Tuesday, March 22, 2011

Buffett, Gates, Dell in magnetic India. What’s going on???! Also my version of philanthropy

First it was the Heads of States of the 5 most powerful nations (US, UK, Russia, France, China) who came visiting India. Now it’s the turn of the big daddies of the corporate world! Rather than asking “What’s going on?” as one news anchor often does in a shrill voice on arbitrary and meaningless political issues, it would serve him better if he asked the same question in an economic context!

So what’s going on? Clearly Michael Dell’s company is on a roll in India. Revenues grew by some 60% last year. And since the PC penetration in India is still way too low (30-40 per 1000 people; China 150; developed world 500-600), he expects to see sustained growth over many many years. Buffett self-deprecatingly (though jokingly) called himself a retard not to have come to India earlier. He plans some big ticket investments in India and clubs India with the UK, Germany, and China for his future investment plans. Interestingly, he prefers to call India a developed country rather than a developing one. And why not? From an investment opportunity (and size) perspective, our GDP is already in the top 10 (in absolute $ terms). In PPP terms, it’s already in the top 5. Easier for a big daddy to invest in a large opportunity than a small one!

While Buffett and Dell demonstrate the successful side of the economic story of India, Saint Gates draws attention to issues that we need to urgently address. Gates has been here many times. His focus has never been on investments.....but on making sure that the poverty that exists is dealt with. The Bill and Melinda Gates Foundation has invested more than 1 billion $ in improving public health standards in India.

It’s a good time to take a stock review of where we are as a country today. Clearly, we have become very big in size. We are in the top 10 in the world in almost all economic activities at a gross level. Be it steel or cement production, car sales or electricity generation, road length or IT exports, mobile penetration or internet connections, India is in the top bracket everywhere. There is no doubt that we are among the buzziest of all global economies today. If we do grow at 9% this year and accelerate to 10% in the years to come, we will become the buzziest economy. China is planning to slow down and the top honor is waiting for India to come and grab.

However, there is the other side of India that needs our attention. When we look at our economy from a Per Capita Income (PCI) perspective, we start faltering. PCI reflects what could broadly be called distribution of wealth amongst the people. When we go to a developed country, we see almost all people to be reasonably well off. That’s because their PCI is high. However in India, there is concentration of wealth in the hands of a few well-offs and the poor are really poor. We often blame the government for this, but often all of us are responsible in one way or the other for this fact. At a very personal level, just consider the way most people refuse to give higher salaries to domestic maids, drivers and security men. They would rather donate money in a temple than give it to living people. At the corporate level also, there is too much reliance on jobless growth in India. India’s largest company by market capitalization – Reliance Industries – enjoys a turnover of nearly Rs 2.5 lac crores by employing just 27,000 people. If all private industries were to adopt jobless growth strategies, we would never be able to have better distribution of wealth.

Buffett is talking of philanthropy in addition to his investments. His version of philanthropy is to donate more to charities. I have a slightly different take on this subject. Rather than big Indian industrialists giving away money to charity.....I think its better they invest that money in sectors that may be financially less attractive but which can create more employment. Set up companies in the social sector which they run themselves. So that the results are better. Rather than depend on some NGOs to do the work. It would be great if Sunil Mittal or Mukesh Ambani could invest in agriculture or rural industries or some such thing even if the returns were lower.....in the process improving agricultural or rural productivity and raising the incomes of a whole village or two. Or invest heavily in education so that a whole new generation of people can benefit from the future opportunity. If all our top industrial houses did this, we would be able to see a better and faster distribution of wealth. What our industrialists need to devote to charity is their time. Not their money alone. Like Nandan Nilekani is doing. What he is doing can help India far more than someone giving away a few crores to charity.

What NGOs miss the most is skilled managerial talent; not money. Frankly there is ample money available. NGOs need to attract the best available talent. For this, they need to provide a professional environment and reasonable salaries; not just tug at your conscience like they do today. Most young professionals in India are still experiencing their first flush of economic success.....how can they take their eyes off that? They want to work even harder so that they can earn even more. They have no time to devote to charity. This is where corporates come in. If corporates could invest in the social sector and provide the right environment, they would be doing the right kind of philanthropy. Merely giving away money is fine in the West; it’s not in India.

The real truth is that we don’t need advice from Buffett on philanthropy. We need his money! We want to learn his investment skills! We want to make money using his skills......philanthropy can follow later! And we certainly don’t need news anchors who keep asking “What’s going on?” in the wrong context!

1 comment:

  1. Great article Prashant.... I totally agree on ur point and feel that there is a need for raising the economic power of poor people and that can only happen if proper education and jobs are provided by putting labour incentive industries even if it means less return on money..... I have read lot about buffet and feel he is an amazing person who invest money at right time... He is now interested in india more coz he wants to invest in insurance sector and I believe that's y he is talking more about philanthropy..... In short buffet will talk about philanthropy and ultimately will make more money than he donate.......