In India a budget to be proud of

July 6, 2009

The free marketers are crying foul. In his budget speech on Monday, Minister of Finance, Pranab Mukherjee disappointed them by not detailing a plan for allowing foreign investment in the insurance sector, for privatization of public sector companies and of education.

Even as Mukherjee was making his budget speech, the Sensex of the Bombay Stock Exchange dropped.

To a large extent, big business led to its own disappointment by its euphoria after the re-election of the government of Prime Minister Manmohan Singh. Share prices soared on the stock markets as investors believed that the UPA, freed of its dependence on the Left parties, would now pursue a reformist agenda.

The term “Reformist” has usually been defined by business and the pro-business media in terms of free market policies that liberalize cross-border capital flows, open new sectors to private investment, and make labor markets more flexible (read ease out labor unions).

The evening after Mukherjee’s speech, the pro-business The Wall Street Journal is making a spectacle of itself, claiming interestingly that Mukherjee’s budget was ” a pretty dreadful spectacle”. Newspapers are expected to report and analyze, and not espouse causes, but that is a subject for another post, another time.

What industry and media like the WSJ mis-understood is that the Congress party, which is the main partner in the coalition government, has traditionally had a stand of its own on social policy, which is social democrat and far from pure capitalist.

Mukherjee used the budget speech to remind viewers that India was protected from the global financial meltdown because its large banks are government controlled and did not expose themselves to speculative activity, and stocking up on CDOs. He credited his former leader, the late Indira Gandhi, for nationalizing the banks when she was Prime Minister of the country.

By his focus on inclusiveness, on rural development, on expanding the economy through stimulus spending, Mukherjee has sent out a strong signal that social democracy is not dead in India.

By refusing to privatize education, and by in fact making a budgetary allocation for new IITs, Mukherjee is making the point that Pt. Jawaharlal Nehru’s strategy to spend on education and research as core competencies is still relevant.

Mukherjee’s budget in fact creates the opportunity for the emergence of more people from out of the pale of poverty, into becoming beneficiaries (and consumers) of the economic boom. The question is; will foreign investors decided this is a good market opportunity for them ? Or will they continue to demand what seems to be quite impossible in a country that is moving to its social democractic roots ?

There is some concern about the deficit in the budget, but at times of economic crises, deficit financing and government spending is the way out to stimulate the economy and create jobs. The challenge for Mukherjee is to rein in inflation when it happens, by a reduction of the deficit, and other appropriate fiscal measures.

There are also issues such as the implementation of the programs that aim to bring India’s vast rural poor into the mainstream of economic development. There will undoubtedly be leakages, corruption, and some of the money will not reach the target group.

But unbridled capitalism won’t solve that problem. Civil society and good politics can.


On nuclear deal, India’s communists move from “No” to “Maybe”

November 13, 2007

India’s communists, who had threatened to scuttle its coalition government with the Congress party over the nuclear deal with the US, is now softening its stance. The Left, which had earlier said that the government should not operationalize the deal, including negotiations with the International Atomic Energy Agency (IAEA), is now saying that the government can go ahead and negotiate with the IAEA, provided it does not finalize an agreement.

Communist Party of India (CPI) General Secretary A B Bardhan told Indian TV channel NDTV that the government could go to the IAEA, the UN’s atomic body as long as they don’t finalize any agreement, according to this report.

Now why should the Indian government and the IAEA go ahead and negotiate, when according to the Left there can be no deal ?

Clearly what the Left seems to be saying at this point is that in the interest of holding together the coalition government it may eventually go along the whole hog with the Congress on the nuclear deal with the US.

The reasons for the Left’s stance are quite obvious. One, it does not want to bring down the government. Traditionally its fear of the Bhartiya Janata Party (BJP) and other rightist parties have made it gloss over the flaws of the Congress party. Secondly, the Left’s opposition to the nuclear deal, and the underlying anti-American sentiment, has also not gone down well in the West. The Left, particularly in West Bengal, has been assiduously cultivating an image of being pro-business and investor friendly. So after the initial knee-jerk anti-American reflex, pragmatism has evidently got the better of the Left.

Even as the Left now finds it politically expedient to go along with the Congress on the nuclear deal, some of the substantial issues it raised against the 123 Agreement remain. These pertain to long-term national interests, and the Left cannot abandon them for its short-term political gains and for US investment in West Bengal.

As pointed out in an earlier blog, the Indo-US nuclear deal was flawed from the start.

I refer to “United States-India Peaceful Atomic Energy Cooperation Act” of 2006, which in fact forms the legal framework for the proposed 123 agreement, and was was devised to exempt a nuclear cooperation agreement with India from certain requirements of the Atomic Energy of 1954.

The Act does not however entirely protect India’s right to take decisions on its own on its non-civil nuclear program. It states for example that “a determination and any waiver under section 104 shall cease to be effective if the (US) President determines that India has detonated a nuclear explosive device after the date of the enactment of this title”. So if India detonates a device, the 123 Agreement goes up in smoke, and India will have to return nuclear fuel and other technology it obtained under the agreement.

So the 123 Agreement, in effect places limits on India’s ability to pursue a military nuclear program. When deciding to support the Agreement, the government and the communists should hence weigh the benefits for India’s civilian nuclear program against the risks for its military program. There may be no point in arguing that US supplies to India’s civil program will free nuclear resources for use in the defense program, if the defense program is itself circumscribed by US rules.

That we take the right call on this becomes all the more important in the wake of instability and unpredictability in Pakistan, which has nuclear bombs, and also China’s own nuclear arsenal.

Related article:

The Indo-US nuclear deal was flawed from the start

American self-esteem in a flat world

November 12, 2007

I recall sitting with an American friend at a top-notch restaurant in Bombay (now called Mumbai) in the early 1990s. At a table close to us were some Indian female models. My American male friend boasted that he could pick up one of them anytime. “ They will certainly join me if they know I am an American,” he added very casually.

In Taipei, a couple of years later, a Taiwanese girl was chatting animatedly with an Indian. We were all part of a large multinational group. An American, whose amorous interest in the Taiwanese girl was well known, was overheard from the other end of the table, “What does she see in that guy ? He is only a bloody Indian”.

First world self-perceptions of invincibility are taking hard knocks in Asia and around the world. All the top US companies, including IBM and Intel, had Americans or Europeans in top positions in Asia, and many of them enjoyed a position and lifestyle akin to colonial viceroys of yore.

Today not only are most of the top positions occupied by Asians, but Asians are occupying top positions in the US as well. Now Cisco plans to have 20 percent of its top management in India, most of whom will be hired locally.

Why was the American knocked off from the pedestal. I think it was the boom in the Asian economies, and dollops of national pride in these countries. The resurgence in national pride started in the early 1990s in countries like Malaysia, which admired the American model, but did not see the need to be pliant to Americans.

As local markets grew, it became quite clear to multinational companies that they had to adapt and get more inclusive, appoint local bosses. After a number of abortive joint ventures with American and European companies, Asian companies also saw the virtues of going it alone. In a radical shift in attitudes, that reflected the economic success of Asia, companies in China, India, and rest of Asia started to be wooed by Americans and Europeans for business.

Offshore outsourcing also tore into the American veil of invincibility. The American’s job could be done as well, if not better and more cheaply in Asia. There were brainy guys there too, as was evident from the large number of Indian and Chinese engineers who made it big globally.

Attitudes towards the American and America has also changed to a large measure in Asia. The greenback lost its sheen to local currencies, some of which were only getting stronger. If earlier, educated people from Asia made a beeline to the US for jobs, now there is a queue back as the local economy is generating jobs that are lucrative in the local context. To be sure there are those for whom living in America is still the ultimate dream, but these are getting fewer by the day.

YouTube sued in India for copyright infringement

November 7, 2007

Google Inc. and many Internet companies hold that they cannot be held liable for whatever happens on their video sharing and social networking sites. Telephone companies aren’t held liable if people plan a murder over the telephone, so why should Internet companies, according to Google.

An Indian company, the makers of the T-Series music and videos, thinks otherwise. It has sued Google and YouTube for allegedly infringing its copyrights, as a lot of its copyrighted content is claimed to be available without permission on YouTube. A court in Delhi has passed an interim restraining order on Google and YouTube which would require YouTube to pull down all content on their site that could be in infringement of T-Series’ copyrights, according to this report in InfoWorld.

Google has been pushing for an amendment to section 79 of the Indian Information Technology Act 2000 that will remove the liability of network service providers for content posted by users. The current version of section 79 requires that the network service provider prove that the offense or contravention was committed without their knowledge or that they had exercised all due diligence to prevent the commission of such offense or contravention.

Interestingly, T-Series seems to have filed the case under the Indian Copyright Act, and not under the Information Technology Act, according to this blog. The lawyer for T-Series is quoted by Infoworld as saying that YouTube is not a neutral intermediary but a web site that makes money from clicks on advertising on its site.

The dispute between Internet sharing sites and media companies is unlikely to get resolved anytime soon. There have however been moves by companies like NBC Universal and Walt Disney and other media companies who announced last month a set of guidelines for user-generated content (UGC) services, without infringing copyrights. Among the measures proposed is the implementation of filtering technology with the goal to eliminate infringing content on UGC services, including blocking infringing uploads before they are made available to the public. Google was not among these companies, though MySpace was part of the annoucement.

Google seems to be worried that too much control may make sharing and social networking sites less popular. The issue is about how much of control. The media companies are willing to allow fair use of copyrighted content, which is what is required for the flowering of creativity around orginal content. Lowering controls beyond that would be a license for illicit use of copyrighted content.

Just as media companies want to push for copyright enforcement on networking and sharing sites, there is a section of government and society in India that is pushing for greater control over what gets posted on these sites. The offer by Google and other Internet companies to pull down objectionable material post-facto is not seen as good enough. If there can be filters to prevent uploading of copyrighted material, why can’t tech savvy companies come up with filters for pornography for example. Google should listen rather than play the same old tune of intermediary neutrality.

Related article:

Google says don’t shoot the messenger

Pakistan developments a threat to India

November 5, 2007

India has responded with diplomatic propriety to the imposition of emergency on Saturday in Pakistan. Terming as “unfortunate” the developments in Pakistan where emergency has been declared, Defense Minister, A K Antony, on Sunday said a stable government in Islamabad was good for that country as well as for India, according to this report in The Hindu newspaper.

Indian officials are however in private worried about the impact of the emergency on the Talibanization of Pakistan, and the overall growth of fundamentalism in that country.

The imposition of emergency rule, and the marginalization of both political parties and institutions like the judiciary, leaves Pakistan in a political vacuum that the fundamentalists will try to fill.

The fundamentalist elements, besides targeting Afghanistan, will also target India, stepping up its demand for an independent Kashmir. Kashmir is now partially under Pakistani control with the rest of the territory under Indian control.

The Indian government has maintained in the past that terrorist attacks in India were often perpetrated by Pakistanis with support from intelligence agencies and the military in Pakistan. The intelligence agencies were also accused of running training camps for separatists.

The fundamentalists in Pakistan are likely to attempt to move beyond the Kashmiri separatist agenda to a broader fundamentalist agenda in India. India has a large Muslim population who the fundamentalists in Pakistan would want to bring to their fold.

The other danger is that fundamentalists have already infiltrated the army and the intelligence agencies in Pakistan. While Musharraf’s government continues to receive US aid, positioning itself as an ally in the “war against terror”, the army and the intelligence agencies may subvert his agenda, and give the terrorists a wink and a nod both for their activities in North West Frontier province, and in Kashmir and the rest of India.

In an interview to ABC News, former Pakistan prime minister Benazir Bhutto said: “There’s a very slim line between what are called Musharraf’s people and the terrorists who tried to kill me in Karachi”. Here is a link to the interview.

India’s options are few. As in the past its view will not count in international diplomacy as long as the US is intent on backing Musharraf. Pakistan was viewed by the US as an ally against terror, even though India had frequently expressed concerns about Pakistan stoking cross-border terrorism.

What Pakistan does in Kashmir does not concern the US a lot, as it is not seen as an important theatre in its war against terror. The US is concerned about the presence of Al Qaeda in the North West Frontier province, and there Musharraf holds the cards.

Related articles:
US support to Pakistan unaffected after martial law
US impotent before “buddy” Musharraf

In India, lots of spending on poor quality

October 27, 2007

Over the weekend in Bangalore, I had promised my daughter I would take her to an up market store that sold a variety of breads with exotic names and ingredients ranging from olives to sunflower seeds.

On Saturday morning, we braved the maniacal traffic and went to this place, only to find that the breads were two or three days old. The cheese-and-garlic loaf, a favorite in our household, was three days old, according to the label. An employee graciously recommended the wheat bread that was only a day old.

Close by is a Chinese restaurant that serves Indo-Chinese food, a mix of Chinese flavors and a pungent Indian idiom. The “ drums of heaven” there are usually soggy, while their noodles can be very sticky.

But the bakery and the Chinese restaurant continue to attract customers by the droves. They stand in queues outside, something unthinkable say a decade ago when most of Bangalore eat home-cooked food. A number of restaurants, with claims to offer Thai, Spanish, Italian, Provencal, Egyptian and other varieties of cuisine have also sprouted across the city. The fare is in most cases indifferent, but that does not deter customers from queuing up and paying exorbitant prices.

That had me surprised until I recalled an old, but no less relevant it seems, concept in sociology. An eminent Indian sociologist, M.N. Srinivas, observed in his field studies among one some of the communities in India, that the castes positioned lower in the hierarchy tend to imitate and modify their culture to resemble that of the dominant caste in the locality. Srinivas called the phenomenon Sanskritization, as the values and culture that tend to get imitated by the new social upstarts were the Sanskrit, Brahmanical ones.

What does this have to do with the large number of crowded restaurants and malls in Bangalore ? A lot, I think. Unlike previous upstarts, who believed that assimilating Brahmin and Sanskrit culture, rituals, and customs was key to their social climbing, the new upstarts have in a strange twist decided on American culture as the dominant culture to be imitated and assimilated.

These days Indians have wine tasting parties, to refine their taste for something they never consumed earlier. You have chefs of five-start hotels and other, usually self styled gourmands, writing in the society pages of newspapers on the finer points of rare delicacies like caviar and truffles.

A lot of affluent Indians are turning their back to their own rich and ancient traditions in food, dressing, and other aspects of culture, to a new world of mainly American kitsch. They are getting there rudderless and without discernment, creating an opportunity for a new set of consultants and purveyors of culture, most of them parvenu. Add to them snooty restaurateurs and five-star chefs. If you find the pasta sticky, don’t complain to the chef. He is more likely to turn around and tell you, without batting an eyelid, that is how pasta is eaten by the Italians. Probably he is learning too.

Maybe this is a transitional phase, but these days in Bangalore, and most of urban India, good food is a rarity, particularly if the idiom is not Indian.

Media, analysts love to knock down Indian outsourcers

October 15, 2007

It is probably got to do with the success of the Indian outsourcing industry, or can be perhaps put down to an unconscious resentment that the Indians are close to challenging big global services companies. Or maybe they are just plain lousy in their forecasts.

The fact is that a story about Indian outsourcers going down the tube, or almost down the tube, sells.

It started with stray incidents of data theft in Indian call centers. Adopting a shocked and sanctimonious stand, the media and analysts tried to embarrass not only the outsourcer affected by the data leak, but the entire Indian industry. The media quite forgot that there are more incidents of data theft in call centers in the UK and in the US. Reporting on data theft got less popular after an exasperated Nasscom lay bare these comparative figures on data theft.

Perhaps to be fair to the media and analysts, it was only goading India to do better. After strong measures by Nasscom, a local trade body which believes that India should raise the global bar on best practices, there haven’t been incidents of data theft reported in recent months from India.

As India got successful, and not only Indian outsourcers but multinational technology companies like Dell Inc., Intel Corp., SAP A.G., and Oracle Corp. started expanding their operations in India, the prophets of doom started forecasting over two years ago that Indian workers were getting too expensive, were getting too difficult to hire. The upshot: India was going to lose its competitive edge to China, Vietnam, and the Philippines.

They miscalculated on a number of counts. Yes, Indian engineers and other workers were getting a little expensive, but where else do you find such a vast talent pool to set up development centers or call centers with thousands of staff ? Even if Indian staff is getting expensive, the quality still seems to be in the favor of the Indians, else it gets tough to explain the continued expansion in India by multinational companies.

The proverbial last straw for the Indian outsourcer was said to be the weakening of the dollar. Indian outsourcers were expanding outside India because the strong Rupee was killing them. Once again it was overlooked that setting up some near-shore centers to Europe and the US would not dramatically change the economics for Indian outsourcers, but were only designed to improve customer comfort-levels with the outsourcer.

Instead dramatic cost-cutting, which Indian outsourcers are good at with their process focus, seems to have done the trick.

Less than a week after Infosys Technologies Ltd., said it had improved its margins despite the weaker dollar, Tata Consultancy Services Ltd. on Monday said that it had got around the currency impact by hedging and cost cutting. TCS’ revenue and profits grew 45 percent in the quarter ended September 30.

Wonder what the pundits will come up with next ?

Related articles:
Indian outsourcers not yet hit by weak dollar
Indian outsourcers not floundering, not migrating