Friday, 30 January 2009

Ambitions dimmed but not abandoned

By James Lamont in New Delhi

Published: January 30 2009 00:10 | Last updated: January 30 2009 00:10

The small farmers of Bansur village in eastern Rajasthan overwhelmingly agree that life has changed for the better over the past 10 years. The reason is India’s greater engagement with the world economy.

Many still plough their tidy fields with camels. Between about 100 of them, they share only three tractors. They are troubled by the rising price of food, particularly of wheat, pulses and edible oils. They have also noticed that weather patterns are changing. The summers are hotter, and the monsoon rains a little less heavy.

On the upside, the men feel more connected among themselves and a world outside their village. What has revolutionised their lives is the mobile telephone – almost all of them possess one. They receive weather reports, discuss market prices for their crops and coordinate better among themselves. They even find spouses for their children this way.

“Before we would have to travel, but now we just talk. It saves time,” says Genda Lal Baisla, owner of one of the larger farms.

These same farmers are suppliers to a company listed in London that has its origins in Johannesburg and has global operations that stretch from Milwaukee to Moscow. Although few of the farmers openly admit to drinking beer themselves, they are part of SABMiller's global drinks supply chain. Their barley finds its way into beer distributed across northern India to cheer the country’s claim to be the fastest-growing beer market in Asia.

One of the most often quoted figures to illustrate the promise of the Indian economy is the number of new mobile telephone users who sign up each month. This raised eyebrows when it was 5m a month. But now the figure has reached a staggering 10m a month as mobile operators drive growth by offering call rates for less than Rs1 a minute.

The rampant growth in this sector has become the talisman that many turn to as reassurance that India’s domestic consumption is alive and well.

But as global companies increasingly change the lives of India’s 1.2bn people, the past six months have been testing for India and its engagement with the forces of globalisation. The country is at a critical juncture as it faces the prospect of global recession and a tightly-fought general election in April that pitches the ruling Congress party against the Hindu nationalist opposition Bharatiya Janata party. The battleground will be the economy.

The international financial crisis has had a worse impact on India than policymakers and businesspeople had initially recognised. The expectation was that, with exports representing only 17 per cent of gross domestic product, India would be insulated from troubles elsewhere, most particularly the US. The Sensex, the benchmark index on the Bombay Stock Exchange, lost more than half its value in the second half of last year, the liquidity crunch was felt widely and foreign portfolio investment drained swiftly from the emerging market.

Many top business leaders were soon appealing for deep interest rate cuts and emergency support from the government. Exports fell rapidly, iron ore and rice contracts were defaulted on and mass job losses loomed. Shares of some of India’s leading companies in sectors such as property, pharmaceuticals and IT outsourcing fell sharply. Even the heady days of the country’s domestic airline boom appeared numbered.

The shine speedily came off India's ambitions as corporate valuations seemed terribly overblown. Growth projections were revised down to about 7 per cent, when only in July government officials and business organisations felt double-digit growth to rival China was within reach.

As nerves jangled in New Delhi and Mumbai, a closed economy suddenly looked appealing again. Sonia Gandhi, president of the Congress party, invoked the prudence of her mother-in-law Indira in closing the Indian economy. But her praise for the nationalisation of banks in the late 1960s sounded a hollow note with a cadre of increasingly foreign-orientated business leaders eager to expand beyond India's shores.

Amid the financial turbulence, there was worse to come for investors. In the closing days of last year, India suffered one of its worst corporate scandals in one of the sectors leading its globalisation drive. Satyam, the country’s fourth largest IT outsourcing company, was dealt a devastating blow when B. Ramalinga Raju, its chairman, handed in a letter to regulators confessing to a $1bn fraud. The company’s share price collapsed, Mr Raju was taken into custody and his board dismissed.

The shockwaves were felt by investors across the world who view the IT outsourcing industry as a powerful driver of services-led economic growth. Satyam had been one of the first Indian companies to list on the New York Stock Exchange.

The fraud dimmed the Indian dream. Mr Raju’s personal journey as the son of a grape farmer in rural Andhra Pradesh, growing up without electricity, to study at Ohio University in the US and then become the chairman of an IT company was a textbook case of the opportunity globalisation could bring.

India’s openness has also attracted other enemies. The Mumbai terror attacks in November were a strike against global capital and India’s prosperity. Quite different from earlier bombs in marketplaces, the Pakistan-trained gunmen targeted hotels frequented by Indian and international business people and a Jewish centre.

In manufacturing the going was tough too. A year ago, the Nano car project to build the world’s cheapest car – to be sold for Rs100,000 ($2,061) pre tax – was held up as the spirit of the era. However, its main production plant in Singur, West Bengal, became mired in a land dispute that highlighted the tensions surrounding industrialisation.

As Ratan Tata, Tata’s chairman and one of the country’s most respected businesspeople, struggled to keep momentum behind the project, further afield, his group’s acquisition of Jaguar and Land Rover, the British car marques, from Ford was attracting strong criticism as a vainglorious enterprise.

“We analysts in the west are all looking at financial quarters and halves. But you have to give Ratan Tata credit for looking 20 years ahead with this acquisition,” says Xavier Gunner, head of research at London-based Arbuthnot Securities and an expert on the auto sector.

India’s believers are doing the same. Higher growth, the ambitions of its corporate leaders, trade’s rising share of GDP, and a high-quality, low-cost workforce are all spurring India to interact with the world as never before.

The trials of the past year have been met by the government with equanimity. Prime Minister Manmohan Singh's sober assessment is encouraging. “Our problems will not be over in the current year. The difficult period will continue into 2009-10,” he said. “The important point is that, although growth is lower, it is still much higher than most other countries.”

So long as that is the case, investment bankers in London and New York, alongside barley farmers in Rajasthan, will be happy to hurry India’s globalisation along.

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