India - Politics and Business Rafiq Dossani [email_address]

India’s puzzles till 1989 Governance: democracy’s near failure, civil society’s failure Business: high-growth big businesses, low-growth small businesses Poverty: 700 million left behind Workforce: talent produced, unused

Governance: democracy’s near failure, civil society’s failure

Business: high-growth big businesses, low-growth small businesses

Poverty: 700 million left behind

Workforce: talent produced, unused

Governance: fundamental change In 1989, single party rule (by Congress) yielded to national-regional coalitions. The BJP and Congress now each get 25%, the rest with 20 regional parties. Regional parties interested in regional development.

In 1989, single party rule (by Congress) yielded to national-regional coalitions.

The BJP and Congress now each get 25%, the rest with 20 regional parties.

Regional parties interested in regional development.

Up to 1989, the ruling class was a person – the Prime Minister MP: dormant species, reports to SCM Cabinet ministers: fixers, coterie member. Bureaucrat: intellectual arm of coterie State Chief Minister: manages MPs Reports to PM

Why governance was ineffective and unstable Ineffective: Frequent changes in pols and bureaucrats in order to control their power also destroyed their incentive to perform Public sector (SOE) dominance led to underperformance Big private business occupied niches unoccupied by SOEs, eg., automotive; combined with SOEs to thwart SME growth. Unstable: Rural and urban elite were left out of politics. Rural and urban middle-class turned anti-incumbent due to rising poverty

Ineffective:

Frequent changes in pols and bureaucrats in order to control their power also destroyed their incentive to perform

Public sector (SOE) dominance led to underperformance

Big private business occupied niches unoccupied by SOEs, eg., automotive; combined with SOEs to thwart SME growth.

Unstable:

Rural and urban elite were left out of politics.

Rural and urban middle-class turned anti-incumbent due to rising poverty

Post-1989 Coalition MP: still dormant species State Chief Minister: regional party leader National party executive committee: fixers, coterie members Bureaucracy: depoliticized

Why governance is effective and stable Effective: State chief ministers are centers of regional power Bureaucrats are independent of ministers Small and regional businesses have gained access to decision makers via state chief ministers Stable: Regions have influence Anti-incumbency is focused on the national party not regional parties Trade unions’ power reduced due to rising share of regional and small businesses Big business is involved in big opportunities

Effective:

State chief ministers are centers of regional power

Bureaucrats are independent of ministers

Small and regional businesses have gained access to decision makers via state chief ministers

Stable:

Regions have influence

Anti-incumbency is focused on the national party not regional parties

Trade unions’ power reduced due to rising share of regional and small businesses

Big business is involved in big opportunities

Impact of regionalization of politics New Delhi’s bureaucracy revitalized Bureaucrat’s future is no longer dependent on the taskmaster, but on the task Improvement in regulation and transparency Regional enterprise takes-off Business policies favor small and regional businesses Regional social welfare spending shifts to poor citizens Social spending favors primary and secondary education, and rural development

New Delhi’s bureaucracy revitalized

Bureaucrat’s future is no longer dependent on the taskmaster, but on the task

Improvement in regulation and transparency

Regional enterprise takes-off

Business policies favor small and regional businesses

Regional social welfare spending shifts to poor citizens

Social spending favors primary and secondary education, and rural development

Doing Business in India

Impact of good regulation: 3 new cellphone users/s Yes, that is per second China: 2.3 per second Yet, Indian per capita income is one-third of China There is more than one cellphone per Mumbai resident Every family in the slum shown likely owns a cellphone The catch-up factors vs China: Bureaucrat-driven regulation Private service provision Shared infrastructure 6-8 providers per region Foreign service providers can own up to 74%

Yes, that is per second

China: 2.3 per second

Yet, Indian per capita income is one-third of China

There is more than one cellphone per Mumbai resident

Every family in the slum shown likely owns a cellphone

The catch-up factors vs China:

Bureaucrat-driven regulation

Private service provision

Shared infrastructure

6-8 providers per region

Foreign service providers can own up to 74%

The media – lively, newsworthy, but reflects weak civil society

2008 Ambassador 1962 Fiat 1100D 1943 Willys MB 2008 Mahindra Jeep 1956 Morris Oxford 2004 Premier Padmini 2008 Tata Nano Business wasn’t always easy

Big business is thriving The IT industry will add 360,000 jobs in 2008, or 3 jobs for every minute of a working day. 13 19 18 21 29 26 OPM 112000 46000 44000 46000 49000 56000 Rev/Emp p.a. 71000 49000 55000 80000 88000 108000 Employee NA 11 7 10 6 6 Qoq 48 54 48 26 32 37 Yoy 2000 560 600 920 1100 1500 Q.Rev $m (4Q2007) Accenture* Satyam Cognizant Wipro Infosys TCS

So is small business

Servers of a NY bank maintained from Indore, India

The source of daytime power

India’s Skills: English Dawa Doma Sheupa Debbie White 50 million speak good English

Another 250 million speak some English Literacy 60%

Even as 1 new college opens daily, 700 m are left behind

A.K.Ramanujan’s definition of Indian Village Time: indefinite, continuous, anywhere between a few decades ago and the medieval centuries. 30% of rural population consumes less than1600 calories/day % or underweight rural children below 5 years: 50%(40%) % of rural adult females with severe anemia: 80% (50%)

Space at $700/square foot $6,000 for 20’x15’ City of hope

The slums of Dharavi in Mumbai have an average of one toilet per 1440 persons.

Long-term business view Positives: Balanced growth - across regions, sectors and sizes Solid relations and trade with US and China Mature capital markets Negatives: Rural India still a problem Industry faces infrastructure and people challenges Regional challenges (5% of international trade is within the region vs 26% for ASEAN).

Positives:

Balanced growth - across regions, sectors and sizes

Solid relations and trade with US and China

Mature capital markets

Negatives:

Rural India still a problem

Industry faces infrastructure and people challenges

Regional challenges (5% of international trade is within the region vs 26% for ASEAN).

Entry Strategies Domestic markets v exports Small business v big business Media management J.V. Government (state v national v none at all) Professional services

Domestic markets v exports

Small business v big business

Media management

J.V.

Government (state v national v none at all)

Professional services

India V China Differences: Democracy Literacy and health care Infrastructure Regulation Power of big business Similarities Devolution of power Destinies Urbanization Services v manufacturing

Differences:

Democracy

Literacy and health care

Infrastructure

Regulation

Power of big business

Similarities

Devolution of power

Destinies

Urbanization

Services v manufacturing

Questions?