I've been to India twice for business and I've spent a total of 6 weeks there traveling around the country with colleagues. During our trips, we spent some time Delhi, Chennai, Bangalore, but most of it was spent in Mumbai. The people we met were fantastically bright, polite and very unassuming. But the parts of the cities we visited were choreographed by our Indian handlers; we didn't spend any time in the slums.
One of those colleagues is Manish Jain. Although he has lived most of his life in the U.S., he moved to India in 2005 to focus on technology-based ventures. He is currently working on a consumer business targeting India's financial sector. He had a rather strong reaction to an interview we both read in the Times of India with emerging market investment guru Mark Mobius. Jain wrote his reaction White on Brown for his blog at Celestri.org. Below is the full text (used with permission).
White on Brown -- Manish Jain
Since 2005 India has been the destination of choice for institutional money mangers to invest their clients' money. As a refresher, India was one of the 4 countries mentioned in the now famous 2003 report from Goldman Sachs titled "Dreaming with BRICs: The Path to 2050." The acronym BRIC stands for Brazil, Russia, India and China. It's a report that many managers used as their investment thesis for entering the 4 countries mentioned and led one of the authors Roopa Purushothaman to land a gig with the largest retailer in India -- The Future Group.
I'm all for research reports and believe it serves a purpose for investors that might not have a clue about certain markets and/or companies that are operate in those markets. These country reports are all very similar, they are super positive about the growth of a country and how big these markets are. However, what is really annoying is when foreign analysts, fund managers or super investors fly to India and tell Indians how their markets operate. It's what I call "white on brown" -- white guys telling brown people about their own markets.
Mark Mobius is the most recent fund manager to fall into this category. I have a lot of respect for Mark Mobius who is the emerging markets rockstar with Franklin Templeton where he oversees $50 billion in assets for them. In fact I got a chance to hear him speak in Bombay in October 2007 and was quite impressed. Recently in an interview with the Times of India he talked about his investment philosophy in India and was asked about corruption in India, he had the following view on corruption:
Corruption is rife everywhere in the world. It's only when it really impacts the process of a business in a big way, you've got a problem. But that's not the case here.
I read that quote and had to re-read it to see if he was talking about India or some other country. "Mark, If you can't speak the truth then don't say anything but don't insult my intelligence." Currently, India is embroiled in the largest corruption case involving one of the darling sectors for institutional fund managers -- the telecom industry.
Ex-telecom minister A. Raja, industrialist Anil Ambani and (heaven forbid) Ratan Tata are being brought in for government questioning on how telecom licenses for the 2G mobile spectrum were allocated. If Ratan Tata who runs the Tata Group, the largest business house in India and viewed as the most honest and above corruption, is being questioned, it shows how wide the net of corruption may be. I think it absolutely affects the process of a business in a big way. From what telecom insiders are saying the corruption is only going to get deeper and affect more individuals and companies.
Mobius is correct, corruption is everywhere -- even in the U.S. -- but happens at such a high level it doesn't directly affect the average U.S. citizen. In India, corruption starts at home: Want to get a phone connection? Want to get a gas connection? You better be ready to slip some cash to these service providers to get service or "your file" might get lost.
Some say that's not corruption but just paying for a speedier "value added service" but don't fool yourself, the entire value chain is corrupt. I don't fully blame Mobius for his myopic view on corruption because when he visits a country like India, the red carpet is rolled out for him. Government officials want his stamp of approval, companies want him to invest in their companies and the press wants something to print. Mobius doesn't have to really get his hands dirty when he comes to India, he gets to view everything through a rose colored lens and everything delivered on a silver platter.
Any fund manager that says corruption is not a major issue I offer you a challenge. Buy a flat in Thane and commute for 6 months to South Bombay for work. Let's see how you deal with the following:
- Getting your flat registered without paying a bribe
- Landline MTNL phone connection
- Gas cylinder or piped connection
- Power cuts (corrupt power grid)
- Water shortages
- Commuting by car (road infrastructure badly maintained)
- Commuting by local trains? Don't even try it.
Staying at the Taj is not a proxy for how the majority of Indians "live, work, play and learn."
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