Saturday, June 28, 2008

Policy Innovations

Vasu Reddy from Chicago

Effective politics have always used innovative schemes to attract voter blocks. Many such policies are short lived while effective in pleasing the appetite of the electorate. The subsidized rice scheme which provides a kilo of rice at two Rupees is a great one and has been used several times in the last 25 years. The great fan fare this attracts at election rallies is phenomenal, and perhaps brings votes to the party that subsidizes Rice at such low price. This is not a clever policy but a populist political scheme, which really doesn’t do justice to the budgets of any state.

Indians, especially Indians in the opposition parties decry of political opportunism whenever we hear of such schemes, but never really protest against it. The ruling party can pretty much establish policies that are popular and cost a lot of money to the treasury, most times money that is not budgeted. The Indian democracy is happy with fighting market forces. The latest issue with the uptick in oil prices is a great political rabble-rouser for opposition parties. No one is bothered that the price is following the demand and supply theory. Not a single indicator shows the consumption is lower because of the gas prices, but opposition parties make it an elections issue and blame the government for a market driven issue. Capitalism should never forget the demand and supply principals, but the opposition parties conveniently forget that the democracies with capital market will never be able to control the true forces of global economies.

Collecting maximum amount of money for making public any resources owned by the Indian people should be a normal practice, as it would be in any democracy and be of benefit all people of the country in general. India has been a free country for decades and should start practicing the true logic of being a democracy and a capitalistic society. Every democratic country on earth should do this, and India should start to lead the way to all others. India and its politicians should not be against globalization of Indian markets, rather embrace them. We should not forget the foray of Tata into many markets, along with many other Indian corporations foraying into to purchase of companies and assets outside of India. If a Vodaphone is willing to fork out a few billion for purchasing a piece mobile markets we should welcome it, rather then prohibit it. Be it in communications or in medicine or any other industry India should be aggressive in allowing and going after industrial globalization. Only when you sell is when you realize the true value of what market believes your true value is, and as the rest of the capitalistic world does, the Indians should also try and realize the potential of their true value. Most often then entrepreneurs who sell their businesses go back and invest in their next enterprise, and create more value for themselves and people around them.
The classic Indian business heroes are worshipped initially and when they start achieving valuations in markets that crowns them as leaders in their respective industries, they start becoming national figures with their businesses becoming big enough to employ tens of thousands of people, and their clout in Delhi big enough to favor their market position. Unlike any other capitalistic democracies, Indian success stories are fabled as India’s pre-British leaders, who forever are looked upon as legends. They certainly deserve the stature for path-breaking in their contributions to masses of Indians, who show reverence to leaders.

The past two decades have given added reverence with the late Mr. Dhirubhai Ambani creating an empire that is the most valuable enterprise in India today, and he had no roots like a Tata or a Birla. Looking up to Mr. Ambani even after his death is a natural inclination where a country full of dreams can dream of achieving what he did. It is a perfect example of a simple man achieving the capitalistic dream with hard work and attitude to achieve aspirations that are beyond a common man’s abilities. The well made movie “Guru” in 2007 although dramatizing his story, well reflects the journey of a determined man to achieve great successes. Many such stories outside of Reliance have become common place in India, and the evolution of Information Technology, Telecommunications, Medicine, Construction, Real Estate, Automotive and all ancillary and support services have made it possible. Much has changed since the advent of economic reforms started with Late Mr. Rajiv Gandhi’s tenure as Prime Minister, and especially when Mr. Narasimha Rao was the president with the current Prime Minister Mr. Man Mohan Singh was the Finance Minister and Mr. Chidambaram was the Commerce Minister. In fairness many of the senior bureaucrats today were young and upcoming bureaucrats at that time, and have continued to do good work on helping the country become an economic engine that has been growing rapidly through the past fifteen years or so.

Despite the growth and development, India suffers from protectionist mind frame especially from political opposition. Each of India’s big business successes come with global participation, technology, funding and expertise. When we are able to integrate the organizational and economic fundamentals of others into our culture and develop great value from the outsider’s influence, there is nothing wrong in trying to allow them to become a part of our enterprise. When an Indian company acquires a company outside of our own shores, what is wrong with us allowing them to integrate into our enterprise?

Global participation allows for maximizing the value for the enterprise and the individuals who own the enterprise. Shareholders benefit when they are allowed to sell their stakes to whosoever pays the maximum value. People invest to make money from their investment and would like to maximize their profits, and India and every other democratic nation should allow their people to obtain maximum value for their investment.
When enterprises seek measures to benefit only their interests the government should reject them, but when markets seek reforms to grow the government should support them. Taxation and tariffs should be minimal to allow enterprises to reinvest and grow more rapidly, and government should accept that it is demand and supply that makes markets what they are. There is not a single democratically elected government that has been successful in managing low inflation, high economic growth, with completely satisfied public opinion and manages to stay in power for as long as they would like to. There is no Utopia on earth and our country is far from being one.

Telecommunications is one area where there is ample room for government to become proactive. The upcoming 3 G auctions can yield great benefits for the treasury to cover much of the inflationary pressures on the government. Continued growth in subscriber base will deliver sustained and growing revenue for the government. Perhaps a partial public offering of BSNL will net a handsome reward for the government, while making the lethargic enterprise more competitive. Creative and proactive policy making is possible and is not against the interest of the public and markets, and it can deliver value, growth and employment. The government doesn’t even have to think of being creative if they simply use commonsense approach to policy making. Good policies sustain for long term and deliver sustained growth.

To have protectionist polices is good when protecting national treasures, or resources, and its people. Our innovation should be in value creation and not with restrictions to economic growth. Policies that favor wealth creation should be encouraged. Policies that foster true globalization should be encouraged. Definitely policies that sustain economic growth should be sustained.

Tuesday, June 03, 2008

The New India Company

Vasu Reddy from Chicago

India’s national interest is in making Indian management and investment successful in the world and outside of its own well defined confines. There is no questioning on the Indian minds being some of the best in all fields of business and global affairs. The technology and information boom of the last decade has transformed services industries around the world with major contributions from Indian resources. Many IT services companies from India have not only become billion dollar profit makers but also become entrenched in every aspect of global technology development. Decades of excellence in medicine and science has always been the Indian forte, but last decade has seen Indian enterprise freely expanding and reaching markets that once were even difficult to visit.

The shareholders of these booming companies have continued to realize the benefits of betting on these now global companies early. Not underplaying today’s volatility of the Indian and global markets, it is nevertheless these IT pioneers have created dramatic and everlasting changes in the Indian economy and life styles, while also attaining the financial results over a decade that please any long term investor. These companies seem to make bold and long term moves to keep growing and entrenching into local markets around the globe. They have started not just to rely on Indian resources, but now actively integrating into global teams, thereby ensuring the acceptability in local conditions while maintaining the Indian component.

Also, the oldest brands in India are no longer being looked down. Tata acquiring Range Rover and Jaguar is a fine example of India’s enterprise is not just competent but is also best suited to tackle global issues and create value for its shareholder’s on a global basis. Any company that bring “Nano” to becoming a reality and also acquire the brands of Range Rover and Jaguar in the matter of months should have the stature of thinking globally. There have been many instances in Steel, Medicine, Manufacturing and Mining that have seen Indian enterprises successfully acquiring foreign entities. Not until recently these examples of once in a blue moon global participation has now become thing of reality for Indian enterprise. IT companies also have been quite aggressive in acquiring companies and resources globally, and auto manufacturers have been exemplary in bring not only brands to India in partnerships but have built long term relationships that have brought technology and abilities that have been making affordable cars while making driving an impossible task.

There is no looking back at this stage as Indian economy is able to withstand the downturns and inflation comparatively as well as other developed nations. The daily discussions on the value of the Rupee and price of gold in global standards are indicative of capital markets that prosper in democracies. Market forces are being driven independent of politics, although a touch of bureaucracy is still a model of functioning in India.

Bharti and Reliance going after a company such as MTN is a great example of the telecommunications companies of India coming of age. There are no absolute leaders in telecom, and whosoever has the money and the ability to convince the regulators of the world can become a part of the global telecom management. It will be wonderful for Indian entities becoming a part of the overall management of global markets in telecom. Te Indian success with bringing value to all customers with mobiles and communications can add to the still growing markets in developing nations and further drive the economies of these markets. There is no immediate end to value addition to the communications markets and many of them still are in their infancy with market penetration and services.

If there is a model of success in telecom that the Indian markets have derived in the last five years, and if it can be deployed in other nations, the value of such exercise can flow into other commercial and trade arrangements enhancing the ability of Indian enterprises to do business in countries where there is little or marginal trade today.

The participation in a global telecom market will also influence the Indian economy to start looking at external forces to drive further changes into its commercial, financial and banking practices that will eliminate any current impracticality of the emerging systems to be more competitive and proactive to deal with the global Indian company. While India continues to embrace systematic approaches to regulations, it still has enormous strides to make in policies and procedures for fully market driven business environment. The global Indian company can begin to eliminate negative market forces that may have curtailed the real possibilities of what the country’s true potential could be.

Emerging into a global company can be quick and managing globally should not be a great task, provided the Indian company believes and behaves as a global entity. The continued privilege of the large enterprises in India is not a part of the global culture, but each country has its own local giants. When you combine these diverse but likely benefactors the benefits can be immediate and enormous. About 20 years ago India was looked on as a third world (along with China and Brazil) country, and today it has made giant strides in growth in real and human capital.

If there is an opportunity to expand the Indian company it is now time. Many countries can use the learning of the Indian company from the past two decades, and build similar and local models for dramatic economic growth. Communications will help every individual and rapid growth in communications will lead to rapid economic growth.

The big Indian company should start aggressive and good deal making, while embracing the global markets. Size matters in being big, and seizing the opportunity to become global should be done now, and with great care and organization that will continue to foster the growth of the Indian company and the markets it embraces.

Past Perfect

Vasu Reddy from Chicago It has already happened. Past is already on the books, recorded, and can’t be changed.   It ...