Nuclear India at 60

On August 14th and 15th, as Pakistan and India rang in their 60th birthdays and Asian markets began to tumble reacting to the credit woes originating in the United States, I was watching the local news in my hotel room in Jaipur, Rajasthan. My travels thus far, have taken me to New Delhi, Agra (Uttar Pradesh), Jaipur, and now Udaipur (cities in Rajasthan). Being in India during this time gave me the opportunity to observe the domestic debate over the nuclear deal.

For better or worse, Indian news has adopted the American model of filtering the day’s goings-on through political pundits and partisan figureheads that pepper the facts with spirited opinions. Troublingly, political opponents of the nuclear cooperative agreement, represented in large part by the Communist party, are against the deal because they fear India is conceding too much sovereignty by submitting to the U.S. enabling legislation, the Hyde Act. So proponents of the bill in India are trying their very best to ensure the public that no such concession is being made. This back-and-forth has produced some rather unsettling debates on TV talk shows and reassurances displayed on scrolling legends that read something like, “Prime Minister says India’s right to conduct nuclear tests preserved in agreement”. While this falls short of indicating that India intends to use the agreement for military purposes, it certainly betrays the lurking desire of India’s leadership to enhance its military prowess.

Demonstrating similar concerns, former U.N. weapons-inspector Hans-Blix characterized the nuclear deal as another step in the wrong direction and one that is informed by Cold-War tactics aimed at containing China. The Hindu reported that Blix also worries about the increased sale of Australian uranium as an additional destabilizing factor in the region.

The United Progressive Alliance, India’s ruling coalition of political parties, cites India’s ever-increasing energy needs as a central issue which the nuclear deal aims to address. The Communist-led opposition whose support is crucial to the deal’s survival, rejects this justification as contrived citing the high costs attendant with extracting nuclear energy. As reported by the New Statesman, the nuclear deal would satisfy 7% of India’s energy needs up from the 2% that nuclear fuel currently provides.

Does Energy Grow On Trees?: Jatropha Plant to Address India’s Fuel Needs

Today the WSJ reports that jatropha (pictured), a plant found throughout India, represents a major potential source of energy. The “ugly” shrub’s potential centers on the oil contained in its “golf-ball-size” fruit, which can be refined into biodiesel. Horticulturally-derived fuel, particularly from corn and sugarcane, is already an important source of alternative energy for many countries. Within the U.S., farm states like Iowa and Nebraska have experienced significant economic growth due to government incentives for ethanol production and Brazil has been particularly successful at reducing its oil imports by promoting the consumption of ethanol produced from sugarcane.

However, unlike corn and sugarcane, both of which are edible, jatropha has no value as a foodstuff. This means that jatropha used for biodiesel production will not make food more expensive or “divert resources away from crops that could be used to feed people”. The plant, which was formerly considered to be relatively useless beyond its ability to be grown as a hedge, keeping wild animals from entering farms, is also attractive due to its hardiness and ability to grow in difficult environments (“deserts, trash dumps, and rock piles”). It is also requires little water or fertilizer to thrive, both products which may be expensive or hard for poor farmers to come by. Other sources of biodiesel like corn and palm oil, require large amounts of water and land, jatropha is less picky.

The economics of jatropha biodiesel appear to be attracting the attention of some big players in the international energy industry. Some estimates place the per-barrel cost of refining jatropha at $43, half as much that of corn. With oil hovering at $70 per-barrel, this could make large-scale biodiesel production competitive without market-distorting government subsidies. BP recently invested $90 million in a joint venture with another British firm to develop jatropha biodiesel production in India as well as other countries.

Although some worry the flow of money into jatropha could suddenly dry up if the plant doesn’t live up to the hype and horticulturists caution that little is known about the plant due to its only new-found notoriety , some feel that jatropha oil could play a significant role in growing India’s biofuel capacity, something the Wire first profiled here.

Sprawling Metropolis seeks Infrastructure

The State of Karnataka, home to India’s tech hub Bangalore, is considering a policy initiative that could transform the unforgiving metropolis and surrounding areas into a livable urban setting, reports the Times of India. Provided the plan is executed in a manner consistent with its guiding principles, it could prove to be a useful development model for India’s otherwise anemically funded state governments that face swelling urban populations.  Bangalore recently implemented this model with notable success to renovate two of its main arteries, Bannerghatta Road and Airport Road.

By providing incentives to private developers, such as long-term advertising rights or concessional rates on property, officials hope that corporate stakeholders in the city can shoulder the infrastructure burden.  The plan also provides for a “third-party body” to oversee the work’s progress. While this approach is certainly tried and tested in its ability to carry a large project through to completion, whether it will make Bangalore a better planned city is another question. Because money will flow to areas on a project-by-project basis and will be predicated on the bottom-line of major corporations, there is little hope for a unified web of infrastructure that ties the city together. Instead, the piecemeal approach may entail high long-term maintenance costs when, for e.g. the population relying on the newly constructed roads and bridges outpaces the rate of development. The sustained success of these projects, and consequently growth in economy, will depend in large part on how the government provides for infrastructure maintenance and coordination.

Livemint.com reported that India came in second to China in the amount of private equity investments made in the first half of 2007. However, the average deal size in India was larger than China’s, $15.2 million as compared to $14.5 million. At least in the foreseeable future, this trend will continue to grow in favor of India if the public-private model ultimately benefits the businesses that took the plunge.

IBM: India to Become Major Automotive Manufacturer by 2015

The ongoing malaise within the US automotive industry is well-known. Toyota recently overtook GM as the world’s largest car maker, DaimlerChrysler finally offloaded its struggling Chrysler division to a private equity group, and all the American manufacturers are saddled with “legacy costs”: generous health insurance and pension coverage for workers, concessions given at a time when they were selling record numbers of high-margin vehicles like SUV’s. With rising gas prices, demand for these sorts of vehicles has fallen and American automakers’ profits have followed suit.

Looking towards the future, concern has been raised that the growth of automobile manufacturing in countries like China and India could prove to be the proverbial “nail in the coffin” for US carmakers. However, to paraphrase Mark Twain, the NYT reports on a study by I.B.M. and the University of Michigan’s Transportation Research Institute suggesting that rumors of the death of the American automobile industry are indeed, greatly exaggerated.

In the study, IBM “interviewed 29 Indian automotive executives and experts from government, industry, and academia” on “wide range of issues, including India’s future market and industry structure, relationships between domestic auto companies and their foreign joint venture (JV) partners, as well as the challenges in the areas of infrastructure, air quality, and oil security.”

The study’s findings confirm that India has the potential to become a major vehicle-producing nation within the next decade but “suggest[s] that the Indian car market remains in a fairly primitive stage of development”. The study notes that before real growth in the automotive sector can be accomplished, the Indian government must address road and other transportation infrastructure deficiencies. As the NYT noted, “even if carmakers are able to increase production, many consumers do not want to buy them because roads are in poor shape and congested.”

Additionally, there already are signs that the Indian automotive industry is beginning to suffer from a shortage of skilled labor. This was apparently a surprise to many people outside India. The Transportation Research Institute’s Bruce M. Belzowski noted that “we were under the impression, as most Westerners are, that India is an almost unlimited source of labor.”

India’s domestic market aside, the study also noted that if Indian firms plan on exporting cars made in India (as the Wire has previously reported), they will have to address an additional range of problems. According to the report, “Indian automakers have difficulty understanding foreign consumers, developing a range of models, managing global supply chain logistics and incorporating advanced technology”. Again, on the infrastructure issue, “Indian ports would need significant upgrades to handle high volumes of vehicles”.

Although the study concluded that, given government involvement in addressing these problems, India should be able to live up to is potential as a “powerhouse on the world stage” of automakers, in the meantime US consumers should not plan on seeing Indian or Chinese-badged cars on their local roads.

“Mr. Condom” will Save Lives

The Wire has reported, on a few occasions about the very real threat that HIV/AIDS poses to India’s well being and security. From recalcitrant state officials who passionately resist sex education programs to the growing prevalence of infected Indian military personell, it is safe to say that glimmers of hope are seldom encountered in the landscape of an epidemic. Still, when they do shine through, it is our duty as hopeful citizens to magnify their intensity. Such is the case with this installment of the Wire that highlights the work of the National AIDS Control Organization (NACO), an agency organized under the auspecies of India’s Ministry of Health & Family Welfare.

Searching for a Hero

In a June 29th article, the Times of India reported that K. Sujatha Rao, NACO’s program cheif, had just returned from a trip to Thailand with a new sense of purpose; he wanted to dub India’s very own “Mr. Condom”. Modelled after a revolutionary Thai senator, Mechai Viravaidya, Rao envisions this individual to be passionate about the cause. Mr. Condom, whoever he may be, has a tall order to fill according to Rao:

He has to quiten cynics and inspire leaders into promoting condom use. He has to devise and implement imaginative condom promotion techniques as was done in Thailand. He has to have a dynamic personality to change both government policy and public perceptions about HIV, AIDS, sex and condoms.

According to the Times, the World Bank credited Mechai’s creative and sometimes iconoclastic methods for stymieing Thailand’s AIDS crisis and preventing another 7.7 million infections. His methods, to name a few, included persuading traffic cops, Santas and toll-booth operators to distribute condoms, Buddhist monks to bless batches of condom packs in ceremonies and hiring farmers to spray-paint condom ads on their cows.

“He glued condoms to visiting cards, put them on key chains and named his restaurant Cabbages and Condoms.”

Mr. Rao has assembled a strategic team to help devise methods of promoting condom use in India. Recruits from the prestigious Indian Institute of Management are among those who will lead the quest for “Mr. Condom”. Perhaps a “Ms. Condom” or a dynamic-duo of the two would enjoy even more success.

Buddhist TV and Hopes for Peace

Sri Lankan President Mahinda Rajapaksa inaugurated a new satellite tv channel The Buddhist, according to a June 30th report by the Hindustan Times. The channel is meant to celebrate the long-standing religious and cultural ties between Sri Lanka and India that date back to the third century B.C. when Prince Mahinda of India introduced Buddhism to the island. As the Times notes, this should be a welcome development for the Sinhalese Buddhists, who until now did not have a channel to call their own and should also bolster their support for President Rajapaksa. The Sri Lankan constitution charges the government with protecting the Buddhist tradition and The Buddhist will enhance its ability to do so. The channel will begin to broadcast in Sinhalese and English but plans to provide programming in Tamil, French and other international languages.

The Buddhist’s inauguration arises against the backdrop of a worsening armed conflict between the Sri Lankan-Sinhalese controlled government and the Tamil Tigers. After the two sides met in Oslo on June 25th, the Times reported that they agreed to return to the negotiating table although diplomats from Norway and the United States, among others involved in the mediation remain less than optimistic. Confronted with an aggressive Sri Lankan military that has caused more than 20,000 Tamilians to seek refuge in India and an unpredictable party chair of the Liberation Tigers of Tamil Eelam, Velupillai Prabhakaran, there is no indication that the negotiations will even take place, let alone the fruition of an accord.

The Buddhist stands to be an incredibly powerful new element in this ongoing struggle. On the one hand, if the government commandeers the station, thereby fortifying its dominance over the hearts and minds of Sri Lankans, the channel may prove to exacerbate the conflict and elevate its intensity by becoming a mouthpiece for inflammatory rhetoric. On the other hand, if the channel remains relatively independent from the Sri Lankan government and adopts an inclusive, critical and conciliatory philosophy, it will prove a powerful tool for the realization of a heretofore elusive peace. If a recent note submitted by the Centre for Policy Alternatives (CPA) to the International Press Freedom and Freedom of Expression Mission is any indication of what avatar of The Buddhist we can expect to see, then inflammatory rhetoric and suppression of free speech will prevail, at least in the beginning. According to this report, both the Sri Lankan government in the South and the LTTE in the East and North are brazenly infringing upon the freedom of press and human rights in general, leading to a “serious deterioration” in the security of media personnel. Abuses include abductions, murders and use of governmental agencies and the courts to silence, intimidate, and in some cases, shut down news gathering organizations.

Sec. State Rice Optimistic about Nuclear Deal, Receives Forbidden Mangoes

During yesterday’s US-India Business Council meeting in Washington, the focus was supposed to be on civilian nuclear cooperation. Ultimately, as the WSJ notes, “mangoes carried the day”.

US Secretary of State Condoleeza Rice (pictured) spoke to the assembled Indian and US businessmen and acknowledged that progress on the nuclear cooperation deal had been slow but noted that she was “certain that we will reach final agreement and be in a position to complete this deal by the end of the year.” As Kesav reported for the Wire before, the agreement has stalled recently due to a variety of concerns.

Following the speech, India’s media adviser Sanjaya Baru presented a basket of mangoes to Rice and declared:

“[mangoes are] “the best symbol of the diversity of Indian society and democracy. Nothing divides the Indian people more than our differences on which is the best variety of mango — we have 700 of them — but nothing unites the Indian people more than our firm belief that this is truly the king of fruits.”

Following on this, FedEx International president Michael Drucker, took credit for his company’s role in the presentation saying, “We’ve shown you today what FedEx can do. It can connect the world together by bringing mangoes to you”.

Long banned from the by US Department of Agriculture, Indian mangoes were only approved for import in late Ma as the Wire previously reported. There was no indication whether the mangoes presented to Rice were the Alphonso variety, highly prized by mango enthusiasts.

Picture by AP/Manuel Balce Ceneta

Towards Uniform Accounting…Can India Catch Up?

The WSJ reported, on June 21st, that the SEC unanimously voted to propose allowing non-U.S.-based companies to file financials using international financial reporting standards (IFRS) as set by the International Accounting Standards Board without reconciling the differences to U.S. generally accepted accounting principles (GAAP). This move is yet another indication from the SEC that it has duly noted the “flight of capital” from America’s markets to foreign exchanges, particularly London and Asia. The proposal is now open for public comment for 75 days at which point the SEC will deliberate the adoption once more and reach a final decision.

What this means for Indian based companies and India’s policymakers is, act now: 1) companies should voluntarily adopt IFRS as a routine method of reporting 2) the federal government should nationally adopt IFRS as the preferred method of reporting in addition to reforms in other areas of corporate governance with an aim towards making India’s markets more inviting.

With respect to some of India’s larger companies such as Infosys and HDFC Bank, the cause for urgency is less pronounced given that they have voluntarily adopted improved standards of accounting and corporate governance. In fact, the Asian Corporate Governance Association (ACGA) noted in its “country snapshot” that India is the only country in the region where the business sector, rather than the government, initiated corporate governance reform in an effort to attract foreign direct investments and increase the companies’ competitiveness, visibility and level of respect. However, the ACGA emphasized significant weaknesses in India’s regulatory infrastructure which fell into three categories: 1) lack of emphasis on enforcement and oversight 2) weak or non-existent protection of shareholders’ rights 3) a general pattern of corruption and aversion to inter-agency cooperation that characterizes Indian governance.

A leading expert on corporate governance and a professor of Finance and Control at the Indian Institute of Management (IIM), Mr. R. Narayanaswamy, echoed these concerns in an interview with The Hindu’s “Business Line“.  One natural consequence arising from a lack of cooperation is what he noted as a multiplicity of accounting standards arising from several competing bodies such as the Reserve Bank of India (RBI), Securities Exchange Board of India (SEBI) and the Institute of Chartered Accountants of India (ICAI), to name a few. Narayanaswamy is a strong proponent of adopting uniform international standards, strengthening domestic regulatory agencies such as SEBI and the Ministry of Company Affairs (MCA), and streamling their enforcement and oversight functions.

“‘I doubt if anyone is monitoring compliance. Both the SEBI and the MCA do not have the kind of technical staff they need.’”

In addition to its weak regulatory structure, India’s laws protecting shareholders’ rights are notably weaker than their American or even Asian counterparts. For example, as it stands now, shareholders are unable to sue their company’s management derivatively, on their company’s behalf for reckless management practices. Strengthening this area of the law is also critical to ensuring growth in India’s capital markets. Narayanaswamy cites the SEC of the U.S. as a strong model to emulate although he worries that future abuses by companies may jeopardize trust in the capital markets and lead to “horrible rule-based accounting standards.” In the States, Sarbanes-Oxley is viewed by many as exactly what Narayanaswamy fears may befall Indian companies.

For its part, the SEC is exploring ways for U.S. companies to report under international accounting standards by giving them a choice between U.S. GAAP and the IFRS. Critics worry this may provoke companies to cherry-pick the kind of reporting that casts their business in the most favorable light but proponents maintain that this will be a necessary step towards a convergence of global accounting standards. Whatever course the SEC may chart, prudence counsels Indian companies to heavily invest in tightening up their reporting mechanisms in accordance with IFRS regardless of whether Indian law requires it. Prudence also counsels New Delhi to take this latest move by the SEC as a signal to invigorate its own efforts towards reform. Promulgating stronger, across-the-board standards with effective oversight and enforcement will not only make India’s markets attractive for foreign investors but will increase faith in Indian-based companies (big and small) overseas, thereby making it easier for them to list in foreign exchanges for additional capital generation.

Starbucks Renews Effort to Enter India

Reuters reports today that Starbucks is revising a previously stalled application to enter the Indian coffee shop market. The news agency also cites the Business Standard in noting that the India’s Department of Industrial Policy and Promotion (DIPP) supports Starbucks’ entry into India’s “fast-expanding” economy through a “foreign direct investment route” since its previous (franchise) plan “did not conform to foreign investment norms”.

Reports on the details of the previous plan suggested that Starbucks’ Indian operations would be 51% owned by Indonesian Starbucks franchisee V.P. Sharma and the rest owned by Kishore Biyani, CEO of Future Group, a subsidiary of Pantaloon Retail. The DIPP was unwilling to approve this joint venture version of Starbucks’ plan because Sharma was a non-resident Indian.

In refiling its application, Starbucks is reportedly pursuing a franchise-based operation. According to Reuters:

“Foreign single-brand retailers can take 51 percent in a venture with a local Indian partner, while multiple-brand retailers are limited to cash-and-carry or franchise and license operations.”

Faced with rising material costs and lowered growth forecasts at home, Starbucks is keen to expand into both China and India.

US Official Rips India for Failure of Trade Talks

As the Wire reported below, recent trade talks between the US, EU, India, and Brazil ended in failure as participants were unable to reach any comprehensive agreement. The dispute centered on the developing countries demands for reduced farm subsidies in the US and EU combined with the West’s insistence on greater access to domestic markets in India and Brazil.

In the wake of the Potsdam conference, senior negotiator and US Trade Representative Susan Schwab (pictured) indicated in an interview that she was “surprised” by India and Brazil’s “rigid negotiating positions”. Schwab felt that negotiators from these countries had been much more willing to compromise in previous negotiation sessions. Schwab speculated that the major reason behind this shift could be fears over trade deficits with China. Currently, India has a small trade surplus with China but there are concerns this may eventually become a deficit. In the interview she noted:

“There has been some backtracking [by developing countries] in the last two months because of concerns about China. Another factor is the sense that some of the more protectionist developing countries could hide behind the differences of others. It was only when the EU and the US made progress on agriculture that their positions were smoked out. They [Brazil and India] came to Potsdam with very rigid positions.”

Schwab also accused Brazil and India of selling out to other developing countries in order to find a common negotiation position, making it harder for their negotiators to be flexible when presented with offers by the US and EU:

“What you have seen is they spend huge amounts of time and political capital fighting it out internally and then they preclude their leaders [Brazil and India] from taking different positions – at Potsdam, Brazil and India were taking the same positions as they had almost two years ago.”

Although she expressed her disappointment regarding India and Brazil’s mutual inability to “provide leadership to the developing world” she was most critical of India, which many have accused of coming to the trade talks “expecting the negotiations to fail”. According to Schwab, India was able to get Brazil to choose “[developing country] solidarity over its economic interests”.

Photo of Susan Schwab from USTR