whatever we can to promote the partnership between America and India. In
our opinion, America and India are kindred societies and kindred
cultures. By that we mean, these two societies share a deep similarity
of inner spirit and core values. … It is our
conviction that a strategic partnership between America and India in all
spheres, economic, business and military, will be the cornerstone of
21st century peace and prosperity.“
This mission statement of Macro Viewpoints was stated explicitly on May 9, 2009, our first anniversary.
But every partnership, every relationship requires frank and candid discussions from time to time. This is such a time, in our opinion. America and India seem headed for a trade brawl, if not a trade war, at this time. This is the message of the article by Frank Wisner and Ravi Venkatesan titled Collision Course. Frankly, this is a disappointing article full of well worn, trite phrases masking deep misunderstanding of the authors. They also rest on the hypothesis that has now become dogma in the America-India dialog:
- “The
reality is that India and the United States are natural allies and clear strategic
partners.”
Frankly, this is baloney. The case can be easily made that critical & core business interests of America and India are naturally and fundamentally adversarial; that rather than strategic partners, these two countries are clear strategic opponents in the business and societal spaces.
Without this absolute clear understanding, America and India will not be able to take their relationship to the next higher stage.
Below we explain how America and India have divergent and conflicting interests in many areas. Fortunately, these are easy to manage with will and creativity by both societies. What is needed is patience, strategic patience. Why? We explain below.
1. Intellectual Property (“IP”) & Pharma
You cannot get more basic and simple than this conflict.
- America is the world’s largest provider of medicines, life saving and life improving drugs. India is one of the largest and neediest user of such drugs.
- India is dirt poor and desperately needs inexpensive drugs to alleviate sickness and ill-health in its huge population. America prices its drugs expensively to create profits for its Pharmaceutical companies to partly fund & incentivize new drug discovery.
- America has built an IP machine to protect the business model of its pharma industry. India has built a re-engineering machine to deliver low cost drugs to its people and to protect the business model of its generic drug industry.
- America wants access to the giant Indian market on its terms and India wants access to America’s drugs on its terms.
This is not just about drugs but about Intellectual Property (“IP”) in general.
- America is one of the largest producer of IP and and India is one of the largest consumers of IP. Other IP-producing nations consider America as a leader and other IP-consuming nations consider India as a leader.
Can you get core interests that are any more divergent than this? But how do Wisner & Venkatesan position this reality?
- “U.S. government officials expect India to collaborate with them in
multilateral trade negotiations to shape the global trading system
rather than setting dangerous precedents that other countries might
emulate. This would drive a stake through the heart of the global
expansion of American firms. It is a matter of paramount importance and
urgency therefore to get India to act responsibly.”
Phrases like the last clause are so dumb, so utterly stupid, that their use is almost guaranteed to break off all discussions. The reality is that acting “responsibly” for India is exactly the same as “driving a stake through the heart of” the current American & European IP regime.
Wisner & Venkatesan refuse to acknowledge that a large section of America is actually on India’s side in this fight. The poor, the middle class in America have the same interests as the world’s poor – to make America’s life-saving & life-improving drugs affordable. This is why the most ardent American supporter of India’s stand is today’s most popular politician in America – President Bill Clinton.
About 100 years ago, American business defeated European companies by its mass market revolution – building good & inexpensive products that the majority could buy. America’s Pharma companies need to go back to their roots and team up with Indian generic drug makers in a tiered IP structure that steadily decreases IP protection while increasing volumes and sales.
Otherwise, this is an area that should be left to the “agree to disagree” bin.
2. People vs. Products
India is the world’s largest exporter of people or labor, both technical-skilled and manual-unskilled. America is the world’s largest importer of people, especially technical or skilled labor. This is the demographic reality of both countries and it is not likely to change at least for another 10 years.
This reality is in conflict with America’s major problem today. America faces a serious structural unemployment problem with double digit underemployment levels. This coexists with 2-3 million jobs going unfilled because of a skills mismatch. So the perception of Indians taking away high paying skilled jobs from Americans is valid and a serious political issue.
The reality is that American economy is much bigger than its population can reasonably support. Therefore, America has always imported talent from overseas. Every year that goes by, America’s need for imported labor rises. American businesses recruit in India, hire Indians or do business with Indian outsourcing companies is only because it is financially beneficial for them.
But this reality pales against the political problem in America. India has its own employment reality. India produces excess labor of just about every skilled and unskilled level. One reason for India’s highly inefficient supply chain is that it is geared towards employing many people who work less than towards employing less people who do more. Efficiency is the enemy of employment, at least in the short term. This is why Indian politicians oppose FDI in retail so emotionally.
This issue actually sounds more divergent than it is. As Indians get more income, the entry of imported products is easier and more acceptable. So the opposition here is more political than economic.
3. Nuclear Industry
This is by far the stupidest issue in the America-India dispute. Let us make our position clear.
- America should pass a law to prohibit GE, or any other American nuclear company from building or participating in a building of any nuclear plant in India.
Why? Union Carbide. The disaster at the Union Carbide plant in Bhopal resulted in 8,000 deaths in two weeks and another 8,000 deaths after that. According to a Govt of India report, the incident caused 558,125 injuries. Union Carbide escaped this incident without any real penalties.
In contrast, look at how the US administration reacted to the British Petroleum oil disaster in the Gulf of Mexico. No American life was lost and injuries were fairly limited. But the US administration exerted enormous pressure on BP including filing criminal charges. This became an existential crisis for BP for awhile. The company settled with the US government for about $4.5 billion plus other payments & cleanup costs. In contrast, the Bhopal disaster did not even cost $2 million for Union Carbide.
Today’s India is not the India of 1984. But Indian record in managing plants, in ensuring compliance with safety standards, is just as bad as in the past. Sooner or later, there will be a small accident or mishap in a nuclear facility. If that plant is American, the outrage will be so immense that it might end up destroying the entire India-US relationship, military, strategic & commercial. That, in our opinion, is not a risk worth taking.
The more lucrative and much safer avenue for US Nuclear Industry is the Indian defense sector. Here India’s needs are long term and America’s companies are ideally suited to provide expertise and products. With hardly any direct quarrels and India’s growing military capabilities, the Indian defense industry is a natural partner for America’s nuclear industry.
With respect to Wisner & Venkatesan, it is time to get over the jilted feelings about the America-India nuclear deal. President Obama would never have done that deal and frankly he has always opposed it on various principles. President Bush had a very broad strategic vision about the America-India partnership and he drove that deal. As C. Raja Mohan writes in his book, Samudra Manthan:
- “Bush’s sweeping vision for Indo-US strategic cooperation was rooted in an assessment of the potential threat over the longer term from a rising China. New Delhi’s own long-standing search for strategic parity with Beijing seemed to dovetail with the Bush vision.”
The vision of President Bush was strategic, not transactional. That should also be the vision of American Nuclear Industry.
4. Unilever vs. Walmart – Success of American firms in India
Every article we read is about how Walmart is pulling out of India, how Buffet pulled out of India, how Posco and Arcelor pulled out of India. All these are true and sad stories. India is frankly a mess right now.
But there is another side to the India mess. Unilever is trying to increase its ownership of Hindustan Unilever by offering a 15% premium to existing shareholders. They are doing so because India has been a profitable and growing market for Unilever. This is true of virtually American multinationals – Coca-Cola, Pepsi, Colgate, Proctor-Gamble, McDonalds, Disney, GE, Cummins just to name a few.
There are very few markets that deliver such long term growth prospects as India does. The key is to select sectors & opportunities that are as removed from the Indian Government as possible. That is the definition of congruent business interests between America and India.
5. Strategic Patience
Indian economy has been falling apart since 2009, the year of the last election. That wasn’t obvious earlier because, thanks to US Fed Chairman Bernanke, massive capital flows were flooding emerging markets. Those flows were completely and thoroughly wasted by India just as India wastes its rainwater and foodgrains. And this time corruption reached levels that were unimagined by even India’s corruption stalwarts.
The underlying crisis became evident when foreign capital flows began receding in November 2011. The Indian rupee began sliding and the economy began slowing. The Indian Rupee suffered its 3rd collapse in 2 years in May as foreign capital rushed out of India’s pathetic and entirely self-created mess. There is nothing America can do in this crisis and American business should simply stay away at least until the elections in 2014.
If the ruling party wins the 2014 electi
on, they will have to deal with the mess they have created. They will need so much help and so badly that they will be willing to accept help literally on any terms available. This has been Indian history and it shall repeat.
If the more business-friendly opposition wins and the obvious candidate becomes the prime minister, then India will be open for business. Corporate India loves doing business with today’s Gujarat and American Business would love doing business with India run by a business-friendly party.
So, either way, we think American business will see brighter prospects in India if they remain patient for another 12-18 months. Patience was the message of Ravi Venkatesan’s recent book. It is sad that he forgot his own message when he wrote his “Collision Course” article with Frank Wisner.
Our own dictum about India has been and remains simple:
- Sell India when India looks great as we did in July 2011.
- Buy India when it looks so godawful, so completely ungovernable, so unbelievably pathetic that you don’t want to even hear a word about it.
Today’s India is not at that stage yet. Be patient. It will get there late this year or early next year. Then get into India because India is the most anti-fragile society that God created.
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