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 Saffronart.com 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. Saffronart.com 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.

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.

ahead of the pack

South Korean firms have invested smartly in India, targeting its middle class and export-platform potential.

By Jason Overdorf and George Wehrfritz
Newsweek International

Sept. 19, 2005 issue - In one whopping megadeal, South Korea has become the largest foreign investor in Asia's second emerging giant, India. On Aug. 31, Korean steelmaker Posco established a local subsidiary in the eastern Indian state of Orissa, paving the way for a controversial mill and mining complex that will cost the world's fifth largest steelmaker $12 billion and employ some 40,000 workers once it's fully operational in 2010. The behemoth dwarfs India's previous foreign-investment centerpiece, a $3 billion power plant launched by Enron in 1993. Yet even before shovels hit soil, Posco's arrival has triggered an outcry among anti-globalization activists and opposition politicians, who see a scheme to snatch, then export, Orissa's vast iron-ore reserves.

Their clamor—and the global buzz over China's emergence as an economic superpower—mask a deeply significant trend in Asian business: Korea Inc.'s rise to prominence on the Indian Subcontinent. By the numbers, Korea now tops the list of countries investing in India since New Delhi launched economic reforms back in 1991—at more than $14 billion. South Korean firms like Hyundai, LG and SK Group have carved out a notable presence in the country—the world's second largest and a potentially huge market for products like refrigerators, washing machines and television sets.

In just a few years, South Korean brand appeal has eclipsed Japanese rivals like Sony and Honda, and even the nation's biggest cricket stars have become known as Team Samsung, thanks to a successful sponsorship campaign. "South Korean firms have become household names in India," says Rakesh Shukla, an economist at the National Council for Applied Economic —Research in New Delhi. "[And] India has become an investment hot spot for the South Korean companies."

Confucian Korea, multiethnic India: it's not, on the surface, a natural match. Why the pairing works is a study in global commerce that offers lessons that non-Korean investors have already begun to heed. Though their strategies differ in nuance, each of Korea's chaebol (conglomerates) follows the same general game plan in India: intensively research the market, hit the ground running and localize, localize, localize. Thus Hyundai developed a new car, the Santro, especially for the Indian market and achieved near-complete localization of its supply chain within its first year of production. They target specific markets, create new (sometimes, state-of-the-art) products to serve them and usually beat their competitors to the store shelves—the exact opposite of the one-size-fits-all strategy still common among other multinationals in India. "We learned to treat Indian consumers with far greater respect than, for instance, a Japanese company was going to do earlier," says B.V.R. Subbu, head of Hyundai's Indian autoworks. " 'Good enough for India' is the kind of approach they have had."

In bilateral terms, Seoul and New Delhi have become key economic partners. Korean ventures have helped to establish India's vast potential as an alternative to China—both as a market and as an export platform for products like cars and white goods. Korean businesses now pursue a two-pronged "China plus one," or "Chindia," strategy as a matter of course, partly to hedge against a currency shock, recession or political unrest in the Middle Kingdom. India is LG Electronics' No. 3 strategic market after the United States and China, for example. "Korean companies rely too much on China. India has a great potential to [help us] reduce that risk," says Park Bun Soon, a strategist at the Samsung Economic Research Institute in Seoul. "You can't put all your eggs in one basket."

Arguably, Korea Inc.'s best weapon in the battle for Indian market share could be empathy. Unlike Japanese, British or American rivals, Korea is a newcomer to the club of industrial powers. Just 40 years ago, in fact, it was written off as a "basket case" economy incapable of advancement, a tag sometimes still attached to India. Attuned to their own history, Koreans sensed a latent energy in India others initially missed. So rather than stake out small premium segments by catering to India's tiny elite (as Sony sought to do with its high prices and products designed in Japan), the chaebol set their sights on a vast—yet, by Seoul's standards, still poor—Indian middle class. "Korean companies gauged the potential of the country very differently," says Samsung India's deputy general manager Ravinder Zutshi.

One case study is LG Electronics. Since arriving in India in 1997, it has become the country's leading manufacturer of televisions, washing machines, refrigerators, microwave ovens and air conditioners. Last year LG's India sales hit $1.7 billion; its 2010 target is $10 billion. At its factories in Pune and Noida, all but about 20 of the 2,700 employees are Indians, and the company has introduced many India-specific product designs, including refrigerators with smaller freezers and power sources bolstered to handle voltage spikes. LG's Indian operation chief, Kim Kwang Ro, strives for "complete localization and product differentiation." Adds LG spokesman Park Hyung Il: "India is a country with diverse subcultures. You cannot succeed there without becoming a local company."

A new study by McKinsey Co. forecasts huge rewards for companies that target India's middle-income earners. Published last week, "Winning the Indian Consumer" projects $400 billion in demand by 2010, which would make India the fourth largest consumer-goods market in the world. Most growth, the report argues, will come in a category called "aspiring India," comprising 40 million middle-income households, "a geographically immense market of consumers —who demand high value at low prices." Korea Inc. reached the same conclusion in the late 1990s. The study singles out LG for creating a distribution system that begins with flagship stores in big cities "and encouraged local entrepreneurs to set up stores in smaller towns to serve sizable rural populations."

Even in marketing, localization is Korea Inc.'s recurring theme. All its top brands strive to identify themselves as "Indian-friendly" rather than "foreign and therefore better," as outsiders sometimes do to generate snob appeal in emerging markets. Korean brands want to be seen responding to the needs of Indians with a more humble attitude, so as not to offend national pride. And who would be better sensitized to the issue than flag-waving Koreans?

Hyundai motor india typifies Korea's strategy of conceiving products specifically for the Indian consumer market. Until Hyundai arrived in 1998, foreign automakers were selling recycled models; Toyota, for example, marketed a "new" van in India that had already been discontinued in Indonesia. Hyundai's goal was to challenge Maruti Udyog Ltd., the government of India's joint venture with Japanese rival Suzuki, which had so dominated the market that to many Indians, "Maruti" had become synonymous with "car." Worse, Hyundai's own research indicated that Indian consumers ranked Korea far below Germany, Japan, the United States and even Malaysia for its automaking prowess.

No matter: Hyundai Motor launched a full line of cars, from a small hatchback to a luxury sedan, and the new choices caught on with the public. Some of the models are identical to those sold in Seoul showrooms, but are made in India. Today, less than six years later, Hyundai is India's second largest automaker. In 2004 the company sold roughly 150,000 cars within India—a jump of 40 percent over the previous year. Rivals Ford, General Motors and Honda sold 25,000 to 30,000 cars each. "Both the Japanese and the Americans have taken much longer to understand the real depth of the Indian market and its real size," said Hyundai's Subbu, a career industry executive Hyundai poached from domestic car- and truckmaker Tata Motors to run its Indian subsidiary.

Perhaps more important, Hyundai last year became India's largest auto exporter, selling about 75,000 passenger cars to Europe, Africa, Mexico and other countries. Rivals like Toyota and Honda instead bet on Thailand, which is now recognized as a less promising market, and less promising export platform. The reasons for the latter are complex; among them, Southeast Asia's free-trade zone has been painfully slow to materialize, and the region doesn't have the strong engineering tradition India does. Also, China and India are simply growing faster than Southeast Asia, and rapidly eclipsing it in terms of export competitiveness.

Korean firms have shown that India is extremely competitive in high-end manufacturing. Subbu has said that the quality of workmanship in India is as good or better than in Korea. In China, where most of the auto plants are joint ventures, technology theft is a constant fear. That's not a worry in India, because Hyundai owns the whole show. In contrast to other foreign automakers, Hyundai has localized production aggressively, a major cost-saving strategy. "The Koreans had zero name recognition, so they had no delusions about trying to get premium prices," says Saumitra Chaudhuri, an economic adviser at the credit-ratings agency ICRA Ltd. They realized that "Indian customers are more price-conscious and willing to experiment with newer products if the price is right."

Posco could take Korea Inc.'s success to another level. If India's manufacturing sector meets robust growth forecasts—and the company can sidestep nationalist critics—Posco's Orissa facility will open just in time to meet a surge in demand for steel. Today, India consumes just 30 kilograms of steel per capita each year, a mere eighth of China's annual intake. Its biggest customers are expected to be Korean auto- and white-goods makers in India.

Importantly, Korean companies have helped India gain self-confidence as a manufacturing nation and an exporter with the potential to rival China in certain industrial sectors. That confidence, in turn, puts new pressures on New Delhi to streamline foreign direct investment and open the door for more multinationals. This virtuous cycle has the potential to erode India's reputation for inefficiency, protected markets and red tape.

Though many would deny it, multi-nationals from Japan, Europe and the United States are cribbing from the Korean success story. After failing with the Escort, Ford swiftly developed a car especially for the Indian market, and has begun exporting it to several other countries. Maruti is embracing hipper designs. Sony has slashed its prices to get back in the game against Samsung and LG. Yet for now, at least, Korea Inc. is where it wants to be on the Subcontinent: firmly ahead of the pack.

With B. J. Lee in Seoul and Sumeet Chatterjee in Mumbai
© 2005 Newsweek, Inc.

'the death of reform'

In India these days, don't believe everything you read.

By Jason Overdorf

Newsweek International

Sept. 5, 2005 issue - Prime Minister Manmohan Singh's yearlong reign has been a balancing act, as he endeavors to live up to his reputation as the father of India's economic reforms without alienating the left-wing parties that his coalition government needs to survive. But lately, as his Congress party wrangles with the communists, the balance has been tipping. One by one, bold reforms are getting killed or shelved. These days Singh talks of the need for politicians to compromise in order to survive in office.

The question is whether Singh has fallen from compromise to capitulation on reform, as the opposition Bharatiya Janata Party claims. Labor, pension and banking reforms are going nowhere. A new law creating special economic zones for foreign investors was so watered down by the left, it won't have much impact. The commission set up to do away with monopolies and restrictive trade practices is moribund. Last week Finance Minister Shri P. Chidambaram, widely seen as Singh's right-hand man in the reform cause, announced that the government was scrapping plans to sell its stakes in 13 state companies, including an oil refiner, an aluminum maker and a shipping firm. This latest move "is another nail in the coffin of reform," says Arun Shourie, BJP Disinvestment minister in the previous coalition government.

Certainly the story dominating headlines in India is the Death of Reform. But despite all the evidence, the declaration may be premature. The prognosis of most investors is much more optimistic: the Bombay Stock Exchange showed no reaction to Chidambaram's announcement on privatization. The following day the benchmark Sensex index closed at a record high on buying by foreign funds. Investors had expected the shelving of privatization, which was foreshadowed in a common platform released by the ruling coalition partners last year. Meanwhile, the government has achieved progress on other fronts, lifting a rule that limited the ability of foreign joint-venture partners to expand inside India, as well as a cap on foreign direct investment in telecommunications. "Arun Shourie is just being a politician," says Saumitra Chaudhuri, an economic adviser at Indian credit-rating agency ICRA Ltd. "Privatization is not all there is to reforms."

This is about the politics, not economics. Chidambaram's announcement came shortly after every major Indian news outlet carried graphic photographs of striking Honda workers being beaten by police in Gurgaon, Haryanaone of the hotbeds of outsourcing and foreign investment. It also comes a few months before state elections in Bihar, as well as Kerala and West Bengal, where communists have dominated the polls. When the elections are done, many analysts say, the reform effort will resume. "This is only a minor hiccup," says S. A. Chari, executive director of the credit-rating agency Onicra Ltd. "Everybody is seeing the results of the reforms. Even in places like Calcutta [in West Bengal] you can see things changing very dramatically."

The danger, however, is that by positioning itself for these state elections, Congress could be creating expectations that will be hard to live down. In southern states like West Bengal, the communists are so well entrenched that they can throw open the door to foreign investors even as they spout Marxist slogans on the national stage, in order to solidify their one base in the north: trade unions at state-owned companies. Meanwhile, Congress must make good on populist election promises to gain ground in the south if it is to restore itself as a dominant national party.

That explains why, rather than pushing free-market reform, Congress party legislators recently passed a bill that guarantees every rural household in India at least 100 days of paid employment each year. Though they are still bullish now, the markets eagerly expect Congress to lift the many barriers to foreign direct investment: India attracts less than 1 percent of global FDI, while China attracts 10 percent. "It's a generous interpretation to say that reforms are on hold for elections," says Chaudhuri. "If you wait for elections to be over, thinking you will have a little more freedom, then those political positions become written in stone." And that stone could mark the real death of reform.

© 2005 Newsweek, Inc.

grand theft identity

Be careful, we've been told, or you may become a fraud victim. But now it seems that corporations are failing to protect our secrets. How bad is the problem, and how can we fix it?

By Steven Levy and Brad Stone

Newsweek

Sept. 5, 2005 issue - Millions of people now have a new reason to dread the mailbox. In addition to the tried-and-true collection of Letters You Never Want to See—the tax audit, the high cholesterol reading, the college-rejection letter—there is now the missive that reveals you are on the fast track to becoming a victim of identity theft. Someone may have taken possession of your credit-card info, bank account or other personal data that would enable him or her to go on a permanent shopping spree—leaving you to deal with the financial, legal and psychic bills. Deborah Platt Majoras got the pain letter recently, from DSW Shoe Warehouse. Hers was among more than a million credit-card numbers that the merchant stored in an ill-protected database. So when hackers busted in, they got the information to buy stuff in her name—and 1.4 million other people's names. "It's scary," she says. "Part of it is the uncertainty that comes with it, not knowing whether sometime in the next year my credit-card number will be abused." Now she must take steps to protect herself, including re-examining charges closely, requesting a credit report and contacting the U.S. Federal Trade Commission to put her complaint into its ID-theft database. The latter step should be easy for her, since Majoras is the FTC chairman.

Somewhere, Willie Sutton is smiling. Sutton was the sly swindler who, when asked why he robbed banks, was said to reply, "Because that's where the money is." Today the easy money is still in banks—databanks: vast electronic caches in computers, hard disks and backup tapes that store our names, ID numbers, credit-card records, financial files and other records. That information can be turned into cash; thieves can quickly sell it to "fraudsters" who will use it to impersonate others. They visit porn sites, buy stereo systems, purchase cars, take out mortgages and generally destroy the credit ratings of innocent victims, who may be unable to get new jobs, buy houses or even get passports until the matter is painstakingly resolved. And since the crime is all done remotely, modern ID thieves suffer little of the risk that Sutton shouldered a half century ago when he robbed banks with a machine gun.

We've become accustomed to the digital grease that smooths transactions, loans and eBay bids, even as worries about identity theft quietly shadow us, often leading us to restrict our activities and be extra careful with our credit cards and personal information. In recent months, though, there's been something different, a cascade of reports about big break-ins and bungles where the booty is our secrets. Suddenly things seem out of control: instead of losing our identities one by one, we're seeing criminals grabbing them in massive chunks—literally millions at a time. Just last week security firm Sunbelt Software discovered a U.S.-based server storing passwords for online accounts from 50 banks, eBay and PayPal log-ins, and credit-card numbers stolen by a Trojan virus. In June lax security at an Atlanta-based company called CardSystems exposed a possible 40 million Discover, Visa, MasterCard and American Express numbers to hackers, who have already begun turning the digits into cash and prizes. "It only makes sense that criminals would go where information is collected," says Martha Stansell-Gamm, head of the computer-crime division in the U.S. Justice Department.

"Over the last nine years, criminals have gotten a better understanding of the power of information," says Rob Douglas of PrivacyToday, a security consulting firm. "Instead of selling drugs, so much can be made so quickly with identity theft, and the likelihood of getting caught is almost nil." Avivah Litan of research firm Gartner Group speculates that fewer than 1 in 700 identity crimes leads to a conviction. This goes a long way toward explaining why it's the fastest-growing crime of this century. Crooks rack up $53 billion a year in ID theft in the United States alone. Consumers get stuck with $5 billion directly; and the rest is paid by retailers and businesses—which pass it on in higher prices.

Losing your credit card can be a huge hassle, but laws usually limit losses. In more distressing forms of ID theft, someone —swipes not just your card but also your entire financial persona. Judy McDonough, a 56-year-old occupational psychologist from the north of England, has been living a nightmare since last year, when she found that someone—she suspects a relative—racked up 33,000 pounds sterling of debt over three years, which included two credit cards, three bank loans and 2,300 pounds sterling of catalog orders. She reported the crime six times before taking it to her member of Parliament. Most banks, says McDonough, "just hope you'll go away."

For years, the primary cause of ID theft has been good old-fashioned analog crime. Thieves rifle mailboxes, snatch purses and dive into the garbage for discarded bank statements or credit-card receipts. More recently, we've seen a plague of "phishing"—sending bogus e-mails that look as if they come from legitimate companies, asking us to supply personal information. After the CardSystems heist, phishers, trying to capitalize on the news, sent out e-mails sup-posedly from MasterCard, asking people to update their information. "They played on the fear that consumers had when the announcement was made," says Susan Larson of SurfControl, an Internet-security firm.

Savvy computer users know the requisite defense against a phishing attack: never respond to a request for personal information. This wisdom is part of the standard tool kit of protections against ID theft. Check your credit-card bills with an eagle eye. Request your credit report. Shred your information. This regime makes perfect sense for individuals. But when it comes to companies charged with safeguarding millions, sometimes even billions, of records, what do they do?

They leave it unencrypted on computers, where malicious hackers get hold of it. The DSW Shoe Warehouse is far from the only hacked database owner. According to a U.S. government consent order, BJ's Wholesale Club, a Massachusetts-based firm operating big-box stores and gas stations, not only failed to encrypt, but stored records in violation of bank-security rules, didn't use a firewall to prevent wireless intrusions and protected the information with the easy-to-guess default passwords that came with the system. Result: credit cards ripped off in early 2004 were used to charge millions in goods.

They inadvertently allow employees to sell it. This June, a 24-year-old Indian man named Karan Bahree, who at the time worked for Gurgaon-based online marketing firm Infinity eSearch, allegedly sold information on 1,000 bank accounts to an undercover journalist working for The Sun, a British tabloid, for 2,750 pounds sterling, according to a Sun article. Bahree has since claimed that he was only a middleman and that he did not sell data his employer had collected (he's since been fired, according to a statement by Infinity eSearch). Infinity eSearch has said the company doesn't handle any data for the banks named in the Sun report, and that Bahree didn't have access to confidential data of any kind through his employment with the company, according to press reports. But the case has raised fears of an anti-outsourcing backlash if Indian firms are seen to be careless with the data they handle.

They pack it in boxes and put it in a mail truck. That's what CitiFinancial, a unit of Citigroup, did with the financial secrets of 3.9 million customers last May. The box never arrived at its destination, and now CitiFinancial is telling customers that their identities are at risk.

They leave it on laptops that get stolen. Last March at UC Berkeley someone made away with a computer holding personal information of almost 100,000 grad students and applicants.

They don't monitor what insiders may do with it. In April, more than a dozen people, including employees of an MphasiS call center in Pune, India, were charged with cheating Citibank customers out of $350,000. Citibank had outsourced some of its customer-service operations to MphasiS.

They just plain lose it. Bank of America is still looking for backup tapes with information on 1.2 million government workers, discovered lost in December.

They don't do what they say. CardSystems, a privately held company, processes an es-timated $15 billion in credit-card trans-actions a year (between the merchant and the bank). In direct violation of its agreement with MasterCard and Visa, CardSystems retained 40 million credit-card numbers "for research purposes," as its CEO John Perry initially told the press. These were sucked out of the system by digital invaders. CardSystems' clients admit that protection was lax: "Obviously there were deficiencies and other issues," says Josh Peirez, head of government affairs for MasterCard. Since the break-in, CardSystems has reportedly installed a new "intrusion-prevention product" (hey, thanks).

An elaborate infrastructure of crime has emerged to collect and distribute stolen records. When it comes to attacking databases, malicious hackers either use automated software "bots" to methodically probe the Internet for vulnerable databases or target companies that are likely to harbor honey pots. Most often, they enter systems through preventable security flaws, like guessable passwords (example: "Dave" or the default password that came with the program) or known vulnerabilities in software.

Once records are stolen, they are passed on or sold in fleeting digital dark alleys—chat rooms or instant-messaging sessions where transactions are quickly, stealthily enacted. Sometimes the crooks are sufficiently brazen to post their offerings on Web sites that are sort of fraudster eBays. At one site posted by a member of the Shadowcrew organization (which was shut down by the U.S. government last year), $200 gets 300 credit cards without the security codes printed on the back of the card. If you want card numbers with the code, it will cost you $200 for 50 of them.

After fraudsters buy the purloined numbers, they commonly use them to grab goodies as fast as possible. It's kind of a high-tech form of supermarket sweepstakes, where the crook keeps stealing until the fraud-management software of the credit-card companies kicks in. "The method is smash-and-grab," says Bryan Sartin, VP for in-formation-security firm Cybertrust. "The turnaround time is amazing."

As bad as the recent exposures have been, they may well wind up helping spur some very long-needed reform. Though identity theft is a devilishly difficult crime to combat, the key to fighting these huge cyber-raids is making the databases that hold private records more secure. Indian outsourcing firms have been quick to beef up internal security, and local police departments—like the one in Pune, which solved the Citibank case—have been starting cybercrime units. The best solution would make the companies that collect the data liable for their failings. The U.S. Congress may slap fines on companies that lose records. Anything that increases the cost of losing information to the company, as opposed to the consumer, would give firms an incentive to protect consumer secrets.

Each time we hear of another huge data breach, the pressure increases to tighten up security and fight the ID crooks. But change, if it comes, will come too late for Daniel Bulley, who's spent months trying to distance himself from a home he never owned, a job he never held and a portfolio of credit cards and accounts he never opened. Bulley is angry—at the crooks, at the cops (no one would investigate his case) and at the corporations that let his information fall into evil hands. He's especially steamed at the billion-dollar industry that has emerged to sell people protection against data theft—run by parts of the same industry that fails to protect the information in the first place. Corporations, says Bulley, need to be tighter with the data they hold: "Why should we pay them to do their job right?"

Reported by William Lee Adams, Holly Bailey, Jennifer Barrett, Juliet Chung, Temma Ehrenfeld, Charles Gasparino, Andrew Horesh, Nicole Joseph, Susannah Meadows, Ben Whitford, Kathryn Williams, Jason Overdorf and Mary Acoymo

© 2005 Newsweek, Inc.

snap judgment: books

Newsweek International

Aug. 29, 2005 issue - The Whale Caller by Zakes Mda
Mda's fifth novel tells the story of the growing love between the whale caller, an old man whose kelp horn calls the migrating whales that bring tourists to South Africa's Western Cape, and Saluni, an aging woman who cadges drinks at the town taverns. An elusive allegory, it begins like an optimistic counterpoint to J. M. Coetzee's "Life & Times of Michael K." Mda's unemployed and uneducated heroes carve out a life of startling, almost magical beauty. But this land cannot break free of tragedy, whether the cause be Coetzee's torturers or Mda's tourists, politicians and hacks. It's a place where mercy comes to a beached whale (which may represent the nation) as 500 kilograms of dynamite.
—Jason Overdorf

Kiss & Tango: Looking for Love in Buenos Aires by Marina Palmer
In this smoldering new memoir, Palmer describes the tango as "the magic trick that transforms two bodies into one." She thoroughly explores the tango and sex connection, giving readers a brutally honest and often hilarious account of the three years she danced tango in the smoky milonga halls of Buenos Aires, and the long line of Latin lotharios she met along the way. Hollywood, take note: this love story could steam up the big screen.
—Brian Byrnes

Unfeeling by Ian Holding
This intense book is disturbing and gripping precisely because it is based largely on the current plight of white farmers in Zimbabwe. Davey Baker and his parents live on a large farm that has been passed down through the generations and that becomes a scene of violence and death. The book moves back and forth with agile precision from the events leading up to the parents' brutal murder to the aftermath of the tragedy that Davey must learn to accept. "Unfeeling" is one of the season's best books.
—Ginanne Brownell

© 2005 Newsweek, Inc.

rustic luxury

Who ever said getting back to nature meant roughing it? Now travelers can have their truffles and eat them under the stars, too.

By Carla Power
Newsweek International

July 25-Aug. 1 issue - Travel used to be divided into two basic categories: luxury and no-frills. the former consisted of flying first class, dining at three-star restaurants and staying in decadent comfort; the latter involved backpacking and camping out in some of the world's most beautifully remote spots. Rich holidaymakers never had to go a day without a glass of fine Bordeaux, but they also rarely ventured beyond the confines of their posh resorts. Rugged travelers regularly communed with nature—but ate hot dogs cooked over an open fire. Now tourists can have their wine and see the wildlife, too: communing with nature and living the good life are no longer mutually exclusive.

In fact, they fit together surprisingly well. A private island in the Maldives or a sumptuous tent in the Serengeti provide perhaps the most elusive luxury of 21st-century life: sanctuary from traffic, the fax machine and business suits. But modern-day travelers don't want to do without their plush towels and designer coffee. So cutting-edge hoteliers are beginning to combine the timeless luxuries of solitude and nature with the more mundane ones of butlers and Frette sheets. India's Oberoi Group has erected magical air-conditioned tents with marble bathrooms in the jungles of India's Ranthambhore Tiger Reserve, while the Gulf hospitality group Jumeirah has created Arab opulence at the Bab Al Shams Desert Resort in Dubai. Smart designers are catering to the same group of clients with accessories like the new Mount Everest-ready backpacks produced by luxury luggagemaker Tumi.

The quest for privacy and exclusivity means that haute civilization is popping up in ever more remote places, says author Martin Nicholas Kunz, whose latest book on sumptuous lodgings covers Africa and the Middle East: "The new nomads will help drive a market for many more exciting hotels to visit in the deserts, jungles, mountains, forests and even underwater." Once word of remote gems reaches civilization, notes Atlanta-based travel agent Betty Jo Currie, it's nigh impossible to get reservations. The sheer exclusivity "drives the price sky-high. It's supply and demand."

For those who can afford it, the rewards are rich. Giselle Hantz—a Manhattan lawyer married to an investment banker, and a self-described "luxury consumer"— recalls the glories of her mobile safari in Botswana, where the staff included zoologists and scholars. Camp, set up each night, was "very luxurious, with real beds and good food." The incongruity of having "elephants stomping around our campground" way out in the middle of the savanna made the experience something "very personal, very private."

"Personal" and "private" are watchwords for rustic-luxury clients, many of whom are baby boomers, says PricewaterhouseCoopers travel industry analyst Bjorn Hanson. With grown children and established careers, these forty- and fiftysomethings are no longer —afraid to go where they can't be easily reached. "Gen-Xers want more social activities," he notes. Their parents, by contrast, want to be free to make their own fun. Many of them came of age during Woodstock, and remain hungry for adventure. In fact, they've begun "competing with their children" for travel experiences, says Hanson. They choose rock climbing over rocking chairs, snorkeling over spectator sports, and now that they have money, are eager to merge the buzz of their youthful pursuits with luxury. "They say, 'I've been to the theme parks and the sound-and-light attractions. Now, let me get away'."

Opportunities abound. At the Mnemba Island Lodge, on an island off Zanzibar's coast, you can listen to the lapping of the Indian Ocean from your sumptuously appointed palm and wood hut. Guests visiting the Bullo River Station, a luxury hotel on a working cattle ranch on the northwest tip of the Australian outback, can muster cattle, catch bulls or hunt crocodiles. At this year's annual rock festival in Glastonbury, England—an event as famous for its sex-in-muddy-tents atmosphere as for its music—one entrepreneur launched Camp Kerala Village, where the £6,000 tents included VIP tickets, 24-hour room service and dressing gowns. In the Highlands of Scotland, the luxuriously appointed Alladale Wilderness Lodge offers clients rural Highland sports, including stalking, falconry and clay-pigeon shooting.

The trend has created a boom market for private villas, customized with support staff, ready to accommodate their clients' lifestyles. On the island of Dhoni Mighili in the Maldives, guests can lounge in beach bungalows equipped with Bose sound systems and L'Occitane toiletries, or sail around the Ari Atoll in traditional Maldivian fishing vessels, kitted out with Frette linens, Philippe Starck bathroom fittings and a butler. For managers Jacqueline and David O'Hara—formerly a chef for Jordan's royal family—the specific needs of their guests are paramount. When one party requested the chef rustle up their favorite French risotto, the O'Haras flew in mushrooms from Dubai. Last year, for a couple who returns annually for their wedding anniversary, the O'Haras organized a mock wedding on the beach, complete with lace, Dom Perignon and caviar.

Creature comforts like that, even in India and Africa, mean that high-end travel agents like Betty Jo Currie, of Explorations in Atlanta, can persuade clients who'd never have dared to visit exotic places before to get on planes "because I know these properties are going to blow their minds." Both India and Africa have achieved what Currie calls the "tipping point" in luxury travel, where the quality of the lodgings now matches the uniqueness of the experience. Indeed, with globalization and hotel chains making travel blander, the former haunts of backpackers are now the places to be seen. "For a lot of people, it's just the same kind of status game that everything else is," says luxury traveler Hantz. "For them, staying at the Four Seasons seems kind of bourgeois, since any doctor from the Midwest will know about it."

The rustic-luxury genre recalls the incongruities of Marie Antoinette in her Versailles dairy farm. This is a world where there are "penthouse-suite tents" set in the wilds of British Columbia, Japanese-inspired bathrooms in Belize rain forests and black-tie dinners thrown deep in the Adirondacks. Craftsmanship is prized as much as comfort. On the Placencia Peninsula in Belize, film director Francis Ford Coppola used Indonesian craftsmen and Balinese artifacts in the design of his exotic resort, the Turtle Inn. "We are now witnessing the birth of a new move in hospitality, which brings architecture and nature together," says Kunz. "It emphasizes transparence and open spaces, with no tangible or visible borders between inside and outside." Even some of the world's most rustic, ecofriendly accommodations are adding luxe touches. At the Green Magic Nature Resort in Kerala, guests can bunk in a treehouse, complete with an elevator, running water and a carpeted veranda. On North Island, an elegant resort in the Seychelles, guests shower and get massages under the sky. Its designers built the dining room and villas around a dead takamaka tree, a feature that helps create what the designers dubbed "an haute couture Robinson Crusoe look."

Savvy to the fact that the rustic-luxury market revels in local tradition, some hoteliers have even invented their own myths. Designing the sumptuous Tsala Treetop Lodge in South Africa, Jill Hunter invented a legend about an ancient civilization, the Tsala, originally from North Africa. The architects built a faux ruin of local stone, and then laid the boardwalks and decks of the lodge around it. "It could have been, but it is fictitious," says Hunter. Last month, on the islands of Phi Phi in Thailand, Zeavola opened a bamboo-and-rattan re-creation of a rural Thai village—if Thai villagers enjoyed plunge pools, a southern Italian restaurant and CD/VCD/DVD players.

Clearly the new fusion between local style and global luxury raises moral issues. Kishore Singh, an editor at India's Business Standard newspaper, recalls a trip he took on a houseboat in Kerala state, and the discomfort he felt observing village life from a vessel with rooms worthy of a five-star hotel, replete with silk throws, plush mattresses and lots of polished wood and brass. "It is a little decadent," he concedes. "You are sitting there in your luxurious, air-conditioned surroundings, sipping expensive wine in the face of so much poverty." When Currie organized a 50th-birthday celebration for a friend, hiking Peru's Inca Trail, she "got some ribbing," she recalls, for bringing extra porters and masseuses for the trek. And yet, she points out, the Peruvians they brought along were paid well—and perhaps more important, had never before seen the Inca Trail. "Philosophically, there is an argument that [traveling] well can benefit the local population," argues Currie. "Luxury can also be about sharing the wealth—and not just money." As any rustic luxurian knows, the best things in life are free.

With Mary Acoymo and Jason Overdorf

© 2005 Newsweek, Inc.
URL: http://www.msnbc.msn.com/id/8597678/site/newsweek/

unclogging the courts

The Indian justice system is legendary for its delays and diversions. But changes are finally on the way.

By Jason Overdorf

July 18 issue - Sunila Awasthi, a 36-year-old New Delhi woman, isn't a big fan of India's justice system. It's easy to see why: when Awasthi was 10, her father died. Her uncles then legally forced Awasthi's mother out of the family home. The mother battled in court for eight years to claim her husband's assets before she settled and took her two daughters to live in the house of her own father, who had died around the same time. There was only one problem: except for the single, dilapidated room in which Awasthi's grandfather had lived, the house was occupied, and the tenants refused to leave. With no other choice, the women moved into the old room, a virtual cell.

They then went to court again, to evict the squatters. It should have been an open-and-shut case—and by the odd standards of the Indian court system, it was. Only one lawyer died during the course of litigation. Only four high-court judges passed the case on to colleagues. And the matter was resolved in only 16 years. "We were one of the lucky ones," Awasthi says.

That's no exaggeration. There is a joke in India that the closest anyone will come to experiencing eternity is the country's court system. The problem is a strange aversion to settling cases. Judges pass them along to somebody else, and rarely dismiss lawsuits, no matter how frivolous. The result is judicial gridlock: India's lower courts have a backlog of about 20 million civil and criminal cases. An additional 3.2 million cases are pending before the high courts, while the Supreme Court has about 20,000 old cases on the docket. Many of those cases will take far longer than 16 years to resolve, and if the Awasthis lived in a virtual cell while their case ground on, at least they weren't literally incarcerated, like the millions of "undertrials" who languish in prisons, often for longer than the maximum sentence possible for their alleged crimes, while they await a trial date.

But now, experts say, Prime Minister Manmohan Singh is committed to fixing the problem. And the judiciary itself, long criticized as insular and resistant to change, seems finally to have concluded that changes are needed. R. C. Lahoti, the chief justice of the Supreme Court, has declared that 2005 will be the year that India reduces its massive case backlog. "There will be no place for any corruption or indolence in the system," he vowed last September. "I mean business."

His choice of words was telling. Whatever moral imperative exists, the chief reason that India is getting serious about streamlining the legal system is economic. Dysfunctional courts increase the risks to foreign investors, tortuous rules slow the rise of new enterprises and murky laws regarding land ownership and other issues stifle the growth of industries like construction and retail. Indian business is lobbying for change; the Federation of Indian Chambers of Commerce and Industry, for instance, recently published a report that bemoaned the regulatory maze that confronts every commercial project, contributing to delays and cost overruns and providing one explanation why India receives only a tiny fraction of the foreign direct investment deposited in China. "Speedy judicial resolution will be one of the keys to making India a competitive economy, conducive to growth and foreign investment," says Nandan Nilekani, CEO of Bangalore-based software giant Infosys. Singh's reform-focused government is listening. "This is a new climate," says Law Minister Hansraj Bhardwaj. "If economic reforms are to succeed, we should have a compatible justice administration, where cases are not delayed."

The reasons for India's judicial debacle are legion. For one thing, India has fewer judges per capita than almost any country in the world. In 2000, India had fewer than three judges per 100,000 people, according to a World Bank study—less than half the number available in 30 selected countries. And the state itself, which accounts for 60 percent of court cases, is overly litigious. Branches of the government are often suing each other over contracts, land and other matters. The system also lacks the infrastructure to handle a large caseload and the documentation that goes with it. Only the Supreme Court is computerized.

New initiatives are beginning to help. In 1995, when Singh was Finance minister and Bhardwaj was serving his first term as Law minister, they helped introduce new methods of out-of-court dispute resolution, including conciliation, mediation and arbitration. Such decisions are binding, and they've helped slash the number of commercial disputes that go to litigation. The out-of-court settlement movement lost steam when Singh's Congress party was defeated at the polls in 1996, but it's now being cranked up again.

Likewise, Bhardwaj's predecessor as Law minister, Arun Jaitley of the Bharatiya Janata Party, established some 1,700 so-called fast-track courts to resolve criminal cases where the accused had been jailed for long periods while they awaited trial. Since 2000, these courts have helped to clear hundreds of thousands of old cases. In addition, this year the criminal-justice system will adopt the concept of plea bargaining for the first time—a key feature of the U.S. court system. And the agenda calls for the computerization of all of India's courts over the next three years.

Perhaps the biggest sign of the administration's commitment to judicial reform is the amount of money it's spending. "Earlier, it was very difficult if you asked for 100 or 200 crores [$23 million to $45 million] for computerization," says Bhardwaj. "Now the prime minister has given me 1, 000 crores [$227 million]." In the next phase, Bhardwaj hopes to establish more fast-track courts, to require every court to have an in-house conciliation program for litigants before their case goes to a judge and to set up additional "people's courts" to help resolve petty disputes arising from marital arguments, traffic accidents, billing errors and so on through mediation.

Ambition is not accomplishment, of course. The latest report from the parliamentary committee responsible for evaluating the Law Ministry's budgetary requests excoriates the government for its "lackadaisical approach" to setting up people's courts, noting that only three (of 28) states have set up permanent people's courts for public-utility disputes. It questions delays and cost overruns related to Bhardwaj's International Centre for Alternative Dispute Resolution, the centerpiece of the mediation and arbitration program. And it attacks the government for failing to fill bench vacancies at all levels of the judiciary. While paying lip service to the need to increase the number of courts, the judiciary has yet to fill two vacancies in the Supreme Court and 141 vacancies in the high courts, the report says.

But some progress is better than none. The criminal courts may be a shambles and arcane legal procedures may add 10 percent to 20 percent to the cost of doing business, but according to Bibek Debroy, head of the Rajiv Gandhi Foundation think tank, the resolution of civil cases has improved, primarily because of the amendments to the arbitration law pushed through in 1996. "Computerization, infrastructure, all of that has helped," he says. Moreover, although India's courts are exceedingly slow, they're generally fair. "Foreign investors do appreciate that it is a fair, rule-based system, and not ad hoc," says Nilekani of Infosys. DaimlerChrysler India CEO Hans-Michael Huber agrees. "The judicial system works too slowly, and the backlog of cases is a big burden. But on the other hand, at least it works."

Sort of. While Sunila Awasthi is now a successful corporate lawyer, with a nice house and slick new SUV, the young judge who banged the gavel in their favor has since quit the bench in disgust and gone into private practice. He's just one more casualty of Indian justice.

© 2005 Newsweek, Inc.

preparing for takeoff

The nation's old airports aren't yet ready for a boom in business.

By Jason Overdorf

Newsweek International

May 30 issue - This summer, say experts, the Indian airline business will explode, in ways both good and bad. There will be more airlines, more flights and, thanks to more robust competition, lower fares. The country's first discount airline, privately held Air Deccan, started operations in August 2003. Five more discount carriers (four privately owned) will join it in the market this summer. What's more, the number of international flights into and out of India will double. State-owned Indian Airlines has been granted permission to fly to several major foreign cities. Meantime, foreign carriers, including Saudi Arabian Airlines, Northwest Airlines, Thai Airways and Air France are all expanding their service to India. Virgin Atlantic has launched a London-to-Mumbai flight.

That's all welcome news for travelers. The downside is that India's already over-burdened airports are in no condition to cope with the surging passenger demand—and customers can expect plenty of headaches. "There are huge infrastructure issues," says Kapil Kaul, Indian Subcontinent and Middle East CEO for the Sydney-based Centre for Asia Pacific Aviation. The airports in New Delhi and Mumbai, for example, each have only one runway, which limits the number of takeoffs and landings to 25 per hour—half the rate at most international hubs. Delays, already common, are likely to worsen. So could the terminal queues at peak travel times. New Delhi has only two relatively small terminals for domestic and international flights.

India is working on the problem. Last year the country raised the cap on foreign investment in the aviation sector to 49 percent (from 26 percent), facilitating a burst of airport-renovation and -construction projects. There are plans to modernize some 30 airports by 2009. New international airports are under construction in Hyderabad and Bangalore. But most of the modernization schemes are still in the early stages. Vijay Mallya, a businessman and member of Parliament who sits on the Parliamentary Consultative Committee on Civil Aviation, asserts that some airport congestion problems could improve noticeably in six months. But others are skeptical. As one analyst put it, "Like most things in the country, it will be two steps forward and one step back."

Mallya, the head of the UB Group (a major liquor company), is one of India's new airline entrepreneurs. His start-up, Kingfisher Airlines, is a full-service carrier that will use some of the principles of low-cost operators to reduce fares. The other new entrants (Air India Express, SpiceJet, Indus Airways and Air One) will operate like Europe's Ryanair and EasyJet and plan to offer domestic tickets at prices at least 25 percent lower than existing full-service players.

The new airlines are a response to pent-up demand. According to the Directorate General of Civil Aviation, the number of domestic passengers grew by 12 percent in the year ended March 31, 2004 (the most recent data available), and is expected to jump 20 percent more this year. International-passenger numbers are also ballooning. The Centre for Asia Pacific Aviation estimates that the number of commercial aircraft in service will increase from 175 to 450 by 2010, a figure one industry watcher calls conservative. It's a big opportunity for both Boeing and Airbus. Last month the board of Air India approved the purchase of 50 Boeing planes in a deal worth about $7 billion. The purchase will more than double the state carrier's fleet.

Experts say the new low-cost carriers will ultimately drive prices low enough to compete with the Indian railways. Some 14 million Indians travel by train every day. According to G. R. Gopinath, founder and managing director of Air Deccan, the same 600 million Indians who make up the emerging middle class targeted by consumer-goods companies are just a step away from being aviation customers.

The cheap flights thus could initiate a secondary boom in tourism, both international and domestic, one of the fastest-growing and most underexploited industries in India. Tourist arrivals jumped nearly 23 percent in 2004 (to more than 3.53 million), but India still lags far behind other countries in the region despite its ancient history and cultural and geographical diversity. Unlike in Europe, however, where a glut of underutilized tourist facilities helped to facilitate the emergence of low-cost airlines—and with them the concept of short-haul, short-stay tourism—India's smaller hotels, bus companies and other auxiliary services may not be ready for the new business. Neither are the airports, but that's the price of rising prosperity in a fast-growing country.

© 2005 Newsweek, Inc.

a peaceful adolescence

A Peaceful Adolescence

The teen years don't have to be a time of family storm and stress. Most kids do just fine, and now psychologists are finding out why that is.

By Barbara Kantrowitz and Karen Springen

Newsweek International

May 16 issue - At 16, Purva Chawla holds good rankings in schooland loves competing in drama and elocution contests. The New Delhi student is "head girl" of her school and plays for the table-tennis team. Recently she won a public-speaking contest organized by The Times of India, and the British Council selected her to travel to Britain with a group of young leaders to organize a sporting event for kids in Scotland. Even with all her extracurricular activities, she still makes it home for dinner with her parents and goes out to the movies with them twice a week. "I talk with them very freely about what's happening with my friends, boyfriends, whatever," she says.

Is the Chawla family for real? Didn't they get the memo that says teens and their parents are supposed to be at odds until... well, until forever? Actually, they're very much for real, and according to scientists who study the transition to adulthood, they represent the average family's experience more accurately than all those scary TV movies about out-of-control teens. "Research shows that most young people go through adolescence having good relationships with their parents, adopting attitudes and values consistent with their parents' and end up getting out of the adolescent period and becoming good citizens," says Richard Lerner, Bergstrom Chair of Applied Developmental Science at Tufts University. This shouldn't be news—but it is, largely because of widespread misunderstanding of what happens during the teen years. It's a time of transition, just like the first year of parenthood or menopause. Catastrophe is certainly not preordained. A lot depends on youngsters' innate natures, combined with the emotional and social support they get from the adults around them. In other words, parents do matter.

Scientists in the past 15 years have begun to re-examine the assumption that adolescence is all storm and stress. Leading the pack are Lerner and his colleagues, who are in the midst of a major study of exactly what it takes to turn out OK and what adults can do to nurture those behaviors. "Parents and sometimes kids themselves often talk about positive development as the absence of bad," says Lerner. "What we're trying to do is present a different vision and a different vocabulary for young people and parents."

The first conclusions from the 4-H Study of Positive Youth Development, published in the February issue of The Journal of Early Adolescence, show that there are quantifiable personality traits possessed by all adolescents who manage to get to adulthood without major problems. Psychologists have labeled these traits "the five C's": competence, confidence, connection, character and caring. These characteristics theoretically lead to a sixth C, contribution (similar to civic engagement).

The five C's are interconnected, not isolated traits, Lerner says. For example, competence refers not just to academic ability but also to social and vocational skills. Confidence includes self-esteem as well as the belief that you can make a difference in the world. The value of the study, Lerner says, is that when it is completed next year, researchers will have a way to quantify these characteristics and eventually to determine what specific social and educational programs foster them.

In the meantime, parents can learn a lot from this rethinking of the teen years. Don't automatically assume that your kids become alien beings when they leave middle school. They still care what their parents think, and they still need love and guidance—although in a different form. Temple University psychology professor Laurence Steinberg, author of "The Ten Basic Principles of Good Parenting," compares raising kids to building a boat. Parents have to construct a strong underpinning so their kids are equipped to face whatever's ahead. In the teen years, that means staying involved as you slowly let go. "One of the things that's natural in adolescence is that kids are going to pull away from their parents as they become increasingly interested in peers," says Steinberg. "It's important for parents to hang in there, for them not to pull back in response to that."

Communication is critical. "Stay in touch with your kids and make sure they feel valued and appreciated," advises Suniya Luthar, professor of clinical and developmental psychology at Columbia University. Even if they roll their eyes when you try to hug them, they still need direct displays of affection, she says. They also need help figuring out goals and limits. Parents should monitor their kids' activities and get to know their friends. Luthar says parents should still be disciplinarians and set standards such as curfews.

Adolescents are often critical of their parents, but they're also watching them closely for clues on how to function in the outside world. Daniel Perkins, associate professor of family and youth resiliency at Penn State, says he and his wife take their twins to the local Ronald McDonald House and serve dinner to say thank you for time the family spent there when the children had health problems after birth. "What we've done already is set up the notion that we were blessed and need to give back, even if it's in a small way."

Parents should provide opportunities for kids to explore the world and even find a calling. Teens who have a passion for something are more likely to thrive. "They have a sense of purpose beyond day-to-day teenage life," says David Marcus, author of "What It Takes to Pull Me Through." Often, he says, kids who were enthusiastic about something in middle school lose enthusiasm in high school because the competition gets tougher and they're not as confident.

At some point during these years, teenagers should also be learning to build their own support networks—a skill that will be even more important when they're on their own. Kids who don't make those kinds of connections are more likely to get in trouble because there's no one their own age or older to stop them from going too far. Like any other stage of life, adolescence can be tough. But teens and families can get through it—as long as they stick together.

With Julie Scelfo and Jason Overdorf

© 2005 Newsweek, Inc.

getting away from it all

Indians are buying vacation homes where they never did before.

By Jason Overdorf

(This article appeared in Newsweek International in April 2005).

April 11/18 issue - Natarajan Viswanathan wanted a place to get away from it all. "Madras was getting too strangulating," says the 74-year-old retired leather exporter. But instead of looking to the southern hill station of Ootacamund—"Ooty" to the generations of British colonists and upper-class Indians who have repaired there to escape the heat of the plains—he chose to build a vacation home in the small, undeveloped town of Kotagiri, an hour's drive from the Raj-era hill station. As it turns out, Viswanathan was something of a trendsetter: since he built his place a year ago, he has seen a dozen more vacation homes pop up, and four of his friends now have him scouting out property.

The market for vacation homes is gathering steam in India, tracking the booming housing market. No separate statistics exist for secondary as opposed to primary residences, but the home-loan market is increasing at a compounded annual rate of 30 percent. With salaries rising and interest rates dropping precipitously—from 16 percent in 1995 to about 8 percent today—the average age of home-loan seekers has fallen, and the size of the loans sought has risen by as much as 50 percent. That means more and more middle-class Indians are joining the elite in buying holiday homes—not only in traditional hill stations away from the baking plains but in new beach and resort communities as well.

Developments like Sahara Group's Amby Valley, a 10,000-acre, resort-style getaway a few hours from Mumbai (formerly Bombay), are generating huge interest, according to international real-estate firms Cushman & Wakefield and Chesterton Meghraj. Market surveys also indicate strong demand for less-expensive homes in similar, if somewhat less opulent, environs. "The upper-middle class and middle class are definitely getting into [the vacation-home market]," says Sandesh Savant, a property consultant based in Pune, near Mumbai. In addition to resort communities, he says, Mumbai residents are looking at farmhouses or homes on the coast south of the city. Since India's poor infrastructure makes road journeys trying, proximity is key for those looking for a second home. "My work and everything is in Bombay, so accessibility is very important to me," says Niloufer Kapadia, a 55-year-old gallery and cafe owner from Mumbai who recently built a house in nearby Ali Bagh. "I wanted a weekend home that would eventually become a retirement home."

Crowded Mumbai, where the stressful lifestyles approximate those of bustling New York, is ahead of the curve. But vacation-home buyers are emerging in other major Indian cities, including Bangalore, Chennai (formerly Madras) and New Delhi. The area surrounding Shimla—a Raj-era hill station six hours from Delhi—has become a favorite among residents of the capital.

For now, most Indians buying second homes consider the property an investment, says Chanakya Chakravarti, joint managing director of Cushman & Wakefield India. That means that demand is highest for developments commuting distance from urban areas that offer "suburban lifestyles," complete with swimming pools and golf courses. But the firm predicts the nascent growth in the purchase of genuine vacation-homes far from primary residences—which make up perhaps two or three of every 10 second-home purchases now—will mature into a boom over the next three years. "All it takes is for one project to really take off," Chakravati says. And a few gracious invitations extended to unsuspecting weekend guests.

© 2005 Newsweek, Inc.

for india: more pills

(This article appeared in Newsweek International in April 2005).

For more than a decade, India has been a haven for generic drugmakers that have taken advantage of skilled workers and weak patent laws to become master pharmaceutical knockoff artists. No more, since the Indian Congress last week passed a new patent law to close the loophole that had allowed companies to copy patented drugs. While those in need of cheap drugs may suffer, the Indian economy stands to benefit hugely. International pharma giants, attracted by those same skilled workers and stronger laws, say they plan to shift more of their R&D operations to India. They're also tempted by the booming country's large middle and upper classes, some 50 million people.

As soon as it became clear India would pass the law to comply with WTO rules, Pfizer, Eli Lilly, AstraZeneca and others announced plans to expand their research operations there. The law also gives a chance for Indian drug companies like Biocon and Dr. Reddy's Laboratories to compete internationally by developing their own blockbuster drugs. Analysts say India's $5 billion-a-year drug industry now has access to a research market worth $50 billion. The next Viagra may be from Mumbai.
—Jason Overdorf

future factories

The surprise is that India's manufacturing revolution is starting at the high end.

By Jason Overdorf

(This article appeared in Newsweek International in March 2005).

March 7 issue - At a factory in greater Noida, an industrial suburb of Delhi, workers step through a series of ''air showers" that blast the grime of one of the world's most polluted cities off their clothes. Then they pull on white coveralls, white hoods and plastic sandals before passing through an air lock into the ''clean room" of Moser Baer, the world's third largest manufacturer of optical media, including CDs, VCDs and DVDs. Inside, rows of machines silently inject, coat, harden, finish, flip and label the shining disks, as a few white-suited workers adjust dials. Clean, quiet, heavily automated and nearly depopulated, this is the look of a nascent manufacturing revolution in India.

To anyone familiar with the Subcontinent, this picture comes as a surprise. Not so long ago even Indian consumers believed that Indian-made products were shoddy. Before the country began to liberalize its economy in 1991, the so-called license Raj stifled competition with red tape and nurtured inefficient makers of second-rate products. Even by the late '90s, as India began to emerge as a global power in information-technology services, the country remained a laggard in manufacturing. But lately India's manufactured exports have risen, from about $37 billion in 2002 to about $54 billion in 2004, and they could reach $300 billion by 2015, analysts say, as multinationals invest more heavily in India as a manufacturing base. Something similar happened in China, of course. But in India the early players are interested in the talent pool of chemists, designers and engineers, not low-skilled labor.

Look at headlines from the past 12 months: Nokia and LG Electronics unveiled plans to begin handset production in India. Hyundai, which has already exported about 50,000 cars from India, said it plans to make India its export hub for auto components. Toyota opened a factory that will make manual transmissions for vans, SUVs and small trucks produced in Thailand, the Philippines, South Africa and Latin America. Last month, Siemens announced plans to invest more than $500 million by 2009 in new and expanded factories in India.

Even picky German engineers are coming to associate India with quality. Jurgen Schubert, who heads Siemens's operations in the country, says that for years the company's quality testers in Germany stamped his Indian-made products "inferior," no matter how good they were. So in the late '90s, Schubert stuck made in germany on a shipment of Indian parts, and they passed inspection. ''After I pointed that out to them," he says, ''we no longer had any problems."

Multinationals have helped raise standards by encouraging Indian suppliers to modernize. When the big players entered the local auto market after liberalization in 1991, they assembled vehicles in India but imported many of the components. Now most of them are building cars using 70 to 90 percent local parts and materials. ''If you come and look at our factories today, most of the work is done by brainpower, with computer-aided drafting, lots of automation," says B. N. Kalyani, chairman of Bharat Forge, India's largest auto-parts maker. "The IT boom essentially brought out the story that Indian engineering skills are good and Indian engineers can adapt to whatever the needs of the market are. That gives India an advantage over China in technical, skilled manufacturing."

That may be overstating the case. Few Western industrialists rank India ahead of —China in any manufacturing category. Yet few doubt that India is carving out a big role, as skilled manufacturing shifts to developing nations. If New Delhi makes the right moves, says McKinsey & Co. consulting, India could raise its manufactured exports to $300 billion by 2015, increasing its share of global manufactured exports from 0.8 percent to 3.5 percent, and leapfrogging other low-cost countries to become one of the top two exporters (along with China) of products like apparel, pharmaceuticals, specialty chemicals and auto components. India could also become a big supplier of consumer electronics, computer hardware, and domestic appliances. "It's India and China, as opposed to either India or China," says Shirish Sankhe, a McKinsey partner in Mumbai. "Countries that may lose out are those where they have smaller domestic markets or less talent, like Thailand, Mexico, some countries in Eastern Europe and so on."

The likely losers also includes the United States. In auto parts, for example, customers increasingly expect longer life and higher technology at less cost. ''The result is that American parts manufacturing has become extremely unprofitable," says K. N. Subramaniam, managing director of Gabriel India Ltd., the flagship of the Anand Group, which expects auto-parts exports to rise from $36.8 million in 2004 to $56.3 million this year. India's domestic sales look likely to cross the million-car threshold in 2005, achieving a scale that will justify heavy investment in technology and capacity, further increasing India's global competitiveness.

To match China's recent growth, India will have to eliminate some ill-considered policies, experts say. In order to encourage consumption in its domestic market, New Delhi needs to cut taxes on manufactured goods down to the Chinese level, which means a cut from as high as 30 percent to 15 percent. It also needs to slash import duties; improve roads, railways, ports, and the power grid; and develop the type of Special Economic Zones that have created clusters of booming industries in China.

Indian businesses are already finding creative ways to dodge these hurdles. To avoid crippling power outages, Moser Baer has built its own power plant. ''We generate about 80 megawatts of power every year," says Ratul Puri, Moser Baer's executive director. ''We don't even have a grid connection." Bharat Forge is located in the state of Maharashtra and ships out of nearby Mumbai, but also from Chennai (formerly Madras), Kochi (formerly Cochin) and Gujarat, in case of strikes and bottlenecks in Mumbai.

The Indian government is also becoming more responsive to industry. It has removed barriers to the internal transport of goods destined for export and simplified import-export procedures. At the urging of Moser Baer, the government constructed a container depot in Greater Noida that operates 24 hours a day and now ships 80 percent of the company's output. ''The government is listening," says Puri. ''Five years ago you couldn't even have that discussion with the government." And as China shows, in nations where government works for industry, factories grow quickly.

© 2005 Newsweek, Inc.

a black day for indian filmmaking

<>(This article appeared in Newsweek International in February 2005).

Feb. 28 issue - Indian director Anurag Kashyap expected "Black Friday" to strike a nerve. He hoped it would spark debate. After all, the film is the first feature to deal with the serial bomb blasts that devastated Mumbai in 1993, killing 300 people and injuring thousands. What's more, Kashyap's film seeks to explore the motives behind the attacks and attempts to show that India's opportunistic politicians—who thrive on a cycle of organized violence between Hindus and Muslims—bear a great deal of responsibility for the tragedy. But no matter how much controversy Kashyap anticipated, he was totally unprepared for the legal challenges by the alleged bombers that stopped the film's release last month.

Mushtaq Tarani, one of the men accused in the bombing case, moved the Mumbai High Court to suspend the release of the film, arguing that the dramatization of the crime would prejudice the trial against him. The court issued an interim stay, which the Supreme Court upheld, and now the filmmakers must wait for a ruling from the high court on whether the interim stay will be lifted. Tarani may have a point: "Black Friday" uses the defendants' real names. Tarani himself is shown planting one of the bombs, though Kashyap argues that the voice-over of a character undergoing police interrogation establishes the scene as just the point of view of another gang member. "It's based on a book that has been out there for two years," Kashyap says. "But [the court's] logic is that people don't read books but they do see films."

That's exactly why Kashyap and producer Arindam Mitra wanted to make the movie in the first place: to find out how Indians would respond to the idea that they, along with the politicians they support, are responsible for the Hindu-Muslim violence that culminated in the worst terrorist attack in their country's history. The question now is: when, if ever, will they get to find out?

—Jason Overdorf

© 2005 Newsweek, Inc.

airlines: brand india is taking off

The $375 million Jet IPO last week is just the latest sign that gloom has given way to euphoria in the Mumbai stock market.

By Jason Overdorf

(This article appeared in Newsweek International in February 2005)

Feb. 28 issue - The same day that "The Aviator" opened in theaters across India, homegrown flying entrepreneur Naresh Goyal debuted Jet Airways, India's first private air carrier, to rave reviews on the Bombay Exchange. In one of the first high-profile signs that Prime Minister Manmohan Singh's moves to deregulate India's aviation industry are beginning to excite investors, the initial public offering of 1.7 million shares sold out within minutes last Friday, raising at least $375 million.

The successful IPO comes as Brand India is taking off. In the first 17 days of February alone, foreign fund managers invested $1.5 billion, and market watchers expect the 2005 total to reach $12 billion, up from $8.4 billion last year and $6.7 billion in 2003. Now, with three billion-dollar IPOs last year and nearly 10 companies with market values in excess of $10 billion, the gloom that once shrouded the Indian market has turned into euphoria, inspired by Singh's reforms. Late last year, for example, his administration succeeded in raising the cap on foreign investment in the aviation sector to 49 percent from 40 percent, and allowed domestic carriers to begin flying abroad. No airline is better positioned than Jet to exploit these opportunities.

When India began opening the skies to competition 12 years ago, Jet became the nation's first private carrier. It is now the leading domestic airline, with a market share of 43 percent. Consumers regularly vote it first in India for service—one reason analysts say it should profit handsomely from an expected boom in air travel inside India, and be able to compete on international routes as well. Many investors see Jet as a way to invest in the growing spending power of India's middle class.

The risk: Jet is losing its first-mover advantage. It faces new private competition from Air Sahara and India's first low-cost carrier, Air Deccan. As many as five more discount carriers plan to open for business in 2005. They face hurdles to applying the discount model in India, where there are no airport slots left in or near big cities like Delhi and Mumbai, and costs for landing fees and jet fuel are extremely high. Still, a fare-price war may be coming. Jet says it's not worried, because it gets 80 percent of its revenue from business travelers who don't pinch pennies. And whether it helps Jet or not, the sight of thriving competition is sure to attract more foreigners to Brand India.

© 2005 Newsweek, Inc.

the last word: narain karthikeyan

(This article appeared in Newsweek International in February 2005).

Feb. 28 issue - On March 5, 28-year-old Narain Karthikeyan will become the first Indian to compete in Formula One racing when he takes the wheel for Jordan Grand Prix, the F1 team started by Ireland's Eddie Jordan, in Melbourne. It's a huge achievement for Karthikeyan, known as the "fastest Indian on wheels." Born in Chennai, he has been fighting for a place in the biggest competition in motor sports

for nearly a decade. Now, as he starts his engine, his sponsors Tata Group, JK Tyre and Bharat Petroleum Corp.—Indian companies finally entering into the aggressive marketing world of F1 to compete with giants like Shell and Marlboro—are steering themselves into pole position too. NEWSWEEK's Jason Overdorf spoke to Karthikeyan about his achievements and ambitions, as well as those of his giant country. Excerpts:

OVERDORF: You've been struggling to make it into Formula One for a long time. How does it feel to finally make it?
KARTHIKEYAN: We were all waiting for the right opportunity. I'm really happy to be the first Indian Formula One driver. It means a lot to the motor-sports fraternity.

Aside from cricket, Indian sportsmen don't get much support, yet you've been successful in getting some of India's corporate giants to sponsor you. How did you attract their interest?
Tata is a global company, and Formula One has the right image for them to get brand exposure. Bharat Petroleum has everything to do with cars. It suited their package, so they came onboard. They're also my long-term sponsors. Tata has been supporting me since 1999. Now I need to make it work. First we just need to finish some races—Jordan is not capable of winning yet. Then we'll be looking for more Indian sponsors so we'll have the money to make the car more competitive.

How difficult is it for Indian athletes—aside from cricketers—to break into the big time?
You need to be a standout. If you're pretty good and you're getting results internationally, you'll get some sponsors, like me. But in the beginning it's very, very hard. Cricket has been getting all the support, but slowly that's starting to change. Hockey, tennis and motor sports—these are getting more and more support. You need more international sports persons in these fields. You need some icons like me in Formula One. As this happens, more and more sponsors are going to look at different sports, and more and more kids will take them up.

How popular are motor sports in India?
It's getting there. F1 was the second most-watched sport on TV last year. [Viewership] is pretty high on the satellite channels. Now that's going to go up a lot more because I'm there. There are going to be a lot more Indians watching Formula One. This is a start for motor sports to grow bigger in India.

How do you rate your chances at success?
We have to be realistic. The Jordan car is not the best, for sure. We can't expect to compete with the [Michael] Schumachers of the world. If we finish in the top eight in some race and get the points, that would be great. Even if we finish among the top 14 qualifiers [out of 20 competitors], that would be good. But first we have to bring the car home in every race. In this sport, finishing itself is a big thing. I've been successful in Formula Three and Formula Two and beaten some pretty good drivers when they were competing at that level, so I think I can be very competitive given the right equipment.

Which makes you more nervous, driving on the track or driving on Indian roads?
Driving on Indian roads, by a long way. It's really crazy in some places, though it's getting better. [Foreigners] always ask me, "Which side of the road do you drive on in India—do you have right-hand drive or left-hand drive?" I say, "Whichever side we want." It's pretty dangerous out there.

Formula One has been trying to increase its presence in Asia over the past few years, opening races in Bahrain, Turkey and China. What role can you play in building interest in India?
Formula One at some point needs to grow in more Asian countries, and India is the perfect place. It's going to take government support, and the Indian government should realize that it would be a great thing [to have more Formula One races in India]. It would be great for the image of the country and have a lot of spinoff effects. And China is already ahead of us. Now [that I'm driving] we'll have a lot of viewers in India, a major market with a lot of people.

For Formula One, India has not been exploited yet, so they need to see if they can get something out of it. A lot of Indian companies will be interested in getting global exposure, so there will be a lot of marketing opportunities.

Have you seen a leap in commercial offers?
I am getting some offers, but I need to choose the right ones. So far I've only done ads for my sponsors.

© 2005 Newsweek, Inc.

snap judgment: books

(This article appeared in Newsweek International in February 2005).

Feb. 21 issue - Q&A By Vikas Swarup
Delhi's latest literary sensation, Swarup is a diplomat who earned a whopping six-figure advance for his first novel. Titled "Q&A," the book recounts the picaresque adventures of Ram Mohammad Thomas, an ignorant orphan who makes off with the jackpot on a quiz show called "Who Wants to Win a Billion?" To explain how he knew the answers, Thomas must tell the story of his life, starting with the Roman Catholic priest who took him in and named him for each of India's major religions. Too cute, perhaps, but "Q&A"—sold in more than 15 countries, with a movie in the works—certainly has its charms.
—Jason Overdorf

Angry Wind By Jeffrey Tayler
In an epic overland journey, Tayler, a travel writer, offers himself up as a sounding board for disenfranchised Muslims of central and west Africa. While he listens to their grievances against U.S. foreign policy, their own governments and the merciless landscape, a latent rage and potent despair come sharply into focus. Though Tayler locates the occasional oasis—his time with the nomadic Tuaregs stands out as joyous—he spends more time in Africa's windswept and conflict-ridden badlands. Comparing parts of the continent to Afghanistan, Tayler warns that the West ignores Africa's strife "at [its] own peril."
—Aaron Clark

Beyond the Great Indoors By Inguar Ambjornsen
Elling and Kjell Bjarne, two dysfunctional middle-aged men, meet at a psychiatric hospital and bond over their unhealthy relationships with their parents. After being released, they move into a flat in Oslo and struggle with everyday tasks like shopping and making small talk. But gradually the roommates gain confidence; they buy two kittens, Kjell Bjarne gets a girlfriend and Elling discovers poetry. One of Norway's most popular writers, Ambjornsen—translated here into English for the first time—has a talent for making the men's neuroses accessible and even appealing.
—Ginanne Brownell

© 2005 Newsweek, Inc.