East or West? Who should India side with, US or China?

India today finds itself in a very precarious situation. USA, the eminent superpower has been steadily growing its relation; be it through arms deals or helping India gain access to nuclear tech through the nuclear deal. On the other hand there is China; a country which feels it’s time has come to become the next superpower. Though China has always seemed somewhat hostile towards India; recent developments suggest that China has started to understand that the more India leans towards the US, the more difficult it will be for China to flex its muscles in Asia. Historically India has followed the policy of non-alignment, but those were the days of Cold War. Today’s India is a more outward looking nation, which itself wants to make a mark on the world. So is it possible for New Delhi to remain aligned in today’s world?

Leon Panetta, US Defence Secretary, on his recent visit to India said that US is keen on allowing India access to cutting edge military equipment and it is also considering joint development of arms and ammunition with India. Panetta was on a weeklong Asia tour to meet allies and spell out the new US defence strategy which seeks to shift US strategic focus towards Asia-Pacific. The US considers India as the linchpin in this strategy. US sees India playing a major role in strategic affairs of south and south east Asia. Both countries have been working hard on improving their military relationship. The annual naval exercise ‘Malabar’ has become one of the key areas of co-operation between the two countries navy’s. On the arms sales front, US knows how important a market India is for its companies. India happens to be the world’s biggest arms importer and plans to spend around $100 billion over the next ten years to modernize its armed forces. US realizes that arms deals are a key way to win India’s support and hence it considers this as a priority area of cooperation. US is going all out to woo India on this front by promising access to hi-tech arms as well as cutting the red tape.

On the same day when Leon Panetta, met with Defence minister A K Anthony; the external affairs minister S M Krishna was away in China holding talks with Vice Premier Li. Krishna assured Li, who will soon become the Chinese premier, that for India better bilateral co-operation with China is of utmost importance. The duo discussed trade and how economic co-operation between the two Asian neighbours can be increased. Krishna had met Li on the side-lines of the Shangai Cooperation Organization meet (SCO). Krishna also expressed India’s interest in joining the six nation SCO.  As India plans to give a major push to its infrastructure development plans it will need significant investment from abroad and Chinese companies might play an important role in this. India’s investments in South China Sea are also a reason why it wants to improve its relation with China. In a sign of growing momentum of bilateral ties, four Indian naval ships will dock in Shanghai. This is being seen as a positive step in building trust between the two nations.

Both US and China have realized that India will play a major role in tomorrow’s world order and hence both are focusing on improving ties with it. The US already has good relations with India, China on the other hand has had a very shaky relation given its hostile nature. Border disputes, trade imbalance and now the South China Sea issue, all these issues are possible impediments to any positive progress that the two nations might embark upon. Washington has already expressed its keen interest in helping India achieve its economic potential. Beijing, tough a little late, too wants to partner with New Delhi as much as possible. New Delhi, in the times to come, will have to take a tough decision. If it wants to continue with its age old non alignment policy then it may have to carry out a difficult balancing act between the two superpowers.

Conquering Africa! Destination next for Indian corporates

Africa’s perception has been changing rapidly, from being an unsafe investment destination to being a place hard to neglect. Businesses are no longer asking the question,”whether to invest in Africa?” they are now more worried about the risks of not investing in Africa. That South Africa is now a part of the BRICS group; the group of largest emerging market economies; is a sign of the growing significance of African countries. The continent of more than a billion people has steadily grown at a rate of 5.6% from 2001 to 2008. Africa has large number of Indian nationals and Indian companies are tapping this population to enter into this continent. For aspiring Indian corporates all roads lead to Africa!

Bharti Airtel’s Zain acquisition is the biggest by an Indian company in Africa; however, Bharti is not the only Indian company raring to go out on all cylinders firing in Africa. Many large Indian companies are betting big on Africa. Godrej acquired personal care product manufacturer Tura for $33 million and is eyeing a stake in hair care company ‘Darling Group Holdings’. FMCG companies like Dabur, Marico, Emami are all present in Africa and doing well. The Tata conglomerate has been present in Africa since decades. Essar, another big Indian corporate house has been aggressively investing in Africa since 2008. It started out with its own mobile company in 2008, but has since then acquired mobile companies in Uganda and Congo Republic. Essar Oil, an Essar group has acquired stakes in Kenya Petroleum Refineries and State owned Zimbabwe Iron and Steel.

Karuturi Global, has become one of the largest private land owners in the world thanks to its investments in Africa. It started with a 15 hectare land purchase in 2005; for an investment of $1.9 million, to grow rose. In 2007, it bought one of the largest flower farms in Africa for an amount of $65.5 million. In the last two years, it has acquired 311,700 hectares of land in Ethiopia for an undisclosed sum of money.

Drug companies Cipla and Ranbaxy have been present in Africa for a long time now, helping African nations in their fight against HIV-AIDS by providing cheap generic drugs. Ranbaxy, which is present in Africa since 1996, now has around 10 subsidiaries in Africa. It also has two manufacturing units in the continent. Cipla has recently set up a manufacturing facility in Africa.

One of the main reasons for acceptance of Indian companies is the reason that India has had a long political relation with African countries. However, in terms business it’s the Chinese who are front runners. The Chinese have been investing heavily in the continent. The Indian government though late to act, recently has been sending many delegations to the continent to create business opportunities for Indian companies. One thing in India’s favour is its democratic set-up; unlike China whose Communist nature makes it appear as a threat. All Indian investment in Africa is not about business, some of it is philanthropic in nature. In 2008, during a summit in Africa, India pledged more than $500 million for development projects. It also pledged to increase by $2 billion its lines of credit to African countries.

As Indian companies grow, they have to look beyond the boundaries of the country for new markets and Africa seems to be their number one choice for the time being. For corporate India, conquering Africa is a top priority.

FDI: The final hope for India’s aviation industry?

Aviation minister Ajit Singh predicts Indian airline companies to post a loss of almost Rs. 10,000 crores in this fiscal. Kingfisher Airlines has huge outstanding with oil companies as well as airports to the tune of 280 crore rupees. Out of the six main companies five are making losses (Only Indigo is profitable). Rising fuel prices, high taxes and fierce competition have made a huge dent in their profitability. Amid all of this, the voice for FDI in aviation has been growing stronger. Coalition politics however, has delayed the decision so far. But the real question is how FDI will help a sector so deep in trouble. Is it just about access to more financial resources or is that the business model of the industry itself is flawed. FDI proposal was put on hold last month due to inter-ministerial conflicts as well as pressure from coalition partners. However there are some positive signs that 49% FDI in the sector may see the light of day soon.

Government haste to move in the FDI proposal may be due to the serious problems at Kingfisher airlines, which threaten the viability of the company. On the surface of it, it all seems to be so straightforwardly simple; FDI would mean capital influx into the struggling companies, which would help them tide over their problems, thus moving the whole industry towards a more profitable future. The company which seems would benefit the most out of an FDI is SpiceJet. SpiceJet has reportedly received offers from airlines in Gulf and South East Asia. Other airlines too may get offers; after all India is a market where the number of fliers has been increasing in double digits for the last few years. Given the potential of the industry, foreign carriers would surely be interested to enter in the domestic market.

Not everyone however is gung-ho about the impact of FDI. Some even feel that it may not do much for the industry and in the near term might even hurt the industry. Experts feel that capital inflow (say into Kingfisher) will lead to redeployment of Kingfishers idle fleet. Air India too is closing its turnaround plan, which will see it ordering more planes. All this will take us back to the same problem which has been plaguing the industry – ‘Overcapacity’. Overcapacity is one of the main reasons, besides fuel prices, which is responsible for the sorry state of the companies. There are just too much of seats in the air. The Indian aviation industry boomed too fast and companies invested too quickly leading to the problem of overcapacity. Extremely fierce pricing means the yields on generated per seat are very low. The thin margins of these companies are further eroded by high fuel costs and taxes.

The country has seen benefits of FDI in many sectors, like banking, automobile etc. FDI is not just about access to funds, in addition to capital influx, foreign carriers will also bring expertise in airline management and best practices to the Indian Industry. Given the way traffic is rising in India, especially in smaller cities, the need to invest in aviation infrastructure is only growing. The financial state of domestic carriers raises a concern whether they will be able to invest in the needs of the growing market. A little help from foreign carriers in the form of FDI will surely go a long way in ensuring that India’s aviation industry continues to grow by leaps and bounds. Hopefully, the government will understand that this move is the need of the hour and expedite its implementation.