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Saturday, December 06, 2003

AT&T sells stake in BPL

Looks like AT&T is getting ready to quit the Indian mobile phone market (their last remaining investment is in IDEA cellular), even as a record 1.9 million subscribers were added in November alone. Analysts suggest that Ma Bell has sold its stake (which it acquired at about $150 million) at a considerable discount.

The question is whether Ma Bell's decision had anything to do with the unified licence regime (wireless and fixed-line) announced by the government, a move that was predicted to start of a wave of much-needed consolidation in the Indian mobile phone industry.
Success has many fathers

So now every political pundit can find something nice to write about the BJP. Talking heads are spanning the length and breadth of television studios to reveal the reasons and the impact of the BJP victory. Suddenly, they are a young and dynamic lot, lots of fuss is being made about Pramod Mahajan's lap-top boys (as if he ran some complex election mathematical models on the dam thing to figure out strategies...) , Arun Jaitley's (ugh) strategic sense, Vajpayeeji's charisma. Without bothering to say why, political pundits now think the election victory is an endorsment of economic reform. None of these pundits caught which way the wind was blowing before the election results, so now they are playing catch up.

All very well, I suppose--to the victor go the spoils.

Moreover, one shouldn't judge pundits too harshly. Its genuinely difficult to figure out the Indian voter, and more importantly the first past the post system can make a few percentage difference in vote share seem like a land slide.

However, I shall stick by my party. The BJP, with few exceptions, in my view is a rotten lot.

And the fact is that all four Congress Chief Ministers were excellent Chief Ministers. All four were modern, clean, and efficient Chief Ministers. And their tenures have visibly--and not so visibly--improved the condition of people living in their states.

Madhya Pradesh and Rajasthan, for example, have both started to pull out from the BIMARU trap in their Digvijay's and Ghelot's tenure respectively.

Digvijay's de-centralization and land re-distribution program is to be genuinely applauded. Any Ghelot fought 4 years of drought vigorously. Food and work reached the farthest corners of the desert state--a point often missed by Delhi/Bombay types. Most emphatically the states will be worse off without them.

All pundits have, as usual, begun writing political obituaries for Sonia Gandhi. Let me just say that if she was good enough to pick and stick with Ghelot, Dixit and Digvijay, she is good enough to be my Prime Minister.

Branding India

A few weeks back, we were all rather excited about the Sekhar Kapur interview that Edward posted here. Being the 'realist' that I am, I had tried to throw some cold water on his theory. Now, Sandipan has an interesting article up in Outlook which questions some of my premises.

"What is a brand? In business school, they teach you that a brand is a "basket of attributes". Hindi films did not consciously try to do any branding for India. It just happened. The attributes are what the audience perceives. In the Asia-Pacific region, India—as communicated by Hindi films, as interpreted by the fannish legions—stands for beauty, joy, hope, and Asian pride. In Morocco, Egypt and large tracts of the Islamic world, it stands for rock-solid family values, the inviolability of contracts made for human relationships. In the West (in a small town in Georgia, US, a friend met good Southern Baptists who knew of Preity Zinta), it stands for unbounded passion, for a sovereign energy, about a freedom from the should.

Can these involuntary and contradictory brand appeals for India be harnessed together to build a velvet battering ram for the worldmind? Yes, of course. Don't ask me how. I am just a tourist. One request though. Can we stop defining ourselves by an LA suburb? Can we stop calling our film industry Bollywood? It'll be a start. "

In a powerful and balanced accompanying piece, Manu Jain examined what does India, the brand, represents and if it is possible to leverage it. Both the articles are very well written and worth reading in their entirety.

Friday, December 05, 2003

What will the defeat mean ?

What will the defeat of the Congress in the 3 states mean for India, I wonder.
Will it mean that all non-NDA parties come together?

Well I certainly hope so mostly because I am a partisan hack. I hate the BJP more than anything else in the world.

But also because I think the BJP is the wrong party to carry India's economic reform further. Their support base--urban, upper caste Hindus and increasingly "brahmanized" intermediate castes (like Uma Bharti) are the principal beneficiaries of the current economic system like free higher education, LPG subsidy, in the villages fertilizer subsidy, virtually free water and power , jobs in public sector undertakings, rent control etc.

Economic reform in essence means uprooting a lot of this structure. The BJP, like every other political party in the world, will be unable to go against its own supporters.

What it means is that the Congress must ally with the Communists, Mulayam, Laloo, Paswan and whatever else is left of the old United Front government if it wants to form a government next year. But how the hell will Manmohan Singh as finance minister convince the communists to support the government over PSU divestment, or labour reform? The BJP is unlikely to be magnanimous and lend their support as the opposition just as the Congress hasn't supported Arun Shorie over privatization.

I still think the Indian economy will grow fast enough. The impetus for economic change/ growth comes from deep within the fabric of the country. There is only that much that any government can do to stop this thing we've started.

However questions remain...

Thursday, December 04, 2003

I won't watch TV today...

Or tommorow, the day after, maybe for a week. I can't bare to watch that loathsome Arun Jaitley gloat on my TV screen.

As you probably know, the Congress lost three states today... :( Two of my favourite political leaders--Digvijay Singh and Ashok Ghelot won't be Chief Ministers. There is no justice in the world.
We're not in Kansas Anymore

Following straight in behind Atanu's last post, the recent Business Week cover story really does seem to be making waves. Among the the latest 'shocks' in the breaking news: the fact that even the MIT open courseware itself is now being outsourced. I'll let my friend Marcelo explain by republishing his original Bonobo post.

When do you know, positively, clearly and down to your very bones, that the world you're living in isn't the world where you were born? When Italian mammas have to be incentivated with cash to have more kids? Or when the MIT, one of the world's foremost centers of education and research in science and technology , outsources to an Indian company the core of the software programming it took to "Open Source" its educational materials?

None of this will really be surprising to Bonobo readers, as Edward has been writing for longer than most about the demographic and economic currents driving these events. Yet it's a bit of a shock to realize that they aren't even very surprising to the public in general. Like the proverbial frog in the pan, we get used to trends long before we have fully grasped their implications.

The problem, of course, is that the water in the pan eventually boils...

Update: from Edward

Apart from the fact the post linked to about MIT is interesting in itself, the comments column is fascinating, and some good arguments are made all round, including this one:

We're slowly killing our talent pipeline - the best senior techies start out as programmers and junior technical staff and learn the business from the ground up. The same goes for analytical talent. If you're somewhere in the lower levels of management and came up through the technical ranks, you've got a decent career ahead of you. Half of your peers have probably changed careers - and there is no one coming up the ranks behind you to compete with you. I suspect we're going to see a real problem finding truly competant project managers and development team leaders in a couple of years once the recession is over. Due to the staff cuts and lack of talent nipping at my heels, I'm the top person in my field at my company at age 30. Yes, I really am that good - but I'd have a lot more competition if we hadn't laid of most of our junior analytical pipeline three years ago and dumped half of our senior staff in favor of cheap offshore folks. It's not a problem until you need someone to talk to the client or senior management - then you're screwed. You've then got the choice between charming airheads or incomprehensible technical folks.

The Law of One Price

Why the law of one price astonishes people is astonishing to me. BusinessWeek Online of Dec 3rd has a story about US programmers at overseas salaries. The story reports that someone came up with a novel solution to the problem of the off-shoring of US programming jobs. The "novel" solution is for employers in the US to bring the salaries of US programmers more in line with the costs of hiring an off-shore programmer. Now, I would have thought that anyone who has had even a nodding acquaintance with Econ 101 would have figured that as the most natural outcome of market integration. But I am mistaken. It appears that some people do get astonished when they see markets work.

US programmers cost approximately $80K per year. Contract programmers from India cost about $40K per year (although the programmer gets a lot less because the jobs are intermediated through firms that have to have piece of the action.) The market for programmers worldwide is not maximally inefficient -- that is, it is not a fragmented market. So naturally, the law of one price is going to hold. In other words, Competition rulz.

Here is an excerpt from the tail end of that piece:

What if other companies begin taking the same approach -- offering Indian-style wages to American workers? On the positive site, we could begin to solve our job-creation problems. But on the negative side, America's standard of living would inevitably decline. There's only one way to find out for sure how it all might shake out, and that is for other executives to replicate Jon's experiment. The results could be quite interesting.

The implicit assumption in the question above is that GOD has decreed that the American standard of living is sacrosanct. The Americans must continue to consume a disproportionate share of the world's resources and thus maintain their standard of living. Other people -- Indians, for instance -- should be content with a meagre share of the global resources. All the breast beating about the grave threat to the American standard of living is grotesque when one sees the pitiable living standards of a couple of billion humans who don't happen to be Americans.

Wednesday, December 03, 2003

Is India really shining?

Mohan Guruswamy, Abhishek Kaul & Vishal Handa of the Centre for Policy Alternatives, an independent think tank in New Delhi, present a sobering perspective in an op-ed piece in The Hindu. The main points being a. India is behind China on most development indicators - catching up on growth rate alone isn't enough and b. China is an industrialising country whereas India seems to be entering the post-industrial phase without having industrialised.

A comparison of the first ten years of the economic performances of India and China after reforms (1992-2001 for India and 1979-88 for China) is instructive. China entered the first decade of the reforms as a fast developing and modernising country with an average decadal growth rate of 5.52 per cent. But more important than this was the performance (1980) of reducing infant mortality to 42 per 1000; elevating life expectancy to 67 years; raising adult literacy to 66 per cent. India by contrast had a better growth rate of 5.7 per cent in the 1980s but came burdened with an infant mortality of 119 per 1000; life expectancy of 59.2 years; and adult literacy of 48.41 per cent. Many reasons have been advanced for China's stupendous performance. Few are as valid as what Amartya Sen wrote: "China's relative advantage over India is a product of its pre reform (pre 1979) groundwork rather than its post reform redirection."

Yet another comparison would be even more instructive. In 1978, at the inception of its reforms, China's per capita GDP (in constant 1995 U.S.$) was $148, whereas that of India in the same year was $236. Seven years after it began its reforms, in 1986, China caught up with India in per capita GDP terms ($278 vs. $273) and a decade after reforms in 1988 was comfortably ahead of India with a per capita GDP of $342 compared with India's $312. In the first post-reform decade, the Chinese economy grew at 10.1 per cent while the Indian economy grew at 5.7 per cent in the corresponding decade. Quite clearly that was India's lost decade.

But what did we achieve in the first decade of our reforms? In 1992, the first year of its reforms, India's per capita GDP was $331. This grew to $477 in 2001. In the same period the Chinese per capita GDP surged from $426 to $878 in 2001. In the 1990s China grew at the rate of 9.7 per cent while India grew at 5.9 per cent. Quite clearly far from beginning to catch up, we fell well behind.

It is true both countries have transformed themselves after they embarked on the path of economic reforms. But the transformations were entirely different. In 1980 the sectoral break-up of China's economy was as follows: agriculture 30 per cent, industry 49 per cent, and services 21per cent. In 1990 that changed to agriculture 27 per cent, industry 42 per cent, and services 31 per cent. In 2000 that picture transformed further. Agriculture fell to 16 per cent; industry grew further to 51 per cent while services steadied at 33 per cent. Note the growth in the share of industry now. This was primarily made possible by overseas investment, which amounted to $293 billion during the decade, which also created millions of new jobs. Apart from the millions of new jobs created, the role of FDI in making China a major world-manufacturing centre is seen in the share of FDI enterprises in total exports. This rose from under 2 per cent in 1978 to 45.5 per cent in 1999. Today China accounts for 3.79 per cent of world trade while India's share is just 0.93 per cent. Consequently, China foreign reserves have burgeoned to $383 billion while India's is $92 billion.

The Indian picture makes for a study in contrasts. The share of agriculture fell somewhat from 31 per cent in 1990 to 28 per cent in 2000. The share of industry too fell from 28 per cent to 26 per cent. Services grew from 41 per cent to 46 per cent. Software exports apart, the biggest contributing factor to the growth of India's services sector has been the growth of public administration, which has been bounding at an average rate of 32.5 per cent each year from 1993-94 onwards. In 2001 Central, State and local government salaries together topped Rs.167, 715 crores. This kind of spending was not what Keynes had in mind when he advocated public spending to stimulate the economy!

Tuesday, December 02, 2003

The Tourism Conundrum

Francois Gautier is not my favourite journalist. For that matter, I don't even think he is much of a journalist. But, give the devil his due. In this piece, he makes a great deal of sense and reveals why India's tourism industry is in such a funk.

I often shuttle between Chennai and Delhi. A return ticket by Indian Airlines or Jet (which is more expensive) between these two cities costs more than Rs 22,000. For that price, I can fly from Paris to New York, which is triple the distance. And that is economy only: it will cost you a whopping Rs 34,220 return fare for a business class ticket on Jet from Chennai to Delhi. If you have the misfortune to be a foreigner, you will have to pay 30% to 40% extra, depending on the dollar exchange rate, which means you will have to disburse Rs 42,000 for a business class return Chennai-Delhi. For that price you can fly to Europe and back in economy!

The funniest thing is that there is sometimes a 15-day waiting list to travel by train from Chennai to Delhi (or the other way) in second class A/C sleeper, which costs a little over Rs 2,000 and takes 36 hours -- that is when the train is not a few hours late or does not have an accident. If Indian Airlines or Jet had the intelligence to offer Chennai-Delhi tickets at Rs 3,000, regardless of the dates, people will gladly shell out another 1,000 bucks, just to avoid the 36-hour trip. IA could easily fill up six Airbus-320 aircraft a day and make a handsome profit, instead of hiking up its prices four times in the last five years.

And what about Indians paying Rs 20 to see the Taj Mahal or at Hampi and foreigners being asked Rs 500? Are we cows to be milked? Does the Indian government think it is going to earn the goodwill of tourists and guarantee their return, when they are discriminated against?

Moreover, the hassles faced by foreigners in India are not only financial. Take visas for instance. In Sri Lanka, all foreigners are automatically handed a one month visa upon their landing at the airport. But not in India. One has to apply to sour faced, underpaid staffers at Indian embassies abroad -- and forget about five year visas, even if you have been visiting India for 35 years.

These archaic price discriminatory tactics the Indian govt uses against foreigners is something that has annoyed me for a long while, not to mention the crazy visa policies where practically everyone needs a visa to visit India, as a tourist or otherwise. It's part of the we-are-so-great-you-must-feel-privileged-to-visit-our-country mentality that has not gone away despite a decade of reforms. Is it any surprise then that India (with its unbelievable potential for tourism) gets about as many tourists in an entire year as France gets every two to three weeks?

Monday, December 01, 2003

State Government Finances

Here is a site you should check out. It's the Punjab Government site. There is a special features section in which there is the report of the Expenditure Reforms Commision. It's a good read, 90 pages or so--if you have nothing to do on the weekend. Basically one gets some idea of why state government finances are in such a mess.
AIDS and India

There is a nice Amy Waldman story in today's NYT on India's plans to provide free AIDS therapy. As she notes:

By April of 2004, the government hopes to begin providing free antiretroviral therapy to all H.I.V.-positive new parents, all children under 15, and eventually, to all patients with full-blown AIDS in the six states with the highest rates of H.I.V./AIDS. The decision amounts to a significant policy shift for India, which has not previously tried to offer antiretroviral treatment on any significant scale, though it does provide drugs to try to prevent AIDS transmission from mothers to babies in childbirth.

But several obstacles must be overcome by spring. The government must still reach a final agreement with the country's pharmaceutical companies, who manufacture generic versions of antiretroviral medications, to reduce their prices, as these companies recently agreed to do in Africa and the Caribbean. The government has yet to identify "budgetary support," the money to pay for drugs for as many as 100,000 people, the number it estimates would be served in the first year. It also will have to recalibrate its weak public health system to provide for far broader testing, and train doctors and nurses to monitor the dosage and effects of antiretroviral therapy.

India is estimated to have at least 4.6 million people with H.I.V. — the second highest number in the world, after South Africa. More than 600,000 new cases occurred in 2002.

Doctors in India prescribe antiretroviral therapy, but at $1 a day, it costs too much for most people. India's per capita income is less than $500 a year.

People often underestimate the danger that AIDS poses to India. An article in last Dec's Foreign Affairs magazine (now unfortunately unavailable online) made a very pursuasive argument of how AIDS is not just a humanitarian tragedy, it has the potential to spread into a pandemic and destroy the economic potential of three pivotal countries, India, China and Russia.

I had written a little bit earlier about the problems that India faces in fighting AIDS. I am very glad that we are finally responding to the crisis; though from what I read between the lines, we seem to be indulging in a bout of pennywise, poundfoolishness:

For two weeks, the companies and government have been in what one participant called "back-breaking" negotiations over those issues. Ms. Swaraj has made clear that she would like the companies to provide lower prices in India than those agreed to with the Clinton Foundation. "That's only natural because these are companies based in India," she said. Industry representatives say the government needs to understand the business imperatives of companies that have become Indian success stories and wealth creators. The Clinton Foundation agreement, they say, has left them a small margin of profit that will allow their businesses to keep growing and appease shareholders. To go any lower, they say, will require concessions from the government, like exemptions on sales and excise taxes.

Ms. Swaraj announced at a news conference Sunday — the day before elections in four important states — that an agreement with the companies had been reached, but privately industry and government officials said negotiations were continuing.

In an entirely different context, in my home state of West Bengal, the state government is indulging in similar shortsightedness and a deal to offer computer literacy to school children is now in danger of falling through ...