Those who’ve been following this blog might remember the story.

THE VODAFONE BACKSTORY

Hong Kong company Hutchison owned a stake in its Indian cellphone joint venture with the Indian company Essar, and it wanted out. It held its share in a Cayman Island subsidiary. This it sold to an eager buyer, the European company Vodafone, which was looking to get into the Indian market.  Vodafone also had a Cayman Island subsidiary, which bought the Hutchison shares in the cell-phone company for $11.1 billion in 2007. The deal was done,  and everyone went home happy. No taxes were due in India, they believed, because the whole thing was transacted offshore.

Except that the Indian Tax Department came after Vodafone for $2 billion in taxes. It wasn’t really an offshore deal, they claimed, there was an Indian nexus. Taxes should have been withheld.

Nonsense, said Vodafone. It was legally offshore. Besides, if anyone did owe taxes, it would be the now-unavailable seller, Hutchison. Not the buyer. Technically, they were correct.

The question was, would India’s courts allow the Tax Department to argue that it was a technicality-as-eyewash?

They did. The Tax guys went to court; much of the battle was about whether the Tax authorities actually had jurisdiction over this transaction. It’s been a longish battle, some of which I chronicled here.

At the time, things didn’t look good for Vodafone. The Bombay High Court had already ruled against them. They’d been asked to place funds in escrow in case they lost. The case went up to the Supreme Court.

THE SUPREME COURT SPEAKS

The Supreme Court, which had explicitly allowed this case to continue, finally gave its ruling today: The Indian Tax authorities don’t have jurisdiction over the overseas transaction. There was no “Indian nexus.” Vodafone don’t have to pay anything; they’ll  get back, with interest, the funds they have in escrow.

With that behind them, Vodafone can get on with running their business in India. They need to. They took a $3.4 billion hit to earnings in 2010 from increased competition. From their website: “Vodafone India was impaired by £2,300 million primarily due to intense price competition following the entry of a number of new operators into the market.”

I have to say, I’m pretty impressed with how it’s all played out. Both sides have had their say, in great and excruciating detail. There’s a decision that clarifies the law. India’s legal system has actually worked like it’s supposed to.

It also proves that it’s never over until it’s over.

TI publishes two things: a “score” which, on a scale of 1-10, measures corruption, and a rank out of however many countries were evaluated – 183 countries in 2011. A score of ten would be excellent, but no country gets that; New Zealand tops with a 9.5 (and the US gets only a 7.5). On that scale, India gets 3.1, which gives it a rank of 95 out of 183 countries, in company with Albania, Kiribati, Swaziland and Tonga.

Two years ago, when I wrote about the same study, India’s score was 3.4 and its rank was 84 out of 180 countries. At the time, I wrote: “Indian corruption seems to be improving gradually – but perhaps not as fast as in other places.”

I was wrong.

What is now noticeable, with the extra two year’s data, is that there’s actually a trend that started in 2008. In the wrong direction.

What I’ve done in the graph is show a normalized rank to adjust for changes in the number of countries TI has evaluated.  That’s the red line, and lower is better. Here, India’s position initially improved. I’m guessing that the newly-added countries each year tended to score low, thus pushing India’s normalized rank up. The number of countries grew from 90 in the year 2000 to 183 in 2011.  But by 2008, the number of countries in the study had stabilized around 180… and India was drifting down in the rankings.

The green line is the score for India. There, higher is better. There did appear to be a very gradual upward trend there too – which ended in 2007. Since then, it flattened and then started to slide.

China hasn’t got much better than it was in 2009 – it had a score of 3.6 and a rank of 79. It’s kept the same score in 2011, but that’s yielded a rank of 75.

This is the World Bank’s annual ranking, based on a survey about the complexity of regulation. So, I wondered, how has that changed? Had its rank improved further?

Um, no. India ranked 134 in 2011, right behind Malawi, (but ahead of Indonesia). It’s up one rank from 2010′s 135.  China, by the way, is 79. (I’m not sure this makes sense; all the anecdotal stuff I hear is that India is tough, but China is tougher.)

Singapore and Hong Kong come in at #1 and #2. New Zealand’s 3rd, the UK 4th and the US is 5th.

India’s 2009 and 2011 ranks aren’t strictly comparable. The World Bank now evaluates 183 countries, not 178. Also, an indicator on which India performed better than average in 2008 — Employing Workers — has been suspended in the 2011 rankings (it’s being reviewed for methodology).

But still — these rankings are no way an improvement.

WHAT ARE THESE RANKINGS, ANYWAY?

Each year, the World Bank looks at countries across the globe, ranking them on how far they regulate 9 areas of business. The numbers indicate India’s 2011 rank out of 183 countries. A rank of 91 would be above the median, and 92 would be below it. Clearly, India ranks above the median only on two counts, though it’s close on Registering property

• Starting a Business  (173)
• Dealing with Construction Permits (157)
• Registering Property (94)
• Getting Credit (32)
• Protecting Investors (44)
• Paying Taxes (164)
• Trading Across Borders (100)
• Enforcing Contracts (182)
• Closing a Business (134)

The World Bank notes the limitations of this ranking in a note:

The ease of doing business index is limited in scope. It does not account for an economy’s proximity to large markets, the quality of its infrastructure services (other than services related to trading across borders), the strength of its financial system, the security of property from theft and looting, its macroeconomic conditions or the strength of underlying institutions. There remains a large unfinished agenda for research into what regulation constitutes binding constraints, what package of reforms is most effective and how these issues are shaped by the context in an economy. The Doing Business indicators provide a new empirical data set that may improve understanding of these issues.

WHO DOES IT TALK TO?

Unlike many surveys that talk only to a limited audience (e.g. executives of large multinationals) the World Bank’s Doing Business surveys a wide range of people:

Surveys are administered through more than 8,200 local experts, including lawyers, business consultants, accountants, freight forwarders, government officials and other professionals routinely administering or advising on legal and regulatory requirements.

So they’re averaging 40-50 people surveyed per country, though I’m sure the actual number in each place varies quite a lot.

THE BOTTOM LINE?

India’s still an attractive place for companies. But as with people — attractive shouldn’t be confused with easy.

A lot has changed since I researched it in 2008. A lot more is likely to keep changing in India and the world. I’m looking forward to the massive task of updating this book, then republishing it in a format more suited to continual updating.

I’m open to suggestions about what needs changing, and how it could be better. Email me or leave comments!

(And they’re a refreshing counterpoint to the irritating call-center interruptions from Dish Network…)

I knew something was wrong when I went into my Yahoo email account a couple of days ago. The list of emails in my inbox looked fine, but when I clicked on one entitled  ”Meeting next week?” instead of the expected note from my friend, it was spam. I presumed it was a Yahoo glitch, and carried on.

But when I went to Google, it was clear this wasn’t just any little glitch. The same thing was happening with my Google searches. They were getting hijacked to evil sites like “Ta*zinga” and “add*edsuccess” (The asterisks are mine. Just to be safe.)

So I ran a full scan with Microsoft Security Essentials. A couple of hours later it came up with the culprit: a Trojan called Tracur.Gen!B — which it said it had removed.

It hadn’t. My Searches were still being hijacked, and another full scan gave me the exact same result: Trojan:JS/Tracur.Gen!B

TIME TO CALL MICROSOFT

This time, I knew to go directly to Microsoft’s Security people for help. (I couldn’t get to the forums in any case, with all my searches being redirected.) They’d been winners the last time, the young people in Chennai. I emailed, got my support case number and the phone number to call. The last time, I’d gotten through almost instantly. Not now. Instead, I got put on endless hold of music and commercial messages. I gave up. Night- time would be better.

Around 10 p.m. I got through much faster, to “Jason”  who was possibly Jaisingh or Janak, I don’t know. (Or may even actually be  Jason. ) I explained the problem, then told him that the last time, it had been Kaspersky’s tdsskiller that fixed the problem.

“This is more powerful than Kaspersky,” Jason told me. I visualized a videogame screen, Tracur and Kaspersky battling it out in armor with swords. My best bet, he thought, would be to run MRT (Microsoft’s Malware Removal Tool) and then call them back. It would take several hours, he said. So I ran it, and it took several hours, at the end of which it showed… nothing. But my searches were still being hijacked.

RAHUL TO THE RESCUE

I called them back, and this time Rahul answered the phone and took my case number. He cut to the chase, sharing my computer, running some searches for and with Bing (I have Google as my home page), and noting how those got redirected. Then he ran Kaspersky. It showed… nothing, again nothing. But searches were still being hijacked. So Jason was right. I pictured Tracur standing with a victorious foot on fallen Kaspersky’s chest.

“How come Microsoft Security Essentials didn’t block this?” I asked, annoyed.  If this problem didn’t get fixed, this machine was doomed to spend its remaining days as an isolated super-typewriter with no internet access.

At this point, Rahul (who still controlled my computer) removed my existing Internet Explorer. “You’ll lose all your cookies and saved passwords and settings,” he said apologetically before he started.

“Go for it,” I said. Who cared about cookies when the searches were being stolen? “Is it a browser problem? I just got rid of Firefox because it seemed to be lodged there, but that didn’t fix it.”

“Sometimes,” he said, a bit doubtfully. Then he downloaded the latest version of Explorer.

And wondrously, the searches were back to normal. It was now maybe 3 a.m., and worth every minute of the time it took.

Thanks, guys! Great job.

(Later, I ran another full scan with Microsoft Security Essentials. This time, it also showed nothing. I have my fingers crossed the machine stays clean.)

###

And yes, my tech-expert friends, I know I should be running Linux. I just find the learning curve a bit too steep…

My first impressions were okay, looks like every other shiny new airport now. I’ve flown into Changi (Singapore) when it was new, and Chek Lap Kok when it replaced Kai Tak’s thrill ride (Hong Kong). There’s a certain new-airport vibe. Long corridors, new carpet, pristine walls, oversized architecture.

Mentally comparing it with the little old airport I’d become accustomed to, I started tallying the Good, the Bad, and the Mucked Up.

THE GOOD

• The bathrooms! Finally, clean, world-class bathrooms. As a concession to Indian toilet hygiene, they have water available for ablutions. They had attendants who kept an eye on the place and cleaned up at intervals, something unnecessary in most countries but a very nice amenity in a nation where some percentage of travelers are not accustomed to Western-style toilets.

• Bright and light. The corridors are broad, the colors reasonable (white with reds and yellows), and most of the travelators working.

• Not crowded. It may have been the times I landed and left, or it may be the size of the place. It wasn’t at all crowded.

• Vending machines at every gate, selling water and soft-drinks, and flavored potato chips. The bottles of water were Rs10-20 (about 20-50 cents). In San Francisco International, they rip you off at $2 or so. Of course, in San Fran you can also take your own empty bottle and refill it at a drinking fountain, a risk I still would not take in India. (I only drink boiled or bottled water when I visit there.)

• Separate security lines for ladies and gentlemen. Everywhere else, toilets are separated by gender. In India, they’ve started separating security lines. I’m listing it under good because it actually seems to work pretty efficiently. (The picture here is from Bangalore airport, but it’s the same in Delhi.)

• [Edited to Add:  No more signs prohibiting photography. For decades, India forbade photography both at airport and on planes. No more.]

THE BAD

• Oh what a trek! One of my complaints about modern airports is the long distances one must walk. Travelators (moving walkways) help; but this airport has long stretches that lack them. I departed from Gate # 13, and it compares with the worst of Heathrow (London). Once you arrive there, you’re in a barren wilderness of carpet and you don’t feel like hiking all the way back to where you might find coffee or a snack or books. Thank heavens for my Kindle… and those vending  machines! Gate #14 (opposite Gate #13) is as bad. If your flight leaves from either one, factor in 30-40 minutes extra. I saw a just- married couple galloping down the corridor, her henna-stained hand in his, while he tried to urge her along without her twisting her golden-high-heeled ankles… I hope they made their flight.

• The shops. I fondly recall a small but wonderful little jewelry store at the old airport, which sold  silver-and-semi-precious-stone pendants, necklaces, bracelets and ear-rings in creative Indian designs. There were a few other handicraft-type shops, selling silk scarves and Indian clothing. All of them were pretty busy. The shops in this airport are the typical glitzy big-Western-brands, and they were empty. One little kiosk (called Kala Yatra, if I recall correctly) was crowded: It had the Indian style jewelry and scarves, though not the selection and quality that the old shops at the old airport had.

• The art. Initially, I was pleasantly surprised. The old airport had a wonderful frieze by Hussain, and I’d sort of hoped it had been preserved. If it was, I didn’t see it. But they had some great new paintings by Paresh Maity in welcoming shades of red. When I went downstairs, though, I was accosted by a huge display of hands in various mudras (hand signs). The gigantic hands were silvery plastic — or so it seemed — and were mounted on a background of copper-colored discs. It looked like the worst of 1960s public decor. Later, I saw similar over-sized sculptural artifacts elsewhere in the airport. This is *so* not the best India has to offer. Someone help!

THE MUCKED UP

• Things that don’t work. One of the travelators was out of order, which I would have minded less if it hadn’t been part of the Long Trek to Gate 13. Several of the vending machines had Out of Order signs on them. One that didn’t whined and spat out every note I tried to feed it. I finally found one that did work, but it had a different and less interesting selection of flavored potato chips…

• Missing personnel. So my flight from Bangalore arrived in Delhi at 10.30 p.m. It was crowded; many people were morning/ evening commuters. It took a while to get off the flight, but eventually we all deplaned, hurried down the passenger walkway… into a dead end. The door was locked. The person who was supposed to open it wasn’t there, gone for a coffee or something. We waited. Eventually, someone walked back to the plane and told the staff, and perhaps they radio’d someone, I don’t know. Anyway, they eventually let us out, after a 10-15 minute wait. “This happens regularly,” said one of the commuters. He sounded experienced.

• Software snags. More seriously, they haven’t got all the bugs out of the air traffic control system, which has had technical glitches for some months now. It wasn’t reassuring to read, the day before I traveled, this headline: Ten tense minutes that tested Delhi ATC. The article that followed blithely assured us that in January, the Flight Data Processing System had gone down and air traffic controllers had taken over, guiding flights manually. “We are handling close to 750 flights at IGI Airport every day and definitely need a more reliable system,” the article quoted an official as saying.

Bhaswati and I are old friends; we  were at school and college together. Back then, there was only one way to think about population in India. It was a problem. Modern medicine and the end of famines meant death rates fell, but everyone still had a lot of babies. Population grew at over 2% per year. We learned the theory of demographic transition: That economic growth would slow population growth, and until that kicked in, the population would just keep expanding. Economic growth was half-swallowed by the needs of a growing population. It was difficult to see how the second part of the transition — where birth rates fell in harmony with falling mortality — was going to happen. India’s government pushed for “family planning” — encouraging people to have only 2 or 3 children rather than the 7-9 or more they might have otherwise.

(The graph above is from UWC- Marathon’s Keith Montgomery.)

During the Emergency, India’s brief fall from democracy, the late Sanjay Gandhi earned himself a terrible reputation — in part because of allegations of forcible sterilization. He set aggressive targets for field workers, who rounded up men and had them vasectomized, apparently in some cases without their consent. After the Emergency, the whole thing became a politically tender sore spot.

Population growth was politicized in other ways. I’ve heard Hindus blame Muslims because Indian Muslims are allowed four wives. “Naturally they have more children if they’re polygamous,” one such person argued. “A man can have 3 or 4 children by each of his wives.” Clearly the speaker was no demographer. The constraint on population growth isn’t the average reproductive capacity of the man. It’s the average number of children borne by each woman that counts. Since the wives must share the attentions and purse of one man, polygamy could actually reduce this average. (The wives are seldom wage-earners in this scenario.)

My kid drew this chart for a school project in 1994. India’s rapid population growth, that tripled the population between 1926 and 1985, was still considered a problem.

THE DEMOGRAPHIC DIVIDEND

But that’s all moot now. India is instead talking of the Demographic Dividend. In a world where the developed countries all have low reproductive rates and aging populations; where India’s big competitor, China, implemented a one-child policy just long ago enough that these only children are today’s adults; in such a world, India is the only major country with a young population. A young population means workers and consumers. Energy. Instead of being a liability, it’s a selling point. From her speech:

“India will be the largest contributor to the world’s workforce — all 136 million people — over the next 10 years (fully a quarter of the entire world’s additional workforce). According to projections, the demographic dividend will spur the rise of middle class population to half a billion people over the next two decades. “

WHAT CHANGED?

It isn’t just India that changed in the 30+ years since I studied about demographic transition. It’s the world. The tidy theory I learned was that after the population bulge, birth rates would fall and then population would stabilize at the new level, and everyone would live long happy lives in a world that was again in balance.

Source: Wikipedia

But what we’ve seen is that it doesn’t stabilize at the new level. People don’t have babies to improve their nation’s demographics. Instead of 7-9 babies or 2-3 babies, people have 0 or 1.The birth rate falls some more, until it goes below the replacement rate. That’s what happened in Japan and across much of Europe. It may be what’s happening in China; will the state-imposed one-child policy prove addictive once it’s lifted? Will people have gotten out of the habit of having larger families? Will the social support structures for child-rearing have attenuated?

Here’s the demographic transition graph, with an addendum, from Wikipedia. It adds a fifth stage: A falling population. What lies beyond? We don’t know, really. Will birth rates pick up again? Will having more babies become fashionable and economically attractive? Will population gradually fall to pre-industrial levels? No telling. It’s the world our grandchildren and their heirs will live in.

But meanwhile, for another two or three decades, there’s the Demographic Dividend for India…

…where its huge young  population, juxtaposed with India’s political and economic structure, its democratically elected pluralistic Governments and its rising economic and entrepreneurship strength demonstrates a new reality – That if India’s economy, with its young population, grows as it is growing now, it will change the world.

So the document that landed in my email box from IMA Asia [an international business climate assessment company for which I edit Asia Strategy papers] was bittersweet: A note from economist Glenn Levine about Asia’s wage outlook. It started with the following paras:

“Wage growth is picking up across Asia, attracting the
attention of policymakers and companies. Two factors are
driving this trend.

“The first is that Asia’s labour markets are surprisingly tight just 12 months after a global recession. The other key
factor is China, where tight labour conditions on the eastern
seaboard and a few high-profile labour disputes over pay
have attracted attention at the highest levels of the
Communist Party.”

It’s a different world out there. For China, it’s an interesting mix of high economic growth and the effects of its one-child policy on population growth. According to IMA Asia’s figures, its unemployment rate is 4.2% at present, and wages in the last ten years have grown about 10% points faster than inflation. They’re looking for upto 30% wage increases in some places, though wage pressure is much less away from the Eastern seaboard.

Nowhere in Asia is unemployment in the double digits.  Indonesia has 7.4%, the highest. In Thailand, it’s under 1%. In Singapore, it’s 2.3%. In Korea, 3.1% and in Malaysia, 3.4%.

WHAT ABOUT INDIA?

India doesn’t publish unemployment data. (I think it stopped collecting them some decades ago when the government realized that unemployment was undefinable in the context of a predominantly rural subsistence economy.)

It seems, though, that wages in India are not quite keeping pace with inflation, which sounds as though there’s some slack in the economy. Still, according to IMA Asia, hiring intentions seem to be up and they’re prediction wage growth in the 15-20% per year range.

I always look forward to IMA Asia’s notes. They’re usually based on meetings with their client companies in Asia, and so they’re based not just on governmental statistics, but on what is actually happening on the ground. Right now, the story in Asia is very encouraging.

Edited to Add: Just after I posted this, my friend Sri shared this Youtube video:

Top American Graduates Heading to India for Employment

It’s about young Americans heading for Bangalore and its opportunities, especially in Information Technology.

Now, the Indian Rupee has a shiny new symbol, which I can’t type because it’s not on the keyboard. I like it,  though I can’t tell how practical it’s going to be or whether it will in fact get used. [ETA in Feb 2011: It does seem to have caught on; I saw it  everywhere when I visited India.]

Some while ago, India’s Finance Ministry decided that the rupee deserved a symbol of its own, the way the UK pound has, or the Euro; and in February 2009, it held a design competition.  It wanted a symbol that would represent the “historical and cultural ethos of the country.”  This is the winner, from D. Udaya Kumar.  He’s a post-grad student from Indian Institute of Technology (IIT) in Delhi, now going to teach at IIT Guwahati.

The new symbol comes with a lot of design analysis, presumably to demonstrate that historical and cultural ethos. Given that it’s India, we also have a controversy. (As I said in my book, India Business Checklists, controversies can blindside people doing business there. This time, no companies were involved in the making of this dispute.)  But first, the design.

DESIGN FEATURES

It’s based on the Devanagari symbol for the “ra” sound (shown in the second square in the picture.) Devanagari is the name of the script in which India’s official language, Hindi, is written. Hindi can actually be represented in other scripts as well, but this is the official one. (Quite incidentally, this is also how my name Rupa, written in Devanagari, starts. Rupa and Rupee are both derived from the word for silver.)

It also incorporates the letter R of the Roman alphabet.

And then there are the more fanciful explanations: That the two parallel lines at the top recall the Indian flag. That they also resemble the “equals” sign, representing balance in the economy.

CONTROVERSY

According to www.saveindianrupeesymbol.org/ the winning candidate broke the rules, submitting four designs when the rules specified two. There was also something about being applicable to a standard keyboard in the Indian National Language script. And there’s been some buzz about an inadequate selection process.

It’s also true that the design doesn’t closely resemble any of the Government’s finalists.

The Rupee-symbol Finalists?

But I have to say I like the final one better than any of those. The process may have been broken, but the result seems okay. May be better than the other way around?

——————–

New reporting rules for Indian companies look reasonable, but may have unintended consequences.

Reuters reports that the Securities and Exchange Board of India, better known as SEBI, recently changed the reporting requirements for Indian companies. Before, companies needed to file their unaudited quarterly results within 30 days of the quarter’s end, and audited financial statements for the full year within 90 days of the year’s end.

Now, they’ll have 45 days to file quarterly statements – but they’ll have to be audited statements. And the time for the full year report has been reduced to 60 days, presumably because if all the quarterly statements are audited, it should cut the time required for the annual audit. They would also have to publish their balance sheets each quarter, not just at year’s end as they do now.

It sounds pretty reasonable; shareholders and analysts can work with audited results that are presumably more reliable than unaudited ones. Only the devil, as usual, is in the details. In his blog “Mera Bharat Kahan” (Where’s my India?), my friend R. Balakrishnan posts about potential unintended consequences…

——————–

“This is certainly a good move, though one would have wanted the quarterly to go — the half-yearly interval being enough for any investor. Unfortunately, the regulators have fallen prey to the broker demand, who need to create buzz as often as possible, to create trades where none are necessary.

“My bigger concern is that now the auditors will have to compulsorily throw their hands up in despair. How many companies can an auditor handle? And how competent is he to do anything at all?  Managements should rejoice, because more means less here.

“Imagine an auditor certifying the quarterly results of a company like Reliance or a SBI [State Bank of India]. There is absolutely no way he would have a clue about anything.

“The other interesting fall out is that the 45-day window, between closure and declaration of results, gives a lovely window for the promoter to rig his shares. He has more time to plan and execute the play.”

(To read his whole post, go here.)