India Business and Finance, March 20th

What happened in Indian business during the past week

Are exports and investment finally gaining traction (even if many feel like things are getting better) ?

Exports, an area of almost obsessive focus in India’s current growth strategy, rose 12% in the most recent quarter in February over the prior year. Multiple industries played a role. The growth rate was the highest since June of 2022 when there was a break in the Covid lockdown. The head of a major transportation company told me container costs have quadrupled because of conditions in the Red Sea, etc, but even that wasn’t enough to derail the expansion. Exports of handsets, the product that has received the most attention, have grown from $998m in the period between April to December of 2022 to $3.5bn in the same period in 2023, according to the Ministry of Commerce. At the same time, exports of phones from China and Vietnam have declined. India still remains a relatively small player in the business. The Financial Express reports India’s market share is just 8% of the phone export market, compared to 12% for Vietnam and 71% for China. But India’s position seems to change by the day.

The country’s focus on production is increasingly reflected in other economic measures. A chart from Morgan Stanley shows investment has been outpacing consumption since 2021. This was true in the cycle between 2003 and 2007 but largely not true in the intervening years when India’s dynamism sputtered. There seems to be at least some positive spillover effects, in as much as tax receipts are exceeding expectations which have already been revised upward.

But how growth is unfolding may explain why businesses seem to feel conditions are good and individuals - consumers - do not. The distinction comes up again in the inflation numbers. On average, it was up 5.09% in February over the prior year, a number that while not particularly good is down from the 7% plus of last year. But food inflation was up almost 9% and it is impossible to understate the importance of food costs to Indian households, accounting on average just under half of all spending. The price of a tomato was reported to be up 42% and cumin 65%, both key ingredients in every day curries.

Unstalled

In recent months, the common wisdom was that the covid-triggered boom for India’s large IT consultancies, which played a key role by allowing clients to transition from offices to cyberspace, had ended along with the prevalence of the disease. Decline in this unusual demand, so went the logic, was aggravated by the efficiencies provided by emerging artificial intelligence. But over the past three decades, this industry has consistently exceeded expectations and that may once again be the case. Mint reports that TCS, the biggest Indian IT consultancy, is offering incentives to bring in top executives within the next month, meaning they are needed right away for unanticipated work. A clause in the recruiting contracts requires the new hires to stick around for at least 180 days, according to the report. In a suddenly hot market, people may find they can do particularly well by bouncing from one employer to another..

Stalling?

Information from DATA.ai cited by The Times of India show Ola Cabs’ active users have been declining in recent months and usage of Uber has been rising. Downloads of both apps have been declining but Ola, though still the leader, has seen a sharper drop.

This comes as Ola continues to lose money and in many cities, drivers seem to be increasingly adept at scamming ride hailing systems (by showing up and then demanding to be paid directly). There have also been service complaints. Ola’s difficulties in the cab business come in the lead up to the highly profile public offering for its market leading (42%) electric scooter operations, which also lose money.

The slow privitisation of the financial system

Private sector banks’ share of bank deposits rose from 25% at the end of  March 2018, to 34% at the end of 2023, according to figures collected by The Financial Express. Comparable data was not provided for assets but data collected by the Reserve Bank of India covering roughly the same period (from the end of March, 2018, through the end of March, 2023, reflecting the fiscal year) the percentage of assets held by private banks rose from 29% to 38%.

Over time, it appears inevitable that the private sector banks will overtake those run by the state. They are better managed with superior credit standards and service. But it will not be as straightforward as the statistics suggest. India’s private sector banks favour consumer lending. If a company wants a very large loan, I‘m told it has to go to the state banks (with the result, borrowers grumble, that indirectly find themselves vulnerable to at least some government control). There is no indication that will change.

Can entertainment be monopolised?

Just weeks after announcing the acquisition of Disney’s Indian operations, Reliance, the biggest Indian conglomerate by market value, announced it would purchase Paramount’s share of another media entity, Viacom 18 Media, of which it already has a controlling stake. The deals are complicated but the end result appears to be the growing dominance of Reliance and the exit of foreigners. There are concerns about Reliance’s dominance. India has a competition authority but it hasn’t indicated concerns and as is often observed, Reliance’s controlling family, the Ambani’s, are acknowledged to be particularly adept at navigating India’s judicial, political and regulatory corridors. What is unfolding will, doubtless, one day be grist for a movie.

Why the foreigners are leaving is not entirely straightforward. Disney’s purchase in 2019 of 21st Century Fox included Star India, which was seen to be extraordinarily successful and well managed at the time but has failed under the current ownership. This is not the only place Disney seems to have unravelled. The story of its travails may also, one day, provide the substance for an entertaining movie..

End of the demographic dividend

The Economic Times reports strong growth in the sale of condoms. After a 12% decline in 2020, they grew 10% in 2021, 7% in 2022 and 13% in 2023.

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