India Business and Finance, December 5th

What happened in Indian business and finance last week

Dec 05, 2023

Why India is great

* The Indian stockmarket hit a new record. The share price of the Bombay Stock Exchange itself has risen 339% since the beginning of the year. The surging stock market was echoed by growth in Indian GDP, up 7.6% year-on-year (a full point above expectations) in the most recent quarter. These numbers are good on their own terms, even better in comparison to other large economies, and better still because the economic growth was driven by construction and manufacturing (rather than consumption). Were that not enough, they happened despite high energy prices (typically a vulnerability in India), and a slowdown in services, traditionally India’s strength, which is likely tied to sputtering economic growth elsewhere.

Along with the strong GDP number, there was also large growth registered in a peculiar index that is followed in India which comprises the output of “core” industries, notably coal, natural gas, petroleum refining, crude, electricity, cement and steel. The index was up 12.1% in October over last year.

* Statistics compiled by a firm named Yeti and cited by Reuters say that since 2018 Walmart has increased imports from India from 2% to 25% of its total while imports from China shrank from 80% to 60%.

* Much has been written about the entrapment and subsequent freedom of 41 workers who spent 17 days inside a collapsed tunnel being built through the Himalayan mountains. The incident says much about Indian business. This includes its failure – the shoddy initial engineering, the lack of emergency exit routes as initially planned, and the inability of modern machinery to enable the rescue. But the rescue was also a remarkable success not only because of the lives saved but because of how it was accomplished. The final, difficult, meters for the improvised exit were punched by “rat-hole miners” who epitomize workers often at the bottom of India Inc’s pecking order–those who take on the dirtiest, hardest, tasks and can accomplish impossible things.

India is a fraud and its growth is hollow

* A new book will be published by University of Chicago professor and former Reserve Bank of India boss Raghuram Rajan and Rohit Lamba, an economist at Penn State, on December 7^th. In various interviews, the authors, along with expressing their policy recommendations, say India’s GDP numbers are overstated and that to the extent there has been growth, it is jobless.

To the extent unemployment numbers do exist, they go some way in confirming the two authors’ suspicions but a key evidential problem is that the unemployment numbers are universally acknowledged to be at least as bad as the GDP numbers because most of India’s employment is informal and by definition not officially tracked.

* The president of the All India Consumer Products Distributors’ Federation, which represents the tiny kirana stores spread across the country, said inventories had doubled over the past month, a result of disappointing sales over the recent holidays. Newer forms of retail have seen good growth. To some extent, a shift is positive. The new retailers are more efficient. But the kirana stores occupy a special place in India’s ecosystem, providing vast employment and fulfilling needs that go beyond sales. Their problems cannot be dismissed.

* A story in the Mumbai Mirror notes the soul-crippling, productivity- destroying delays caused by the highway toll booth. These are supposed to process cars efficiently using modern technology but cannot surmount glitches that leave multi-hour waiting lines. For this and other reasons, in many areas of Mumbai it is now hard to distinguish between cars that are parked and those that are stuck except that people in the latter, unable to step on an accelerator, revert to pushing endlessly on a horn. Roads have been torn up (a sign of progress) but then left without workers (a sign of incompetence). This goes some way toward explaining why Gautam Adani’s construction of Mumbai airport (round the clock work, large progress, a means of transportation above the roads) seems to resonate with many in India and why the collective net worth of his industrial empire has substantially rebounded following their collapse in the face of accusations of accounting fraud and shareholder manipulation by a New York research firms. In a place where things don’t get done, he gets things done.

* A government report covering 2,104 samples revealed that cough syrups made by 50 companies failed quality tests. Given a history of fatal cough syrup exports from India, it is both encouraging that the government is doing tests and terrifying that companies are failing them. At some point, surely, India’s export markets will consider banning the country’s medicine.

* In a deceptively upbeat story, Uber announced rewards for drivers who provide good service and low cancellations. Likely behind Uber’s approach is a distinctly sleazy practice that is frequent in Bangalore and not uncommon elsewhere which is to accept a ride and, if not cancelling it on the way, then cancelling it on arrival in exchange for cash. If the exchange is not accepted by the rider (often with an added fee tacked on), the cab drives away and the wait begins anew. The Indian passenger transportation business captures the country’s contradictions. There are many rickshaw drivers who insist on making change down to the rupee and will only accept tips that come with insistence, while the Uber issue reflects a population of a different sort that corrupts any system it touches.

Capitalist communists

Since February India’s regulators have approved seven Russian funds as accredited foreign portfolio investors, creating the potential for new ties between the two countries. Three more have applied for licenses to operate in GIFT City, a project backed by India’s Prime Minister Narendra Modi in his home state of Gujarat intended to operate as an off-shore centre, free from many of India’s voluminous, and often communist (or socialist) inspired regulatory constraints.

The price of entry

As expected, the Indian subsidiary of MG Motor, a subsidiary of China’s state-controlled Shanghai Automotive, has sold a large stake to JSW, the country’s largest steel producer. MG’s cars have made a dent in the competitive Indian market and it has demonstrated expertise in conventional and electric vehicles. But expansion in India has been held back by its parentage. There is an ongoing tax investigation, difficulty in acquiring a plant in Chennai that Ford, which has left India, would like to offload, and obstacles in bringing in new funds – all commonly seen as deliberate, if not particularly explicit, obstacles put in the way of the Chinese firm, which could otherwise have a large presence in the market. JSW will initially take a 35% stake and is expected to expand that to majority control in the years ahead. Numbers were not released but the core of the deal may have less to do with finance than strategy. JSW will gain operational expertise in a sector it has long wanted to enter and MG will be able to exist. Although this solves an immediate roadblock, longer term viability will depend as much on India-China relations as on operational success.

The opportunity at the top of the market

Streaming prices for entertainment in India are cheap and clever hackers have innumerable tricks for getting any visual production for free. A ticket at the lovely (if a bit frayed) Art Deco Regal cinema in Mumbai’s old business district costs Rs100 ($1.20). Other cinemas may be even cheaper. Into this world, there has now come a luxury offering, Maison PVR, charging as much as Rs15,000 a ticket ($18). If the product is the movie itself, the approach will fail. But Indian homes are crowded, and the heat and humidity seep into cafes and offices. In the cities, at least, it is hard to find serenity. The question is really whether there is demand for a relatively expensive ticket to spend several hours (intermissions are part of the Indian movie experience) in a gentler world.

Keep excesses within the family

Prime Minister Narendra Modi faulted rich Indians for having big weddings – overseas. The lavishness of Indian weddings often prompts criticism by those who think the very rich would do better to donate the cost to charity and by those who fear that for the poor the real price is debt and the sacrifice of more important investments, such as education. Among the more notable critics was former prime minister Manmohan Singh, who derided “vulgar” and “ostentatious” expenditures. But weddings occupy a remarkable place in Indian society – people will refer to a particular year by noting the marriage that they attended during it and wedding spending drives everything, from the sale of paint to luggage to vehicles to, of course, jewelry and hospitality. Modi’s complaint was not about the spending of the affluent but rather where the money is being spent. His sentiments likely have far more support than Mr Singh’s.

And be careful of the family

Warfare within the families controlling Indian businesses is surprisingly common but only occasionally does it become meaningful both for the company and the corporate world. A divorce petition by Nawaz Modi, wife of Gautam Singhania, the billionaire chairman of Raymond, a very large clothing manufacturer, has transitioned from merely personal to meaningful. Various charges and Youtube videos posted by Ms Modi and her supportive father-in-law (who has had his own publicised struggles with his son) have taken the place of reality television for a group that stretches from the tiniest car repair shop (Mr Singhania has a famously large collection) to Bollywood (Ms Modi is a noted yoga teacher and fitness expert) to every board room. Raymond’s share price has declined 28% and Ms Modi has demanded 75% of the family’s interest (49%). Institutional Investor Advisory Services, a proxy advisory service, has jumped in, urging independent directors to ask Mr Singhania to step aside for an investigation to protect minority shareholders. It is this last step that has created the largest ripples in the Indian business world. “Outside” directorships in family controlled firms are often seen as sinecures in return for loyalty. Minority shareholder rights, championed in other markets, are publicly praised, and privately derided in India. If these directors are seen as actually having responsibility, a marital dispute will be seen as having turned India Inc upside down.