Saturday, October 08, 2005

red-hot market

Growing wealth at home fuels an Indian art boom.

By Jason Overdorf
Newsweek International

Oct. 17, 2005 issue - Looking for a good investment? Try contemporary Indian art. In back-to-back auctions held by Christie's and Sotheby's in New York last month, four different works topped the previous auction-price record of $317,500, set by Tyeb Mehta's "Celebration" in 2002. And, according to experts, that's just the beginning. "Because of the strength of the market and the strength of the Indian economy, we're seeing that many of the paintings exceeded estimates, some tripling or quadrupling our expectations," says Yamini Mehta, who oversees modern and contemporary Indian art at Christie's. At separate auctions at both houses on Sept. 20 and 21, 16 works by contemporary Indian artists sold for more than $200,000 apiece; even more impressive, Christie's brought the hammer down on Mehta's painting "Mahisasura" for a whopping $1.6 million—five times the previous auction record. "It [was] an amazing week," says Robin Dean, director of the Indian and Southeast Asian department at Sotheby's.

Not coincidentally, nearly all the artworks that broke $200,000 were by artists belonging to the Progressive Group. Founded around India's struggle for independence in the late 1940s, the group includes artists like Mehta, Ram Kumar, Maqbool Fida Husain, Syed Haider Raza and Francis Newton Souza, who rejected the colonial British academic style and began the modernist movement in India. "Today we paint with absolute freedom for content and technique," reads the group's 1948 manifesto.

The market for their works took off in 1995, when Sotheby's auctioned off paintings from the extensive private collection of the Chester and Davida Herwitz Charitable Trust. At that time, according to Neville Tuli, who started India's first domestic auction house, Osian's, the entire Indian art market amounted to about $1 million. Today the same market is valued at close to $180 million.

At first the Indian diaspora drove demand, but now growing wealth in India itself is fueling the market. In the mid-1990s, most buyers were scions of India's industrial dynasties, who favored the realistic, conservative artists of the Bengal school. In the late 1990s, nonresident Indians, or NRIs, who preferred the bolder, more colorful and less traditional work of the Progressives, began dominating the market. Today, domestic buyers—buoyed by India's skyrocketing stock and real-estate markets and fast-growing economy—are helping drive prices higher. While an overseas Indian bought Mehta's "Mahisasura," private collectors living in India accounted for four of Christie's biggest sales last month, paying $486,400 for Husain's "Trial," $385,600 and $262,400 for two untitled paintings by Kumar and $284,800 for Souza's "Girl With Hairpin and Girdle." "The biggest change is the increase in activity from India itself," says Dean. And there's more to come: "For every work that sells, there are two or three new very wealthy people that come into the market."

Meanwhile, the big players in India's domestic art market—Osian's, Dinesh Vazirani's and Geetha Mehra and Pravin Gandhi's Sakshi Art Gallery, among others—are aggressively pushing the field in new directions. Osian's Tuli has published art books, built the world's largest archive of Indian art and developed a historical record of prices. pioneered online auctions, introducing a new level of transparency to a market long characterized by backroom, cash-only deals that left would-be buyers uncertain of the real market value of the works up for sale.

Now Tuli, Mehra and Gandhi are developing new ventures for the domestic art market: competing art-investment funds. In August, Mehra and Gandhi, backed by Edelweiss Capital, launched the Yatra fund. So far they have raised at least $2.3 million from high-net-worth investors—each of whom committed a minimum of $45,000 for four years—interested in tapping the art market. Osian's has a similar fund slated for launch in November; Tuli—never less than bold—expects to bankroll his fund with $25 million. In this market, he says, raising that amount is "a two-day job." Indeed, he has a good pitch: starting with about $3.5 million in 2000, Osian's is now worth more than 10 times that amount. You just can't beat that kind of a return.

© 2005 Newsweek, Inc.

Saturday, October 01, 2005

conflicted commies

The force that could determine India's capitalist future is one of the world's strongest communist parties.

By Jason Overdorf
Newsweek International

Oct. 10, 2005 issue - As its name implies, the Communist Party of India-Marxist still employs the dated rhetoric of the left, down to calling its ruling body the Politburo, in old Soviet style. So it came as a surprise this summer when the national leadership endorsed "all the actions" of its maverick chief minister for West Bengal, a state of 100 million people and long a bastion of communist power. That came shortly after Buddhadeb Bhattacharjee wooed foreign investors in Singapore by saying Indian communists had to "reform or perish," and invited these capitalists to help build new infrastructure in West Bengal. The moment cemented Bhattacharjee's reputation as the Deng Xiaoping of India: a pragmatic communist reformer.

That doesn't mean, however, that India's communists have gone the way of comrades from Russia and China, tilting toward robber-baron capitalism. Just last Thursday the party's traditional allies in India's left-wing trade unions brought the country to a standstill with a daylong national strike that shut down railroads, airports and banks. In New Delhi, where the communists are critical partners in the coalition government, they have diluted free-market reforms and are hotly debating their proper role in a capitalist economy. The outcome of that debate is crucial: it could help determine whether India accelerates to China-style growth rates or stumbles yet again.

The Indian communists have more influence than all but one kindred party in a capitalist democracy, behind President Hugo Chavez's Movement for a Fifth Republic in Venezuela. (Third on the list: Portugal, where communists hold 12 of 230 seats in Parliament.) The CPM and two much smaller communist parties together control 60 of India's 545 parliamentary seats. Since the United Progressive Alliance led by Prime Minister Manmohan Singh's Congress party is 51 seats short of a majority, it depends on communists to stay in power. The CPM has used that clout to block or temper policies from the sale of state-owned companies to the liberalization of labor laws in special economic zones.

In Western Europe, the leading communists for much of the cold-war period were found in Italy, where their focus was internal: their big idea was worker ownership of factories in an otherwise capitalist market. Given the vast expansion in international trade since then, the Indian communists' focus is more global. Indeed, the country's population and growing economy make the party one of the world's most influential opponents of excessive globalization. Experts debate whether India's communists are emulating Chinese reformers or European social democrats. Bhattacharjee says neither: "We are debating among ourselves. What is reform? Reform means what? For whom?" Sitaram Yechury, a member of the CPM Politburo, says the party's overriding ambition is to shift the goal of market reform from promoting corporate profit to people's welfare.

The differences with China are stark. The Indians still cling to socialist ideals like worker protection and land reform, while China's leveling impulses seem to have been spent during the land reforms of the Mao era, when the rural bourgeoisie was all but destroyed. India, meanwhile, never made good on post-independence promises to wipe out a feudal caste system. That said, the Indian communists' ideas about economic sovereignty take a page from China's book, and mirror the Congress Party view of the early 1990s.

The CPM sets three rules for foreign investors: they must increase India's production capacity—build factories, rather than simply buying assets—help upgrade Indian technology, and create jobs. While Congress is now inclined to open doors further, the communists are more wary. Where Congress leaders praise a domestic automaker like Tata for rising to the challenge of foreign competition, the communists decry how Japanese giant Suzuki ultimately gained control of its Indian joint venture, Maruti Udyog. "It would be wrong for anybody to characterize us and say we have been opponents of capital flows into India," says Yechury. "We qualify those flows, rather than opposing them."

On battles over how India should comply with its obligations to the World Trade Organization, the CPM has prevented the government from giving away too much on issues like drug patents, which could have harmed consumers. And in some market reforms, the left has taken the lead. Bhattacharjee's Finance minister in West Bengal spearheaded the introduction of a value-added tax, as a way of eliminating tax evasion and replenishing government coffers, which some experts call the single most important economic advance in India in the last five years. "You can't just paint the left as anti-reform," says Ramesh Venkataraman, a partner with McKinsey & Co. in Mumbai. "The left is selective."

The CPM has been criticized in the Indian media as hypocritical for resisting a Congress plan to increase national limits on foreign investment in the telecommunications sector, while aggressively pursuing foreign investment for West Bengal. Once scorned for its obstructive policies and constant strikes, the state has been attracting investment from companies like IBM and Microsoft since Bhattacharjee took office in 1990, and now draws more investment from Japan than any other Indian state, including Karnataka, home to Bangalore's massive outsourcing industry. But the communists say the devil is in the details: the party opposed Congress's telecom plan because it would have allowed foreigners to provide phone service—making big profits but providing no new technology or manufacturing capacity in return. Yechury says the party has done nothing in West Bengal that it has rejected on the national level.

Still, the party remains conflicted about its most progressive members. When Bhattacharjee recently signed a deal with the Salim Group of Indonesia to build a 2,000-hectare commercial and housing development, party members accused him of favoring a company close to the former Suharto regime, which took power in an anti-communist coup. Soft-spoken and white-haired, he wears the large-framed spectacles typical of Bengali intellectuals, and embraces the word "capitalism" only with protections for workers and the poor. Yet he is pushing labor market reform to attract more outsourcing companies to West Bengal. He says workers must "share a concern" for productivity with management.

The CPM, in fact, reacted quietly to last week's union-led strikes, citing them as a warning to Singh not to push too hard on reform. Tellingly, the strikes hit hardest in West Bengal, where workers took complete control of the capital, Kolkata. They defied measures Bhattacharjee took to allow IT workers to get to work through blockaded streets. Only when Bhattacharjee personally confronted them did they meekly step aside. It remains to be seen whether his detractors in a party that still values its labor roots will ultimately do the same.

© 2005 Newsweek, Inc.