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QUEST MEANS BUSINESS
Made in India: FDI Flooding South Asia; Gold Hits Record High; SpiceJet CEO Looks for Growth
Aired October 13, 2009 - 14:00:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
RICHARD QUEST, CNN INTERNATIONAL ANCHOR: Made in India. Foreign investors come flocking to the continent.
(BEGIN VIDEO CLIP)
SUMAN KHANNA, AMRAPALI: Gold is precious jewelry, Richard. Look at - - some people think of it as an investment.
(END VIDEO CLIP)
QUEST: A new shine for gold, as a record high is hit, as the lure gets ever brighter here in India. I'm Richard Quest, tonight, coming to you live from Delhi, where, as you can see, I mean business.
Good evening to you. Asia's economic engines, the powerhouses that are the economies that are fueling the global economic recovery. It's not for nothing that they call India the tiger, China the dragon. Today we learned more proof of exactly that title.
India's foreign direct investment is growing. It nearly doubled in August. It comes on the back of excellent economic numbers that show industrial production roaring ahead. Can there really be a "great recession"? Certainly not if you look at it from the India point of view.
I've come to Delhi to get to the bottom of all of this. On tonight's show, you're going to hear it all. You're going to hear how India is positioned as the recovery takes hold, where this rush of foreign investment is concentrated. We'll talk about India's billions of citizens earn and spend their money. And crucially, how the rest of the world can hang on to their coattails.
Also tonight, of course, one reason we are here in India, later this week, this Friday, India celebrates Diwali. It is the festival of light where they pray to the goddess of wealth. How appropriate, QUEST MEANS BUSINESS comes to Delhi.
Whatever India has got, the rest of the world would certainly like part of it. If you look at the numbers, Goldman Sachs estimates that by 2050, India's economy could be 40 times the size it currently is. With that in mind, it's not surprising they're calling it a powerhouse.
QUEST (voice-over): An economy on the march, for more than a decade India has been one of those countries, the rest of the world has looked to for growth, jobs, and profits. A developing nation finally realizing vast potential.
PARANJOY GUHA THAKURTA, ECONOMIST: What happened in the early '90s, there was a period of de-bureaucratization, a faster integration of the Indian economy with the rest of the world, which was preceded by a major financial crisis, a foreign exchange crisis.
What happened is from the early '90s, all the way until about 2003 or 2004, there was in a sense a rightward shift to the polity, a more market- friendly approach towards the economy.
QUEST: Year after year, India achieved rates of growth envied by others, more than 9 percent in four successive years. Then the great recession arrived. The economist Ila Patnaik dispels the myth that because India didn't fall into recession, the country hasn't been affected.
ILA PATNAIK, ECONOMIST: We were hit far more than we thought we would be. We thought we were a closed economy and closed in many ways, we hadn't opened up our financial sector as much as other countries had. And we thought we were going to do not be hit.
QUEST: Within months, growth rates slowed to 5 and 6 percent, impressive for mature economies like the U.S. and Europe, but not enough for India's economic transformation.
(on camera): With an expanding middle class and a strong market economy, India knew it had to get the growth numbers back up again. So the Delhi government committed the equivalent of 10 percent of GDP to a stimulus package. The object, get things moving.
(voice-over): The challenges are immense. Two-thirds of the population here still depend on agriculture for a living. This year's monsoon rains have been the worst since 1972, and rains, when they come, have caused terrible floods. Rural India is facing hardships not seen for a quarter of a century.
PATNAIK: We'll have to move faster on some of the things that are wrong with us. Yes, we can be a very fast-growing economy. In terms of our per capita GDP, we have a very long way to go. So (INAUDIBLE) at around $1,000 per capita GDP, which is very, very low. So let's, you know, not get totally sucked in by the hype.
QUEST: India shares many similarities with another country marching on to powerhouse status. China, of course. And between them, these two countries are the fastest-growing in the world.
THAKURTA: The fact is, here is the world's most populous democracy, the world's largest democracy growing, growing at a time when I daresay most of the 192 countries on planet Earth, their economies actually contracting or shrinking.
So in a sense India and China together accounting for 40 percent of the world's population are the two parts of the world which are growing and I will perhaps not be exaggerating to say the sun rises in the east and this part of the world is to a great extent -- on this part of the world would depend the future of planet Earth.
QUEST: Neither India nor China can really grow while the U.S. consumer remains weakened.
QUEST: And that, of course, is one of the major problems as both countries decide the way forward. Let's talk about this, joining me now, Dr. Govinda Rao, a member of the Indian prime minister's economic advisory council.
Doctor, thank you, first of all, for coming in late and talking to us.
M. GOVINDA RAO, ECONOMIC ADVISORY COUNCIL TO INDIAN PRIME MINISTER: Thank you.
QUEST: When we look at the Indian growth, we now saw numbers in the last 48 hours suggesting that growth this year could be more than 6.5 percent, possibly 7 percent.
RAO: Well, I think it will be definitely 6.5-plus. It could be anything between 6.5 and 7.
QUEST: When would expect India to get back to some sort of trend growth of 8 or 9 percent?
RAO: I think that trend growth is, I would say, 8 percent, not really 9 percent. Nine percent happened when the global economy was booming. And one doesn't really expect that to happen in the near future. But I think the trend growth can happen in the next couple of years. It will take at least two more years to get back to that situation.
QUEST: But it's a fair bet that China and India, which are now major trading partners themselves, so they are now an independent axis of economic growth?
RAO: Just -- to a large extent, yes. But still, the entire decoupling theory that one had, you know, doesn't really work.
QUEST: You don't believe in decoupling?
RAO: I don't believe in decoupling. And it's an interdependent world, and in an interdependent world, definitely we need -- you know, we need to have the -- you know, sort of interconnections.
QUEST: So what is the biggest issue and problem facing Prime Minister Manmohan Singh and Mr. Mukherjee, the finance minister, as they grapple with the next stage of the recession and economy.
RAO: Well, I mean, India has (INAUDIBLE) had recession in recent times, but quite apart from that, a slowdown, if you'd like.
QUEST: A slowdown, forgive me, I mean, it's a technical -- they've never had a technical recession. But what is their biggest problem?
RAO: Their biggest problem -- you know, there are two biggest problems. One is the infrastructure. In fact, if you really want to support the high growth, you need really quality infrastructure in place. And the second most important issue is the fiscal problem.
QUEST: The deficit.
RAO: The fiscal deficit problem.
QUEST: He has got to start -- Mr. Mukherjee, minister and -- has got to start cutting the deficit. When do you think it's reasonable to start doing that?
RAO: You know, in fact, right from the next year onwards, there will be some cutting that will take place. The finance commission is already sitting and it is actually working on the timetable for the next stage of fiscal consolidation, you know, because next year we are not going to have the fee (ph) commission's impact, we are not going to have a (INAUDIBLE) of an impact, and so there will be some reduction in the deficit next year.
QUEST: Doctor, as we come to the end here, you would agree with me that India is in a more advantageous position economically than other countries at the moment?
RAO: At this particular moment, you know, the growth prospects are much better in India as compared to the rest of the world. You know, I mean, except possibly China. You know, the domestic demand is picking up. So I think India is doing much better than many other countries.
QUEST: Thank you very much, indeed, Dr. Rao. Many thanks for joining us. I appreciate your time. Thank you very much.
It's the late evening. It is coming up to 20 to midnight here in...
RAO: Thank you very much.
QUEST: Thank you, sir.
Now one of the relationships and one of the roles that India plays, of course, is as a member of the BRIC nations, B-R-I-C, you've heard us talk about that before on this program. Brazil, Russia, India, and China. The world four key economies. For a while the BRICs seemed unstoppable, growth rates trumping those of the world's largest developed economies.
We are bringing you to -- we are bringing you to show tonight from the second-largest BRIC. But we have them all covered. Later, John Vause takes us on an economic tour of the biggest of them all, China.
Shasta Darlington is in Brazil, the first Latin American country to emerge from recession. And Matthew Chance tonight will take us to Moscow, where even the president admits he underestimated the scale of the crisis.
We need to bring up to date with the markets and how they are trading. Let's go to New York first where the Dow Jones Industrials -- we cannot tantalizingly get close to 10,000, but the Dow is off 34 points. The market trading 9,850. So 99 has been and gone. Third of a percentage point off the New York market at the moment.
QUEST: ... finished trading some hours.
In Europe they took their direction pretty much from -- not too much economic numbers. At the moment, you'll see the numbers on the screen in just a second with the European bourses. Forgive me, I can't actually see the numbers. All of the major -- Europe is down, the FTSE off 1 percent, the Xetra DAX is down 1.19 percent, the CAC 40 is down 1 and just over 1 percent as well.
As you can see, the markets are not in a terribly encouraging mood at the moment. In Asia, with the exception of the Hang Seng, which eked out a gain of a percent, the rest -- well, it was the sole cost, but you can see what the market was. Bad mood -- bad, grumpy mood for the markets at this time of the week.
Let's catch up now with the news headlines and Fionnuala Sweeney, who has the details. She is at the CNN news desk.
FIONNUALA SWEENEY, CNN INTERNATIONAL CORRESPONDENT: Thank you, Richard.
Russia resists new sanctions against Iran, saying such a step would be counterproductive. The U.S. secretary of state, Hillary Clinton, has been meeting Russian leaders in Moscow. She had been hoping to secure support for punitive action. For now, though, both nations have agreed to pursue diplomacy first to sidetrack Iran's nuclear program.
Russia's state-run company, Gazprom, has reached a tentative deal to send 70 billion cubic meters of natural gas to China. The price is still not set, but Chinese media report it will be similar to a $25 billion deal for loans, oil-for-loans deal reached earlier this year. Russian Prime Minister Vladimir Putin hashed out the framework for the agreement during his visit to Beijing.
An early snow is causing havoc in parts of Central and Eastern Europe. In Germany, traffic was snarled after a series of accidents on the Autobahn, two people were hurt. And in Bosnia-Herzegovina, thousands of homes were left without power after an overnight snowfall knocked down power lines.
And those are the headlines. Don't forget, tune in for more of the day's biggest stories, "WORLD ONE" at 8:30 p.m. London time. In the meantime, back to you, Richard.
QUEST: We thank you for that, Fionnuala Sweeney, at the CNN news desk, "WORLD ONE" coming up in just an hour-and-a-half or so from now.
When it comes to flying, all airlines are not equal, even when they claim to be low-cost carriers. In India low cost has a very different meaning, as I heard from the chief exec of one airline.
(BEGIN VIDEO CLIP)
SANJAY AGGARWAL, CEO, SPICEJET: There is a phrase in India, (SPEAKING FOREIGN LANGUAGE), which means, "the guest is like a god." So I think offering just water or beverage, being courteous, being nice to the guests, I think that will always be expected no matter what they pay for.
(END VIDEO CLIP)
QUEST: The boss of Spice Airways, he'll be adding a bit of spice to our program after the break. QUEST MEANS BUSINESS, we're in Delhi.
QUEST: Welcome back to Delhi where it's coming up towards -- oh, coming up towards 20 to midnight on Tuesday night. The numbers and economic details came out today showing that foreign direct investment in India was up 40 percent year-on-year, to more than $3.25 billion.
Now perhaps the percentage rise isn't quite so astonishing, bearing in mind coming out of the "great recession." But FDI in India is still very much on the agenda. The 1990s may not be repeated, but as Liz Neisloss now reports from Chennai, foreigners, investment, and India, are going hand in hand.
LIZ NEISLOSS, CNN INTERNATIONAL CORRESPONDENT (voice-over): This Japanese wants Indian consumers. Nippon Paint has poured $60 million into India, betting it can get them. India's paint market was already filled with well-established local players. But Nippon saw its opening.
RAMAKANTH AKULA, NIPPON PAINT INDIA: This is a market in India which is growing very fast, and these people are not price sensitive. So they are actually looking at high-end paints. So we are hear to fill that gap.
NEISLOSS: Nippon laid its groundwork, importing its paint into south India for two years, prepared to pay India's high duties and test the market before opening this factory in Chennai, India, this year.
AKULA: We knew that we would make losses initially, but then it's all in the game, like you have in the West, and then you can make your money.
NEISLOSS: Nippon is still in the red here, but predicts the high-end paint market will grow to $500 million dollars in five years. It's banking on being a top player.
(on camera): In stores like this, Nippon is selling paint tailored to the local market, even naming paint colors to better connect with the Indian consumer. But some businesses are finding success bringing their style to India.
(voice-over): As this huge country develops, demand for cement grows. This Danish company, F.L. Smidth, says it's the largest supplier of cement plants in India.
Under portraits of company founders, Indian workers learn the latest in evaluating performance.
These glass-walled offices could be anywhere in Europe. The sleek environment helps productivity, says the CEO of the company's India operation.
ANDERS BECH, CEO, F.L. SMIDTH INDIA: We believe by creating the quality around people, we get quality from the people.
NEISLOSS: But this elegant hive of activity belies the huge cost- savings. Engineers here cost the company 20 percent of what they would in Denmark, or the U.S. F.L. Smidth says it quickly found a ready talent pool to train with specialized skills. This company's story is also about timing. F.L. Smidth is also about timing. F.L. Smidth entered India originally to offshore some of its engineering.
BECH: Our setup in India is very interesting when it comes to catering to the Indian market, because what was built up as an off-shoring office is now catering to a booming Indian market.
NEISLOSS: And with India among the few growing cement markets in the current economic downturn, F.L. Smidth was set to take advantage.
BECH: Today you have to be in India. India is a growing market. India has a huge potential. So you can say you cannot not be in India.
NEISLOSS: And that thought is expected to keep foreign companies flocking to India.
Liz Neisloss, CNN, Chennai, India.
QUEST: Now not everything is rosy in the Indian economic garden, airlines, for one, which grew spectacularly over the past 10 years, are now in deep trouble. There is no real rosy scenario. Falling demand, soaring fuel costs, fierce competition, high debt, it's all combining to squeeze carriers. They say times are now so hard, they're struggling to pay wages, cutting jobs.
Employees aren't prepared to go quietly, strikes by pilots have brought business to a standstill. Staff at Jet Airways and the state-owned Air India only recently ended their latest stoppage. And now it looks like India's airline workers are set to club together in a nationwide super union. According to Economic Times, it would have a membership of 50,000.
Sanjay Aggarwal is the chief executive of one of the new carriers, been flying just over four years. The carrier is SpiceJet. It's a low- cost carrier, but it has got a very different ethos to the low costs that we might expect in Europe or the United States. They won't put up with it in India.
AGGARWAL: When it comes to the product, I think the Indian consumer will expect to have it no frills. They will be, I think, OK, to pay for seat selection, pay for the baggage, pay for the food. However, India is a hospitable country, they would still expect the employees to be friendly.
There is a phrase in India, (SPEAKING FOREIGN LANGUAGE), which means, "the guest is like a god." So I think offering just water or beverage, being courteous, being nice to the guests, I think that will always be expected no matter what they pay for.
So there was some debate, I don't know, one of these airlines, either Ryanair or EasyJet, they were looking into charging for using the rest room.
AGGARWAL: Ryanair, I think that's pushing the limits. I think that's where the Indian consumer, I know, will draw the line and say, you know what, God bless your airline.
QUEST: The low-cost model, or the low fares model in India came about to rival the railways initially. Now it's an industry in its own right and you're rivaling each other. Where does it go next?
AGGARWAL: See, there is still a lot of migration that will have happen from trains to air. There are about 10 million people who are still traveling by train every day. And all airlines combined are carrying about 150,000 passengers.
So aviation will not only (INAUDIBLE) few more customers over from railways, but aviation does what it does, it stimulates demand. Because a lot of trips that you wouldn't be able to do by train if it takes 20-hour journey out and back, now with air travel being affordable, being available, there will be more stimulation, more demand generated as a result.
QUEST: But were you surprised at those changes that took place?
AGGARWAL: The aviation in India prior to 2004 was still in its fledgling state. Two airlines pretty much -- or you know, three operating, the fares weren't where quite the Indian population will migrate from the trains to air.
So there is no doubt that the value, as soon as the low-cost carriers entered the market five years ago in 2004, there were no low-cost carriers in India. Today, about 70 percent of India's capacity is single-class configuration, no frills single class configuration. So you can see how in five years the market has -- or Indian aviation has already transformed.
So saying were we surprised? I would say not really because of the pent-up demand and because of lack of affordable alternatives.
QUEST: But with that rate of growth, and with that number of new entrants, and with the great recession about to have hit, it was a disaster -- and economic disaster waiting to happen.
AGGARWAL: We didn't foresee that this kind of growth rate is not sustainable. So we ordered more airplanes, more airlines started in India, if we had grown at probably 15, 20 percent growth rate, 20 percent growth rate, we would still be in a very good position.
I mean, last year was an unusual year. It was a global recession. It's an economic slowdown. And as you know, India's economy that has grown over the last 16, 17 years is because it is more plugged into the global economy than ever.
QUEST: And yet, no airline has gone out of business.
AGGARWAL: And no one will ever. So it's not like anything got out of business. I don't think any airline will go out of business either. I think what will happen eventually, if it -- even when the environment is right, there will be consolidation, there will be some more acquisitions, I think, because I think the market is too small to have the number of airlines that are operating in India.
QUEST: So are you looking to buy or are you looking to sell?
AGGARWAL: We would like to be a buyer. We would like to see what opportunities exist, or if there are opportunities to (INAUDIBLE), we will look at those opportunities as well.
QUEST: Sanjay Aggarwal, the chief executive of SpiceJet, one of the low-cost carriers.
When we come back in a moment, the "World at Work," and being India, it concerns gold.
QUEST: Welcome back. Gold hit another record on the commodities exchanges, trading at $1,069 an ounce. It's the latest in a line of records for the stuff that is glittering.
Here in India, they love their gold, even more so at this time of the year, Diwali, a festival where gold is often handed out, is one of those times of the year where people are out and about, day and night, buying the golden stuff.
Now with gold at a record price, clearly anyone working with the stuff has a love for it. Gold and the "World at Work."
KHANNA: Amrapali went into business more than 30 years ago. It's -- I think maybe I put it wrongly, it's not a business, it's a passion, to see what jewelry is from all over the country. And then gone into making it and selling it.
QUEST: But what is the passion particularly for gold?
KHANNA: Gold is precious jewelry, Richard. Look at -- some people think of it as an investment. And some people think of it for just the artistic, the intrinsic value of it, which cannot be put into words. It's poetry, look at this piece. It can evoke just so many thoughts into your mind. It's a piece of art.
QUEST: Is there a trick, a knack, a skill in selling more expensive pieces of jewelry?
KHANNA: From my point of view, I would like to understand if you are a customer. I would like to understand who are you buying it for? What is the age group? Is the person -- I mean, is the occasion very important? Is the -- or is it just a gift because you're traveling? It's different -- for every customer it's a different need they're fulfilling when they walk in.
And then try and show you only those items which would be of interest to you. I have to understand the customer. An Indian customer would maybe look at this (INAUDIBLE) which I personally feel is a beautiful piece, you know, it has got uncut diamonds which we call pulki (ph). It has got enamel. It has got the elephant.
But if I have a Western customer and I see that he is not looking more towards traditional Indian jewelry, I would show him this, which is a very universal gold -- but he is buying gold, because India is known for its jewelry.
QUEST: So what happens to Suman when you have to deal with this gold?
KHANNA: It's an inner joy which comes out of just seeing the pleasure of being able to handle something so beautiful. And selling it to a customer who I know will enjoy wearing it, and at Amrapali we believe that there is a sleeping princess in every woman. And we want to awaken that princess and bring her out.
QUEST: To some it's an investment, to others, it's a safe bet. To Suman, it's part of the beauty of her "World at Work."
QUEST: And I assure you, working day and night at the moment with Diwali just around the corner.
India is just one of the BRIC nations. When QUEST MEANS BUSINESS returns, we'll visit the others: Russia, China, Brazil. QUEST MEANS BUSINESS, we're in -- well, we're in India tonight.
QUEST: Good evening.
I'm Richard Quest coming to you tonight live from Delhi, QUEST MEANS BUSINESS.
This is CNN.
We're looking at the BRIC countries. We're in India. We've considered the Indian economy. But it's just part of the new generation of emerging economic powers. Along with Brazil, Russia and China, it forms this nickname, the BRICS -- developing nations well on the way to achieving economic potential.
On paper, India is on track. It's expected to hit 6 percent growth this fiscal year. China will power ahead. Eight percent they're forecasting for the year. Though officially out of recession, Brazil's growth is still expected to be weak, nor point -- north 1 percent for Brazil. And, finally, Russia, the only BRIC that's deep in the negative. The latest government forecast shows a 7.5 percent contraction this year. But, of course, there's always oil to help recover that particular economy.
Our -- our correspondents are scattered across the BRIC nations bringing you the coverage. You're going to hear from China. You're going to hear from Russia and, of course, Brazil.
Let's begin with John Vause in Beijing.
JOHN VAUSE, CNN CORRESPONDENT: Right now, the numbers look good. China's economy is growing around 8 percent this year, maybe 10 percent next year, say some economists, mostly because of a massive boom in credit and a government stimulus package worth $585 billion U.S.
(voice-over): But there could be trouble ahead, because a big chunk of that stimulus and credit is being spent on infrastructure and building new factories. And that's leading to over capacity.
The government wants to cut back on the production of aluminum, steel and cement. And economists warn that China's factories are producing much more than this country can consume and they're looking to export the rest. And consumers around the world, especially in the United States, are unlikely to back to the same levels of spending as they did before the economic crunch.
(on camera): Which is why Beijing is trying to restructure this economy -- move away from a dependence on exports, rely on its own consumers, convince these people to spend more and save less. Domestic consumption is up this year around 20 percent. Fire sales are booming. And all of that is expected to help other economies, especially commodity rich countries like Australia, Canada and Brazil.
It's been said China is a land of a billion customers and that's true if you're selling rice. Selling Rolexes is a different story. Per capita income here is still amongst the lowest in the world. Many have to save for retirement, sickness and education because of a lack of government services. Only 10 percent of the stimulus package has actually been allocated to social services. And critics say the stimulus may actually make it harder in the long-term to actually rebalance this economy and that that could result in sluggish economic growth for years to come.
The optimists say looking ahead, a recovery in exports and rising household income should keep this economy moving ahead. But right now, most agree it's too early to know.
John Vause, CNN, Beijing.
(END VIDEO TAPE)
QUEST: OK. So that's the view as seen from Moscow.
But as we move across the BRIC nations, we need to hear from Brazil and we need to hear, of course, from -- I beg your pardon, that was Beijing.
We are going to hear from Brazil and from Michael Ware.
Let's start with Shasta in Brazil.
SHASTA DARLINGTON, CNN CORRESPONDENT (voice-over): Business is brisk in the heart of Rio de Janeiro. Beach balls and t-shirts fly off the shelves. The world's eighth largest economy is emerging from the recession that hit most of the world at the end of last year.
According to Antonia, a working class mother, Brazil's president is the man to thank.
Nearly at the end of his second term, Lula has an enviable approval rating -- 81 percent. And his economic leadership has a lot to do with it.
LUIZ INACIO LULA D.A. SILVA, BRAZILIAN PRESIDENT (through translator): Brazil, fortunately, one of the last countries to be hit by the crisis, is now one of the first to emerge from it. There is no magic in what we did. We simply kept our financial system from being contaminated by the virus of speculation.
DARLINGTON (on camera): This is one of the main reasons that Brazil's economy is bouncing back even faster than many developed countries -- consumer spending. And a lot of the shops right here in Rio Sahara Market are those same low income earners who are the biggest supporters of President Lula.
(voice-over): Santa Marta, once a crime ridden favela, is now filled with middle class aspirations. Eliana Lopez (ph) was born here.
ELIANA LOPEZ: A lazy town.
DARLINGTON (on camera): A lazy town?
Yes, we've heard that.
(voice-over): Under President Lula, she started her own business organizing parties. She also opened a bank account for the first time. "I think the opportunities really grew," she says. "One of the amazing things I see in the community is that people are starting to go to university."
But not all Brazilians share her enthusiasm. Paulo Portinho, a stock investor, gets together with friends for a weekly jam session. He says Lula was in the right place at the right time.
PAULO PORTINHO, INVESTOR: Since 2002, the -- the way they locked Brazil because we only produce commodities, you know, and everybody wants to have a new car and in China and India and the United States.
DARLINGTON: And there's no doubting the challenges ahead. Brazil's public health and education lack funds. Crime is rampant. Rio alone has 1,000 favelas. But seven years of solid growth have brought millions out of poverty. Now, they have some money to spend.
No surprise, perhaps, that the World Bank predicts Brazil's economy will be the fifth largest by the year 2016.
Shasta Darlington, CNN, Rio de Janeiro.
(END VIDEO TAPE)
MATTHEW CHANCE, CNN SENIOR INTERNATIONAL CORRESPONDENT (voice-over): In this financial crisis, Russia was among the hardest hit. Even the country's president says his government underestimated the damage.
DMITRY MEDVEDEV, RUSSIAN PRESIDENT (through translator): I must admit that we sunk below our lowest expectations. In other words, the real damage to our economy was far greater than anything predicted by ourselves, the World Bank and other export organizations.
CHANCE: One sign -- the country's construction boom has ground to a halt. Unemployment in Russia has doubled. Its GDP, the national growth rate, has been slashed. And the currency, the ruble, has lost 30 percent, raising serious concerns about Russia's economic future.
Although there are no shortage of optimists out there who already see green shoots of recovery.
ROLAND NASH, RENAISSANCE CAPITAL: There is no sign of cargo being transported across Russia. Electricity consumption is beginning to rise again. There are some signs that steel mills are back up toward 100 percent capacity. Incomes are roughly where they were pre-crisis.
So, you know, there are a number of signs that the economy is beginning to come back.
CHANCE: But Russia's problems run deep. Its dependence on oil exports, say analysts, makes the country particularly susceptible to boom and bust. But just as crucially for the economy, say analysts, is Russia's battered banking sector. Loans for cars and mortgages for houses were major drivers of annual growth rates of 7 and 8 percent here. After the financial crisis, the money has simply dried up.
NATALIA ORLOVA, ALFA-BANK: I don't believe in the coming two years Russia will be well able to come back to the strong growth rates and most likely 2010-2011 will be years of stagnation (INAUDIBLE) taxation and actually these will be years of very morose (ph) growth rates and even (INAUDIBLE) a return I'm looking for a minus 1 percent GDP.
CHANCE: (on camera): And, of course, in Russia, many analysts believe that the economy is only part of the equation. The rest, as they say, is politics. For investors and businesspeople here, the corruption, the lack of rule of law and the general criminality in Russia is its biggest obstacle to real economic growth.
(voice-over): Bill Browder is foremost amongst the doubters. His investment fund was once the biggest foreign investor in Russia, but he says his methods exposing corruption and poor corporate governance in the companies he invested in, angered the Russian authorities, got his assets seized and his visa revoked, though Russia has denied targeting him.
BILL BROWDER, HERMITAGE CAPITAL: As a long-term investment, Russia is too risky. As a short-term investment, there are many moments when it could make sense. But the problem with the Russia is you can't predict whether your property will be left to its own devices or taken away at any moment because somebody wants it because it's valuable.
CHANCE: It's a stark warning for investors thinking of buying into Russia. Whatever the economic state of this broken BRIC country, the risks will remain high.
Matthew Chance, CNN, Moscow.
(END VIDEO TAPE)
QUEST: Now, when we come back in just a moment, if you work in an office or a factory and you pull a regular paycheck, then our next report will be something of a surprise to you. More than nine out of 10 Indians have no such regularity of employment. In fact, when it comes to working, well, it's truly the informal economy.
QUEST MEANS BUSINESS.
We're in Delhi.
QUEST: You know, all the economic numbers that you will see quoted, whether its growth of 5 or 7 percent, don't really tell you the full story because the backbone of the industrial production, indeed, the backbone of the Indian economy is what's known as the informal economy. You know what that means -- people who work without a regular paycheck, certainly no benefits and as for taxes, that's a thing best left to other people.
The informal economy is what this country rests upon, as Sara Sidner reports.
SARA SIDNER, CNN CORRESPONDENT (voice-over): This is India at work -- no storefronts, no pockets, just people beating out a living any way they can. You can get your clothes washed, get a haircut, even rent an elephant and much, much more right on the street.
Economists call this the unorganized sector. And get this -- it employs about 95 percent of India's workforce.
UNIDENTIFIED MALE: This is not a sector where the systems are generating jobs. The people are themselves generating jobs.
SIDNER: Radha Kumari is a typical example. She started working before she could finish school to help support the family. She normally charges 50 cents to a dollar per hand for the popular Indian artistry called Mendi.
(on camera): Do you make enough to support your family?
"Sometimes there's nothing," she says, "so it definitely is not enough. But I have to make do with what I have because there's nothing else I can do -- no other source of income."
On another street, another informal job. Squeamish customers need not shop here. Yes, these are roadside dentists minus the dental degrees.
UNIDENTIFIED MALE: I can extract. I can fill up. I can scale. I can make dentures.
SIDNER: Rashti Shora (ph) says he learned his trade from a paramedical course, but didn't have the money to get a doctorate in dentistry or his own shop. He says he can make up to $20 a day.
While the unorganized sector employs the vast majority of people, economists and sociologists say it also comes with obvious down sides. The extremely low pay keeps millions of Indians improvised.
(on camera): And some say they're forced to pay bribes because they're located on government property illegally and can be kicked off any time.
(voice-over): Plus, workers often have no safety protection, don't follow environmental rules and have no real social security. However, the government passed a bill last year to provide a bit of financial help.
But without these jobs, most of India wouldn't have work and economists say the informal workforce has even helped keep the country out of recession.
UNIDENTIFIED MALE: Why could an organized sector (INAUDIBLE) is internal, is in the services sector, which does not get hit by the global recession. And that's why this sector can continue to expand.
SIDNER: India needs the unorganized sector as much as any other to continue growing economically.
Sara Sidner, CNN, New Delhi.
(END VIDEO TAPE)
QUEST: I cringed, Sara, at that dentistry picture.
SIDNER: You know what?
Some of these guys, they really know what they're doing. They may not have a formal education, but when you watch them and they put this stuff in people's mouths, they're making it to fit exactly. So they do have a skill that the society needs.
QUEST: All right, when we -- when -- the number of people you come into contact with in the informal economy everyday, is it just about everywhere?
SIDNER: Everywhere. Everywhere.
Do you know where I got this iron today?
A lady down the street, she's outside on the corner and she's ironing shirts. I take my shirts to her and she irons them right there in my neighborhood.
QUEST: And your driver, the person you're -- does anybody pay taxes in the country?
SIDNER: Yes, they do.
QUEST: Besides you.
SIDNER: Actually, you know, some of the people that work in the informal economy are actually helping the formal or the organized sector. So in a way, yes, people do pay taxes.
QUEST: With so many people within the informal economy, there was an acceptance of that is the norm, is that correct?
SIDNER: Absolutely. People rely on the informal economy. They rely on the unorganized sector for everyday things. If the unorganized sector went away, India would not be what it is today.
QUEST: Right. I've got a -- is that real gold?
Is it real gold?
SIDNER: Yes, it is, Richard.
QUEST: All right.
Duvali is coming up, I believe -- well, we know Duvali, I'm told.
Thank you very much.
This -- it's traditional. It's a festival of lights. It is a festival of money. You're getting one, not the other.
SIDNER: Ah, profitable and generous.
QUEST: Thank you very much.
SIDNER: Thank you.
To you, too.
QUEST: When we come back in just a moment, we will be talking about a new form of the economy, with a very old form of transport -- the oxen cart, in a moment.
QUEST: When it comes to thinking about transportation, you think of big trucks, high speed rail and you think of automobiles and planes. It doesn't matter what the project is, how high tech, how low down, when it comes to getting things from A to B, the ox is always involved.
Here's Liz Neisloss again.
LIZ NEISLOSS, CNN CORRESPONDENT (voice-over): It's a sight that makes some wonder what century they're in -- an ox cart at morning rush hour. In India, the old and the new ride together. The ox cart, once king of the road, still rolls on. And while high tech may get the spotlight, the ancient ox cart is a vital link in India's largely agricultural economy, moving massive amounts of grain and vegetables between villages and from wholesale trucks to carts.
Here in Chennai, India's fourth largest city, mountains of rice loaded onto carts for local markets. Adorned in dainty bells, these strong but silent types move tons of cement and steel. Drivers say the jingle keeps oxen happy. Here comes the competition -- trucks are crowding out the carts.
But with India's poor roads, the ox still go where other vehicles can't and this is fueling up -- real fuel savings in an energy hungry nation.
But there's no steady money for the drivers. Regendra (ph) says some days, he earns 800 rupees, or about $17 -- a princely sum for the average landless worker. But some days, he barley makes a dollar. I ask him if young people like this work.
"No," he tells me. "They prefer to drive taxis. This is very hard work, lifting cement, sand bags. They want easy work."
For the very young, it's a fun way to ride. But in the ox market, it's serious business. Counting tea to check the animal's age. Here buyers vet the goods and both sides haggle hard, with two brokers and hidden hand signals. But this international gesture clearly says the deal is off.
At this market, the ox gets new shoes, but the shoemaker has none. In India, man also still bears burdens and drivers worry about the future. Amagam's (ph) father and grandfather did this job and he's seen the change over his 50 years of driving.
"I'm worried the ox carts will disappear," he tells me. "But this business is all I know. Without this ox cart, I can't live."
For now, India's ox carts lumber on, as the economy moves ahead.
Liz Neisloss, CNN, Chennai, India.
(END VIDEO TAPE)
QUEST: When I come back, Duvali and a Profitable Moment.
This is QUEST MEANS BUSINESS.
QUEST: Finally, tonight's Profitable Moment from Delhi.
India is growing and probably growing faster than anyone really knows. The latest numbers on industrial production were the best for 22 months. This is a very good omen for a country that's about to celebrate Duvali.
Now, there's a festival suitable for our visit -- a time when wealth you pray to Lakshmi, the goddess of wealth, offering up hope that you will be renewed with prosperity and your debts will all evaporate. That is what Duvali is all about.
Duvali is a wonderful festival. It's a festival of lights, music, feasting and oh, oh, oh, money. India has a lot to celebrate this year. The country is heading back toward good growth -- the sort of growth that will help alleviate poverty. It's not surprising that with Duvali on the horizon, one government minister said the economic numbers this week was the best gift the country could get.
And that is QUEST MEANS BUSINESS from Delhi for tonight.
I'm Richard Quest in Delhi.
Ha. You're back. Whatever you're up to in the hours ahead, I hope it's profitable.
Christiane is next after the headlines from the I Desk.
I'll see you in London.