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  1. 1. India - Politics and Business Rafiq Dossani [email_address]
  2. 2. India’s puzzles till 1989 <ul><li>Governance: democracy’s near failure, civil society’s failure </li></ul><ul><li>Business: high-growth big businesses, low-growth small businesses </li></ul><ul><li>Poverty: 700 million left behind </li></ul><ul><li>Workforce: talent produced, unused </li></ul>
  3. 3. Governance: fundamental change <ul><li>In 1989, single party rule (by Congress) yielded to national-regional coalitions. </li></ul><ul><li>The BJP and Congress now each get 25%, the rest with 20 regional parties. </li></ul><ul><li>Regional parties interested in regional development. </li></ul>
  4. 4. 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
  5. 5. Why governance was ineffective and unstable <ul><li>Ineffective: </li></ul><ul><li>Frequent changes in pols and bureaucrats in order to control their power also destroyed their incentive to perform </li></ul><ul><li>Public sector (SOE) dominance led to underperformance </li></ul><ul><ul><li>Big private business occupied niches unoccupied by SOEs, eg., automotive; combined with SOEs to thwart SME growth. </li></ul></ul><ul><li>Unstable: </li></ul><ul><ul><li>Rural and urban elite were left out of politics. </li></ul></ul><ul><ul><li>Rural and urban middle-class turned anti-incumbent due to rising poverty </li></ul></ul>
  6. 6. Post-1989 Coalition MP: still dormant species State Chief Minister: regional party leader National party executive committee: fixers, coterie members Bureaucracy: depoliticized
  7. 7. Why governance is effective and stable <ul><li>Effective: </li></ul><ul><li>State chief ministers are centers of regional power </li></ul><ul><li>Bureaucrats are independent of ministers </li></ul><ul><li>Small and regional businesses have gained access to decision makers via state chief ministers </li></ul><ul><li>Stable: </li></ul><ul><ul><li>Regions have influence </li></ul></ul><ul><ul><li>Anti-incumbency is focused on the national party not regional parties </li></ul></ul><ul><ul><li>Trade unions’ power reduced due to rising share of regional and small businesses </li></ul></ul><ul><ul><li>Big business is involved in big opportunities </li></ul></ul>
  8. 8. Impact of regionalization of politics <ul><li>New Delhi’s bureaucracy revitalized </li></ul><ul><ul><li>Bureaucrat’s future is no longer dependent on the taskmaster, but on the task </li></ul></ul><ul><ul><ul><li>Improvement in regulation and transparency </li></ul></ul></ul><ul><li>Regional enterprise takes-off </li></ul><ul><ul><li>Business policies favor small and regional businesses </li></ul></ul><ul><li>Regional social welfare spending shifts to poor citizens </li></ul><ul><ul><li>Social spending favors primary and secondary education, and rural development </li></ul></ul>
  9. 9. Doing Business in India
  10. 10. Impact of good regulation: 3 new cellphone users/s <ul><li>Yes, that is per second </li></ul><ul><ul><li>China: 2.3 per second </li></ul></ul><ul><li>Yet, Indian per capita income is one-third of China </li></ul><ul><ul><li>There is more than one cellphone per Mumbai resident </li></ul></ul><ul><ul><li>Every family in the slum shown likely owns a cellphone </li></ul></ul><ul><li>The catch-up factors vs China: </li></ul><ul><ul><li>Bureaucrat-driven regulation </li></ul></ul><ul><ul><li>Private service provision </li></ul></ul><ul><ul><ul><li>Shared infrastructure </li></ul></ul></ul><ul><ul><li>6-8 providers per region </li></ul></ul><ul><ul><li>Foreign service providers can own up to 74% </li></ul></ul>
  11. 11. The media – lively, newsworthy, but reflects weak civil society
  12. 14. 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
  13. 15. 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
  14. 16. So is small business
  15. 17. Servers of a NY bank maintained from Indore, India
  16. 18. The source of daytime power
  17. 19. India’s Skills: English Dawa Doma Sheupa Debbie White 50 million speak good English
  18. 20. Another 250 million speak some English Literacy 60%
  19. 21. Even as 1 new college opens daily, 700 m are left behind
  20. 22. 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%)
  21. 23. Space at $700/square foot $6,000 for 20’x15’ City of hope
  22. 24. The slums of Dharavi in Mumbai have an average of one toilet per 1440 persons.
  23. 25. Long-term business view <ul><li>Positives: </li></ul><ul><ul><li>Balanced growth - across regions, sectors and sizes </li></ul></ul><ul><ul><li>Solid relations and trade with US and China </li></ul></ul><ul><ul><li>Mature capital markets </li></ul></ul><ul><li>Negatives: </li></ul><ul><ul><li>Rural India still a problem </li></ul></ul><ul><ul><li>Industry faces infrastructure and people challenges </li></ul></ul><ul><ul><li>Regional challenges (5% of international trade is within the region vs 26% for ASEAN). </li></ul></ul>
  24. 26. Entry Strategies <ul><li>Domestic markets v exports </li></ul><ul><li>Small business v big business </li></ul><ul><li>Media management </li></ul><ul><li>J.V. </li></ul><ul><li>Government (state v national v none at all) </li></ul><ul><li>Professional services </li></ul>
  25. 27. India V China <ul><li>Differences: </li></ul><ul><ul><li>Democracy </li></ul></ul><ul><ul><li>Literacy and health care </li></ul></ul><ul><ul><li>Infrastructure </li></ul></ul><ul><ul><li>Regulation </li></ul></ul><ul><ul><li>Power of big business </li></ul></ul><ul><li>Similarities </li></ul><ul><ul><li>Devolution of power </li></ul></ul><ul><li>Destinies </li></ul><ul><ul><li>Urbanization </li></ul></ul><ul><ul><li>Services v manufacturing </li></ul></ul>
  26. 28. Questions?