India’s foreign direct investment (FDI) rules are in a muddle that no one in the government currently seems able, or willing, to try to solve. No minister or bureaucrat has publicly acknowledged this, though it was indirectly confirmed on Monday when finance minister Pranab Mukherjee failed even to utter the words “foreign direct investment” or the acronym FDI in his budget speech – surely the first time this has happened since the main thrust of economic reforms began in 1991.

The muddle stems from complex and bewildering changes that were announced in three “press notes” by the industry ministry in February,  just before the recent general election campaign began.

The story illustrates the murky interface between government and big business in a country which still has the trappings of a semi-controlled – and business-manipulated – economy, 18 years after 1991.

Opposed by many in the finance ministry – including former finance minister Palaniappan Chidambaram – and by the Reserve Bank of India (RBI), the changes were pushed through by Kamal Nath, then the minister for commerce and industry, and were endorsed by Mukherjee when he became finance minister in December. Nath’s aim may have been partly to honour personal commitments he had made on relaxing FDI bans and limits in areas such as retail, which he had not been able to implement because of opposition.

Since then the changes have been neither formally clarified by the industry ministry, nor sent to the RBI to be turned into Foreign Exchange Management Act (FEMA) amendments. Yet they are supposed to have become effective from the announcement dates, which is inevitably causing problems for would-be foreign investors – and worry about whether the changes would ever be enforceable in law.

“Ownership and control”

The changes shift the focus of FDI limits from straight foreign equity percentages to an assessment of whether or not an Indian company has both “ownership and control” – a concept introduced for the first time in Indian regulations by the second of the press notes.

The intention is to allow a foreign-invested Indian company – providing it is both Indian majority-owned (in terms of equity holdings) and Indian controlled (in terms of board membership) – to invest in downstream subsidiaries or associate businesses without the original FDI foreign stake counting against the new company’s FDI limit.

In FDI jargon, this legitimises cascading investments which have been used to bring foreign capital into sectors such as telecoms that need heavy investment. FDI limits here are bypassed by progressively adding foreign investment through tiers of subsidiary joint ventures so that, though official limits are exceeded overall, the rules are not technically broken.

Officially, the aim of the changes is to boost the inflow of FDI, which rose 85% to $46.5bn last year according to a recent UNCTAD study, and to make it easier for Indian companies to raise private equity and other foreign capital.

Officials and friends tell me the aim was also to end uneven application of rules in different sectors such as insurance (where there is officially a 26% FDI limit), telecoms (74%) and media (various). Arguments about whether Vodafone Essar has exceeded its limits because of controversial holdings by two small minority shareholders was apparently one of the special cases that was to be cleared, as well as indirect FDI allowed by insurance legislation.

The timing of the changes was curious, coming at the fag end of the government’s five-year term in office when there was little chance of the new rules having much effect on FDI decisions before the election. The changes were not only complex – their presentation in three departmental “press notes” was bewildering. Wouldn’t it have been better to have put the idea in the Congress Party manifesto and announced it now?

Nath made his usual swashbuckling remarks that added little to understanding probably intentionally. Since the election, no one has tried to clear the air. Anand Sharma, the new commerce and industry minister, has indicated that he does not intend to review the policy changes, and Mukherjee has backed them since he became finance minister last December.
 
Who is the government favouring?

Inevitably, the timing of the announcement, and the conflicting views within the administration, have led to wild rumours of why the changes were done – wild, but widely believed. As I reported on this blog in February, The Economic Times dubbed the policy “irrational” and asked, “for whom is the government doing this?”. A friend, who has long watched companies bend government policies, emailed me that “this is meant to recycle politicians’ and bureaucrats’ money (and) fund elections”.   

Finance ministry and RBI officials have opposed the changes mainly because they believe they will bust existing equity limits. Supporters of the policy however say that this does not matter providing the company involved stays within Indian control. If it does remain Indian, they say, what is the harm of extra FDI?

“Foreign money is only foreign money if it’s owned and controlled by foreigners – otherwise it is not,” said one contact, trying, and failing, with such tautology to persuade me that the policy is sound. Surely, I replied it would be easy to dress up a semblance of Indian control in a foreign-run business, as has been done in some insurance joint ventures.

The government has said in various statements that areas where FDI is totally banned such as nuclear, multi-brand retail, lottery and betting, and foreign airlines in Indian carriers will not be affected, but this has not been formally spelt out. So what is to stop companies like, for example, Bharti Enterprises and Wal-Mart setting up an Indian controlled joint venture for their wholesale business and then forming a subsidiary for currently banned multi-brand retailing and dressing it up as Indian owned and controlled?

The same could surely be done by, say, EADS and Larsen & Toubro with their recent joint venture in defence where there is a 26% FDI limit, or by Vijay Mallya with a foreign carrier for his cash-starved Kingfisher airline and, or Mukesh Ambani for some of his Reliance Retail joint ventures.

It is not clear what happens in joint ventures where the equity or the board membership is split 50-50, nor whether FDI in both an Indian controlled company and its offshoot are counted if the offshoot is foreign-controlled.

The finance ministry has already mounted some challenges through the FDI regulatory body, the FIPB. It objects especially to the new policy being applicable retrospectively, which in effect would give an amnesty to past rule infringements. Bharti and Tata telecom companies have for example, according to media reports, been refused waivers for fines levied earlier for breaches of FDI rules. Bharti might also have problems clearing its proposed merger/takeover of South Africa’s MTN because of high FDI equity levels in its existing operations

The finance ministry is also objecting to a request from India Rizing Fund, an Indian controlled defence sector private equity fund with foreign money, that its investments should be exempted from the 26% rule under the new policy.

Basically, the changes smell. Maybe I’m being unfair but, given the mishandling and noting some those involved, it’s an inevitable conclusion – and will remain so till someone says something understandable to a layman, and not just to consultants who make money inventing and then applying policy quirks for their clients.

When Sonia Gandhi, India’s Congress Party president and leader of the ruling United Progressive Alliance (UPA) government, praised the country’s 1969 bank nationalisation at a conference in Delhi last November, there were gasps of surprise and horror from businessmen in her audience.

Today, the same remark has been made by Pranab Mukherjee, the finance minister (right), in his Budget speech but, by the time I am writing this post (four hours after the speech ended) I have not heard any murmurs of horror from commentators on television programmes.

Maybe that is because this is what one should expect from the 73-year old minister who, I remember, gave me a distinctly frosty and uninspiring interview when I first arrived in India as the FT correspondent in 1983 and he was serving his first term as finance minister.

Mukherjee has no track record as an economic reformer, and today’s speech does nothing to show that he is one, beyond nudging forward distant plans for a general sales tax. But he is the government’s most able political tactician, so one would expect him to at least balance the politics, the books and the personalities, even if he couldn’t rise to the occasion with a reform agenda for India’s new government in the way that his predecessor, Palaniappan Chidambaram, would have done.

Mukherjee has done the politics by looking after farmers with loan concessions, plus more help for the rural poor and other social and infrastructure spending, and he has also handled the personalities (Sonia Gandhi, daughter-in-law of Indira Gandhi who nationalised the banks, was sitting next to him in parliament, and he also quoted the revered Mahatma Gandhi).

But he hasn’t balanced the books, which is probably why the stock markets have fallen sharply, and why no-one has so far found it very easy to say whether it was a really good or really bad budget. The government’s total expenditure has been increased by 36% (including defence by about the same proportion and highway building by 23%). And the central government’s forecast fiscal deficit (excluding the states’ individual deficits) is up substantially at a record 6.8% of gdp, compared with 3.2% in 2007-08, because of measures taken to fend off the international economic crisis.

Both the 36% increase and 6.8% deficit are seen by many experts as too high, especially when there is no guide as to how Mukherjee expects to bring down  the deficit, apart from aiming to get the country back to 9% economic growth from its current 6%-7%. There has also been dismay that he is relying on government expenditure to boost the economy, rather than providing more of a stimulus for the private sector.

Mukherjee also said virtually nothing on divesting minority stakes in public sector companies, and only put a target of Rs1100 crore ($240m) on what might be raised by 2010. Here he was being sensible because I don’t think any Indian finance minister has ever reached his dis-investment target, and Mukherjee knows that it is a highly controversial programme and he might only be able to sell off 10% stakes in two or three corporations by the end of next year.

But it’s worth quoting what he said because it shows the basic strongly mixed-economy approach – not only his, but also that of Manmohan Singh, the prime minister who has never been a keen public sector reformer, and Sonia Gandhi, with her soft leftward-leaning liberalism. He said:

• “The Public Sector Undertakings are the wealth of the nation, and part of this wealth should rest in the hands of the people. While retaining at least 51% Government equity in our enterprises, I propose to encourage people’s participation in our disinvestment programme. Here, I must state clearly that public sector enterprises such as banks and insurance companies will remain in the public sector and will be given all support, including capital infusion, to grow and remain competitive.”

And on Indira Gandhi’s bank nationalisation he said (ignoring the fact that Gandhi did it more for short-term political than long-term socio-economic reasons):

• “Never before has Indira Gandhi’s bold decision to nationalise our banking system exactly 40 years ago – on 14th of July, 1969 – appeared as wise and visionary as it has over the past few months. Her approach continues to be our inspiration even as we introduce competition and new technology in this sector.“

The fault here of course is that he seemed to be closing the door on urgently need financial sector reform, and said nothing about the need to make public sector businesses more efficient, shedding surplus labour and management. Nor was there any discussion of the benefits (albeit very limited) of selling off public sector minority strakes – but that is par for the course because there is, as I have argued before, little real discussion of the pros and cons of policy in India.

One final omission – he said nothing on foreign direct investment (I have checked with a word search in the speech for those words and FDI), which might seem surprising. But it isn’t because the government’s FDI policy is in a mess, thanks to Mukherjee endorsing confusing and controversial changes introduced before the election by Kamal Nath, then industry minister, but opposed by Chidambaram. More on that soon………

(updated with information from the Financial Times dated June 20-21 on works in the Sotheby’s sale - inserted in italics below)

Judging by the relative success of sales at Sotheby’s, Christie’s and SaffronArt in the past ten days, it looks as if auctioneers and serious collectors of modern Indian art have found common ground at what some experts believe is the bottom of the market.

Prices have collapsed overall by 40% or more over the past year or so, and some contemporary artists are down to 25% or less of their peak, but it seems that big collectors have decided it is time to start buying again now that auctioneers have severely curbed sellers’ expectations.

Sotheby’s auction on June 16 included 27 works that were originally bought in its New York auctions in March and September last year by an art fund – but “never paid for”, says the Financial Times quoting “trade sources”.

The FT adds that Death and the Maiden (left), a 43inx31in oil on canvas by F.N.Souza, which was estimated at £30,000-50,000 and sold for £46,500 ($76,800), had been secured in September last year by the art fund at $182,500 (then approx £102,000) – a fall of more than 50%.

Sotheby’s reached a sale total of only £2.07m or $3.37m (including 20-25% buyers premium), but it was significant for the buoyant bidding, especially for a remarkable Jogen Chowdhury(right but pictured larger last week in my first auction post – click here) ink and pastel on paper (lacquered), Day Dreaming.

Painted in 1979, this went for a hammer price of around £310,000 (£373,250 including 20% premium) to a private US (presumed Indian) collector. That was an auction record for Chowdhury and was about three to four times the £80,00-£120,000 estimate.

The highest price of £335,000 (£403,250 with premium) – also three to four times estimates – went for Orange Head, a striking though rather fierce F.N.Souza (left) 86inx62in oil on canvas that was painted in 1963.

Bought by a private US (presumed Indian) collector, this work was also being re-offered after the art fund default. The price was an amazing 50% above the $400,000 (then approx £228,000) bid last September.

“This indicates that the focus among buyers is shifting back to selective artists in the modern Indian art market,” says Anders Petterson of ArtTactic, a London-based art analysis firm. Other works by Souza and M.F.Husain, India’s two leading veteran modern masters, also sold well including Husain’s untitled 1953 oil on canvas (below) that a US investor bought well above estimates at £109,250. Sotheby’s top ten lots are said to have been bought by established Indian and international collectors.

The Sotheby’s event followed a successful though smaller on-line auction by Mumbai-based SaffronArt last week, where more than half the 61 lots sold (out of 85 on offer) went above top estimates. The auction reaped Rs104m or $2.2m/£1.3m (including 10-15% buyers premium).

Earlier last week Christie’s set the trend with a good and lively London auction , with £2.43m (US$3.96m) sales – about 80% of the total 97 lots on offer and 90% of their total estimated value. But both Christie’s and Sotheby’s sales were far below last year’s levels, when Christie’s London auction for example’s netted £5.4m . More than a third of the Sotheby’s works were miniature classical paintings from the 1700’s and 1800’s.

“”There has been a sea-change in perceptions and mind-set from even three months ago,” says Dinesh Vazirani, one of SaffronArt’s founders. “Serious collectors are seeing an opportunity and some old collectors from 2002-03 are buying again, but not investors who are scared to come in”.

SaffronArt’s buyers were mainly Indian, about 60% of them living in the country and 40% abroad. Its highest price of Rs14.9m or $317,000 (including premium) was paid for a 1984 untitled oil on canvas by V S Gaitonde.

Other sales included a 66inx90in oil on canvas untitled work by Subodh Gupta (right) which fetched Rs9.5m ($201,250). This was seen as a good price for current market conditions, but was far below Gupta’s record $1.2m paid in Hong Kong in May last year for a similar sized painting of a man pulling a luggage trolley.

Gupta is one of India’s leading contemporary artists. The steep fall shows how contemporary artists have been hit harder by collectors’ and investors’ loss of confidence than established modern artists such as Husain, Souza, Gaitonde and Ram Kumar, whose early works were the top sellers in the current auctions.

ArtTactic’s indicators (below) have significantly improved this year – more for modern than contemporary art - suggesting, Petterson says, that current price estimates have come down to attractive buyer levels, which “could be a sign that confidence is returning”.

As Vazirani points out, the current buoyant mood after India’s recent general election, with economic growth picking up and a slow-down in bad economic news, has helped boost buying – in addition to the fact that auctioneers have drastically cut their estimates in order to attract buyers.

That will be tested next at an auction in Mumbai on June 30 by Osian’s, India’s other leading auction house, of 58 modern and contemporary works. It includes Roadside with Temple, a vivid 4ftx6ft (approx) oil on canvas (below) by Atul Dodiya, a leading contemporary artist, estimated at Rs6.4m-8m ($133,330-$166,670).

“Sotheby’s tactic significantly to reduce the estimates (for some works between 60-70%), has paid off,” says Petterson. “The market seems to have found a temporary bottom, which has clearly reduced the price uncertainty……long-term buyers are seeing opportunities at current price levels”. However Petterson cautions that this should not be taken as a definite recovery in prices.

Britain seems almost to enjoy revelling in bouts of national hysteria that appear cataclysmic for a time, but quickly fade away. Some 12 years ago, it was the death of Princess Diana that led to extraordinary expressions of public grief and dire criticism of the royal family.

Now, in a very different setting, Britain – where I have been for the past week – is wallowing in a daily drip-by-drip exposure by The Daily Telegraph of members of parliament’s expenses to pay for all sorts of homely things from house conversions, mortgages (sometimes for houses already sold), hi fi equipment, tuning a piano, and a baby’s cot, to gardeners, servicing a swimming pool, a girl friend/assistant’s “life improving” classes,  potted garden plants, Remembrance Day wreaths, and maintaining a moat (as in water round your castle) and so on.

Senior ministers have resigned from the government because of the revelations, and Britain seems to believe it is in the middle of a constitutional crisis. That is of course partly because support for the current Labour government is eroding fast, heightening the sense of crisis, and because the expenses revelations have hit all political parties.

In 1997, after Diana’s death, it was the monarchy that people said would have to change – and it has, but only a very little. Now people are talking about changing the way that parliament operates and is controlled – as if that would stop MPs claiming as much as possible on expenses!

Constitutional reform

There are even suggestions that Britain needs to tidy up its act with a written constitution instead of running its affairs on a semi-informal basis.

The prime minister – yes it’s still Gordon Brown (who charged for his brother to clean his private flat) – is himself suggesting constitutional reform, plus a more immediately practical “parliamentary standards authority”.  He has been followed by other party leaders, David Cameron (Conservatives) and Nick Clegg (Liberal Democrats), who want to make things look different by introducing fixed-term periods for parliaments, removing a prime minister’s right to choose the timing of a general election. (The same idea is often raised in India which, post-colonially, follows the British parliamentary model).

As Ted Vallance, a history academic, points out in the (recently much duller) New Statesman, that idea has been around since the 17th century when efforts were made to rein in Charles the First. “The current debate on parliamentary reform reveals little more than a political class desperate to save its own skin,” Vallance writes, under the heading Burning down the House. “Bereft of genuinely innovative ideas, Gordon Brown, David Cameron and Nick Clegg are ransacking the ideological storehouse of British history”.

The party leaders are themselves as guilty as ordinary MPs, and seemingly have no practical solution to offer on how to tighten the system. So they are heading for dramatic constitutional and parliamentary reforms which, while maybe worthwhile issues for long-term debate, are currently just useful time-consuming red herrings.

Cameron, desperate to make political capital ahead of a general election due next year, has called for “a massive, sweeping, radical redistribution of power” (until, of course he gets hold of that power).

The MPs deserve some sympathy, or at least understanding,  brazenly corrupt though some certainly have been. They are only paid just under £70,000 a year (Rupees 52 lakhs or $115,000). This is, of course, enormously more than Indian MPs are paid, but it is not much after tax for a family, especially in London – and maybe with a second home in a possibly far-away constituency,

Jonathan Raban, a journalist, points out in the London Review of Books that MPs have been operating under the guidance and jurisdiction of officials in the House of Commons Fees Office. His article, headed Trouble at the Fees Office, explains that MPs have an “additional costs allowance” of up to £23,083 a year, which they can claim by presenting bills for various expenses:

“The safest way of getting it (the money) is to dump sheaves of bills at the Fees Office to prove that you’ve spent far more than the amount of the allowance and are therefore entitled to it in its entirety. Given the thicket of ambiguous rules and regulations set out in The Green Book: A Guide to Members’ Allowances, it’s not surprising that most MPs seem to have followed the example of Margaret Beckett (a senior Labour minister sacked in the last few days by Brown), who confessed: ‘I just grabbed together the relevant things and bunged them into the Fees Office and left it to them to sort it out.’ “

Haven’t we all done that to claim expenses? It’s what I do every year when I send all sorts of bills to my tax accountant, leaving him to decide whether, for example, my recent air fare to London can be counted against tax.

British media at fault

The British media has behaved appallingly and is substantially responsible for the perceived crisis. The Telegraph, which received the details in a leaked package weeks ago, has spread out its revelations over more than a month instead of packaging them over a few days. This has built up a feeding frenzy with a public that loves to despise those in authority – and, which understandably, doesn’t think much of the often self-serving people who rule the country.

Other newspapers, and the tv channels, which usually don’t like picking up their rivals’ scoops have joined the frenzy, with scarcely anyone standing back and putting the issues in perspective, or explaining how the excesses have come about.

So, now I’m back in Delhi, let’s try to do that. The Telegraph disclosed on Wednesday that Shahid Malik, the communities minister, simultaneously charged in his applications for the costs of office space in both his constituency and London home – claiming “more than £6,500” (just under five lakhs of rupees).

As Indian MPs (and those who finance them) would testify, that’s not serious corruption by anyone’s standards. It certainly shows that the system of MPs’ allowances needs to be tightened - and some MPs may indeed deserve to be criminally charged for excesses.

But, as someone said on a British tv chat show recently, “the MPs have behaved more like idiots than scoundrels” – and that surely should not be regarded as a constitution-changing political crisis.

LONDON June 10 ‘09:  Christie’s had a good and lively South Asian art auction in London today, with £2.43m (US$3.96m) sales – about 80% of the total 97 lots and 90% of their total estimated value, with buyers from New York, Dubai, Hong Kong and Singapore, as well as London.

A 35×75in M.F.Husain oil on canvas (below), painted 1960 in his Ragamala series, fetched the top hammer price of £330,000 (approx US$539,000 or Rs26m), though that was substantially less than the £400,000-£600,000 estimate. Other Husain’s went well – with the veteran artist watching happily from the back of the auction room.

Further June 10 updates are in italics below

LONDON June 9 ‘09:  An art auctioneer needs to persuade people to offer high grade pictures for sale, and then has to make the price and quality range attractive to pull in potential buyers.

That may sound a blindingly obvious statement, but it wasn’t true of modern and contemporary Indian art auctions a year ago, and certainly not two or three years ago. Hordes of buyers – mostly Indians living abroad (NRIs), and some at home – were then rushing, herd-like, chasing escalating prices to buy almost any available slice of fashionable Indian art that would enable them to display their wealth on the walls of their homes and offices. Profit-seeking sellers were happy, and prices rose to unsustainable levels, often with little regard for quality.

Now the international art market has slumped along with the economic crisis, and Christie’s and Sotheby’s are pitching low rather than high in their price ranges and forecasts for current London auctions – Christie’s June 10, and Sotheby’s next week - also Mumbai-based Saffronart with an on-line auction this week.

They are all hoping that the best works will get very good prices at the top end of the market, as happened with contemporary Chinese art at recent auctions in Hong Kong, and that low prices will pull in new buyers.

“It’s very hard to get good works,” Hugo Weihe, Christie’s Asian art director, told me yesterday, though he was much more confident after the auction: “This shows there is a serious discriminating market and people who will buy,” he said

Some works come from unlikely sources. Two F.N.Souza paintings in Christie’s auction have come from owners who had absolutely no idea of their value. Portrait of an Elder (right), a 30inx23in oil on board, sold for £30,000 – the estimate was £30,000-£60,000 . One owner was alerted by a Souza being shown recently on Britain’s Antiques Roadshow tv programme.

Weihe is optimistic that new collectors will come in, along with buyers from India who are visiting Europe for the summer. Christies had Usha Mittal, wife of steel tycoon Lakshmi Mittal, as the co-host for their private view last night, hoping the couple would entice big spenders from the top end of London’s Indian community. Last year Tina Ambani, wife of Anil Ambani, who runs one of India’s two Reliance groups, was the draw with works from her Harmony Art collection and charity

Sotheby’s is more restrained in its publicity, relying on exclusive lunches for its most promising buyers.

Zara Porter Hill, the India and S.E.Asia director, is convinced she has a major draw with Day Dreaming, (above) a magnificent largish (about 5ft x 6ft) Jogen Chowdhury ink and pastel on paper, lacquered, of a reclining female figure. Estimated at £80,000-120,000 (US$118,000-177,000), it is way below Chowdhury’s record (hammer) price of Rs14m (around $300,000) , which was four times estimates and was achieved in the hey days of mid-2006 for a 4ftx4ft oil on canvas.

All three auction houses are having to cope with dramatic falls in prices of 40% upwards over the past year. Results from a survey last month (May) by ArtTactic, a London-based art analysis firm, showed that average auction prices for modern Indian art have fallen by just over 30% since March last year, while contemporary art fell more than twice as much at just over 70%. 

Buyers are said to be looking for established modern artists with “proven historical value” such as V.S.Gaitonde, M.F.Husain, F.N.Souza and Akbar Padamsee. All these artists figure in the current auctions but, in the past year or so, only their best works have done well. Several Souzas and Husains for example did not sell at Christies in London last year..

ArtTactic’s overall  confidence indicator for Indian art has fallen 71% since May last year. Just over a third of respondents said modern Indian art would rebound in one to two years, and 50% estimated it would take two to five years. A higher proportion – 66% – thought contemporary art would take two to five years and almost a fifth said five to ten years..

Subodh Gupta, one of India’s leading contemporary artists, has a 8ft high pile of stainless steel pails at Christie’s (left) marked at £70,000-£100,000 and it sold for £82,000 ($134,000), but he got £600,000 (then $1.2m) for a large installation of stainless steel  kitchen pots and pans at the same auction last year. His paintings have dropped dramatically from approaching $1m to $200,000 at successive auctions
 
Both London auctioneers have cut the number of works from around 110-120 last June to around 90, and are putting conservative estimates on many works.

A third of the Christie’s works, which also include paintings from Pakistan and Sri Lanka, are estimated at up to just £5,000 ($8,000), and only 18 works are above £50,000.

Sotheby’s are in broadly similar ranges, and there are only 50 modern and contemporary works – including an untitled 67inx61in water-colour and acrylic on paper (left) by Prajakta Palav, a young Mumbai artist, in the low price range at £2,500-£3,500. The rest are Indian miniature paintings from the 1700’s and 1800’s.

Neither gallery is pushing works above £200,000 ($300,000), so there are none in the million-dollar-plus range seen last June when works by Gupta Tyeb Mehta, and Souza hit personal records from $1.2m to over $2m at the Christie’s London auction.

Lost Kingdom of Navin by Navin Rawanchaikul, a Thai-born Indian-Pakistani artist, depicting Indian art scene faces in a Bollywood billboard style – 6ftx11ft, £30,000-£40,000, at Christies

 

 

India’s Ministry of Surface Transport is well known as a cash cow for the political party in power, and thus for the minister in charge if he is so minded, because of the massive contracts involved. But T.R.Baalu, who was the minister in the last United Progressive Alliance (UPA) government, surprisingly did not manage to make a success of India’s 33,000km highway building programme, and did not ensure that a large number of contracts were placed and completed, during the five years that he was in charge.

Now Kamal Nath, a prominent Congress party politician who has been close to the Gandhi dynasty for 30 years, has been given the portfolio. Judging by his appearances on television the night he was appointed, and since, he seems happy with the job, even though its prestige and scope is far far less than the commerce and industry ministry that he ran for the past five years. My guess is that he will hold the post for a couple of years to get the ministry moving and do what he can with the full potential of the highways programme.

This is a story that shows how the muddle, contradictions, arguments and corruption that curiously generate much of India’s success, can also sometimes block progress. It demonstrates the need for strong leadership at the top, which was lacking in the last UPA government, but which prime minister Manmohan Singh now has the stature to provide.

The mostly-four lane national highways programme did well when it was initiated by the 1998-2004 Bharatiya Janata Party-led NDA coalition government. Contracts awarded while the BJP was in power led to some 6,000kms (3,750 miles) being completed by the end of 2005 at a cost of about $7bn, mostly on the Golden Quadrilateral that links India’s four biggest cities. There were of course massive delays because of slow land acquisition, corruption, bureaucratic lethargy, and extortion by gangsters and Naxalite (Maoist) rebels – but it was a success.

By the end of April this year however, the total completed had only gone up to just over 11,000kms, and awards of new contracts had slowed to such an extent that work was only started on 9,700kms compared with a five-year target of 16,000kms. The programme, which has attracted  few foreign construction companies because of the problems of operating in India, has now lost the momentum and drive of the BJP years, and urgently needs to be revived by Nath.

Baalu, who was in charge of shipping as well as highways, was one of two ministers from Tamil Nadu’s DMK political party that prime minister Manmohan Singh did not want to appoint again last week. Singh successfully excluded Baalu, but had to agree to let the other minister, A.Raja, go back to his old job at telecoms, which is another ministry favoured by bounty-seeking politicians. Both Baalu and Raja have been frequently accused of inefficiency and corruption.

Baalu was much more interested in dredging the controversial Sethusamudram Canal between Tamil Nadu and Sri Lanka. This involves lucrative contracts and later there will be trans-shipping and port work which, it has been officially acknowledged, could benefit a trawling and fishing company in which two of his wives and sons are reported to have shares. Earlier Baalu was  a controversial environment minister and, in the mid-1990s, a well-connected junior minister in the petroleum ministry that handles high-value oil imports.

He regularly tried to influence and even dominate the detailed functioning of the National Highways Authority of India (NHAI), whose financially-sensitive responsibilities include drawing up initial lists of tenderers, and issuing partial and final completion certificates, as well as placing contracts. He changed the NHAI chairman five times in as many years when his wishes were not carried out – because, as a BJP spokesman euphemistically put it, of “his own whims and fancies”.

Private Sector BOP focus

There are several reasons for the poor performance and they are not all Baalu’s fault. Initially the Congress-led UPA government did not seem to want to promote the programme because it had been such a success for the previous BJP prime minister, Atal Bihari Vajpayee, who took personal credit. Manmohan Singh ordered widespread six-laning of major four-lane highways, but there was little enthusiasm.

Much of the Vajpayee government’s success had been due to heavy government funding. This was needed to get the construction programme moving quickly on highways that would not yield profits, as well as on those that could be operated as private sector toll roads.

The Planning Commission however did not like this approach and switched the emphasis to private sector financing, stopping primary government funding and allowing only built-operate-and transfer (BOT) contracts. That virtually halted new contracts from the end of 2005.

A government Committee on Infrastructure was formed, serviced by the Commission, partly to keep a check on Baalu and his ministry, and partly to enforce the BOT system. This increased bureaucratic wrangling, and the committee took about two years to agree on a new model concession agreement (MCA) and prepare associated forms of contract and procedural documents.

This new approach did not take sufficient account of support financing that contractors need on highways with unprofitable tolls, and subsidies offered to encourage investments were inadequate.

In policy terms, the Commission had arguably taken highway construction out of the government’s “inclusive” approach to economic growth, where money is spent on uneconomic but socially desirable projects, and put it into the “exclusive” growth area where the private sector is expected to invest and reap profits.

The move was also disastrously timed because last year’s economic crisis pushed the cost of financing up to 15-16%. Contractors lost interest in raising funds, and few were willing to bid for the BOT contracts. When tenders were invited last year on 60 projects, no bids were received on 38 and, of the 22 that were tendered, only 12 led on to fully-financed contracts. The NHAI has now amended designs to reduce construction costs and has put the 38 out for fresh tenders along with 22 more.

Companies complained not only about inadequate support funding, but also that the NHAI was inflexible in its approach and handed over sites without adequate land clearance. The NHAI wanted to increase concessionary “viability funding”, but was blocked by the BOT-oriented infrastructure committee, though this is now being relaxed. (One source has told me that bureaucrats prefer government-run projects rather than BOT because it increases the opportunities for corruption both during construction, and on the collection of tolls).

Rival state projects

Complicating matters, state governments in Karnataka, Tamil Nadu, Gujarat. Uttar Pradesh and elsewhere have begun their own highway construction programmes, often without taking account of the national networks that they sometimes duplicate. State government ministers and bureaucrats see the potential for personal and party fund-raising, and are offering softer project terms than the NHAI’s. As a result, they were getting bids from contractors last year that were shunning the NHAI.

Nath now inherits a highways programme that is beginning to show signs of recovering from years of bureaucratic and inter-government wrangling, unhappy contractors and massive corruption, in addition to all the usual delays that  hit projects – plus the impact of the economic crisis.

He has said in the past few days that procedures should be eased  and, most importantly, that new sources of funding should be found. He has the political clout to make this happen and turn round the muddle left by Baalu – and he comes in an opportune time because economic and business confidence is recovering.

After the debacle of the special economic zones that Nath tried to introduce across the country in the last government, he now has a chance to prove himself on the highways.

There are some new and interesting names in the appointments announced this evening for India’s new government after eleven days of haggling (for today’s earlier post click here).

They indicate a new constructive approach, driven by prime minister Manmohan Singh, especially on commerce and industry, education, the environment, and highways. (Click here for full list).

Four are specially notable:

ANAND SHARMA, minister for commerce and industry – on a big and surprise promotion, having previously been minister of state in external affairs and information, he is likely to take a less combative stance over WTO negotiations than his predecessor, Kamal Nath - and be a more straightforward, and maybe caring, economic liberaliser. He is also a Congress Party spokesman.

KAMAL NATH, minister for road transport and highways – previously commerce and industry minister, so this is definitely not a promotion, in fact it looks the reverse – but the sector needs tough action to revive stalled highway construction, and he has the political strength to do it.

KAPIL SIBAL, minister for human resource development – a good promotion and appointment (suggested on this blog) for this top lawyer who was previously minister for science and technology where he applied himself with the commitment that India’s dilapidated education system needs. Also a Congress spokesman.

JAIRAM RAMESH,  minister of state (with independent charge) for  environment and forests – previously in industry and power, and a top party adviser, he is likely to break the track record of many of his predecessors and bring in straightforward policies aimed primarily at streamlining environmental controls, instead of pursuing other agendas. He might be tough resisting international demands on climate change.

Others include:

MURLI DEORA, remains  minister for petroleum and natural gas;

AMBIKA SONI, a Gandhi family confidante becomes  minister for information and broadcasting;

A. RAJA remains minister for communications and information technology despite the prime minister’s wish not to give him any job at all;

SHASHI THAROOR, former top United Nations official who failed to get the secretary general’s job, is a minister of state in the ministry of external affairs;

SALMAN KHURSHEED, a minister in the 1980s and 1990s, and former Uttar Pradesh party chief, returns to the central government with double tasks as minister of state (with independent charge) for corporate affairs (he is a lawyer) and minorities;

PRAFUL PATEL remains minister of state (with independent charge) for civil aviation, despite the sector’s problems.

And Surprising – and Expected:

S.M.KRISHNA – a surprising choice as minister for external affairs, announced last weekend, he is an almost forgotten 78-year old former chief minister of Karnataka. He is credited with building up Bangalore, Karnataka’s state capital and IT centre, in the 1990s, but it is difficult to see him building much respect or access abroad – and, given his age, will not want to travel much.

MAMATA BANERJEE, leader of the West Bengal Trinamool Congress that routed the state’s communist-led Left Front in the election, was a shoe-in for railways minister last weekend. She showed her priorities are to defeat the communists in 2011 assembly polls when she broke with tradition earlier this week and took over her ministry from an office in Kolkata, not the Delhi headquarters. She said would “give little time to Delhi” and announced railway goodies for West Bengal.

It’s rare to find something positive to say about Britain’s honours system but, as 59 of India’s new ministers  were being sworn in this morning, I realised that India’s new Council of Ministers is really being partly used as an inefficient form of such a system.

Think how many of the total of Council’s 79 ministers could have been left out of the list if they could have been sent instantly to the Lords (getting into India’s upper house, the Rajya Sabha is much more cumbersome and slow), or given a knighthood or some other gong, instead being awarded jobs to run the country.

The thought seemed even more valid as the country has waited all day (it is now 7pm) for an announcement on the ministers’ jobs – an announcement that has apparently been delayed hour after hour by persistent lobbying for top posts.

Farooq Abdullah, the veteran and sociable Kashmir politician, whose real ambition is to be India’s president or deputy president, could have become Lord Abdullah of Srinagar instead of minister of new and renewable energy.

Also, with fewer plaudits, Vilasrao Deshmukh, who was sacked as Congress’s chief minister in Maharashtra after last Novembers terrorist attacks could have had a knighthood instead of the ministry of heavy industries and public enterprises when he is not even an MP, leaving room for someone more interested.

Similarly accommodated could have been other politicians who Congress needs to consolidate its position in various states ahead of coming assembly elections, such as Maharashtra’s polls in September-October. India’s Bharat Ratna and Padma awards, made annually on Republic Day, do not have the same flexibility for stroking bruised egos.

Some of those left out will no doubt become governors of states, but that is usually seen, to use an English expression, as being “put out to grass”.

Consequently, the choice of ministers for what was originally billed as an efficient can-do government has been blurred and sabotaged by regional, caste, and other lobbying.

Prime Minister Manmohan Singh and Sonia Gandhi, leader of the Congress Party and the United Progressive Alliance coalition, have spent eleven days trying to balance efficiency and youth on the one hand with prestige and greed (much of it dynasty-based) on the other – also bringing in, as I just mentioned, politicians who can use their prestige as central government ministers to strengthen Congress in the states at the expense of smaller regional parties.

Sadly however, central government efficiency does not seem to have won, though there are nearly 30 new faces, many young, which is good – and heavily dynastic, which is not.

The overall result does not look like being as focussed as had been expected – though a fair verdict will have to wait for the ministerial jobs to be announced, and for those appointed to show what they can do. Singh today described the cabinet as “energetic” with a mixture of youth and experience, but Gandhi admitted it had been “difficult” to finalise.

M. Karunanidhi, the 86-year old DMK leader and Tamil Nadu chief minister, has run rings round Singh and Gandhi as he has pushed the bounty-seeking interests of his party and dynasty-based entourage. He has only 18 MPs in the UPA, which totals 322 including supporters, so is not a crucial ally: yet other appointments have been held up for several days over the past week as the twists and turns of his warring family and other MPs were splashed across newspaper headlines and tv screens.

 Eventually a cabinet job has gone to A.Raja, previously a much-criticised telecoms minister, who Manmohan Singh had been determined to exclude. And M.K.Alagiri, one of Karunanidhi’s sons, is also in the cabinet even though he is a first-time MP.

Once that drama was over, Singh and Gandhi were swamped with intense lobbying from other states which were rightly jealous of the ridiculous time and attention given to Karunanidhi, and some regional party leaders who were jealous of some of the ministers announced last Friday.

Hi folks - Riding the Elephant has just passed a total of 40,000 hits since I took it over from Fortune.com on August 1  last year – the current total is in the column on the right.

That’s roughly an average of 130 hits a day – and this month it’s 230 a day.

So many thanks – keep reading!
cheers
John Elliott

It is of course a coincidence, but the pace of corporate news in India is accelerating while the new government, whose election last week sparked a surge of corporate optimism and a stock market boom, dithers over which ministers to appoint to which jobs.

In the news this morning are two family businessmen, both market leaders, who have wanted to internationalise their businesses – Sunil Mittal, founder chairman of Bharti Airtel, and Malvinder Singh, who inherited his chairman’s and ceo’s position at the top of Ranbaxy Laboratories.

Sunil Mittal - a Forbes photo

One now looks like succeeding, while the other appears to have failed

A year ago Mittal started audacious merger talks with MTN, a leading South Africa telecom company, but was ousted by Anil Ambani, whose Reliance-ADAG empire includes Reliance Communications. Ambani’s bid was then mischievously foiled by his estranged brother, Mukesh Ambani of RIL, who claimed prior rights to Reliance Communication’s shares in any deal.

Also a year ago Singh amazed India’s corporate world by selling control of Ranbaxy, which his family founded in 1961, to Daiichi Sankyo of Japan for around $2bn, while staying in charge as chairman and ceo.

Now the fortunes of these two men have been reversed:

-  Mittal, who already runs the world’s third biggest mobile phone business, is back today with a bid for a new deal that could eventually [italic inserts here and below added May 26 to indicate a merger is not the initial aim] give him control of MTN and the potential to become internationally significant.

-  Singh and his brother yesterday left the Ranbaxy board along with two other executives in what looks like a Daiichi coup.

Malvinder Singh - a BusinessWorld photo

Singh’s apparent ouster is a sad end for the family’s links with Ranbaxy, which has spearheaded the Indian pharmaceutical industry’s international growth. However, he has other interests – in Fortis healthcare and hospitals, and Religare financial services. He remained chairman, ceo and md when Daiichi bought control, but the share price has slipped by over 60% since then ands a $150m loss is forecast for the year.

More significantly, there are continuing US drug regulatory problems with over 30 Ranbaxy products, and it looks as if the Japanese, after watching from the sidelines, decided to signal to the US that Daiichi has taken charge.

Yesterday’s changes, with an Indian executive promoted to ceo and a Japanese Daiichi executive coming in as chairman, were billed as “amicable” – but Singh, who was to have held the jobs until 2013, did not appear at the announcement press conference.

It has never been clear how seriously, nor for how long, Singh wanted to straddle the two potentially ill-fitting roles of being a hired top executive in a Japanese group, and a healthcare and financial services entrepreneur, but clearly the mix didn’t gel.

Mittal is much more sure of what he wants to do. Having batted successfully for years against the powerful Ambani brothers, he has made Bharti the undisputed market leader, and the world’s third largest mobile services operator – it announced 100m customers ten days ago. He has said he now wants to expand globally, and clearly his Bharti Enterprises group is primarily eyeing the world’s next big telecoms growth area of Africa.

Like Singh, he is willing to sell some of the Bharti stake to achieve his ambitions, but he will not cede India-based control. Last year’s talks eventually foundered on MTN’s plan to base the merged group in South Africa, which Mittal would not accept, even though it looked as though he would have been in control.

Now he plans to acquire a 49% $4bn stake in MTN which, along with its shareholders, would get 36% in Bharti for $2.9bn. The initial result of this cash and shares deal would be what the companies call “a partnership….to create an emerging market powerhouse”, with revenues of over $200bn.  That would give Bharti “participatory and governance rights in MTN enabling it to fully consolidate the accounts of MTN”. A full merger, presumably Delhi-based,  would be a “broader strategic objective” for later.

A year ago Mittal seemed not to have ring-fenced his MTN talks well enough, nor fully mastered the intricacies of South Africa’s politics and focus on black economic empowerment. That left a gap that allowed Anil Ambani to burst in.

Mittal’s pride was hurt – he had just ended a year as president of the CII, a leading Indian business federation, and had won many top businessmen awards. He was also facing delays building up a retail and wholesale store business in India with Wal-Mart (which would have been opening its first wholesale outlet today in his home state of Punjab, were it not for widespread religious riots in the state).

Yesterday’s announcement cautioned that talks were at an early stage and might not lead to a deal, let alone a full merger, but Mittal has presumably organised his pieces better on the South African chessboard. 

He has secured exclusive talks until July 31 to seal a deal, which would have to clear various regulatory hurdles. These include India’s foreign direct investment (FDI) regulations that the last government controversially eased just before the general election, though both finance ministry and Reserve Bank of India officials later filed objections.

The MTN deal would be fine under those changes which, despite the officials’ objections,  look like being maintained by the new government under Pranab Mukherjee as finance minister.

An earlier version of this post is on www.ft.com/world/asiapacific/india

The prime minister and 19 ministers were sworn in Friday evening May 22. The first six cabinet appointments were announced Saturday afternoon – see [confirmed Saturday] inserts below. More names and positions are expected next Tuesday.

__________________________________________________________

It is ironic – and very revealing – that prime minister Manmohan Singh and Congress Party leader Sonia Gandhi have had more problems handling demands for lucrative ministerial posts from the DMK, a regional ally from Tamil Nadu, than in filling the most senior jobs in India’s new cabinet.

Following allegations of non-performance and corruption against some DMK ministers in the last government, the prime minister has been specially keen to exclude two of the party’s former ministers in charge of communications (including telecommunications) and surface transport (including highways), and also to get competent performers into such key infrastructure ministries.

M. Karunanidhi (right), with Manmohan Singh, Sonia Gandhi, Pranab Mukherjee, A.J.Antony, at a UPA meeting this week - a Reuters pic

That led to an impasse with the DMK, though it has been reported this evening that Congress is giving way on the two ministers, T.R.Baalu and A.Raja, and has offered to have them back in the cabinet, but not in infrastructure posts because of poor performance and controversies on highways and telecoms.

Earlier in the day, it looked as if a few posts such as communications, labour and possibly coal or mining might be left vacant (technically under the prime minister’s direct charge) for as long as a week or so in the hope of a compromise.

The shamelessness with which the DMK has publicly pursued its partially dynastic demands is both horrifying and comical. M. Karunanidhi, the 86-year old DMK leader and Tamil Nadu chief minister, initially demanded five cabinet berths with jobs for at least four of his family, including two of his sons and a daughter (by two of his wives).

Karunanidhi fasting over Sri Lanka last month - an AP pic

Of the family candidates, grand-nephew Dayanidhi Maran, who was an effective telecommunications minister in the last government till Karunanidhi withdrew him in a family feud, is being offered the job again. But that is reported to have caused Karunanidhi problems with his more immediate family, and with the two others the government did initially not want.

One can almost sympathise with such a veteran politician for facing so much relentless pressure from his family near the end of his political career.

Meanwhile it looks as if Pranab Mukherjee will move from his old job as foreign minister and take over the finance ministry [confirmed Saturday] –  a job he first held 25 years ago. He has never been billed as a committed economic reformer, though he did try, unsuccessfully, to liberalise defence manufacturing when he was in charge of that ministry at the start of the last government. He is a respected and very able politician, which should help with the implementation of the government’s pro-poor and other policies.

That has left a gap at the external affairs ministry which, as I write, does not seem to have been filled. S.M.Krishna, a 77-year old former chief minister of Karnataka and governor of Maharashtra, is currently reported to be in the running for the job [confirmed Saturday].

 Kamal Nath is reported to have declined the portfolio, choosing apparently to stay as commerce and industry minister.
 
Another reported candidate for foreign affairs has been Kapil Sibal, formerly science minister, though it would be an unusually huge jump in status. He looks likely to be human resources minister (which I tipped him for a few days ago), in charge of sorting out India’s ailing education system.

Palianappan Chidambaram, is remaining home minister [confirmed Saturday] where he is in the middle of revamping the security services, and A.J.Antony is staying at defence [confirmed Saturday]. Antony is seen as a safe choice, even though he has allowed trade unions and others in the defence establishment to stall opening up manufacturing to the private sector.

But the most significant event in the past few days has been the way that Congress’s allies in the United Progressive Alliance (UPA) have relentlessly pushed for lucrative rather than merely prestigious jobs - and that Congress has tried with only limited success to resist some of their demands.

Congress has 206 MPs in the 543-seat Lok Sabha (lower house) out of a total of 322 for the UPA and its supporters - but, even with such a high Congress figure, Manmohan Singh and Sonia Gandhi have had to give way to the Trinamool Congress and the Nationalist Congress Party (NCP) as well as handling the DMK’s demands.

Mamata Banerjee, leader of the Trinamool, who routed the communist-led Left Front in West Bengal, is being given the railways ministry [confirmed Saturday], even though she is not the most effective candidate.

The Maharashtra-based NCP’s Sharad Pawar is reported to be getting his old agriculture job back [confirmed Saturday], also Praful Patel at aviation - even though there has been criticism of the way those ministries have been run.

The DMK fought so long and hard for the jobs it wants that it seriously slowed down the selection of ministers.  That is why only 19 ministers have been sworn in tonight. There will another swearing-in session next Tuesday.

In India’s coalition governments, politics are always dominated by the ministers’ ability to raise money, as well as by ambitions  for power and prestige. Sadly, it does not look like being very different with the new government.

An earlier version of this post is on www.ft.com/world/asiapacific/india

FOR MORE POSTS ON INDIA’S GENERAL ELECTION TYPE General Election IN THE SEARCH BOX – OR CLICK General Election BELOW

Can Rahul Gandhi, heir apparent to be India’s prime minister, begin to make the sort of changes that people dreamed about when his father Rajiv Gandhi became prime minister in 1984?

The thought is prompted – odd though it may seem – by The Wall Street Journal (WSJ) on Monday becoming the first foreign newspaper to be published in India with full government permission, some 21 years after the Financial Times first approached the government for clearance.

When Rajiv Gandhi became prime minister in 1984, I wrote an article that began with a story of how the government had the year before placed a £50m order for goods wagon air brakes that had first been mooted 25 years earlier in 1959. The next paragraph talked about the power failing in Connaught Circus as a new Wimpy burger bar opened shop.

Now, more than two decades later, the story hasn’t changed. The WSJ has come in 20 years after foreign newspapers became interested in India. And in 2004, the government ordered $1.45bn British Hawk jet trainer aircraft that I had first written about as a potential order twenty years early. Power supplies still fail in Connaught Circus.

Rahul Gandhi of course isn’t becoming prime minister, as his father did in 1984. But the mood of expectancy that India’s new government will usher in a new era – epitomised by Gandhi’s emergence at or near the top – is much the same.

The key question is whether this government will be able to begin to break at least some of the grip wielded by vested interests, both Indian and foreign, that try to throttle advances until they have won whatever it is they are after.

The order for railway trucks’ gear had been blocked for over 20 years because rivals tried to defeat the preferred, and eventually successful, British contractor. The Hawk order was similarly delayed, at the end by the US, which had also been stalling the railway contract.

In both cases, bureaucrats and ministers were constantly “persuaded” by competitors not to make a final decision, officially by rivals producing endless technical and other adjustments but obviously also by other inducements.

The story is the same with foreign newspapers. In 1988, the Modi and Hinduja business groups approached the FT for a printing joint venture. Those approaches came to nothing, but the FT did become interested in India. It is however still waiting for permission, having been blocked by both foes and supposed friends since then  – click here for that story and here for a follow-up on foreign magazines, with Forbes magazine  launching its India edition this week.

The WSJ’s appearance is therefore a long overdue partial defeat of vested interests, led by The Times of India’s Bennett Colman business group that has tried to block foreign entrants, especially the FT, for two decades. (Bennett Colman even prints a thin supplement called Financial Times every week to secure the title.)

Owned since 2007 by Rupert Murdoch’s News International, the WSJ is being printed and distributed by The Indian Express group in Mumbai and Delhi. In line with government rules, it has set up an Indian company, Wall Street Journal India Publishing, which is wholly owned by Murdoch’s Dow Jones business that he bought ion 2007.

But the government has not entirely shaken off the media vested interests’ influence, and there are still rules that restrict circulation and profits.

Although 100% foreign (FDI) ownership has been allowed since January (before it was only 26%), the paper printed here must be a “facsimile” edition. That is an intentional use of a word from a slightly outdated technology to establish that it has to be a precise copy of an edition published abroad with no change in advertising or editorial. This makes it far less commercially viable than it might be because the paper cannot have India-specific content.

Dow Jones received permission to bring in either its US or Asia edition and decided, after much agonizing, on The Wall Street Journal Asia from Hong Kong – but today’s edition (the first I have been able to buy this week from my local newsstand) has only one India story tucked in at the bottom of an inside page, though there are others on Pakistan and Sri Lanka

Pricing is difficult, unless the paper is to be a loss leader, which Murdoch seems to tolerate because of his love of the print media – his London Times loses £1m a day.

The figures in India however will not be very big – Murdoch’s government-approved investment is just Rs21m ($450,000). The paper is priced at Rs25 (roughly 50c or 30p), seven to ten times that of India’s main business dailies such as The Economic Times, Mint (produced for two years with Wall Street Journal syndicated content) and Business Standard, so it will probably have little appeal below senior management.  

The restrictions show that the Indian media’s vested interests still have a grip on government policy, and thus on the competitiveness of foreign rivals, though the extent of their luddite influence is waning.

The question now is whether the new government can begin to change India in the way that optimists hope.

As I suggested last Sunday,  a starting point would be to ensure that bounty-chasing regional parties such as the DMK and NCP do not get lucrative posts such as telecoms, highways and aviation, which urgently need the firm hand of a minister genuinely interested in progress and efficiency. One could add environment, power, petroleum, and others to that list in addition to external affairs, home, finance and defence.

Vested interests – ie rival companies – will of course always have a big influence, and politicians of all shades of honesty and dishonesty and personal greed will always be on the take,

But India needs a government that cuts into what I have typified here as a 20-year long hold on decision-making!

Following the Congress Party’s astounding election victory at the head of the United Progressive Alliance, prime minister Manmohan Singh can put his personal stamp on the cabinet formation, which he is planning now with Sonia Gandhi, the party leader.

He has much more authority than when he formed the last cabinet in 2004, and is not cluttered with so many allies, so has a real chance to choose quality and performance-potential, rather than having to reward bounty-seekers with lucrative posts.

On the broad economic/social front, the government needs able and committed ministers who, in addition to dealing with the financial crisis, will address what one might call non-headline reforms  such as education, health, infrastructure, and the environment as well as the usual headline subjects such as foreign direct investment, public sector privatisation and divestment, and financial sector reforms.

A new industrial policy is also needed to accommodate the needs of the poor instead of focusing primarily on big business and mega projects.

Among the new ministers there will be a focus on minorities, and on young MPs such as Jyotiraditya Scindia, Sachin Pilot, Jitin Prasada and Milind Deora (all in their 30s), though most of them will be in number two positions.

Here’s some ideas, and what I’ve been hearing, of who might be chosen  (jobs last time in brackets).

I’ve drawn a line below between jobs which are sure to go to Congress MPs and those that might be open to political allies – though the allies have, as I said, far far less clout than last time.

There are a few gaps – send your suggestions – click comments at the bottom
 
FOREIGN AFFAIRS – Pranab Mukherjee (as now) – he’s tipped for this.
 
HOME – Palaniappan Chidambaram (as now) – he’s tipped for this – with a map on handling terrorism promised in 100 days
 
Or swap those two – Mukherjee would be a politically friendly and effective Home Minister – while Chidambaram’s intellect and energy could be put to developing a coherent foreign policy which India desperately needs
 
FINANCE – Montek Singh Ahluwalia (Planning Commission) – to bring a reformist’s focus – Manmohan Singh would like him, though Mukherjee (Finance Minister early 1980s) is said to want the job.
Support Ahluwalia with an experienced politician as minister of state – maybe Prithviraj Chauhan  (minister of state Prime Minister’s Office). 

HUMAN RESOURCES – Kapil Sibal (Science) – tasked to bring the same momentum to this key ministry, which includes education, that he brought to science and technology
 
DEFENCE – A.K.Antony (as now)

COMMERCE AND INDUSTRY – Kamal Nath (Commerce and Industry) though he hopes for a big move
 
Or put Nath in Defence, Sibal in Commerce and Industry (tv programmes are tipping him for this) and bring Mani Shankar Aiyar (Petroleum then Panchayat Raj), who has lost his seat, into Human Resources with a Rajya Sabha seat.

__________________________________________

RAILWAYS – Jyotiraditya Scindia (Telecoms junior minister), whose late father Madhavrao Scindia was a famous railways minister – unless Mamata Banerjee, Trinamool Congress has to have it.
 
RURAL DEVELOPMENT – Rahul Gandhi is tipped for this because it’s his subject – combine it with Panchayat Raj – or Mani Shankar Aiyar.

POWER – Jairam Ramesh (Industry and Power junior minister and  key election strategist).

AVIATION – S Jaipal Reddy (Urban Development) to use his vast government experience to bring some order to this chaotic influence-peddling sector
 
HIGHWAYS AND SHIPPING – Sushil Kumar Shinde (Power) – to put some energy back into the mismanaged sluggish highways programme.

TELECOMS – Sharad Pawar (Agriculture) – good for wheeler-dealing

AGRICULTURE – A.K. Antony (Defence) – if not in Defence – a clean politician though not a great decision-maker

SPORT – Salman Khurshid (not an MP last time), unless M.S.Gill (Sports) continues – though Rahul Gandhi is being tipped for this– his father Rajiv Gandhi organised preparations for the Asian Games in 1981-82.

HEALTH – ENVIRONMENT – LAW – PETROLEUM – COMPANY AFFAIRS  and OTHERS – not allocated

Candidates I would leave out
 
RAHUL GANDHI, despite the possible posts above – he has said he wants to continue to focus on the Congress Party transformation so let him do so for a couple of years – it’s a priority.
 
LALU PRASAD YADAV (Railways), because his party has only four MPs and is not very effective, but Sonia Gandhi likes him so he may have to have something, maybe Railways.

SHASHI THAROOR – the ex-United Nations new MP from Kerala because he’s hot for the trot and should learn the ropes first for a couple of years.
 
PRAFUL PATEL and as many DMK MPs as possible because of poor performance in the last government, notably in aviation, highways, and telecoms.

This post is also on www.ft.com/world/asiapacific/india

FOR MORE POSTS ON INDIA’S GENERAL ELECTION TYPE General Election IN THE SEARCH BOX – OR CLICK General Election BELOW

Where else in the world could you have a clear general election result within three hours of vote counting starting! India did that this morning with its electronic voting and counting system.

Based on both actual results and leads by the end of the day,  the UPA coalition led by the Congress Party is back in power.

It looks like getting an amazing total of 262 seats, almost at the half-way mark of 272 needed for a majority in the 543 Lok Sabha (lower house) elected seats with extra allies. 

The BJP has conceded defeat, with its NDA grouping getting only 157 seats. L.K.Advani, 81, has said he wants to resign as the party leader. .

Congress alone looks like getting 206 seats, which is its best result since 1991. It is a stunningly better result anyone expected – around 180 was the most that even the most optimistic Congress leaders hoped for.

This significantly reduces the power of regional parties, which had hoped to be able to have a big influence on the new government’s formation and policies.

Congress will now be able to:

1.  Form a much more stable government than it has had for the past five years – and enormously more stable that had been forecast by election pundits.

2.  Appoint a much better quality cabinet, without having to accept as many highly corrupt ministers from regional parties as Manmohan Singh had in the last government - especially in lucrative infrastructure and transport ministries.

3.  Implement economic policies without being held back by the communist-led Left, as it has been for most of the past five years – the election result will pull in foreign and domestic investment and help the economy to ride the current international crisis.

The Left is doing very badly in both West Bengal and Kerala, its two major power centres, and elsewhere. It looks like winning only 24 seats overall compared with 59 last time and will not be a significant force in the new parliament.

Manmohan Singh is the first Indian prime minister since Jawaharlal Nehru to be returned to power in a consecutive government after serving a full five year term.

Even though he has had little real authority, with Sonia Gandhi, leader of both Congress and the NPA, being in overall charge, his air of respectable stability has contributed to the election result.

The result also shows that Congress is re-emerging as a real national party. Credit for that will go mainly to Rahul Gandhi, Sonia’s son and heir apparent for the party leadership and prime minister’s job, as well as to Manmohan Singh.

Rahul was specially influential in Congress’s campaign in Uttar Pradesh (UP), the Nehru-Gandhi dynasty’s traditional political base. Congress is winning in some 21 seats in UP, its best result for 25 years in a state where it had been virtually written off.

That has contributed to the failure of Mayawati, the Dalit (”untouchable” in the caste system) chief minister of UP, to emerge with her BSP political party as  a significant country-wide politician and potential prime minister.

The Indian and international media have vastly over-hyped the national importance of this egocentric politician, but the voters have thought differently – her party is winning only in 20 seats compared with ambitions for 30-40 or more.

The regional Trinamool Congress, linked with Congress,  is doing historically well in West Bengal, taking more than half the parliamentary seats from the CPI(M)-led Left Front that has imposed its rule – often a rule of terror – throughout the state for over 30 years.

As was clear when I went walking round West Bengal villages with Dinesh Trivedi, the Trinamool candidate in Barrackpur, people are no longer scared to come out and criticise the CPI(M). And that could well lead to the Left losing its 32-year long rule of the state assembly in 2011.

In Orissa, the Biju Janata Dal (BJD) party led by Naveen Patnaik is doing well, comfortably beating its rivals both for control of the State assembly and its MPs.

It looked after the polls as if Patnaik was not doing as well as it had appeared when I visited the constituency, and I reflected that with some changes in my column. But I needn’t have bothered.  The BJD is winning comfortably – being rewarded for a good image, especially of caring for the poor, even if his state government achieved little in real terms.

It’s been a dramatic day of unexpected election results – with three major trends:

-  the re-emergence of a self-confident Congress, especially in UP;

-  a major reversal in fortunes for the Communist Left, marking the end of its 32-year iron grip on West Bengal;

-  Rahul Gandhi proving himself as a national politician, earning a role at the top.

An earlier version of this post is on www.ft.com/world/asiapacific/india

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By tomorrow (Wed) night it will all be over. The fifth and final weekly stage of voting in India’s general election ends at 5pm and the results of exit polls, which have been bottled up progressively since voting started on April 16, will be announced a few hours later.

The count takes place on Saturday. India will then have a new government after a day or so – or a week or two, depending how the parties’ numbers fall around a hung parliament. That government will last for a year or two, or four or five depending how the parties link up – and jockeying for position on those link-ups has already started.

It’s been a dispiriting few weeks – or an inspiration, depending how you look at it. On the positive side, some 420m voters, poor and rich, have cast their votes in temperatures rising above 40 degrees C, and there has been relatively little violence. Leaders of all parties, large and small, have had masses of exposure on television, in the print media, and via internet and text messages, so everyone knows who is on offer.

No issues

However, there have been no national issues or debates at all:
- not on the economy at a time of international crisis and a domestic slowdown,
- not on resisting terrorism, just six months after the Mumbai attacks,
- not on social and developmental policies, even though half the country (or more) is ill-nourished, under-educated and has inadequate access to health care,
- not on how to handle industrialisation, when there is growing opposition from the poor to big companies and projects taking their farm land,
- not on India’s relations with its neighbours at a time when India should be having a constructive influence on crises in Pakistan, Nepal and Sri Lanka,
- and not on India’s nuclear deal with the US that caused so much political uproar and almost brought the outgoing prime minister and government down last year.

Who’s fault is this? Many people blame the media, and rightly so because it has done virtually nothing to raise the level of debate.

But why blame the media alone when it is party leaders who ensured that airtime and front-page headlines are dominated by diversions and personality cults, and made no attempt to debate issues?

Gandhi family pr campaign

Here the Gandhi family is surely most to blame. They have been on a skilful public relations offensive for weeks to raise the profile of Rahul Gandhi, the 38-year old heir apparent to the party’s leadership and the prime minister’s slot, and then to paint in his much more charismatic and astute sister, Priyanka, as a charming sound-bite expert.

Nice though it has been to watch, Priyanka has had far too much exposure on just about everything – including whether Rahul will take the top job now or later, and whether she will enter politics. Then there is the future of prime minister Manmohan Singh, whose position was queried, confirmed, re-queried, and re-confirmed for far more days than necessary.

Not to be outdone, the Bharatiya Janata Party paraded its prime ministerial heir apparent – Narendra Modi, chief minister of Gujarat where over 2,000 people were killed in anti-Muslim riots under his watch in 2002. That led to more column inches and airtime on his rights and wrongs – and how court cases against him were being reopened.

Then a 1980s Bofors gun contract corruption case suddenly hit the headline and was played up by the BJP because it embarrasses the Gandhi dynasty – but no one debated the massive bribes that continue to be paid on defence contracts.

More diversions

The BJP launched an idea to bring back billions of dollars of black money into India from abroad that wasted more headlines and then faded away. The BJP said it would bring money back, which of course will never happen but is a good headline subject – but it did not discuss how to stop it going out in the first place, which would be very embarrassing for money laundering politicians.

Another Gandhi, 29-year old Varun, emerged as an arch anti-Muslim Hindu nationalist. This embarrassed the BJP, which has him as a candidate, and infuriated both Narendra Modi, who wanted to orchestrate the BJP’s balance between extremism and moderation, and the ruling Gandhi dynasty that suddenly realised this maverick cousin could blur their moderate image among masses of less-educated voters.

Then there have been endless statements, re-written statements, denied statements, and revised statements from all the various prime ministerial hopefuls, and different parties, about who will link up with who after the polls, and under whose leadership. The media loves this because it soaks up many column inches and airtime and saves them having to think about policies, though it was largely irrelevant till the last day or two when ideas of likely poll results have become known.

The outgoing government is of course happy with all this because it saves it having to defend failures of the past five years and debate remedies for the future.

I went hunting for issues and found local ones. In West Bengal, there was opposition to the state’s 32-year long communist rule and attempts to industrialise land given to farmers in earlier years under land reform. In Mumbai South constituency, I met an independent candidate who wanted to change politics after the terrorist attacks, but few voters seemed to care. They went off for a long weekend and only 43% turned out to vote. In old Delhi I found voters, especially Muslims, disenchanted with their highbrow member of parliament.

I also found evidence of extensive corruption and ballot rigging – ranging from the communists fixing polls in West Bengal to Congress allegedly persuading candidates for rival small parties to defect or just do nothing, and the BJP paying prominent Muslims to stand for election to split the Congress vote.

Finally, there has been an extraordinary amount of attention paid by the Indian and international media to Mayawati, the charismatic and idiosyncratic Dalit (“untouchables” in the caste system) chief minister of Uttar Pradesh. Her colourful behaviour makes great copy, so the fact that she has virtually no chance of achieving an ambition to become prime minister of a coalition is ignored. Controversial figures like Mayawati with masses of corruption cases against them do not get picked to lead coalitions.

So does this lack of policy focus and national issues matter? I’d say yes because it disillusions voters and devalues the system.

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This post is also on FT.com http://www.ft.com/cms/s/0/2ffd6c16-3f09-11de-ae4f-00144feabdc0,dwp_uuid=a6dfcf08-9c79-11da-8762-0000779e2340.html

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