Category Archives: India Business

The Overweight Maharaja Needs A Diet

At 35,000 feet on board a 747, I have an amusing choice.  For $25 I can buy a bottle of Napa Valley Cabernet from the inflight shopping catalog, or buy 10% of the airline I’m flying.

Okay not quite.  But a functional and sustainable civil aviation system is critical for any nation’s economic security, and both the United States and India have aviation industries in severe financial distress.  In the past 20 years there have been over 100 bankruptcies by US airliners, with losses of over $30 billion and recent layoffs in the tens of thousands.  India’s airliners are under a similar specter.  Air India, once regarded as one of the best airlines in the world, is continuing a 30 year run of sad decline as annual losses grow alongside management scandals and customer dissatisfaction.  Most of India’s private sector counterparts are doing no better.

Both India’s and America’s airline industries have a lot to learn from each other, mostly on what doesn’t work, but that’s a good place to begin.  One, American legacy carriers attempting to attract passengers by offering the lowest fares while monetizing dining, entertainment, baggage, and other service lines has been a failing strategy.  Airlines not marketing themselves as no frills carriers should be setting the highest industry standards for service and not resorting to penny pinching as a means of safeguarding financial health.  Two, ground time of aircraft in the U.S. and India is unacceptably prolonged and capital intensive assets must be utilized far more productively.  Three, develop financing strategies for execution of fleet renewal that allows for deferment of deliveries or leasing out of aircraft in the event of a downturn.  Many labor disputes in India and America have arisen as a result of pay cuts stemming from cash flow issues related to fleet renewal costs.  Four, developing a long-haul network and abandoning revenue diluting hubs in London, Paris, and Frankfurt, used for America-to-Asia air-traffic.

Regulatory reforms however are no less urgent.  Recognizing the importance to national security of civil aviation infrastructure, rationalizing the taxes on aviation fuel is a must, particularly for India which has some of the highest jet fuel taxes in the world.  Two, raising limits on FDI and allow foreign players to help recapitalize airlines.  Three, investment in modernizing national air traffic control systems to help lower fuel and labor costs.

Lastly, no more commissions which meet amid big fanfare but pass reports onto regulators who sit on the files.  The problems of both India’s and America’s airline industries are no big secret, and there are no shortages of talented management and turnaround plans.  Regulators ought to listen more, and explore what other nations facing similar crises have tried.  The Maharaja badly needs a diet.

Be a Good Boy, Study Hard, and Start a Business

“My son got an A-minus in mathematics! He has brought shame on the family!”

Parody it may be, but sentiments such as this strike so close to the Indian bone that countless comedy programs have at some point featured a cartoonish parent scolding their child for delivering even a modicum less than perfection.  Indians in India, for all their other virtues and talents, have historically not been highly forgiving of failure.  While this attitude can be a fantastic foundation for a disciplined work ethic, it is not necessarily the optimal trait for building a robust technology startup ecosystem in India.  That requires a certain fearlessness and assiduousness in equal measure.  However, instilling the entrepreneurial ‘can-do’ attitude is one of America’s great virtues and gifts to the world.

Sadly, Administration rhetoric regarding India’s IT services industry has been unfriendly and contrarian to this spirit to say the least.  Yet it is not for nothing that most of America’s technology conglomerates— Intel, Microsoft, Google, Cisco, Motorola, and others—not only have a presence in India but conduct high-tech R&D there as well.  Given the size of India’s aggregate population and its pool of engineering talent, developing a startup biome as a next step would represent a major opportunity for both for Indian business and American venture capital and high-technology firms.

Successful and highly lucrative technologies such as cloud computing were developed by startups who often served as flexible technology incubators by larger more established companies.  These firms depended on networks of business accelerators and venture capital firms to support their technological development and business growth.  As we have witnessed in Silicon Valley, those initial investments of a few hundred thousand dollars often have come to be worth hundreds of millions and translated into high-paying jobs for college educated professionals.

Historically it has been difficult for Indian startups to get their ideas funded domestically, and even far more difficult to bootstrap companies through family and friends.  Capital flows from both financial and strategic American investors could well fill the void and be the impetus to encourage startups in India.  To be successful, this requires greater recognition by public policy makers of the mutual benefits of increasing trade and cross-border investment.  The Tata Group alone has over $3 billion in FDI in the United States and employs more than 19,000 workers in this country. That is as much a face of India’s IT services industry as BPO centers in Bangalore.

If the point was unclear, I’m sure someone is developing an app for this.

Turning Up The Heat

In 2010 India’s Prime Minister Manmohan Singh unveiled the Jawaharlal Nehru Solar Mission with the aim of raising India’s solar power output from 170 megawatts to 20,000MW by 2022. While the project will be a major initiative to help safeguard India’s energy security and international climate commitments, the Solar Mission has been set up to help formulate policy and logistical conditions which will enable the streamlining of renewable technology penetration in India at both the state and local levels.  To this end, the government has mandated that photovoltaic cells and modules must be sourced domestically, and that at least 30% of advanced power systems be made by domestic manufacturers.

This caveat has been received with some disfavor by the present American administration.  In the 1960s and 1970s during the heyday of the state protection Raj India missed out on the global boom in semiconductor manufacturing, which reaped vast rewards for Taiwan, Japan, and South Korea as engines to building a high-skilled domestic manufacturing base.  Yet with forward five year GDP growth forecasted at over 6% per annum, and a national electricity deficit of over 10% of daily demand, there will be vast opportunities for both domestic and foreign solar module makers over the next ten years for projects both covered and not covered by the mission.  India’s latest budget has also encouraged foreign solar companies by lowering customs duty on solar panels by 5% and exempting excise duty on solar photovoltaic panels.

India has available sunlight capacity of over 300 days per year, a significant geographical base for technological deployment, the world’s largest consumer base and one of the world’s largest aggregate growth rates for the perceivable future.  State governments in Gujarat, Karnataka, and Rajasthan are already planning deployment of new energy resources with a mix of conventional and renewable projects in mind, with developers free to source material and technology from wherever they choose.  With prices of photovoltaic panels falling globally, American technology providers should look to India to soak up excess capacity.