Untouchable and unthinkable

This article is also from the latest edition of the Economist.
Unlike the previous one (which was somewhat balanced) - this article takes a strong anti reservation stand.
The article is available here and at AFP.

Oct 4th 2007
From The Economist print edition
Hiring quotas would not help lower-caste Indians and would harm business

BUSINESSES in India are used to bad government. Indeed, this hardship has proved perversely useful: through coping with rotten infrastructure, throttling labour laws and mutable investment policies, many world-class Indian companies have emerged. A proposal to force firms to hire more workers from the dregs of Hinduism's caste system (see article) would be different. It would be a disaster.

India's long history of affirmative action springs from decent instincts. The caste system is possibly the world's ugliest social system. And it is sanctified by India's largest religion: according to the Laws of Manu, an ancient Hindu text, anybody from the lower orders who has the temerity to mention the name of a higher caste should have a red-hot nail thrust into his mouth; if he makes the mistake of telling a brahmin what to do, he gets hot oil poured into his ears and mouth.

Fortunately, India has moved on a bit since then. But socially and economically the place is still sharply stratified. Upper castes get a far larger share of good jobs than do lower castes; dalits—or untouchables—get virtually none. Which is why, soon after independence, India's government used affirmative action to try to redress the balance; and why calls for that action to be extended to business are so loud.

Affirmative action necessarily has a cost, both in fairness to those who in its absence would qualify for jobs and educational opportunities that they are denied, and consequently in efficiency. Still, if it went a long way to righting a big historical wrong, that might be justifiable.

But that hasn't happened in India. Nearly a quarter of university places and public-sector jobs have been reserved for dalits and tribal people since 1950; and, in 1993, a successor government handed a further quarter over to “other backward classes”. Yet there is no evidence that this has made any difference to the fortunes of the lower orders. They have certainly been getting richer—but, over the past two decades, at almost exactly the same rate as the rest of the population.

What's more, the policy has had dangerous side-effects. Cynical politicians promise their fellow caste members more jobs and university places. Reservation inflation has therefore been on the rise, infuriating the losers. As a result, battles over reservations have become a common source of riots, and politics has thus become increasingly polarised along caste lines.

Extending into the private sector a policy that has been a disaster in the public sector is lunacy. This must be clear to India's prime minister, Manmohan Singh. As finance minister in the early 1990s, he started dismantling a system of industrial quotas, thus unleashing the economy. He should understand better than anyone the likely effect of introducing a quota on people. Yet he has been threatening to impose penalties on companies that don't hire more low caste workers.

Don't blame business

Reservations in companies would not just damage business. They would also distract attention from the real source of the problem. Responsibility for lower castes' lack of advancement does not lie with the private sector. There is no evidence that companies discriminate against them. The real culprit is government, and the rotten educational system it has created.

Originally, reservations were supposed to be needed only for a decade. After that, it was reckoned, they would be unnecessary, because primary education would be universally available. Nearly six decades on, it is not. And the quality of much of India's higher education is execrable. By one reckoning, only a quarter of engineering graduates, the raw material of a booming computer-services industry, are employable. The government should concentrate on sorting out schools and universities, not piling new burdens on business.

There's another effective weapon against ancient prejudices: growth. As Indians get richer, their caste biases fade. Middle-class urban Indians are less likely to marry within their caste than the rural poor, and less likely to wrinkle their noses at a dalit. Happily, the ranks of the middle class are swelling in a fast-expanding economy—for which India has its businessmen to thank. Hobbling them with quotas will only make it harder for them to help the country change.

With reservations

This article is from the latest edition of the "Economist." Best read without having to deal with my opinions on the issue ! :-)
Also Infosys reappears as the chosen representative of the aspiring Indian, for the nth time in Foreign writing highlighting India's progress. After Friedman, it HAS become a bit overdone methinks.

Also this time even the Economist hasn't really taken a stand on the issue, aiming to represent both sides of the reservation debate.
Sometime during BSchool (probably in one of those RMAS classes :)), i came to the conclusion that the caste system may never actually go away in India. Even with equality being the norm in the future, and cases of blatant discrimination thinning out - caste will retain its position as a symbol of identity, rather than social hierarchy - which could be important in a highly heterogeneous society like India. Gurcharan Das makes a very good argument for this scenario in "India Unbound."

I think the reservations in education and government service itself have done a reasonably good job on their own :-).And as this article points out- the private companies are not likely to reach out, through these affirmative action programs, to those who NEED this kind of assistance - merely upto those who WANT it, and can HAVE it (merely through an accident of birth).

The article is available here
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Oct 4th 2007 | BANGALORE, CHENNAI AND DELHI
From The Economist print edition
India's government is threatening to make companies hire more low-caste workers

A 23-YEAR-OLD dressed in white pyjama trousers and a black over-shirt represents two worlds in India that know almost nothing of each other. One is fast growing, but tiny: the world of business. Strolling through the Californian-style campus in Bangalore that serves as the headquarters of Infosys, a computer-services company, she grins and declares herself glad. Her brother, she adds shyly, is so proud that she is an “Infoscion”.

He is in the rural world where 70% of Indians reside: cultivating the family plot in Bannahalli Hundi, a village near Mysore. Life is less delightful there. Half the 4,000 population are brahmins, of the Hindu priestly caste. The rest, including the software engineer and her family, are dalits, members of a “scheduled caste” that was once considered untouchable.

Sixty years on this is still the case in Bannahalli Hundi, says the young woman, who does not want to be named. She has never entered the house of a brahmin neighbour. When a dalit was recently hired to cook at the village school, brahmins withdrew their children. Has there been no weakening of caste strictures in her lifetime? “I have not seen it,” she says.

The tale is in startling contrast to Infosys's modernity, and she is embarrassed by it. But it partly explains how she came to be hired by a company that is considered to be one of India's best. She is the beneficiary of a charitable training scheme for dalit university-leavers that Infosys launched last year.

In collaboration with the elite Bangalore-based International Institute of Information Technology (IIIT), Infosys is providing special training to low-caste engineering graduates who have failed to get a job in its industry. The training, which lasts seven months, does not promise employment. But of the 89 who completed the first course in May, all but four have found jobs. Infosys hired 17.

The charity was born of a threat. India's Congress-led government has told companies to hire more dalits and members of tribal communities. Together these groups represent around a quarter of India's population and half of its poor. Manmohan Singh, the prime minister, has given warning that “strong measures” will be taken if companies do not comply. Many interpret that to mean the government will impose caste-based hiring quotas.

Quotas already apply in education and government, where since 1950 22.5% of university places and government jobs have been “reserved” for dalits and tribal people. In addition, since 1993, 27% of government jobs have been reserved for members of the Other Backward Classes (OBCs)—castes only slightly higher up the Hindu hierarchy.

Promoting the wretched

This is not enough for supporters of reservations. Since the introduction of liberal reforms in the early 1990s, public-sector hiring has slowed and businesses have boomed. Extending reservations to companies, they argue, would therefore safeguard an existing policy of promoting the Hindu wretched. It would almost certainly require changes to the constitution. But low-caste politicians are delighted by the prospect, so it could happen.

The chief minister of Uttar Pradesh, a dalit leader called Mayawati, has said 30% of company jobs should be reserved for dalits, members of the OBCs and high-caste and Muslim poor. Chandra Bhan Prasad, a dalit journalist, applauds this and argues that it would be in the interest of companies. “It is in the culture of dalits that they are least likely to change their employment because they are so loyal to their masters,” he says. It would also help them become a “new caste [sic] of consumers”.

Businessmen are unconvinced. Government, in both its intrusiveness and its incompetence, is a hindrance to them. Caste-based hiring quotas would be just another burden. People given a right to a job tend not to work very hard. So, in an effort to avert Mr Singh's threat, many companies and organisations that represent them are launching their own affirmative-action schemes.

The Confederation of Indian Industry has introduced a package of dalit-friendly measures, including scholarships for bright low-caste students. The Federation of Indian Chambers of Commerce and Industry plans to support entrepreneurs in India's poorest districts. Naukri.com, India's biggest online recruitment service, with over 10m subscribers, anticipates that companies will soon actively seek low-caste recruits. It has therefore started asking job-seekers to register their caste.

Basic training

Infosys's training scheme, as described by S. Sadagopan, the IIIT'S director, is a Pygmalion undertaking. Meeting the parents of his dalit students, he saw “almost an anger in their eyes”. For the first month the students were unresponsive. Their English was dismal. Mr Sadagopan felt compelled to introduce lessons in self-presentation, including table manners.

Matters improved. The course was based on Infosys's 16-week basic training, which 31,000 Indian graduates underwent last year. The low-caste lot scored similar marks and gained confidence. At a bonding session, filled with meditation and dancing, they wrote themselves a slogan: “As good as any, better than many”.

It is a moving story. But Mr Sadagopan's students were not all that deprived. In the words of three, now working for Infosys, they were “normal middle-class Indians”. A third of them were the sons and daughters of professionals. The worst had grades only a little below what Infosys routinely demands of its recruits. Almost all were from urban areas, where caste discrimination is rare.

One of them, Manjunath, says the only time he was ever reminded of his low caste was when he applied for a place at university. Had it not been reserved for him, he says, he might have worked a bit harder—and so joined Infosys without any special help. As for his colleague from Bannahalli Hundi, coming from one of the richer families in the village, she is its first female university graduate—of any caste.

The most that can be said for Infosys's programme—without devaluing Mr Sadagopan's efforts—is that it is a great opportunity for a tiny number of middle-class Indians, who happen also to be low-caste. The same would be true of caste-based reservations. This is because the percentage of India's workforce employed in the “organised” private sector (made up of firms that declare they have ten or more employees), where reservations might be applied, is also tiny: around 2%. And as far as anyone can tell (companies do not ask the caste of their employees), members of low castes are already well represented in low-skilled jobs there. Much of India's heavy industry, such as steelmaking, is located where the low-caste population is high. Tata Steel, which employs around 40,000 people in India, has its main operations in Jamshedpur, in the eastern “tribal belt”.

Membership of a caste, as of a guild or a church, provides businessmen with a useful network. In the informal economy, where banks fear to tread, caste bonds tend to be affirmed through business. The fact that most Indian companies are family-owned exaggerates this: to prevent wealth being diluted, it encourages marriages not only within the same caste, but also within the same family. A sugar baroness of south India's kamma caste, Rajshree Pathy, recently explained this practice to an Indian newspaper, the Business Standard: “The PSG family produces girls, the Lakshmi Mills family produces boys, they marry each other and live happily ever after.”

The modernisation of India's economy has brought more dynamic change. Among educated, urban Indians caste identity is fading. Inter-caste marriages are increasing. According to Jeevansathi.com, a matchmaking (or, as Indians say, “matrimonial”) website, 58% of its online matches involved inter-caste couples. Meanwhile, in rural India—where unions are not fixed online—intra-caste marriages remain the norm.

Business has to some degree been a laggard in this process. Caste bonds rooted in expediency, not tradition, allow businessmen to borrow and lend money with a degree of accountability, which helps to minimise risk. They are not an affirmation of a vocational hierarchy within the Hindu universe. Nonetheless, in north India, where business is to this day dominated by members of ancient trading castes, like marwaris (whose famous names include Birla, Bajaj and Mittal) and bania (Ambani), it can look pretty traditional.

Rites of passage

Harish Damodaran investigated the caste origins of many of India's industrialists in a forthcoming book*. He identified three main trends. The first, which he calls a “bazaar to factory” route, is the passage of hereditary traders into industry. In northern India, some castes' monopolies have discouraged them from leaving their traditionally prescribed employment. So members of north India's farming castes—for example, jats and yadavs—rarely own a sugar or flour mill.

The second trend, “office to factory”, describes a recent movement of well-educated high-caste Hindus, including brahmins, into business. Lacking capital, these sophisticates tended to enter the services sector, where start-up costs are relatively low. India's world-class computer-services industry, including companies like Infosys, is the result.

The third trajectory, “field to factory”, is the transition into the business world of members of India's middle and lower-peasant castes. This must be the path of India's dalits, too. But they have not trodden it yet: across India, Mr Damodaran could not find a significant dalit industrialist.

There is no strong evidence that companies discriminate against low-caste job applicants. Upper-class Indians, who tend also to be high-caste Hindus, can be disparaging about their low-caste compatriots. “Once a thicky, always a thicky,” is how a rich businessman describes Ms Mayawati. Yet this at least partly reflects the fact that low-caste Hindus tend also to be low class; and in India, as in many countries, class prejudice is profound.

There is, on the other hand, plenty of evidence that few able low-caste graduates are emerging from India's universities. Since it began registering the caste of its subscribers—almost by definition computer-literate and English-speaking—Naukri.com has added 38,000 young dalit and tribal job-seekers to its books. That represents 1% of the total who have registered in that time.

For reservationists, this confirms the need for quotas. Others interpret the facts differently: reservations don't seem to work. And statistics support this view. Reservations notwithstanding, low-caste Indians are getting less poor at almost the same rate as the general population. Between 1983 and 2004, their spending power increased by 26.7%, compared with 27.7% for the average Indian, according to the National Sample Survey Organisation, a government body.

Low-caste students struggle in schools without special help, which is rarely available. Their English—the language of India's middle class—tends to be poor. Many drop out. Up to half of university places reserved for low-caste students are left vacant. So, too, are many of the university posts reserved for low-caste teachers. Most Indians emerge from this system with an abysmal education. Low-caste Indians perhaps almost invariably do.

A measure of this fiasco can be found at the political-science department of one of India's prestigious post-graduate universities. Each year it chooses 50 students, from 1,500 applications, for its master's degree. Successful applicants will average no less than 55% in their undergraduate exams. Dalit applicants scrape in with as little as 30%. Nonetheless, practically every student will be awarded a first-class degree.

India is failing to equip its young, of whatever caste or religion, with the skills that its companies need. This is one of the biggest threats to sustaining high economic growth. India's outstanding computer-services companies—which will account for around a quarter of overall growth in the next few years—intend to hire over 1m engineering graduates in the next two years. It will be tough. To recruit 31,000 graduates last year, Infosys considered 1.3m applicants; only 65,000 passed a basic test. To address the skills shortage, the company is investing a whopping $450m in training. “We are building India's human resources,” says Mohandas Pai, Infosys's chief of human resources.

Alas, reservationists have other concerns. Caste politics are pervasive. On August 28th the Supreme Court struck down an effort by Andhra Pradesh's government to reserve 4% of government jobs and education places for poor Muslims. The court is meanwhile weighing a more dramatic measure announced by the government last year: to reserve 27% of university places for the OBCs. To placate irate students, many of them high-caste, the government promises to increase the number of university places accordingly. Education standards would no doubt fall further.

Even so, the policy may be unstoppable. Since reservations for the OBCs were introduced in the early 1990s the rise of political parties dedicated to these groups has been inexorable. So has the proliferation of the OBCs, to around 3,000 castes. They include millions who are not poor at all.

“A massive deliberate confusion” is how Surjit Bhalla, an economist at Oxus Investments, a hedge fund, characterises reservations for the OBCs. When they were awarded reservations, the OBCs were estimated to make up 53% of India's total population. More recent counting suggests they are only about one-third of the population, although their 27% reservation remains unchanged. Moreover, by most measures, the average OBC member is no poorer than the average Indian. “How can you discriminate against the average?” asks Mr Bhalla, despairingly.

There by mistake

And despair he may. Practically no politician dares speak out against this caste-based racket for fear of being labelled an apologist for the caste system. Rather like guests at the Hotel California, those that join the list never leave—even one or two castes that were allegedly included by mistake. The surpassing example is Tamil Nadu, which reserves a total of 69% of government jobs: 1% for tribal people, 18% for dalits, 30% for the OBCs and 20% for a subset of them—members of castes once categorised by British colonisers as “criminal tribes” and now known more delicately as “de-notified communities”.

There is little opposition to this policy in Tamil Nadu, for two reasons. It is one of India's more literate and prosperous states. And low-caste Hindus are unusually prominent in Tamil Nadu, which suggests to reservationists that the policy is working well. Textiles companies in Tirupur, a T-shirt hub, for example, are mostly owned by gounders, members of a peasant caste that is officially listed as an OBC.

One defender of the policy is N. Vasudevan, chief official of the Kafkaesque vision of bureaucratic hell that is the Backward Classes, Most Backward Classes and Minorities Welfare Department in Chennai, where workers languish behind mountains of never-opened files. Asked when it might end he replies: “When everyone becomes equal.”

There is an alternative view: that Tamil Nadu is more equal than most states not because it has lots of reservations but because, overall, it has been run less badly. It has therefore delivered above-average economic growth, from which low-caste Tamils have benefited.

In addition, low-caste businessmen in Tamil Nadu have had opportunities that have nothing to do with government policy. In contrast to north India, where commerce is dominated by members of a few business castes, south India's business community has been more open to members of non-business castes. According to Raman Mahadevan, a business historian, this is partly because members of the south's main trading caste, the chettiars, chose to concentrate their investments outside India during the 19th century, in Malaya and Singapore.

Partly as a result, little large-scale industry emerged in southern India until the 1930s. Around the same time, a popular movement against brahmins—especially lordly in the south—emboldened members of the lower and middle castes, including gounders, who were quick to convert their new assertiveness into business.

The Hindu caste system has never been rigid. Low-caste Hindus do not accept their lumpen position in the hierarchy. Indeed, like middle-class English families, they tend to cherish a myth of their former greatness. By imitating the habits of a more prestigious neighbour, in dress or ritual, some low castes have sneaked a rung or two up the ladder. More recently, in an effort to be classified as an OBC or a dalit caste, some middle-ranking castes have tried to climb a rung or two down.

Meanwhile, on the lowest rung of the ladder, dalit businessmen can be found operating in the informal economy, perhaps as small traders. They must be especially reliant on caste as a business network. But that reliance will change if they can expand into the organised sector. Where businessmen can gain access to credit without having to claim kinship, caste affiliations wither. As Mr Damodaran writes: “A kamma sugar magnate ultimately identifies his interests with other mill-owners and not with fellow kamma cane growers or workers.” And his business may flourish, unfettered.

India and Economic Blocs.

Most developing countries in the world have been joining forces with each other forming economic blocs. This gives them easier access to each other's markets (and raw materials.) The concept exists internationally as well - under the UNO and European Union for example.The EU now includes several developing states as well - and in time, this should ensure that these states achieve a level of prosperity like the developed EU members through open trade.

Another successful trade bloc is the African Union. It has been credited with the rise of economies like Kenya , Namibia ,Ethiopia and Ivory Coast - though it is a little handicapped by the likes of Olusegun Obasanjo and Mugabe.

Of course, India has had its trade bloc as well - SAARC. It was started with rather high hopes. (Still remember me watching some cultural programmes sponsored by it on Doordarshan on Sundays,long long ago.)
However the bloc never really made progress beyond the annual posturing of the leaders of the member states. The main reason was that the two largest and most influential members -India and Pakistan - managed to derail the entire system by insisting on opening up the Kashmir issue at every forum including this one.
The smaller states also had their own peeves. Bangladesh was suspicious of Pakistan. Bhutan and Maldives never had any say in any of the matters - and have been accused within their own countries of openly towing India's line. Nepal views India and its intentions with suspicion, and this coloured their dealing on SAARC as well.

SAARC still exists of course. India did give "Most favoured nation" status to Pakistan sometime ago -as a goodwill gesture. Pakistan hasn't reciprocated, and this has given India another reason to cry foul. Increasingly the SAARC summits are viewed with frustration, and for the average Indian- the interest lies more with seeing the Indian and Pakistani heads of state together rather than with anything else.

Afghanistan has recently joined SAARC as well. For a change both India and Pakistan were united on this.India also wants Russia in, while Pakistan is keen on China. However the disagreement regarding admission of these countries means that both of them are still out. The wide disparities in stage of development, as well as international priorities, commitments, regional influence and alliances among the members have made it tough for it to be effective.

Several members have also concluded extra-SAARC agreements. India has openly backed Bhutan, Maldives and previously Nepal too. It has also opened up trade routes to China.

Ever since SAARC turned ineffective, India has tried to warm upto other trade blocs - most notably ASEAN. ASEAN is hailed as one of the most sucessful blocs worldwide and the driving force behind the rapid growth of its member states.ASEAN though initially to include India, finally allowed it to be part of the East Asia forum, and now is on the verge of concluding a free trade agreement with it.

Economics (and common sense) says that free trade helps nations achieve their development goals faster. Hence its in India's interest to maximize free trade and economic cooperation.However given India's increasing reputation as a bit of a regional bully, its historical proximity to Russia, its status as a nuclear weapon state, its new found friendship with the US, and its location amidst states like Pakistan, Nepal, Bangladesh and Sri Lanka have made it tough for it to be trusted enough to be made a open trade partner.
Hopefully as the world sees India on the way to becoming a superpower (both economic and otherwise), everyone else should have very little choice on that.

Lessons from the Chinese (lack of) quality situation.

Continuing my current obsession with China and all things Chinese - Rediff has this article on our take on the whole China-Mattel-Lead-in-Barbie-Dolls issue and the other recent news items highlighted by the western media regarding the quality issues facing China.

Regarding this particular article.I do feel that this is a bit off the mark with the rhetoric calling for environmental responsibility etc.
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A journalist called to know if we face the same problems that are plaguing Chinese exports of late: tainted pet food, toxic toothpaste, lead-paint in toys, chemicals in textiles, and so on.

It got me thinking: of China, of India, and more importantly, about the phenomenon we call the market.

The fact is that the US and other parts of the rich world, which are today crying foul about Chinese toxic exports, should have known better. They should have known that they were in the business of buying cheap food and cheap consumer products, and that in this business something was rotten.

They should have been aware that goods produced in their country are expensive, partly, because they pay for pollution control, surveillance and enforcement of regulations and for new technologies to get rid of newer and newer toxins.

So it is in the interest of the rich world to outsource production to feed its ravenous appetite. The economy of the rich world is built on the principle of consuming disposable products -- new toys that come with each season or with each new hit movie, and processed food that breaks all price-lines.

This madly consuming rich society needs cheap goods for its happiness and to make its economy profitable.

But these goods are cheap because the Chinese discount their environment in manufacturing them. In this market, "competitive advantage" lies in not paying the price for safeguarding the environment.

There is no doubt in my mind that if India is to also become the favourite junk provider of the world -- which we are desperate to be -- then we will have to do the same. The only difference between us and the Chinese is our democracy -- that is if we allow it to breathe.

Whether Indian industry likes it or not, the internal pressure it gets from consumer and environmental interests is its safety valve. This pressure is forcing the Indian industry to produce quality food and meet environmental standards, not only for exports but also for sale in domestic markets.

It is this, if anything, that distinguishes us from the Chinese, as I said to the journalist who called me. But this pressure will not be able to withstand the desperation to feed the cheap goods desire of the rich world.

There is also no doubt in my mind that the western world has used environmental safeguards to its advantage -- to keep out goods produced in the developing world by claiming that these are unsafe and do not meet stringent quality requirements. Over the years, the green stick has been another name for trade protectionism.

But it is also clear that the Chinese and the Indians cannot win this game by playing it. In this game of catch-up, the only option is to invest in first producing dirt and then invest in cleaning it up or invest in phasing it out. After this, another chemical must be introduced -- this is still not qualified to be a toxin but will soon become one. In this business, environmental protection is expensive and never-ending. In this green business, we cannot win.

It is for this reason that we must change the rules, if not the very game itself. We cannot keep arguing that our trade advantage lies in undermining environmental safety. We must argue instead that the environment is our competitive advantage. It is our advantage only if we can learn not to discount it but to use it.

We must build our industry and agriculture by learning from the expensive mistakes made by the western world. We can beat them, not by playing their game of catch-up, but by reinventing our economic pathway.

We can do agriculture today without first using the toxins that need to be cleaned up. This will mean reinventing the rules for organic and safe food production. We can produce cheaper goods by cutting out the unnecessary toxins that will need cleaning up tomorrow. This is the only choice.

Taking Flight

One crib about industry in India, China and other developing countries is that they have failed to develop brands that are powerful worldwide. We are still largely viewed as being competitive on low cost or scale, rather than on quality or feature based differentiation.
In fact , in the recently published list of the world's most powerful brands, only "China Mobile" stands out from the list of otherwise American brands (and Toyota :)) Theres no Indian brand anywhere close.

The Economist carried this story on "Jet Airways" -India's largest Aviation company, trying to build a global brand.Interesting read.
By the way, I won't be too surprised if an Indian company makes it into this list sometime in the next ten years or so. It may not be Jet -but I vouch that it'll be a service brand.

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Taking flight

Sep 6th 2007
From The Economist print edition
Naresh Goyal wants Jet Airways to be India's first global brand—and to escape its domestic market

IT IS not only a lust for power that inspires Naresh Goyal, the founder and chairman of Jet Airways, India's biggest private airline. Nor is it a need for vindication, important though this may be to a man whose application to fly to America was held up for two years by allegations of terrorist connections. Like many Indian entrepreneurs, Mr Goyal says he has a patriotic dream. “I want to produce a global Indian brand,” he says. “That's the passion for me, that's what drives me. The people of this country, we have the capability to produce a global brand.”

Jet, with its orange and blue logo, may well be the first. It is the only private Indian carrier flying long-haul routes—ferrying 23% of passengers between India and London, for example. On August 5th its first plane landed in America, launching a daily service from Mumbai to Newark via Jet's new hub in Brussels, and this week it began flights to Toronto. A new direct service between Mumbai and Johannesburg will be launched soon, and with 40 new planes on order, Jet will add more destinations next year, including San Francisco (via Shanghai) and Chicago. Mr Goyal, who owns 80% of the airline, predicts that by 2009 its international operations will contribute half its annual revenues, increasing them from $1.7 billion last year to $3 billion.

Mr Goyal started out as a travel agent acting for foreign airlines in India. At industry gatherings, he became known for having committed the world's flight schedules to memory. He has since lost none of his taste for detail. Last month Mr Goyal ordered Jet's top managers in Mumbai and Delhi to “adopt a plane”, which they must periodically check to be sure it has been properly cleaned. (Mr Goyal says he would love to do the same himself, but does not have time.)

The international expansion is partly about healthy demand. Over the past five years air traffic to America from India has grown faster than from anywhere else, increasing by 23% in the year to May compared with the previous 12 months. Coming the other way, the number of inbound passengers to India grew by 19% in 2006. By Mr Goyal's estimate, up to 80% of these passengers are of Indian origin, though now resident in Canada, America and Britain. So that is where he is expanding. “I want to operate where there is a captive market, and there are 30m Indians overseas—or, whatever, people of Indian origin,” he says, with a flick of his hand, suggesting he does not see the distinction. If these people do want to fly Indian, they may well want to fly Jet. Its service is outstanding. Air India, the state-owned carrier, is crummy by comparison, though it is improving.

But the expansion is also about escaping the dreadful conditions in India's domestic market. As well as having the fastest-growing aviation market in the world, India also has one of the most crowded. In 2003 the emergence of several low-cost carriers led to a price war. At the time, Jet controlled almost half the domestic market. Mr Goyal says Jet remained profitable during the struggle that has since ensued, but there is no hiding how much it suffered. Its market share has fallen to one-third—and that includes the custom of Air Sahara, a carrier acquired by Jet in April for $346m that it has since rebranded as a low-cost carrier, called JetLite. And in the past four years the main Indian stockmarket index has increased five-fold, yet Jet's share-price has fallen by 40% since its flotation in 2005.

Mr Goyal estimates that the Indian industry lost $500m last year. After some consolidation, prices are starting to rise. Nevertheless, despite his experiment with JetLite, Mr Goyal says low-cost carriers are not feasible in India. The country lacks the infrastructure and readily available skills to be had in Europe. “Here there are no alternative airports,” he says. “India has nothing called low-cost, only low-fare and low-margin. This is irrational pricing which will make the whole industry sick.”

So by expanding abroad, Mr Goyal hopes to escape his troubles—and his competitors—at home. Seats on domestic flights, such as between Mumbai and Bangalore, are sold abroad at premium prices. Inside India they are often sold at a loss. Moreover, India's other private airlines are not yet licensed to fly internationally. For that, airlines must have been in business for five years, which bars Jet's rivals. (That includes Kingfisher Airlines, launched in 2005 by Vijay Mallya, a flamboyant brewer. It too has global ambitions and excellent service—dished out by an all-female crew wearing distinctive tight-fitting red skirts.)

Although Mr Goyal does not think much of the low-cost business model, he admires his rivals in one way. In May 2005 Jet's application for a licence to fly to America was held up after a firm based in Maryland, also called Jet Airways, accused Mr Goyal's company of being a money-laundering outfit for al-Qaeda. Mr Goyal says some of his local competitors were behind the claim, which was later withdrawn. But he seems to have a sneaking admiration for the imaginative way in which they allegedly tried to impede him. “It's good, no? They dine and wine with me, we enjoy a cocktail together,” he says, erupting into a high-pitched giggle that punctuates his rapid speech. “Indians are very creative.”

A sprinkle of stardust

And so, for that matter, are a striking number of Jet's directors. They include several actors and musicians, including Bollywood's biggest star, Shah Rukh Khan. Mr Goyal denies, with a giggle, that these celebrities have been recruited to add glamour. “No, they add value,” he insists. “Shah Rukh, he's very clever.”

Yet their presence fits Mr Goyal's taste for networking. Striving to build India's first global brand apparently means mixing with India's other new billionaires, such as Lakshmi Mittal, a steel magnate, and Mukesh Ambani, of Reliance Industries, India's biggest private company. All of them, he says, have the same patriotic obsession: “making India great”. So is that all they talk about? “No,” Mr Goyal wheezes. “We talk about girls.”

China and its impact on Indian IT business.

I'm based in Bangkok now, as part of a marketing project I'm working on for my current employer. Here China and its meteoric growth story seems to be on everyone's mind.

Our business has to deal with low cost manufacturing and lower prices coming in from china. The Thai community worries at large about flight of manufacturing, and increasing competition in services. Also in several commodities (coal and steel - to name just a couple) the demand from China keeps international prices so high, that other countries suffer consequently.

The often raised questions about China's broken financial systems , lack of English speaking workforce and its form of government are still valid. But of late , all three of these issues and several more are being ignored by the companies who are flocking to invest there. Clearly it IS becoming easier to startup and run in China.

I was browsing the internet and found this NASSCOM report on its website. Its on the impact China will have on India's IT industry. Given that this is one of India's few globally competitive industries - the report is worth pondering over.
Will look and post similar reports on other sectors. Guess this will be a bit of a long term endeavor from my end as well.

Only the 'Key Messages' is reproduced here. The report itself is free (for registered users - and registration is free too) and is a fascinating read.

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China has the potential to develop a large IT-BPO industry. Underlying this is substantial domestic market potential, a sizeable educated workforce and strong government emphasis on developing the IT -BPO sector.

- Domestic market potential: As one of the world’s largest and fastest growing economies with an increasing participation in international trade and high levels of technology adoption, China represents substantial market potential for IT software and related business services.

- Sizeable workforce: The large population and high literacy levels, translating into a large outturn of educated job seekers, has equipped it with the essential ‘raw material’ required.

- Government emphasis on services, especially IT-BPO: The Chinese Government is aware of the country’s heavy dependence on manufacturing and has identified the development of the services sector as one of the focus areas for its 11th Five-Year Plan (2007-2011).
However, currently the IT -BPO industry in China is still in its early phases of evolution. Frequent comparisons with India and commentary positioning China as a substitute destination is quite misplaced.

- Structure and Scale: China’s IT-BPO growth is being driven by its domestic market while India is a predominantly export led growth story. The scale of the sector in China is still less than a third of that in India. With both the countries witnessing strong growth, forecast to continue, it is unlikely that this difference will go away in the foreseeable future.

- Geographies Served: Indian IT-BPO exports are predominantly serving the US and the UK markets, which together account for more than 80 per cent of the total exports. On the other hand, China’s key export markets are Japan and Korea, where it has certain inherent linguistic / cultural advantages.

- Service Portfolio: The portfolio of IT-BPO services exports from China is dominated by application development, coding / testing and localization services.

The portfolio of services sourced from India is more broad-based including, application management, infrastructure services, offshore product development and engineering services.

- Process Maturity: India based providers have built robust processes for managing remote service delivery, transitioning of processes and integrating distributed workflows across large teams. This is still evolving in China. The average local Chinese service provider still suffers from sub-scale inefficiencies and lacks the experience of delivering on large contracts.
The current industry landscape in China bears some resemblance to earlier years of Indian IT-BPO. However, systemic weaknesses and comparatively evolved demand and competitive environments today pose some additional challenges.

- IT-BPO in China is witnessing early signs of growth: Leading Chinese firms have reported above average growth rates of 40-50 per cent over the past few years. Global venture capital investors have, over the past year, announced significant investments in 2-3 local firms – demonstrating their conviction in the China ITBPO story. Chinese firms are beginning to receive a steady stream of business enquiries – from western customers. Stakeholders are actively seeking to organize themselves, to build a concerted approach to industry development.

- China is also facing its share of challenges. Addressing sub-scale inefficiencies; building global recognition and addressing preconceived concerns about sourcing (IT -BPO) from China; recruiting, training and retaining talent were some of the key challenges highlighted in all our interactions.

- Complex tax and investment incentive systems across different provinces have encouraged companies to establish separate entities in each location. Highly controlled financial systems and regulation of ownership structures discouraging industry consolidation has resulted in a highly fragmented industry base.

- Another systemic challenge by the sector in China is the growing number of ‘unemployable’ resources being churned out by the expanding education system. The government has succeeded in significantly increasing the throughput of the education system in a relatively short span of time. However, the suitability of these graduates for employment in the global knowledge services industries remains questionable. It is estimated that over half of the 4 million students graduated without jobs in 2006 – and yet every firm met cited finding suitable
talent as one of their key concerns.

- Chinese firms are also beginning to face pressures of dealing with more evolved (western) outsourcers, intensifying competition from the indigenous players as well as global providers that have expanded their operations into China. The Chinese government is keen on promoting this sector. Rapid progress on the ‘tangible’ aspects of infrastructure and capacity creation is evident, softer aspects remain a challenge.

- Strong government support for the sector is evident in the various measures initiated since the start of the 10th Five-Year Plan. In addition to inducing industry capacity creation the government has identified 11 national software export bases that it will support private enterprises with interest rebates, R&D funding, personnel training, corporate qualification certification, export credit loans, credit insurance, commercial information and protection of intellectual rights.

- Results of the efforts being undertaken are very ‘visible’ – in the scale of physical and academic infrastructure created by the government over a short span of time. For example, the outturn of computer science and software graduates has increased from less than 100,000 in 2002 to about 400,000 in 2006.

- However, the softer aspects remain a challenge. The increased graduate outturn has not translated into a larger pool of employable resources. Language and cultural differences continue to bear on the experiences of working with Chinabased providers. Foreign-educated returning Chinese are seen as an essential bridge between cultures – but are in short supply. Despite continued efforts, IP protection and enforcement remains a key concern.

China is unlikely to bear on India’s lead in global services sourcing in any significant manner over the next 3-5 years. However, it must not be ignored. In fact, there is a strong case for increased partnership between the two countries as global corporations strive to strike a balance in their Sino-India co-sourcing models.

- First, the large domestic market potential makes China hard to overlook.

- Secondly, with most global corporations investing heavily in China and their
increasing adoption of the outsourced model, Indian firms are facing an increasing demand for onsite support (in China) from existing customers. In such a scenario, India-based firms will either have to develop such local service delivery capability or risk sharing their client relationships with locally present competitors. Learning how to do business in China will be integral to tapping these opportunities.

- Thirdly, India too can leverage China’s experiences. China’s programmed approach to rapidly developing key sectors of its economy and its demonstrated successes offer some learnings that may be adapted to the Indian IT-BPO context – to strengthen India’s proposition. Capacity creation in education and physical infrastructure is a case in point.

- Finally, while we have discussed the differences between the Indian and Chinese software and services sec tors, they also face some common challenges. Strengthening the education and training system to enhance the employability of graduates, developing products and service-models better suited for more price sensitive customers in the domestic markets, are prominent examples. Building on a collaborative approach, the two countries could seek innovative solutions to address some of these shared challenges.

Worse will Come.

As ever the Economist remains steadily anti-Indo-US nuclear deal. But in this post, the justification and reasoning given is interesting.


FOR India's government, despite the hubbub in Parliament and barely veiled threats from its neighbour, Pakistan, the controversial deal it struck last month with America to allow civil nuclear co-operation between the two countries is already radiating success. Shinzo Abe, Japan's prime minister, was in Delhi this week to cement a “strategic partnership”, despite Japan's decades-long discomfort with India's bomb. Meanwhile, Australia's cabinet, hitherto resolute in its refusal to sell uranium to any country outside the Nuclear Non-Proliferation Treaty (and only to a select few within it), has taken its cue from America and agreed in principle to sell uranium to India, even though India hasn't signed the NPT, and won't.

India is breaking out of the nuclear quarantine imposed after its first “peaceful” nuclear test in 1974. But for commerce to resume, it must first agree with the International Atomic Energy Agency (IAEA) which safeguards will apply to nuclear facilities it has designated “civilian”. It will then need an exemption from the 45-nation Nuclear Suppliers Group (NSG), which bars nuclear trade with countries, such as India, that refuse to apply such international safeguards to all their nuclear facilities. Some governments are deeply unhappy at carving an India-sized hole in the nuclear rules. But none has yet vetoed it.

Unlike North Korea and Iran, which signed the NPT and then violated its rules, India (like Pakistan and Israel) never signed the treaty; its bombs are not illegal. Since no one expects it to give them up, the Bush administration argues it is better to bring India in from the cold and have it take on similar responsibilities to the treaty's five recognised nuclear powers: America, Britain, France, Russia and China. That, say the Americans, would be a net gain for non-proliferation.

This newspaper has long disputed that. Among other dangerous loopholes, some of which have widened since Congress gave its conditional go-ahead to the deal in December, India is pointedly not taking on the obligations and practices of the official five. Unlike them, it has refused to sign the test-ban treaty. Unlike them, it declines to end the production of fissile material—uranium and plutonium—for bombs.

America's readiness to make an Indian exception to all the rules risks snapping two of the joists that support the global non-proliferation structure. At the IAEA, India wants the right not just to say which reactors can be inspected, but when. Such unprecedented laxity in India will make it hard to get others—for example, Brazil, which already does some uranium enriching of its own—to accept the tougher inspections that the IAEA wants as standard for all NPT members.

Likewise, the hard-won clarity of the NSG's trade ban has helped maintain support for the NPT, despite the cheating antics of a few. Mere talk of fudging the rules last year encouraged Russia to break them, citing spurious “safety” concerns as an excuse to sell India uranium fuel. China, unhappy at America's coddling of India, is exploring more nuclear co-operation with Pakistan—which in turn threatens to match India, should it step up weapons production or test again.
Sending precisely the wrong message

Japan, the NPT member with the most capable nuclear industry outside the nuclear five, has told Iran and others that they should do as it does—scrupulously observe all IAEA safeguards—if they want to be trusted with nuclear technology. Exemptions for India will convey a different message: first get your bomb. Such rule-bending puts at risk the anti-nuclear regime that everyone else's safety and security is built on. Governments at the NSG and the IAEA that are unhappy with this need to find the courage of their convictions, and block it.

Offshore Service Locations

This is certainly good news :)
The original post on the Economist website is here

Aug 30th 2007
From The Economist print edition
Infographics

India is still the most attractive country to which to move back-office operations, according to the 2007 Global Services Location Index compiled by A.T. Kearney. The index evaluates 50 countries according to three main categories: financial attractiveness, availability of skilled workers and the business environment. India stays ahead of China, ranked second, thanks to lower wage, infrastructure and regulatory costs. Both countries lead the rest by a good margin. Policies to promote service exports in Latin America have helped Brazil and Mexico rise in the global league. Less established locations in eastern Europe, such as Bulgaria and Slovakia, are now ranked higher than either Poland or the Czech Republic.

Maximum city blues

Maximum city blues

Aug 30th 2007 | MUMBAI
From The Economist print edition
Great plans are in place to resuscitate South Asia's biggest city. As ever, the difficulty lies in implementing them
Eyevine

THERE is only one way to see Mumbai. That is by helicopter: whirring low over the rust-brown slums, godowns and Victorian Gothic monuments of India's city of commerce, its historic gateway; then soaring high over the hazy Arabian Sea beyond. It is exhilarating. Moreover, only by helicopter can one cross log-jammed central Mumbai—a distance of around 20km (12.5 miles)—in under two hours.

Mumbai is South Asia's biggest city. By 2015 the UN says it will be the world's second-biggest after Tokyo, with nearly 25m people. Yet already it is choking. Around half the population—of 14m, at a modest estimate—live in slums. Another 3m commute daily from surrounding suburbs. Most come by rail, though the service would be inadequate even if it were not hobbled by a shortage of trains and a surfeit of vagrants. At peak hours, 5,000 commuters cling to trains designed for 1,700. Hundreds die on the tracks each year.

Higher up the economic food-chain, the damage is commensurate. Airliners circle Mumbai by the hour, awaiting space to land. One of the airport's two runways is semi-retired, because 300,000 squatters have built shacks around it. The roads are even worse: Mumbai is traversed by two north-south highways, with no large axis between them. Yet every day an estimated 500 cars are added to the city's jams.

Mumbaikars have long seen the trouble ahead. In recent years, the state and central governments have recognised it too. There is much at stake, for India as well as Mumbai. Its recent high economic growth is an urban phenomenon. Indeed, the failure of rural India is why so many Indians come to town. Huge improvements in urban infrastructure are needed urgently.

Mumbai, moreover, for all its flaws, is the one Indian city with pretensions as an international financial hub. So state and central governments have made vast promises. The plans envisage overhauling laws and regulations and building Mumbai's infrastructure anew. The government of the state of Maharashtra, of which Mumbai is the capital, says this will cost $60 billion and take a decade.

The central government has earmarked $9 billion for Maharashtra's urban infrastructure. The private sector, it is hoped, will stump up most of the rest. Mukesh Ambani's Reliance Industries (purveyor of the helicopter tour) plans to invest $8 billion in a vast manufacturing development—virtually a new city, in Navi (new) Mumbai (see map). Reliance, India's biggest private-sector company, says it will provide 2m jobs.

But there is a problem. To redevelop Mumbai and its hinterland involves moving people. And since in India third-world conditions are dignified (at least in theory) with first-world rights, this causes blockages. The invaders of Mumbai airport, for example, have at least four representatives in Maharashtra's state assembly.

Scrapping lousy laws in corrupt India is similarly fraught: as a rule, the more economic damage they do, the more powerful are the interests defending them. And so hardly a week passes without the stalling of some critical part of Mumbai's redevelopment. Last month was the turn, not for the first time, of one of the most crucial: a scheme to redevelop Dharavi slum, allegedly Asia's biggest, which would involve resettling around 300,000 people.

At its current pace, the redevelopment of Mumbai is probably not keeping up with the city's worsening decrepitude. Yet progress there has been, in three main areas: administrative reform, legal and regulatory reform, and infrastructure. Optimists—whose ranks include some of the redevelopers—say that, as a result, the way will be less tangled ahead.

The city's rulers have already pared back a few trailing branches. Mumbai is run by 16 separate agencies. To help co-ordinate them, the government has formed a redevelopment committee representing them all. But it will achieve little unless the promised axe is wielded on certain laws and building regulations. Two are most heinous. The Urban Land Ceiling Act, a law restricting urban land holdings, has left 2,000 hectares (5,000 acres) of Mumbai in a legal limbo. For three decades these parcels have been locked in the courts, prey to rent-seeking officials. In addition, rent controls ensure that most of Mumbai's best housing is let for peanuts on renewable leases. In such places, the rental market is dead. Denied control of their assets, landlords let splendid buildings crumble. In downtown Mumbai—one of the world's priciest markets for foreigners—3,000 houses stand vacant. Meanwhile, even middle-class immigrants to the city, having no better option, stay in the slums.

The central government says Maharashtra must repeal the urban-land law before it receives its infrastructure money. In July, for the umpteenth time, the state Parliament passed up an opportunity to do so. More promisingly, a law scrapping rent controls has been submitted to Parliament.

On infrastructure, there is less good news. The first 5.6km stage of a project to build a road over the sea, along Mumbai's western coast, is 60% completed, three years overdue and so far has cost double its $150m budget. The delay follows a costly redesign, after local fishermen protested that the road impeded their boats. Construction of an 11km metro, budgeted at some $500m, has not yet started—a year after Manmohan Singh, the prime minister, inaugurated its site by breaking a coconut over it. The government is in a legal battle to acquire a plot of land to store the metro's trains.

In Dharavi, the government has done all it can to avoid such headaches. Its plan is broadly in line with existing slum redevelopment policy. It would see Dharavi's low-lying shanties bulldozed and replaced by apartment blocks. Each unhoused family would be given title to a flat of 225 square feet (21 square metres). The leftover land would be split between the developer, as his fee, and the government. Previous slum redevelopments needed the approval of 70% of the affected slum-dwellers. Dharavi's, however, have been given no choice.

Worse, anyone who arrived there after 1994 will be ineligible for resettlement. Moreover, Dharavi is a peculiarly commercialised slum. Its cottage industries—including garments and handicrafts—earn millions of dollars in annual exports alone. After the redevelopment, Dharavi's traders would be offered space for rent. But much of the slum's industry will be lost.

It is nonetheless hard to know what the government could do better. The existing slum policy was launched a decade ago, with the aim of redeveloping all of Mumbai's slums by 2007. So far, 500,000 slum-dwellers have been resettled. But 2m new ones have arrived in the city.

Reliance would rejoice at any such progress. Its new city was supposed to extend over nearly 15,000 hectares, comprising two special economic zones (SEZs). These are tax havens for export-driven industries, introduced by the government last year. But the scheme has hit the skids. After skirmishes over a proposed SEZ in West Bengal in January, the government changed the rules. So Reliance will have to lop 5,000 hectares off Navi Mumbai, and will have no government help acquiring land. “Why do they worry about my bloody SEZ?” fumes Anand Jain, Mr Ambani's partner in the project. “Why not have ten SEZs and solve all Mumbai's problems?” As if he didn't know.

Will try and resurrect this blog shortly.

Havent had the time to update this blog frankly. Hence the long gap between posts.

~The Sensex is at 14000+, and is steadily moving up, depsite concerns of overheating. India's GDP growth is almost at 9%
~Tata took over Corus, by overpaying quite a bit.The Birlas took over Novelis (Think i got that right.)
~I'm almost out of B-School.