who are too smart to engage in politics," wrote Plato more
than 2,000 years ago, "are punished by being governed by
those who are dumber." What was true then of the city-state
that the Greek philosopher wrote about, is true today of the modern
republic. And in a country that's waking up to the ameliorative
powers of corporate citizenry and free markets, the dumb rulers
aren't just getting insecure but vicious. Result: Increasing instances
of clash between the corporate and political worlds. Be it Deve
Gowda versus Narayana Murthy, or Mani Shankar Aiyar versus Subir
Raha, or the public broadcaster versus the private broadcaster.
The reasons, the context and their significance may vary, but
at the heart of the battles is not so much a power struggle as
a simple abuse of power by the person who wields it.
Let's take the most telling fight of the three:
The Gowda-Murthy spat. The former Prime Minister-by-default, Janata
Dal (Secular) leader, and a partner in the Dharam Singh-led Congress
government in Karnataka, has three major issues against Murthy
personally and the industry he represents: One, he doesn't like
the rural-urban partnership proposed by Murthy (why it should
take a Murthy and not the state government to devise such a plan
is a question Gowda isn't asking). He says that's old wine in
a new bottle. Two, he's upset that hundreds of acres of agricultural
land has been taken over by it companies, particularly Murthy's
Infosys, when it ought to have remained with the farmers. That
Bangalore's it industry is single-handedly responsible for putting
India on the global map is something Gowda surely sees, but doesn't
want to acknowledge. Indeed, "What is the contribution of
the IT sector to the state?" is what he recently asked. Only
Rs 27,600 crore of the state's total exports of Rs 61,800, Mr
Gowda. "It is a typical case of advancing economics and regressive
politics," notes Rajiv Kumar, Chief Economist, Confederation
of Indian Industries (CII).
Finally, he's also upset that Murthy didn't
do enough to speed up the setting up of Bangalore's new international
airport, whose promoting company was chaired by Murthy until he
quit in protest over Gowda's remarks. Well, the project was first
conceived in 1991, and the state government's clearance came only
early this year. Still, Bangalore International Airport Ltd is
confident of commissioning the airport by 2008. Besides, Gowda
must know that but for Bangalore's it companies, the city would
still be a retiree's paradise, and not a centre of global it offshoring.
So, who is he getting at via Murthy? Karnataka's former Chief
Minister S.M. Krishna, also a Congress leader but his rival. "It's
clear that the distance between the political universe and the
business universe is increasing," says Santosh Desai, President,
|Sometimes the government will be perverse
simply because it can afford to be so
Often, the rift
is widened by plain turf battles. Like in the case of ONGC and
the Union Petroleum Ministry. Mani Shankar Aiyar, the ministry's
boss, wanted more government nominees to be accommodated on the
energy company's board, and when that move was stymied by Chairman
Subir Raha, Aiyar even threatened to parcel out the company's
core business of overseas oil exploration (ONGC Videsh). "Our
government's behaviour is in complete contrast with that of the
Chinese government, which is acting completely in concert with
the Chinese Overseas Oil Company (CNOOC) to gather oil assets
globally," says an oil industry watcher.
Sometimes the government will be perverse
simply because it can afford to be so. The clash between the public
and private broadcasters is a classic example. A recent executive
fiat makes it mandatory for private channels to share telecasts
of events of "national importance" (largely ad money-spinning
cricket matches) with Doordarshan, the state-owned broadcaster.
Why? There's no economic justification. "It's an unfair,
unwarranted, and retrograde step that will send out wrong signals
to the world at large," fumes R. Venkateish, MD of ESPN-Star
But the larger issue, as Nagesh Kumar, Director
General of Research and Information System for Developing Countries,
an economic think-tank, points out, is that "the government
needs to redefine its role more in terms of setting strategic
and social policy direction". And that would mean not feeling
threatened by actual, or imagined, loss of political power that
follows the demise of a command-and-control economy.
The fortnight's burning question.
Q. Will the Sensex Slip to 7,000?
Desai, Head-PMS & Investment Advisory Services
The current leg of bull-market run is over.
From here on, markets will slide and would consolidate. With liquidity
drying up, the market is expected to fall. Prices cannot run ahead
of fundamentals and with valuations being excessive, the fall
is expected to continue in the market.
Sinha, Head of Research, Kotak Securities PCG
The market can slip to the 7,000 mark if
there is panic selling in the market on the back of fund outflows
from FIIs and hedge funds. Currently, the Sensex is fairly valued,
but if the market sentiment turns bearish, then heavy selling
can even drag the market below cheap valuation (levels).
Neema, Fund Manager, JM Financial AMC
I don't think the Sensex will slide to 7,000
in the immediate future. Already, the Sensex has witnessed a sharp
10 per cent correction from its peak. However, we have to see
how the current interim rally shapes up. If FII inflows, which
are the biggest driver for our markets, don't return, we may see
a further fall in Sensex from the current levels. At the moment
| RBI's Reddy: Inflation
a constant battle that every central banker fights: how to fuel
economic growth with cheap credit without stoking inflation. In
his quarterly review of the country's monetary health, RBI governor
Yaga Venugopal Reddy has chosen to err on the side of caution.
While he left the benchmark prime lending rate untouched at its
three-decade low of 6 per cent, he raised the reverse repo rate
(a tool that the RBI uses to suck out surplus liquidity in the
system) by 25 basis points to 5.25 per cent. Simultaneously, he
also increased the repo rate, the rate at which the RBI infuses
liquidity into the system, by an identical percentage at 6.25
per cent. "These measures should see us through till the beginning
of the next year," said a beaming Reddy. But it was apparent that
the central banker was keeping a wary eye out on inflation. By
his own estimate, the credit offtake has been quite broadbased
this year, led by housing, real estate and personal loans. In
industry, petroleum, coal, power, roads and ports, cotton textiles,
drugs and pharmaceuticals, iron and steel, and automobile have
been strong borrowers. Given the runaway credit growth and the
expansion of money supply, the market is betting on yet another
reverse repo hike at the next quarterly review meeting on January
Why is the index so volatile, and how long
will it stay so?
thunderous noise that you heard on dalal street this Diwali wasn't
the burst of crackers celebrating another record level breached
by the Sensex, but the sound of stocks coming crashing down, rising
a bit, and then crashing again. That made October the most volatile
month on D-Street as far as intra-day yo-yoing of the bellwether
stocks was concerned. The average daily volatility was 2.1 per
cent compared to an average 1.45 per cent in the previous nine
months. Given that the Sensex was at vastly higher levels (it
peaked at 8,821.84 points on October 5) in October, the absolute
average intra-day swing between the Sensex high and low was more
than 170 points. As a result, the Sensex had lost a whopping 1,136.2
points by month-end from its high. "The fight between the
bulls and bears and other types of animals (day traders, jobbers
and arbitrageurs) caused huge volatility in the markets,"
says Ambareesh Baliga, Vice President, Karvy Stockbroking.
The primary culprits, however, were the FIIis,
who sold equities worth Rs 3,439 crore between October 3 and 27.
Sure, mutual funds did mop up stocks worth Rs 2,503 crore in that
time, but it wasn't enough to arrest the slide. Why did the FIIs
sell? A surge in the interest rates in the us got them interested
in the American markets once more, besides which the 2.3 per cent
fall in rupee value (also a result of dollars flowing out) last
month may have prompted them to sell to protect their asset value.
"Selling has been mainly due to hedge funds and short-term
players, who are a nuisance across the globe, but we have to live
with it (the volatility)," says Mike Ferrer, Regional General
Manager, ING Investment Management Asia Pacific.
Some others, however, say the fall was expected.
"Prices cannot run ahead of fundamentals, and with stocks
being overvalued, the fall is expected to continue," says
Rajesh Jain, CEO, Pranav Securities. He believes that investors
should play it safe and only commit 5 per cent of their investment
at current levels, and pick good mid-cap stocks, since large-cap
stocks are prone to the FII flu. While the worst case scenario
envisages a 10 per cent drop from the realistic value of 7,800-8,250
points, others like Ferrer think this is the time to buy. "The
market has corrected substantially from its high, and any downfall
from the current levels is an opportunity to buy," says Ferrer,
who's recommending his clients to go overweight from neutral.
That's a brave call because India is still
the costliest among emerging markets, and is the world's third
most expensive by price-earnings multiple. But investors like
Ferrer seem to be betting on the fact that the India story is
driven by economic fundamentals, and is not as cyclical as Hong
Kong, Taiwan or Singapore. After all, by all estimates, the economy
will surge between 7 and 7.5 per cent this financial year.
|Oil's not well: Indian firms
did it too
a stunning report, former us Federal Reserve Chairman Paul Volcker
has revealed that 129 Indian companies, of 2,253 companies worldwide,
paid bribes, wittingly or unwittingly, to bag orders under the
United Nation's oil-for-food programme, launched in 1996. Volcker's
report, commissioned by the UN, names top Indian companies such
as Tata International, Ranbaxy, Kirloskar Brothers, and Ajanta
Pharma among those who made illicit payments in excess of $100,000
(Rs 45 lakh). All told, Indian companies are estimated to have
paid $22 million (Rs 99 crore) to win contracts worth $425 million
(Rs 1,912 crore). But bribing seems to have been the only way
to get business in Saddam Hussein's Iraq. The investigators estimate
that $1.8 billion (Rs 8,100 crore) was bilked from the $64-billion
(Rs 2,88,000- crore) humanitarian programme, which ended with
the US attack on Iraq in 2003. "The corruption of the programme
by Saddam would not nearly have been so pervasive if there had
been diligent management by the United Nations," Volcker says
in the report. As for the companies, few responded to the report's
findings, and those that did either denied having bribed Hussein's
regime or said the payments were authorised by the UN.
"India must Build On Its Foundation"
Roach, Morgan Stanley's chief
economist and Director of Global Economic Analysis, spoke his
mind recently to BT's and
on India and the
global economy. Excerpts:
What are the key challenges facing India
I am encouraged by what I see. Unlike other
Asian economies, there is a fine balance between the domestic
industry and what India exports. More FDI needs to come in and
infrastructure needs to improve. Infrastructure is a big area
of concern and is a bottleneck.
Why is the balance between domestic trade
and exports so important?
This is crucial and most developing countries,
those in Asia in particular, do not have it. Look at China: 80
per cent of its GDP comes from exports. What happens if the us
How do you view India's progress over
14 years of economic reforms vis-à-vis China?
It must be understood that India has its own
style and so does China. The pluses in China are high levels of
FDI, savings and high quality infrastructure. India, however,
is miles ahead of China when it comes to creating world class
companies, banking systems and capital markets infrastructure.
What is important for India in terms of economic development is
that the solid foundation has to be sustainable. This is apart
from maintaining a balance between services and the manufacturing
sector. The next 5-10 years are critical and here is where India
has to build on the foundation.
What is your view on the way India has
gone about attracting FDI?
India has a cultural aversion towards FDI
There is a fear that you will end up losing control over your
domestic resources. The assets will always stay, they don't leave.
Foreign investors will not dismantle the company. The FDI route
is a win-win situation.
How should India market itself to foreign
There are some big lessons for India from
China. China's national savings rate is twice that of India. They
have utilised money from savings for infrastructure development.
The benefits are obvious-they have the best roads. If you want
the best roads, don't go to the US, go to China. The ability to
mobilise resources is China's biggest advantage. India has to
be more aggressive when it comes to marketing itself. You possibly
need your own ad agency for selling your growth story to the world.
What is your view on other Asian markets?
Japan is always attractive. It has been in
a slump for 15 years and is still the symbol of Asia's economic
strength. China is the new dominant force. The way China is headed,
I am not so sure of Japan reclaiming its top position.
Will inflation threaten global growth?
Inflation concerns have resurfaced because
of high crude oil prices. This is the fourth energy shock since
the 70s. Asia still has a cost advantage to labour input and that
will, end of the day, continue to serve the region to bring in
How will the global economy look five
years from now?
I think the US consumer will come to his/her
senses and would have dealt with excess consumption. India would
have made progress in agriculture and curbing unemployment. The
biggest bump on the way will be the overspending of the US consumer.
This is important since all of us depend on the US consumer.
New Ad Shops
Entrepreneurship among admen is again in fashion.
|L&K's Kenneth: Adding up to great expectations
a wave of entrepreneurship sweeping across the Indian ad world.
Call it a counter-trend. Even as global powerhouses such as WPP,
Publicis and Omnicom consolidate their presence in India by acquiring
the few remaining independent agencies, India's ad veterans are
bringing in new names like Dentsu, Law & Kenneth and M&C
Last year, ad veteran Sandeep Goyal tied
up with the world's biggest agency brand, Dentsu of Japan, to
set up shop in India. Praveen Kenneth, who had brought in London-based
creative hotshot St Luke's into India in 2002, teamed up with
global ad maverick Andy Law to launch Law & Kenneth globally,
including in India, a couple of months ago. And more recently,
M&C Saatchi acquired New Delhi-based creative boutique Dhar
& Hoon, in partnership with Kamal Oberoi, former President
of JWT India.
"The acquisition route is untenable
because of unreasonable expectations of the few remaining independent
ad houses," says Sandeep Goyal, Chairman, Dentsu India. He
should know. There was a time in late 2002 when Dentsu did look
at buying up Orchard Advertising, Triton and yes, even Dhar &
Hoon, before finally deciding on its joint venture with Goyal.
"For M&C Saatchi, it was a question of starting out with
a good talent base here rather than any need for acquiring existing
(Indian) business," says Oberoi, who is now CMD, M&C
But then, do three examples make a trend?
Well, yes and no. For even though most ad conglomerates-and their
marquee agency brands-are already present in India, there are
still lots of small-to-medium agencies out there who want a piece
of the action in what is easily one of the fastest growing markets
in the world. Names such as the Publicis-owned Bartle Bogle Hegarty,
Singapore's Batey, the us-based Weiden+Kennedy are floating around
in this context. "Apart from mainline agencies, there are
global players in direct marketing, design and brand identity
creation that are looking at Indian admen to hand-hold their entry
into India," says L&K's Kenneth. For the Indian ad industry
veterans, it's time to don the entrepreneur's hat once again.
Gets Its India Act Together
|Lenovo's Yang: Eyeing the Indian market
a Chinese thinkpad still a thinkpad? That in a nutshell, is the
question topmost in the minds of IBM laptop customers, both current
and potential, following the landmark acquisition in May this
year of Big Blue's $10- billion (Rs 45,000-crore) PC business
by an upstart Chinese company called Lenovo. Even as Lenovo is
busy selling its "nothing will change" pitch to Big
Blue faithfuls in mature markets, it is putting its strategy together
for emerging markets, including India. "Consumers the world
over are very different, but our approach in India will be very
similar to China's," said Lenovo Chairman Yang Yuanqing on
his recent trip to India. Lenovo dominates the Chinese retail
PC market with a 30 per cent share, but its market outside of
China is in the enterprise segment, thanks to IBM's focus on it.
Lenovo, however, hopes to address this gap as soon as possible,
particularly in India, where Yang again sees a likeness to China
and a potential for retail outlets, unlike the US, where retail
space is too expensive. "The Indian market will suit Lenovo
very well in what they are doing, but execution is key,"
says Martin Gilliland, Principal Analyst, Gartner. "In the
retail segment, a Rs 12,000-14,000 PC is what they will target
in the Indian market, and if they do that, they could see significant
volumes," he adds. Lenovo is already a fixture on the Kaun
Banega Crorepati show (yes, the PCs of Amitabh Bachchan and the
contestants are Lenovo). It may be a matter of time before it
comes out of the telly and into Indian homes.