Drought, Scandal, Recession: Can India Recover From Its Summer Of Discontent?

Waiting for the rain, Delhi
Waiting for the rain, Delhi
Patrick de Jacquelot

NEW DELHI - It was a long, hard summer in New Delhi -- and it was made worse by the nice weather. In a country subject to monsoons (rainy season from June to Sept.), it’s when it doesn’t rain in July and August that the weather is considered bad. From this point of view, summer started terribly with rainfall in early July 20 to 30% below normal.

With 55% of agricultural land that isn’t irrigated, the summer monsoon is vital for agriculture. And even if the sector represents no more than 15% of the country's GDP, the rural communities who depend on it represent more than 60% of India's population, which currently stands at 1.2 billion. The result is that weak monsoons seasons push up food inflation, which is already quite high, while bringing down consumption in rural communities.

Fortunately, the weather changes quickly and the past few weeks have seen a return of the rain. Rainfall is only 10% less than average now, which is still considered as a drought, but it is less serious than previously thought.

All problems, however, are not so easily solved by a simple change of weather. This is the case concerning the complete breakdown of the country's electricity grid at the end of July, which saw up to 600 million people go without power for two days. This incident showed once again that the country's infrastructure is inadequate.

However, the main disappointment from these past two months is without doubt the continuing political crisis. For two years, major corruption scandals (such as those surrounding the fraudulent telecoms industry or the construction of the Commonwealth Games facilities), the fragility of the governmental coalition and major divergences on economic reforms have brought the government to a standstill.

There was a fleeting window of opportunity when Pranah Mukherjee left his post as finance minister to be named president of the Indian Republic. The Prime Minister, Manmohan Singh, temporarily assumed the post of finance minister and several observers thought that he would have taken the opportunity to lobby for reforms, like he did in the 1990s when he initiated the modernization of India's economy. But nothing of the sort happened. Manmohan Singh passed on the baton to a new finance minister, P. Chidambaram, after a few weeks without having made any decisions.

The paralysis of the government was furthered by another scandal, this time concerning government authorities giving private businesses licenses to exploit coalmines, under hardly transparent circumstances. Several investigations are now underway over the affair that could cost tens of thousands of dollars in public finances and which has the potential to destabilize government.

Economy woes

Yet, whilst government authorities are in the throes of corruption scandals and political jousting, the economy suffers. The rate of economic growth was at 5.5% during the second trimester in 2012, marginally better than the 5.3% in the first trimester but far from 8% the previous year. The drop in investment is particularly worrying.

According to economists at the French bank PNB Paribas in India, the latest figures "demonstrate no improvement." The bank expects a growth rate of 5.7% for the 2012-2013 fiscal year (at the end of March).

Similarly, the majority of economists are also banking on a lower growth rate of 6%, a figure that is a far cry from the 9% that is needed to fight against poverty and invest in infrastructure. The deterioration of economic performance poses a strong threat that India may well be downgraded by rating agencies. In the spring, Standard & Poor's and Fitch gave India a negative mark and nothing much has happened since then to change their opinion. At the end of August, the Indian central bank's governor declared that the country should prepare itself for being downgraded. It would make them the only country in the BRICS to be considered as "junk" and therefore a terrible humiliation.

The government is, however, conscious of these problems. The question is whether they will take the opportunity of the end of the parliamentary session to finally call for reforms. Economists and the business sector have previously been crying out for strong initiatives. Firstly, they want to see the government raising sales prices on energy products so as to reduce the subsidies created by public authorities. In the current system, diesel, kerosene and bottled gas are sold much lower than the market price and the state is virtually making up the difference.

But the expected figures for the 2012-2013 budget are extremely insufficient. This alone is, in nature, compromising a key element of the government's policy: the recovery of public finances. After a budgetary deficit of 5.8% of India's GDP during the previous fiscal year, it is now a priority to reduce it to 5.1% this year. It is an objective that seems more and more compromised in the eyes of analysts that are expecting a worsening of the deficit to 6% of the GDP. Stopping subsidies for energy would therefore be a symbolic gesture to show that they have a strategy to stabilize public finances.

The second proposed measure would symbolize a willingness to modernize the economy: finally opening up large distribution to international investors. It is doubtful that at the head of government, they are convinced of the necessity of such decisions. However, these two strategies both have the potential of being politically explosive. The coming weeks will demonstrate whether the authorities in New Delhi have decided to take a leap or not.

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How China Flipped From Tech Copycat To Tech Leader

Long perceived as a country chasing Western tech, China's business and technological innovations are now influencing the rest of the world. Still lagging on some fronts, the future is now up for grabs.

At the World Semiconductor Conference in Nanjing, China, on June 9

Emmanuel Grasland

BEIJING — China's tech tycoons have fallen out of favor: Jack Ma (Alibaba), Colin Huang (Pinduoduo), Richard Liu (Tencent) and Zhang Yiming (ByteDance) have all been pressured by Beijing to leave their jobs or step back from a public role. Their time may be coming to an end, but the legacy remains exceptional. Under their reign, China has become a veritable window to the global future of technology.

TikTok is the perfect example. Launched in 2016, the video messaging app has been downloaded over two billion times worldwide. It has passed the 100-million active user mark in the United States. Thanks to TikTok's success, ByteDance, its parent company, has reached an exceptional level of influence on the internet.

For a long time, the West viewed China's digital ecosystem as a cheap imitation of Silicon Valley. The European and American media described the giants of the Asian superpower as the "Chinese Google" or "Chinese Amazon." But the tables have turned.

No Western equivalent to WeChat

The Asian superpower has forged cutting-edge business models that do not exist elsewhere. It is impossible to find a Western equivalent to the WeChat super-app (1.2 billion users), which is used for shopping as much as for making a medical appointment or obtaining credit.

The flow of innovation is now changing direction.

The roles have actually reversed: In a recent article, Les Echos describes the California-based social network IRL, as a "WeChat of the Western world."

Grégory Boutté, digital and customer relations director at the multinational luxury group Kering, explains, "The Chinese digital ecosystem is incredibly different, and its speed of evolution is impressive. Above all, the flow of innovation is now changing direction."

This is illustrated by the recent creation of "live shopping" events in France, which are hosted by celebrities and taken from a concept already popular in China.

10,000 new startups per day

There is an explosion of this phenomenon in the digital sphere. Rachel Daydou, Partner & China General Manager of the consulting firm Fabernovel in Shanghai, says, "With Libra, Facebook is trying to create a financial entity based on social media, just as WeChat did with WeChat Pay. Facebook Shop looks suspiciously like WeChat's mini-programs. Amazon Live is inspired by Taobao Live and YouTube Shopping by Douyin, the Chinese equivalent of TikTok."

In China, it is possible to go to fully robotized restaurants or to give a panhandler some change via mobile payment. Your wallet is destined to be obsolete because your phone can read restaurant menus and pay for your meal via a QR Code.

The country uses shared mobile chargers the way Europeans use bicycles, and is already testing electric car battery swap stations to avoid 30 minutes of recharging time.

Michael David, chief omnichannel director at LVMH, says, "The Chinese ecosystem is permanently bubbling with innovation. About 10,000 start-ups are created every day in the country."

China is also the most advanced country in the electric car market. With 370 models at the end of 2020, it had an offering that was almost twice as large as Europe's, according to the International Energy Agency.

Photo of a phone's screen displaying the logo of \u200bChina's super-app WeChat

China's super-app WeChat

Omar Marques/SOPA Images/ZUMA

The whole market runs on tech

Luca de Meo, CEO of French automaker Renault, said in June that China is "ahead of Europe in many areas, whether it's electric cars, connectivity or autonomous driving. You have to be there to know what's going on."

As a market, China is also a source of technological inspiration for Western companies, a world leader in e-commerce, solar, mobile payments, digital currency and facial recognition. It has the largest 5G network, with more than one million antennas up and running, compared to 400,000 in Europe.

Self-driving cars offer an interesting point of divergence between China and the West.

Just take the number of connected devices (1.1 billion), the time spent on mobile (six hours per day) and, above all, the magnitude of data collected to deploy and improve artificial intelligence algorithms faster than in Europe or the United States.

The groundbreaking field of self-driving cars offers an interesting point of divergence between China and the West. Artificial intelligence guru Kai-Fu Lee explains that China believes that we should teach the highway to speak to the car, imagining new services and rethinking cities to avoid cars crossing pedestrians, while the West does not intend to go that far.

Still lagging in some key sectors

There are areas where China is still struggling, such as semiconductors. Despite a production increase of nearly 50% per year, the country produces less than 40% of the chips it consumes, according to official data. This dependence threatens its ambitions in artificial intelligence, telecoms and autonomous vehicles. Chinese manufacturers work with an engraving fineness of 28 nm or more, far from those of Intel, Samsung or TSMC. They are unable to produce processors for high-performance PCs.

China's aerospace industry is also lagging behind the West. There are also no Chinese players among the top 20 life science companies on the stock market and there are doubts surrounding the efficacy of Sinovac and Sinopharm's COVID-19 vaccines. As of 2019, the country files more patents per year than the U.S., but far fewer are converted into marketable products.

Beijing knows its weaknesses and is working to eliminate them. Adopted in March, the nation's 14th five-year plan calls for a 7% annual increase in R&D spending between now and 2025, compared with 12% under the previous plan. Big data aside, that is basic math anyone can understand.
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