The Economist - USA (2021-02-13)

62 Business The Economist February 13th 2021

Privatisations in India

Flogging the

family lead

T

he hindu pantheon of gods has no

shortage of deities with multiple arms.

India’s government, with a hand in indus-

tries from energy and steel to finance and

travel, would fit right in. A long infatuation

with central planning transformed state-

run business into a sprawling industrial

empire encompassing 5% of the economy.

But acquiring appendages is easier than

managing them. Profits as a percentage of

revenues are just over 1% at state-run com-

panies, compared with 7-9% for the private

sector. Many are a loss-making burden on

the public purse—more family lead than

family silver.

In 2016 the Indian government under

the then newish administration of Naren-

dra Modi reviewed the 331 firms under cen-

tral-government control. It prepared a list

of 28 that it believed could be sold without

controversy. The most prominent were Air

India, the flag carrier, steel- and cement-

makers, big energy companies, a hotel op-

erator and an assortment of entities whose

time had passed, such as Scooters India

(which last produced a scooter in 1997).

Five years later the number of compa-

nies controlled by the state, far from

shrinking, has swelled to 348. In January

Scooters India did fall off the list—by final-

ly shutting down. The value of most survi-

vors has shrivelled. State banks are saddled

with bad loans. State energy companies

have fallen victim to the shale and renew-

ables revolutions. Air India’s rotten service

has turned off customers. A note buried in

the government’s 816-page survey of its

holdings disclosed that production at the

state-run condom-maker fell from 1.85bn

units in 2018 to 820m in 2019.

This month India’s finance minister,

Nirmala Sitharaman, has pledged to start

offloading the leaden assets—in earnest

this time. The initial list to be put on the

block contains 13 companies, including

two unnamed state banks. The biggest are

Air India, Life Insurance Company of India

(lic, often seen as the government’s emer-

gency bail-out provider) and Bharat Petro-

leum, a large refiner. Unviable companies

that cannot be sold, Ms Sitharaman prom-

ised, will be shut down.

Such commitments make longtime In-

dia-watchers roll their eyes. Trade unions

and bureaucrats have little to gain from

transactions which undermine their jobs

and authority. On the rare occasions where

a past sale actually generated returns for

The state promises to unload its dusty

companies. For real this time

speed,saysMarkShmulikofBernstein,a

broker.Thatcouldeatawayatitsalready-

thinprofitmarginsonretailoperations,

possiblyforcingittopassextracostsonto

customers,whocouldshopelsewhere.

awu and the Alabaman workers are

spurringothers.“Workersacrossthedigi-

taleconomyarefeelingthemoment,”says

TomSmith,nationalorganisingdirector

forCommunicationsWorkersofAmerica

(cwa),an83-year-oldunion.Thecware-

centlyformedtheCampaigntoOrganise

Digital Employees. code-cwa, as it is

knownforshort,istargetingalloftech,in-

cluding notoriouslyharshconditions in

thevideo-gameindustry,where60-hour

“crunch”weeksaheadofbigreleasesare

common.MrSmithsaysmoretechwork-

erswillunveilunionlaboureffortsshortly.

Geeksoftheworldare,it seems,uniting.

Computersaysorganise

UnitedStates,workersrepresentedbya union

Selectedoccupations,%

Source:USBureauofLabourStatistics

50

40

30

20

10

0

2000 05 10 1915

Transportation

Education

Computing & maths

All workers

Anglo-German business ties

From bad to wurst

“W

e feel betrayed,” laments Petra

Braun, a southern German who

with her partner, Peter Wengerodt, runs

Hansel & Pretzel, a German deli and bakery

in Richmond, a suburb of London. Since

leaving the European Union just over a

month ago, Britain’s once-welcoming gov-

ernment has made it hair-raisingly com-

plicated and costly to import sausages,

marzipan, quark cheese, apple sauce and

other authentic staples. This year she has

yet to receive any of the weekly deliveries

of goods from her homeland.

The flipside of headaches for the likes

of Ms Braun, whose small business em-

ploys 15 people, is a migraine for big Ger-

man exporters, some of which furnish the

ingredients for her fare. Deutschland ag

was never a huge fan of Brexit. But the trade

deal rushed through before the transition

period ended at midnight on December 31st

put German bosses’ minds at ease. A

month into the new regime, “supply-chain

problems are hitting German companies

very hard”, says Joachim Lang of the bdi,

the main association of German industry.

And it will get worse. Trade has slowed

because of covid-19. As soon as it picks up

again, commercial ties are in for a “mas-

sive stress test”, warns Mr Lang. In April

British customs will introduce new rules

(such as pre-notification and health paper-

work for products of animal origin), fol-

lowed in July by physical checks.

On February 9th the Association of Ger-

man Chambers of Industry and Commerce

said that 60% of the 1,200 German compa-

nies trading with Britain it surveyed con-

sider their current business situation in

Britain to be bad. Nearly as many expect

further deterioration this year. One in six

have either already shifted investments

away from Britain or are planning to do so.

They see the bureaucracy related to cus-

toms as their biggest business risk, fol-

lowed by logistics and legal uncertainty.

Were it not for the pandemic these

problems would make headlines in Ger-

many, says Ulrich Hoppe, head of the Ger-

man-British Chamber of Industry and

Commerce in London. In January db

Schenker, a German logistics giant, stop-

ped shipping consignments to Britain for a

week. About 90% of them had incomplete

or inaccurate customs forms, explains

Maximilian Floegel of dbSchenker. The

main stumbling block has been the proof

of origin from the eurequired under the

trade agreement between the bloc and Bri-

tain. This is finicky to get for, say, a shoe

made in Italy with a sole imported from

China. dbSchenker set up a Brexit task-

force to help clients with the customs bu-

reaucracy. But, says Mr Floegel, “the prob-

lem remains acute.”

In December bmw, which pre-emptive-

ly moved engine production from Britain

to Germany in 2019, warned that a no-deal

Brexit would cost hundreds of millions of

euros, which the carmaker would pass on

to clients in Britain and on the continent.

At least bmwhad the resources to prepare

for January’s customs checks and to stock-

pile car parts in Britain. The pocket multi-

nationals of Germany’s Mittelstand face an

even bigger cross-channel struggle.

Take Schott, a 250-year-old maker of

sheet music for which Britain is the sec-

ond-biggest market. The family company

started to get anxious at the end of last year

about tariffs levied on each classical piece.

Delays at the border could leave British or-

chestras that rent its sheet music unable to

get the scores in time for rehearsals, once

these resume. This won’t be the last of

Brexit’s unintended consequences. 

BERLIN

Deutschland agtries to get to grips

with Brexit