Tuesday, November 29, 2005

money shortage

Financial Services: More capital is needed, but reform is slow.

Newsweek International

Nov. 25, 2005 issue - American Treasury Secretary John Snow was in New Delhi two weeks ago, calling for India to speed up the liberalization of its financial-services sector. He argued that looser rules for foreign investment in banks, insurance companies and pension funds would hasten India's economic rise, "add capital to the banking sys-tem, spread credit availability, bring in additional managerial expertise and [enhance] technology."

According to a report by McKinsey & Co., India's financial system is an often-overlooked reason the nation's economic growth hasn't matched China's. India has $1.1 trillion in financial assets—one fifth of China's. The country's financial depth, a measure that compares the total financial stock in the economy to GDP, is 175 percent, compared with China's 311 percent. Although India's banks have fewer nonperforming loans and have achieved a higher return on their assets than their Chinese counterparts, the report notes, "The bottom line is that India has a lot less money circulating in the financial system than one would expect, given the size of its economy." Unless the country loosens up, it will never be able to match its Asian rival as an FDI destination.

Prime Minister Manmohan Singh understands the stakes. He's been trying to eliminate a 10 percent cap on foreign shareholders' voting rights in private banks. He has also been seeking to raise the limit on FDI in the insurance industry from 26 percent to 49 percent—but as with other reforms, Singh's leftist political allies have stymied efforts to get new investment rules implemented.

Right now, foreign banks can open branches and wholly-owned subsidiaries, and can also acquire up to 74 percent of a domestic bank. But because their voting rights on domestic acquisitions are limited, they have little management control. Still, Citibank, Standard Chartered and HSBC are opening branches and selling credit cards. On the insurance side, global players like U.S.-based MetLife, Prudential and AIG and Germany's Allianz are selling policies and pension plans. Company officials say that pension funds can be an important source of financing for the infrastructure that India desperately needs.

In both sectors, foreign players are counting on rising demand to chip away at resistance in New Delhi. As Subir Gokarn, chief economist for the ratings agency Crisil, notes, India needs new insurance and pension products "to make it easier for people to save and give them security in old age." And the government stands to gain, too, because a liberalized financial sector will push money into investments that will broaden India's growth. True reforms may be just a matter of time.

—Jason Overdorf

© 2005 Newsweek, Inc.

Monday, November 28, 2005

spend less, get more

One thing India does better than China is high-tech research and development.

By Jason Overdorf and Sudip Mazumdar
Newsweek International

Nov. 28, 2005 issue - The office of Dr. D. Yogeswara Rao, head of business development at India's Council of Scientific and Industrial Research, doesn't exactly look like a nerve center of cutting-edge research and development. Cluttered with stacks of documents and crammed with the tattered furniture common to New Delhi's government offices, Rao's domain looks like part of the landscape of old India.

But the humble surroundings can be deceptive. Despite a lack of funding and facilities—the government's entire R&D budget is a fraction of the annual research expenditure by a single multi-national company like Pfizer—India's researchers have shown the world they can innovate without breaking the bank. And that's attracting a great deal of interest. "Not a week goes by without some foreign delegation visiting us to discuss research collaborations," Rao says. Over the past six months, Rao's visitors have included representatives of Procter Gamble, Colgate, Johnson & Johnson and Alcoa, to name a few. The reason is simple. "Per dollar, the output of innovations is significant, so overall you may spend less, but you get more," says Rao.

Over the last five years more than 100 companies, including General Motors, Boeing and Mobil, have chosen India as an R&D hub, some of them citing local scientists' facility in English, as well as the country's superior track record in intellectual-property protection, as advantages over China. Prominent among them is General Electric, which has its largest research-and-development center outside the United States in Bangalore, India. Though GE also has an R&D center in China, its state-of-the-art John F. Welch Technology Center in Bangalore employs about 2,300 scientists, researchers and engineers, double the number in Shanghai.

GE's $80 million Bangalore center does groundbreaking work in areas such as aerospace engineering, electronic systems, ceramics, metallurgy, advanced chemistry, chemicals, polymers and new synthetic materials. The center uses the latest technology and e-engineering tools to facilitate real-time global interaction with the company's affiliates, tech centers, customers and suppliers. "I have immense faith in the intellectual capital of India and the amount it can contribute to GE's success," says Scott R. Bayman, president and chief executive officer of GE India. "India is rich with bright, young talent."

GE's Indian researchers have applied for 260 U.S. patents on products such as synthetic materials and ceramics, with 37 approved by the U.S. Patent and Trademark Office, according to the company's spokeswoman in India. Motorola, which employs more than 1,700 Indian engineers and researchers, says Indian programmers develop about 40 percent of the software in its mobile handsets. The Internet browser and multimedia messaging system for the company's 3G and GSM phones were conceived, engineered and delivered by its India operations.

India's software industry was first out of the gate in R&D, and increasingly important tasks were outsourced as India's so-called cybercoolies demonstrated their prowess. But today, a host of industries—including the automotive, chip-design, pharmaceutical and aerospace sectors—are taking advantage of India's giant pool of scientists and engineers, and not only to write program code. According to a recent study by PricewaterhouseCoopers, India is rapidly moving up from relatively routine tasks like converting schematics from one computer-aided design system to another, to sophisticated and critical functions like plant engineering and redesigning products for a better cost-performance ratio. Global automakers, in particular, which spend 3 to 5 percent of their annual revenue on R&D activities, are turning increasingly to India, the consultancy says.

The main reason for the shift is manpower—the oft-cited 300,000 engineers and 150,000 computer experts who graduate from India's many universities and technical institutes each year. But that's not where the country has the biggest advantage over China, which produces 400,000 engineers of its own annually. According to Indian business experts, local graduates have greater cultural affinity with Westerners (not to mention English-language skills) than their Chinese counterparts. Like that of the United States, India's growth has been driven by entrepreneurs and market forces rather than the government, so foreign business leaders perceive India managers as more market-savvy.

That affinity has also helped India gain an edge in intellectual-property protection. In a sector like chip de-sign, for instance, large companies will outsource R&D activities only if they believe they can protect the intellectual property they are letting out the door. "The way you grow is by having contracts with bigger companies," says S. R. Dinesh, program manager of Frost & Sullivan's Asia Pacific electronics and semiconductors practice. "Intellectual-property law is a big issue. Even if multinationals outsource [to China], it will be at the lower end of the value chain."

The intellectual-property issue is also crucial to the global pharmaceutical sector, which spends about $40 billion a year on drug development. Drug companies rise and fall on the strength of their patents for new blockbuster medicines. India's move to implement international patent laws earlier this year—despite the pain caused to domestic pharmaceutical giants like Ranbaxy, Cipla and Dr. Reddy's Laboratories, which had built their businesses by making generic copies of drugs protected by patents in the West—was roundly criticized by aid agencies worried about providing affordable retrovirals for HIV sufferers in Africa. But the decision sent a message that India was committed to playing by global rules, whatever the political cost.

India already has a well-developed pharmaceutical industry. With turnover of about $7 billion—$2.5 billion from export sales—the Indian pharma sector ranks fourth in the world in terms of sales volume and 13th by value. The Chinese pharmaceutical industry, at $8 billion in 2004 and growing fast, is about the same size. But the new commitment to patent protection may help India beat China in the race up the value-chain ladder in pharmaceutical research, says Vivek Mehra, executive director for PricewaterhouseCoopers in Delhi. Multinationals like AstraZeneca, Novartis, GlaxoSmithKline, Bayer, Pfizer and Roche set up modest research centers in India in the mid-1990s, and they've since grown substantially.

The fastest-growing pharmaceutical segment in India is so-called contract research, or the outsourcing of research-and-development activities. More than a dozen foreign contract-research companies—including Quintiles, ClinTec and PharmaNet—have set up operations in India, not only because it's inexpensive but also because India offers a large patient pool, trained doctors, good clinical diagnosis and a genetically diverse population for clinical research. Indian pharma giant Biocon, which set up a unit called Clinigene to conduct clinical trials for multinationals in 2000, has seen its contract-research revenue grow 45 percent over the past six months.

In spite of the gains, Chinese firms still apply for more patents annually than Indian firms, and some experts say India is weak in the area of fundamental research. The ties between academia and industry—needed to commercialize breakthroughs—must be strengthened if India is ever going to produce its own version of Silicon Valley. In the meantime, investment continues to roll in, and the demand for top graduates in technical fields is high. "The world has realized that if you don't have an India address [in R&D], you are in trouble," says R. A. Mashelkar, head of the government's Council of Scientific and Industrial Research. That's a boast, but one that's hard to argue with.
© 2005 Newsweek, Inc.

© 2005 MSNBC.com

URL: http://msnbc.msn.com/id/10114269/site/newsweek/

Thursday, November 24, 2005

'a great shift'

India has leveraged its engineering and design skills to become a hot spot for auto parts.

By Jason Overdorf
Newsweek International

Nov. 28, 2005 issue - With a wandlike wave of his mouse, 27-year-old Saurabh Rawat displays a 3-D model of a new precision gearbox for Porsche's Boxster on his computer screen. Rawat works in the quiet 14th-floor office of Hi-Tech Gears in Gurgaon, Haryana, on the outskirts of New Delhi. On the street below, flashy new Hyun-dais vie for space with battered scooters, overloaded bicycle rickshaws and rawboned cattle. All around them a satellite town mushrooms out of the desert, growing on the strength of the IT-services outsourcing boom.

Rawat—and hundreds of thousands of workers like him—is part of another kind of revolution. Once considered incapable of making quality products and meeting shipment deadlines, India is leveraging its skill in engineering and design to emerge as a hot spot for auto-parts manufacturing. The sector has grown more than 20 percent a year over the past three years, while export growth has topped 40 percent. A host of local entrepreneurs are reaping the benefits. Hi-Tech Gears, for example, has become a global supplier for the German firm Robert Bosch International, while other Indian firms like Bharat Forge—now the second largest forging company in the world—have begun acquiring companies in the United States and Europe.

As some big global players begin to rethink their exposure to China, India is starting to attract some of the foreign investment once directed toward the dragon to the east. A recent study by McKinsey Co. suggests India's auto-components market could grow from roughly $9 billion in sales now to as much as $40 billion by 2015—including $20 billion to $25 billion in exports—as the parts business shifts from the West to low-cost nations like China, India, Thailand and Turkey. Struggling carmakers are under great pressure to chop their production costs, and parts suppliers in these big, developing markets are increasingly reliable.

To reach its goals, India's auto-parts industry will require lots of investment—as much as $20 billion over the next decade—and the capital inflow has already started. Last year, for example, the Bosch Group announced plans to invest about $225 million to build manufacturing capacity in India. Goetze India, in which U.S.-based Federal Mogul holds a 30 percent stake, says it plans $45 million in capital expenditures. And Sona Koyo Steering Systems, a joint venture with Japan's Koyo Seiko Co., has said it will invest about $30 million."There's a great shift underway," says Hi-Tech Gears chairman and managing director Deep Kapuria, a two-term president of the Automotive Component Manufacturers Association of India.

Kapuria says that some U.S., Japanese and European automakers and their first-tier parts suppliers have admitted to him that they're now overexposed in China. Volkswagen entered China aggressively in 1985, and quickly grabbed 60 percent of the embryonic auto market. But since then, even as China's car sales have exploded, the German automaker's market share has dwindled steadily, reaching just 18 percent in the first half of this year. The falloff prompted the company to announce last month that it will stop investing to expand production capacity in China, and will scale back its 2003- 2006 investment plans in the country by 40 percent. VW and other global car companies have suggested to Kapuria that Indian parts companies would be getting more business.

India's auto market is attractive for two reasons. First, though still only about a third the size of China's, it's growing faster than its eastern neighbor. Car sales in India last year grew by 24 percent, compared with 14 percent in China. Beyond that, unlike China, India has demonstrated its willingness to comply with intellectual-property rules and the global patent regime. That commitment is essential, because it's allowed India to build on its strength in engineering and to achieve a competitive advantage making advanced components such as exhaust manifolds and machined gears.

There are potential potholes for the industry, to be sure. The Chinese have a huge advantage when it comes to making products that depend on economies of scale. And the infrastructure problems and bureaucratic impediments for which India is notorious continue to discourage foreign investors. "India has a three- to five-year window to get its act [together]," says Kapuria. Carmakers are betting that it will.
© 2005 Newsweek, Inc.

© 2005 MSNBC.com

URL: http://msnbc.msn.com/id/10114266/site/newsweek/

Thursday, November 10, 2005

‘lion of the chambal’ does last deadly dance

India’s police traced notorious bandit via cell phone signals, then shot him.

By Jason Overdorf/NEW DELHI

(This article appeared in the Globe and Mail on November 10, 2005).

For 25 years, he terrorized the villagers of central Indian and outsmarted police. In the end, though, notorious bandit Nirbhay Singh Gujjar was brought down by his penchant for publicity, as police were able to use cell phones through which he boasted to reporters to trace him to his forest hideout. They killed him this week in a shootout.

“It was an embarrassment for the police, because he was talking to the media,” said Yashpal Singh, director-general of the police force in the north Indian state of Uttar Pradesh. “So we were under pressure from people who were asking why journalists could locate him and the police could not.”

After determining Mr. Gujjar’s location by tracing the signals from the two phones he used, authorities crawled through thick scrub to creep up on a ravine where the bandit was drinking with half a dozen members of his gang.

Alerted by a sentry, Mr. Gujjar’s band opened fire, but police scattered the gang, trapping the bandit and a lieutenant in a canyon.

When police called for him to surrender, Mr. Gujjar tried to fool them into thinking he had been killed, but opened fire again when officers advanced to investigate, said Deputy Superintendent Rajesh Dwivedi of the Uttar Pradesh Special Task Force. In the ensuing shootout, Mr. Gujjar was shot in the head.

“This sends a clear signal that we are going after them,” Mr. Singh said. “It will certainly send a frightening message [to other bandits].”

Mr. Gujjar, whose name means “fearless,” was known as “the last lion of the Chambal,” an unmappable labyrinth of ravines in the border area between the modern states of Madhya Pradesh and Uttar Pradesh. The area is famous for marauding outlaws, called dacoits, and is portrayed in hundreds of Bollywood films.

Married three times and cuckolded as many times by rival bandits, Mr. Gujjar went berserk when his third wife ran away with a man he had kidnapped as a boy and raised as his foster son. Vowing to track the lovers down and exact his revenge, he announced a hefty reward for information about the couple.

He then told reporters he wanted to lay down his arms. All he asked was that a political party from one of the states he terrorized grant him a role in government as a member of the legislative assembly.

But even though politicians with long charge sheets are common in central India, Mr. Gujjar misread the way the political wind was blowing, according to police.

“He didn’t have any connections,” Supt. Dwivedi said.

Copyright 2005 by the Globe and Mail