Difference between India and China

"China is a capitalist country run by socialists and India is a socialist country run by capitalists" - A. Hull 2012

Now it is not true in all senses, but there is enough truth in it, to neatly sum the complex differences between these two growing power houses.

Since moving to India, I continue to be shocked by the sheer volume of rules governing every day life. A classic example this morning, was news that rules surrounding selling packaged goods had been loosened - you could now sell bread up to 100g in weight, in any size you want. Over 100g and you still have to sell in 100g increments. The maximum size of a pack of biscuits has also been increased from 1kg to 5kg.  I guess it's a small step, although I think the biscuit board might be missing the point. These micro rules are everywhere governing all areas of everyday life. These all date back to Nehru who, as India's first prime minister, set out explicitly to copy the Soviet economic model. Despite some liberalisation in the 1990s, and of course the latest biscuit rule changes, India's economy still suffers from a socialist style set of regulations.

Its ruling classes however, don't adhere to these rules. Endemic corruption means that the rich and powerful can get round these rules. India's largest companies, make huge amounts of money, obtaining the licences and consents that they need, while others are kept out. Property development in Mumbai is a good example. It's not rocket science - you buy a piece of land or property in Mumbai, bribe some officials a lot of money for the planning consent, and build a 40 story building. For an average size building, with Mumbai's sky high property prices, that would net you around £100m-£200m. But you have to be rich and connected to do this. It is no coincidence that the son of Mumbai's political leader, Bal Thackeray, owns one of the largest property development companies in Mumbai. This is what I mean by capitalists running and making best use of a socialist style ruled economy.

China on the other hand, has been governed by socialists for decades and for much of it, disastrously - a true socialist economy run by socialists. However, it has now famously changed. China is essentially a rampant capitalist economy, but with the socialists still in charge. Yes, there are still rules to adhere, but not on micro level of India, and there is corruption, but it's not as endemic.

As a result, and from a much lower base after the Cultural Revolution, China is now 4 times richer per capita than India, and still growing faster than India.  My quote sums up why.

Richard Branson to run India's railways?

Richard Branson is currently in Mumbai to launch the new Virgin Airways flights from here to London. That is obviously good news for all of us Londoners currently living in Mumbai - although there aren't that many of us- the expat community here (around 10,000-20,000) is tiny compared to somewhere like Hong Kong (450,000) or Singapore.(800,000).

In an interview for Mint, a leading financial newspaper, he was asked if he was considering doing business in India in areas other than airlines. He said "if Indian Railways is privatised,we'd love to evaluate the opportunities". Not an unreasonable answer and of course what amazing things he could do for railways in India. The railways are slowly falling apart, suffering from huge over-crowding and lack of investment. When the previous railways minister recently tried to increase fares for the first time in years - and pretty reasonable in a country suffering from 9% inflation - he was promptly sacked for doing so. Therefore, Richard Branson's idea of getting involved would be brilliant. However, the interviewer quickly moved on. The reason? That privatisation of Indian Railways is so unthinkable, that just to mention it seems hugely out of touch with Indian politics. The furore surrounding the recent changes in Foreign Direct Investment rules shows that. Huge swathes of the Indian economy are still in state hands, with few signs of much change. Manmohan Singh, the economist turned Prime Minister, has only gone so far as to sell off some stakes in public listed companies which is a start, but is a long way from rail privatisation. And if by some miracle, it entered into public debate, and in 10 years time it actually happened, the idea that a foreigner would be allowed anywhere near it, is totally unthinkable. Depressing, but sadly true.

First Starbucks opens in India

Amazingly, until this week, there were no Starbucks in India. Lots of homegrown coffee shops like Barista and Cafe Coffee Day, but few international brands. The reasons are the complex rules surrounding what is called FDI - Foreign Direct Investment - something that is bizarrely controversial in india. The debate is led by the rich elites who run india, and who don't want any outside competition interfering with their businesses.

To get round this, Starbucks have teamed up with the biggest and most well known of these elites- Tata. Tata is undoubtedly one of india's best run companies, but one that also does very well out of india's myriad of rules being one of the few companies that can through and round them.

Anyhow, the upshot is that finally Starbucks is coming to india, and the first one has opened just round the corner from my office in Fort, Mumbai! It's been done amazingly, and I can get a great decaf americano with a drop of hot foam. Haven't managed to have lunch there yet, as by lunchtime, there's a 2 hour queue snaking down the street with TV cameras still trained on it.

Exciting times and with 80 more stores being rolled out, india won't be quite the same again.

The Economist censored in india

One of the great things about india, particularly when compared to china, is the degree of political freedom and freedom of expression. Slightly perturbing therefore, to see a large black out over one of the articles in last weeks Economist. There was a very good Briefing on India with a series of articles, but one obviously fell foul of someone or something. Haven't yet worked out which was the offending article, but will update as soon as I have.

I hear differing views on the degree of press freedom in India. Lots of journalists I speak to say that they write and say pretty much what they want, others suggest they have to take care. Someone even suggested I should be careful what I write on this blog or risk deportation! Seems highly unlikely and I'm not that easily cowed.

India liberalises!

The Indian government announced a series of reforms last Friday abolishing rules on foreign entrants into India, a new privatisation programme and reducing fuel subsidies.  Mint newspaper said India " has woken up from deep slumber".  Even the Times of India welcomed the move - "The gainers should vastly outnumber the losers."  It is great to see a move towards increased openness and freedom being welcomed.  The steps are not a huge move, but they are a step in the right direction - foreign companies can now invest in multi-brand retail (allowing companies like Walmart and Tesco to enter India), and in aviation, a move which may help Kingfisher airlines and Air India from their current financial difficulties.  4 more indian companies are to have government stakes in them sold off, or "disinvested" as the Indians like to call it. And the subsidy on diesel is to be reduced, increasing prices by around 14%, and saving the government huge amounts of money, but still only a small dent in the enormous $34bn annual cost of fuel subsidies.  

Subsidizing diesel while the rest of world is trying to go in the opposite direction for environmental reasons, is surely crazy, especially while also spending money reducing greenhouse gas emissions.  $34bn is also a staggering amount of money to spend compared to its spending on health and education - $6bn and $11bn per annum respectively.

Not everyone welcomed it, though.  Speaking about the diesel price rise, "This is a very cruel blow" said the Communist Party of India (Marxist). The BJP opposition party, supposedly less statist than Congress, opposed the liberalising moves as well, saying "We have always been against Foreign Direct Investment and are [against it] this time as well."  Others claimed it would harm local small businesses.

In opening markets to competition like this, everyone agrees that consumers will benefit - if they didn't, they won't take advantage of the new choice, and the market will stay as before.  Some people however, see the local businesses losing out, and indeed some might.  Actually, lots of local businesses and entrepreneurs will benefit.  Any new successful business model entering the market, is rapidly copied, no more so than in India.  I look forward to seeing companies like Future Group, who own Big Bazaar, copying innovations brought to India by Tesco.

As far the disinvestment programme goes, there is quite a long way to go.  According to the OECD there are 576 Central Government Owned Enterprises (including 25 govt banks, 217 Central Government Companies, and 12 Central Govt Co-operatives) and 1042 State Owned organisations, making a total of 1618 government owned companies in india.  At this rate, it will take 300 years for India to have a fully private sector economy and that's not counting the usual state owned industries like health and education.

In conclusion, it's a move to be welcomed, but not as bold everyone seems to suggest.  A bold move would be to abolish subsidies totally, allow foreign companies to invest in any industry, and privatise every single state owned company.  Just think what you could do with the money - kick starting some kind of welfare insurance fund for instance?  So well done, but no cigar.

Indian Bank Strike

Today was the second day of a 2 day strike by 1 million bank workers in India.  The strikers are protesting against a genuinely positive move by the Indian Government - to de-regulate and allow more private capital into the banking sector.  Most of the strikers were of course from state owned banks - 70% of the banking sector is state owned.  This compares to 20% in Central Europe (still remarkably high) and 15% in Latin America.

Despite a huge loss to the economy (estimated to be 300bn Rupees) things seemed to carry on mostly as normal - just a couple of queues at bank machines.  Generally, a strike by vested interests against reform, means the government must be doing something right.  Lets hope the government sticks to its guns - a re-invigorated private banking sector could be a timely boon.

India's IT genius

The IT sector in India has famously been amazingly successful - it has grown over 10 fold in the last decade to around $100bn in 2011.  IT is not an easy sector to succeed in - computer programmes are incredibly complex things to build and even more complex to make work.  My limited experience of running technology companies in the mobile sector has given me some idea of just how difficult.  So how and why did India succeed in an industry which should have been one of the most difficult to penetrate?

My thoughts on this were first aroused when my worldly goods were held up for a month in Mumbai port on their way from London, and yet I knew that I could email client quotes and contracts and upload software code in a second, from my new office in Fort, Mumbai.  These suspicions were confirmed when I went to a talk recently, organised by the Indian Business Group in Mumbai, and featuring Dr Lalit Kanodia.  Dr Kanodia is an IT genius and visionary - head of his class at MIT, helped write the code that formed MULTIX, the precursor of UNIX, and was the founding CEO of Tata Consulting Services, now India's largest IT company.

The IBG has been organising some inspirational events, and his was one of the most interesting talks I have ever been to.  He spoke of the Indian Government trying to jail him when he set up the first satellite data link between India and the USA in the late 1960's.  He then told of the Minister for IT coming to see him in the early 1970's to ask what exactly was TCS doing, and how could the Government control it.  Dr Kanodia's response: "You can't control it, and even if you could, I wouldn't tell you how".

For me, that sums up India's IT success.  Imagine what could happen if the rest of India were set free?

Alcohol licence for buying alcohol in Mumbai

I had heard the rumours for a while - the fact that you needed a licence to buy alcohol in Mumbai - but I had dismissed them as being surely an urban myth.  The other day though, I was ordering a simple Kingfisher beer at the Breach Candy Club, when the waiter asked to see my Alcohol Licence.  I stayed calm and managed to palm him off with my driving licence and an additional food order.

Having now investigated, i can confirm that this is no urban myth - under the 1949 Bombay Prohibition Act, a licence is required for all purchase, possession and consumption of alcohol in the state of Maharastra.  Quite clearly this is a ridiculous law which serves only the police, who can use this as another excuse to ask for a bribe.  This will serve nicely as the first of no doubt innumerable rules that should be repealed and make India just that little bit freer.

5 text messages a day limit

The indian govt today limited the number of text messages, anyone in the entire country can send, to 5 a day!  Seems like a good place to start my Set India Free blog that I've been thinking about for a while.  Despite being a democracy and a great, crazy one at that, India is far from being a free country, particularly economically.  The number of regulations and control on every aspect of life, has been somewhat of a shock since i moved here.  For instance, on the same day that I couldn't send any more text messages, I tried and failed to obtain my Alcohol Licence - that is a licence needed in order to consume alcohol.  No joke.  More on that in my next post.