A Crash course on India - What The Hell is Happening?
Vas Adusumilli
Issue date: 5/27/04 Section: Perspectives
While Mr. Bush is worrying about the Iraq war and Abu Ghraib prison scandals, some business communities and people on the other side of the world are wondering what direction India is headed? Fifty seven years after independence, is the country ready to be led by a foreign born? More importantly, what's the state of the reforms that are taking place in the country? Are the recent elections' in India a mandate by Indians requesting a slow down of reforms, or is it a mandate requesting for religious harmony among many religions in India. How come parties led by many (world-wide popular) reformist leaders like Mr. Chandra Babu Naidu and Mr. Vajpayee lost the elections.
To understand what's going on, one has to understand India. Why learn, one may ask. As future business leaders, sometimes one can be misled by stereotyping. As outsourcing becomes more important and companies look for emerging markets like India, China, Eastern Europe for production efficiencies, an understanding of the political climates in these countries and its effects are important. For China, being under communist rule, one can easily understand what its government policies are. But with democratic India, sometimes government policies change with the change of governments (which can happen every five years). This brings an interesting question for emerging markets that are going through a rapid change. How to capture political risks in valuations? Oh well, that is left to academicians to figure out.
So, what happened in India? What's all the recent news about? How come Wall Street covered multiple articles in one week on India? Well, India went through elections. Unlike USA, which has a two party system, Indians opted for a multiple party system. There's a good reason behind it. Until 20 years ago, the country was led by national parties, predominantly by one called the Congress Party. During this time not much was known for outside world about India (except a common comment that 'my physician is an Indian') and in their eyes India = Bombay or Delhi. In a democratic country where there is lot of illiteracy, power is obtained through elections and each vote is purchased from the poor for $2 and a bottle of cheap liquor. This made governments ignore people's needs and led to the emergence of many regional parties. One such good example is Telugu Desam Party, currently led by Mr. Chandra Babu Naidu. This party was formed in 1982 on a platform that the national government ignored a state called Andhra Pradesh. Prominent South Indian actor turned politician Mr. N.T. Rama Rao led the movement (father-in-law of Mr. Chandra Babu Naidu). People supported his movement and when he got elected in the state and became chief minister (similar to state Governor in USA), he worked for the uplifting of the state. Similar situations started to happen in other states and when national elections took place, no one party gets an absolute majority to run the country. So, various parties form coalitions to create a national government. This worked miracles for Indians in the last 15 years as Indians recognized that once you give absolute majority to any one party, politicians will ignore development and people. Current situation is related to that.
To understand what's going on, one has to understand India. Why learn, one may ask. As future business leaders, sometimes one can be misled by stereotyping. As outsourcing becomes more important and companies look for emerging markets like India, China, Eastern Europe for production efficiencies, an understanding of the political climates in these countries and its effects are important. For China, being under communist rule, one can easily understand what its government policies are. But with democratic India, sometimes government policies change with the change of governments (which can happen every five years). This brings an interesting question for emerging markets that are going through a rapid change. How to capture political risks in valuations? Oh well, that is left to academicians to figure out.
So, what happened in India? What's all the recent news about? How come Wall Street covered multiple articles in one week on India? Well, India went through elections. Unlike USA, which has a two party system, Indians opted for a multiple party system. There's a good reason behind it. Until 20 years ago, the country was led by national parties, predominantly by one called the Congress Party. During this time not much was known for outside world about India (except a common comment that 'my physician is an Indian') and in their eyes India = Bombay or Delhi. In a democratic country where there is lot of illiteracy, power is obtained through elections and each vote is purchased from the poor for $2 and a bottle of cheap liquor. This made governments ignore people's needs and led to the emergence of many regional parties. One such good example is Telugu Desam Party, currently led by Mr. Chandra Babu Naidu. This party was formed in 1982 on a platform that the national government ignored a state called Andhra Pradesh. Prominent South Indian actor turned politician Mr. N.T. Rama Rao led the movement (father-in-law of Mr. Chandra Babu Naidu). People supported his movement and when he got elected in the state and became chief minister (similar to state Governor in USA), he worked for the uplifting of the state. Similar situations started to happen in other states and when national elections took place, no one party gets an absolute majority to run the country. So, various parties form coalitions to create a national government. This worked miracles for Indians in the last 15 years as Indians recognized that once you give absolute majority to any one party, politicians will ignore development and people. Current situation is related to that.