India - Politics India - Politics and Business and Business

Rafiq DossaniRafiq Dossani

dossani@stanford.edudossani@stanford.edu

India’s puzzles till 1989India’s puzzles till 1989

Governance: democracy’s near failure, Governance: democracy’s near failure, civil society’s failurecivil society’s failure

Business: high-growth big businesses, Business: high-growth big businesses, low-growth small businesseslow-growth small businesses

Poverty: 700 million left behindPoverty: 700 million left behind

Workforce: talent produced, unusedWorkforce: talent produced, unused

Governance: Governance: fundamental changefundamental change

In 1989, single party rule (by Congress) In 1989, single party rule (by Congress) yielded to national-regional coalitions.yielded to national-regional coalitions.

The BJP and Congress now each get The BJP and Congress now each get 25%, the rest with 20 regional parties. 25%, the rest with 20 regional parties.

Regional parties interested in Regional parties interested in regionalregional development.development.

Up to 1989, the ruling class Up to 1989, the ruling class was a person – the Prime was a person – the Prime

MinisterMinister

MP: dormant species, reports to SCM

Cabinet ministers: fixers, coterie member.

Bureaucrat: intellectual arm of coterie

State Chief Minister: manages MPsReports to PM

Why governance was Why governance was ineffective and unstableineffective and unstable

Ineffective:Ineffective: Frequent changes in pols and bureaucrats in order to Frequent changes in pols and bureaucrats in order to

control their power also destroyed their incentive to control their power also destroyed their incentive to performperform

Public sector (SOE) dominance led to Public sector (SOE) dominance led to underperformanceunderperformance Big private business occupied niches unoccupied by SOEs, Big private business occupied niches unoccupied by SOEs,

eg., automotive; combined with SOEs to thwart SME growth.eg., automotive; combined with SOEs to thwart SME growth.

Unstable:Unstable: Rural and urban elite were left out of politics. Rural and urban elite were left out of politics. Rural and urban middle-class turned anti-incumbent due to Rural and urban middle-class turned anti-incumbent due to

rising poverty rising poverty

Post-1989 CoalitionPost-1989 Coalition

MP: still dormant species

State Chief Minister: regional party leader

National party executive committee: fixers, coterie members

Bureaucracy: depoliticized

Why governance is effective Why governance is effective and stableand stable

Effective:Effective: State chief ministers are centers of regional powerState chief ministers are centers of regional power Bureaucrats are independent of ministersBureaucrats are independent of ministers Small and regional businesses have gained access Small and regional businesses have gained access

to decision makers via state chief ministersto decision makers via state chief ministers Stable:Stable:

Regions have influenceRegions have influence Anti-incumbency is focused on the national party not Anti-incumbency is focused on the national party not

regional partiesregional parties Trade unions’ power reduced due to rising share of Trade unions’ power reduced due to rising share of

regional and small businesses regional and small businesses Big business is involved in big opportunitiesBig business is involved in big opportunities

Impact of regionalization of Impact of regionalization of politicspolitics

New Delhi’s bureaucracy revitalizedNew Delhi’s bureaucracy revitalized Bureaucrat’s future is no longer dependent on Bureaucrat’s future is no longer dependent on

the taskmaster, but on the taskthe taskmaster, but on the task Improvement in regulation and transparencyImprovement in regulation and transparency

Regional enterprise takes-off Regional enterprise takes-off Business policies favor small and regional Business policies favor small and regional

businessesbusinesses Regional social welfare spending shifts to Regional social welfare spending shifts to

poor citizenspoor citizens Social spending favors primary and secondary Social spending favors primary and secondary

education, and rural developmenteducation, and rural development

Doing Business in India

Impact of good regulation: Impact of good regulation: 3 new cellphone users/s3 new cellphone users/s

Yes, that is Yes, that is per secondper second China: 2.3 per secondChina: 2.3 per second

Yet, Indian per capita income Yet, Indian per capita income is one-third of Chinais one-third of China There is more than one There is more than one

cellphone per Mumbai cellphone per Mumbai resident resident

Every family in the slum Every family in the slum shown likely owns a cellphoneshown likely owns a cellphone

The catch-up factors vs China:The catch-up factors vs China: Bureaucrat-driven regulationBureaucrat-driven regulation Private service provisionPrivate service provision

Shared infrastructureShared infrastructure 6-8 providers per region6-8 providers per region Foreign service providers can Foreign service providers can

own up to 74%own up to 74%

The media – lively, The media – lively, newsworthy, but reflects newsworthy, but reflects

weak civil societyweak civil society

2008 Ambassador

1962 Fiat 1100D

1943 Willys MB

2008 Mahindra Jeep

1956 Morris Oxford

2004 Premier Padmini2008 Tata Nano

Business wasn’t always easy

Big business is thrivingBig business is thriving

TCSTCS InfosyInfosyss

WiprWiproo

CognizanCognizantt

SatyaSatyamm

AccentureAccenture**

Q.Rev Q.Rev $m $m (4Q2007)(4Q2007)

15001500 11001100 920920 600600 560560 20002000

YoyYoy 3737 3232 2626 4848 5454 4848

QoqQoq 66 66 1010 77 1111 NANA

EmployeEmployeee

108000108000 8800088000 8000080000 5500055000 4900049000 7100071000

Rev/Emp Rev/Emp p.a.p.a.

5600056000 4900049000 4600046000 4400044000 4600046000 112000112000

OPMOPM 2626 2929 2121 1818 1919 1313

The IT industry will add 360,000 jobs in 2008, or 3 jobs for every minute of a working day.

So is small businessSo is small business

Servers of a NY bank maintained Servers of a NY bank maintained from Indore, Indiafrom Indore, India

The source of daytime powerThe source of daytime power

India’s Skills: English

Dawa Doma SheupaDebbie White

50 million speak good English

Another 250 million speak some EnglishLiteracy 60%

Even as 1 new college Even as 1 new college opens daily, 700 m are opens daily, 700 m are

left behindleft behind

A.K.Ramanujan’s definition of Indian Village Time: indefinite, continuous, anywhere between a few decades ago and the medieval centuries.

30% of rural population consumes less than1600 calories/day

% or underweight rural children below 5 years: 50%(40%)

% of rural adult females with severe anemia: 80% (50%)

Space at $700/square foot

$6,000 for 20’x15’

City of hope

The slums of Dharavi in Mumbai The slums of Dharavi in Mumbai have an average of one toilet per have an average of one toilet per

1440 persons.1440 persons.

Long-term business viewLong-term business view

Positives: Positives: Balanced growth - across regions, sectors and Balanced growth - across regions, sectors and

sizessizes Solid relations and trade with US and China Solid relations and trade with US and China Mature capital marketsMature capital markets

Negatives:Negatives: Rural India still a problemRural India still a problem Industry faces infrastructure and people Industry faces infrastructure and people

challengeschallenges Regional challenges (5% of international trade Regional challenges (5% of international trade

is within the region vs 26% for ASEAN).is within the region vs 26% for ASEAN).

Entry StrategiesEntry Strategies

Domestic markets v exportsDomestic markets v exports Small business v big businessSmall business v big business Media managementMedia management J.V. J.V. Government (state v national v none Government (state v national v none

at all)at all) Professional servicesProfessional services

India V ChinaIndia V China Differences: Differences:

Democracy Democracy Literacy and health careLiteracy and health care InfrastructureInfrastructure RegulationRegulation Power of big businessPower of big business

SimilaritiesSimilarities Devolution of power Devolution of power

DestiniesDestinies UrbanizationUrbanization Services v manufacturingServices v manufacturing

Questions?Questions?