Then vs. Now: India
I recently came across some articles I wrote for Tatler magazine back in 2008 documenting my travels through emerging markets, so I thought it would be fun to launch a “Then vs. Now” series, starting with India.
In 2008, I observed how India’s private sector was thriving despite government bureaucracy and poor infrastructure. Things have changed. Under the Modi government with the digitization program, dealing with government requirements is becoming more efficient. This results in lower costs.
At the time, I also said that potholed roads and government bureaucracy would make business people lose faith in India in favour of China. However, I began to notice significant changes about five years ago as the reforms introduced by the Modi administration started to take effect. While I had long recognized India’s potential, these changes made me even more optimistic.
Back then, I was already investing in India, particularly in the banking and insurance sectors, as well as in some consumer stocks. Later, I began going into the software sector, investing in firms such as Tata Consultancy Services. I also saw great potential in the mobile phone sector.
Today, the mobile phone industry in India remains a compelling investment opportunity. As for the auto sector, I would be more cautious, although its growth prospects still look promising.
If there’s one thing emerging markets teach us, it’s that patience often reveals the biggest rewards. India’s evolution has been fascinating to witness, and I’m thankful to have been part of the journey since the early days.
Here is the original article published in January 2008:
We took the six-hour flight from Shanghai to Mumbai in search of investment opportunities. I wasn’t surprised by the chaos that greeted us upon landing at Chattrapathi Shivaji International Airport as I had already experienced it a number of times before. I carry two computers and the official didn’t want to let me take two in. As baseball player Yogi Berra famously said, it was “déjà vu all over again” You used to have to register any computer you brought into the country, but I presumed such restrictions were a thing of the past. Not so, it seems. Thankfully, he was overwhelmed by other passengers trying to sneak past him and let us through in frustration.
India is a good example of somewhere in which the private sector is moving ahead in spite of government bureaucracy and poor infrastructure. Riding on the potholed roads and running the gamut of government approvals can make businessmen lose faith in the “world’s largest democracy” in favor of the more effective Chinese “benevolent dictatorship”. But there are obvious strengths to the Indian diversity.
The colonial bureaucratic government framework that continued after 1947’s independence imposed socialist planned economy policies. These were designed to control economic activity in every area with pervasive state companies, restrictive industrial licensing procedures and high tax rates. Since the mid-1980s, there have been changes, with restrictive policies gradually being dismantled, liberalization of trade and foreign investment and financial reform enabling more credit and equity to move into the private sector. GDP growth has accelerated, but a stifling government remains in many areas. Labor restrictions that protect employment have made hiring and firing onerous and expensive for employers. Touring one factory, I was surprised by the amount of automation in view of the plentiful labour availability. The manager explained: “We are trying to automate as much as possible in order to avoid hiring workers.”
One of the first companies we visited in Mumbai was a mobile phone company. The company faces lots of uncertainty regarding the radio frequency spectrum issued by the government. One executive said: “Most of the mobile phone companies have been applying for spectrum for more than a year and the government has taken no action.” That lack of frequency spectrum has meant a lot of network quality issues, such as dropped calls, which we experienced on the trip. Nevertheless, the number of mobile phone subscribers is increasing rapidly and stands at more than 150 million. Industry experts predict India will have around 500 million subscribers by 2010.
It’s amazing to think that the islands that make up Mumbai were taken by the Portuguese in 1534 and then given to Charles II of England in 1661 as part of a dowry for his marriage to the Portuguese Princess Catherine de Braganza. Mumbai was then leased to the British East India Company in 1668 for the princely sum of £10 a year. It’s worth a lot more now. As the capital of the Indian state of Maharashtra, and with an estimated population of about 13 million, it is the largest city in India and one of the world’s most populated. The good news is there are great new hotels such as the Hyatt on the outskirts of the clogged city, where new offices have been built and where our office has been moved to. We do a lot of business in Mumbai since that’s where India’s two stock exchanges are and where many major companies have their HQs.
Arriving in Delhi, India’s second-largest city, was much more pleasant than it has been in the past. The airport has been privatized and the result is a cleaner, brighter and more efficient terminal. However, bureaucracy is still evident, with a number of security checkpoints. The architecture of “New” Delhi, created when the British government moved the capital from Calcutta to Delhi at the turn of the 20th century, has always been of interest. It is quite an experience to view the expansive, imperial red-stone buildings, featuring traditional Indian elements with domes and spires, laid out on wide boulevards by colonial British architect Edwin Lutyens.
The main reason for visiting Delhi was to reach the industrial area of Gurgaon, home to a number of major motorcycle and automobile plants, including the massive Maruti car facility. Gurgaon is one of Delhi’s four major satellite cities and, as such, is considered to be a part of the National Capital Region of India. The Gurgaon area is known for its activist workers but the Maruti managers seemed to have handled the labor situation well. Security is tough, with workers searched as they leave the factory. As we entered, guards took down the registration numbers of our laptops. Automation in the plant is high and the planned capital expenditure program is US$2 billion over the next two years. Thousands of automobiles roll off the production line each day.
After the plant visits, we headed back to the airport to take off for Pune. I realized why India’s airports are so busy when I talked to some pilots of private planes. They said that Pune airport does not allow them to park, so they have to take off for Mumbai immediately and then come back later to pick up their passengers. The same thing happens in Goa. With its many colleges and schools, Pune is considered the “Oxford of India”. It’s also strong in vehicle production, with Bajaj Auto and Tata Motors there, along with various support industries, including the second-largest forge manufacturer in the world, Bharat Forge. The firm makes crankshafts, chassis components, axles, automobile and truck transmissions, among other items and its factory is one of the most advanced in the world.
After Pune we hit Goa. First time around, I came down with a bad stomach and didn’t see much, but this time I found the former Portuguese colony delightful. The famous explorer Vasco da Gama came here in 1498 and made it a major base for the spice trade and the propagation of Christianity. It was only when the Indian army overcame the Portuguese garrison in 1961 that the Portuguese left. Goa has been transformed from a haven for hippies to an upscale luxury resort destination. We stayed at the Marriott Resort with rooms overlooking the river, a large free-form pool, good gym and a variety of restaurants. But at US$250 per night it’s no bargain. The Hyatt Hotel on a majestic beach is probably one of the best resort hotels I have seen anywhere.
We visited the historic and huge Basilica of Bom Jesus in Old Goa, one of the largest Christian pilgrimage sites in Asia. Although tourism is a mainstay of Goa’s economy, it is also a mining center and has rich deposits of iron ore, bauxite, manganese and silica, among others. We visited the large Codli iron-ore mine of the Sesa Goa Company, an hour and a half ’s drive from Goa. The entrepreneur who got control of this company from the government started out as a scrap metal trader in the late 1980s. Now he’s chairman of a multi-billion-dollar mining group involved in aluminum, coals, electric power and other businesses. Sesa Goa has been in operation for more than 50 years and, in addition to their Goa mines, it has mining activities in the states of Orissa and Karnataka. The iron-ore operations do not only include digging the raw materials out of the open-cast mines but also beneficiation processes to separate oil from earth materials.
From Goa we flew into a storm to India’s fourth largest city and the capital of the state of Tamil Nadu, Chennai, formerly known as Madras.There’s a lot of its activity in Chennai and one of the largest firms, Tata, has 14,000 of its 100,000 employees in its Chennai facility. Ten percent of its staff works outside India across 57 countries. Turnover is 11 percent but the industry is growing at a rate of 15 percent, so personnel recruitment is a continuous battle. The company is recruiting 35,000 people this year, 80 percent of which are engineers, with the rest being accountants and business school graduates. The city is booming, with construction taking place everywhere. A good example of its global project reach is a US$97 million Bank of China financial accounting project. The appreciation of the Indian rupee has impacted its profit margins since most costs are in rupees, while projects are based in US dollars.
Chennai was one of the centers that Tata Consultancy Services (TCS) started developing 25 years ago. Now, the Chennai operation has nearly 25,000 employees on the payroll, with 17,800 in its large modern office building and the rest on client locations overseas. It is in the process of building a new campus, which will accommodate around 40,000 people by the end of 2009.
Leaving Chennai, we flew west again to the capital of the state of Kerala, Kochi, formerly known as Cochin. It’s known as a Communist state but the place seemed anything but. One businessman told us how he urged the head of his firm’s labor union to visit China to see how Communists worked and liberalized that country with the resultant high growth. Apparently, the labor union leader refused, saying, “China is a concentration camp”. Kochi has the highest literacy rate in India but the hold of dogma and ideology remains.
Historically, the city was a center of the spice trade so over the centuries its shores have seen Greeks, Romans, Jews, Arabs and the Chinese. Kerala seems to be a major source of manpower for Dubai and other countries in that region. Our next stop is Dubai, so we’ll probably be seeing the impact they are having there.
