India Business and Finance, January 30th

A look at Indian business and finance over the past week and what it may mean for the future.

India’s priorities

The Indian budget will be announced February 1st. It is an event that is hard for people in many other countries, such as America with its endless budget squabbles and presidential run arounds, to understood. In effect, it is a statement of government priorities and consequently is both a political and economic statement. Many important areas will be affected. To cite two closely followed by the business sector:

*Tariffs. There are innumerable battles in this area because they are a tool India has used aggressively to protect and promote different industries, in the process damaging others. One of these battles is over the 7.5%-to-10% imposed on electronic components. Companies involved in this area say the tariffs are vital to create new supply chains (the infant industry argument). Assemblers and potential assemblers, including big global companies whose Chinese production facilities India wants to attract, argue that this undermines India’s competitiveness and prompts them to produce elsewhere. The government sympathies lie in both directions.

* Infrastructure. there are questions about whether the government can keep spending vast amounts on roads, bridges, railways, etc. that have been essential components of its growth strategy.

Beyond obvious areas like this, there will be literally hundreds of provisions, most of which will not make any news stories but will be read obsessively by people in business who will see in the details – notably the appendices - what the government really wants to get done and thus how they must reorient their companies.

India will lead the world, sort of

Maruti Suzuki controls roughly half the Indian car market. Begun as a state-controlled entity, the Indian government share of the company was reduced to zero in 2007, making it, in a sense, a sort of infant industry success story (it is now wholly owned by Suzuki Motor of Japan). Behind this achievement have been products that are well-suited to India, meaning cheap and mechanically reliable. R.C Bhargava, the company’s long-time chairman, has just published a book on his experience. In a series of interviews, he has said that India, already the third largest car market in the world, is the only country with the potential to grow domestically and in the process substantially expand auto-related exports (currently at $20bn annually). In the years to come, he says, India will become a leader in the technology used in emerging markets (meaning, presumably, for the kind of inexpensive vehicles suitable for the many rather than the few). Maruti Suzuki plans to double annual production from 2m now to 4m by the end of the decade. BUT, and it is a big but, Mr Bhargava said the Indian industry is still not as productive as those elsewhere in the world. Unfortunately he does not go into detail about how production in a country that already has a large market and low wages is comparatively inefficient. That explanation would inevitably say much about India’s past and current failures and, if their are prospects for change, its potential for success.

The world finds India relatively attractive, sort of

During 2023, Indian-dedicated funds received inflows of $16.2bn from outsiders, according to a survey by Kotak Institutional Equities. This dwarfs the $10.8bn received by China and $186m by Brazil. South Korea, Indonesia and Taiwan all saw outflows. These numbers are volatile. India had $3bn in outflows in January, almost all after American bond yields rose because – there are many possible explanations and linkages. Here’s one thought: buying and selling in India can be technically difficult and it is limited to registered institutional investors. Higher American rates mean a higher return in a market that is much easier to access.

Up and up–salaries

On the top. The number of bosses earning $1m a year reached 179 in the fiscal year concluding March 31, according to The Economic Times. This is up from 171 in 2022 and 125 the year before that. The biggest earners worked at Aditya Birla Capital, Sun TV, Wipro, Poonawalla Fincorp, Jindal Steel & Power, and Divi’s Laboratories. This list was a bit of a surprise, but shows that the highest salaries tend to be in companies that hire outside managers. The biggest Indian companies are usually run by their majority owners, who figure out other ways to compensate themselves.

 On average. An analysis by Capitaline, a data service, published in The Financial Express shows that salaries for employees in the 200 largest listed companies rose 11% during the final quarter of 2023 over a similar period the prior year. The increase is sharply lower than the 17.6% growth in the prior quarter and 14.3% in the quarter before.  The decline could be explained the cooling off of hiring in the IT sector, though competition for employees remains brisk in numerous other industries including hospitality and manufacturing.

Renewables expand, but coal is still king

Renewable energy capacity has expanded from 63.5 gigawatts in 2012 to 180.8 gigawatts in 2023 according to statistics released by the Central Electricity Authority. India hopes for 500 gigawatts in 2030 but even with this huge growth, coal remains by far the most important source of power. There are various estimates on just how important. The lowest seems to be  55% and the more commonly acknowledged number is around 73%.

Capacity utilization, a trigger for investment?

JSW Steel, the country’s largest producer, expects to be operating at 90% of capacity this quarter, up from 85% in recent years. This is notable for what it may indicate for business investment. This has been low in recent years, no doubt because capacity utilization has been low, a consequence of over-investment a decade ago. Since steel is a commodity (meaning many can produce the same stuff) the JSW number may suggest this period is coming to an end. Another encouraging sign was the recent numbers reported by a new HSBC survey of purchasing managers tied to manufacturing and services output which suggested strong growth in January (though primarily driven by services, not manufacturing).

Death of an era

In recent months, many people who played a role in India’s economic modernisation have retired, voluntarily or otherwise, or died. The most recent was Rana Talwar, age 76. His name is not broadly known but he was somewhat important in a practical way and very important symbolically. At the time of his death he was a non-executive director of DLF, one of India’s most successful real estate companies, which was built by his father-in-law KP Singh. But earlier he was one of many young people hired by Citibank to go on to a big subsequent career. He created waves by being the first to run a big global company, in his case Standard Chartered Bank from 1997 to 2002. There are now many people from India running big global companies. He is recalled as the one who broke through.

Race to the end

Bombay is often recalled as a beautiful city. Mumbai is an over-crowded, badly planned mess. Part of what makes it unlivable is the lack of open space, which was once not the case. Parks that did exist have been consumed by encroachment from slums, large buildings on land acquired in murky ways, and even homes for government officials on what had been public space. The exception has been the city’s horse racing track, which is a vast open plot in the middle of the city installed by the racing-obsessed British Raj. Racing occurs but is no longer particularly popular. The track is widely used by, among others, people taking walks. The lease has expired, allowing the property to revert to the local government and, inevitably, a war is opening up on how it will be used. One plan that seems to be in the works is a carve-out for a new club catering to, no surprise, government officials. Rumours of secret deals are rife.No one seems particularly happy.  Many opponents to whatever may be planned have banded together on a “save-the-track” Whatsapp group. A similarly well-located, British built track in Shanghai became a park after China’s independence. In Singapore, the long-term lease on yet another track built by the British prior to the country’s independence has just run out and similar questions about disposition are being considered, albeit seemingly without the same concerns of impending disaster. 

Animal spirits

In a front-page story, Mint reports that India has imported 40,000 doses of bull semen from Brazil to raise the milk production of its domestic cows. The imports are through a government cooperative (the National Dairy Development Board) which provides the well-known Mother Dairy brand. The move comes after years of local objections. Messing with Indian cows was never going to be easy. Bolstering the case for imports was the involvement of a key Brazilian breed that is descended from cattle shipped to Brazil by the Indian Maharaja of Bhavnagar in the 18^th century.

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