India Business and Finance, September 12th

The questionable role of America's diplomats in flogging Indian investment and other business news of the week

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.

For distribution in America