India Online

In the November issue of the MI Magazine I’ll have some concrete Indian investment ideas for you, not least some amazing e-commerce plays, as well as basic industries.

Right now, I just want to consider the fantastic potential of the Indian cyber-scene.

1.2 billion people with a passion for cricket, gadgets and technology. (OK, I exaggerate – poverty in India is still endemic. So let’s compromise on just six hundred million – that’s still more people than the combined populations of the 28 nations of the European Union).

About 352 million Indians are regular users of the internet, second only to China. That makes India the second most connected country in the world (well ahead of America’s 266 million), even though this figure represents just a quarter of India’s population, as compared with a nearly 92% penetration in the UK. China’s 668 million cybernauts account for nearly a half of its population. Once again, India has some catching up to do with its great northern neighbour.

According to a new study by the Internet and Mobile Association of India (IAMAI) and KPMG[i], inexpensive smartphones and 2G subscriptions are expected to help boost internet usage rates in India over the next two years. While city dwellers are quickly upgrading to 3G and 4G, slower but more affordable data bundles are enabling more people to get online in rural areas. IAMAI-KPMG estimates that India will have 500 million internet users by 2017, up from the current 350 million or so. Over 300 million of these will get access to the internet on mobile devices.

In this hi-tech hot-house, there are already hundreds of rampant climbers. Some will be absorbed, and just a few will come to dominate the world. I’ll just share with you here a few micro-organisms on a global level that might yet become world-class beasts.

There are about 50 large internet service providers (ISPs) in India, including two large state-owned players, BSNL (serving all of India minus Delhi and Mumbai) and MTNL (Delhi and Mumbai).

Kolkata-based Indus Net Technologies (INT) (not to be confused with Mumbai-listed Indus Networks) is an end-to-end digital service provider which develops software applications for the web and mobile devices. It offers solutions for integrated digital marketing, serving a range of industrial sectors in India and internationally. These include banking, finance, insurance, retail, hospitality, publishing, real estate and the government sector.

The government sector in India, of course, is a massive part of the economy and the Indian government is one of the most advanced in Asia in offering online government services. On 01 July this year, the Government launched Digital India Week. My.Gov is a crowd-sourced platform powered by INT. It enables citizens to share their views on a range of issues[ii]. INT was the main provider.

INT now has 550 employees and a turnover of nearly £5 million. From little acorns…

Electronic wallets – payment systems for the internet – are big business in India right now. Paytm has come from nowhere to become a market leader in just two years. Oxigen (used at 200,000 mostly rural outlets), Freecharge (10 million users) and Ola Money are competitors. Flipkart – India’s answer to Amazon.com – has its own payments system.

Prime Minister Modi’s visit to the US included a stop-over in Silicon Valley on 26-27 September, where he presided over an event in San José attended by hi-tech aristocracy. In meetings with Satya Nadella (CEO Microsoft), Mark Zuckerberg, Sundar Pichai (CEO Google) and Elon Musk the message was clear: India intends to become a technology hub and is open to investment. Around 500,000 of the 2.8 million Americans of Indian heritage live in the San Francisco Bay area. Kalpana Morparia the CEO of JP Morgan India is confident that this investment is now materialising.

It is interesting that whereas Chinese growth was historically predicated on production, and India’s initial surge arose from services (such as, amongst other things, insurance), India has been quicker to develop internationally-oriented software providers. This high-value added tertiary sector supports service industries in a depth and width that the Chinese have not been able to match.

This month Mark Zuckerberg, founder and CEO of Facebook, has been back in India, where he has been having tea with Mr Modi, amongst others. Indians know quite a lot about Facebook – there are, after all, some 150 million of them on it. (Not quite as many users as across the EU, but getting there). Now divide Facebook’s estimated revenues for this year (US$16.3 million) by the number of monthly active Facebook users (supposedly 1.5 billion globally). That makes the value of a Facebook profile worth nearly US$13. This figure is widely touted in the Indian media. Not for nothing is India renowned as a nation of accountants.

If you need further persuading of the importance of India to Facebook’s global strategy, check out Mr Zuckerberg’s own Facebook page. As I write, he has just posted a piece on Why I care so much about India.

Indian-American billionaire Vinod Khosla, one of the co-founders of Sun Microsystems, is now spending more time back in his native India as a venture capitalist with a focus on hi-tech start-ups. Khosla is upbeat about India’s investor-friendly environment (he launched a new “mobile wallet” last month). He is particularly interested in technology-based healthcare services which have been given a boost in India by a unique government initiative, launched back in 2009.

The Unique Identification Authority of India (UIDAI) is an Indian central government agency. Its objective is to collect the biometric and demographic data of all Indian residents, to store them in a centralised database, and to issue a 12-digit identity number called an AADHAAR to each resident. It is probably the world’s largest national identification number project and, while there have been delays in rolling it out – not least because of concerns about data privacy and security – it offers the potential for data mining of public health information not matched elsewhere.

Connectivity and IT will be critical in the development of Mumbai as not just a regional, but potentially, a global financial centre. Mark Boleat of the City of London Corporation was in Mumbai in September to advise the Maharashtra government on this goal. At his keynote address at the India Capital Markets Summit in Hong Kong the same month, Finance Minister Arun Jaitley revealed that India was considering permitting the issuance of overseas Rupee-denominated bonds by Indian corporates. This would pave the way for the full convertibility of the Rupee. There is a long way to go, but Mumbai could be a big winner from this. It is already the hub where most Gulf States do business.

By the way, many commentators in India’s incredibly open media have observed that no Indian government would have responded to a stock market crisis in the way that China’s government did during the summer. Putting journalists and stockbrokers in jail, and all that. Mr Modi should take note.

Away from the tech-scene, I wrote recently, in the context of India’s tacit abandonment of Ghandian economics: the spinning wheel no longer encapsulates India’s aspirations. How reassuring it is then to read about Indo Count India Ltd (ICIL) which diversified out of basic yarn production when faced with US quotas against Indian textiles back in 2005. Instead, it decided to add value by designing and producing quality bedding (duvets, pillows, and the lot). Now, 70% of its production goes to – guess where – the USA. I am quite sure Ghandi would have approved: even if he never uttered the words value chain.

What’s more, the Obama administration has committed to invest in India’s three new techno-cities (Ajmer in Rajasthan, Allahabad in Uttar Pradesh and Visakhapatnam in Andhra Pradesh). India, remember, is still urbanising as people relocate from the villages to the growing towns and cities. I have a hunch that, within our lifetime, India might become the most tech-savvy nation on Earth.

In Purchasing Power Parity (PPP) terms, beloved of economists, China is already the largest economy in the world and India is the number three. There are methodological problems with these numbers; but you can’t ignore them. Nor can you ignore India.

Now I don’t want readers to think that my interest in India has put my concerns about other global themes in shadow. I shall be returning to some amazing opportunities in India early next year after my next trip, during which I hope to meet some leading Indian opinion formers.

In the meantime, I shall have some reflections on what is really going on in Europe; and why the UK’s place in Europe will be the major theme of 2016.

The most impressive hedge fund managers that I have met concentrate on geopolitical economics. Currently, it’s all about a new system of global alliances which is likely to emerge from its chrysalis in the third decade of the 21^st Century. In which India will be one of the key players. As I have said before, not least in the context of India online, everything connects.

[i] See: http://techcrunch.com/2015/07/21/india-internet-growth/

[ii] See Digital Catalyst, Business India, 28/09/2015, page 73