Raju & Satyam

Here's a Facebook exchange I had with Ambale :-)

Vivek is laughing over: "Raju, Raju - Yes Baba; Cheating us - No baba; Telling lies - No baba; Open the balance sheet - HA HA HA!" 8:49am - Comment

Udayan Dasgupta at 11:57am January 10

here i lose money on moronic raju and someone tinkers with nursery rhymes for a laugh ... sheer poetic injustice :-(

Vivek Subramanyam at 2:08pm January 10

@UD: Ouch.. hope the damage on Raju was not too bad. Anyways, tinker with a nursery rhyme and I assure you - you will feel better!

Udayan Dasgupta at 8:34pm January 10

hmmmm ... lets give it a shot ...

Raju with intentions very ill
Cooked Satyam books and stock prices went up Banjara Hill
Then he tried to buy Maytas with money only on paper
The deal broke down
Raju lost his crown
And Satyam came tumbling after

nope i dont feel any better ...

Slugfest @ Indian domestic airlines : Kingfisher, Jet and Indigo fight it out

 

Soft drink brands are infamous for advertisements which focus on spoofing the rival brand's copy ( think Pepsi vs Coke, Mirinda vs Fanta, 7Up vs Sprite ) ... hence the term "Cola Wars". Understandably, with sugared water its difficult to create meaningful new USPs ... so this is probably the easiest way to ensure sustained recall and interest  in the target consumer's mind.

With increasing competition in the Indian domestic airline sector here are a couple of intersting "Cola War" type of ads I've noticed recently :

1) Kingfisher takes on Jet ( before they decided to work together for synergy savings earlier this month ) : Jet put up the first hoardings announcing changes in their branding graphics, crew uniforms, in flight entertainment etc. Within a few days Kingfisher had hoardings erected right above the Jet hoardings claiming that Jet's change was actually forced by Kingfisher's superior services.

2) Indigo takes on Kingfisher :  Kingfisher's brand tagline is "Fly the good times". Of course with the economy in doldrums, rising oil prices, high operating costs the times are not really good. Jet and Kingfisher decided to put their rivalry on the backburner and save some money by synergizing operating costs, laying off personnel,  rationalizing the routes / # of flights between city-pairs and jacking up airfares. 

Indigo one of the leading "low cost" domestic carriers, capitalizing on the situation announced that they continued to exceed consumer expectations in terms of service quality and pricing both in "good times and bad". Just to really rub it in they captioned the ad "Let the bad times roll" !!! 

Both these counter-ads, though confrontational are factually correct. Jet was forced to transform a number of their services in order to stay competitive post the launch of Kingfisher. Also with the price hikes across the domestic airlines Indigo continues to offer the best deals ... at least in the Mumbai-Kolkata sector ... I speak from personal experience coz I just bought Indigo tickets for our mini-vacation in Kolkata this November :-)

Will India have a sub-prime crisis situation ?

Looking out this is what I see from my window ... an apartment complex which was being constructed at record speed until 2 months ago ... suddenly all deserted and abandoned. There are many such half-finished projects in Mumbai ... and completed apartment complexes which are not finding any buyers.

The real-estate market in Mumbai is in a state of suspended animation ... potential sellers not willing to bring down prices and prospective buyers waiting with bated breath for the inevitable price correction ... obviously no one wants to make the first move. 

Eventually however owners and builders who are holding on to apartments will succumb and the prices should come down by at least 30%. Thats why builders have lost interest in completing constructions or starting new projects.

So yes, there will be a Real Estate price correction in Mumbai and even more so in the rest of India. This is your usual demand-supply game in which the spanner of global recession, liquidity crunch and negative sentiments has been thrown in. 

However this is nothing remotely like the sub-prime crisis in the US ... and India will definitely not have a "sub-prime" crisis ... and for this we need to be thankful to multiple stakeholders ... the Indian banks, builders, the Government and finally ourselves :-)

First of course the Indian Banks who had the foresight to disburse home loans based on the income / earning potential of the individual and not the projected future value of the house that was being purchased !!! This is in sharp contrast to US Home mortgage agencies Fannie Mae / Freddie Mac ... whose sole reason for existance was to dole out mortgages to any jobless / homeless tom, dick, harry or even their grannies if they wanted it !!!

Freddie & Fannie actually got banks to dish out the loans. The Banks knew what they were getting into so to cover their asses they got the "smart-alec" i-banks into the act. These dudes created AAA rated securities with these mortgages as collateral and sold them to institutional investors ... insurance companies, banks etc thus spreading the shit far and wide ... the base assumption was that since house prices would keep rising the shit would never blow up in their faces. That assumption unfortunately was terribly wrong ... none of this will of course happen in India coz ...

Our government never had the time to dabble in mundane things like housing for the masses ( the roti, kapda, makaan rhetoric was thankfully only for election speeches and never implemented ). So India never had the equivalent of a Fannie or Freddie or any of their clones which the US Govt created post the great-depression ... thank god for that !!! 

Ironically the very same institutions which helped the US economy to come out of the Great Depression has now propelled US into the next mega recession !!!

Our builders mostly smalltime shrewd marwaris know the supply - demand paradigm better than any of those now jobless i-bankers ( ie. Goldman Sachs, Lehmann Brothers et al ). They never constructed or released enough houses to meet even a fraction of the pent-up demand of millions of Indians who still dont own a home. This ensured that they were able to price whatever they did construct astronomically so in any case most Indians were not able to afford houses !!! So thanks to the millions of citizens of our great nation for not being able to afford homes in the first place ... where there are no homes there is no crisis :-) 

India is also a nation of "savers" which also goes a long way in "saving" us from a crisis like situation ... the perils of "aamdani athanni kharcha rupaiya" is something we truly understand ... unlike our american bros who go to the extent of taking out a second mortgage on an existing mortgaged house to pay off credit card dues which was used to clear previous credit card dues ... I may be exaggarating a bit but you get the idea.

So net net of course we are feeling the ripple effects of the US recession and will continue to do so over the next many months ... thats the pitfall of open markets and our exposure to the global economy the extent of which remains to be seen. One thing for sure : there is no possibility of an "indian sub-prime" crisis triggered by murky real-estate mortgages to aggravate the situation in India.

Will Uncle Paulson save America ???

Check out the uncanny resemblance US Treasury Secy Paulson ( minus the goatee and toupee ) has to the true blue Uncle Sam and he also strikes the same pose !!! 

Paulson is on a sticky wicket though ... with the US senate yesterday refusing him the $700 Billion he'd asked for to save the US and by domino effect Global financial system. While the sanity of injecting billions of dollars to buy out mortgage based junk assets from US Banks is debateable ... it does seem like the only way to quickly stop an immediate meltdown - So much for capitalism, Milton Friedman and free market economics !!!

If he fails he'll be "Sach"ed unceremoniouly else he'll surely become an iconic Uncle Paulson !!! 

Photos courtesy : Rediff.com & Wikipedia ... stitched together on MS Paint

Two Indias : A visible divide

I wonder if in any other nation there is such a stark urban-rural divide as there is in India. The visible chasm between the top 500 cities in India and the rest of the towns and villages is enormous.

In an earlier post I'd touched on the repurcussions of such a gap and the influx this causes into our big metros ... but till recently this gap was only a perception in my mind. It was only during a recent visit to a village ( and this was not even deep rural ... only about 50 km from Pune and an hour's drive ) that I got to see this divide first hand.

India Rural :

 

At the Paud village I took a few snaps of the village center and a shop where I tried to buy a bottle of mineral water ( without luck ) ... 

India Urban :

 

The Big Bazaar in Pune on the other hand stocks 8 different brands of mineral water ( including Evian if you have the moolah !!! ).

Tata Nano : Singur to Maharashtra ?

Mamata Banerjee is at it again. Just when the first Tata Nano was being readied for the October launch she had to throw a spanner in the works. Where was Mamatadi when the project was conceived 6-7 years ago, why was she silent all this time and what made her suddenly "wake-up" + "take-up" the cause of the farmers ??? Obviously this is nothing but a desperate gimmick to stay in the news.

I understand she is demanding 400 of the allocated 997 acres be returned to the farmers unless the government doles out a significantly higher compensation to the farmers. The government has already paid the farmers INR 12 lacs per acre. Agreed that the land rates have gone up since ... but the rates would not have gone up without the Nano factory in any case. Land for such projects is always bought at prevelant rates during project commencement and its not possible to keep compensating owners for future price hikes !!!

The irony is that no one gains from this :

a) West Bengal as a state loses as no other big project / investments will come to the state in the near future if the Tatas withdraw now ... even if they dont this whole issue will be a huge disincentive for anyone considerig setting up shop in WB.

b) The farmers may get some short-term gains if there is a compromise ... but in case the project moves away from Singur the local population will surely lose out on long term development of the region.

c) The Tatas of course lose time, money and business opportunity ...

d) Mamatadi herself suffers credibility erosion for taking up a Lose-Lose-Lose ... cause. If only someone could drill some sense into her !!!

Not in a mood to relent ( and rightly so I think ) Tata Motors is already formulating Plan B ie. moving production base to a more hospitable state ... and many have already extended an open invitation. Wont be easy to uproot a factory and transplant it ... but knowing the Tatas they will do the right thing for the long-term rather than try to buy a short-term compromise.

West Bengal's loss could well be Maharashtra's gain.

Ahmedabad malls

Was pleasantly surprised to see the number of malls which have opened up in ahmedabad over the last 3 years !

The reliance mart is huge and matches up with any hypermarket globally ...

More, bigbazaar, reliance, adani,vishal mega mall etc are just to name a few ... And there ar so many other smaller self-service outlets ... Signs of the changing retail scene in india.

India warning on globalisation

There has been speculation if an economic meltdown is in the offing in India ... here's my 2 cents worth :

All this speculation of "meltdown" is hogwash ... India's libralization has been more organic and controlled than most other economies. I really dont think there is any risk of repeat of a South Asian crisis OR Latin American volatility out here ...

Early growth did come due to internal ( to India ) restructuring eg. the dismantling of the licence raj, increasing the sectors where private businesses could participate etc ... this was true more in the 90s ... not anymore.

True, the growth here has not been broadbased ... but really it cant be expected in a country of our size in such a short time ... even in China there is a clear divide one u move out of Beijing/ Shanghai / Guangxhao which are their economic showcases ... only we dont get to see / hear too much about it.

Till date liberalization has impacted the service / mfg sectors and urban india, say 200 mill of our 1bill + population ... gradually the govt is focusing on agriculture / rural india ...
In fact this "phased" nature of liberalization to my mind is the best safety valve against a potential meltdown.

India today and in the future

The Story today ( excerpt from "In Spite of the Gods : The strange Rise of Modern India" )

“…To me, the new expressways provide an intriguing juxtaposition of India’s multi-speed economy. One of the best ways to observe India’s galloping new economy is to count the number of car brands that whirr past in the fast lanes…Toyotas, Fiats, Hondas, Hyundai, Fords, Volkswagens, Skodas, Mercedes’, Rolls-Royce…But your speed on the expressway is never quite what it should be. Coming far too frequently from the opposite direction are scooters, bicycles, camel drawn carts and goat herds. It is to the side of the expressways in the glaring bill-boards advertising mobile phone, iPods and holiday villas and in shiny gas stations with their air-conditioned mini-supermarkets that India’s schizophrenic economy reveals itself. Behind and around them is the unending vista of rural India, of yoked bullocks ploughing the fields in the same manner as they did 3000 years ago, primitive brick kilns dot the endless patchwork of fields of rice, pulses, wheat and oilseed. Along the way you might also find the glimpse of an occasional factory assembling washing machines or making accessories for automobiles. There are pockets of rural India that are becoming prosperous but they are truly islands. In this almost continuous contrast you observe the two most striking features of India’s 21st century economy: booming service sector in a sea of indifferent farmland…”

Consumer Landscape

• Population will continue to grow, till in 2025 it overtakes China. Nuclearization of households in Urban India will drive a faster household growth rate. However, number of households in India in 2025 will be less than that in China in 2000.
• Urbanization will progress at a very slow pace (29% in 2010 vs. 28% in 2005), compared to China (47% in 2010 vs. 36% in 2005). 10% of households will be concentrated in the Top 35 cities; whereas 71% of households (rural) will remain dispersed in 0.6MM villages.
• It will remain a young population with 27% of the population below 15years in 2025. Not surprisingly, India has the largest baby population in the world.
• Adults living with kids (56%) and Single Adults (22%) will continue as the top 2 household types. Nuclearization of families will lead to significant increase in “empty nester” + “old/ retired” people living without children (19% in 2025 vs. 13% in 2005).
• Though employment in services sector will grow (19% in 2025 vs. 11% in 2005), most people (51% in 2025) will continue to be in agriculture.
• The average household income will keep increasing at 6-7%p.a. The number of “rich” (annual income $10M+) will triple and those in middle income will increase by 50% in the next 5 years. The rich people will be concentrated in the Top cities, while bulk of India will continue to be low income and live in rural areas.
• Housewives will continue to get busier with more of them working outside the house in addition to managing the house. 37% of India housewives work (in 2006) up from 35% (in 2003). This is being led by both urban and rural increases in women working.

Economy Landscape

• The GDP is expected to grow at 6-8%p.a. over the next decade. This will fuel the increasing incomes across India.
• Increased investment in infrastructure can lead to significant changes in consumer lifestyles. Increased investment in agriculture can step change agriculture growth rates, step changing the lives of many rural people. Only 1/3rd of rural India has electricity; electricity consumption in India is 40 index of China and 20 index of Brazil. Retail Landscape
• While HFS outlets will dominate rural India and smaller towns, organized “modern format” retail outlets will grow (20%p.a.) in the Top cities.
• Government relaxation of the FDI regulations into Retail could significantly step change the salience of Modern Retail in the Top cities. Reliance Industries, Food Bazar could become the largest Indian players in Modern Retail. Wal-mart, Tesco, Metro, Carrefour are all looking to set-up/ expand operations in India.
• Wholesalers will remain an important agent in making goods available to HFS stores in rural areas and smaller urban towns.
• Beauty Stores (focused on women beauty products and accessories) are growing 2X the national growth rate of Beauty Categories.
• “Direct-Selling” as a channel is growing at 15%p.a. and is now estimated to be about 600-700MM in sales. It is estimated to cross $1B by 2010. Health and Nutrition accounts for 50% of the channel sales.

Media Landscape

• Television is and will continue to be the most penetrated communication vehicle across urban and rural India.
• Radio is the media vehicle with #2 reach. Given only 1/3rd of rural India has electricity, battery operated radio is an important supplementary medium that we have qualified.• Use of cell phones is growing – while more than half of households in Top cities have a cell phone, only 7% in rural India have a cell phone.
• The penetration of Internet is growing at 8.5%p.a. While 40% of management employees living in top cities use the internet, on an overall basis only 1.8% of India uses the internet. We are learning on this.

Looking ahead on the Indian economy

Macroeconomic Premise : "Globalization" happens when countires choose to dismantle or at least reduce economic barriers
amongst themselves. This naturally leads to a "Free Flow" of trade, manufacturing, services, manpower, investment funds all
at varying degrees depending on how the respective governments design their policies.

Microeconomic Premise : Companies are constantly competing to increase revenues ( topline ) and reduce costs ( bottomline ).

Globalization is giving them options to reduce costs like never before.
The above 2 premises in very simplistic terms explain the Global Economic trends we are witnessing. What does this mean for us in India ?

1) In the next 15 years Asia's total share of the global economic pie will move up from current 35% to above 45%. No prizes
for guessing which 2 economies will drive this. While China & India will grow at scorching rates touching 10% compounded, the
US will trudge along at about 3%.

2) The workforce is becoming increasingly Global as "geographic" boundaries fade away ... driven by economic realities and
technology advances. ( In P&G I see increasing numbers of "location-independent" assignments ! ). India by 2020 will
contribute another 150 million skilled personnel to the "global workforce" ( US will contribute only 15 million ). My
personal theory is that the only jobs which will continue to he "location-specific" are the ones which need company interface
with its customers since its hard to replicate personal relationships and interactions. The rest of the jobs need to move to
whichever location gives cost-advantages.

3) Per Capita Income from today's $750 is projected to hit $3500. Just imagine what this means in PPP terms. This is natural
as there is a "work shift" from developed economies to India / China. There will be an "averaging" out of salaries globally.
While salaries in developing markets will see continual increases ... the salaries in the developed markets will see a
gradual decrease ( if the jobs are not directly shifted ).

4) Looking at the big 4 developing countries ( BRIC : Brazil, Russia, India, China ) Brazil is already stagnating since its
not really "low-cost" anymore. Mexico which earlier provided a "low-cost" manufacturing option to savvy US companies is now
losing out to China. In this "free flow" India and China need to be very careful lest some other country hijacks the "cost
advantage" situation like what has happened to Brazil & Mexico. I see this as a relatively low risk given the scale of these
countries and the huge gap in present disparities.

bullish outlook on the economy

The "Hindu" rate of GDP growth was a consistant 4% annual for decades since Independence, in the late 90's it averaged to about 6% ... but over the last couple years the economy seems to be turbo charged and touching 9% with double digit growths not a pipe dream anymore ! India is emerging slowly but surely as a key influencer in the global economy ... consider the following facts :

1) Exports : Up 50% in the last 3 years ... both goods & services ( driven by IT ). This despite the fact that the rupee has been rising against the dollar ! Total exports crossed $120 Billion last year and the trend continues unabated this fiscal. Exports as a % of GDP has gone up significantly from <> 21% last fiscal. Clear indication that liberalization is working and India is becoming a more significant player in the global economy. There of course still is a dose of control since the Rupee is not fully convertible as yet ... but if Mr Manmohan Singh has promised that we are getting there !
2) FDIs : From zilch even in the '90s to > $20 billion last fiscal. Shows the confidence of the world's moneybags in the Indian economy. Total Forex reserves have crossed $150 Billion. This from a situation not long ago in the '90s when we had to pawn our Gold reserves to pay of World bank debts and avoid bankruptcy ( around the Gulf war period which in a way triggered liberalization : the one memorable thing Mr. Narasimha Rao did for the country ).
3) Infrastructure : The govt has pledged to spend $320 billion on roads / airports / ports etc by 2010 ! Yes, corruption exists, I may be overly optimistic and we need to see what really gets done ... but hey when was the last time our government had the gumption to take up such lofty goals ? Surely a far cry from the modest "5 year plans" we used to read about in school.
4) Agriculture : Going down substantially as a % of GDP ( 50% in '70s to <>300 million middle class consumers finally seem to be biting ! ). Strategies are being made to triple the business over the next few years.
-- Infrastructure has a long way to go ... but has already seen a step jump in the past 5 years. I drove from Mumbai to Pune last month ( 160 km ) in 1.5 hrs thanks to the new highway and the fact that cars are no longer the antiquated Ambys and Padminis which would wobble at 60 km/hr. Air travel is hugely more affordable and a new domestic airline pops up every 6 months driving even more competition. With Air Deccan / Spice Jet ( low cost airlines ) I can do a mumbai-kolkata-mumbai weekend trip and visit my parents for as low as Rs 3500 anytime I want. Ditto for Logistics costs ( either roads / rail ) which helps companies beef up their distribution networks and start targeting the "rural" markets, which anyway has increasing affluence ... thereby triggering a positive spiral.
-- Consumer behaviour : With malls coming up in every nook and corner Indians are changing their spending behaviour dramatically ... I see a total shift from a "savings" to "spend what u earn" mentality. Driven probably by spiralling salaries, double income households and general easy availability of commodities. Also while the per capita on absolute terms is a piddly $700 pa but on PPP its not too bad at $3500 ... which means that the top quarter of the 1 Billion population definitely has some money muscle. Reliance just announced its "Walmart" like plans of launchin its own retail outlets across the country. The move to organised retail ( slow but sure ) is yet another "visible" sign that ... times they are a changing !!!