India Business Frontier

December 2008

In Conversation with Indian Consul General,

Navdeep Suri
Abdullah Verachia, Head: India Frontier Advisory

Contents:
In Conversation with Indian
Consul General, Navdeep Suri
..................................................................1-8
India Inc in Africa........................................9
Frontier Advisory Profile..........................10
India has received significant media attention in the last four weeks. The terror
attacks in Mumbai, that took place from the 26th to the 29th November, the strong
and vocal position taken by Indian Prime Minister Manamohann Singh at the G20
Summit in the US, as well as the impact of the financial crisis on the world’s largest
democracy have all been at the forefront of global media coverage.
In a wide-ranging interview, Head of India Frontier Advisory, Abdullah Verachia, spoke
to the Indian Consul General in South Africa, Mr Navdeep Suri. Verachia and Consul
General Suri touched on the attacks and the concomitant implications, the impact of
the financial crisis and the growth outlook for 2009 as well as the impact on India-
Africa relations.

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December 2008 Research & Strategy in and beyond emerging markets

VERACHIA The recent terror attacks in Mumbai that killed almost 180 people and
left more than 300 injured, has taken the world by storm. What are
your views on the attacks?

CG SURI It is a ghastly act; mindless, senseless violence targeting civilians,

not just Indians but individuals from different countries, different
nationalities and different religious faiths. It has stunned the world
into taking a closer look into the dynamics of terrorism. As for India it
causes two major challenges:

Firstly on the domestic front which is to tighten up and revamp

our own system, to put in better preventative mechanisms that will
hopefully stave off future occurrences of this nature. Secondly there
is the external dimension. The evidence that’s now blindingly clear is
that the terror attacks originated from Pakistan. They were probably
planned on Pakistani territory whether it was non-state actors being
described, whether they had or did not have support of any official
elements, are matters that are still being discussed. But it certainly
makes it imperative for the government of Pakistan to take very
strong measures against groups like Lashkar -e Taibar which have
hithereto operated with impunity out of Pakistani territory. So those
are two dimensions that are of immediate importance to us.

VERACHIA On the second issue, the issue of Pakistan, do you think that recent
events will have an impact on the relationship between India and
Pakistan and more importantly stability in the region?

CG SURI Well, I think India-Pakistan relations go through ups and downs and
there’s no denying the fact that when an attack of this magnitude
happens, originating out of Pakistan, aimed directly at India, you
cannot let it be business as usual and so the Indian public, the Indian
political system, the nation wants answers. We are watching very
closely what actions are taken by the government of Pakistan against
the groups that have been operating. It must not be forgotten that
attacks of this nature have not just been directed at India, starting
from back in 9/11 to the London bombings and to a number of the
other terrorist events. There has been a connection that has been
well established. This last one was so brazen that it is really a wake-
up call for the global community to say that this menace must be
addressed.

VERACHIA Speaking of the attacks in New York in September 2001 and the
London attacks, there has been criticism from many quarters that the
Indian attack received a significant amount of media attention to the
effect that it might have an impact on tourism in the country?

CG SURI When you have some very high profile establishments like two of the
best hotels in India’s financial capital targeted, and when you have a

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range of Western tourists who have been targeted along with Indian
nationals, the story automatically receives an international profile.

If it were local Indians getting killed in a smaller town I do not think

that the international media would have paid as much attention to it.
And that is the reality of the world we live in. As citizens from different
countries were involved, the international networks became very
involved with this story.

As far as the fallout is concerned, yes there would be an immediate

short-term impact on tourism and we already see reports of some
cancelations but I should emphasise that we expect the impact to
be short term. It is very encouraging to see some business people
who have come out and said that “we will stick to our plans” to come
to Mumbai next week, or next fortnight, or next month, whatever the
case may be, because to not do so would be to give victory to the
terrorists and to the objectives which they had in mind.

VERACHIA You spoke about the targets being places frequented by foreign
tourists and business people. I usually stay at the Taj or at the Trident
Oberoi and I always have a meal at Leopold’s Cafe. Given the fact
that some of these terrorists have realised that these are soft targets
and that one gets significant media attention when attacking such
places, do you think there is a possibility that other similar tourist
attractions around India would be possible targets and are there
mechanisms in place to secure them?

CG SURI Well I do not think anyone has a crystal ball that can predict where
the next attack is going to be. Is it going to be Bali or Barcelona,
or anywhere else? The important thing is to try and put in place
preventative systems and to improve intelligence gatherings systems.
The reality of the world that we live in is that there are those who
are bent on killing as many people with no fear for their own lives.
There is no place in the world that is safe. We are products of open
and liberal societies and in open and liberal societies to what extent
can we really afford to curb the liberties of our own people and
subject them to inordinate harassment. So, I think the challenge for
governments around the world today be it London, Madrid, Morocco,
Egypt, India or anyone else is to strengthen our own internal systems
but not to a point that we become paranoid and allow the terrorists
the victory that they seek.

VERACHIA India has a sizeable Muslim population of around 140 million. Do you
think there is a possibility this attack could affect relations between
Muslims and other religious groupings in the country?

CG SURI The response from all communities in the aftermath of the Mumbai
attacks has been remarkably mature and restrained. Any anger that

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you have seen has been directed primarily against Pakistan because
it is now clear that the attackers originated from Pakistan. However
you have not seen any manifestation of violence or revenge attacks
or anything like that in the wake of the Mumbai carnage. Remember
that some 55 or 60 of the victims at the train station attacks were
Muslims and I thought it was quite remarkable that the leaders of the
Muslim community in Mumbai and especially the clergy came out
intensely in outright condemnation of the attacks and even went to
the extent to say they take no responsibility for burying the bodies of
the 9 terrorists that were killed saying that their actions were “patently
un-Islamic”.

VERACHIA India has attracted the second largest amount of foreign direct
investment (FDI) globally for the last five years. Do you think
the attack will have a medium to long-term impact on the Indian
economy, especially in terms of FDI inflows to the country and
business relations between India and other countries?

CG SURI Not at all. To my mind the attacks will have a very short-term impact.
I think the more serious issue for everyone, when you talk about the
economy, is the global economic crisis – the liquidity concerns and
the recessionary conditions in some of the biggest economies in
the world as well as the aversion to risk as a result of the sub-prime
crisis. That is what is going to have a much greater impact in reduced
investment flows, not just to India but I think around the globe. The
combination of a global recession, low liquidity or tight liquidity and
the general risk averse attitude of the big investment funds who have
taken big hits on their portfolios will have an impact on emerging
markets

When they take big hits, even though the hits emanated
predominantly from developed countries, the risk aversion is towards
the emerging markets. So I think that is probably of a far greater
medium to long term consequence than the Mumbai attack which I
am sure is going to be short lived. I am also sure that international
investors already take note that the Mumbai Stock Exchange opened
a day after the attacks and was in fact in a green and certainly
Santax has not shown any impact over the last 10 days.

VERACHIA Do you think the economic crisis will have a major impact on India in
2009/10?

CG SURI I think it will have some impact but considering the growth path that
we were on of 9.5% and we are estimating this year’s growth to come
down to about 7%, which in relation to the negative growth rates
of major economies is quite respectable. The government is really
going out of its way with a slew of measures. There has been the
announcement of a stimulus package on the 9th of December 2008.

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There is a 4% across the board cut in ad valorem VAT on all products

and even manufacturers are already announcing that they will pass
on the benefit of lower prices to consumers to spur spending.

Interest rates have been dropped down successively and may come
down even further in the future. The government has just last week
cleared 21 major highway projects, and is fast-tracking spending
programmes. They (government) are going to parliament for an
additional funding request for 200 000 million rupees. There is a US$
60 billion spending programme over the next four months which is
being accelerated so when you look at the combination of physical
measures, tax reduction, monitory policy measures, the effort as one
of our leaders said that this is not just a physical stimulus it is also
a psychological stimulus and it is important for people to get their
confidence back.

It is impossible at this stage to predict what next year’s growth

situation will be primarily because at this stage no one can predict
how severe, how deep, how long the global recession will be and
we cannot be completely insulated from it. Yet we are expecting 7%
growth this year and will try to maintain that for next year.

VERACHIA Whilst on the financial crisis, at the recent G20 Summit Indian Prime
Minister Manmohann Singh played quite an instrumental role in terms
of the position of developing nations in the new global construct. Do
you think India will play a more proactive role in the reorganisation of
international financial institutions in 2009?

CG SURI There is no question that the global financial architecture is overdue

for a shake up and it started with very small and hesitant steps of a
G8+G5. As recently as last year countries like India, Brazil and South
Africa were expressing their concerns that the current global financial
system was almost like a “rich boys’ club” and a second club where
you could attend coffee meetings or the like, but you could not stay
for supper. I think the financial crisis has really woken people up to a
new reality.

Firstly, the fact that the crisis has originated in the West means that
the very countries that were lecturing India or South Africa or others
on being too slow in opening up financial markets to innovative
products are today commending the prudence of the very same
regulatory authorities. So that to start with is a sign to how much
things have shifted.

Secondly, the current architecture came into force in 1944/45 as the

Bretton Woods system in the aftermath of the Second World War.
Virtually all of the developing world, all of Africa, all of Asia or large
chunks thereof including India and China were not independent

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countries at that point of time. So, if you look at it that way, three
quarters of what constitutes the United Nations today had no say in
the architecture that was put forth in 1945 and to say that the same
architecture should continue into the 21st Century is an anachronism.
There is thus merit in not only putting in place a new architecture
in the financial sectors but also in the UN Security Council where
five countries as permanent members and entire continents
underrepresented is a huge anomaly. So yes, for us it is not a
challenge that is just for 2009. It is something that we have been
battling with for the last 10 years. Creating a more equitable global
political and economical system is the fight that we will continue with.

VERACHIA On this issue of positioning India internationally do you think the very
close relationship between South Africa and India will continue given
the fact that we have elections in both countries early next year?

CG SURI Oh absolutely, without a question. I think we are both mature

democracies and changes in governments should be seen as a
normal cause of events. If you remember a few years back when we
had this India campaign at the World Economic Forum at Davos, our
slogan was “10 years, 6 prime ministers, 5 governments, 1 direction”
and the direction was at the time 7% GDP growth. So the point really
being that there is a large measure of domestic consensus on some
of these major foreign policy issues and you really do not expect
that consensus to change just because a new Prime Minister or new
president comes in. At least I can say that for India.

VERACHIA On this issue of India-Africa and India-South Africa relations, given

the financial crisis do you think there’ll be a slowdown in terms of
India’s investments in Africa? Secondly we have a target that’s been
set by both the South African and Indian heads of state in 2006 of
total bilateral trade between South Africa and India of US$ 10 billion
by 2010. Do you think that this is still achievable given the current
economic climate?

CG SURI Well as far as the target is concerned; the target was set in more
buoyant and optimistic times and as the international financial
slowdown starts we are seeing projections that the South African
economy has grown by only 0.2% in the last quarter. Next year is
expected to be a fairly tough year. Now if the South African economy
does not grow, that means its capacity to absorb investment and
imports does not increase at similar rates as it has been growing in
the last few years. Bilateral trade between India and South Africa
for the year ending March 2008 was US$ 6.27 billion – a significant
increase over the previous year which was around US$ 4.7 billion.
Yet a slowdown in the bilateral trading relationship is expected.

So I think the impact, as a consequence of slower trade and

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investment is almost inevitable and I would certainly not be surprised

when the data emerges for 2008/09 that we see the impact of the
slowdown. In global terms we already hear about it from major
companies like Tata Motors and others that are feeling the slowdown
in terms of exports to South Africa. So the evidence of this is there,
even before the data has arrived and clearly because of that there
has to be a reassessment of those targets because you cannot
operate in a vacuum.

As far as investment plans are concerned I think Indian companies

take a long-term view of South Africa and even now we hear of new
Indian companies that are coming into South Africa. If I can take a
positive or rather optimistic view of it to the extent that the Indian
economy has slowed down a little in the last six months, the same
Indian companies who had order books filled months in advance in
India would today probably be a little keener to venture overseas
then they were six months back. Similarly, the IT companies are
beginning to see that they were overly dependent on the US or
European markets and are probably now taking a fresh look at other
geographies like South Africa or Brazil partly to diversify their own
risks.

So I have not yet seen anyone talk about putting Indian projects or
investments on hold in South Africa - these things have a certain
momentum and once commitments have been made for specific
projects these are pulled through. I think the liquidity crisis will impact
some plans but that again is a global situation. Whereas companies
are finding it harder to borrow the money needed for their investment
plans but on the whole whilst I do see some impact on trade, I do
not see any significant impact on FDI flows at this point in time.
The message that emerges out of this is that we have to double our
promotional efforts and we have to continue with even greater vigour
in terms of our efforts to strengthen bilateral economic exchanges,
to bridge those information gaps that impede trade and investment
flows. We will have to work harder basically to make sure that we
stay on track.

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Brief Profile of Navdeep Suri

Mr. Navdeep Suri is a member of the Indian Foreign Service since 1983. After heading
the West Africa Division of the Ministry of External Affairs in New Delhi from December
2004 – August, 2006, he arrived in South Africa on August 21, 2006 to assume charge
as Consul General of India in Johannesburg.

Mr. Suri’s first diplomatic assignment was at the Indian Embassy in Cairo, where he
also studied Arabic. This was followed by a three-year stint in Damascus before a
return to headquarters in New Delhi in 1991 where he was closely associated with
efforts to project India as an investment destination.

He moved to the Indian Embassy in Washington DC in 1993 and worked as the political
counsellor there till his transfer to the position of Deputy High Commissioner at the
Indian mission in Dar es Salaam in 1997. He worked at the Indian High Commission in
London from August 2000 to August 2004 as the spokesperson and head of the Press
and Information department.

Mr. Suri speaks Arabic and French, has a Masters degree in Economics and is co-author
of the study Development Strategy as a Determinant of Foreign Policy: A case study
of India and Pakistan. Saintly Sinner, his English translation of a classic Punjabi novel
was published in October 2003. His work on Indo-African relations has been published
in ‘India’s Foreign Policy’, while his study titled ‘Outsourcing and Development ‘ was
presented at the Inter-Government Experts Meeting organized by UNCTAD at and has
been published in a recent US book on the winners and losers of globalisation.

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December 2008 Research & Strategy in and beyond emerging markets

India Inc in Africa

Frontier Advisory tracks India’s commercial movements in Africa. This section provides an overview of key investments in the
last few months.

Liberia Egypt
Tatas get nod to re-bid for Egypt and India ink MoU
Liberian iron ore project The Heads of State of India
Liberia, which in September and Egypt signed an MoU to
disqualified Tata Steel from increase trade and investment.
participating in a relaunched They also set a target of US$10
bidding round for a US$1.5bn bn in bilateral trade by 2010, up
iron ore project, has given from the current level of US$3
approval to the Indian steel bn.
maker to participate in the
auction process. A Tata Steel
spokesperson said the company
has received an invitation from
the Liberian government asking
it to participate in the bidding
process for the Western Cluster
iron ore project .

Botswana
FTIL takes stake in Bourse
Africa
The Financial Technologies India
(FTIL) group has concluded a
deal to acquire 60% stake in
Botswana-based Bourse Africa.
Bourse Africa has been licensed
by the Botswana government to
set-up a spot and/or derivative
multi-asset exchange for trading
in commodities, currencies,
Nigeria bonds and diamonds.
India to invest US$15 billion in
Nigeria
The Indian government through
a private sector initiative is
planning to invest over US$15
bn into various sectors of
the Nigerian economy within
the next few years. The
announcement was made by
Deputy High Commissioner of
India, Mr. Anil Trigunayat at a
briefing in November 2008.

Kenol partners with

Indian firm on transformer
manufacturing in Nigeria
Kenol Nigeria Limited has sealed South Africa
a partnership deed with Nucon Neotel secures R7.5bn to fund
Switchgears Limited of India to infrastructure roll-out
foster transformer distribution Neotel, South Africa’s second biggest
and manufacturing in Nigeria. fixed-line phone operator, has secured
The partnership is expected a total of R7.5 bn (US$733.7 mn) in
to boost access to quality funding after raising an extra R4.4
transformers and solar power, bn in project finance. Neotel has
thus bringing about the desired secured the rights to control the use in
improvement in the nation’s South Africa of SEACOM’s fibre-optic
power sector. undersea cable linking East Africa
to Europe and Asia, which would be
launched in June 2009.

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December 2008

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