The Economist - USA (2021-02-13)

(Antfer) #1

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
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