A NEW SEASON of M&A has arrived and India is looking to pile up the numbers of maximum mergers and acquisitions. Myriad companies have become MNCs in the past few years, whether it’s the Genpect, the biggest BPO in India ready to be floated in the US stock market; Starbucks, Seattle based world’s largest coffee chain collaborating with Planet Retail; Videocon envisaging the take over of South Korea’s debt burdened Daewoo electronics for $700 million, and the biggest of them all- the Tata-Corus deal.
But what really lies in the future? The fact is incontrovertible that India would land in the company of developed nations by 2020. She would infact take over some of European economies like Italy, Germany and Spain and would further move to become the world’s third largest economy by 2040. US is too far ahead. So where does the real competition lie? Infact, it’s in our very own backyard. The robust Chinese economy is taking giant leaps and romping towards the utopia of prosperity of development. The per capita income in the United States is $30,000 whereas it has just reached $1600 in China. So our moving target should be China not US. China opened its market nearly a decade and a half before India followed the path.
The world is considering the 21st century, the century of 2 Asian giants – China and India. Quite paradoxically, both have some challenges in front of them.
Let us introspect first. India received an estimated investment of $40 billion foreign investment in the last financial year as compared to $72.4 billion, what China enjoyed in the same period. How much China has excelled is quite evident from the fact that the per capita income of a Chinese national has risen from $275 in 1982 to $1040 in 2002 whereas India lagged much behind as the figure peregrinated from $260 to $540 in the same period.
The World Bank report on environment for starting and conducting business puts India on dismal 80th rank. License Raj, time consuming and tedious process, bureaucratic hassles, red tapeism and political unwillingness are the index reasons which present India as an insalubrious destination for investment. Eyebrows are also raised about the substantial growth or inclusive growth. Dr. Manmohan Singh has been addressing the issue as per the priority. Sensex reached the magical figure of 13,000 for the very first time in the history of its lifetime on 30th October 2006 , but what is the relevance to a small debt burdened farmer of a small village of Vidarbha. Every now and then news reports come in about the suicide committed by a farmer. Eleventh plan says a root cause for farmers’ suicides is the failure of the banking system in extending credit that has led them into poignant plight. The approach paper of the Eleventh plan acknowledges the regaining of agricultural dynamism, reversing deceleration in agricultural growth and thereby addressing the problem of rural distress as the top priorities. While the achievement of 9% growth is not infeasible, what is not comprehensible in the absence of clear engagement is how this growth will ensure inclusiveness. Private sector has been called upon by the PM and the Planning Commission to rope in some capital and establish a sense of rapport with the farmers of the country. Interestingly, companies like Reliance and Bharti Ventures has pledged cooperation in Haryana and Punjab respectively. This highlights the fact that the agriculture has taken a backseat. The proportion of the agriculture in the 2005-06 is 20% of the total GDP of $690 billion and its further bound to decrease to ticklish 15.3% out of total GDP of $1 trillion in 2010-11.
Critics claim that there is a sense of irrational exuberance about India’s growth story and we should not delude that the growth and reward what India has achieved are here to stay forever. Without higher level of investment and productivity from that investment, sustaining things is difficult. Without reforms, it is impossible to increase inclusiveness. It’s a matter of fact that India would need at least whooping Rs.14,00,000 crores of investment in infrastructure development by 2012. The airport facilities are in shambles, roads are looking to be the permanent residence of potholes and you never know that the electricity cut in your part of city is going to be of 5 or 10 hours. Some believe that it is just not about the GDP or any other intrigue terms, it is about the variation or inequalities. The other important thing is non income indicators. The illiteracy, poverty, absenteeism in primary govt. schools and malnourishment are still common. The number of malnourished under the age of 5 in India is almost about 50% which is even worse than countries like Bangladesh or even Sub – Saharan Africa.
The Asian “China and India” juggernaut has thrust the world into mystique. By 2020, 1 out of every 3 people using cell phones will be either from India or China. India’s software and BPO exports are set to reach $60 billion by 2010, up from $24 billion in 2005. FDI norms have been relaxed in India and the gambit has attracted investment in SEZs. Schemes like Bharat Nirman with Rs.1,74,000 crore investment in the next five years, will give a fillip to rural infrastructure.
Market capital has outscored GDP. As of August 2006, the market capitalization of NSE stood at Rs.27,77,401 crores which are approximately 98% of GDP calculated at market at market cost. The aforesaid figure is plausible indicator of what looks like that India is shifting gears – transitioning from “developing economy” to “rapid developing economy”.
Nearly 140 Indian companies including heavyweights like Reliance, Tata, TCS, Infosys, Ranbaxy, and Jindal steel have already started their operations in China. The indigenous companies are also moving west towards LAC (Latin America and Caribbean) with great verve. Jindal steel won the bid for the Bolivian mine El Mutin, one of the largest iron ore deposits in May, 06. Committing an investment of $2.3 billion, Essar group is building a $1.2 billion steel plant in T&T; Bajaj Autos have announced the inception of operations in Argentina.
Few Indian banks have entered the Chinese scenario including State Bank of India and Bank of India. India has embraced China with IT skills. IT exports have touched new skies with the commensurate total of nearly $2 billion and has become the 3rd largest IT developer.
In juxtaposition with China, the energy security is styming India’s march. China enjoys a secure and strong foothold in gas and coal energy. India is on the verge of a civilian nuclear cooperation with The States and the officials are hoping that the deal gets a nod in the Lame Duck session of US Congress in December. New foreign secretary Mr. S.S. Menon too has acknowledged the matter as of imperative importance. Chinese economy too suffers from anomalies. The ridge between haves and have-nots has been widening. Majority of the population cannot speak English which leads China into the shortage of labour, manpower and technical and non – technical expertise (The Chinese Authorities are teaching English to 4 million people before 2008 Beijing Olympics). The talented, eager, avid, cognizant and bright youth of India scores over their counterparts from China. India is supposed to attract millions of jobs as the country would be the hub for expert and skillful labour and managers by 2020. Media, Judiciary and Democracy are perhaps the three pillars where India enjoys an upper hand over China.
But as it is said to be, that money has no colour, India actually could make efforts to avoid the competition from China. “If you can’t beat them, you ought to join them.” Thus a stronger rapport would be beneficial for both the countries as one is considered to be “the factory of the world” and the other is considered to be the “world’s service centre”. Measures should be adopted to overcome petty skirmish and frivolous ambiguities and the avoidance of feint moves. Both, India and China should not look into the mouth of the gifted horse and both should move forward to be the strategic partners as both supplement the needs of each other, which would certainly promulgate a symbiotic relationship – ‘can’t do with it, can’t live without it’. After all, we share an interesting past starting from the origination of “silk route” to the acrimonious battles, but not withstanding the preposterous past we should revert to the following saying, just because both the nations have become mature enough and the interests too have undergone a metamorphosis; from political to economic, which seems to be a reason more than just good enough;
“Hindi Chini Bhai Bhai”
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