopes, if not expectations, of more cohesive, workable rules for trade and foreign investment. Now, these have been added to the vast pile of urgent items to be dealt with in the future. Maybe.

Within the vast budget were numerous other tweaks of debatable merit. Taxes on foreign companies will be reduced from 40% to 35% reflecting both India’s desire to attract global business (Ms Sitharaman said it would prompt foreign companies to enter) and its half-hearted approach. The lower rate will still be substantially higher than the 25% paid by domestic companies and is far higher than the rate in other jurisdictions, meaning foreign companies that do come to India will push complicated transfer pricing and royalty payments and any other trick to shift their profits anywhere else.

Some important past errors were rectified, notably the removal of an “angel tax” that treated investments in startups like taxable earnings and thus damaged investment which the government says it wants. Conversely, while making this more feasible in one area, it went the other way in another, increasing the tax on short-term capital gains on stock investments was increased from to 20% from 15% on short-term capital gains and 12.5% from 10%. That will have a meaningful impact on returns. Some key market insiders believe the increases are a source of relief because in recent weeks worse seemed distinctly possible but that is hardly a cause for joy, only relief. The stockmarket dropped 1% which may have captured the response: a bit down.

Reasons to be optimistic about India

The financial system

Business news this week has focused on the budget, but it is worth noting that Indian Banks have reported remarkably good earnings. HDFC Bank, the country’s largest private financial institution, reported a 35% increase in net earnings over the prior year; smaller and previously troubled Yes Bank’s first quarter profits rose 47% over the prior year.

India’s foundation

The order book for Larsen & Toubro, India’s largest construction/engineering firm, has hit record levels which can be read as a good indicator of years-worth of big construction projects to come.

Entrants

India’s business capital is experiencing its second heaviest July rainfall on record, surpassed only by last year. The city is a mess with potholes that look like ponds. That has made it more difficult for most but not all. The city’s business district, referred to as BKC (the Bandra Kurla Complex) is near the Mithi river, which typically serves as a polluted drain that reluctantly pushes sewage into the Arabian Sea. The monsoon has flushed it out and a recent arrival who climbed up from the river onto the shore near the business offices was a crocodile who clearly found the new environment to be amenable.

India’s take on the outside world

A section of the Economic Survey devoted to climate change and sustainability faults the western consumption of toilet paper, red meat and energy guzzling artificial intelligence along with the broader consequences of a market economy. “Earth has enough for needs but not for greed” is the title of a section. As India rises as a world power, expect more lessons to come.

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As I type on Wednesday morning, the sky is dark and after several false starts, it seems like the badly needed monsoon has begun - maybe. I know India has many important holidays, but the commencement of the rains seems to be the most important of all. The weather cools and the reservoirs, which had been running dry, replenish. Mumbai’s filthy streets are given a bath and the general mood seems to perk up as people seem suddenly, and perhaps briefly, happy to get soaked.

The big picture on the overall Indian economy

Manufacturing continues to expand, according to the HSBC Manufacturing Purchasing Managers’ Index, although the rate of growth, while still strong, has declined over the past three months. Meanwhile, inflation in May continued to run at a high rate, particular for food at 8.7%. This is a particularly important number because about half of Indian incomes are spent on food. Some speculate the sharp increases in this essential price played a large role in the weak electoral showing of Narendra Modi’s Bhartiya Janata Party both directly – both higher food prices are a debilitating tax on the poor that is felt every day– and indirectly because government efforts to cap inflation through heavy-handed measures like banning onion exports hurt farmers, possibly explaining the surprising loss of seats in the state of Maharashtra.

The Reserve Bank of India (RBI), which has avoided criticism for the country’s consistent inflation, seems to have been rattled enough to address its possible responsibility the use of excessively loose monetary policy. But it did so in the usual bureaucratic way of not accepting fault using the common excuse of central bankers who have struggled to meet their primary goal of price stability. In recent interview with the Economic Times, the RBI’s governor Shri Shaktikanta Das, said that to bring down inflation, a “much more drastic measure” would have to be taken in terms of interest rates, “but then we have to also weigh what would be the growth sacrifice.”

The big picture on India’s informal economy.

An annual survey tied to India’s vast informal sector covering the fiscal year concluding at the end of March 2023, indicated the number of new businesses grew 6% over the prior years. Employment grew by 11.2%. Because of the time lag, because of the mechanics of a survey that needs to cover the majority of India’s workers, because of the opacity of the informal sector and because anything tied to the conditions of India’s poor is a source of debate, the results are controversial. The survey would seem to suggest growth at a time when that is rare in the rest of the world. That conclusion is contested by many critics of the current administration.

Investment

1) From the perspective of the Indian stockmarket for Indian companies and investors.

The Indian stockmarket continues to hit new records and expand its investor base. In May, another 3.6m brokerage accounts opened, bringing the total to 158m. A strong stock market has, unsurprisingly, led to public offerings. This has been particularly true for small and mid-sized companies. Since the beginning of the year, 100 have gone public, reflecting a record pace that is expected to accelerate now that the distraction of the election is over

2) From the perspective of foreign companies using internal funds

While foreign direct investment appears to be falling, foreign companies have been increasing the amount of reinvested Indian earnings, according to the Department for Promotion of Industry and Internal Trade. The increases have been consistent, rising in increments from the $12.5bn in the fiscal year concluding at the end of March in 2018 to $19.5bn in the year concluding at the end of this March.

3)  From the perspective of foreign companies using the Indian stockmarket

Hyundai, the South Korean auto giant with a market cap of $47bn, has announced a $3bn public offering to take place on the Indian bourses. Partial overseas offerings for global companies are always a bit weird since investors, in theory, can purchase shares anywhere. While Hyundai’s reasons are not entirely cleared, there are a number of possible reasons. One is that Hyundai has done a remarkable job in India, becoming the second or third largest manufacturer in a country that recently proved too much for Ford and General Motors. Indians who would like to invest in this success story, however, face costly impediments tied to tax, capital and foreign exchange controls that come with their buying shares overseas. The listing will provide local shares. Secondly, it is possible that Hyundai will be able to raise capital more cheaply in India’s hot stockmarket than on the South Korean stock exchange.

Many years ago, India required foreign companies to have local listings, often to meet overseas ownership caps. That is, largely, not the case and not true at all in the auto industry. Still, India remains a difficult place to do business that is often xenophobic. In its offering documents, Hyundai notes that a key risk in its Indian operations were frequent changes in government policy. That leads to a third possible reason for the Indian listing. It is possible that for a foreign company operating in India, it helps if at least some of the owners are local.

4)   By Indian tycoons

a) Way one: Aggressive capacity expansion

India has a vast need for cement, numerous companies clawing for market share and recently falling prices. No entity plays a bigger role in these factors than the Adani Group which entered the business in 2022 with the purchase of two companies owned by the Swiss firm, Holcim, which collectively was the second largest in India but had only been expanding at desultory rate. That has changed. The operations are piling on capacity and plan to expand by half in the next three to four years. Taking a step in that direction, Adani announced the $1.2bn acquisition of Penna Cement, a major producer based in Hyderabad, that will enable it to expand to a new, growing, region of the country.

b)     Regulatory privilege

Meanwhile, Reliance Industries’ Jio operations has received regulatory permission to launch a satellite providing high speed internet connections. Amazon and Elon Musk’s OneWeb are both reported to be waiting for similar approval. Reliance is seen in India as having an unmatched ability to navigate the political and judicial corridors of India, thus being able to operate on an unequal playing field on earth. No one would be surprised if there is an equally uneven playing field in space.

International trade

Export grew 9% in May. America is by far the largest market, with $7.4bn, followed by $3.1bn for the UAE and $2.2bn for the Netherlands. The big change was in fourth place, where Britian, with $1.4bn, narrowly edged out China.

Important company news

Air India’s trouble taking off

Reports of a metal blade found in a meal served on an Air India flight have been widely circulated on Youtube and other platforms. To Air India’s credit, it confirmed the problem, attributing to a vendor’s chopping equipment but a problem is still a problem and the abundant coverage was a consequence of an accumulation of numerous recent complaints including passengers stuck on a Delhi runway for eight hours without air conditioning during a heat wave in May, multiple flights cancelled because of a labour dispute thinly disguised as a mass sick leave, and a fine for violating mandatory rest periods for pilots. Entertainment systems and the pivot on seats often don’t work or work well enough.  On time performance is poor. The Financial Express says there have been four emergency landings in the past four weeks including one for an engine fire.

It has been two years since Tata re-acquired Air India from the government, which had expropriated the airline in the 1950s and in decades of poor management destroyed a once pristine reputation. Following the acquisition, hundreds of new planes have been ordered and new senior management installed. No one expected a quick turnaround. It will be many years before the vast new fleet is in service. Still, the current problems have raised concerns that Tata, which in recent years has done a superb job turning around other businesses including steel, power and car manufacturing may be stumbling in its return to aviation.

Unsurprising Indian career advice

1)        A survey of the educational background for the founders of Indian unicorns – startups worth in excess of $1bn – revealed that 137 (67%), are engineers.  Other areas of study including architecture, English, philosophy and law each produced only one unicorn founder.

2)        There are 59,000 immigrant Indian doctors in America, far ahead of number two China with 16,000 and Pakistan with 13,000.

A brutal commute

The insanity of the Mumbai trains at rush hour are well known. As part of stories on the death of a salesman who fell from a train (or was squeezed) out of a train, the Mumbai Mirror reported that so far this year 250 people have died falling off the Mumbai trains and 562 have been injured.

Lost property rights

Many of the longest running cases in the Indian courts concern fights over land. Messy or absent records is a large impediment to investments both in new developments and old properties that are deteriorating. It is tempting to think this only happens with properties that are in odd places but the government of Indoor, while surveying one of its historically upscale areas, has discovered that 333 acres of land is missing.

Shopping

Indian shopping habits are evolving in ways that are hard to predict. There have been many reports of poor sales for shopping malls. They never seem to be that crowded. The opposite is true for street stalls that pile goods on top of open tables where people squeeze next to each other notwithstanding oppressive heat. But new forms of shopping do resonate, even if it means that India is skipping over a phase that was very popular in western countries.

Fast delivery via apps are heavily used for even the smallest item. During the recent heat wave in Mumbai, crossing a road meant dodging small scooters that would skid to a halt at an ice cream stall and then head off to drop off the scoops with a customer before they could melt. But that just hints at the potential for Indian online delivery is just beginning to be tapped.  The Times of India noted that purchases of goats to be slaughtered for the annual Muslim festival of Bakrid can now be done online with candidates able to be screened prior to sale on Youtube, Facebook or Instagram.

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Non-chaotic India

Surprise, surprise, and then a surprise.

An election that raised the possibility of upending India’s ruling government and its approach to domestic policy and global affairs - and for a moment seemed to possibly do so - is increasingly seen as a non-event. Polls the day before the results were released showed a surprising victory for Narendra Modi’s Bhartiya Janata Party (BJP), sending stock prices up and suggesting an acceleration of a platform that came to power a decade ago. When the actual results then showed a surprising loss of seats for the BJP and even raised the prospect that Mr Modi himself might be gone, stock prices crashed. And then, when parties that were part of an existing alliance were smoothly incorporated into a presumably functional, but not particularly strong, coalition, stock prices reverted to where they had stood before. It is not unfair to say that an early read on the election is that nothing changed. Could India, which is almost synonymous with chaos, now reflect an orderly stability? Perhaps in retrospect, many people will conclude this was inevitable. In recent months, there may not have been a single person who felt that way.

Reflecting the preservation of the status quo, the swearing-in included the usual business elite who presumably received invitations they could not refuse. Mukesh Ambani, head of Reliance, India’s most valuable company, separated himself from the endless celebrity-infused pre-wedding parties for his youngest son to attend. He was joined by Gautam Adani, his rival as richest business mogul; Sajjan Jindal, head of the country’s largest steel company; Kumar Aditya Birla (textiles, telecom, cement); and Natarajan Chandrasekaran, head of Tata, the country’s largest conglomerate. A deluge of congratulatory if uninspired messages were posted by business organizations including the Associated Chamber of Commerce, the Confederation of Indian Industry and any large company that might consider doing business in a highly regulated environment, which is to say likely every big business.

Consistent with the appearance of stability, no changes will be made to leading ministries though some minor ones, notably aviation, agriculture and power, did receive new heads and that might matter. In aviation, India is adding a staggering amount of capacity and seeks greater access overseas while constraining the similar ambitions of foreign carriers in India. Many new airports will be built and routes, requiring land acquisition and connections to broader networks in which the government will be involved. Similar issues exist for the power industry which is going through a massive transition to expand capacity and at the same time change the source of generation from fossil fuels to renewables. Agriculture is always sensitive and recent disputes with farmers may have been one of the reasons holding back the BJP’s results.

To the extent Mr Modi has had to bring in new partners, they have come from already allied parties in Andhra Pradesh and Bihar, both of which are expected to receive central government assistance in return. This does not seem to have elicited criticism, at least so far, perhaps because both states are in particularly poor economic shape and are good candiates to be on the agenda of any national government. New infrastructure and efforts to bring in new businesses would be welcome. Share prices of companies based in these states rose in the days after the election, perhaps because of expectations of forthcoming favouritism (the cynical view) or in anticipation of broader investment enhancing the ability of business in the state to function efficiently (the optimistic view).

The first insight into the new government will come from a soon-to-be released budget which in India has inordinate importance spelling out priorities and a series of 100-day plans that, in the case of a decisive victory, were expected to have been released by now. In the prior term Mr Modi, with a majority government and many accomplishments, was still unable to push through key reforms on property, labour, land and agriculture. The legal architecture behind an ongoing reconstruction of financial links to the rest of the world remains somewhat of a mess. It won’t be easier to complete any of these things with a weaker hand in parliament, but some believe the narrow victory will prompt Mr Modi to become better at negotiating with opponents. Others think that if this is possible at all, it will add costs (that may verge uncomfortably on untoward payments) into the system as legislators trade their support for benefits. A third position, perhaps the most sensible, is that changes in India take a long time, third terms anywhere in the world rarely have large mandates, and the key issue is not whether India can solve its issues today or even in the months ahead but rather whether it remains on a productive path and that is the case.

More quietly, many in business are pleased about the results for a more personal reason. They like Mr Modi’s ability to use a sledgehammer to get things done, but fear having their own heads placed on the anvil. A weaker Mr Modi is less frightening.

Why business has liked Mr Modi’s tenure as captured in the changes of one number.

Along with the strong overall growth of India’s economy in recent years has been the even faster growth in profits. A report by Motilal Oswal, a brokerage firm, calculated that the percent of corporate profits to GDP for the benchmark Nifty 50 index (4.8% in the recently concluded fiscal year) is at its highest level since 2008 (when it was 5.2%), after which it trended downward in a fairly consistent line until bottoming at 2.1% in 2020.

The business of Indian sports

Mr Modi knows how to build his own brand. His photo is in the newspaper and on signs daily. But does India and in particular its sporting world? Among the oddest sites in Mumbai on June 9^th was bars-cafes-restaurants packed with enthralled fans cheering for India in its cricket match with Pakistan with many many people wearing New York Yankee hats. This cannot be explained. I say this not just because I support the Mets, the other New York team. Change is likely coming. A study released by Houlihan Lokey, an investment bank, concluded that the value of India’s professional cricket circuit, the Indian Premier League, rose 6.5% in the past year to $16.4bn and these teams are discovering the value of selling their names in the same way that has long been done by their equivalents in America. An online platform making fan jerseys for the teams says sales were up four-fold this year. A major manufacturer reported record sales of 140,000 jerseys, a number that sounds sort of large but in the context of India’s vast population, just a beginning.

Not sold on India

Because of the recent record prices on the Mumbai exchange and the poor showing of the exchanges tied to China, many analysts outside of India seem to believe that foreigners have shifted their purchases. In reality, whatever their feelings about China, they have been avoiding India. In the first week of June, Foreign portfolio investors dumped $2.1bn in Indian, continuing a process evident in May and April.

Indian quality

Many Indian businesses are acutely aware of criticisms about Indian quality and have taken huge steps to make improvements. This is visible in the assembly operations that produce iPhones and more broadly in machinery and vehicles, but pharma is a more complicated story. It is a huge component of the Indian economy and vital for the global health care, particularly in America where it provides something like half of the generic drugs. It is also a consistent source of quality lapses. In the past week, Lupin, a major producer, recalled 51,000 bottles of cefdinir, an antibiotic, being sold in America because of defective containers. 

An illicit business

Police arrested two people, one working for the government, who ran a “sex-determination” business. Tests would presumably be done to determine the gender of a child who, if female, would be aborted. In 1994 this practice was banned in India after surveys suggested female births were far lower than would naturally occur. The current data isn’t entirely clear, at least given search for good numbers, about whether this trend continues. The arrests, however, shine a light on a business that is believed by many to cooperate widely, if quietly. 

Entertainment

Mint, a newspaper,  took the opportunity of the reopening of one of Mumbai’s iconic movie palaces, the Eros Cinema, to note that 20% of theatres run by the Eros’s parent company, PVR Inox, will have a luxury format and that ticket prices at these can cost Rs500-700 ($6-to-$8.30) which a source quoted in the articles faults for being high enough to undermine the unifying quality of “films (which) are meant to be unifiers, not dividers.” 

India is, of course, a poor country and there is no subject that seems to avoid being caught up in debates over disparities in wealth, including the content of the movies themselves. Most of the viewership of movies and television shows likely is done through inexpensive smart phones using wifi accessed through networks that are inexpensive or “shared” (meaning at no cost at all). This form of distribution may have undermined the economic base supporting the average threatre. One defense of the nice theaters goes as follows. On a brutally hot, sunny, Indian day (meaning every day in April, May and June up until the monsoon) or a day when a dark skies pours down blankets of rain meaning most days during the monsoon (which is starting soon), these theaters – clean and cool and even roomy - are palaces for a wide swathe of the population that, though not poor, is far below the minimum need to qualify for an invitation to Mr Modi’s swearing in. Add in the fresh cheese-caramel-salted popcorn common in these theatres and the experience rises to a higher level. The movie industry provides many things in India - “unifiers” ideally, but for many (if not enough, a few hours away in an easier world.

The Election

One thing, and perhaps only one thing, can be said to be universally felt about the results of the Indian election: the results were a surprise. Prime Minister Narendra Modi’s Bhartiya Janata Party picked up votes (but not seats) in places where this was unexpected (notably in the wealthy, growing, state of Tamil Nadu) and lost many more votes and seats in places it had expected to sweep (notably in poor but g

rowing state of Uttar Pradesh).

One inference from this result is that India is certainly not China and despite many accusations to the contrary, Mr Modi did not, and does not, lead a totalitarian country. That leaves open two broad question for which there is no consensual answer: why the BJP underperformed and what the consequences may be.

As to the first, much of the initial coverage attributed Mr Modi’s diminished majority to whatever the writer dislikes about Mr Modi. This is particularly true for the international press with which the administration, broadly, has had a relationship that is at best distant and often somewhat hostile. While the resulting analysis may prove to be correct, it may also be premature. Indian voting is at best bewildering. The election was often framed in terms of India’s relationship with the world and with its own broad sense of identity and, of course, religion and caste. But India is also a vast placed filled with, as the brilliant writer and observer V.S. Naipaul said in his 2010 book, a million mutinies. Often, these revolve around immediate concerns. Consider recent reports about what unfolded in the area surrounding the rebuilt Ayodhya Temple in Uttar Pradesh which had been a signature project of Mr Modi located in a state where his party has a dominant presence, and which has made huge economic strides during his second term. The reelection of the BJP candidate was considered a lock. Instead, the seat was won by a candidate from a local, socialist party. Some stories suggest that the temple reconstruction resulted in poor treatment of existing landowners and farmers who consequently turned to a local champion. True? Possibly. It will take months for a substantial understanding to emerge of what occurred in recent days.

As to the consequences of the election; here the debate is particularly sharp. Many applaud a weaker Modi administration, asserting that it will lead to a healthier collaboration between the country’s multiple parties while strengthening confidence in India as a democratic nation. Some in the business community believe the effectiveness of the BJP will be retained while its worst impulses (including its ability to push them around) will be constrained. Alternatively, there are three concerns:

* Populism versus productivity. Will the coalition that is a product of Mr Modi’s reduced mandate replace policies that may lead to growth (lower taxes and more infrastructure) with populist ones that are costly, addictive and statist?

* Will hard decisions become unfeasible? Bold moves are difficult for any government but more so in a poor country. Collaboration is positive in theory and will be applauded by every former government advisor that has been shunted aside by the Modi administration (of which there is no shortage in Delhi and American universities) who hope to be collaborators. In practice, sharing power is difficult to manage and comes with costs. The Modi Administration intended, for example, to reduce the fiscal deficit which would have many positive benefits such as reducing capital costs (the state crowds out private investment and deficits also result in the country’s low credit rating). But financial decisions require support and cannot be made if approval must be bought. Similarly, the disposition of state assets that flourished under Nehruvian socialism has largely stalled after the sale of Air India but was expected to resume under the protection of a strong electoral endorsement. Stripping away entities from the state requires pushing back against lots of entrenched interests encompassing those who directly benefit from rents and those who are philosophically socialist (India has lots of both). Can a government with anything less than a sledge-hammer mandate do this? And if hard decisions are made, what trade-offs will be required? Will they be possible to see (which could be jarring) or executed in dark corners (which is worse).

* Uncertainty. Finally, does the result lead to uncertainty? This is true both in the short term (what will the new government look like) in the long-term (will it be subjected to more internecine strife) and in the evisceration of an effective agenda. In the aftermath of the victory, the administration was expected to lay out 100-day plans that would involve policy changes and actions. No outsider knew precisely what would be in the 100-day plans, but no one seemed to doubt that this would happen and that execution would be strong.  It is not a stretch to believe the changes would have involved making progress on the three areas that have long been seen as holding India back – labour (in which a four-part consolidation of existing standards was passed in the 2019-2020 year but never gazetted, presumably because a stronger mandate in the coming term would assist in the needed enlistment of states), land laws (intended to facilitate industrial construction) and agriculture. But that is just the beginning. The reconstruction of India’s financial links with the world have been undergoing a protracted revision with the creation of a new international financial centre in Gujarat but the legal underpinnings had been left for the new term – and the new mandate. Fresh items emanating from each cabinet department were to have been added to the mix. All that, now, is up in the air.

Beyond the election

India remains hot

India’s GDP grew 8.2% in the fiscal year that concluded at the end of March. That is faster than expected and simply fast. Inevitably, there are caveats. Growth in the final quarter of the fiscal year was 7.8%, suggesting a bit of slowing (but still  a rate that is fast, and faster than expected). And inevitably, there are questions about Indian statistics and technical caveats about how GDP is calculated (with special wonky attention spent on the “deflator). The bigger issue is that for many reasons the growth doesn’t feel so fast. This may have played a major role in the election results. Some suggestion of what is going on might be found in how growth is being achieved. The strongest segment in the fourth quarter of the fiscal year (meaning the one that concluded at the end of March) was manufacturing, up 8.9%, which will thrill the government and suggests its efforts to push supply-side solutions for economic growth may be taking hold. But it does not have an immediate impact on India’s population, which remains largely agrarian and, on the top end, skewed toward software and services. Construction grew 8.7%, electricity 7.7%.  The Economic Times reports a shortage of truck drivers (suggestive of conditions heating up) while Mint reports business school graduates are being forced to accept lower salaries this year and this follows last week’s reports of slower hiring at the country’s technical schools (both suggestive of conditions cooling down). Foreign direct investment during the year was at its lowest since 2020, just before the lockdown. It peaked at $60bn in the fiscal year ending in March 2021 and was at $44bn in the most recent fiscal year. Car dealers complain of high inventories. So too do sellers of common consumer goods which are expanding at the worst rate in five years.

The bigger picture, though, continues to suggest health. As a result of growth and the prospect of better government finances, S&P Global raised the outlook for the credit quality of India’s debt, a move that the government has been demanding for a long time. Outlook changes are often followed by ratings changes within two years. India’s rating is currently border-line junk and its companies suffer from high capital costs. The shift in outlook raises expectations that both will improve. Underscoring this, at the same time as S&P boosted the outlook for India’s sovereign rating, it raised the outlook for six Indian banks.

Underpinning the announcement, however, was the expectation that economic policies would be stable. The election must have had an impact on this, if only because a new coalition government will possibly have a new approach. If a profligate coalition does undermine India’s financial progress, the outlook changes may be recalled as a peak moment of international optimism for India’s prospects.

Booming Industries

Of the future–Space. Agnikul Cosmos, a rocket company using a novel 3D printed engine, launched a successful test, the result of seven years of work by one-time students at IIT Madras. The effort is the visible tip of hundreds of new private companies that the government believes will be a $44bn business by 2033.

Of the present–Hospitals. Mint, a business paper, reckons 18,000 beds are being added by the top seven operators. That doesn’t seem like much, but it is the tip of a huge transformation in India’s capacity to provide modern health care. People in India who in the past would go overseas to be treated (often, as in my case, by an Indian doctor) are now staying in India for treatment and a vast number of people across income ranges are receiving ever more sophisticated care.  

Of the past and future–rickshaws

Sales of e-rickshaws are soaring. This marks the latest iteration of the vehicles that have migrated from hand pulled carts (still used in Kolkata) to ones power by petrol and then natural gas and now rechargeable batteries. Sales have grown from 89,000 units in 2020 to 152,000 in 2021, to 328,000 in 2022 and 509,000 in 2023.

Of the criminal world

Online credit card fraud has more than tripled in the past year to almost 30,000 cases.

Of the establishment

The Business Standard calculates that the rise of the Indian stockmarket has resulted in the number of Indian conglomerates worth more than $100bn expanding from five to eight. The new entrants to this club are Bharti Airtel, primarily involved in telecom, ICICI Bank, and the Birla Group, a company that dates back to the establishment of a cotton mill in 1857.

The end of a boom

 The backdrop soundtrack for Mumbai is not a Bollywood tune but the incessant sound of horns and engines. In a move that verges on the incomprehensible, police seized 4,850 vehicles and additional 1,350 sound-magnifying exhaust systems, all of which violated the city’s noise restrictions (who knew these even existed?). According to the Mid-Day newspaper, on June 3^rd the seized vehicles were crushed under a bulldozer before a blue-ribbon panel of politicians and police officers.

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Different Indias

“Rural India” is a short phrase to describe the vast number of people who live outside of cities and tend to be very poor. More than half of their income is spent on food. For this group, overall inflation remains higher than for their wealthier, urban compatriots (5.4% year-on-year, compared to 4.1%). But this underestimates the most relevant number–the 8% year-on-year increase in rural food costs. The government is acutely aware of food prices and is under pressure from the World Trade Organization over large increases in subsidies for power, irrigation and fertilizers, all intended to temper these increases. That such a vast component of the population has to spend so much (and so much more) on food may explain the lackluster growth numbers now being reported by consumer product companies (whose inexpensive products may still qualify as discretionary luxuries for the poor) and it may also provide at least some of the rationale for why anecdotal reports collected by The Economic Times from ecommerce companies show sales declines notwithstanding the robust overall expansion of gdp that India continues to report. 

How can this be?

Among the most remarkable achievements any student can reach is admittance into one of India’s competitive institutes of technology. To cite one example, more than 100,000 high achievers take a competitive exam in the hope of securing one of a few hundred seats at IIT Bombay. Typically, its graduates have their pick of jobs. But this year, 10% remain without positions as the school year concludes. Similar results are coming from the other top schools. There is no shortage of explanations. One is that in recent years, students, rather than responding to the entreaties of conventional companies, have become enamored by the idea of working at a startup. That ecosystem has recently collapsed and the venture capitalists who in recent years pushed their companies to hire and grow at any cost have disappeared. Another explanation is that India’s brilliant engineering students want to work in software and similar forms of advanced technology. At the moment, demand is in areas like electric vehicles and manufacturing - meaning hardware. That was old-fashioned in 2023 but forward looking 2024. And, perhaps inevitably, the delayed hiring raises concern about whether India’s notable overall growth might be slowing.

Trade

Another key series of numbers the government watches closely, and not happily, concerns trade, notably India's consistent and large merchandise deficits. Data showed the largest bilateral flows during the fiscal year that concluded at the end of March are with China, at $118.4bn, just above the $118.3bn with America. The components of the relationship are radically different. Of the overall bilateral trade with China, imports account for 86%. In the overall trade with America, only 34% is imports. And America is the only country among India’s top 10 trade partners in which India has a trade surplus.

In this light, lots of small announcements matter. Laptop imports from China, for example, which have been under the spotlight since an aborted Indian government plan last August to create a barrier through a licensing scheme, rose from $196m in February to $335m in March. There will surely be a reaction. Some companies are trying to get ahead of a crackdown. Dixon Technologies, a subcontractor, reached an agreement to make Google’s Pixel smartphones in India and display modules for Realme, a Chinese producer of smartphones and tables. These deals replace Chinese production. Other manufacturers are similarly being encouraged to shift production from elsewhere to India. Jaguar Land Rover, located in Britain but owned by Tata, the Indian conglomerate, will start assembling Range Rovers in India, a move that will allow them to come into the country without heavy tariffs and thus enable prices to be reduced by one-fifth.

At the same time, India is trying to develop exports. It has a $57bn trade deficit with Russia because of energy imports; exports are a comparatively trivial $4.3bn. The energy imports reflect India’s lack of domestic alternatives and the generational process of substituting renewable sources. While it is a stretch to imagine India can offset this with exports, it has seen strong growth, albeit in percentage terms; in the prior year, they were just $3.1bn. Sales increases were particularly strong for electrical machinery, iron, steel and fruit. More broadly, Indian companies that previously served only the domestic market are being encouraged to export and the message is being heard. Havells, an Indian producer of air conditioners and washing machines has begun shipping to America and hopes to expand sales to the Middle East.

Plusses and minuses of Indian communism

Kerala is consistently praised for having particularly strong education and healthcare, and thus draws unending praise from the international press. It is also part of India’s south, meaning it is located in the part of the country that has seen the most dynamic growth. But Kerala, self-described as “God’s Country”, has the highest unemployment rate for young workers, according to a new government survey. This is no surprise to businesses, who say that its state government, long dominated by various communist parties, makes it a difficult place to work. The lack of jobs has traditionally led many Kerala residents to find work overseas, notably in Gulf states such as the United Arab Emirates where they are prized for their non-ideological productivity and play a key role running or working in multiple industries.

Tweaking India’s appeal

One of the government’s major goals is to develop the tourism sector.  Religious travel has become a national selling point. Thomas Cook India, a travel agency, says Char Dham yatras (Hindu pilgrimages) are up 100% this year over last.  Any contribution is welcome. Tourism encompasses 80m jobs and generates 6% of GDP. Yet India has just 1.54% of the global tourism pie, meaning it underperforms its tourism potential, says The Business Standard,  How, then, to push it along? The newspaper says it  will require “working on the basics of making India cleaner and more habitable for all of its citizens.”

Printing money

The Reserve Bank of India (rbi) transferred a massive $25bn to the central government. That is almost three times the net income of India’s most profitable company, Reliance. The source of the bank’s profits is not entirely clear – presumably it comes from the interest on its reserve, much of which is kept in overseas government securities. As central banks become increasingly involved in driving economies these sorts of profits, and losses need to be better understood. It is tempting to think it is just an abstract component of government money but this year the dividend will play a significant role in financing India’s heavy annual fiscal deficit and, according to Fitch, a rating agency, could have implications for India’s borderline junk credit rating. As with any entity that produces a profit, the mechanism creates risks and even costs. Presumably, even if indirectly, it is a product of seigniorage, the printing of money, a consequence of which would be inflation (see item number one for the associated costs). If the returns are augmented by investment in securities, there are other consequences including the risk of the securities themselves losing money (which is unfolding now for central banks in other countries because of the deal consequences of quantitative easing and higher yields) and also the crowding out of other investments for which money could be used (a sensitive issue in India which has high capital costs).

Boss responsibility

Microsoft’s Chief Executive Satya Nadella was among eight executives personally fined by India’s Ministry of Corporate Affairs for not reporting “his” personal interest in LinkedIn, which is owned by Microsoft and whose head reports to Mr Nadella. Microsoft apparently replied to the government’s claim by saying that Mr Nadella merely works for Microsoft and operates with the approval of a board and shareholders and thus did not have a “personal interest” in terms of ongoing control. The Indian regulator disagreed, saying the senior Microsoft executive did have control or significant influence. On one hand, the Indian approach seems ludicrous; the head of Microsoft is merely the most significant cog in a corporate entity that is distinct from any person. On the other hand, as bosses in America and Europe routinely evade responsibility for corporate actions that unfolded under their highly paid leadership, there is something refreshing about the Indian approach: it underscores that with power comes personal responsibility.

Odd deal

Western companies operating in India often make investments in Indian companies for reasons that are not always clear but seen to be important. That was the case when Google and Meta, for example, invested in Jio, a subsidiary of Reliance which controls a significant amount of telecom and broadband distribution (which presumably they would not want to be locked out of). Flipkart, an ecommerce Amazon competitor acquired by Walmart in 2018 (but based in India) continues to lose money. In an odd deal, Google will buy a tiny sliver – perhaps 2% - with an investment estimated to be about $350m. Walmart’s interest in having outside minority investors to fund losses can be seen as a reasonable way to control the parent company’s costs and risks. Google’s interests aren’t immediately obvious, though there are many ideas. A partnership may, for example, lead to Flipkart using Google’s cloud service. For competitive reasons, Flipkart doubtless did not want to use Amazon’s cloud operations but it could have used Microsoft’s and beyond being a huge customer, the data provided by Flipkart, depending on its arrangement, could be hugely useful to Google.

Getting out

Notwithstanding India hype, many foreign companies are reducing their presence or getting out. Various reports suggest the parent company for Timken, a bearing manufacturer with roots in America, wants to reduce its share in the company’s Indian operation to just over 50%. Other reports say Siemens (German), Shell (Dutch-British), ReNew Energy (British) and Fortum Oyj (Finland) all want to sell renewable power assets.

Stardom

India won three big awards and the country’s movie industry went bonkers. This is India’s best showing ever.

The mini-van of India

In America big families are transported by ever bigger cars. That is not feasible in India and squeezing people on top of motorcycles is a national expertise. Reflecting this reality, an electric scooter company, Ather, has introduced a new, family-friendly model, the Rizta. Unlike other vehicle companies in the competitive Indian market that tout speed or range or brakes or suspension or style or any number of common attributes, the Rizta has come upon a potentially far more important selling proposition: the Industry’s largest seat.

Big story I missed.

In March, after 110 trials, a team of 75 chefs in Bangalore produced a 123-long dosa (sort of a tubular crêpe) breaking the record set in 2014 (which I also missed) of 54 feet.

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India Business and Finance over the past week.

Corporate results

Sceptics on the Indian economy will note that profit growth, though strong, is slowing. Optimists will note that revenue growth is accelerating. For 1,084 listed companies tracked by Businessline, profits for the first quarter of the calendar year were up 16.5% from the prior year. That reflects a steady decline over each of the prior three quarters. Growth was 29.4% in the final quarter of 2023, 51% in the third quarter and 63.4% in the second quarter. Much of this can be explained by the distortions that came with the emergence from the protracted lockdown. The trajectory of revenues are another story, up 10.6% in the most recent quarter, 10.1% in the prior quarter and 7.9% the one before. during the one before. One area where profits were particularly strong was banking – up 39% for the 2024 fiscal year concluding at the end of March. That suggests a financial system in robust shape. The world may be stalling. India is not.

India’s most important new product

On May 20^th, the Serum Institute announced it had begun shipping malaria vaccines to Africa, with an initial 43,000 doses.  A preventative treatment for malaria had been a goal of the Pune-based company for years and ultimately could have an impact on hundreds of millions of people annually who under current circumstances would become infected. Development involved the University of Oxford and Novavax, an American company.

Business/government collaboration with friends/enemies

India Ports Global, a company controlled by the Indian government, struck a 10-year deal with the Iranian government to operate parts of the Chabahar Port which sits at the intersection of the Gulf of Oman and the Arabian Sea. The deal will require a major investment by India and reflects a long-term commitment that surely is intended to extend beyond the terms of the lease. The deal is the latest move in discussions that began, haltingly, as far back as 2003. In theory, the port could create a key link to Afghanistan, thus unlocking its huge deposits of sought-after minerals, as well as creating conduits for India trade into central Asia and even Russia.

While the business may have a business logic for India, the appeal may be lost on America and non-Iranian aligned Arab countries. In response to direct questions about this, India’s External Affairs Minister Subrhamanyam Jaishankar downplayed the concerns (particularly America’s), saying it will be for “everybody’s benefit”. The statement was unequivocally diplomatic. It may not be true.

When strengthening ties between America and India are discussed, it is often because there is a shared sensibility about a China that both find militarily and economically threatening. This confluence of interests falls apart when it comes to Russia and Iran and underscore how difficult a broader alliance between India and much of the west will be. India is a huge importer of oil for its own needs and a major exporter of refined oil for the world’s. Iran is a particularly convenient potential source; Russia recently a particularly important one. Their role as a source collides with American policy though the possibility of a strong American reaction isn’t taken seriously at the moment. That could change. Sentiments around Chabahar are particularly complex since America saw potential benefits from the port when it was attempting to develop Afghanistan’s economy but since its chaotic withdrawal has no evident interest.

Difficult legal landscape

Here  is a link to a map created by an entity called Land Conflict Watch, which tracks property disputes in India. It reckons there are 781 major disputes affecting 9.4m people and $1.2bn worth of investment. While there are disputes stemming from industry, power, mining and even conservation, a look at the map suggests the largest source of friction is infrastructure. This may be an inevitable consequence of the government’s recent efforts to provide the roads, railways and power systems needed as a foundation for economic growth. It is hard to build in India without colliding with people and things that have existed since before memory. 

India’s enhanced export competitiveness

While steep duties block car imports into India, there is a move to dispense with these in exchange for other concessions in trade negotiations. The new willingness to accommodate is a consequence of how cost-efficient small car production has become in India, as reflected in financial reports for the newly concluded fiscal year and statistics collected by the Society of Indian Automobile Manufacturers. Maruti Suzuki’s exports have grown by 42% to 280,000 vehicles, Hyundai’s have grown 24% to 160,000 vehicles and another hundred thousand units have been exported by Kia, VW and Nissan (reflecting growth of about 7%).

More broadly, the increasing vitality of India’s auto industry is reflected in the profits of Tata, the giant conglomerate. Though TCS, the group’s fantastically profitable IT consultancy, completed the recent fiscal year with a higher net income than the group’s once troubled car operations ($5.5bn as compared to $3.8bn) The Business Standard reckons that after deducting exceptional items the car division produced better numbers, a conclusion that even the most creative accounting boosts could not have produced four years ago.

Overseas barriers for Indians

Foreign reporters in India frequently complain about the challenges of getting a visa. A group that feels similarly aggrieved is the 92m Indians who travel overseas. India has visa-free access to only 61 destinations compared to 187 for the UAE according to the Henley Global Passport Index. “Destinations” is not synonymous with countries (since some countries may have regional requirements) but the divergent numbers do management to capture the strikingly different conditions under which Indians must operate.  Travelling for Indians can require coping with the odd hours and moods of consulates, filing out innumerable extensive forms in paper and online, providing extensive documents including ones covering bank accounts proving financial resources and queuing under a broiling sun. A result is the remarkable popularity of consular officials stationed in India. In a country where “knowing the guy” who can get things done is seen as a component of a successful life, diplomats are often viewed as much like bureaucrats who can cut through red tape – they are crucial to befriend. There are many potential unintended potential consequences from this sort of power and this sort of relationship, most bad.

Quirky standards

* India’s Supreme Court has ruled that lawyers do not come under consumer protection laws and apparently doctors are the next up to seek an exemption.

* Norway’s central bank (and presumably its vast sovereign wealth fund - the world’s largest) dumped its holdings in Adani Ports because of a recommendation by the Council On Ethics, which has an advisory role. At issue was Adani’s association with a port in Myanmar that it says it has divested. After news of the move, shares in Adani port appeared to fall and bounce back. The bigger issue raised by the move is the standards that Norway, and its sovereign wealth fund, will apply in the future and to whom and whether, taken in full, the decisions reflect the financial and ethical values of Norwegians whose capital has a growing say on the actions of non-Norwegian businesses.

The Indian company America needs now

Mysore Paints and Varnish Ltd, was established by the Maharaja of Mysore in 1937 and is wholly owned by the state of Karnataka. For a brief moment every five years, it is the most important company in India because of an indelible ink it produces that is used to mark the fingers of voters during elections, which are now under way across the country. Its ink began being used in 1962 after allegations of voter fraud and, according to a long story in Mint, the company’s products have subsequently been used in Malaysia, Cambodia, South Africa, Nepal, Ghana, Denmark, Pakistan and Afghanistan. The ink lasts from three days to three months. In Mumbai, just waiving one a purple smudged finger in a cafe or hotel on election day can result in a discount as a result of a campaign to encourage suffrage. If there are readers of this substack in Arizona, Georgia, Michigan, Nevada, New Mexico, Pennsylvania, Wisconsin and any other state where voting for the 2024 presidential election is likely to result in a debilitating controversy, note that the world’s largest democracy may have an answer.

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The election, the stockmarket and foreign investors

The Indian stock market, after having been on a roll, slid almost 3% since April 29 before having a bit of a bounce. In the last week alone, foreign portfolio investors (FPIs) have sold $2.3bn worth of shares in Indian companies, coming on top of $1.3bn sold during April. FPI holdings now constitute under 18% of the Indian market by value, the lowest since 2012. Multiple causes are cited. The first and least discussed (because it is subtle and cannot be understood by looking at data) stems from changes in India’s financial system that undermine the ability of foreigners to invest. Key legal provisions to replace the current system will not be put in place until after the election, and that assumes the return of a powerful Narendra Modi, who has been orchestrating a shift in the overseas investment conduits from entrepots such as Mauritius and Singapore to his home state of Gujarat.

But that leads to a second question and further cause for the market volatility: will a powerful Modi return? A month ago this was the conventional wisdom. Now, the consensus in the business community seems to be that the Modi victory will be narrower than expected and some even throw out the idea of a possible coalition administration. The possibility of a weaker Modi is seen by many in the business community, but not all, as undermining the prospect of market-oriented reforms being pushed through India’s chaotic political and bureaucratic channels. That, in turn, leads to a third question: the likelihood of a mixed election result. It is important to understand that baseless rumours float through the Indian political system all the time but it is hard to discount what is being said because genuine information in India does seep from many obscure corners. It is possible that the new sentiment is being gleaned from early voting. On Tuesday, there was a fresh rumour that new private poling showed strong support for Mr Modi had emerged (which might have contributed to the stockmarket’s rebound). While it is difficult if not impossible to know where the election stands, it is clear that state of expectations is, for the moment, in flux.

Indian safety, credibility and quality certification

After concerns about the safety of Indian spices led to their being recalled, new central government testing standards are being imposed. The industry is important to India with exports having grown from $2.7bn in the 2017 fiscal year (ends March 31st) to $4.25 in the most recent fiscal year. For similar if more dire reasons, the central government has also imposed new testing standards on pharmaceutical products that are exported and in so doing it has pushed aside some of the regulatory role that had been performed by states. The move follows a number of reports of fatalities from Indian-produced medicines.

At the same time as India has reluctantly imposed tighter regulation of its own products, it has also imposed new safety standards on imports, albeit for reasons that may really be just about erecting trade barriers. New certification standards for factories producing shoes that are imported into India have, according to The Economic Times, resulted in Armani Exchange, Calvin Klein, Tommy Hilfiger and other foreign companies running out of shoes to sell in their Indian outlets.

The business economy

 Labour relations. Unofficial strikes at several of the airlines that have come under the Tata umbrella have resulted in hundreds of cancelled flights. Tata’s move to create a new company out of its existing operations and the re-acquisition of Air India (it was nationalized in the 1950s) was always going to involve labour issues. What is most surprising is how these sorts of events, once common in India, have become exceedingly rare. There were 370 industrial actions in 2011, resulting in 14,700 workdays lost, according to The Business Standard. That number had, prior to the activity at Tata, fallen to almost nothing.

Company results. It is generally thought that Asian Paints is among the best run companies in India. It has a long track record of success, data analytics to route favoured colours quickly in response to demand and a market that combines construction and harsh weather in a way that would seemingly require unending amounts of paint. But sales over the past year fell 0.6%. What is happening? Among the possibilities is that demand has become sluggish, reflecting potholes in the economy not reflected in the broader numbers and not reflecting wholesale benchmarks like the Service Sector Purchasing Managers Index which put up a very strong number in April. The downbeat case is reinforced by sputtering sales growth for companies producing fast moving consumer goods like biscuits and detergents. Another possibility is newfound competition which reflects something more positive about the Indian economy – that growing areas with high returns are attracting the interest of other companies. In the past year, there have been several new entrants into the paint market, meaning Asian Paints is beginning to face a long cycle of competition for what is, at least somewhat, a commodity product. Other large Indian companies that have long dominated similar sectors may now be facing similar pressures which may have a negative impact on corporate profits but positive consequences for customers and provide a signal that the market is more open than in the past.

How public should public companies be?

Indian regulations require at least 25% of a company’s shares to be tradeable in order for it to list on the Indian securities market. Many of India’s companies are heavily held by insiders. As a way to democratize wealth, a columnist at Businessline advised the government to expand the public quotient to 30% or 35%. It is an interesting idea since it allows more participation in the capital component of capitalism by the public and is directly at odds with what is unfolding in America with an ever-increasing percentage of holdings buried within private equity firms that, bizarrely, have been accorded tax, disclosure and governance advantages by the government and stock exchanges.

Arms sales

India’s defense exports have grown from under Rs22m ($264m) to almost Rs22bn ($2.64bn) between the end of March 2015 and the end of March 2024, according to calculations by Businessline, based on multiple sources. This is an intentional strategy of the Modi administration, which wants to produce more of its own armaments and generate revenues from sales overseas. Among the products mentioned were rockets and missiles to Armenia and the Philippines. Defense attaches are now being included in diplomatic missions to those countries as well as others in Africa, and Poland.

Family divisions

After five years of negotiations, the Godrej Group, founded in the late 19^th century, announced an amicable split of its operations into two pieces, each controlled by different members of the Godrej family. Assuming there is no subsequent disruption, the event will be used as a model for numerous other large family companies that emerged in the decades since independence and are now being passed on to the children, grandchildren, great grandchildren and great great grandchildren of founders. Some of Indian family operations are being intentionally built to last. The Adani family is tightly involved in company operations. But there are many companies in which the family has all but disappeared (notably Tata) or developed other interests or, as is remarkably common in India, developed intense antipathy toward one another. The transition of the Ambani family businesses from the founder to sons led to one becoming the richest many in India, the other teetering on insolvency. New Indian regulations require settlements to be disclosed if they affect managerial control.

Can America impose “community guidelines” on the world

Bhavish Aggarwal, the head of Ola – which encompasses a cab hailing company and electric scooter maker along with a new artificial intelligence startup  – said he would remove all data from Microsoft’s Azure cloud after a post by him? calling the usage of the pronoun “they” an illness was blocked by Linkedin, owned by Microsoft, on the basis that it violated community guidelines. All Ola cloud activity will be shifted to in-house services and Ola will provide free cloud usage to any other developer moving from Microsoft for one year. “Data should be owned by the creators instead of being owned by the corporates who make money using our data and then lecturing us on ‘community guidelines’”, Mr Aggarwal said. The fracas may just be a way to promote a new Ola service and may even be the pretext for dumping a prior deal. Some people may disagree with Mr Aggarwal’s comment. But it is worth noting that his statement is likely endorsed, if only tacitly, by the Indian government because it has strong concerns about the control of Indian content by foreign entities.

Overseas studies

India now accounts for the largest contingent of foreign students studying in Germany with 43,000, up from 34,000 the year before. That surpassed the 39,000 students from China, previously the largest national contingent. In contrast, the number of Indian students studying in Canada has crashed, with 15,000 during the past year, down from 109,000 the year before. Overseas education markets are a big deal in India. The popularity of Canadian schools have sharply dropped because of political tensions between the two countries and the recent protests on the campuses of prominent American schools have caused many Indian parents to question what their children are being taught, or not taught, in exchange for high fees.

Country’s as seen through their choice of colours

The Financial Express says mint green, hot pink, tangerine orange, bright yellow and other similar colours are hot in India. Similarly intensely vibrant colours are popular in the Unite Arab Emirates, according to Lululemon’s global data centre in Bangalore, while sales in America, particularly in the northeast, remain heavily skewed toward black and gray.

Child labour

The horrors of child labour have long been documented in books and the press. In the 19^th century, particularly in America, it also gave rise to an oddly heroic literature, notably the books by Horatio Alger, which featured a plucky child able to emerge from poverty, often with a boost from a sponsor. A real-life story of this genre is gripping India. The Times of India ran a story on ten-year-old Jaspreet Singh, whose father died recently after a long illness and whose mother departed for her family in Punjab, leaving behind Jaspreet’s 12-year-old sister in his care. It turns out Jaspreet is a remarkably capable roadside chef. A video posted on X of his adept preparation of egg and chicken rolls has led to a large following. One of the viewers, the industrialist Anand Mahindra, has asked for a contact number to locate him with the intent of funding his education.

The convergence of science, business and joy

A study published in the Journal of American Chemical Society Pharmacology and Translational Science, produced by the University of Hyderabad, concluded mangoes are good for multiple digestive problems including inflammatory bowel disease and might have ameliorating characteristics for colon cancer (though far more research is required). In the case of other fruits and vegetables, a positive study result in new ways for consumption as for mangoes? Such is the existing local infatuation that in the current mango season, they are already consumed as straightforward fruit, in numerous drinks including cocktails, as an ice cream, in salads and yogurt, and as an ingredient with rice, fish, meat, and noodles. Every café has a picture of a mango on the table; innumerable street stands have popped up piled high with mangoes and mango boxes. How still more mangoes can enter the Indian digestive system is a mystery but with the new medical report adding the excuse of health to pleasure, it would be naive to think that this will not be a hot area of India innovation.

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What India loves

While technology has enabled hundreds of millions of Indians to receive entertainment inexpensively on smart phones, they continue to show up in cinemas to see movies. A report from Ormax Media estimated that the audience for Indian movies grew 29% in 2022, exceeding the period prior to the Covid lockdown by 8%. Hollywood, however, may have lost the plot. Of the 943m tickets sold, only 48m were for American productions.

What India loves that needs tough love

A report issued on April 5^th by Hong Kong authorities concerning possible carcinogenic chemicals in the spices produced by two India companies, MDH and Everest has belatedly generated widespread concern. Singapore has reportedly suspended sales and Australian and American authorities are looking into potential problems and on May 2^nd, as this Substack is being posted, India’s food regulator said it would begin nationwide inspections. One newspaper, the Hindu, said the possible scandal threatened half of India’s spice business; a website, Moneycontrol, posted an explainer headlined: “Indian spices in a pickle”.

India wants Indians to come home

Searches for new chief executives increasingly include members of the Indian diaspora whomight be induced to return. The Economic Times reports that over the past two years, 30%-to-50% of searches have extended overseas, up from fewer than 15% previously.  These searches typically encompass Singapore, Canada, London and the Middle East.

The big winners from India’s integration with the world: Big accounting firms

A study of financial audits of companies listed on the National Stock Exchange showed the market share of the big six Indian accounting firms (all of which have ties to big global accounting firms) rose to 67% in the fiscal year that concluded at the end of March, compared to 61% during the prior fiscal year. Among the issues raised by Hindenburg Research in January 2023 in its scathing report on the Adani Group was its reliance on small and relatively unknown accounting firms. While many factors play into the selection of an auditor, companies that have previously relied on local, cheaper and friendlier auditors may believe that in the current climate, they increasingly need an endorsement by known entities.

India’s military business

A study by the Stockholm International Peace Research Institute concluded India spent $84bn on its military in 2023, making it the fourth largest spender in the world with 3.4% of the total. America accounted for  37%, China 12%, and Russia 4.5%. Behind India were Saudi Arabia and Britain, each at 3.1%, Germany and Ukraine, each at 2.7%, France at 2.5%, and Japan at 2.1%.

New problems emerge in India’s new economy

India’s digital tech stack and its application to finance gets much deserved praise but it is not seamless. The market capitalization of Kotak Mahindra Bank, widely believed to be among the country’s best managed banks, dropped 13%, from $44bn to $38bn over three days after it was blocked by the Reserve Bank of India (RBI) from issuing credit cards and adding new customers through its fast digital applications, the primary way it expands its customer base. A key executive in the bank’s retail operations abruptly resigned. The reasons for the sanctions are somewhat unclear but it is widely believed they are related to weak data protection within the bank’s systems. Other Indian financial institutions have been cited on similar grounds, raising suspicions that the widely touted benefits of India’s digital highway may have serious potholes that need to be filled. A past report on the Indian banking system by BCG noted that Indian banks spent far less on technology than international banks. At least on the margin, that is likely to change. Kotak’s problems, according to the RBI, have existed for several years without being fixed. Kotak responded to the sanctions by saying it was working to address all concerns.

Ola is among the most prominent Indian startups, with a ride hailing service and a leading share of the electric vehicle business, with a 50% market share of the market for electric scooters. It has been in ongoing discussions about a public offering. Underneath the company’s growth, though, is the issue of profits, of which there are none. It is possible that this doesn’t matter as much in the scooter business, which some continue to see as having a brilliant future, but there may be less tolerance in ride hailing, which seems to have lost its lustre. Ola Cabs’ CEO, former Unilever executive Hemant Bakshi, who was appointed in January, has now resigned and 20% of the company’s staff will be made redundant.

The Financial Express noted that over the past 10 months 10 prominent venture capital executives at six prominent firms have departed, with most, in the newspaper’s words, to “strike out on their own”. In a story along similar lines, The Economic Times wrote that the top positions at 10 major startups have also turned over in the past year. The reason, the paper says, is an “emerging focus on profitability”. Given the continuing problems in this corner of the Indian economy, it is probably a good bet that there will be more executives striking out on their own and more top positions turning over as ongoing losses and an inability to raise more money from venture funds produces a change in control.

Indian pharma

Exports of pharmaceutical products increased 10% in the fiscal year ending March 31st, to $28bn. The increase comes after a slight decline in the prior year and despite multiple incidents of serious quality problems and a report that the government is now pushing companies to create new systems to recall substandard products. America is the most important market, accounting for 31% of sales, followed in size by low single digit shares for Britain and the Netherlands. Business Line reports that many new countries have now become markets including Sweden, Ireland, Latvia and Brunei, among developed economies, and Chad, Sudan, Haiti and Ethiopia among poorer countries. These reported sales come on top of unofficial sales. Visitors from Africa come to Mumbai with empty suitcases and return with them packed with medicines. I asked one buyer about quality issues. He responded that he uses a special broker who knows how to negotiate both on price and quality. 

Could India’s biggest company be flagging?

Earnings for India’s most highly valued company, Reliance Industries, missed estimates for the fourth quarter in a row, with a year-to-year decline of 1.8%. Full year revenues rose only 2.7%. The company attributed the quarterly earnings decline to the previous use of a tax credit but the overall picture suggests Reliance’s vitality has dimmed. That’s odd given the current environment. India’s economy is booming which enhances Reliance’s retail and telecommunications segments while its refining operations has benefited from acquiring discounted petroleum from controversial places like Russia that can be resold at global market prices.

India’s complicated relationships with other countries.

The news last week was filed with examples of just how varied India’s commercial relationships can be

Sri Lanka-India-Russia. The government of Sri Lanka awarded a contract to manage an international airport to a joint Indian-Russian firm. It is located near a Chinese-run Sri Lankan port.

Iran-Russia-India with America in opposition

America sanctioned three Indian shipping companies for enabling the sale of “unmanned aerial vehicles” to Russia.

India-Iran

Mint reported that India and Iran will sign a deal after the election concerning the development of the Chabahar Port. The project, which began in 2003, has been repeatedly disrupted because of American sanctions and Iran’s hostile relationship with western governments. The port is located in southeastern Iran on the intersection of the Gulf of Oman and the Indian Ocean and is seen as a key access point to Afghanistan.

India-Iran and Israel and the collateral consequences of a war far away

A cargo ship seized by Iran on the grounds that it was “Israeli-linked” included 16 Indian crew members whose fate was uncertain. They will, apparently, be free to come home when their contracts end.

India vexing America

The office of America’s Trade Representative issued a report faulting India for counterfeit medicines and auto parts along with online piracy and lack of intellectual property protection.

How socialist is India?

India’s recent growth against a backdrop of business-friendly statements from the current administration that stand in sharp contrast to earlier eras in India that were assertively socialist. But Indian socialism continues to percolate in the background.

In 1985, shortly before receiving an inheritance from his mother, Indira Gandhi, who had been assassinated, Rajiv Gandhi pushed through a law abolishing India’s 85% inheritance tax. The issue is under consideration once again thanks to a comment by Sam Pitroda, chairman of the Indian Overseas Congress, a wing of the domestic Congress Party, and the advocacy of higher estate taxes by America’s president Joe Biden, who has his own reservations about private property. Advocates, not surprisingly, cite the emergence of an Indian super rich contingent. Opponents assert that it would lead to capital flight and discourage savings and investment at a time when India is as hungry for that as it is for tax revenue.

In 1976, during Mrs Gandhi’s tenure as prime minister, the 42^nd Amendment of the Indian Constitution was passed. Included was a passage stating that “ownership and control of the material resources of the community are so distributed as best to subserve the common good.”  That might seem to be a historic, or at least academic, question. It is not. How far the government can go in terms of seizing and redistributing private property to pursue this goal is now being considered by a nine-member panel of the country's Supreme Court.

For publication in America