Emerging economies: My return passage to India

As Western economies founder, India offers endless possibilities for expansion to eager British firms, as Matthew Gwyther saw on his first visit for 20 years.

by Matthew Gwyther
Last Updated: 09 Oct 2013

The first experience of India is always special. Mine occurred in 1988, when I was sent out from the UK to interview Professor Sergio Carvahlo of the Vigilant Goans' Army. The professor and his fellow warriors were fresh from an attack they'd launched on an incoming charter party of German package tourists at Dabolim airport in his beloved state. As they descended onto the tarmac, the holidaymakers discovered that their tour bus had been littered with rotting fish and its Wilkommen banner smeared with cow dung. 'We were very polite,' Carvahlo told me. 'We just handed out our leaflets to explain that a certain sort of imported lifestyle (wandering the beaches in a G-string or less and puffing vast quantities of Nepalese hash) is not acceptable in Goa. Goa should remain as beautiful as God made it.'

Before this summer, I hadn't been back to India since 1991, a full 20 years. A lot has changed, and not just in Goa, where the professor has lost his battle and the palm tree toddy-tappers of the Indian Ocean coastline who made palm wine have been replaced by large numbers of luxury hotels.

That 12 months in 1991 had a crucial impact on India's post-independence history. Not only was it the year of Rajiv Gandhi's assassination but there was also a major financial crisis in which the country was within three weeks of running out of foreign currency reserves (67 tons of India's gold had to be hocked to acquire an IMF loan). This humiliating upheaval led to the abolition of the notorious 'licence raj', which marked the beginning of India's modern business age.

The architect of this revolution was Manmohan Singh, then minister of finance and now an elderly beleaguered prime minister. The central thrust of his measures was to reverse the intensely bureaucratic socialist planning system instigated by Nehru as a result of which private companies had to get permission from as many as 80 government agencies to produce new goods or services. Singh wanted Indian consumers in the driving seat.

Before 1991, for example, the Indian motor industry suffered the strictures of a planned economy in which, until the birth in the 1980s of the little Maruti, two suppliers, Hindustan and Premiere, were licensed to produce no more than 50,000 cars each year. If you wanted a car, you waited seven years - or bribed someone to acquire one for you faster.

After 1991, the patriarch of Indian business Ratan Tata was able to get into the car game and now manufactures the $2,500 Nano or 'people's car'. Tata's success has spread way beyond its home market - it now owns Jaguar Land Rover, plus Corus and Tetley - and it has over £11bn of UK revenues, which makes it Britain's largest manufacturer. That things have moved on was apparent from the Rolls-Royce showroom in the grounds of my Delhi hotel. 'We've sold about 35 Ghosts for around half a million US dollars each in the past year,' confirmed the general manager for sales, Sanjeev Hazari.

Since 1991, India's economy has expanded by an average of about 6% annually, double the 'Hindu rate of growth' that had been experienced since independence in 1947. There is now a stratum of the super-rich. In 1990, there was one Indian billionaire on the Forbes rich list; now there are 49. One of them, mobile phone magnate Mukesh Ambani, is building a billion-dollar, 570ft skyscraper home in Mumbai that will be the world's most expensive residence.

This isn't to say that there hasn't been some trickle-down. The proportion of Indians living below the official poverty line fell from over four in 10 in the 1980s to less than 26% by 2001. India, as the travel ads promise, never fails to surprise: there are more phone subscribers in the country than taxpayers.

However, there are far too many poor and jobless members of society. As India enters the space race, nearly 300 million of the country's citizens still have little or no idea where their next meal will come from. A million Indian infants die of diarrhoea each year. Not far from the Delhi Rolls-Royce showroom there is a mother begging on the pavement, with her children dressed in rags.

The reason for my return was to observe Diageo's 'World Class' in New Delhi. This is an annual competition between the world's leading bartenders - or mixologists, as they prefer to be called. Chest-hair tumbling, cocktail shakers shined and small talk for the executive barfly ready, 34 of them descended on the Imperial Hotel, New Delhi for a three-day face-off during which everything from their ability to mix the perfect Harvey Wallbanger to their knowledge of exotic spices was put to the test. Tom Cruise wouldn't have stood a chance. With huge promotional parties every night, the Ketel One, the Tanqueray No 10 and the Johnnie Walker Blue Label were flowing faster than a burst pipe. Not a drop of palm wine in sight.

World Class - which was won by Manabu Ohtake of Tower's Bar in Tokyo, who was garlanded with flowers and carried shoulder-high through the hotel - is a vital element of Diageo's Asia-Pacific marketing push. It typifies how important the capital of a country of more than a billion souls is becoming for multinationals. Fifty million youngsters every year reach the legal drinking age in the Asia-Pacific region. Diageo wants to double its business there over the next five years, which means that 50% of its global turnover will come from outside Europe and North America, as opposed to 33% at present.

The firm is having a massive punt on India, despite what might look like insurmountable odds. For a foreign spirits producer, it's a fantastically difficult place to do business - you'd expect a better chance in downtown Riyadh.

First, there are the sky-high import tariffs on luxury goods, which affect not just Diageo but all the top fashion houses, plus Rolls-Royce. In the old days, India was no stranger to luxury: during the time of the Raj the large numbers of colonial Brits, along with the native maharajahs, nizams and nawabs, had a proper taste for the good life, importing their Boucheron and Louis Vuitton along with their premium gin, scotch and posh motors.

The austere world after independence, in which you were encouraged, like the ascetic Mahatma Gandhi, to drink your own urine rather than two fingers of Johnnie Walker, put paid to all this. The population had to make do with Thums Up cola (introduced after Indira Gandhi expelled Coke from India in 1977) or the interesting array of IMFL (Indian Made Foreign Liquors). But now the rules have been relaxed, the new class of business maharajahs and the growing, monied middle class are making up for lost drinking time.

Second, once Diageo has its whisky, vodka and gin inside the country, moving it around is fraught with logistical awkwardness, because states have differing levels of tax and duty. The legislation surrounding booze is byzantine and advertising alcoholic drinks is banned. The legal age for drinking is often high. In the state of Maharashtra, which includes Mumbai, it was suddenly raised to 25 in June. And it rises to an inexplicable 30 years in the Maharastran district of Wardha. The state of Gujarat is technically dry. But the growing number of urban middle-class Indians want liquor and they want the highly prized premium brands for their snob value.

Unsurprisingly, Diageo's push hasn't been without problems. In July, the company agreed to pay $16m after an SEC investigation accused the company of paying bribes to win sales and tax benefits in India, Thailand and South Korea. Several members of Diageo's Indian management were removed and the business is now under the stern and watchful eye of the company's president for Asia-Pacific, Gilbert Ghostine, a Lebanese who is assisted by two other senior Lebanese directors.

This embarrassing hiccup demonstrates the continuing curse of India's commercial and political corruption, news of which was filling the newspapers during my stay. (The other huge story was the scandal of a female airline pilot who'd been flying 737s around the country for several years, her only qualification being a 10-lengths swimming certificate.)

The government has been paralysed by a graft scandal surrounding the award of lucrative telecoms licences in 2008, but a general lack of transparency shocks a lot of foreign investors - of whom there are now many hundreds queuing at immigration.

At the last elections, a third of incoming MPs had criminal charges pending against them. From the miserably poor state of Bihar in the north, three had been charged with murder and 10 with attempted murder. India's dynastic approach to politics is illustrated by the fact that 100% of the MPs under the age of 30 have a parent or close relative in the parliament. It is broadly expected that Rahul Gandhi, the latest scion of the clan and the son of the late Rajiv, will be a prime ministerial candidate for the Congress party before too long.

India's democracy, the largest in the world, is a marvel that normally attracts universal praise - especially when compared with the repressive state of affairs in India's arch-rival, China - but there are many grumpy members of the business elite who regard it as an excuse for lack of good political governance.

Back in 1991, Manmohan Singh took a leaf from Victor Hugo's book when he when announced his reforms, claiming that 'No power on earth can stop an idea whose time has come.' One hopes not. There is no possibility I'll wait another 20 years before returning.

 AN INDIAN SUMMARY 

  1990 2010
Population, millions 839
1,186
GDP, dollars bn (2010 prices) 433
1,538
GDP per person, dollars (2010 prices) 503 1,265
GDP world ranking (current dollars ) 12 10
GDP world ranking (dollars PPP*) 9 4
Exports, as % of GDP 6.9 21.5
Gross savings, as % of GDP 21.9 34.7
Adult literacy rate, % 48.2 68.3
New official poverty rate, % (Tendulkar method) 45.3 32.2
Urban population, % of total 26 30
Share of world market capitalisation, % 0.41 2.88
Number of billionaires in Forbes rich list 1 49

Central Statistics Office; CEIC; C Ravi; Forbes

*Purchasing-power parity Haver Analytics; IMF; UN;
1991 1993-94 World Bank; The Economist 2009-10 estimate

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