Business en Fri Jul 05 12:32:59 IST 2019 detox-treatment <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p><b>Whenever the</b> economy slowed, a quick remedy to regain pace was to make banks lend more. It helped businesses expand and consumers buy more, driving up demand for goods and services. Now, however, banks’ headroom to lend has been limited by a mountain of non-performing assets (NPAs).</p> <p>The pandemic has made things worse. Sectors like travel, tourism and retail are severely affected. And bad loans across the system are expected to spike. The latest financial stability report by the Reserve Bank of India says the bad loan ratio is likely to hit a 23-year high. “The gross NPA ratio of all scheduled commercial banks may increase from 7.5 per cent in September 2020 to 13.5 per cent by September 2021 under the baseline scenario; the ratio may escalate to 14.8 per cent under a severe stress scenario,” it says.</p> <p>Finance Minister Nirmala Sitharaman has a plan for stopping bad loans from dragging the entire sector down—create a bad bank. A bad bank is essentially an institution that purchases NPAs from banks, restructures them and then sells them. It can save banks the trouble of dealing with toxic assets and help them focus on their more important role of lending.</p> <p>The government has been toying with the idea, but Sitharaman’s announcement in the budget was the first solid step towards it. She proposed that an asset reconstruction company (ARC) and asset management company (AMC) would be set up to consolidate and take over the existing stress debt and then manage and dispose of the assets to alternative investment funds and other potential investors for eventual value realisation. “The solution is coming out of the banks themselves,” she told THE WEEK. “They agreed to give a formulation to form something like a holding company, cull out all the bad assets and put them into the holding company and that holding company will do the job, which banks don’t have the wherewithal to deal with.”</p> <p>The Indian Bank Association had proposed the creation of a bad bank. “Taking over the bad loans reduces the provisioning requirements and enhances the ability of the banks to lend to productive sectors,” said IBA’s chairman Rajkiran Rai.</p> <p>An asset management company, in partnership with an asset reconstruction company, could take over stressed assets from banks. The AMC would conduct the operational turnaround of the assets and create value. In a sense, it would be the market maker and would ensure fair price and recovery of the stressed assets. This AMC is being set up so that AIF (alternative investment funds) can participate, which will facilitate ARC for purchase of the NPA and transfer the risk of those instruments from the banks and financial institutions to the AIF on a larger scale. The government has indicated that NPAs worth about 02 lakh crore would be absorbed by the bad bank, although detailed guidelines are still awaited.</p> <p>The proposed bad bank is not the first such entity in India. Several private asset reconstruction companies already exist and they have acquired stressed assets worth 03.8 lakh crore as of June 2019, according to the RBI.</p> <p>Dinesh Kumar Khara, chairman of State Bank of India, said he was hopeful that the new ARC, as well as the existing ones, would succeed now that there was an entire resolution ecosystem, including resolution professionals, that was available following the implementation of the bankruptcy code. “Once this kind of ecosystem is available and they start taking advantage of the ecosystem and start churning the asset, the existing ARCs also will find a new model and it will go a long way in terms of salvaging the bad assets and channelise the precious capital,” said Khara.</p> <p>Most experts agree that a bad bank was the need of the hour. Veena Sivaramakrishnan, partner at Shardul Amarchand Mangaldas’s banking and finance and insolvency and bankruptcy practice, said while the setting up of the AMC would facilitate the purchase of stressed assets and transfer of risk from the banks, some clarity would be needed on the sale of stressed assets to the AMC. Earlier banks could sell NPAs only to other banks, NBFCs and ARCs.</p> <p>Some experts are of the opinion that the government not planning any equity investment in the new entity (it will be funded by banks) might not be the best way forward. “In a best case scenario, where this bad bank could have been capitalised by the government and we could have bought the assets on a cash basis, would have been the optimum solution,” said Prakash Agarwal, head of financial institutions at India Ratings and Research.</p> <p>The government has in the past tried something similar when a Stressed Assets Stabilisation Fund was created to take over non-performing assets from the erstwhile Industrial Development Bank of India. However, this exercise was not very successful as SASF was able to recover just around half of the Rs9,000 crore in aggregate loans that were transferred to the fund, according to a 2014 audit report by Comptroller and Auditor General of India.</p> <p>Former RBI governor Raghuram Rajan and former deputy governor Viral Acharya, in a paper written last year, cited the IDBI experience and felt caution was warranted. “The bad bank is no solution if it simply transfers bad loans from one government-owned entity to another without changing the incentives to make bad loans at the seller or improving the ability to collect at the buyer,” they argued.</p> <p>Analysts say that a partial stress reduction may not make PSBs stronger. “A partial stress-removal cannot make these banks good as they are in need of radical institutional/governance reforms, apart from privatisation,” said Anand Dama, research analyst at Emkay Global Financial Services. “Further, the success of ARC/resolution of assets will be important, as the IDBI-SASF experience and other similar ARCs outside India have not been inspiring confidence.” &nbsp;&nbsp;</p> Thu Feb 11 16:38:30 IST 2021 bank-privatisation-is-a-welcome-decision <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p><b>Q</b><i>| </i><b>Finance Minister Nirmala Sitharaman presented a budget with a big ‘borrow and spend’ programme. Is it in the right direction?</b></p> <p><b>A</b><i>| </i>The finance minister was widely criticised all of last year for her fiscal reticence—that for all the hype in the Aatmanirbhar package, the direct government spend was far too little given the huge loss to lives and livelihoods. Many attributed this caution to apprehension about a possible rating downgrade and all the attendant macroeconomic costs. In hindsight, it now seems like the government was cautious more because of the unusual uncertainty surrounding the pandemic and the urge to keep the powder dry. Now that the pandemic seems to be on the decline and there are spring shoots in the economy, the government felt emboldened to unveil a fiscally activist budget as you call it. The government’s calculation seems to be that spending now during the unlock phase will deliver more bang for the buck than it would have earlier when mobility and economic activity were restricted. The government also seems to be betting on higher growth as a pre-condition for debt sustainability.</p> <p>&nbsp;</p> <p><b>Q</b><i>| </i><b>What do you think of the disinvestment programme?</b></p> <p><b>A</b><i>| </i>The budget has replaced ‘disinvestment’ with ‘privatisation’, which I believe represents a welcome mindset change. The government has also said that the public sector will be pared down to the minimum. Let us hope they will take that decision to its logical conclusion, and do so soon enough. That said, the disinvestment outcomes over the last few years have been very disappointing. This time around, let us hope that they will achieve the budgeted number, if not overachieve it.</p> <p>&nbsp;</p> <p><b>Q</b><i>| </i><b>What about the proposed privatisation of the two public sector banks?</b></p> <p><b>A</b><i>| </i>Bank privatisation is a very welcome decision. We nationalised banks over 50 years ago in a different era, in a different context. In the event, PSBs delivered huge benefits such as penetration into the vast hinterland of the country and expanding rural credit. But now, I believe the financial sector is wide enough and deep enough to take care of financial intermediation without the government in the driving seat. Many commentators have said that the government is testing the waters with privatising two PSBs to start with, and based on this experience, it will privatise more PSBs. I hope that is the case.</p> <p>&nbsp;</p> <p><b>Q</b><i>| </i><b>But it won’t be an easy task.</b></p> <p><b>A</b><i>| </i>Probably not. There are already rumblings of agitation by some PSB unions. But that was expected. Every reform has winners and losers. It is the responsibility of a democratically elected government to consider the interests of all stakeholders and do what is best for the larger public good. The question that the government should ask itself is this: why are we still in banking? If the government wants PSBs to mimic private banks in terms of decision making and profitability, why keep them in the public sector at all.</p> <p>&nbsp;</p> <p><b>Q</b><i>| </i><b>Was the amalgamation of PSBs a step in the right direction?</b></p> <p><b>A</b><i>| </i>On the contrary, I believe it was a needless distraction. At a time when the top managements of PSBs should have been focusing on resolving the bad loans and scouting for fresh lending opportunities, they were forced to give time and attention to managing the nitty-gritty of mergers. Besides, it is not unambiguously clear that large banks are necessarily better.</p> <p>&nbsp;</p> <p><b>Q</b><i>| </i><b>Would recapitalisation of PSBs help the sector move forward?</b></p> <p><b>A</b><i>| </i>To the extent the government is the owner of PSBs, it has the responsibility of ensuring that they are capitalised as prescribed by the RBI’s regulations. Only then can the PSBs add any economic value to both savers and investors. The government is fiscally constrained and there are very many competing claims, such as health and education for example, for its limited resources. That is another compelling reason for the government to get out of areas which can be taken care of by the private sector and limit itself to doing things only governments can do.</p> <p>&nbsp;</p> <p><b>Q</b><i>| </i><b>What about non-banking finance companies?</b></p> <p><b>A</b><i>| </i>NBFCs have come centre stage over the last couple of years since defaults by a couple of large groups such as IL&amp;FS and DHFL threatened overall financial stability. What we should not forget though is that NBFCs add value by lending in those areas and segments where banks do not go. Further, since the RBI does not allow NBFCs to raise deposits for consumer safety reasons, NBFCs are forced to access high-cost funds. This makes the NBFC model high-cost and high-risk. The constant attempt of the RBI is to calibrate the regulation of NBFCs to allow them the freedom to conduct their business, but in a way that does not jeopardise overall financial stability. The recent revision of NBFC regulation by the RBI is, I believe, a further step in that direction.</p> <p>&nbsp;</p> <p><b>Q</b><i>| </i><b>How will the creation of a bad bank help?</b></p> <p><b>A</b><i>| </i>The economy has been weighed down by the bad loan problem. The problem is going to get worse because of the pandemic as indeed reported by the RBI’s latest Financial Stability Report. The bankruptcy process has to be the absolutely last resort and we cannot afford to overload it. The need for a bad bank has to be seen in this context. I am sure the government will take into account international experience in structuring and managing the bad bank. For sure, the reality is that banks, especially PSBs, will have to take big haircuts. But it is better to do that and move on rather than allow the problem to fester and get even worse.</p> <p>&nbsp;</p> <p><b>Q</b><i>| </i><b>How do you foresee things in the near future and how will the Indian economy shape up in the near term? Will India get to a $5 trillion economy?</b></p> <p><b>A</b><i>| </i>We will of course get to a $5 trillion economy, but how we get there is as important as when we get there. A big lesson of development economics is that the quality of growth matters as much as the quantum of growth, which means the benefits of growth have to be widely shared. The trickle-down theory, we now know, just does not work. It needs activist government policies to ensure that our growth is job enhancing. Unemployment creates inequalities. Inequalities are corrosive everywhere, but can be much more corrosive in poor countries. The pandemic has accentuated inequalities. Millions of jobs have been lost, and big industries have taken market share away from the MSMEs. The informal sector is still in distress. As much as we focus on growth, we need to focus on creating jobs and enhancing productivity. Indeed, our path to a $5 trillion economy will take much longer if it does not lift all the boats. &nbsp;</p> Thu Feb 11 16:00:58 IST 2021 budget-at-home <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p><b>US singer </b>Karen Drucker’s throaty voice announcing that “I am happy, healthy, wealthy and wise…” has been the standard opening score of personal finance webinars jointly hosted by THE WEEK and Aditya Birla Sun Life AMC (ABSL). Budget and You was the theme of the latest webinar, held on February 6. It was moderated by K.S. Rao, head of investor education and distribution development at ABSL, and the co-panellists were investment advisers Amit Trivedi of Karmayog Knowledge Academy and Harsh Roongta of Fee Only Investment Advisers LLP. Both Trivedi and Roongta have multiple avatars—as coaches, writers, entrepreneurs and speakers.</p> <p>Rao had much to cheer as ABSL had just picked up its third honour in a row for investor education; in January, Asia Asset Management’s Best of the Best awards had named the company as the best in investor education. He began by saying that 2020 was a yorker of a year that saw both a complete bear run, followed by a bull run. “It simply means that market cycles are changing fast and we need to adapt,” he said, and added that Union Finance Minister Nirmala Sitharaman had taken these changes into consideration while drafting the budget.</p> <p>The webinar though mostly focused on personal finance rather than providing an overview of the budget. Rao said that Kautilya had provided his king with a rule of thumb budget guideline: earmark 25 per cent each for personal needs, future needs, public causes and charity. “That is for the raja, but as <i>praja</i>, perhaps, I will keep 50 per cent for myself and my family, 25 per cent for future needs and 25 per cent for charity. Again, in personal finance, the personal comes before finance, so the distribution will be as varied as the households around us,” Rao said.</p> <p>He also stressed on the need for writing down a family budget and sticking to it. “You don’t need to be a pro at MS Excel to do it. Just sit down with a sheet of paper,” Rao quipped. He also said that this lack of budgeting often resulted in poor tax planning, too, as everyone hurries to do it in January-March.</p> <p>An avid trekker, Roongta opened with an anecdote that illustrated the effects of fear on the human psyche. He and his cousin had set out to climb Duke’s Nose in Khandala, near Mumbai, and they chose the tough trail. Somewhere closer to the end of the trail they had to climb a cliff face which was exposed. “In hindsight, it looks mildly dangerous, but at that time, in my inflamed imagination it seemed like the end of my life,” he said. So, after climbing the face he refused to go further saying what if the trail presented more of such challenges. Despite reassurances from his cousin, he refused to budge, until a rescue team came and guided him for the rest of the way. The rest of the trail, Roongta said, was embarrassingly safe and simple to navigate.</p> <p>“Fear and greed are two basic emotions. They cannot be controlled, but can be understood and managed. You just need to understand them,” he said. These emotions and managing them play a big part in investing and managing money, he added.</p> <p>About the budget, Roongta said that while to a great extent it deserved the superlatives showered on it, the promises would come to naught if they were not delivered. He said that the budgetary provision for an investment charter (like the US Bureau of Consumer Protection) would surely build confidence among investors. In his exhaustive presentation, he also looked at many other provisions like the single securities market code; SEBI being appointed regulator for gold exchange; and streamlining of the Deposit Insurance and Credit Guarantee Corporation, which would provide bank account holders with easy and time-bound access to their insured amount, in case of a bank failure. “The budget’s coordinated effort towards investor protection and promoting retail investors’ confidence in the market should be welcomed,” Roongta said.</p> <p>The Q&amp;A session saw widespread involvement from viewers. About takeaways from the budget, Trivedi said, “It would do well to remember that while the government deems it important to conduct this annual exercise, individuals and households do not see merit in it or are not bothered. It is important to set out an annual personal/family budget, perhaps more important than analysing the Union budget.” Specific to this pandemic-influenced budget, he made two points: boost your financial immunity by maintaining contingency funds and being prudent about borrowing, and try to be counter-cyclical when fear is everywhere.</p> <p>There were also lighter moments when Roongta said that tax saving is often the tail that wags the average taxpayer’s budget. “A personal budget should be much bigger and tax saving is just a component in it,” he elaborated. Trivedi chipped in and quipped, “India has turned out to be a nation of underinsured tax savers. People save tax, but remain underinsured.” The laugh riot was extended when Rao pulled out an anecdote and said that Lord Yama had decided to take Indians only in January-March, because the highest number of insurance policies were sold during this period.</p> <p>Cricket, too, made an entry, against the backdrop of the history-making tour of Australia and the visit of the English side. While discussing appetites for investment in equity, Trivedi drew parallels between the styles of Cheteshwar Pujara and Rishabh Pant at the Gabba. “Both played brilliantly and as was required,” he said. “Equity allocation must be handled the same way, on the basis of your strengths and appetite.” And somewhere down the line when a viewer asked for investment options that provided great returns at minimal risk, Roongta quipped that it was like asking for a hybrid of a cricket bat and a pad. The two have different functions, he said, and cannot be merged without affecting their efficacy.</p> Thu Feb 11 15:55:57 IST 2021 betting-big-on-faith-and-hope <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p>Faith is the bird that feels the light and sings when the dawn is still dark,” said Nirmala Sitharaman in her budget speech on February 1, quoting Rabindranath Tagore. The Union finance minister’s “dawn-of-a-new-era”budget was not just a song, but a full-blown a cappella in crescendo. The Rs34.83-lakh-crore question, however, is, can the orchestra match up?</p> <p>&nbsp;</p> <p>Even before Sitharaman rose to present the budget, the contours of expectations were clearly laid out—an economy in the throes of a protracted slowdown suddenly buffeted by the coronavirus tsunami, and aggravated by the financial crash-boom-bang triggered by a lockdown. If that was not enough, the epochal churn of 2020 seemed to be leading to irrevocable political, economic and strategic transformations globally. How can the budget boost India’s immunity in this new world?</p> <p>&nbsp;</p> <p>Enter Doctor Sitharaman. Shedding her prudent, conservative and didactic demeanour, she offered booster shots to all and needy. She loosened her purse strings, with the focus on reviving growth. This involved a hike of Rs5 lakh crore in infrastructure spending—roads, railway freight corridors, bridges and ports. The other areas where she proposed spending big chunks of capital included health (of course!) and agriculture.</p> <p>&nbsp;</p> <p>“The impetus (was) to give the necessary demand push,”she said later. “That is why we chose to spend big.”Besides spending big, the government’s thrust is to bolster the India growth story by splurging on big projects that will lead not only to job creation and wealth trickling down, but also to pique private investment.</p> <p>&nbsp;</p> <p>The raising of foreign direct investment in the insurance sector, from 49 per cent to 74 per cent, is likely to lead to further easing of limits for foreigners. For the first time, financial sector public assets, including two banks and a general insurance company, will go under the hammer, besides the eventual initial public offering of the Life Insurance Corporation of India, which was announced in last year’s budget. Pretty significant because no previous government had dared to attempt selling off banks. She refused to name the banks, though.</p> <p>&nbsp;</p> <p>Unsurprisingly, India Inc could not contain its glee at the thought of all that money coming into the system. “This ‘once-in-a-century’budget…is a great balance of short-term impetus, fiscal prudence and long-term bold vision,”said industrialist Gautam Adani, whose name was mockingly sloganeered by opposition members in parliament when Sitharaman mentioned privatisation of ports. Anil Agarwal of Vedanta Resources said the budget would fast-track growth, create jobs and generate wellbeing. The markets also reacted happily, with the Sensex breaching the 50,000 mark, and international agencies predicting that it will go above 60,000 before the end of the year.</p> <p>&nbsp;</p> <p><b>IT’S POLITICS, STUPID!</b></p> <p>The Narendra Modi government’s eighth budget is probably the most pro-business and pro-reforms, shifting away from the ‘socialist’focus it had maintained for a pro-poor image. “The government has resisted the temptation to fall into the trap of crony socialism,”said Gopal Krishna Agarwal, the BJP’s expert on economic affairs. “The Budget 2021 is pro business, pro reforms. Creating wealth is a prerequisite to sustain the welfare economy.”</p> <p>&nbsp;</p> <p>While the budget addresses the BJP’s key constituencies of businessmen and traders, political compulsions did come into play in the form of the largesse to poll-bound states. It was hard-nosed political Modi at play, with Rs25,000 crore for West Bengal; 1,100km of highways in Kerala; 1,300km of highways in Assam; 3,500km of highways in Tamil Nadu; new phases of Chennai and Kochi metros; setting up of a seaweed park in Tamil Nadu; Kochi-Chennai-Visakhapatnam fisheries hub; and a welfare fund of Rs1,000 crore for tea estate workers in Bengal and Assam.</p> <p>&nbsp;</p> <p>A day after the budget, the BJP appointed Union ministers as the party’s election in-charges of these states—Agriculture Minister Narendra Singh Tomar for Assam, Minister of State for Home G. Kishan Reddy for Tamil Nadu, Parliamentary Affairs Minister Pralhad Joshi for Kerala and Minister of State for Parliamentary Affairs Arjun Meghwal for Puducherry. They will function as Modi’s emissaries and keep the focus on Centre’s programmes during campaigns.</p> <p>&nbsp;</p> <p>Another delicate issue playing on Sitharaman’s mind was the farmers’ agitation. Besides a hike in agriculture credit target to Rs16.5 lakh crore, she scored a political brownie point by reading out the details of the minimum support price paid by the government to the farmers, which was much higher than what the Congress government gave. The announcement of an agriculture cess is supposed to support creation of infrastructure facilities at the village or district level, which would give a signal to farmers that the government was serious about farmers’ well-being.</p> <p>&nbsp;</p> <p>On the cultural front, Sitharaman announced the setting up of schools for tribals. But her announcement of setting up Sainik Schools with the help of NGOs is in line with the idea of military education with nationalist values, a demand made by some hindutva outfits.</p> <p>&nbsp;</p> <p><b>SHOW ME THE MONEY</b></p> <p>Sitharaman’s capital expenditure plans in health and infrastructure are pretty grandiose, involving billions of rupees. “This ground-breaking focus on health will provide access to medical care to all in our country, fuel job creation and boost economic momentum,”said Prathap C. Reddy, chairman of Apollo Hospitals Group.</p> <p>&nbsp;</p> <p>Sitharaman said that there was a 137 per cent increase in the allocation for health and wellness. But the estimate for health ministry last year was Rs65,000 crore, while it was Rs71,000 crore this year. So where is this 137 per cent increase? Experts say the figure can be reached only if you add up the money allocated for related variables that contribute to health, such as allocations for drinking water, sanitation, nutrition and the ministry of AYUSH. “The allocation for drinking water and sanitation is good, but it cannot be added as an increase to show a rise in the health budget,”Dipa Sinha, assistant professor (economics), school of liberal studies, Ambedkar University, Delhi. “The money allocated for Covid-19 vaccination (Rs35,000 crore) also is only a one-time investment. We are still far from the goal of 2.5 per cent of GDP as the health budget.”</p> <p>&nbsp;</p> <p>The Atmanirbhar Bharat Health Scheme has been allotted 064,000 crore, but it is for a period of six years. Rs1.14 lakh crore has been allotted for establishing seven textile parks, but this will be over a period of three years. The National Infrastructure Pipeline has seen Rs1.10 lakh crore work completed, but the original outlay over the next four years is Rs102 lakh crore. The Development Finance Institution (DFI), which will finance long-gestation infra projects, aims at Rs5 lakh crore, but that is over three years; the capital given this year is just Rs20,000 crore.</p> <p>&nbsp;</p> <p><b>BEG, BORROW—IT’S A STEAL!</b></p> <p>One of the few areas where Sitharaman said she was coming clean was on the fiscal deficit figures—the gap between what the government earns and what it spends. This has shot up to 9.5 per cent of the GDP, way more than expected. And it does sound incredulous when the budget says it will be brought down to 6.8 per cent by next year, considering all the massive capital expenses planned.</p> <p>&nbsp;</p> <p>“Obviously, this is possible (only) by borrowing money, which in turn will lead to much higher deficit numbers,”said Ratish Pandey, business coach, Ethique Advisory. “Any push like what is proposed in this budget will come at a cost and in this case it is inflation (price rise) that the citizens will have to face and contend with.”</p> <p>&nbsp;</p> <p>However, India Inc, and many economists, feel this is the time to spend and revive without bothering too much about the deficit. “We need to grow our way out,”said Sanjiv Bajaj, chairman and managing director of Bajaj Finserv. Uday Kotak, managing director and CEO of Kotak Mahindra Bank, said it was a bold, big-bang approach, even if we are borrowing. “It’s time to spend…you are creating a long-term asset,”he said.</p> <p>&nbsp;</p> <p>Ironically, selling off existing assets makes the other prong of the government’s strategy to raise money. The target set this year for ‘privatisation’is Rs1.75 lakh crore. How sound a fiscal measure it is to sell profitable public enterprises is something to ponder over in the long run, and not just for the political hot potato it could be.</p> <p>&nbsp;</p> <p><b>MAN IN THE MIDDLE</b></p> <p>With all the focus on business and privatisation, and all the lip service to farmers and health care, the average middle class person seemed almost forgotten. There were hopes that personal income tax slabs would be rejigged. “Certainly, a cut in personal income tax rates would have helped,”said Himanshu Parekh, partner and head (corporate and international tax), KPMG in India, “At this juncture, the focus [is] on helping economic recovery through employment generation by accelerating investment in infrastructure. Increasing employment could also improve consumers’purchasing power and thereby spur consumption.”</p> <p>&nbsp;</p> <p>The rising fiscal deficit leading to inflation could hit the common man badly, though. For the moment, many are rather relieved that the agri cess does not amount to any additional hike in prices, and the much-rumoured ‘Covid cess’did not materialise.</p> <p>&nbsp;</p> <p><b>YOU GOT TO HAVE FAITH</b></p> <p>While the government has bitten the bait and allotted massive amounts for ‘Atmanirbhar’projects, the key lies in execution. The government’s bet is not just on the trickle down effect of its heavy spending, but also on it enthusing domestic industrialists to expand operations and get foreign capital flowing in. “The finance minister gave an optimistic long-term budget, but the recovery is still very fragile,”said Surabhi Goyal, assistant professor, School of Business, Sushant University, Gurugram. “Looking at the disagreements between central and state governments, civil instability and pandemic affected sectors, the projection of 9 per cent growth is unlikely to be met. With a 4 per cent inflation, the nominal growth rate needs to be 13 per cent, which is unlikely to happen. On the expenditure side, if we assume the GDP growth rate at 13 per cent and deficit at 5.6 per cent, government expenditure will also grow at 18 per cent. Such mathematical modelling is possible on Excel but not achievable!”</p> <p>&nbsp;</p> <p>It puts into perspective Sitharaman quoting Tagore in her speech. Faith may move mountains, but if it can nudge an economic graph upward is something we will have to wait and watch.</p> Thu Feb 04 18:48:02 IST 2021 all-in-on-spending <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p><b>TO SPEND OR NOT </b>to spend, that was the question in front of Finance Minister Nirmala Sitharaman ahead of Union budget 2021-2022. The prevalent expectation was that the government would spend big to lift India out of recession. But, the bruising pandemic meant that lack of funds was a serious concern. It has become clear from the budget that Sitharaman decided to spend in critical areas like infrastructure and health care, hoping that as the economy rebounds the Centre’s coffers would fill up again.</p> <p>&nbsp;</p> <p>In the 2020-2021 (FY21) budget, the finance minister had estimated fiscal deficit at 3.5 per cent of the GDP. But, following the stimulus and relief measures, expenditure rose to Rs34.50 lakh crore, as per the revised estimate, from the budget estimate of Rs30.42 lakh crore. Capital expenditure, too, is now estimated at Rs4.39 lakh crore, up from the budget estimate of Rs4.12 lakh crore. For the next financial year (FY22), the government’s expenditure is pegged at Rs34.83 lakh crore, including Rs5.54 lakh crore as capital expenditure.</p> <p>&nbsp;</p> <p>All this meant that the fiscal deficit has been allowed to grow much further than most economists and rating agencies expected. The revised fiscal deficit estimate for FY21 is 9.5 per cent (consensus market estimates were around 7.6 per cent). For FY22, the fiscal deficit is estimated at 6.8 per cent. The government plans to bring the fiscal deficit below 4.5 per cent only by 2025-2026. The target visualised in the previous medium-term fiscal consolidation path was 3 per cent.</p> <p>&nbsp;</p> <p>But, the decision to spend more to spur growth has generally been welcomed. Sonal Varma, chief India economist at Nomura Securities, said the government’s decision to accelerate spending, a reversal of earlier strategy, reflects its view of higher growth as a pre-condition for debt sustainability. The higher deficit though is not just because of higher spending. Jonathan Sequeira and Andrew Tilton, Goldman Sachs economists, noted that fiscal deficit is higher than expected in FY21 and FY22 “primarily because of a one-off move to repay arrears due to the Food Corporation of India, and include all food subsidies on the budget going forward”. But they added that spending seems likely to ramp up significantly over the next few months.</p> <p>&nbsp;</p> <p>The government is funding the higher fiscal deficit through debt. It plans to borrow Rs80,000 crore from the market in the next two months. The gross borrowing for next year has been pegged at around Rs12 lakh crore, also higher than expectations. This is likely to weigh on bond yields; the plan to increase borrowing has already led to bond yields rising. The Centre hopes that tax buoyancy, and disinvestments of public sector undertakings (PSUs) and monetisation of assets will help it return to the fiscal consolidation path.</p> <p>&nbsp;</p> <p>Disinvestment is estimated to yield 01.75 lakh crore in FY22. The Centre hopes to complete stake sale in assets such as the Bharat Petroleum Corporation Limited and Air India, and privatise two state-owned banks and one general insurance company. The initial public offering of insurance behemoth LIC is also expected to be completed in FY22. The government has also increased the foreign direct investment limit in the insurance sector to 74 per cent. But, achieving the disinvestment target will be a tall order. The revised estimate for FY21 was Rs32,000 crore against a target of Rs2.1 lakh crore. Disinvestment proceeds in the last five years have averaged 0.4 per cent of the GDP, and therefore the FY22 target (0.8 per cent) appears ambitious, said Sequeira and Tilton.</p> <p>&nbsp;</p> <p>Asset monetisation is going to be a key financing option, from Railways monetising its dedicated freight corridor assets to warehousing assets of PSUs, airports in smaller towns and sport stadiums. “Aggressive disinvestment and the monetisation of government assets, if effectively executed, will help balance the fiscal equation,”said Arun Kumar, chairman and CEO of KPMG in India. “This is preferable to [tax hikes] at this juncture.”Direct and indirect taxes were by and large left unchanged and the long-speculated Covid-19 cess was not announced.</p> <p>&nbsp;</p> <p>Experts say that additional capital expenditure has the potential to boost GDP by up to 1.3 per cent over the medium term and that it is necessary to spend more in areas like infrastructure to move to 7 per cent to 8 per cent long-term economic growth. M. Govinda Rao, chief economic adviser, Brickwork Ratings, and member, 14th Finance Commission, said: “Although the economy is in recovery, there are hopes of continued support through elevated public spending.” But, if additional borrowing does not deliver on capital spending and growth, there is a risk as the borrowings will be difficult to sustain, said Suman Chowdhury, chief analytical officer at Acuite Ratings and Research.</p> <p>&nbsp;</p> <p>Management of public finances is going to be key as government debt is likely to be around 90 per cent of the GDP over the next few years. That and the weaker fiscal roadmap over the medium term would have raised concerns among rating agencies. “Rating agencies may view the budget as slightly more negative, given their focus on medium-term fiscal finances,”said Varma of Nomura. “We believe the budget may have increased the probability of a downgrade from Fitch.”In June 2020, Fitch had revised the outlook on India’s long-term foreign currency issuer default rating to negative from stable, citing significantly weakened economic growth because of the pandemic. On February 2, it warned that the deficit target presented in the budget was higher, and the medium-term consolidation was more gradual than expected.</p> <p>&nbsp;</p> <p>“The budget highlights the challenges to stabilising India’s debt trajectory following the Covid-induced economic shock,”said Gene Fang, associate managing director (sovereign), Moody’s Investors Service. “Although, a decline in new Covid-19 cases and normalising activity are driving an economic rebound, the lasting effects of the pandemic on the economy will continue to pose downside risks to sustained growth in the medium term.”</p> Thu Feb 04 18:49:16 IST 2021 state-of-the-play <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p>In season two of the epic fantasy Game of Thrones, Cersei Lannister, queen of the Seven Kingdoms, approaches Petyr ‘Littlefinger’ Baelish for some crucial information. Littlefinger, the wily and scheming courtier, proceeds to taunt her, hinting he knows about her incestuous relationship with her brother, and condescendingly quips, “Knowledge is power”.</p> <p>&nbsp;</p> <p>Cersei instantly takes stock of the situation and orders her guards to seize Littlefinger and cut his throat. Just as an armoured guard is about to do it, she shrugs and says, “Oh wait, I’ve changed my mind…. let him go.”</p> <p>&nbsp;</p> <p>As a shaken Littlefinger looks at her aghast, Cersei imperiously makes her point, “POWER is power!”</p> <p>&nbsp;</p> <p>Jack Ma might just be feeling Littlefinger-like right now. As the imperial might of the statist China’s old guard looks to rein in his young and brazen internet success story, it holds valuable lessons not just for global business and Big Tech, but also for India’s startup ecosystem.</p> <p>&nbsp;</p> <p>Jack Ma’s Alibaba is the world’s largest retailer and e-commerce company, despite operating primarily in mainland China. Alibaba fintech affiliate Ant is into everything from venture capital funding and lending to digital payment. Ma’s success over the past two decades had earned him sobriquets like ‘China’s Steve Jobs’ and was seen as an example of excellence in entrepreneurship that could be a role model to aspirants.</p> <p>&nbsp;</p> <p>All that came crashing down recently. Chinese regulators suspended the proposed $34.5 billion IPO of Ant, which was supposed to be the crowning glory in Ma’s trailblazing saga. It sent shockwaves across global business circles. The crackdown did not stop at that. People’s Bank of China, the country’s central bank, summoned Ant Group officials for regulatory talks, laying out a five-point compliance agenda. Investigations are already on into the company’s anti-competition practices and whether it misused the ‘network effect’ of market domination. Rumours are rife whether the company will be split-up or taken over by the state.</p> <p>&nbsp;</p> <p>“It is a power game,” said Partha Ray, professor of economics at IIM Calcutta. “In China, there is effectively an uncomfortable coexistence of a totalitarian government with private property, wealth and entrepreneurship. Conflict between a billionaire entrepreneur like Jack Ma and the state machinery is an inevitable outcome of that connection between business and politics.”</p> <p>&nbsp;</p> <p>Ma disappeared from public following the IPO suspension in October, and popped up mysteriously at a rural teacher’s meet on January 20, where he awkwardly spoke about spending the rest of his life focusing on charity work. While his company confirmed the authenticity of the video, the fact that it was published by state-affiliated media has not helped to quell rumours.</p> <p>&nbsp;</p> <p>The crackdown on Ma’s empire stems from the inordinately widespread sway and influence internet companies in general, and Alibaba and Ant in particular, have on Chinese society. Alibaba has a stranglehold on the Chinese marketplace, accounting for 20 per cent of its total retail sales. Statistics indicate that half of China’s population now shop online, which means primarily on Alibaba. Even more crucially, the company expanded into fintech. Its Yu’e Bao is the world’s largest money market fund and its digital payment wallet Alipay is a market leader. Alipay and its main rival Tencent’s all-in-one messaging app WeChat (which processes payments, too) together control 94 per cent of China’s digital payments market.</p> <p>&nbsp;</p> <p>Not surprisingly, the establishment has been getting apprehensive. President Xi Jinping himself had voiced that “financial risk” was one of the three toughest battles his government would have to face. Some reports suggest that Xi personally ordered the crackdown on Alibaba.</p> <p>&nbsp;</p> <p>“One of the most critical factors compelling Chinese regulators to clip Alibaba’s wings has been to reclaim the fintech space,” said noted China expert G. Venkat Raman in a recent essay. “The party-state is more than keen to take back the space dominated by the private players.”</p> <p>&nbsp;</p> <p>The Chinese government’s concerns can be put in perspective with the anti-trust cases in the US against Google and Facebook, as well as the constant worries voiced in India and the rest of the world over storage and misuse of data and the seemingly unbridled power that Big Tech is wielding. In China, of course, the concerns are all the more heightened considering the impression that the party-state was losing its grip. Xi and the Chinese Communist Party had to act, and Ma was the scapegoat.</p> <p>&nbsp;</p> <p>The bigger question now, as far as rest of the world is concerned, is the impact this would have on technology and business, coming as it does on the heels of the security concerns over the telecom giant Huawei. Now that Xi has demonstrated his intent to control even China’s private tech enterprises, will it have a detrimental effect on Chinese technology and their adoption in other countries, particularly India? “In this post-Covid situation when China is the only major economy that has registered a positive growth, it indeed has a greater leeway to get away with actions such as this,” said Ray.</p> <p>&nbsp;</p> <p>One of the last executive orders signed by Donald Trump as US President was to ban transactions with eight Chinese software applications, including Alipay and WeChat Pay. “I stand (committed) to protecting the privacy and security of Americans from threats posed by the Chinese Communist Party,” said Trump’s commerce secretary Wilbur Ross, commenting on the order. One proposal doing the rounds is to ban inflow of Chinese funds and investments, but it will depend on the route map the Joe Biden administration will adopt to deal with the dragon.</p> <p>&nbsp;</p> <p>For India, the issue is of grave concern, and goes beyond the tokenism of banning Chinese apps. Ant and Tencent have been among the biggest investors in Indian startups. Alibaba and Ant have played a major role in the success of Paytm, Zomato, SnapDeal and BigBasket. Tencent has invested in the likes of Dream11, Byju’s and Swiggy. There is now a question mark on these investments.</p> <p>&nbsp;</p> <p>In one way, the heightened tension on the border between India and China had already set the compass for India way before the Chinese government’s crackdown on its tech biggies. Indian startups have been turning to other sources for funds. Since summer, Indian startups have raised nearly Rs50,000 crore from non-Chinese sources.</p> Thu Feb 04 18:50:13 IST 2021 up-in-the-air <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p><b>BEFORE GREENLIGHTING</b> the return of the Boeing 737 MAX, which had been grounded for about two years following two fatal crashes in a span of six months, US Federal Aviation Administration chief Steve Dickson piloted it himself to make sure everything was okay. The aircraft, which has a worldwide fleet of 390, was cleared for action in November after several modifications. And, in late January, five airlines in North and South America started using the aircraft in commercial service.</p> <p>&nbsp;</p> <p>On January 27, the UK Civil Aviation Authority also lifted the ban on the aircraft, shortly after the European Union Aviation Safety Agency did so. However, the CAA stressed that the pilot training requirements meant it would be some time before the plane took to the air.</p> <p>&nbsp;</p> <p>The two crashes—Lion Air flight JT610 in Indonesia in October 2018 and Ethiopian Airlines flight ET302 in Addis Ababa five months later—took 346 lives. Indian pilot Bhavye Suneja was the captain of the Lion Air flight.</p> <p>&nbsp;</p> <p>Notwithstanding the recent approvals, the Directorate General of Civil Aviation has not allowed the aircraft to resume service in India. Locally, only SpiceJet has a Boeing 737 MAX fleet; it had ordered 205, of which only 13 have been delivered so far. The aircraft is fuel-efficient, which helps budget carriers like SpiceJet reduce operational cost. But amid the current uncertainty regarding the aircraft’s return to Indian skies, the airline is reportedly seeking damages from Boeing for the losses incurred.</p> <p>&nbsp;</p> <p>A senior DGCA official said a decision would be taken when its experts were fully satisfied.</p> <p>&nbsp;</p> <p>“We are working with the DGCA and [other] global regulators to ensure return of the MAX to service,” said Boeing India president Salil Gupte. “Boeing set up a 737 MAX simulator in Noida last June/July, and it will be ready to train pilots when DGCA un-grounds the aircraft.”</p> <p>&nbsp;</p> <p>Boeing has been working closely with the DGCA since 2019 to ensure the aircraft’s safe return in India. “The DGCA is engaged with the FAA and other regulators. We are following DGCA timelines,” Gupte added.</p> <p>&nbsp;</p> <p>Aviation experts in India, however, are cautious about the aircraft’s return. “India should not allow the MAX [to operate] until all the pilots are trained and their profiles are checked,” said Captain Mohan Ranganathan, an aviation expert. He added that a manager at the airline and an official in the DGCA’s Flight Standards Directorate, which clears the pilots, need to be made accountable before the aircraft is allowed to fly again. The FSD inspector should be a qualified TRE (Type Rating Examiner) on the Boeing 737 New Generation aircraft (the generation before the MAX), he said. “If the monitoring inspector is not an experienced NG pilot, these checks are a farce,” said the former Boeing 737 instructor pilot.</p> <p>&nbsp;</p> <p>Some aviation experts, however, said that the 737 MAX would be among the safest planes around once the manufacturer makes some fixes.</p> <p>&nbsp;</p> <p>An aviation insider claimed that the manufacturer had installed a bigger engine in the MAX to increase payload, which had led to stability issues. Because of their size, the engines were installed further forward than the engines on the 737 NG. To make the aircraft stable, a new software called the Maneuvering Characteristics Augmentation System was installed; this was the system that malfunctioned and caused the two crashes.</p> <p>&nbsp;</p> <p>“After the first accident, the manufacturer should have taken note of it,” said a pilot who has flown the aircraft, but did not want to be named. “The MAX has always been considered a safe aircraft, but the technical glitch was not tested in all-weather conditions.” He also claimed that Boeing was in a hurry to launch the aircraft as a rival manufacturer was entering the market with another model.</p> <p>&nbsp;</p> <p>Ed Pierson, a US navy veteran involved in the 737 production line (2015-2018), was a key witness during Congressional hearings into the crashes. He testified in 2018 that the factory was in a “chaotic” and “dysfunctional” state as managers put pressure on the staff to build the planes as quickly as possible. Pierson was worried that some issues were overlooked in the rush, and even told US lawmakers that he was hesitant to take his own family on a Boeing plane.</p> <p>&nbsp;</p> <p>In response, Boeing claimed that, besides stringent safety checks, efforts were on to “build trust among customers, regulators and even the public”.</p> <p>&nbsp;</p> <p>The FAA, in its report, claimed that through a thorough, transparent and inclusive process, it had determined that Boeing’s proposed changes to the 737 MAX design, flight crew procedures and maintenance procedures effectively mitigated the safety issues that contributed to the crashes.</p> <p>&nbsp;</p> <p>The FAA also said that regulators (including the DGCA) had indicated that Boeing’s proposed changes would give them the confidence to reinstate the aircraft.</p> Thu Feb 04 18:51:02 IST 2021 in-the-fast-lane <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p><b>When the Covid-19 </b>pandemic started spreading rapidly across the world in February 2020, capital markets were among the biggest casualties. Fearing the worst, investors dumped stocks and rushed to safer assets. The NSE Nifty 50 index, which had hit a life high of 12,430.50 on January 20, 2020, crashed 40 per cent, to 7,511.10 on March 24, 2020.</p> <p>However, it bounced back in no time, and there has been a relentless rally since, backed by the fiscal stimulus measures unleashed by the central banks and governments. With interest rates crashing to near zero in many developed markets, foreign institutional investors (FIIs) channelled huge amounts into emerging markets, driving them to dizzying heights.</p> <p>On January 21, 2021, the Nifty 50 touched 14,753.55 in intra-day trading, which is more than 96 per cent jump in ten months. The BSE Sensex surged from 25,638.9 on March 24, 2020, to 50,184.01 on January 21, 2021. The 96 per cent rally has been driven by a flood of FII money, a faster-than-anticipated recovery in the economy and the better-than-expected corporate earnings growth.</p> <p>“In March 2020, when the markets fell sharply, investors were factoring in the worst case scenario. From there on, as the lockdown was lifted, it was evident that the economy was slowly and steadily limping back to normalcy, and the markets started factoring in some degree of normalised economic growth,” said Shibani Sircar Kurian, head of equity research at Kotak Mahindra Asset Management Company.</p> <p>Several positive developments influenced investor sentiments over the past few months. For instance, even as the pandemic continues to create havoc in Europe and the US, cases have been falling in India since September. Corporate earnings in the July-September quarter were much better than expected, and early results by companies indicate a further pick up in the December quarter. After contracting a record 23.9 per cent in the June quarter, India’s economy has been recovering; it contracted 7.5 per cent in the September quarter and is expected to turn positive in the December quarter. Vaccines of several companies getting approved have also raised hopes of taming the pandemic.</p> <p>“Recovery in India has been sharper than earlier expected as seen in the continuous improvement of high frequency indicators from the lows of April 20. Performance of companies whose results have already been declared are better than expected, leading to earning upgrades and aiding the upward momentum in the market,” said Kurian.</p> <p>Amid all these, FIIs pumped in Rs1.7 lakh crore into India’s equity markets in 2020, a 68 per cent year-on-year growth. Interestingly, foreign investors had pulled out Rs61,973 crore in March 2020. As global liquidity continues to remain abundant, the FII flow is expected to remain strong. As of January 22, 2021, they had invested Rs24,469 crore. “The dollar being weak, we are seeing a lot of that money coming into emerging markets. India has clearly been a big beneficiary of the FII flows and that is what has lifted the markets,” said Kurian.</p> <p>As the markets have rallied, Indian investors, too, have taken to buying stocks in a big way. About a crore new investors entered the markets in 2020, which is more than twice the new investors in 2019.</p> <p>The economy is expected to see a strong rebound in 2021. Fitch Ratings forecasts India’s real GDP to grow 9.5 per cent in the next financial year, though on a low base. Rural demand has remained fairly buoyant despite the pandemic, which will benefit companies like two-wheeler makers, farm equipment makers and construction material providers. Ratings agency CRISIL is expecting a 10-12 per cent rise in tractor industry volumes this year. Commodity companies are also expected to benefit, as global economies revive. The catch, however, is that the markets might already have run up well ahead.</p> <p>The Nifty 50 is currently trading at more than 22 times one-year forward earnings (stocks’ prices over their predicted earnings per share for the next fiscal year), which is 23 per cent higher than the average of the past 10 years. Nomura Securities’s December 2021 target for the Nifty 50 was 14,680. For a few other brokerages, the year-end target was around 15,000, which is less than 5 per cent upside this year from current levels.</p> <p>Mahesh Patil, who spearheads equity investments at Aditya Birla Sun Life Mutual Fund, said that in the near-term markets looked over-priced, but the ample liquidity and capital flows into Indian equities would continue to drive them. Also, India is entering a phase where earnings recovery would be much stronger than what was seen in the past few years.</p> <p>A word of caution, however, is in order. “One can’t take a blanket call that anything and everything will go up. The margin of safety is a little less now,” said Avinash Gorakshakar, director (research) at Profitmart Securities.</p> <p>He expects some profit booking this year and a slowdown in foreign investment once the US economy starts recovering and the dollar strengthens. “Last year was something out of the blue,” he said.</p> <p>“When we look at the earnings growth and valuations, we believe equities can deliver around 10-12 per cent compounded annual growth over the next three years,” said Patil.</p> <p>There are several pockets of opportunities even though headline valuations may be expensive. “Covid-19 has resulted in a significant shift in market share from unorganised to the organised segment as larger players have stronger balance sheets and thus the ability to withstand stress better. So, across sectors we are seeing consolidation, and we are trying to identify companies that are not only geared towards earnings recovery, but also will gain market share in their sectors,” said Kurian.</p> <p>With private sector investment unlikely to revive in a big way in 2021, all eyes will be on the government’s thrust on infrastructure. This will benefit companies in sectors like capital goods and infrastructure. The government’s ‘Make in India’ push through the recently announced production-linked incentives could also boost industrial and construction companies.</p> <p>“The pharma and IT sectors are likely to witness stronger growth over the next 3-5 years, driven by structural changes in cost structure and demand environment, respectively,” said Saion Mukherjee, head of India equity research at Nomura Securities.</p> <p>Companies raised an all-time high Rs1.77 lakh crore in 2020 via initial public offers, follow-on public offers, offer for sales and qualified institutional placements. It was just Rs82,241 crore in the previous year. There were 15 mainboard IPOs that hit the market last year, raising more than Rs26,000 crore, according to Prime Database, which monitors primary market data. Nine IPOs saw a subscription of over 10 times. Burger King, Happiest Minds Technologies and Mrs Bectors Foods doubled their value on listing.</p> <p>Several big ticket IPOs, including those of the state-owned oil refiner Bharat Petroleum Corporation and the country’s largest life insurer, Life Insurance Corporation of India, are expected this year. These will be big triggers for the market and attract a huge investor interest.</p> <p>The Rs4,600 crore IPO of state-owned Indian Railways Finance Corp a week ago got subscribed over three times. Railtel Corp, Kalyan Jewellers, Barbeque Nation and Zomato are also hitting the markets this year. &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;&nbsp;</p> Thu Jan 28 14:46:55 IST 2021 a-nudge-and-a-wink <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p>ABC may sound as easy as 1,2,3… but not when you are Narendra Modi, and ABC forms a crucial pivot on which you are basing your blueprint for the future of India’s economy.</p> <p>&nbsp;</p> <p>The prime minister’s penchant for catchy acronyms is well-known, and the business and financial sectors have come up with a new one, which they feel will be the focus area of the upcoming budget—ABC, or ‘Anything But China’. “I feel the budget should cash in on the ABC movement,” said Gaurav Bhagat, business coach and founder of GB Academy. “As more and more global companies look at sourcing from India, the budget should incentivise companies that are making capital expenditure.”</p> <p>&nbsp;</p> <p>Given the ravages of the pandemic, the budget that Finance Minister Nirmala Sitharaman will present on February 1 needs to attract money—a lot of it—in the form of investment, and ‘nudge’ citizens, companies and foreign investors to spend big. The wish list is clear, and long. “The budget is expected to give a roadmap of fiscal consolidation as we had a revenue shortfall and had huge expenditure because of the lockdown,” said Syed Zafar Islam, Rajya Sabha member and the BJP’s expert on economic affairs. “These are also industry expectations. Many (also) expect some announcements on the demand side, as many (of the earlier) announcements were on the supply side.”</p> <p>&nbsp;</p> <p><b>The rope trick</b></p> <p>His eighth Union budget will be a tall order for Modi and his sparse exchequer. India’s economy is officially in recession, with contraction in the first quarter during the lockdown at a whopping 23.9 per cent. The pandemic has clearly affected India more than most other major economies. The budget deficit is estimated to be above 5 per cent (3 per cent is the ideal permissible limit). Add an additional deficit of 4.5 per cent, if you count in the precarious economic status of the states. Core sectors’ output is yet to revive, and crores of people are still suffering from the aftermath of the pandemic, ranging from job losses to salary cuts. Individuals and businesses have both tightened their purse strings, while industry captains, even those from sectors like automobiles and electronics that saw robust pickup during the festive season, are worried whether it was real recovery or just ‘pent-up demand’.</p> <p>&nbsp;</p> <p>Politically, Modi has a tricky tightrope to walk. All his key constituencies have felt the pinch of the pandemic. Assembly elections in West Bengal, Tamil Nadu, Kerala and Assam are up in three months. Bengal is particularly crucial for the BJP’s long-term political plans.</p> <p>&nbsp;</p> <p>It has not helped that many of Modi’s pet projects, especially the agriculture reforms, have been challenged. As an interim measure, the Supreme Court has stayed the implementation of the farm laws. Modi had batted firmly for these laws aimed at opening up the sector to private players. The budget may try to allay the fears of farmers by increasing the payout under the PM Kisan programme.</p> <p>&nbsp;</p> <p>But the need of the hour, farm bill or not, is to push growth. And the solution?</p> <p>&nbsp;</p> <p><b>Money, money, money</b></p> <p>“There is a lot of spending to be undertaken, but the kitty is extremely limited. So, whatever spending the government does has to have a force multiplier (effect) on private investments,” said Arindam Guha, who leads the government and public services practice in Deloitte India.</p> <p>&nbsp;</p> <p>For instance, while everyone agrees that infrastructure (from roads and urban facilities to power, health and education) will be where spending could have the best trickle-down effect, a look at the National Infrastructure Pipeline shows that the government granted just 04.5 lakh crore this financial year, while the total proposed spending till 2025 was 0110 lakh crore. Going by this, it is clear that the government can at best afford just 25 per cent of the total cost (state governments are supposed to spend 20 per cent, though that is highly unlikely in the current conditions). “There is still a 60 per cent gap in funding. That is what we expect the budget to address,” said Guha.</p> <p>&nbsp;</p> <p>This is where ABC comes in. The budget can provide a roadmap for infrastructure spending that can attract money from not only private investors, but also sovereign and wealth funds of foreign governments. And, if you need to push ABC, investment in attracting global manufacturers could sow the seeds of future recovery. “Infrastructure has to be scaled up,” said Guha. “Logistics and utility costs in our country are higher than in China or Vietnam. No country is going to sacrifice its global competitiveness to invest in India. We need last mile connectivity, logistics parks, port and airport infrastructure and facilities for trade.”</p> <p>&nbsp;</p> <p>Economist Sethurathnam Ravi, former chairman of the Bombay Stock Exchange, said the budget would focus on capital, because growth could not happen without capital expenditure. “All FDI limits (including insurance) will be revisited so that foreign capital comes in. And a ‘bad assets bank’ could help in making the financial system robust again,” he said.</p> <p>&nbsp;</p> <p>Aniket Doegar, CEO and co-founder of Haqdarshak, a platform that links people to welfare schemes, wants the government to increase spending without worrying much about the fiscal deficit. “For the next few years it is important that the central government not only matches but also doubles up its spending on key programmes, (including) increase in government spending on social security, especially health.”</p> <p>&nbsp;</p> <p>Yet, Sitharaman will no doubt look for ways to augment the coffers. The easiest way will be disinvestment of public sector entities, including monetising the government’s shares in banks. The move towards setting up a ‘bad bank’ where loans and non-performing assets are parked so that banks and financial institutions become attractive to investors could be seen in that context.</p> <p>&nbsp;</p> <p>However, she could face many a stumbling block. The political opposition would be vociferous, and there would be the long list of asks from the BJP itself. In fact, the party has collected budget recommendations and given them to Sitharaman. “Inflation is an issue which affects the middle class. The middle class needs some incentives to increase investments,” said Gopal Krishna Agarwal, the BJP’s economic affairs expert. “Raw material costs are running high; that need to be addressed to help the MSME sector. Even some of the sections within the unorganised sector also needs support.”</p> <p>&nbsp;</p> <p>Gentle nudges, in the form of financial instruments or affordable housing, to lure the middle classes to invest their money could also be on the way.</p> <p>&nbsp;</p> <p><b>Nudge</b></p> <p>Ironically, big schemes and policy announcements from the government have come from Modi himself, outside the budget. And the budgets subsequent to such announcements have made a case to nudge people to adopt those choices. This ‘nudge theory’ draws from the behavioural economics popularised by Americans Richard Thaler and Cass Sunstein. Thaler received the Nobel Prize for this theory. It is a political and behavioural economics concept which propounds indirect suggestions as a way to influence and change the behaviour and decision-making of people. It has been adopted at the international level by the United Nations and World Bank, and has influenced politicians and decision makers. Countries like the UK, Germany and Japan have ‘nudge units’ at the national level.</p> <p>&nbsp;</p> <p>“Nudge policies gently steer people towards desirable behaviour even while preserving their liberty to choose,” said the 2019 Economic Survey. In the 2020 budget, Sitharaman gave tax payers a choice to adopt a new regime, which was a nudge towards a single slab tax structure, but they had to give up available exemptions like savings on housing loans and provident fund. What she had done was to nudge the country to move towards an era where there are no exemptions.</p> <p>&nbsp;</p> <p>That nudge has been the government’s guiding principle as it brought in agriculture reforms. Here the farmers were given a choice to sell their produce to anyone in the open market. This nudge would have allowed the government to withdraw from grain procurement, and thus unbundling the mammoth Food Corporation of India.</p> <p>&nbsp;</p> <p>The behavioural economics paid the government dividends as it led to success of programmes like Beti Bachao Beti Padhao and Swachh Bharat. A recent University of Cambridge study found out that India used nudge theory across 14 key policy areas to influence people’s behaviour, including government employees, health professionals, manufacturers and food suppliers, to help fight Covid-19 through the prime minister’s appeals.</p> <p>&nbsp;</p> <p>Can we expect more reforms, gentle nudges towards structural changes in the economy?</p> <p>&nbsp;</p> <p>“The government is already undertaking many reforms,” said Agarwal. “The government is working on industry-related policy, retail trade, e-commerce, logistics policy, but all these things happen at the ministerial level. There may not be reform announcements in the budget, but as far as disinvestment of PSUs is concerned that may happen as part of the reforms.”</p> <p>&nbsp;</p> <p>Islam said the government had indicated that it would continue to undertake reforms. “More reforms and legislation have been undertaken in the last few months. This will continue. PLI (production-linked incentive) scheme is a very good policy reform. Labour reforms and privatisation of PSUs will continue,” he said.</p> <p>&nbsp;</p> <p>What remains to be seen is what policy or scheme will Sitharaman announce that would act as a subtle push towards a particular outcome. The finance ministry had linked its additional financial assistance to the states if they undertook three out of the four reforms—One Nation One Ration Card, ease of doing business reform, urban local body and power sector reform. This nudge worked for some states, especially those ruled by the BJP, that were desperately looking for some additional bucks.&nbsp;</p> Thu Jan 21 17:52:32 IST 2021 no-merit-in-continuing-with-dressed-up-numbers <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p><b>The finance minister claims the economy is in recovery mode. Do you agree?</b></p> <p>&nbsp;</p> <p>The economy is clearly recovering from the very sharp contraction caused by the lockdown. However, the pace of recovery remains uncertain and it is not even across sectors. Some sectors such as the MSMEs and the informal sector in manufacturing, and also the hotels, trade and travel sector remain badly hit. According to the CSO (Central Statistics Office), the GDP dropped by about 15 per cent in the first half of 2020-21, but performance is expected to improve in the second half, and the contraction for the year as a whole will be 7.7 per cent in real terms. This is better than was feared earlier, but it will still be the largest decline in any of the major developing countries.</p> <p>&nbsp;</p> <p>The pandemic seems to be slowing down, which augurs well for the economy in future, but uncertainty remains because we cannot rule out (secondary) spikes as happened elsewhere and there is the possibility of new strains. However, the commencement of vaccination is a good development which, combined with continued vigilance on preventive measures, may encourage a faster return to normalcy.</p> <p><b>Was the stimulus package announced during the lockdown a step in the right direction?</b></p> <p>&nbsp;</p> <p>A stimulus was certainly called for and all countries did it. Our stimulus was a combination of credit relaxation measures and direct fiscal stimulus via additional expenditure, both together amounting to 10 per cent of the GDP. While this looks large, the pure fiscal component, was only a little over 1 per cent of the GDP.</p> <p>&nbsp;</p> <p>I think we could have incurred more additional expenditure to support consumption levels of the poorest groups who were the hardest hit. The government probably hesitated because it feared that with revenues expected to collapse, the fiscal deficit would rise, and additional expenditure would worsen the situation. I recognise that fiscal discipline is important, but there are circumstances where one has to accept a higher fiscal deficit to get the economy back to normal. We can then reduce the deficit in subsequent years to restore fiscal stability.</p> <p>&nbsp;</p> <p>Interestingly, the CSO’s expectation of an improved performance in the second half of the year itself depends upon the growth in government consumption being much faster in the second half than in the first. The finance minister seems to have realised this and she has said she is going to spend to bolster the economy. This is good, but had the same approach been displayed earlier, it would perhaps have stimulated a stronger recovery.</p> <p><b>What steps should be taken in the budget to revive the economy?</b></p> <p>&nbsp;</p> <p>We have to see the revival issue in two different contexts. One is the short term objective of recovering from the contraction in output in the aftermath of the lockdown. The other is the longer term objective of getting back to an acceptable growth trajectory once the short term recovery is achieved.</p> <p>&nbsp;</p> <p>As far as the short term objective is concerned, I think if government expenditures are stepped up in the remaining part of the fiscal year as the finance minister has promised, it will put the economy in a position to recover strongly in 2021-22, bringing GDP in that year back to the 2019-20 level or a little higher. In other words, having contracted by 7.7 per cent in the current year, the economy could grow by 8 per cent or so in 2021-22.</p> <p>&nbsp;</p> <p>The fiscal deficit in the current year will be much higher than the budgeted 3.5 per cent of GDP. It could be as high as 6.5 per cent of GDP, and this does not include off-budget items. Including these items could raise it to 7.5 per cent. Personally, I think this is an opportune time for the finance minister to reveal the full extent of the fiscal deficit (including off-budget items). There is no merit in continuing with dressed up numbers which everyone knows do not reflect reality. It is much better to acknowledge the facts and then try to present a credible picture of how we plan to get back to a better situation over the next few years.</p> <p>&nbsp;</p> <p>If real GDP growth next year is 8 per cent or a little more, over the depressed base of the current year, this could mean growth in nominal terms of about 14 per cent, with a similar increase in revenues. This should make it possible to show an improvement in the fiscal deficit from 7.5 per cent in 2020-21 to say 6 per cent in 2021-22. This is still high, but I think weak demand conditions, especially uncertainty about the revival of private investment, justify avoiding a sharp fiscal contraction next year. A further reduction in the fiscal deficit to say 3 per cent could be planned over the next three years.</p> <p>&nbsp;</p> <p>The challenge before the finance minister is not the achievement of a high growth in 2021-22. That will come simply because of the low base in the current year. The real challenge is how to get on a high growth path from 2022-23 onwards. We entered the pandemic with growth down to 4.2 per cent per year. Will the economy only get back to this sort of performance or can we get back to 7 plus per cent which we did achieve over a long period? I hope the budget for 2021-22 puts in place measures that will help get back to 7 plus per cent growth after the recovery is complete. That is the kind of growth rate we need if we want to generate employment in the economy.</p> <p><b>What would you look for in the budget from that point of view?</b></p> <p>&nbsp;</p> <p>The finance minister has consulted with representatives of different sectors and this would have thrown up many specific suggestions for change. However, these specific suggestions are typically less important than their advocates believe in determining the longer term growth outcome. I would look for some key reforms that will contribute to restoring faster growth over a longer period.</p> <p>&nbsp;</p> <p>Structural reform in tax policy and tax administration, which would lay the basis for a robust growth in revenues, is an important area in which to act. India’s tax ratio is much lower than it should be, given our per capita income, and we cannot deliver the public services and finance the infrastructure development we need without raising the tax ratio.</p> <p>&nbsp;</p> <p>Fixing the GST should have top priority. This was a major tax reform, but the way it was implemented has deprived it of its revenue generating potential. The agenda is well known: we need to bring into the GST the items that are still outside and reduce the number of rates. This can be done by drastically reducing the list of exempted goods, having a common rate of say 14 per cent on most goods, and a special higher rate of say 24 per cent on a range of luxury goods. The present rate of 28 per cent is too high and applies to too many goods including some that are intermediates.</p> <p>&nbsp;</p> <p>These changes cannot be implemented through the budget and they have to be made by the GST Council. However, a clear statement by the finance minister indicating an intention to take the matter to the GST Council, combined with political effort to mobilise support from BJP-ruled states, should enable the changes to go through.</p> <p>&nbsp;</p> <p>We also need immediate action to fix problems in the banking sector. There is no chance of strong economic growth if banks remain reluctant to lend despite high liquidity, because of their high levels of NPAs and perceptions of risk. The problem will intensify next year since many accounts are expected to turn NPA once the moratorium introduced to deal with the problems posed by the pandemic comes to an end. If recognition of NPAs is further delayed by regulatory forbearance, it will undermine the credibility of the regulatory system. If the new NPAs are recognised, banks have to make provisions to reduce their capital adequacy. This raises the issue of recapitalisation of the public sector banks which should be explicitly dealt with in the budget.</p> Thu Jan 21 18:40:02 IST 2021 digging-deep <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p>Finance Minister Nirmala Sitharaman has promised a budget like “never before”. Hyperboles apart, the economy, ravaged by the pandemic, needs an extraordinary effort from her part to get back to any semblance of normalcy. The gross domestic product contracted a record 23.9 per cent in the April-June quarter and the unemployment rate in December was at a six-month-high of 9.1 per cent. The expectation is that the government will go big on spending in infrastructure and other critical sectors, while also injecting a stimulus to the worst-hit sectors.</p> <p>&nbsp;</p> <p>The crucial question, however, is, where is the money?</p> <p>&nbsp;</p> <p>The Centre’s fiscal deficit (the difference between its income and expenditure) was Rs10.75 lakh crore at the end of November 2020, which is 135 per cent of the estimate for 2020-21. Till November end, the government’s total receipts stood at Rs8.31 lakh crore, which is just 37 per cent of the estimates for the financial year ending on March 31. The tax collection revenue was just 42.1 per cent of the estimates.</p> <p>&nbsp;</p> <p>In the last budget, the government had set a lofty target of raising Rs2.1 lakh crore by selling stakes in public sector enterprises. A large chunk of it was expected to come from stake sales in the Life Insurance Corporation of India, IDBI Bank, Air India and Bharat Petroleum (BPCL). However, it has managed to raise only Rs13,844 crore. While the process of LIC going public is under way and expressions of interest have been invited for Air India’s sale, they are unlikely to happen by March.</p> <p>&nbsp;</p> <p>The Indian economy had slowed down even before the pandemic hit, which had constrained the government’s ability to provide a huge stimulus. But it announced measures worth Rs30 lakh crore in the last nine months. A large part of it, however, was on credit guarantees and measures like giving option to government employees to encash their leave travel allowance for the year. With the GDP expected to contract 7-8 per cent this year, clearly there is a need to do much more.</p> <p>&nbsp;</p> <p>“The scope for revenue will be better in 2021-22 as the economy will rebound and tax collections will pick up,” said Dharmakirti Joshi, chief economist at the ratings agency CRISIL. “Still the scope for a very strong stimulus is not there. So, you have to do more with less. It essentially means, focus on areas that require the most attention and where you get the maximum multiplier effect for the economy.”</p> <p>&nbsp;</p> <p>In the current fiscal, duties on petrol and diesel were raised by Rs10 and Rs13 a litre, respectively. An increase of one rupee in excise duty on auto fuels results in an additional revenue of Rs12,000 crore a year for the government. The share of excise duties in gross revenue is likely to rise to 18 per cent in 2020-21, from 12 per cent in 2019-20.</p> <p>&nbsp;</p> <p>According to M. Govinda Rao, member of the fourteenth finance commission, the improved Goods and Services Tax collection (a record Rs1.15 lakh crore in December and more than Rs1 lakh crore in every month since October) do offer some hope about revenue. Yet, he said, the tax revenue collection would remain subdued in the current financial year and a substantial part of the next year. “Unfortunately, the government does not have enough resources to pump prime the economy by increasing public spending. Next year will present greater opportunities to fast-track strategic disinvestment not merely to raise resources for revival, but also to vacate the government’s involvement in non-strategic areas,” he said.</p> <p>&nbsp;</p> <p>Even as the government pushes for privatisation, experts call for a focused approach on increasing foreign investment limits in various sectors. The production-linked incentive scheme recently announced by the government has seen a lot of takers. “India has a cost advantage,” said Arun Singh, global chief economist at Dun and Bradstreet. “Government support is there, labour support is there, cost efficiency is there and global companies are able to get a big domestic consumption market for their goods. So, a well-calibrated plan is required, which will be a big opportunity to push the Make in India initiative. You can increase the FDI cap to get additional funds.”</p> <p>&nbsp;</p> <p>Investment as a percentage of the GDP is expected to fall sharply in the current financial year, and experts say the private sector needs to be encouraged to invest more. “The government needs to revive investment, particularly in infrastructure, because infra investment is largely supported by the government and private sector generally is not enthusiastic in participating in it,” said Joshi. He said this could be changed by reforms that would help private players raise funds easier and balance the risk of long gestation periods in the infra sector.</p> <p>&nbsp;</p> <p>The government had increased the borrowing target to Rs12 lakh crore this year, and had raised Rs9.05 lakh crore till December. Globally, interest rates are at record lows, as governments and central banks pumped in billions of dollars in fiscal and monetary stimuli. It is an opportunity for India. “They can raise funds at lower costs given excess liquidity in many of the markets, and interest rates are also low. At the same time, it will leave room for the states and private enterprises to borrow funds from the local market,” said Singh.</p> <p>&nbsp;</p> <p>The Fiscal Responsibility and Budget Management (FRBM) Act mandates that revenue deficit, fiscal deficit, tax revenue and the total outstanding liabilities must be projected as a percentage of the GDP in the medium-term policy statement. The set targets could be exceeded only in case of a calamity or national security issue. In the current financial year, the wider expectation is that the fiscal deficit will be significantly higher than the 3.8 per cent in the previous fiscal. Rao expects it to be in the 7.5-8 per cent range in the year ending March 2021, against the budget estimate of 3.5 per cent.</p> <p>&nbsp;</p> <p>With the budget expected to focus on stimulus and boosting investment, fiscal consolidation is likely to take a back seat. “You need to keep the FRBM on the side right now,” said Joshi. “But at the same time, give a medium-term direction on how you intend to correct the fiscal imbalance. That need not be done in 2021-22, because you do need to spend more.”</p> Thu Jan 21 17:32:31 IST 2021 life-insurers-can-provide-a-viable-pension-option <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p><b>In an exclusive</b> interview, T.C. Suseel Kumar, managing director of Life Insurance Corporation of India, talks about how the country’s largest life insurer navigated Covid-19, and how the pandemic brought a fundamental shift in people’s perception about insurance. Excerpts:</p> <p>&nbsp;</p> <p><b>Q/Covid-19 led to a lot of disruption across businesses. Did LIC have to tweak plans because of the pandemic? What is your outlook for the next 12-18 months?</b></p> <p><b>A/</b><i> </i>The lockdown and the related restrictions, which had impacted the economic activities as a whole, had also cast a negative impact on the life insurance industry. With India unlocking gradually, we can see that demand resurgence is palpable in many sectors. Economic indicators allude to a steady recovery in almost all sectors, with some sectors shooting above their previous-year levels as well.</p> <p>We have not scaled down our budgeted growth plan. Rather, we are optimistic about reaching them well in advance of the close of the financial year.</p> <p>The pandemic has thrown light on the importance of life insurance and health insurance. With people across age groups being affected by the pandemic, they have begun to understand the importance of life insurance, and this may become an essential part of the new reality of our economy in the long term. Backed by rising income level, digitisation and the growing width of distribution channels, we expect the life insurance industry to grow at 10 to 12 per cent compounded annual growth rate in the next 12 to 18 months.</p> <p>&nbsp;</p> <p><b>Q/ Data show that new life insurance premiums rose 32 per cent year-on-year in October. Among the various life insurance segments, where do you see strong growth?</b></p> <p><b>A/</b>With a population of more than 130 crore and a penetration rate of 2.74 per cent, the potential for growth of life insurance is unlimited in India. The economic activities gradually started looking up once the unlock process started in June. The upturn in the economy was reflected in the performance of life insurers. Our resilient and quick response in meeting the expectation of the market in the backdrop of the economic recovery and awareness created by the pandemic have yielded results, and for the month of October our growth in first year premium was more than 36 per cent, while the overall industry grew by 32 per cent.</p> <p>With a huge majority of our population in the unorganised sector, there is already a huge demand for annuity products, which, we foresee, will increase further. At the same time, the huge protection gap provides a unique opportunity for term products, and we have two very competitively priced, feature-rich products in our portfolio, and we will definitely focus on this sector.</p> <p>Keeping in mind the long-term economic perspective of India, ULIP (unit linked insurance plan) also has a huge potential for growth and it gives the opportunity to reap higher returns for our market savvy customers.</p> <p><b>Q/Mutual fund SIPs (systematic investment plans) have been very popular. But, ULIPs have not been.</b></p> <p><b>A/</b>SIPs do not offer life insurance coverage whereas ULIPs offer bundled products of insurance as well as investment opportunity. In ULIPs, mortality charges are also to be accounted for. Further, with a view to smoothening the cap on charges, the capping has been rationalised by the IRDAI to ensure reduction in overall charges.</p> <p>In order to market a product under ULIP, an intermediary has to have adequate capital market knowledge, and we are now imparting training to all our agents in this aspect. We foresee a quantum jump in ULIPs in the days to come.</p> <p>&nbsp;</p> <p><b>Q/LIC is one of the largest investors in stocks. Markets have seen a sharp rebound since the lows they hit in March. How much have you invested so far this year and what is your assessment from here on?</b></p> <p><b>A/</b>In FY21, as of today, LIC has booked a profit of Rs27,000 crore through sale of equities against Rs18,400 crore in 2019-20. The total equity investments for FY21 will depend on the investible surplus available with the corporation. As on today, LIC has invested Rs60,000 crore in the equity market, against Rs32,800 crore during the corresponding period last year.</p> <p>&nbsp;</p> <p><b>Q/India has a large workforce <br> employed in the private sector, where there are no pensions. What is the role insurance companies can play here?</b></p> <p><b>A/ </b>With the population of India expected to reach 140.3 crore by 2025, and majority of the working population engaged in private and unorganised sectors, life insurers can provide a viable pension option through their annuity products. Buying a pension/annuity plan will be a prudent investment decision, and we foresee a huge opportunity for growth in this sector. Our pension and group schemes wing provides annuity to organised groups, and our regular channel sells annuity to individuals. As on March 31, 2020, both combined, we have more than a crore customers who receive annuity from LIC.</p> <p>&nbsp;</p> <p><b>Q/India has a growing young population. How is LIC tapping these potential customers?</b></p> <p><b>A/</b>We are taking all possible steps to tap the business potential in this segment. In the last fiscal, we sold 1.1 crore policies to millennials and that constitute as much as 50.29 per cent of our total policies sold.</p> <p>Life insurance should come as the first and foremost among financial assets of any individual. Our communication strategy in recent times is more tuned to attract the attention of youth and speaks their language to appeal to them. We have made conscious efforts to induct young professionals among our agency force. Out of a total of 1.33 lakh agents recruited during the current year, nearly 50 per cent are millennials. This is the right group to sync with the millennial customers.</p> <p>&nbsp;</p> <p><b>Q/How has your acquisition of IDBI Bank helped in growing the bancassurance channel?</b></p> <p><b>A/</b>Banking channels will continue to play a vital role in the sale of life insurance, especially keeping in mind the spurt in banking activities due to the various financial schemes launched by the government of India which are implemented through banks. IDBI Bank is a major contributor in our bancassurance channel and is the top performer in both policies and premium among our banking channels, and it is worth mentioning that our BAC channel has grown by nearly 36 per cent in first year premiums as of November 2020 as compared to the same period in the last financial year.&nbsp;</p> Thu Jan 14 14:05:11 IST 2021 cash-in-on-the-cycles <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p><b>What is a business cycle?</b></p> <p>There are four distinct phases of the economy—boom, recovery, depression and recession. The journey of an economy through these phases is called a business cycle. The change in a cycle can be triggered by various factors such as interest rates and inflation.</p> <p>The duration of each of these phases and that of an entire business cycle is not always the same. Therefore one cannot easily predict when a phase will begin or end. However there are certain indicators which can help predict the change in the phase of a business cycle. For example, the increase in bank credit and orders for capital goods companies may point towards onset of recovery phase while hyperinflation accompanied with higher interest rates points towards imminent reversal of boom phase. What one needs to be mindful about is that the time period between the lead indicator and the actual change is difficult to predict.</p> <p>Different phases of a business cycle may manifest in different economies at different times. So, at certain times, a particular business cycle in one economy may present business opportunities for other economies.</p> <p>&nbsp;</p> <p><b>Why business cycle investing?</b></p> <p>Different sectors perform differently during different phase of a business cycle. For example the financial sector will perform better during the recovery and boom phase but pharma and FMCG is likely to fare much better than other sectors during phases such as recession and depression. This was evident from the performance of pharma and telecom during the early phases of pandemic.</p> <p>Based on the lead indicators, the fund manager who understands the economy and the market can capitalise on such opportunities and help investors make gains from their investments.</p> <p>Based on the economic conditions and the prevalent cycle, the fund manager decides on the sector for investment. The next step is to zero in on the robust companies. Since all the companies in a sector may not do well even during the best of the times, a fund manager is better placed to take a call because of the vast research team at his disposal. Given this approach to investing, investors can rest assured that the portfolio will be robust enough to ride the market cycle and capitalise on the opportunities.</p> <p>&nbsp;</p> <p><b>How business cycle investing is different from sectoral/thematic investing</b></p> <p>A fund which follows business cycles will have exposure to a set of sectors which are expected to do well based on the phase of the economy. As a result, the portfolio will have exposure to three to five sectors and there will be diversified holdings within those sectors. While sectoral or thematic investments are static, in business cycle funds, the sectors will keep rotating as per the change in business cycle.</p> <p>For those looking to invest in a fund where the decision making is based on macros, business cycle emerges as the go-to fund. A number of funds are available in the category and the latest entry in this category is the recent New Fund Offer of ICICI Prudential Business Cycle Fund. Investors can benefit from the expertise of the top fund managers and build an equity portfolio which may be able to stand the test of time. Always contact a good mutual fund distributor for more details and better awareness.</p> <p><b style="font-size: 0.8125rem;">Koshy is a mutual fund specialist.</b><br> </p> Thu Jan 07 15:45:41 IST 2021 loan-wolves <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p><b>On December 20</b>, a resident of Hyderabad received a WhatsApp message that a close relative of his, Chandra Mohan, had failed to repay a loan he had taken. “As we found your contact number in his dial history, we have to inform you regarding this, so please ask him to pay the whole amount,” read the message. The display picture of the sender had the letters CBI on it, which bore a close resemblance to the logo of the Central Bureau of Investigation. Two weeks later, Chandra Mohan hanged himself in his house in Medchal near Hyderabad. His wife told the media that the sender of the message had given the impression that the CBI was after him.</p> <p>The display picture had the words ‘Security Limited’ written below CBI in a smaller font. But there is no registered private security agency or recovery agency by this name. The WhatsApp number went dead immediately after Chandra Mohan’s death.</p> <p>An employee at a supermarket in Hyderabad, Chandra Mohan had borrowed Rs5,000 from an instant loan app in November. According to his family members, he was soon sucked into a vicious circle and ended up taking loans from a dozen apps to repay the huge interest and penalties. The father of three girls sold his valuables and maxed out his two credit cards to pay back some Rs6 lakh, but the debt kept doubling. The shame of the recovery agents harassing his friends and family forced him to end his life.</p> <p>Five other people killed themselves in Andhra Pradesh and Telangana in the past two months after falling into the trap of instant online loans. The Telangana Police are investigating some 50 complaints lodged against dozens of apps that provide small loans for short terms. “The way they are charging interest and the way they are harassing [people] is illegal,” said V.C. Sajjanar, police commissioner of Cyberabad. “They are causing mental trauma to not only the victims, but also their relatives and friends. They are also issuing fake RBI letters. The worst part is, they are getting access to photo galleries of the customers.”</p> <p>The police in Telangana have arrested 20 people, including three Chinese nationals. “The Chinese who are on a temporary visa are not allowed to do this kind of business,” said Shikha Goel, additional commissioner, cyber crimes, Hyderabad Police. “The Chinese that we have caught, as per our information, were handling the India operations for a company. All the companies are registered with Indian directors. There is no name of any Chinese, at least officially. However, all the operations are handled by them from abroad.”</p> <p>Zhe Wei from China was apprehended at the India Gandhi International Airport in Delhi when he was trying to leave the country. He has been identified as the head of operations of loan apps run by many companies. The operational contact person, Qiu Yuan Yuan, is also Chinese. Another Chinese national, Liang Tian Tian, and her husband, Parshuram Lahu Takve, who is an Indian, have also been arrested. The Enforcement Directorate has registered a money laundering case against the arrested people.</p> <p>Sajjanar’s team has written to Google to take down some 150 instant loan apps on the Android platform, but only a few have been removed.</p> <p>The investigating officers said all loan lending apps should have agreements with banks or non-banking financial companies and adhere to Reserve Bank guidelines. An RBI circular issued in June 2020 said digital lending platforms should disclose to the customer the name of the bank or NBFC on whose behalf they are interacting, and the loan agreement letter should be issued on the letterhead of the bank or NBFC. A copy has to be provided to the borrower.</p> <p>The rogue players seldom adhere to these guidelines, and the recovery agents often resort to measures like sending abusive text messages and making calls to people on the defaulters’ contact lists. These ‘call centres’ are spread across the country.</p> <p>Many of these companies own multiple apps. Investigators think this business model was tailor-made for the lockdown time when unemployment was high. “This kind of money cannot be transferred into the country or taken out easily,” said an investigating officer. “It is highly likely that Bitcoins are used to pump in money as capital and to transport out the revenues. It looks like many Chinese are involved in this type of business and they are operating out of Singapore, instead of China, to escape surveillance.”</p> <p>The scam has applied the brakes on the digital lending business, which has been growing at breakneck speed. And legitimate lenders are worried.</p> <p>Five Indian fintech companies—EarlySalary, LoanTap, KreditBee, Kissht and CashE—have launched the Fintech Association for Consumer Empowerment for promoting open and responsible lending practices in the digital world. “We want to be the beacon from the consumer end. If any of the members is doing a wrong thing, we can inform the regulator and correct those practices,” said Akshay Mehrotra, co-founder and CEO of EarlySalary.</p> <p>Digital lenders have a mine of customer data, including PAN, income and location. “How the industry treats information sharing and customer data privacy is going to be very critical as digital innovation picks up,” said Kunal Varma, chief business officer and co-founder of MoneyTap, a digital lender.</p> <p>Digital loans are estimated to touch Rs15 lakh crore by 2024, up from less than Rs3 lakh crore in March 2019. “Post Covid, there was a need for contact-less delivery of services, including financial services. That definitely gave one push for digital lending,” said Shilpa Mankar Ahluwalia, partner and head of fintech practice at the law firm Shardul Amarchand Mangaldas and Co. “There is a lot of technology, AI (artificial intelligence) and other big data and analytical tools available to develop a credit score of a consumer. Normally, your bank would look at income tax returns, salary slips and bank statements. Now with this technology, you actually have many fintech platforms that analyse things like your digital footprint, your spending habit, other forms of non-traditional data, which allow them to determine whether a client is credit-worthy or not.”</p> <p>Technology has also helped reduce the cost of providing loans. Mehrotra said because the processes of approving a loan, transferring the money and recovery were automated, operational expenses had come down almost ten times in comparison with a traditional ecosystem. His company has disbursed more than Rs3,000 crore. He said it took 3.5 years to disburse the first Rs1,000 crore, but the next Rs2,000 crore happened in just 16 months.</p> <p>Banks, too, have been scaling up digital lending. State Bank of India, for instance, has loaned Rs25,000 crore with the help of its YONO app. It has opened 3.23 lakh pre-approved personal loan accounts and disbursed Rs5,118 crore during July-September.</p> <p>Bank of Baroda has set up a digital lending department. At ICICI Bank, 88 per cent of personal loans originated digitally in the first half of the year; it was only 62 per cent last year. At Axis Bank, it was 58 per cent.</p> <p>The apps and companies that play foul have inflicted serious damage on the reputation of the sector. But having a comprehensive data protection law will help. The Personal Data Protection Bill, which proposes restrictions on use of personal data without explicit consent, is pending. “We really need that bill to become law,” said Ahluwalia. “It will set out a framework, which will improve customer confidence and make the industry secure.”</p> <p>With Namrata Biji Ahuja.</p> Thu Jan 07 15:41:58 IST 2021 babel-doom-Indic-boom <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p><b>Winter solstice, when</b> the sun is farthest from the northern hemisphere, is usually the coldest day of the year. At the DailyHunt headquarters in Bengaluru, however, winter solstice 2020, which fell on December 21, was anything but cold. The new media startup that aggregates news and content from various content providers was basking in the warm glow of success. Its parent company, VerSe, had just been adjudged a unicorn.</p> <p>What sets apart DailyHunt is that it operates completely in the Indian language space, providing content collected across 14 languages. Interestingly, the latest round of funding of $100 million—which pushed its valuation beyond the magical $1 billion mark—came from Google and Microsoft for the company’s Josh short video app. A statement by the company described itself as “India’s first tech unicorn for local languages”.</p> <p>It may be the first, but it will not be the last unicorn success story in the Indian language space.</p> <p>In the summer, the Internet &amp; Mobile Association of India (IMAI) announced that for the first time ever, rural internet users had surpassed urban users—22 crore, compared with 20 crore in cities. In 2021, Hindi internet users may overtake English users. KPMG says that three-fourths of India’s internet users by 2021 will want to access content in Indian languages.</p> <p>“Every new user coming online is an Indian language user,” said Sanjay Gupta, country head and vice president, Google India. But that is also where the problem lies. The audience is growing by the day but the content is barely keeping pace. On the other side, there are more than five crore small businesses in the country that would like to sell products in the hinterland, but still have sparse software or back-end support to hawk their products in the suitable language.</p> <p>“Businesses speak English and consumers speak a different language,” said Rakesh Kapoor, CEO of Process9, a firm that offers translation solutions for business websites. “It is a huge gap, and this gap really is the opportunity which is in front of us.”</p> <p>This ‘next billion’ business opportunity is huge and ripe for plucking, where early movers can score big, with most content providers, ranging from entertainment and information to social media and e-commerce, operating on an English-first model. No wonder, a market estimate puts the opportunity in the vernacular content space at Rs40,000 crore in the years to come.</p> <p>Similar to DailyHunt’s billion-dollar status, there are other homegrown players reaping the dividends of sowing early. ShareChat is one. This social media platform was launched by three IIT Kanpur students who realised the potential of social networks in local languages. Today, ShareChat is available in 15 Indian languages and used by 16 crore Indians. “The Indian internet market is bustling with opportunities at the moment,” said ShareChat co-founder &amp; chief technology officer Bhanu Pratap Singh. Google is reportedly in talks to buy ShareChat, valuing it as a unicorn.</p> <p>Last year, when Google CEO Sundar Pichai announced a $10 billion investment plan for India, he had said that the money will be invested in companies “enabling affordable access and information for every Indian in their own language”. While the likes of Google, Facebook, Amazon and even Apple support different languages, ease-of-use and universal acceptance still remain a distant goal.</p> <p>“In India, it is a complex problem to solve,” admits Gupta. “But this has not deterred us. We’ve been investing in this for over a decade. We’ve taken a holistic solution to solve for consumption, communication and creation.”</p> <p>Google has expanded Indian languages support for many of its applications like Google Maps (nine languages) and Google Assistant (nine languages). Gboard, its keyboard, now supports 60 Indian languages, including Bhojpuri and Tulu. Google is investing more in machine learning and artificial intelligence to become better in understanding local languages and colloquialism.</p> <p>While the input point, conventionally the keyboard, has been a vexing issue, trends indicate a shift to voice and video interactions. “Speech-to-text and text-to-speech interfaces are going to be key in the future, especially if we want to give access to information to those who are not English speakers and are also not ‘readers’,” said Dr Sarabjot Singh Anand, director (computer science &amp; engineering), BML Munjal University.</p> <p>The video boom in recent years has meant that a large chunk of Indians now access the internet for video entertainment. TikTok was a trailblazer of sorts in the local language content creation space. New entrants like Roposo, Chingari and even Instagram’s Reel (the Facebook-owned company is testing its Instagram Lite app in India, which has support for nine Indian languages) are now trying to fill the gap left by the TikTok ban. On streaming platforms, it is Indian language content that is ruling the roost, with even global biggies like Netflix and Amazon Prime Video focusing on creating local content. “There are millions of people in India who speak a regional language. To put that into context, that is an extremely wide base to go after when one is thinking about any sort of offering,” said Vishnu Mohta, co-founder of Hoichoi, a popular OTT platform which offers programming only in Bengali.</p> <p>While entertainment is mostly in a receive-only mode, things get more complex when it comes to other services, such as online shopping and net banking. With government services also going increasingly online, the digital divide gets even more wider.</p> <p>“Services needed by rural India are different from urban settings,” said Anand. “Most people are unaware of their rights. Access to information and open governance provides huge opportunities. Health care, education and agritech are some of the key areas where tech companies can impact rural India.”</p> <p>This is where intrepid domestic entrepreneurs have jumped in. They range from Vokal, an app where villagers can get their questions answered by experts in 11 Indian languages, to Process9, which translates content in real time with neural machine translation for the likes of HDFC, Bajaj and Paytm. Vokal’s founder, Aprameya Radhakrishna, is so convinced of the Indic boom that he launched Koo, a Twitter-like micro-blogging site in Indian languages. myUpchar, a startup which specialises in online consultations with doctors and medicine delivery to tier 2 and tier 3 towns, offers its services in five Indian languages beside English. Its usage shot up 300 per cent during the lockdown, and 25 per cent in the ensuing months.</p> <p>Or take eSamudaay, a ready-to-use platform which a local business can use to sell in small localities. The startup offers services on both fronts, content and the back-end technology, where it uses conversational artificial intelligence. “There is a language and user interface barrier,” said Anup Pai, founder &amp; CEO of eSamudaay. “Once we have adequate local language content, conversational support in Indian languages and availability of local digital businesses, we see this barrier dissolving and more people being able to derive value from their smartphone devices and data networks.”</p> <p>The government has been pushing the Indian language agenda. It has been nudging mobile phone makers to adopt Indian languages in handsets sold in India. The Telecom Department’s Technology Development for Indian Languages (TDIL) section is looking at developing processing tools and techniques for human-machine interaction without language barriers. The citizen engagement platform MyGov has also been planning its language options.</p> <p>India’s Ajay Data is the head of the Universal Acceptance Steering Group, which works towards an across-the-board acceptance for domain names and email addresses in all languages. “We all have the responsibility to bring the next one billion online [with] universal acceptance which means all software, apps and devices must work in all 22 Indian languages,” he said recently. “Seems reasonable and expected, but not always met.”</p> <p>Sarika Gulyani, director &amp; head, ICT, digital economy and FICCI’s Indian Language Internet Alliance, put it succinctly. “Vernacular [is] one of the crucial components for getting the masses online,” she said. “This is important for realising a mass internet revolution.” The internet’s next billion is awaiting this spring revolution. &nbsp;</p> Thu Dec 31 13:58:03 IST 2020 english-is-no-longer-a-deterrent-for-optimum-user-experience <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p>Q/<b>Recently, Indian language users overtook Indians accessing the internet in English. What does it signify?</b></p> <p>A/Industry analysts have been predicting this development for a long time, as India is dominated by language-first citizens. As more than 500 million new internet users are expected to be added in the next three to four years, we believe more than 90 per cent would come from non-English backgrounds.</p> <p>During the initial days, people used to learn English to access the internet. The trend has been reversed. Now the internet is coming to the users with platforms that users would be comfortable with. English is no longer a deterrent for optimum user experience.</p> <p>In the past few years, the internet has been democratised and is available even in the most remote parts of the country. Lower data rates, increasing penetration and easier access to smartphones have fuelled this trend. Increasingly the internet ecosystem has become more Indian language enabled. This signifies a shifting trend that is expected to continue in the years to come.</p> <p>&nbsp;</p> <p>Q/<b>What does it signify going forward? What are the spaces where we need further tech/user advancements?</b></p> <p>A/With more Indian language users joining the internet we need to make sure that our product capabilities are upgraded to engage these next billion internet users. As we are leading the social media space in Indic languages, it is necessary for us to strengthen our artificial intelligence and machine learning capabilities that are critical to our products’ success. At ShareChat, our aim is to understand the content on our platforms and give our community a personalised feed relevant to their interests.</p> <p>Semantically understanding content in natural languages and connecting it with the relevant content genres across interest graphs require cutting edge technological capabilities to function across 15 Indic languages, which have their own complexities and scripts. We are leading the next level of development for our camera tech function, by unlocking features that include building newer technologies. These will be focused around augmented reality experiences, creating lenses, filters, stickers, live-streaming video content capabilities and other technical expertise. These enhanced features will equip our community to create highly innovative, vibrant and engaging content across ShareChat and Moj.</p> <p>&nbsp;</p> <p>Q/<b>Will further advancements in the Indic internet space come from Big Tech, or will homegrown entrepreneurs lead the innovation?</b></p> <p>A/The Indian internet market is bustling with opportunities at the moment. The landscape offers a huge potential that is evident to all the players. While homegrown entrepreneurs understand the nerve of the market completely, the Big Tech companies come with a technological dominance that is unmatched in the market by small players. Therefore, we need to complement each other’s strength to build India for the future.</p> Thu Dec 31 13:48:55 IST 2020 the-pandemic-has-amplified-the-need-of-life-insurance <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p><b>For many people</b>, the pandemic came as a rude reminder about the need to be prepared for tough times. This may play a role in improving insurance penetration in India, says M.R. Kumar, chairman of India’s largest insurer, Life Insurance Corporation of India. In an exclusive interview, he also talks about LIC’s acquisition of IDBI Bank and its IPO plans. Excerpts:</p> <p>&nbsp;</p> <p><b>Q</b><i>| </i><b>Covid-19 caused disruption across industries. For the insurance sector, however, it perhaps has been a catalyst in raising awareness about the need for being insured.</b></p> <p><b>A</b><i>| </i>In spite of the collective efforts of insurers, regulators and the government, insurance awareness is still low in India, which is reflected in the low insurance penetration rate of 2.74 per cent. The life insurance industry faced the heat of the pandemic during the period of lockdown, which impacted its performance initially, but, at the same time, the pandemic has thrown light on the importance of life insurance and health insurance.</p> <p>People have begun to understand the importance of life insurance and health insurance in financial planning amid growing uncertainties in income and medical costs. The awareness that has been generated in the aftermath of the pandemic has proved to be a growth catalyst in the industry, cutting across the product basket.</p> <p>&nbsp;</p> <p><b>Q</b><i>| </i><b>What is LIC doing to deepen insurance penetration and what more needs to be done across the insurance industry to increase awareness?</b></p> <p><b>A</b><i>| </i>Financial awareness about life insurance among households is the key factor which leads to the deepening of the life insurance market. Even though awareness about life insurance has increased among common people thanks to the collective effort of life insurers, the government and the regulatory authority, we have a long way to go. The pandemic has amplified the need of life insurance. LIC has chalked out a three-step process to increase insurance penetration—increasing the awareness about life insurance through digital, print and social media; expanding distribution reach through innovative interventions as per the demands of the market; and offering a suitable product based on customer segmentation. We feel the synergic effect of the three will help to increase insurance penetration in India.</p> <p>&nbsp;</p> <p><b>Q</b><i>| </i><b>It has been five months since the country began unlocking.<br> Have things returned to pre-Covid levels as far as LIC’s business is concerned?</b></p> <p><b>A</b><i>| </i>An increase in economic activity since the unlock process started in June has resulted in an uptick in the business performance of LIC. Business began to return to normalcy as we started to use digital tools and new ways of prospecting and serving clients, keeping in mind the social distancing norms. As on October 31, we have collected a total first year premium of Rs1,03,566.08 crore as compared to Rs1,01,402.37 crore last year, at a growth rate of 2.14 per cent.</p> <p>The number of policies is still showing a negative variation as compared to last year. As the unlock process is widened further, resulting in more economic activities, and with the probability of a vaccine in the near term, we expect the life insurance business to continue to grow steadily over the rest of the current fiscal. And backed by our digital innovations and marketing initiatives, we are confident of returning to double-digit growth in premium by the end of the fiscal.</p> <p>&nbsp;</p> <p><b>Q</b><i>| </i><b>How will Covid-19 change LIC’s strategy and operations going ahead?</b></p> <p><b>A</b><i>| </i>The entire ecosystem is changing to digital mode since the pandemic started, and it will grow further in coming years. We have provided a digital interface to our agents to complete the proposals from their home with zero contact with customers. The module is integrated with our branch system so that the records get escalated seamlessly to the branch with which the agent is attached. We have arranged for online training for our field force so that their skills get updated. We feel that, with the involvement of more agents, sustainable growth in life insurance is possible and it will continue to be a key distribution channel. However, with the ecosystem changing towards digital mode after the pandemic, agents, too, will have to equip themselves to sync with the demands of time, and we have provided them the digital platform for the purpose.</p> <p>&nbsp;</p> <p><b>Q</b><i>| </i><b>Interest rates have come down sharply this year. What kind of impact has this had on LIC’s investments in debt markets? Will it have any impact on the returns that are offered on savings and investment products?</b></p> <p><b>A</b><i>| </i>We are a long-term investor and our incremental investments are small as compared to total investments at any point of time. Any upturn or downturn in the debt market does not have any significant impact on our overall returns. Also, as a matter of strategy, we use a mix of debt returns and profit booking in equity to ensure returns to our customers as per the market conditions.</p> <p>&nbsp;</p> <p><b>Q</b><i>| </i><b>The budget this year proposed lower tax rates for salaried professionals. But those opting for it are not eligible for tax deductions, including insurance premiums. Will it be a setback for the insurance industry?</b></p> <p><b>A</b><i>| </i>Covid-19 has made people aware of the importance of life insurance and it may be a turning point in life insurance in India where it is converted to a nudge product from a push product. Post pandemic, people may buy life insurance as an integral part of their financial planning. However, it is also a matter of fact that in order to reduce the social security burden on the government exchequer, it is essential that citizens opt for life and health insurance as per their personal requirements, and for this purpose, some sort of incentive in the form of tax break is necessary.</p> <p>&nbsp;</p> <p><b>Q</b><i>| </i><b>LIC acquired a majority stake in IDBI Bank in 2019. How has this panned out for the company?</b></p> <p><b>A</b><i>| </i>LIC’s stake in IDBI Bank has panned out along expected lines so far. IDBI Bank has registered profits in the first and second quarters of FY 20-21. As a prudent measure, however, the bank has made more provisions than mandated by the RBI to manage Covid-related stress on assets. The impact of any, and the quantum thereof, are likely to be known only when the bank closes its books at the end of the financial year. The bank is adequately capitalised at the present moment. LIC is bound by the regulatory guidelines and directives issued by RBI and IRDAI at the time of allowing LIC to acquire majority stake in IDBI Bank.</p> <p>&nbsp;</p> <p><b>Q</b><i>| </i><b>The government has announced its intent to list LIC on stock exchanges. What kind of impact is this going to have on LIC, considering that it will then be under a lot more scrutiny?</b></p> <p><b>A</b><i>| </i>DIPAM [Department of Investment and Public Asset Management] appointed two pre-transaction advisers—Deloitte and SBI CAPS—on August 27, 2020 for assisting the government and LIC in preparing for the IPO. Further, RFP [request for proposal] has been floated for appointment of an actuarial firm for determining the embedded value of LIC.</p> <p>&nbsp;</p> <p><b>Q</b><i>| </i><b>Given how intertwined the financial services sector is, is there a case for a common financial <br> market regulator?</b></p> <p><b>A</b><i>| </i>Regulations are important to ensure that market participants are acting properly. Keeping in mind the intertwined financial service sector today, it may seem a good idea to have a common financial regulator. However, we have a long road to go before we think of having such a regulator, as the customers’ expectations and needs are quite diverse.&nbsp;</p> Thu Dec 31 13:38:55 IST 2020 stock-with-substance-goes-a-long-and-strong-way <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p><b>The ultimate</b> aim of any long-term investor is to hold a portfolio which offers not just phenomenal historical returns but is also able to weather unfavourable market trajectory. Hence, for a long-term investor, stocks with ‘substance’ should take precedence over the stocks that offer a higher expected return in the short to medium period. This is the prime reason why ‘value’ investing style continues to remain a solid choice for investors, despite the fact that value is not as valuable a tool for investors as it used to be, thanks to the helicopter money showered by the global central banks, distorting the conventional valuation gauges.</p> <p>Under the ‘value’ investment style, an investor picks up a stock that is not just trading below the intrinsic value, but also offers long-term potential on the basis of expected cash flow and sound dividend pay-out capabilities. Experts believe that the liquidity-fuelled rally is not tenable for the long-term and distended valuation could regress to the mean level. Furthermore, valuation gap between growth stocks and value stocks is at its highest in the last two decades, thereby proving the relevance of value-based funds. A recent paper published by the Research Affiliates shows that ‘value’ is the most attractive factor in terms of market adjusted return and reports of value’s death as an investment style may be greatly exaggerated.</p> <p><b>Value funds: Attractive investment in times of rich valuations</b></p> <p>In the current scenario, where the equity markets are highly reliant on the earnings growth expected over the next two years, and the economic parameters continue to remain insipid, value-based funds could be an attractive investment destination. Value-based funds are the perfect choice for investors who give higher weightage to downside protection. Incidentally, the Nifty 50 index is trading at 20.6 times, a 34 per cent premium to its long-term average. The historical data suggests that the Nifty peaks when trading between 18.5-19.5 times of its one-year forward price-earnings multiple, while the returns in the next twelve months turn negative. Therefore, the importance and allocation to value funds should rise amidst a huge gap between the market return and economic fundamentals.</p> <p><b>Value funds back on investors’ radar</b></p> <p>Between March 2020 and July 2020, value funds have received inflows of 0377 crore, while it had witnessed an outflow of 03,162 crore over five months, prior to March. The total assets under management of the value funds stood at 051,988 crore at the end of July 2020 and accounts for nearly 7 per cent of total equity AUM of industry.</p> <p><b>Why invest in ICICI Prudential Value Discovery fund?</b></p> <p>Among the 17 value funds offered by the mutual fund industry, the ICICI Prudential Value Discovery Fund has been able to consistently draw investors’ attention, thanks to the degree of its outperformance with the benchmark and niche element in the stock selection. This fund is the largest in terms of AUM in the value fund category and its fund size is nearly 2.5 times more than its next counterpart.</p> <p>&nbsp;</p> <p>Such robust performance was made possible due to the two-pronged approach for stock selection. First, a potential company is evaluated based on financial strength, business durability and management quality. Once the company passes the first round, the fund manager examines the value the company offers based on its current valuation. Currently, the portfolio is overweight on traditional defensive sectors such as pharma, power, software and telecom.</p> <p>Going forward, as the market nears the bubble zone, value funds could underperform. However, for a long-term investor, what matters is how the fund performs over the long term. Here, one can be rest assured a value fund such as ICICI Prudential Value Discovery has all the bearings to outperform the benchmark and its peers over a complete long-term market cycle.</p> <p><b style="font-size: 0.8125rem;">Piyush Jain, Managing Partner, Ladco Crest Wealth LLP</b><br> </p> Thu Dec 24 16:03:43 IST 2020 survival-plan <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p><b>The liveried waiter</b> gliding to you holding a silver platter, the piped music and the arty decor, plush rooms with state-of-the-art facilities catering to your every whim and comfort. Hotels are heavens away from home. Sometimes, they are even an escape away from home. They have, however, been ravaged by the economic mayhem triggered by the pandemic.</p> <p>It is “the biggest crisis of a generation to hit the tourism, travel and hospitality industry”, said Aashish Gupta, consulting CEO of Federation of Associations in Indian Tourism &amp; Hospitality, the umbrella industry organisation. Hotel room occupancy in India plummeted from 80 per cent in January to just 7 per cent when the lockdown was imposed. While many hotels shut up shop, some turned themselves into quarantine centres or staying quarters for health professionals, hoping it would be ‘business as usual’ once lockdown was lifted.</p> <p>Despite ‘unlocking’, however, the outlook remained grim. A study by the Confederation of Indian Industry says room occupancies will remain low into the new year. Rooms depend a lot on travel, and aviation statistics show that only about half of the total domestic flights were in operation last month. Business travel, the bread and butter of hotels and airlines, is down to a trickle, with many corporates working from home and doing essential meetings over video calls. In addition to the fear of the pandemic, uncertainty about jobs and the economy is stopping patrons from going to their favourite restaurants or hotels.</p> <p>But then, when the going gets tough, the tough get going.</p> <p>Despite the heavy pounding they have got, hotels across India have put on their thinking caps and launched out-of-the-box measures to stay afloat. “The pandemic gave us an opportunity to innovate and engage with our customers through newer avenues,” said Kerrie Hannaford, who heads the India operations of the world’s second biggest hotel chain, Accor, which has brands like Fairmont, Novotel and Ibis under its belt.</p> <p>For instance, have you thought of approaching your tony neighbourhood hotel for a thorough sanitisation? Well, that is exactly what some leading chains are offering. “Hotels are supposed to be the most hygienic places, even before Covid-19 hit. Since we specialise in this, we have actually started (providing sanitation services to) work spaces, commercial spaces, and homes,” said Nipun Vig, vice president (operations) of Sarovar Hotels and Resorts, which has 92 properties in India.</p> <p>The Renaissance Mumbai Convention Centre, which once thrived on big conferences and banquets, is now betting big on ‘workcation’, where professionals working from home can do it in the comfort of a plush hotel room, with all amenities from a printer to a hot cup of coffee just a call away. “[Hotels] have [not only struck] into new opportunities that the pandemic made them to adapt, but has also managed to keep its ‘wow’ factor unscathed for the guests,” said Nagesh Chawla, its cluster general manager. At Sarovar group, the package includes an opportunity to have family or friends over for the weekend.</p> <p>‘Revenge tourism’ is another big trend. After being cooped up in their homes for months, people across cities are now travelling to places perceived to be relatively safer—hotels and resorts within driving distance. Some tony hotels have started offering pick-up facilities from the cities, too. Karma Chalets, a boutique hotel which is an hour’s drive away from Delhi, is seeing all rooms booked on weekends and holidays. It even started recruiting recently. This is when rooms in marquee properties are going for a song.</p> <p>In the first week of December, for instance, rooms at Delhi’s Taj Palace were going for as low as around Rs4,000. Novotel, another star property, was going for just over Rs2,000. “The star hotels are actually giving us mid-level and budget hotels a run for our money!” said a senior manager of a hotel chain.</p> <p>New growth models, however, are taking root. “Surprisingly, business hotels in tier-two and tier-three cities have seen a growth,” said Vig. “Smaller cities like Jhansi, Gorakhpur and Bhavnagar are doing well.” The new customer is not the multinational executive or some private sector bigwig, but more likely to be an official in a public sector company travelling for site inspections or official work. Weddings are another opportunity. “Earlier the well-heeled in smaller cities wanted to do destination weddings. Now they are okay to do it in their own towns,” said Vig.</p> <p>Big hotels may have another disadvantage—the fear of infection with more people around. According to Kapil Chopra, president and founder of The Postcard Hotel, which runs boutique properties in Goa and Bhutan, there is “a move away from large, chain hotels to smaller, intimate hotels that can more successfully guarantee high levels of safety and sanitisation”.</p> <p>&nbsp;</p> <p><b>Past forward</b></p> <p>Many top hotel chains have now turned to something they used to look down on till recently—food delivery. Through Marriott on Wheels and Taj’s Qmin app, food from speciality restaurants of the chains can be delivered home. Some have listed themselves on food aggregators like Swiggy and Zomato, and many have started offering DIY kits of their meals, complete with recipes, and in some cases, even a live video call with the chef.</p> <p>The rise in travel to hotels and resorts outside city limits has also seen the millennial traveller replacing the older, business traveller as prime clientele. Said Vivek Agarwal, partner at KPMG in India, “Hoteliers should include these potential visitors in their business recovery plans in an innovative manner, using Big Data to capture insights in likes and dislikes of this target segment.”</p> <p>A tweaking of conventional offerings may be in order to fit the tastes of this younger demographic. “They are actively seeking discounts on rooms, complimentary pick-up and drop-off services, pet-friendly rooms and amenities,” said Chawla of Renaissance Mumbai. With international travellers unlikely for some time, hotels are also tweaking their marketing plans to aggressively target the domestic traveller.</p> <p>&nbsp;</p> <p><b>The next big thing</b></p> <p>With recovery uneven across various types of hotels, and business travel drying up, any innovation that brings in moolah counts. While Marriott tied up with SOTC to hold roadshows to woo travellers last month, many beleaguered metro business hotels are hard-selling themselves to high net-worth individuals in small towns.</p> <p>Wedding packages now come with all sorts of deals. The one from Accor gives a hefty discount if the booking is on a day considered not auspicious. “Our ‘Har Din Shubh Hai’ campaign has benefited guests to get best possible package and hotels have been able to plug in their valley dates,” said Hannaford. Sarovar group is offering discounted bookings for summer vacations next year if one books and pays now. Imperial, a boutique luxury hotel in the heart of Delhi, was reportedly looking for avenues to shore up revenues, including renting out real estate and offering the British-era hotel for film and television shoots.</p> <p>“The situation is temporary, but has the potential to overwhelm businesses which are not willing to change the nature of operations and are refraining from investing in value-adding innovative offerings,” said Agarwal of KPMG. The total loss to the industry is estimated to be around 048,000 crore, and thousands of jobs have been cut. “A helping hand from the government to ensure availability of finance to hoteliers along with sharing partial risks associated with repayment can safeguard the sector against the pandemic,” said Agarwal.</p> <p>Hotels also want state governments to waive off taxes and reduce electricity bills, though most states have been reluctant. Maharashtra has offered industry status to hotels, which could see significant drop in electricity and water tariffs, besides better loan rates.</p> <p>Until a return to ‘normalcy’, it is the ‘in-domestic-tourists-we-trust’ maxim that rules. “Capturing even one per cent of the domestic travel market will mean 1.8 crore travellers!” said Chopra of The Postcard Hotel. Agarwal said domestic tourism was an excellent shock absorber. “It can re-invigorate tourism post pandemic, working as a confidence booster for the global community to visit India in due course,” he said.</p> <p>And, there is no dearth of optimism. “2021 will be a fairly good year for the hotel industry,” said Dipinder Benjamin, CEO of Morpho hotels. He should know, for Morpho launched three new hotels, in Goa, Varanasi and Bengaluru, last month. Hilton opened a property in Goa and another in Jaipur last month. As Vig remarked, “Our industry is known for its resilience!”&nbsp;</p> Thu Dec 24 15:58:35 IST 2020 we-improved-tourism-infrastructure-in-2020 <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p><b>Q/The travel and hospitality sector is one of the worst affected by Covid-19, and Goa’s economy depends a lot on tourism.</b></p> <p><b>A/</b>We have done good work in controlling Covid-19 in Goa. We were one of the first states to restart tourism. The domestic Indian tourist is making a beeline for Goa now. Covid may not have disappeared completely, but still, by following all the norms and SOPs we have given, I can say with pride that we have successfully revived the tourism industry in Goa. Our efforts are now on to manage Covid. We are in coordination with all the district tourism authorities and industry associations. It is a matter of pride that we managed to improve the tourism infrastructure and economy in the state in the last one year. Of course, the Covid outbreak dulled it a bit. All restrictions have been removed from November 30.</p> <p><b>Q/Have you met representatives of the hotel industry associations? What are their demands?</b></p> <p><b>A/</b>I am constantly meeting people from the hotel and tourism industry. Tourism is the biggest revenue earner for the Goan economy, followed by industries, mining and agriculture. We have given 50 per cent subsidy for the stakeholders. All tourism and commercial vehicles were given 50 per cent tax rebate for six months from April 1.</p> <p><b>Q/International tourists contributed the largest chunk of Goa’s tourism revenue. Now, you are only getting domestic tourists. How do you think you can make up for the revenue gap?</b></p> <p><b>A/</b>Goa is well known for international tourists. Every year, scores of foreigners arrive on our shores. Forty per cent of our tourist arrivals are from abroad. It is high-end tourism and we won’t be able to fill that gap.</p> <p><b>Q/Is there a middle path? Maybe you could get permissions for specific chartered flights of tourists?</b></p> <p><b>A/</b>We have already asked for permission from the Union home ministry as well as the ministry of external affairs if some exemptions can be given at least for the months of December and January, for that is the time when the most tourists come to Goa. Most of the chartered flights come in December and January.</p> <p><b>Q/The tourism ministry now seems to be targetting the high-end Indian tourists who preferred to travel abroad.&nbsp;</b></p> <p><b>A/</b>Recently we published our tourism policy to attract high-end tourists from within the country also. We are trying our level best. Now we are celebrating the 60th anniversary of Goan Liberation and we are thinking of organising ‘cultural tourism’ under tourism promotion, and in various states as well. For the whole year we will be promoting various aspects like inland tourism, spiritual tourism and medical tourism within the country to attract high-end tourists.</p> <p><b>Q/The hotel industry has been asking for support from the state government, like tax waiver. Are you considering it?</b></p> <p><b>A/</b>So many requests have been coming for tax waiver. So far we have given tax cuts to tourist taxis as well as to the beach shacks. We have not given any direct waiver to the hotel industry so far. It will be impossible to waive off taxes completely, because that is how government earns.</p> Thu Dec 24 15:50:55 IST 2020 last-among-equals <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p>For the global economy, the year gone by was an unmitigated disaster, but Covid-19 did not stop capitalism from notching up a few records. In August, Amazon founder Jeff Bezos accumulated a record net worth of $200 billion and became richer than 140 countries. The same month, Apple crossed $2 trillion in market capitalisation.</p> <p>By October, the combined wealth of dollar billionaires stood at $10.2 trillion, a 70 per cent increase over the past three years. The world’s 500 richest people collectively gained $1.3 trillion this year, with Elon Musk alone adding more than $100 billion. But, for millions of ordinary people, the year was a nightmare. Thousands of migrant labourers in India had to walk hundreds of miles to their villages. The heartbreaking picture of a father holding his child and clinging on to an overcrowded truck in a desperate attempt to reach home was a stark reminder of our unequal world. A World Bank report released in October estimates that the pandemic will push 11 crore people to extreme poverty as we say goodbye to 2020.</p> <p>Two recent works stand out for their excellent research and inquiry into the ideological underpinnings of economic inequality around us. French economist Thomas Piketty argues in <i>Capital and Ideology</i> that, for the first time in history, the poor are being blamed for their misery. They are condemned for lack of talent, diligence and virtue, while the rich are commended for their merit and entrepreneurship.</p> <p>The second outstanding work is Harvard professor Michael J. Sandel’s <i>The Tyranny of Merit: What’s Become of the Common Good</i>. Sandel writes that Donald Trump’s victory in the 2016 US presidential elections and the vote for Brexit in the UK were angry verdicts on “decades of rising inequality and a version of globalisation that benefits those at the top but leaves ordinary citizens feeling disempowered”. He says the root cause of this popular anger is the meritocratic justification of inequality. The rich feel that they are entitled to the just rewards of their merit and the poor are left with a feeling of humiliation and resentment.</p> <p>American businessman and convicted felon Martin Shkreli’s argument that profit is a good thing to sustain corporate existence arises from this feeling of meritocratic entitlement. Shkreli is the founder of Turing Pharmaceuticals that produced Daraprim, a drug used in the treatment of malaria, toxoplasmosis and HIV. The drug was originally owned by another pharmaceutical company. Upon acquisition, Turing increased the price of the drug from $13.50 per tablet to $750. Shkreli justified this 5,000 per cent hike on the need for making profits. The 37-year-old is now serving time in a federal prison in Pennsylvania, after being convicted in a securities fraud case.</p> <p>Meritocratic argument was at the centre of a public interest litigation in the Delhi High Court in 2012. The petitioners challenged the construction of a bus rapid transit corridor in Delhi, arguing that the BRT would increase by about 20 minutes the travelling time of “wealth creators” such as managers and directors. The court rejected the contention, observing that without the meaningful support of labour, capital would not be able to create any wealth. It is another matter that the BRT project was shelved later because of the criticism that it caused huge traffic blocks.</p> <p>The thought process behind the BRT legal challenge is not an exception. There have been instances where even the Supreme Court was swayed by the virtues of corporates. Rejecting a petition that challenged the construction of a mall in Delhi’s ecologically vulnerable ridge area without required permissions, the court observed that unlike individuals, corporates did not indulge in malpractices for getting approvals.</p> <p>The impact of inequality on law, and the role of law in addressing inequality, have been examined quite extensively. There is a growing realisation that rising inequality is a threat not only to rule of law, but also to the very idea of constitutional governance and democracy. Economic inequality and increased acceptance of authoritarian rule go hand in hand. Also, inequality is significantly higher in democracies that degenerate into autocracies. As Justice Louis Brandeis of the US supreme court said with prescience a century ago, “We may have democracy, or we may have wealth concentrated in the hands of a few, but we cannot have both.”</p> <p>What is the role of law in addressing economic inequality? One view is that progressive taxation is the best way and that any other intervention would further distort markets. Another view is that law can play a meaningful role in tackling inequality and reducing poverty. The need for such an intervention arises from the belief that capitalism itself is a product of law and, therefore, law should intervene to course-correct it. Two major pillars of capitalism are right to property and freedom to contract, both inventions of law. Income inequality is growing mainly because of the adoption of neoliberal economic policies. For example, the World Inequality Database shows a sharp increase in inequality in India from the 1990s after the liberalisation of the economy. Liberalisation reduced governmental regulation, promoted disinvestment of public sector undertakings, brought about changes in the taxation policy and reduced government spending in welfare measures.</p> <p>Many people, therefore, advocate antitrust law or competition law as a major legal tool to address economic inequality. The enactment of antitrust laws in the US had income distribution as one of its primary objectives. The Sherman Act of 1890, which heralded the beginning of competition law, came at an inflection point in America’s political history. The common man, especially the farmer, was at the receiving end of a new entity called trusts, through which industrialists in a sector joined hands and fixed prices and output. The Standard Oil Trust founded by John D. Rockefeller (1839–1937) is a prominent example. The company was a pioneer in adopting unscrupulous business practices to maximise profits. The Rockefeller empire was built by either taking over rival companies or cooperating with them. In the 19th century, there was cut-throat competition among oil refiners. Standard Oil beat competition by signing favourable transport contracts with railroad companies and by acquiring vital pipelines. The collusion with railroad companies gave it not only favourable freight rates, but also crucial information about the volume of trade of competitors.</p> <p>The Sherman Act outlawed these trusts and all other forms of monopoly. Anti-competitive agreements like price fixing and market sharing were outlawed. Mergers and acquisitions were brought under scrutiny to ensure that they did not lead to concentration in the market. Standard Oil was broken into 34 companies in 1911.</p> <p>A radical shift, however, happened in the enforcement of antitrust laws in the 1980s, influenced by the economic policies of president Ronald Reagan who preferred a reduced role for government in the market. A group of economists at the University of Chicago argued for a reduced role of antitrust law in a market economy. The university had been founded with a Rockefeller donation. Seeing great merit in the market and its self-correcting nature, these economists reasoned that the only purpose of antitrust law was to enhance consumer welfare and that the law should involve itself only in those practices where the consumer was affected. This approach had a significant impact, especially as mergers and acquisitions were treated with leniency. It facilitated economic growth, but led to concentration of wealth. This happened in two ways. By reducing competition, the prices of essential commodities went up, affecting the poor more. Second, it resulted in job losses and wage suppression because of the reduced bargaining power of the worker. The big corporations were in a better position to control wages and other benefits.</p> <p>The limits of such an approach are magnified in big tech companies. The World Bank publication Digital Dividends (2016) documents how digital technology can exacerbate inequality. It shows that the dominant position of online platforms and internet intermediaries can lead to exclusionary abuses like buying out competitors and predatory pricing. Exploitative abuses like imposing unilateral policies are also common. For example, Google, in 20 years, acquired 260 companies with an eye on the technologies they developed. Similarly, Amazon acquired 100 competitors to retain its dominance. Facebook’s acquisition strategy is also well known. Collectively Amazon, Facebook, Google and Apple have acquired more than 500 companies. The Chicago economists’ approach accepted by the US supreme court makes competition law toothless in these situations. The major hurdle that competition law faces here is that most of the services rendered by these companies are either free or offered at a reduced price. As consumer welfare is the sole objective of competition law, it presents problems for intervention as consumer welfare is not affected.</p> <p>The limitations of competition law to rein in tech companies was highlighted by a US house of representatives’ subcommittee report, Investigation of Competition in Digital Markets, published in October. The 450-page report noted that the current approach focused solely on consumer welfare was against the original intent of antitrust laws. It recommended amendments to clarify that antitrust laws are designed to protect not just consumers, but also workers, entrepreneurs, independent businesses, open markets, a fair economy and democratic ideals. With Joe Biden winning the presidential elections and Democrats retaining their majority in the house of representatives, the control of the senate after the run-off elections in Georgia will be crucial. If the Democrats manage to win the two Georgia seats, there is a greater possibility that these changes would be brought about.</p> <p>The recent action by competition authorities around the world, including the US, the European Union and India, against Google will be a test case to ascertain the efficacy of competition law in digital markets. The main complaint against Google is that it was using its monopoly position, gained as a result of owning the Android operating system, to insist on preloading its search engine and prohibiting pre-installation of competing search engines. On December 9, the US federal government and more than 40 states filed lawsuits against Facebook in the US district court for the District of Columbia, accusing the tech giant of illegally targeting competition. They said Facebook’s purchases, especially of Instagram and WhatsApp, were aimed at eliminating competition.</p> <p>It is, however, doubtful whether competition law is an effective tool to tackle the ever-expanding power of multinational corporations. Even the United States with its strict antitrust laws has not always been successful in this regard. The banana litigation of early 20th century showed the limits of extraterritorial antitrust enforcement. The United Fruit Company, a New Jersey-based corporation which enjoyed monopoly over banana plantations in Latin America, chose to target the American Banana Company, a business rival that posed a challenge to its monopolistic position. The American Banana Company was in the process of constructing a railway line across Latin America to transport bananas from its plantations for export to the US. The United Fruit Company initially tried to buy out the competitor. After the attempt failed, it instigated officials in Costa Rica to seize the plantations and railways. Deprived of its property and driven out of business, the American Banana Company filed a suit for compensation under antitrust laws in the US. But the complaint was dismissed as the activities took place outside the US. Interestingly, when Pablo Neruda wrote a poem in the 1950s about American imperialist policies in Latin America, he titled it “The United Fruit Company”.</p> <p>The antibiotic cartel case in the late 1970s is also instructive. An investigation in the US revealed that a group of broad spectrum antibiotic producers, including Pfizer, had formed a cartel and fixed prices and divided markets, including India and many other developing countries. India, the Philippines and Iran approached American courts for compensation for the excessive prices charged by the companies. India preferred to use American law and American courts thinking those would be more effective. The US supreme court, however, rejected the case on the ground that a foreign country could not sue under the antitrust law. This is a reminder of how ineffective the protection is when faced with MNCs.</p> <p>India in the 21st century, however, is not the India of the 1970s. It is an emerging economy and a huge market. Even then, there are many factors that inhibit competition enforcement in India. The first question is of accessibility. In the US, a citizen can approach a federal court and file a complaint about an anticompetitive practice and can get a hefty compensation. But in India, the Competition Commission of India situated in Delhi alone can deal with complaints. The Competition Act had provided for regional benches, but an amendment in 2007 abolished them. Second, in the US, the violation of antitrust laws can lead to punishments, as the Sherman Act is a criminal statute. Many executives have undergone prison terms for antitrust violations. In India, competition law violations entail only structural remedies or fines. Third, the delays in deciding appeals make many of the remedies meaningless. Even though the CCI has imposed hefty fines in many instances, these are under appeal and thus allows companies to buy time. Further, at a policy level, it must be seen how a country that badly needs foreign direct investment will deal with anti-competitive practices of MNCs. In that sense, the effectiveness of competition law to bridge economic inequality in a country like India is doubtful.</p> <p>—<b>The author is professor of law, Sai University, Chennai.</b></p> Thu Dec 17 22:40:33 IST 2020 poor-economics <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p>In 2005, the Nobel Prize-winning economist Paul Krugman told a sob story about why, despite their pretensions, economists are not scientists.</p> <p>The occasion was the Bhagwati Festschrift in Columbia University—a conference and gala dinner (Festschrift roughly means feast-script in German) in honour of Jagdish Bhagwati, Krugman’s teacher and an authority on trade theory. After suitably identifying himself as a SOB (acronym for ‘student of Bhagwati’), Krugman revealed his strongest memory of studying with the great man. It was an old joke. “At one point, Jagdish explained to us his personal theory of reincarnation,” Krugman said. “It was that if you are a good economist, a virtuous economist, you are reborn as a physicist, and if you are an evil, wicked economist, you are reborn as a sociologist.”</p> <p>The joke, he said, was not on sociologists or physicists; it was about economists. “They aspire to what they imagine physicists to be, to this rigour and certainty and mathematical complexity,” said Krugman. “Given his record of achievement, progress, open-mindedness, and just sheer human goodness, I am sure that Jagdish will be reborn as a physicist.”</p> <p>Sadly, economists waiting for rebirth still have the unenviable task of making sense of the world. With their theories and mathematical models, many of them acquit themselves well, but the fact remains that economics perennially plays catch-up in solving poverty, unemployment and inequality.</p> <p>But economists do get to conduct experiments like physicists do. Communism, for instance, was an experiment born of the ideas of a German economist. (Karl Marx had put his politics before his economics—he published the Communist Manifesto two decades before <i>Das Kapital</i>.) When the socialist experiment failed, free-market economists took over. Jeffrey Sachs of Harvard University tried to rescue the Soviet Union’s largest rump state, Russia, with an economic “shock therapy”—ending price controls, opening up markets, privatising state-owned industries and lowering spending, all done in warp speed.</p> <p>The therapy did not work. The economy tanked, the ruble hit rock bottom, bread and milk became scarce, and politicians stripped government assets to enrich themselves. Angry and disillusioned, Russians returned to the order that autocracies often provide.</p> <p>India, too, recently had a shock therapy-like experiment. In November 2016, the government announced demonetisation of Rs500 and Rs1,000 notes. Paper money worth Rs15.41 lakh crore was rendered void. The reason: some economists believed that at least 5 per cent of India’s cash economy was illegal, and so withdrawing the high-value notes would have the effect of a forcible wealth transfer to government coffers. Since those with black money would not risk depositing it in banks, the RBI would be left with a currency surplus—around Rs3 lakh crore—that it could transfer to the exchequer.</p> <p>These economists calculated that demonetisation would help the government <i>earn</i> money. But then, as some others have been saying, governments do not really need to earn money. They are in the business of <i>issuing</i> money. For instance, the Indian rupee comes from the Indian government, and nowhere else. The RBI prints the money for the government—as coins and notes—and then infuses it into the economy in various ways. In other words, the Indian government is the monopoly manufacturer of Indian rupees. Or, the government is like a household, but with its own money-printing press. What would be the chances of such a household ever going broke?</p> <p>Mystified about the economics of it all? It could be that the way we think about money is seriously wrong. The last time there was a fundamental change in the way people thought about money was in the 1970s, when US president Richard Nixon delinked the dollar from gold. Until then, it was theoretically possible to exchange a currency note to obtain an amount of gold that was equivalent to the note’s value. The ending of this gold-exchange standard meant that the dollar—and all sovereign currencies pegged to it—had become fiat money.</p> <p>Rupee, too, is fiat money, which means that the pieces of paper in your wallet do not have intrinsic value. Whatever value it holds boils down to the currency’s backing of the government (in the visible form of the governor’s promise on the note) and the market’s trust in the monetary system (in the invisible form of exchange of goods and services for paper).</p> <p>All this leads to an important question that even famous economists—from Marx to Krugman—have struggled to answer in concrete terms.</p> <p>What really is money?</p> <p><b>The motorcycle economist</b></p> <p>“What exactly is money?” the historian Niall Ferguson asked in the introduction of his book <i>The Ascent of Money: A Financial History of the World</i>. “Bread, cash, dosh, dough, loot, lucre, moolah, readies, the wherewithal: Call it what you like, money matters. To Christians, the love of it is the root of all evil. To generals, it is the sinews of war; to revolutionaries, the shackles of labour. But what exactly is money?”</p> <p>Let us start our search for the meaning of money in August 1914, when a lanky young economist undertook a 100km motorcycle journey from Cambridge to London to save the British Empire.</p> <p>John Maynard Keynes, 31, was a gifted mathematician who had spent the previous year in the India Office in London, studying the colony’s rather crude monetary system. In his 260-page book <i>Indian Currency and Finance</i>, he argued that India’s currency need not be convertible to gold in matters regarding internal trade. This was a radical view, because gold was considered the safest repository of value—an asset universally recognised.</p> <p>The value of all sovereign paper currency lay in the promise that one could take it to the central bank and obtain gold in exchange. This gold standard required that the central bank keep a fixed amount of gold for every unit of paper currency issued. The system worked like insurance. As former US president Herbert Hoover said, “We have gold because we cannot trust governments.”</p> <p>Keynes’s book sold less than 1,000 copies, but its subtle inventiveness impressed key figures in the government. Keynes hitched a ride from Cambridge (where he studied) to London as a government officer “wanted to pick your brains for your country’s benefit”.</p> <p>In August 1914, London was in panic. Barely two months before, a young Yugoslav nationalist had shot dead the heir to the throne of the sprawling Austro-Hungarian Empire—an act that would trigger World War I, but whose first effect was a pan-European banking crisis. The political uncertainties caused by the assassination had made investors and traders dump paper currencies and take refuge in the security offered by gold.</p> <p>Since the pound sterling was the dominant currency, Britain’s central bank, the Bank of England, gradually went into a squeeze. Volatile currencies across Europe were being converted to pound, and then presented to the Bank of England in demand of gold. The bank was bleeding bullions, as the crisis forced governments across Europe to withdraw gold from London to shore up their own central banks. The vaunted stiff upper lip quivered and the Brits themselves liquidated their paper-money positions. In just three days, the bank lost two-thirds of its gold reserves.</p> <p>The government swung into action, shutting down stock markets and declaring an unprecedented, four-day bank holiday to prevent further outflow of gold. When the motorcycle carrying Keynes puttered into London, bankers and mandarins were already toying with the previously unthinkable idea of defaulting on their currency obligations to protect the remaining reserves.</p> <p>Keynes, an aristocrat who believed in Britain’s right to rule the world, was aghast. “The bankers,” he wrote to his father, “have completely lost their heads and have been simply dazed and unable to think two consecutive thoughts.”</p> <p>He realised that Britain needed to not just merely survive the crisis, but survive it in such a way that its reputation as a reliable financial power was preserved and its political dominance cemented. So he wrote to David Lloyd George, chancellor of the exchequer and future prime minister, that if Britain ever defaulted on its obligations, “the future position of the City of London as a free gold market will be seriously injured”.</p> <p>“One consideration never to be forgotten is the following,” Keynes told Lloyd George. “It is useless to accumulate gold reserves in times of peace unless it is intended to utilise them in time of danger. If [talk of defaulting on obligations] is believed in international banking circles, our position and prestige will be very different from what they have been in the immediate past.”</p> <p>He then presented an audacious proposal. Foreigners who wanted to convert pounds to gold should be paid in full, he said, while domestic obligations be met with a new sovereign paper currency that would be convertible to gold only in the London headquarters of the Bank of England.</p> <p>This would achieve two primary goals. One, the run on the Bank of England would subside, helping the bank preserve gold for obligations abroad. Two, the suspended economic activity within Britain could resume. Of course, people could still redeem new notes for gold, but the effort would be taxing. The provision that gold could be redeemed only in the London headquarters meant that there would be travel, delays and hassles.</p> <p>Lloyd George, a man of firm belief that “you can’t cross a chasm in two small jumps”, ran with Keynes’s plan. Bills were hurriedly passed in parliament and the new money was printed and distributed on a war footing. When the commercial banks reopened, people accepted the paper money and began making deposits. Most of them reckoned that they were better off doing business with the new paper money than taking the trouble to exchange it for gold.</p> <p>Together, Keynes and Lloyd George had provided an economic springboard for the British currency to take a giant leap over a deep financial chasm. They had legally weakened the gold-exchange standard.</p> <p>The idea of money would be never be the same again.</p> <p><b>The race-car economist</b></p> <p>Warren Mosler was born in 1949, three years after Keynes died. An American economist, Mosler is the father of modern monetary theory, or MMT, a macroeconomic framework that upends the notion of how money works in a modern economy. As an economic theory, MMT is considered post-Keynesian—deriving its ideas from, and expanding on, Keynes’s work.</p> <p>Mosler is a renaissance man like Keynes was. Keynes was a connoisseur of arts, culture and philosophy, and counted among his friends personalities as varied as the Austrian philosopher Ludwig Wittgenstein and the English writer Virginia Woolf. Mosler, 71, is as knowledgeable about politics, business and race-car manufacturing as he is with complex economic concepts. He made his wealth in the 1980s running a hedge fund, founded an automotive company in 1985 that changed the definition of the modern race car, transitioned back to academia and policymaking in the 1990s, and later ran for US president and the US senate.</p> <p>Intellectually, his most famous children are MMT and a groundbreaking race-car called the Consulier GTP. The GTP had an eggshell-like lightweight chassis and a carbon-Kevlar body that made it 50 per cent lighter than the average American sports car. The car’s feathery body, aerodynamic design, and the 2.2-litre turbocharged four-cylinder engine made it a peerless beast. Its build philosophy: The lighter the machine, the more efficient and agile it is.</p> <p>MMT reflects the same attitude. It is a heterodox economic theory that has a simple, powerful idea at its core. The idea: Currency is a public monopoly that can serve to attain full employment.</p> <p>Agreed, the idea makes for an ugly sentence. The Consulier GTP, too, was an ugly machine, which is why it did not have many takers. (Mosler sold just 83 cars in 11 years.) Likewise, though MMT has a cult-like status among economists and activists, not many policymakers have embraced its innovative views.</p> <p>One reason is that MMT gives no direct prescriptions to cure economic ills. “MMT is descriptive,” Mosler told THE WEEK. “It describes the workings of the monetary system of each nation, which tends to reveal policy options not previously considered viable.”</p> <p>Currently, the monetary systems of most nations are interlinked. That is because of the work of Keynes and a US treasury official called Harry Dexter White. In the 1940s, they laid the foundations of two institutions that would shape the post-war global economic order—the International Monetary Fund and the World Bank. The IMF would facilitate international trade and enhance global monetary security and cooperation, while the World Bank would provide the required money to help developing countries grow.</p> <p>The IMF took up office on the 19th Street in Washington, DC—not far from the US Treasury on the 15th Street. In the 1980s, when Mosler was beginning to make a name as a hedge-funder manager, the proximity between the US government, the IMF and the World Bank led to the formation of a ‘Washington Consensus’, on what constituted good developmental policies.</p> <p>As a UN diplomat in New York, Shashi Tharoor had a ringside view of how that consensus was sold to the developing world. In his new book, <i>The Battle of Belonging</i>, he writes: “Neoliberalism came into its own, privileging a heady cocktail of free-market policies, including deregulating capital markets, lowering trade barriers, eliminating price controls, establishing global supply chains, rampant privatisation, and the reduction or abandonment of state welfare for the poor, often accompanied by austerity measures to bring fiscal policies in line with what western ratings agencies wanted to see.”</p> <p>The policies, however, were designed to benefit the developed world. “It was not a consensus forged in the developing countries—among those that were living through the consequences of those policies,” wrote the Nobel Prize-winning economist Joseph Stiglitz. “It was only a consensus among those who imposed the policies, not among those who experienced the bulk of their efforts, especially the negative ones.”</p> <p>Some policies, though, did benefit India. “For over forty years after independence, India operated under a plethora of economic controls—an understandable response to centuries of colonial plunder,” Tharoor told THE WEEK. “After the controls were dismantled during liberalisation in the early 1990s, growth surged from the dismal ‘Hindu rate of growth’ to triple that level, pulling millions out of poverty. The record shows that more open trade has provided immense, concrete benefits to ordinary Indians.”</p> <p>But at the heart of the Washington Consensus is a thinking that MMT economists regard as a giant folly. The ‘folly’ is in thinking that the fiscal deficit—the difference between government revenue and expenditure—needs to be reined in; that the government, like any ordinary household, cannot live beyond its means.</p> <p>MMT makes a clear distinction between the government and citizens: The government is the issuer of money; the citizens are the users of it.</p> <p>One of Mosler’s life stories is particularly illustrative of this difference. He had a beach-front property with all the amenities. One day, he asked his two children to help him keep the house clean and habitable. Mosler told them that, in return, he would give them his business cards, which they could make use of in profitable ways.</p> <p>The system would work like this: Three business cards for making their beds; five for doing the dishes; and ten for washing the car or cleaning the swimming pool. A few weeks later, Mosler realised that the system was not working; the children were not doing any work. When he asked them why, they replied, “Dad, why would we work for your business cards? They are not worth anything!”</p> <p>Mosler changed his strategy. He realised that he had to make the children <i>need</i> the cards. He issued a dictum: At the end of each month, he wanted each child to pay him back thirty of his business cards. Failure to pay would result in loss of television time, trips to the mall, use of the pool, and suchlike.</p> <p>That did the trick. Mosler had effectively imposed a ‘tax’ on his children, one that could only be paid using his ‘sovereign’ paper currency—his business card. Every month, the children will have to do the required work to earn the ‘money’ and pay the ‘tax’; also, they will have to go through the earning-paying cycle every month.</p> <p>MMT’s core philosophy is this: Taxes are primarily meant to create demand for government currency.</p> <p>Tax revenues, according to the theory, are beside the point. A government needs people to pay taxes as much as Mosler needed his children to pay back his business cards.</p> <p>“The monetary system functions first to provision the government with goods and services,” Mosler told THE WEEK. “Tax liabilities are imposed to make the population become sellers of goods and services, to obtain the funds needed to pay taxes, [the currency for which can] come only from the government.”</p> <p>This is a profoundly innovative view. But the question is, how relevant is it for India?</p> <p><b>The Indian money crises</b></p> <p>India, like most developing countries, has been facing a revenue-expenditure crunch. The government does not have the money that needs to be spent on education, health care, infrastructure and social welfare. The overall annual spending is hugely skewed: Last year, the Union government incurred Rs23.49 lakh crore as ‘revenue expenditure’—salaries, pensions, subsidies, interest on debt, and so on. Only Rs10.59 lakh crore was ‘capital expenditure’—creation of assets (like roads, bridges and schools) and measures that eased the debt burden.</p> <p>This skewed spending ratio—coupled with the Washington Consensus-induced preoccupation with controlling the fiscal deficit—makes it difficult for the government to find money for productive social welfare schemes. For instance, the government currently spends around Rs60,000 crore a year on the National Rural Employment Guarantee Scheme, which provides minimum-wage jobs to unemployed people in villages. The NREGA is a hugely successful scheme that benefits six crore families a year, but the government’s fiscal constraints prevent it from expanding the scheme.</p> <p>This is where MMT is relevant. Even though Mosler insists that the theory is “descriptive”—of how monetary systems work—policymakers could well divine real-world solutions from it. For instance, governments can print money to meet its expenses. And spend that money on schemes that would provide full employment and other productive outcomes. It means, in Mosler’s words, toying with options previously considered unviable.</p> <p>MMT, however, also envisions checks and balances to prevent a free-for-all situation. In <i>The Deficit Myth</i>, one of the foundational texts in the field, economist Stephanie Kelton lays out some real-world conditions. “Countries need to do more than just grant themselves the exclusive right to issue currency,” she writes. “It’s also important that they don’t promise to convert their currency into something they could run out (gold or some other country’s currency). And they need to refrain from borrowing in a currency that isn’t their own.”</p> <p>This is a big ask, though. In the globalised economy, currencies are interlinked, and so are their values. It is not possible for the Indian government to issue rupees that are not legally convertible to dollar or other currencies. It means the rupee runs the risk of being devalued if not properly ‘managed’.</p> <p>But governments can certainly meet one condition: Refrain from borrowing in a currency that is not their own. Even non-sovereign governments have the option of doing it. A good example is how the Kerala government became the first Indian state to tap the market for masala bonds, which are debt papers sold overseas that are denominated in rupees. In other words, borrowing from overseas money market in Indian rupee. In May last year, the Kerala government, through a state-owned corporate entity, successfully issued rupee-denominated bonds worth around 02,000 crore in the London Stock Exchange. The long-term debt will be paid back in rupees, and not in dollar, irrespective of the prevailing exchange rate. (Ironically, it was a communist chief minister, Pinarayi Vijayan, who rang the exchange’s iconic bell to begin trade. Marx would have been proud; he, too, had dabbled in money trading in capitalism’s most storied stock exchange.)</p> <p>According to Tharoor, economic crises are an excellent time for unorthodox economic thinking. But then, there are the pitfalls to consider. “In my view, India walks a delicate tightrope,” he said. “Overtly tight fiscal-deficit controls should not be allowed to straitjacket growth; after all, such a policy would only lead to further economic sluggishness. At the same time, here is the dilemma: employment requires investment, and investors would surely be loath to invest in India if our fiscal deficit is worryingly out of control.”</p> <p>In the early 1990s, New Delhi was caught in such a situation, one that was not very different from the one London found itself in 1914. Political turmoil and economic headwinds had landed India in a position where it could not afford to pay obligations abroad. The panicked government sounded economists out on all kinds of drastic measures.</p> <p>One measure that was secretly discussed was a ‘demonetisation’ targeting non-resident Indians. “At one stage, my opinion was asked about freezing outstanding NRI deposits with banks in India,” wrote Y.V. Reddy, who then headed the balance-of-payments division at the RBI. “This meant that NRIs would not be able to temporarily cash their foreign currency deposits. I suggested that such an option should not even be brought up in any discussion or any background document. Once the nation lost the confidence of the Indian diaspora spread over various countries, its self-respect and pride would stand seriously undermined.”</p> <p>In the end, the government decided to pledge its gold in London to mitigate the crisis. Later, finance minister Manmohan Singh would start the much-needed process of liberalising the economy. Reddy, who had issued a Keynes-like warning to the government, would become RBI governor. The crisis-related chapter in Reddy’s post-retirement memoir, however, has a very un-Keynesian title: The power of gold.</p> <p>“We still suffer from the gold-exchange hangover,” said R. Rajender, economist and founder CEO of SR Capital Advisory, a Chennai-based corporate investment consultancy. According to him, the balance-of-payment crisis happened because the rupee had a fixed exchange rate.</p> <p>A fixed rate is the regime by which a government ties the exchange rate of its sovereign currency to another country’s currency, or to the price of gold. The objective is to protect the currency from extreme volatility. In the 1990s, the rupee’s fixed exchange rate was tied to the US dollar.</p> <p>“What happened [in India] is exactly what tends to happen with fixed exchange rate regimes,” Mosler told THE WEEK. “Understanding the difference between fixed and floating exchange rate policies is what led the IMF cease recommending fixed exchange rate policies, and instead encourage floating exchange rate policies, [so that] what happened to India need never happen again.”</p> <p>So, are the lessons from the 1990s still relevant? “First, we need to understand that most of the currencies are fiat currencies now, except European Union countries and a few others. It is not linked to gold or dollar any more,” said Rajender. “The government being the currency issuer, there is no limit on [issuing money] to back up productive work. As long as employable resources are there, the government can spend. Restrictions like fiscal deficit and debt-to-GDP ratio are self-created, with no sanctity or justification in a fiat currency system.”</p> <p>To be sure, the ongoing economic crisis is worse than what India had dealt with in the 1990s. In July, RBI Governor Shaktikanta Das said the pandemic had caused “the worst health and economic crisis in the last 100 years in peace time.”</p> <p>“Some 40 crore Indians are being pushed below the poverty line,” said Tharoor. “This is a time of widespread economic harm, and a strong and generous programme of direct cash assistance will provide desperately needed immediate relief to the multitude of Indians who are suffering on a daily basis.”</p> <p>MMT economists, however, do not recommend long-term cash transfers or income-guarantee schemes. “Such measures, without ensuring productive work, would lead to inflation,” said Rajender. And inflation leads to currency devaluation. “With [income-guarantee schemes], the government imposes tax liabilities and then gives people the funds to pay the tax,” said Mosler.</p> <p>Such handouts can have adverse effects. For instance, Brazil spent billions of dollars on monthly stipends to the unemployed during the Covid lockdown. While it reduced economic inequality, the handouts also led to a spike in inflation and food prices.</p> <p>A middle path could be what the economist Jean Drèze has proposed: An urban counterpart of the NREGA, in which the government does not guarantee employment, but instead issues ‘job stamps’ and distributes them to approved public institutions—schools, colleges, jails, municipalities, government departments, health centres and neighbourhood associations. The institutions would be free to convert each job stamp to employ people in a specified period. Drèze calls it DUET, or decentralised urban employment and training.</p> <p>“I don’t have any view on MMT,” Drèze told THE WEEK. “Since DUET is not an employment guarantee but an employment scheme, the level of expenditure is flexible. My sense is that, initially at least, the use of job stamps by public institutions may not be very intensive. Therefore, job stamps could be distributed quite liberally to public institutions, and the cost will not be very large.”</p> <p>Mosler said the programme could work. “It pays people to work and become more employable for other employers,” he said. “And if the wage is stable, it is not inflationary.”</p> <p>Too radical a plan? Perhaps not.</p> <p>At the Festschrift in Columbia, Krugman had revealed the most important lessons Bhagwati had taught him—“open-mindedness, a willingness to see things differently, and not to be bound by an orthodoxy”. “I think one of the things you discover as the years go by is that what seems to be a completely radical break actually starts to fit into the grand tradition—and you see where it actually relates to what came before,” he said. “Then [the break] no longer seems as revolutionary as it did, but that’s fine.”</p> <p>Such a break, from monetary tradition, happened in 1914. And it could happen again. Surely, India could well use one break.&nbsp;</p> Thu Dec 17 21:34:52 IST 2020 management-education-in-post-covid-india <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p>As business schools shifted to online education because of the Covid-19 pandemic, they quickly realised that it was not an adequate substitute for the teaching that happened in traditional classrooms. A new pedagogy is required as both teachers and students struggle to adjust to a new medium. Online classes are slower than normal classes, but the learning is as effective with mind-wandering (the experience of thoughts not remaining on a single topic for a long period of time) by students during an online session is approximately the same as in a physical class.</p> <p>An advantage of online learning is that it can be used to include simulations that encourage problem solving, and with online chat rooms, students can collaborate and assist fellow learners. This is an opportunity for us to examine which courses require the synchronous presence of faculty and participants to address queries, coach and respond to contextual issues that ought to be done in a face-to-face setting. Those sessions that proceed in a linear fashion and where students absorb concepts at differential rates of concentration can be done online and also recorded so that students can go back and overcome the learning that is missed because it is sometimes difficult to rewind in the class. The crisis is an opportunity for business schools to unpack different dimensions of learning and to attempt to transform some of it into online sessions that enable revision and paced out learning.</p> <p>Within programmes, the methods of teaching could very well undergo a change. The myriad ways in which problems arise in business require sessions that highlight the ways in which the joint application of the principles of finance, marketing and strategy working together can address issues suitably. As courses become increasingly delivered in an online mode, there will also be the challenge of how to transmit the critical learning that is experiential rather than functional, and institutions will have to find ways to do so. Implanting sustainability issues into management teaching is also important so as to equip students to face the challenges of the day and to understand that purpose and social responsibility are as important as the maximisation of profits. This would require drawing on different disciplines that are not in the traditional domain of business schools such as law, sociology and politics. Institutes will be under scrutiny for their efforts to reduce carbon footprint and food waste and for prioritising gender parity among their students, faculty and staff. Management programmes will be increasingly scrutinised for their ability to disseminate learning by doing and they will have to change the way they assess participants in their courses away from exams to grading for projects undertaken during the course.</p> <p>The pandemic is an occasion to review the curriculum and to introduce contemporary topics such as how workers from home use their time, the efficacy of different communication strategies when face-to-face interaction is difficult, the implications for business productivity of online networks such as Microsoft Teams, the impact of the pandemic on stress and resilience and the use of new channels to do business such as the deployment of fintech to improve the flow of credit. Domain specific skills in marketing, operations, finance and strategy will continue to be important. Soft skills are also becoming vital as growing specialisation requires the ability to collaborate and build relations of trust and accountability. Prized managers will be those who regulate their work-life balance, and are able to live with the experience of failure as closures and losses associated with the transformation of business take place. The facility for entrepreneurship and an innovative mindset will be an advantage for managers as firms reinvent themselves to focus on addressing how to become technology driven.</p> <p>As internationalisation proceeds unabated, there will also be a call for managers who have a cultural agility to perform in cross-cultural situations. They would require the ability of empathy so they may fit seamlessly into multicultural teams and be able to work with people who have markedly different lives from their own. The ability to work in a team will be a skill that is prized as increasing specialisation and skills require the ability to understand, integrate and oversee what specialist engineers, data scientists, biotechnologists, software experts and other folks are doing in organisations. Problem solving will require excellent communication abilities so that various functionalities that operate are able to realise how and why they contribute to the overall functioning of an organisation.</p> <p>The composition of business school programme portfolios is going to be reconsidered in the face of the pandemic. Executive education is dependent on the economic cycle and when recession strikes, the first thing corporates do is to cut down on the cost of training. As the economy recovers, executive education income will rise. Executive education is a high reward, high risk business and customised programmes can be highly profitable. In contrast, during a slump, MBA programmes usually receive more applications as laid off and other employees use the downturn to reskill. Academic institutions will have to refocus the emphasis they give to executive education against the master’s programmes in management. Shorter courses that are part-time and online and which can be adapted to suit work and family life could well see a rise in popularity. Online teaching will see competition from new forms of organisation such as tech ventures that will not have the overhead of a campus to hold them back and can grab the business away from traditional institutes. A good example is Jolt that runs a “Not an MBA” programme in London and Tel Aviv.</p> <p>Finally, academic institutes would benefit from using the occasion to take the long view and to focus on their students who would be disappointed that they are not going to get to take courses on campus. Students should be nudged to take control of the situation and make the best of it, to be proactive and participative, and to speak up in class and communicate their difficulties to faculty and the administration. They have to negotiate with family over the use of the internet and to ensure that they have adequate bandwidth and that others at home are not downloading large files during sessions. Even before Covid-19, we lived in an age of uncertainty and since then it has become even more imperative that we stay focused on how to handle and be relevant in the face of uncertain contingencies.</p> Sat Dec 19 14:19:03 IST 2020 downloading-money <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p>The world is at your fingertips. In every literal sense, yes. This applies to making money as well. With internet explosion and a surge in the number of smartphone owners, a vast majority now have access to doors leading to new opportunities. However, it is important that we unlock the right door.</p> <p>Be it a side-hustle or just something to do in your spare time, there are hundreds of mobile apps out there designed to generate supplemental income. You may not become rich with these apps but you can make some pocket money by performing some simple tasks from the palm of your hand. On that note, make sure that you do not fall prey to those click-bait adverts that scream ‘become a millionaire overnight.’&nbsp;Cybercrime is rampant now, and with easy advertising legit-looking scam accounts and businesses are booming. “It is all fake,” says Brinda Menon, a 22-year-old law student from Mumbai. “I heard this YouTuber called ‘Investor’ talk about earning around $150 per day for just listening to music. He was so convincing. I followed all his instructions but did not earn a penny,” she says. Like Brinda, several others have been tricked by various YouTubers who claim to have earned a fortune using the apps suggested by them. According to Akhil Khatri, a YouTuber and an expert in the online money-making field, out of one thousand videos on ways to make money online, two might be legit. “Most people are confused and they think that easy money means no work. But making money, be it on an online platform or offline, needs dedication,” he says. His YouTube channel ‘Paisa Waisa’ not only informs people of legit online methods to make money but also calls out scams. Akhil started his journey in 2007 when he was in college. He started with blogging initially but curiosity led him to try out other verticals. “My first payment was $8. I wrote four articles for $2 each,” he says. But before you get started, be wary of potential scams that ask for a fee to register or over-exaggerate the potential earnings. Always, look at the app ratings and read the user reviews. Surely, most of us use our phones to access our bank accounts and pay bills, so why not leverage the device to earn some extra money?</p> <p><b>For the freelancer community</b></p> <p><b>Recently,</b> the concept of freelancing got popular among young people for all the right reasons. From flexibility in working hours and environments to getting paid for a tiny bit of extra work, the concept is too good to ignore. But it definitely takes some patience to get the ball rolling. One of the oldest freelancing websites in India is&nbsp;Freelancer. One can find on this platform roles like basic data entry, research, writing, web designing, building blogs and digital marketing. The app is now available on Android and iOS. Although it is trustworthy, it does not have a user-friendly design. But with a little patience, you can zero in on a project. Another popular freelance platform is Upwork. While getting accepted on Upwork can be tricky, once you are in, you can make a lot of money. And again, staying on this platform demands consistency and building a good reputation. Among the lot, Fiverr is an app that stands out, both in terms of app design and usability. Besides programming, technical writing and translation projects, one can find freelancing options in voiceover, video editing, photography, music composing and mixing and even astrology. “Fiverr SEO is extremely important,” says Akhil. “Do not create a gig just for the sake of creating one. It is key to put in thought and be creative. Another thing to keep in mind is to create all seven gigs. Not by copy pasting your previous gig content but with proper Fiverr SEO marker.” He also emphasises on going through competition and finding loops in creating gigs that draw attention and putting out sample work.</p> <p>For Shikha Singh, a former English teacher at a private school, Fiverr is her main source of income. “I earn around Rs50,000 per month sitting at home. It started after I got pregnant with my first child and I had to leave my job as I was asked to be at home for medical reasons. I did not want to sit idle and I needed an income,” she says. Shikha does ghost writing and proofreading for a minimum of $15 per gig. “People need to understand that without doing work, money does not come.”</p> <p><b>For the photographers</b></p> <p><b>If you are into photography,</b> you can make a few extra bucks. The ability to make&nbsp;money as a photographer, like&nbsp;a YouTuber&nbsp;or&nbsp;Instagrammer, is all about harnessing that same creativity at the heart of your work and applying it to the monetisation of your talents. “Someone who is into stock photography won’t rely on just one platform to sell their work, but multiple ones. I am on over 30 platforms,” says Akhil. Shutterstock tops the list in this category. It is a micro-stock site where photos are cheaper and non-exclusive, and the way to increase downloads is by contributing a large quantity of images that can be used as visual metaphors. “It is an excellent platform if you are just starting off,” says Samuel Soundararaj, a wildlife photographer. “Don’t expect to earn a lot here. But this platform gives you an idea of what kind of photos get more traction. Currently, I use 500px which is a great platform for serious photographers.”Payouts are based on your earnings over time. There is also an affiliate programme where you can earn additional money if you refer new photographers or customers. On the higher end of stock photography sites, Getty Images attracts brands and publishers looking for high-quality or hard-to-find exclusive images to license. The standards for becoming a contributor are predictably higher than many other stock photo sites. Next on the list is Twenty20. It started as a tool for Instagram photographers to sell their images to brands. Now, it is an extensive stock photography site where you can sell photos online and connect with potential clients. You can earn money three ways: selling a photo, cash prizes from photo challenges and commission from whatever brands hire you for scheduled shoots.</p> <p>Adobe Stock is also considered one of the&nbsp;best places to sell photos online because when you list a photo sale here, it is also available on stock site Fotolia. One can earn around 33 per cent commission on the photos that sell through Adobe Stock. The last one on the list is Foap. It offers contributors five ways to earn money: $5 for every photo sold, $100–$2,500 for missions, $0.25 per photo for album-specific photo sales, submitting photos to Getty Mission (payouts vary), and selling photos online via partner platforms, such as Adobe and Alamy. Basically, it is a crowdsourcing platform for brands and&nbsp;advertising&nbsp;and&nbsp;marketing&nbsp;agencies to find and purchase images from Foap’s registry of more than 2.5 million photographers around the world.&nbsp;</p> <p><b>For the opinionated</b></p> <p><b>Your opinions matter.</b> At least that is what most companies base their business plans on. And the best part is that most companies are ready to pay for your honest opinions. Google is one of the trusted platforms and its rewards-based programme Google Opinion Rewards tops the list in this category. With this app, one takes surveys that are run by market researchers. Survey frequency may vary and one does not have to answer all of it. Payouts are usually through Google Play or PayPal credit for each completed survey. Topics include everything from opinion polls to hotel reviews and merchant satisfaction surveys. You can redeem the points to buy Android apps, movies, books, and music from the play store.&nbsp;“I would not call this the best survey app but I have managed to earn some Google Play credits for buying paid apps on Play store. Once you register for this app, Google offers you approximately 20 surveys a week,” says Shibin Mathew, a software engineer at private company. If you are looking at more than just Google Play credits, then Swagbucks is the app for you. You can find it in the Play Store under the name SB (Swagbucks) answers. This is one of the most straightforward money earning apps. Swagbucks lets you complete a number of tasks and activities to earn money. Here, all you need to do is take up surveys and answer them promptly. Each study on Swagbucks carries a certain amount of earning points which can be redeemed later as gift cards on Amazon and PayPal.&nbsp;It goes beyond surveys though, Swagbucks offers activities like playing games and watching videos as well.</p> <p>The truth is that although your opinions are taken into account, it does not fetch you a lot of money. Definitely not the price it deserves. But again, tiny drops of water make an ocean. Going by that, every penny counts. However, is it worth the time we put in? Maybe not. What about gamers who claim to earn big bucks by just betting or creating a virtual cricket team? “Don’t fall for it,” says Akhil. “There are several apps in India that are designed for people who are into betting and fantasy cricket and football. However, I feel that it is all a scam. From my experience, I have found that people who claim to win these fantasy cricket challenges are mostly bots.” Looks like it is all about taking a risk, a lot of trial and error and, most of all, patience.</p> <p>&nbsp;</p> Thu Dec 17 17:04:49 IST 2020 the-money-changers <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p><b>Vipin still remembers</b> the shiny new card that came by courier. He had grown up gawking at Diners Club card commercials on Doordarshan in pre-liberalisation India. He waited till he started getting a regular income as a lawyer in turn-of-the-century Delhi before hesitantly applying for a credit card. When it arrived, Vipin felt that he had arrived in life as an independent adult of sound financial standing.</p> <p>But, among the establishments he frequented, there were few which accepted payment via card. And shopping online using a card was then considered financial hara-kiri. Finally, he decided to take his friends out to an uptown restaurant. Not because it was a special occasion, but to just use the card. However, he carried enough cash to cover the expense, in case the card did not work!</p> <p>Fast-forward to today, Vipin does not think twice before a fintech (financial services using technology) transaction. Once his salary is credited to his bank account via NEFT, he orders his dream mobile phone from e-commerce website Amazon, paying for it using online payment platform Google Pay. He then takes an Uber cab ride, paying for it through Paytm digital wallet, to a restaurant where he pays by credit card. On the way back home, he picks up some groceries, paying with PhonePe UPI (Unified Payments Interface) app. He still carries some cash—it comes in handy for tipping, if not at the neighbourhood cigarette stall.</p> <p>If the establishment and the multifarious business entities that have driven the fintech boom of recent years have their way, even that cigarette seller could soon be choosing from the many options that these new money ‘changers’ provide; not to mention, the innovations in the pipeline.</p> <p>The brave new world that fintech promises involves no cash, but a lot of money. In this vision, even queuing up at an ATM, once considered rather ‘modern’, is outdated. While many urban Indians may be familiar with mobile-based payment systems, there are three more categories to fintech, namely wealthtech (investments), lending and insurance.</p> <p>Fintech broke into the mainstream in the last decade after the launch of electronic bank transfer modes like NEFT, and the establishment of the National Payments Corporation of India (NPCI). It gained prominence in 2016 when the Reserve Bank of India permitted UPI, whereby money could be instantly transferred between bank account holders via a mobile app. Demonetisation gave an inadvertent fillip to mobile money.</p> <p>During the pandemic, fintech grew leaps and bounds. Except for a minor dip in the first month of lockdown, UPI transactions have been on a steady trajectory in the last eight months or so. In October, UPI transactions crossed the Rs200 crore mark for the first time, up from Rs180 crore in September. October’s transactions were worth a total of Rs3.86 lakh crore.</p> <p>Invest India, the Union government’s investment promotion agency, calls India the fastest growing fintech market in the world, with an adoption rate of 87 per cent (global average is 64 per cent). Right through the first six months of the year, when the pandemic raged across the world’s stage, an estimated funding of Rs14,000 crore poured into India’s fintech space.</p> <p>Medici Research’s ‘India FinTech Report 2020’, points out that India had the highest number of new fintech startups, second only to the US. “As India’s fintech matures, there will be huge opportunity for existing as well as new fintech companies to adapt and grow,” says NITI Aayog CEO Amitabh Kant.</p> <p>However, while Covid-19 has been a catalyst for fintech, it has not blessed everyone equally. Industry insiders say that of the 2,500 or so companies in the fintech space, barely a few hundred are doing well. While the booming payments side has its own cribs on issues like MDR (merchant discount rate, the share from each transaction that the merchant pays to the fintech company was brought down to zero by the government in 2019), there are bigger problems on the lending side. For example, in November, Google announced it had removed five Indian fintech apps which were into lending from its PlayStore. There were allegations that these apps were charging high interests, using strongarm tactics and were operating unregulated.</p> <p>“The outlier across the four segments of fintech, ‘lending’ came across as extremely unprepared,” admits Naveen Kukreja, co-founder and CEO of PaisaBazaar, a loan platform. Unprepared to adopt presence-less processes like e-KYC and digital assessments, lending came down to almost zero when lockdown hit. “Last [few months] lenders have scrambled to figure out how to prepare for a physical distancing scenario,” says Kukreja.</p> <p>The other big challenge is technology—it can throw up challenges for the existing players with every new innovation. “Building trust is critical with new technology, especially disruptive ones, [as] it can be challenging to get early users on board and to trust the brand,” says Sanjay Doshi, partner and head (financial services), KPMG in India. Sethurathnam Ravi, economist and former chairman of the Bombay Stock Exchange, adds: “Tech changes can be very fast. The sensitivity of the business to deal with anything untoward is important.”</p> <p>Cyber security remains another big concern. India is already a major target for cyber terrorists. “Weak design or inadequate infrastructure can leave the link vulnerable to cyber attacks,” says Robin Bhowmik, chief business officer, Manipal Global Academy of BFSI.</p> <p>Perhaps the biggest challenge, or opportunity, depending on how you look at it, is low penetration. India is still a cash-dependent nation, with cash-in-circulation averaging around 11 per cent of GDP (except during the demonetisation days). As per the RBI, India is more cash-dependent than other major Asian economies like China, Japan and Singapore. According to a study by the Internet and Mobile Association of India, the adoption of digital payments is 44 per cent in urban India and 16 per cent in villages and smaller towns.</p> <p>Authorities hope a dramatic move called Umbrella Entities (UE) can help. The RBI announced recently that any company with a net worth of Rs500 crore and three years experience in digital payments can become UEs upon regulatory clearance, thereby becoming updated versions of the NPCI, which has a monopoly in the space.</p> <p>“The for-profit structure of the UEs would speed up and bring stronger incentives for product development, innovation and upgrades,” says Doshi of KPMG. “However, the regulator will need to ensure that the prices of payment products and services remain competitive and end-users are not affected.” As per an RBI policy paper, the entry of new entities would impart financial stability to India’s burgeoning digital payments ecosystem. Indian giants like Jio and Airtel, and Big Tech could make a play for this.</p> <p>Some of the upcoming trends, according to experts, include the likes of neobanks, which could disrupt the traditional banking sector. “More like an online banking service, neobanks will act as a bridge between traditional banks and smaller customers,” says Ravi.</p> <p>Other upcoming innovations include contactless payment and digital onboarding (acquiring new customers online), using digital assessment, biometric authentication and voice or facial recognition payments. Also in the offing are aggregators providing a range of products, micro services and peer-to-peer services that might include lending and community insurance.</p> <p>The advantage of digital means there would be a lot of branching out. Take Paytm for example. “We are looking beyond payments,” said Saurabh Jain, vice president, Paytm. “We have started experimenting with lending. We want to create a lending mechanism. We’re using technology to predict whether a person should be given money or not.” On the anvil for Paytm is anything from helping merchants with their GST filing to replacing the QR Code sticker by incorporating it in the images of deities most shopkeepers keep!</p> <p>On his last visit to Singapore, Prime Minister Narendra Modi spoke of making economic access more democratic. “With the power of fintech and the reach of digital connectivity, we have started a revolution of unprecedented speed and scale,” he said. Beyond all the metrics of funding, expansion and innovation, the real goal in front of Indian fintech is bigger and more basic—financial inclusion. &nbsp;</p> Thu Dec 03 18:09:24 IST 2020 are-we-ready-for-the-digital-rupee <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p>A sizeable chunk of urban India has gotten used to digital transactions, ranging from credit and debit cards to UPI. So, are we ready for the next big leap in fintech—the digital rupee?</p> <p>There are digital currencies already in circulation. Bitcoin, invented by a Japanese entity identified only as Satoshi Nakamoto, has been in circulation for over a decade, though its reputation has been unsavoury. Popularly asked for by hackers and those seeking ransom online, Bitcoin’s lasting contribution could well be the secure technology for digital money transfer that it spawned—blockchain. Many governments are now considering the idea of a central bank-backed digital currency.</p> <p>India had tried to squash trading in cryptocurrencies like Bitcoin with a blanket ban in 2018. The Supreme Court intervened and threw the government order out the window just before the pandemic hit. Now, some reports indicate that the Union finance ministry is toying with a legislation which will ban cryptocurrencies.</p> <p>Perhaps not the smartest way to go about it, as countries around the world are slowly accepting the inevitability and significance of digital currency. Most important among them, and this should be a warning to India as well, is the People’s Bank of China that is working on a digital yuan. “China adopting a digital currency and adopting an alternative to global money exchanges will be extremely disruptive and will have others playing catch up,” warns Robin Bhowmik of Manipal Global Academy of BFSI.</p> <p>According to a paper by the Bank for International Settlements, 63 countries are in various stages of digital currency adoption, as they believe it can put a check on online fraud, cyber crimes, money laundering as well as avoid the high transaction cost that cash involves.</p> <p>Facebook had tried to come up with a global digital currency called Libra last year, but it has not gained much traction, with fintech players withdrawing their initial support and multiple countries, including the US, scuttling its ambitions. The US had initially mused, and dropped, the idea of a digital dollar, though there seems to be a new move by American legislators to bring into effect a digital dollar using blockchain technology.</p> <p>“Digital currencies will be clearly government-driven, as they would be sensitive to private players launching digital currencies,” predicts Sethurathnam Ravi, economist and former chairman of the Bombay Stock Exchange. “In a country like ours financial literacy is still far away. How I see it is that authorities want the regulation to be in place first, so that there is no misuse.”</p> Thu Dec 03 18:05:17 IST 2020 we-are-working-towards-doubling-our-deposit-base <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p><b>In March</b>, the Reserve Bank of India’s decision to supersede the board of Yes Bank and impose a moratorium on deposit withdrawals amid a surge in non-performing assets sent shock waves across the sector. Soon, a first-of-its-kind public-private partnership effort was mounted and Prashant Kumar, CFO of State Bank of India, was appointed managing director and CEO of the bank. SBI and seven other private banks together invested Rs10,000 crore, and Rs15,000 crore was raised through a further public offer (FPO). Eight months later, the bank is on a much more stable footing. In an exclusive interview with THE WEEK, Kumar talks about the challenges and the targets. Excerpts:</p> <p>&nbsp;</p> <p><b>Q/You took charge at Yes Bank at the toughest time in the bank’s history. What is the progress in the turnaround?</b></p> <p><b>A/</b>The bank’s transformation has been thoroughly fulfilling. We have seen a pair of significant firsts. One, the bank has been re-energised despite a slowdown around the globe. Two—and this is something exceptional because it is unprecedented in the history of banking in India—top financial institutions came together to provide support to another bank which retained its individual identity.</p> <p>Reinvigorated efforts and focused steps on the part of the bank have ensured remarkable outcomes. Within four months of taking a new direction on March 18, we raised Rs15,000 crore through FPO in the face of the socioeconomic upheaval caused by Covid-19. Moreover, the bank has, before time, repaid the Rs50,000 crore provided by the Reserve Bank of India as a special liquidity facility. The bank has reported second quarter operating profit at Rs1,360 crore (up 18.6 per cent quarter-on-quarter), profit after tax of Rs129 crore and a deposit growth of 15.7 per cent quarter-on-quarter and 28.9 per cent over six months (Rs1,35,815 crore).</p> <p>Ratings agencies like Moody’s, CRISIL, ICRA and India Ratings have acknowledged the strides made by the bank by upgrading its rating: the bank’s liquidity position, financial strength and improvement in capital ratios are now comfortably above the regulatory levels.</p> <p>&nbsp;</p> <p><b>Q/The biggest issue Yes Bank faced in March was lack of confidence among its customers. People had been withdrawing their deposits. How did you solve this?</b></p> <p><b>A/</b>The exemplary commitment of the bank’s employees to render seamless services to our customers, especially during the initial stages of the lockdown, played a crucial role in deepening customer and depositor confidence. Yes Bank has differentiated itself from competitors by adopting and investing in technology ahead of time. With agility, we were able to fulfil the evolving needs of the customers in the new normal instated by Covid-19.</p> <p>&nbsp;</p> <p><b>Q/Since you took charge, you have talked of turning the bank into a retail-focused bank. How is this going to pan out?</b></p> <p><b>A/</b>We are working towards fortifying the balance sheet and doubling our deposit base by the end of this financial year. We also aim to increase the loan book by 10 per cent in this financial year and 20 per cent in the next. On the retail side, we are targeting to add at least one lakh customers every month from the 60,000 we are adding at present. This is alongside the target of growing the retail and MSME advances to 60 per cent of the total advances from the current 44 per cent.</p> <p>Our strategy to accomplish these objectives includes capitalising on growth opportunities while conforming to the highest standards of risk management, compliance and governance. The fundamentals of the bank are on a sound footing and we are absolutely on track to achieve the growth objectives.</p> <p>The bank recently launched a host of user-friendly digital-first services such as WhatsApp banking, digital overdraft against fixed deposits and a self-service portal. This is in addition to providing digital savings account opening, easy access to finance for customers, digital personal loans and providing higher interest rates.</p> <p>The green shoots of success in retail and MSME segments are now clearly visible. We are targeting to lend 010,000 crore to the retail/MSME segments in the third quarter of FY 2020-21.</p> <p>&nbsp;</p> <p><b>Q/Covid-19 is expected to hit the banking industry hard and non-performing assets are expected to rise. How is Yes Bank going to navigate the wider crisis?</b></p> <p><b>A/</b>We created a cumulative standard asset provisioning of well over Rs800 crore in the first quarter; in the second quarter, the overall Covid-related provisioning has been stepped up to Rs1,918 crore. We definitely have recovery targets for the entire stressed book. And it is a matter of timing, because with Covid-19, the targets expected during the current fiscal are slowing down a bit. However, we have recovered more than 01,000 crore in the first half of FY21.</p> <p>Going forward, we will see improvements. As more and more economic activity begins to get normalised over the next few quarters, India’s economy will get back to pre-lockdown levels and things will look up.</p> <p>&nbsp;</p> <p><b>Q/Yes Bank has always been strong in digital tech. How will it leverage it at a time when there is growing competition from fintechs and neo banks?</b></p> <p><b>A/</b>Underscoring its digital focus, Yes Bank will boost its efforts to solidify its position in the digital retail and API corporate payments space through partnerships—guided by the A.R.T. approach, which utilises the advantages of alliances, relationships and partnerships.</p> <p>The bank has joined forces with leading fintechs and other stakeholders in the ecosystem to create digital solutions that add value to the customer journey and provide a robust framework to safeguard customer interests.&nbsp;</p> Thu Dec 03 18:00:14 IST 2020 indias-biggest-challenges-are-its-tax-structure-education-system-and-protection-of-intellectual-property <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p>Israel has a solution for every country’s problems. Avi Jorisch attributes it to the Jewish state’s ability to innovate. The entrepreneur and the author of five books, including Thou Shalt Innovate: How Israeli Ingenuity Repairs the World (2018), lives in New York and had worked in the US departments of treasury and defence. He founded IMS, a merchant processing company, and was a key speaker at the Bengaluru Tech Summit on November 20. In an exclusive interview, Jorisch talks about how Israel achieved big and what India should do.</p> <p>&nbsp;</p> <p><b>Q/ What is innovation? How has Israel redefined the term?</b></p> <p>&nbsp;</p> <p>A/ Israel has achieved remarkable, exponential growth over the past 72 years, and that is a testament to the country’s grit, determination and chutzpah. Even with all the challenges it has faced, the Jewish state has made amazing strides since 1948, not only in developing its sparse natural resources, but also in innovations that have benefited its people and others around the globe.</p> <p>&nbsp;</p> <p>Industries and countries are looking to Israel to help them solve their challenges. Today, Israel has over 300 research and development centres owned by multinational companies, including Apple, Amazon, Facebook, Google, Intel and Microsoft. China, India and the US now look to Israel to help solve their water needs. Universities around the world are creating joint innovation centres with Israel’s institutions in engineering, biology, physics and chemistry. Also, hospitals, pharmaceutical companies and agriculture ventures are reaching out to Israel to help them cure the sick and feed the needy. The country is a beacon of hope, and its citizens are ready to help solve local and global challenges.</p> <p>&nbsp;</p> <p><b>Q/ Israeli innovators are well funded. That is not the case in many other countries. What can be done to improve the situation in a country like India?</b></p> <p>&nbsp;</p> <p>A/ Three of India’s biggest challenges are its tax structure, education system and protection of intellectual property. In addition, while it is one of the most generous countries in the world with R&amp;D related tax incentives, it lags behind in R&amp;D tax credits to support university and national lab research. Moreover, Indian governments generally encourage institutions to engage in traditional research rather than to commercialise innovations.</p> <p>&nbsp;</p> <p>An Information Technology and Innovation Foundation study found that India spends far less than most other countries on primary and secondary schooling for its children: 084,978 ($1,249) per student. In contrast, Israel spends $5,792, Argentina $3,606 and Mexico $3,593. India ranks somewhere in the middle of the pack when it comes to universities, with 25 of the top 800 world ranked institutions. However, only 15 per 1,00,000 people in the country are engaged in research, placing India in the bottom five in this category. Lastly, India ranks among the six countries with the lowest number of total research citations.</p> <p>&nbsp;</p> <p>According to the Global Intellectual Property Center Index, which measures commitment to innovation through intellectual property protection efforts, in most years, India’s rankings are low.</p> <p>&nbsp;</p> <p>These challenges have been compounded by a burgeoning population of over a billion people, and the country has the unfortunate distinction of having one of the world’s highest number of people living in extreme poverty. In addition, job creation will continue to be the government’s most important task. India would need to create 8.1 million jobs annually to keep employment rates constant between 2015 and 2025.</p> <p>&nbsp;</p> <p>The way government officials and policymakers address the country’s challenges will determine how India fares economically in the medium to long term. To improve its competitive edge, India will need to create new growth industries and diversify its economy, including through high value innovation. It will also need to build a powerful innovation ecosystem that includes incubators, accelerators and technology parks, and improve its intellectual property regime.</p> <p>&nbsp;</p> <p><b>Q/ What differentiates Israeli innovators and entrepreneurs from the rest of the world?</b></p> <p>&nbsp;</p> <p>A/ My book reveals the underlying secrets of how Israel has managed to produce more startups than Canada, India, Japan, Korea, and the United Kingdom combined. And the reasons why Israel has the largest number of companies listed on the NASDAQ exchange, with the exception of the US and China. Despite the fact that 60 per cent of Israel is a desert, it is the world’s only self-declared water superpower. Israel’s innovative success stems from a number of factors, including benefiting from a religious culture that encourages questioning and challenging authority, and defying the obvious. The country embraces its ethnic, political and religious diversity, and has a culture that strongly values secular institutions. Other factors such as chutzpah, obligatory military service, renowned universities, smart big government, a dearth of natural resources and diversity come together as national characteristics to explain how tiny Israel became a technological powerhouse.</p> <p>&nbsp;</p> <p>These factors are combined with a 3,000-year-old religious tradition that has been calling on us all to do our part to repair the world, including feeding the hungry, curing the sick and helping those in need. This concept of tikkun olam (a Hebrew term that means “repair of the world”) has helped to shape the pursuit of a greater purpose in Jewish culture.</p> <p>&nbsp;</p> <p><b>Q/ What can Indian innovators bring to the table? Do they have the capability to change the dynamics of the world as Israelis do?</b></p> <p>&nbsp;</p> <p>A/ Since India declared independence in August 1947, it has transformed its economy from one of the world’s least developed to one of the largest and fastest growing. Much of the fuel that has powered this astonishing metamorphosis is technology and innovation.</p> <p>&nbsp;</p> <p>But there are also a number of looming challenges that will hamper India’s growth if they are not effectively addressed. Technology experts have lamented that Indian innovations are typically incremental and not disruptive; often “first to India” but not “first to the world”. India’s ranking on the Global Innovation Index, 60 out of 140, underlines this reality. According to the Information Technology and Innovation Foundation, which evaluated 56 countries that together make up nearly 90 per cent of the world’s economy, India is one of the least innovation friendly countries, ranking 54 out of 56.</p> <p>&nbsp;</p> <p>The way government officials and policymakers address the country’s challenges will determine how India fares economically in the medium to long term. To improve its competitive edge, India will need to create new growth industries and diversify its economy, including through high value innovation. It will also need to build a powerful innovation ecosystem that includes incubators, accelerators and technology parks, and improve its intellectual property regime. As the world faces many grave challenges, I have no doubt in my mind that India can play an outsized role in creative solutions that make an impact. As more Indian policymakers, aid workers, scientists and others look to solve these challenges, they should consider turning to Israel for existing innovations that can make a difference or work to create new ones together.</p> <p>&nbsp;</p> <p><b>Q/ What do you think of the Indian startup ecosystem?</b></p> <p>&nbsp;</p> <p>A/ India has one the world’s fastest growing economies, which has driven growth, created jobs, increased access to resources, improved education and enhanced health care. In the last decade, India’s start-up ecosystem has produced several thousand companies. According to the National Association of Software and Services Companies, India’s startup ecosystem is the third largest in the world, after the US and the UK, and is one of the fastest growing. This is clearly a source of optimism for a better and brighter future.</p> <p>&nbsp;</p> <p>To further promote innovation, India can deepen its ties with Israel, with which it has much in common. Both have very ancient religious and cultural traditions; both are relatively young countries, established within a few months of each other; both have a history of British rule; both live under constant military threat; both have become regional superpowers; and both have a strong start-up ecosystem.</p> <p>&nbsp;</p> <p>In 2018, the two countries launched the India-Israel Industrial R&amp;D and Technological Innovation Fund. This involves an annual investment of $4 million from each country for five years, for a total of $40 million. The memorandum of understanding signed by the two is meant to boost cooperation in science and technology, specifically targeting technological innovations in areas of mutual interest such as water, agriculture, energy and digital technologies. Innovation experts are optimistic that the programme will turn out to be one of India’s most important diplomatic achievements in recent years. Nevertheless, these two democracies can do even more to leverage their relationship for the greater benefit of their societies.</p> <p>&nbsp;</p> <p><b>Q/ What do you foresee about the startup ecosystems changing across the globe, particularly in Israel and India? Are you writing a new book?</b></p> <p>&nbsp;</p> <p>A/ I am really interested in how technology can play a role in curing the sick, feeding the hungry and helping the needy. In my next book I want to write about a history of the future, forthcoming trends, coupled with the personal stories of innovators from around the world that are moving the dial on problems impacting all of humanity. I want to do a deep dive on grand global challenges and provide one innovation or venture that is impacting a billion people. My hope is that this type of book will give readers hope that with enough creativity and determination humanity can solve massive challenges. As per Albert Einstein, no problem can be solved from the same level of consciousness that created it. My hope is to write a new book that will raise readers’ consciousness.</p> Fri Nov 27 11:08:49 IST 2020 beat-the-heat <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p><b>The stock markets </b>have witnessed extreme volatility in the past few years. Earlier this year, they plummeted because of the pandemic but NIFTY bounced back almost to its original level and is trading just short of the all-time high in January. It is natural for retail investors to panic at these times. In 2008 also retail investors witnessed stock market crash and big recovery in a short span of time.</p> <p>For those who have invested in dynamic asset allocation funds, especially the balanced advantage category of funds, the impact has been minimal. The scheme sharply cuts equity exposure whenever valuation of index is expensive or a valuation-based model that holds lower equity levels at peak valuations. Thus by managing risk in equity and allowing the debt portion to anchor the portfolio, it keeps volatility lower. Hence this strategy is a good investing option in the hybrid equity category in all market conditions.</p> <p><b>Fair market value strategy</b></p> <p>Accessing the valuations of both debt and equity is an important parameter in dynamic asset allocation schemes. This scheme focuses on underlying valuation like price to earnings and price to book value and in debt, and the fund manager could take duration calls which helps make most of rate cuts and in the low interest rate regime.</p> <p>Basically the scheme rebalances the portfolio according to the fair market of equity, and helps in booking the profits in the equity portion during expensive valuation and moving to debt. For example, BAF model sold equity in January and Feb 2020, and booked profits and reduced equity level to as low as 30 per cent. It gradually increased equity levels post-crash in March, April, and May to as high as 80 per cent.</p> <p>Hence, dynamic asset allocation funds prove to be worth considering in all market conditions as this category books profit in stocks and also is a testament to this downside protection in the equity market. Thus, the category also helps the process of compounding with lower volatility in the long term.</p> <p><b>Behavioural bias</b></p> <p>In the times of stock market crash, investors tend to panic, decide differently under pressure and sell equity holdings instead of accumulating at lower levels. It is a human reaction to feel uncomfortable to see equity portfolios down. The psychology of investing says investors naturally have cognitive biases that affect portfolio-related decisions.</p> <p>In this testing time, by investing in dynamic asset allocations funds, one gets logical based investing and to avoid emotions based investing. As a result, the dynamic asset allocation category creates volatility-proof portfolios and leads to smoother investment experience and maximises investors’ returns and minimises investors’ risks.</p> <p>Dynamic allocation funds should be the core portfolio for first-time investors who have low risk appetite and for risk averse investors. Ideally, one should consider having this category of schemes in the current turbulent market environment.</p> <p>Among the balanced advantage category of funds there is one name that stands out-ICICI Prudential Balanced Advantage Fund. Considered a pioneer in its category, it is the second-largest scheme in this category with assets close to Rs27,000 crore, and it takes into consideration an in-house model that primarily looks at price-to-book model and decides on net equity asset allocation (30-80 per cent).</p> <p>It is a time-tested scheme with prudent asset allocation with more than 10 years’ track record and has seen a complete market cycle. Most of the schemes in this category have been launched within the past few years, especially post SEBI’s re-categorisation exercise.</p> <p><b>Author is the founder of www</b>.<b></b></p> Thu Nov 19 17:00:48 IST 2020 Jolly-good-ride <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p>The World’s Favourite Indian.’ That is the tagline of Bajaj Auto. And why not? The Pune-based company exports motorcycles to 70 countries. Bajaj, however, is not the only favoured Indian among bike makers. TVS Motor and Hero MotoCorp, too, have over the past decade found plenty of customers overseas. Indian companies are among the leading players in many markets in Africa, Latin America and Southeast Asia.</p> <p>Bajaj’s motorcycle exports in October surged 29 per cent year-on-year to 2,01,659 units, its highest ever. In September, too, the company had reported record exports. TVS Motor’s two-wheeler exports grew 46 per cent last month to 80,741 units, from 55,477 units a year earlier. Hero MotoCorp’s exports in October rose 28 per cent to 15,711 units.</p> <p>Chinese companies once dominated the African continent with their cheap motorcycles. The only other option in these markets used to be expensive Japanese bikes. Indian bikes hit the sweet spot in between, of quality and price. In the year ended in March 2020, exports accounted for 42 per cent of Bajaj’s sales (21,71,105 units, including 18,69,220 motorcycles) and Africa accounted for 53 per cent of it. In many markets, Bajaj is the first or the second player.</p> <p>Srinivas Kantheti, who worked with Bajaj Auto before co-founding the two-wheeler financier WheelsEMI, attributes the success to creating a research and development base in India and creating a brand worldwide. “Opportunity was available 20 years ago in Africa and South America, but they were dependent heavily on either the Japanese two-wheelers, which were very expensive, or very cheap Chinese exports. In those days in places like Nigeria, China used to sell motorcycles out of a box. You get it assembled from a local mechanic. This is where Indians, Bajaj first and then followed by TVS, saw their opportunity of creating a market here, which almost gives Japanese quality at a price slightly higher than that of the Chinese,” he said.</p> <p>In several African countries as well as in a few markets in Latin America, bike taxis have become a popular mode of transportation and it is here that the sturdy build quality and competitive pricing of Indian bikes found acceptance. Indian companies have inked local distribution, retail and service partnerships in these markets, thus establishing a strong brand presence there. “Our international business is not a B2B business. It is not that we sell to some distributors and forget about it. It is a B2B2C business,” said Rakesh Sharma, executive director of Bajaj Auto.</p> <p>Royal Enfield, owned by Eicher Motors, has now 660 outlets around the world, including 585 multi-brand outlets and 77 exclusive stores. In the year ended in March 2020, it added 35 overseas outlets with a focus on Thailand, Brazil, Argentina, France and the UK. It exported 39,296 units in 2019-2020, which was a 89 per cent jump over the previous year’s exports of 20,825 units. Enfield is now starting local assembly operations in Argentina. This will be the first such assembly plant outside Chennai.</p> <p>Hero MotoCorp, the world’s largest two-wheeler maker by sales, does most of its business in India. A key reason for this was its erstwhile joint venture with Honda, which restricted its expansion overseas. Though as it has been going solo since 2011, the company has just begun expanding in markets like Latin America. “With the appointment of a new distributor in Peru, we have now expanded our global footprint to more than 40 countries in FY2020, up from just four countries in FY2012,” Pawan Munjal, chairman and managing director of Hero MotoCorp, told the company’s shareholders recently. Hero is looking to revive its scooter market share in Asia with new models and also deepening its financing network. It has gained a strong foothold in Bangladesh.</p> <p>Bajaj has incorporated a wholly-owned subsidiary in Thailand. It has also received local approvals to set up an international business centre and a research and development centre under this subsidiary. This R&amp;D centre will be Bajaj’s first one outside India, and will oversee the company’s business operations across the ASEAN region.</p> <p>TVS Motor is looking to boost its export volumes over the next three to five years and aims to improve its exports from its Indonesian plant. In April, TVS acquired British motorcycle company Norton. Sudarshan Venu, joint managing director of TVS Motor, sees immense opportunity to scale the brand globally.</p> <p>Frugal engineering has helped these companies design and develop motorcycles for export. “In less-than-150cc category motorcycles, there is no better place to design it than in India,” said Srinivas. “Now, it is going above to 200cc-250cc also.”</p> <p>Not surprisingly, Honda Motorcycle and Scooter India, the Indian unit of Japan’s Honda, now exports 18 two-wheeler models to 25 export markets in Asia and Latin America. In October, it began exporting SP125, its new motorcycle, to Europe.</p> <p>&nbsp;</p> <p>Some of the biggest names in motorcycles are now joining hands with Indian companies to develop new products. British bike maker Triumph has a partnership with Bajaj Auto to develop a new range of mid-capacity motorcycles and the first product is expected to be launched in 2022. TVS has an alliance with German auto giant BMW’s motorcycle division, BMW Motorrad. In September, iconic American brand Harley-Davidson announced its plan to pull out of India; in October it announced a partnership with Hero MotoCorp. Hero will sell and service Harley-Davidson motorcycles, and will develop and sell a range of premium motorcycles under the Harley-Davidson brand through a licencing agreement.</p> Fri Nov 13 12:05:02 IST 2020 guarding-wealth <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p><b>THOUGH INDIA IS</b> going into the 5G era, it is best not to forget the 4Gs of wealth—get, guard, grow and give. If the investor is philosophical or spiritual, two more Gs—God and gratitude—could be added, said K.S. Rao, head of investor education and distribution development for Aditya Birla Sun Life Mutual Fund (ABSLMF). Rao led the panel of the World Savings Day webinar hosted by ABSLMF and THE WEEK.</p> <p>&nbsp;</p> <p>Other panellists were Amit Trivedi, popular personal finance writer and founder of Karmayog Knowledge Academy, and Dr Radhakrishnan Pillai, award-winning author and director of Chanakya Institute Of Public Leadership, University of Mumbai.</p> <p>&nbsp;</p> <p>Opening the session, Rao reminded viewers that unless the first two Gs were met, ‘grow and give’ did not stand a chance. He highlighted the famous case study of Anne Scheiber, a former employee of the Internal Revenue Service of the US and arguably one of the most successful dividend investors of all time. Her annual salary never exceeded $3,150. She retired at 51 in 1944 and died at 101 in 1995. In the intervening years, she grew her portfolio to $22 million and bequeathed it entirely to Stern College for Women, Yeshiva University, New York.</p> <p>&nbsp;</p> <p>Trivedi said that investment does comprise of art and science. “Like the saying goes, science can be taught, but art needs to be caught,” he said. “Unnecessary expenses, unnecessary risks and one’s own mistakes are the three things every investor must watch out for.” Trivedi also reminded viewers that money earned would most likely be spent anyway, but the discussion was about when the expenditure would happen. “Deferred spending,” he said, “is something every child should be taught.”</p> <p>&nbsp;</p> <p>Chanakya’s Arthashastra has been Pillai’s core area of interest and research for long. So, it was not surprising when he highlighted the importance of paristhiti (environment) and manasthiti (state of mind) in financial management. “State of mind matters a lot,” he said. “For example, there is a difference in being money minded and money conscious, just as there is a difference between having a trading mindset and a vision to create wealth.”</p> <p>&nbsp;</p> <p>Among other things, Pillai stressed the need for investors to have a rational and inquisitive mind. And also for the need to educate this mind. The example he shared was about an annual competition between Warren Buffet and Charlie Munger, vice chairman of Berkshire Hathaway. “Whoever reads the most number of books that year wins,” said Pillai. Not a laughing matter, considering that Buffet is 90 and Munger 96.</p> <p>&nbsp;</p> <p>The webinar ended with a Q and A session, where panellists took questions from the viewers and provided focused answers. The next webinar in the series will be at 4pm on November 11. Topic: Path to prosperity: Celebrating Diwali with personal finance.</p> Sat Nov 07 11:50:11 IST 2020 the-convention-will-increase-investor-confidence <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p><b>ON OCTOBER 16,</b> the Kishore Biyani-led Future group’s plan to sell its retail business to Reliance got an unexpected blow when rival and minority investor Amazon got a stay on the proposed sale from the Singapore International Arbitration Centre. Around the same time, the Indian government was reportedly looking to overturn a Singapore-based Permanent Court of Arbitration award in the infamous Vodafone tax case, which said the Centre broke a bilateral agreement with the Netherlands by levying tax on the telco.</p> <p>&nbsp;</p> <p>Ironically, if Singapore has its way, future business disputes would get sorted more amicably, through mediation rather than cantankerous arbitration or litigation. That is the ambitious goal behind the Singapore Convention on Mediation, or the United Nations Convention on International Settlement Agreements Resulting from Mediation.</p> <p>&nbsp;</p> <p>The convention which came into force in September, aims to mediate and solve commercial disputes between companies or parties who are based in different countries. India has signed on, and as an official statement said, “Businesses in India and around the world will now have greater certainty in resolving cross-border disputes through mediation, as the convention provides a more effective means for mediated outcomes to be enforced.”</p> <p>&nbsp;</p> <p>India is among the 53 signatories, along with the US and China, but the convention will be implemented only six months later, once the government ratifies it.</p> <p>&nbsp;</p> <p>“By ensuring that a settlement reached by two or more international businesses becomes binding, the convention facilitates international commerce and the promotion of mediation as an alternative and effective method of resolving trade disputes,”explains K. Shanmugam, Singapore’s minister for home affairs and law, in an exclusive interview to THE WEEK. Excerpts:</p> <p>&nbsp;</p> <p><b>Q/How is the Singapore Convention on Mediation a turning point in international business? How does it resolve disputes better, as compared to earlier?</b></p> <p>&nbsp;</p> <p>A/Previously, when disputes arose, businesses had to enforce the mediated settlement agreement as a contract in accordance with each country’s domestic mechanism. With the Singapore convention now in effect, businesses can seek enforcement of a mediated settlement more readily by applying directly to the courts of countries that are parties to the treaty. This will support the development of international commercial mediation and encourage businesses to seriously consider mediation as an option.</p> <p>&nbsp;</p> <p><b>Q/How is this treaty different from pre-existing international conventions on this subject, including the New York Convention?</b></p> <p>&nbsp;</p> <p>A/The Singapore Convention (mediation) is the missing third piece that completes the international dispute resolution enforcement framework, joining existing instruments such as (arbitration) New York Convention for arbitration, and (litigation) the Hague Convention on Choice of Court Agreements for litigation. It has the potential to be for mediation what the New York Convention is for arbitration.</p> <p>&nbsp;</p> <p><b>Q/In cases where mediation fails, parties can still go for a court proceeding in their domestic territory, right? How does that pan out?</b></p> <p>&nbsp;</p> <p>A/If parties are not able to come to a settlement through mediation, they still have the option of turning to arbitration or litigation. The relevant processes for each mode of dispute resolution will apply.</p> <p>&nbsp;</p> <p>(But) if parties have reached a mediated settlement agreement on an international commercial dispute and one party subsequently feels dissatisfied and initiates court proceedings on the same matter, the mechanism in the Singapore Convention may not allow the matter to be re-litigated if the other party invokes the agreement to prove that the matter has been resolved.</p> <p>&nbsp;</p> <p><b>Q/Has the treaty come into force in India? Also, while the US and China are signatories, the EU (as well as the UK), a significant trading partner of India, is yet to become one.</b></p> <p>&nbsp;</p> <p>A/India has signed the Singapore convention and we look forward to India’s ratification—the convention takes effect six months after a country has ratified it.</p> <p>&nbsp;</p> <p>Indian businesses and their trading partners (including in the EU) are free to enforce their international commercial mediated settlement agreements in any country that is a party to the Singapore convention. We hope that more states will see value in the benefits that the Singapore convention will bring for mediation and international commerce, and look forward to welcoming more countries on board in the near future.</p> <p>&nbsp;</p> <p><b>Q/In what way does the convention help India’s standing on the ‘ease of doing business’ index?</b></p> <p>&nbsp;</p> <p>A/When India becomes a party to the Singapore convention, businesses will have a more effective way of enforcing their mediated settlement agreements on commercial cross-border disputes. It will increase investor confidence.</p> <p>&nbsp;</p> <p><b>Q/Would the convention apply to conflicts between companies that are global in nature, with multiple wings present in multiple countries? How does the law apply in such cases?</b></p> <p>&nbsp;</p> <p>A/Yes, it would. If a company is global in nature and has more than one place of business, the Singapore convention provides that the relevant place of business is that which has the closest relationship to the dispute.</p> <p>&nbsp;</p> <p><b>Q/What has been Singapore’s role in getting this convention in place?</b></p> <p>&nbsp;</p> <p>A/Singapore was involved in the convention from its early days. A Singaporean chaired the United Nations Commission on International Trade Law Working Group II on dispute resolution. Singapore played a key role in negotiating the texts of the Singapore convention and the Model Law at WGII. In August last year, Singapore hosted the convention’s signing ceremony and welcomed delegations from 70 countries.</p> <p>&nbsp;</p> <p><b>Q/What would be the next logical step, after this convention?</b></p> <p>&nbsp;</p> <p>A/We certainly hope to have more (countries) come on board to sign and ratify the Singapore convention. This will benefit international businesses, and will facilitate international trade.</p> <p>&nbsp;</p> <p>We also encourage businesses to consider mediation as an option when they face an international commercial dispute, now with the Singapore convention providing an efficient framework to enforce a mediated settlement.</p> Sat Nov 07 11:48:54 IST 2020 widening-gap <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p>Big brother throwing his weight around? Or ‘elder brother’ offering compassionate guidance? Be it either, the relationship between the Union government and states reached a new low two weeks ago over the Goods and Services Tax compensation issue. Despite the last-minute rapprochement salvaging the situation, there are many more cracks waiting to burst open. And not just in matters of economy.</p> <p>“The BJP has been far more aggressive in its pursuit of centralisation in its second term,” argued Yamini Aiyar, president and chief executive of the think-tank Centre for Policy Research, in a recent essay. “The grammar of cooperative federalism has been eschewed in favour of ‘one nation’.”</p> <p>What does this rift mean for a country struggling to deal with a pandemic? “Regaining the spirit of ‘Team India’ in the current downturn is an imperative. Otherwise people will continue to suffer,” said Pradeep S. Mehta, secretary general of Consumer Unity &amp; Trust Society, an international consumer advocacy organisation.</p> <p>There are, however, arguments that the current circumstance requires a different approach. “In a pandemic situation, some powers have to be ceded to the Centre for a standardised approach,” said Shashank Tiwari, government strategy &amp; transformation leader, PricewaterhouseCoopers India.</p> <p>The GST deadlock came about on the question of how to foot the amount due to the states. States had given up almost all their tax-generating powers (with the exception of petroleum products, alcohol and land) to the Centre for the sake of a uniform GST tax structure across the country, on the promise that the revenue will be shared equally and any shortfall in 14 per cent annual growth rate will be compensated. Since its inception in 2017, the GST Council, where the Union and finance ministers got together and decided on all matters amicably, was hailed as an example of the federal setup.</p> <p>However, it all unravelled pretty quickly in 2020. A powerful Central government and a dip in tax collection led to the perfect storm that rained on this bonhomie. While Rs2.35 lakh crore was calculated as the total shortfall, Union Finance Minister Nirmala Sitharaman said states should borrow this money, with a cess being extended over the highest GST slab to pay it back.</p> <p>The BJP-ruled states fell in line, but others were adamant that the Centre should borrow and pay them as the money was supposed to be paid by the Centre. The impasse stretched over three GST meetings, with the last one ending with states like Kerala threatening to go to the Supreme Court. Nudged by the Reserve Bank of India and those who pointed out that it made sense for the Centre to borrow, Sitharaman backed down.</p> <p>“All this back and forth was unnecessary, and had the same solution agreed upon earlier, a lot of precious time could have been saved,” said Vivek Bindra, CEO of Bada Business. “Centre-state relations have certainly suffered a blow.”</p> <p>Kerala’s Finance Minister Thomas Isaac said it would take some time to repair the damage.</p> <p>The GST showdown is not the only instance of the Centre and states locking horns. There was an uproar when three farm bills were pushed through in Parliament in the last session. Punjab passed a bill in its assembly to override the Centre laws, while Rajasthan Chief Minister Ashok Gehlot said that the state, too, would negate the Centre’s move with its own bill.</p> <p>The recent recommendation to move health from the list of state subjects to the concurrent list (where it will be under the jurisdiction of both the Centre and the states), ostensibly may make sense in the times of a pandemic, but has not gone down well with many states. A similar change was suggested by the Ashok Chawla Committee for water resources a while ago.</p> <p>Adding fuel to the fire was the terms of reference for the 15th Finance Commission from the central government suggesting a re-examination of Centrally Sponsored Schemes (CSS), where the central government gives money for schemes but they are implemented primarily by local governments. The Commission is also set to examine “a separate mechanism for funding of defence and internal security”. Many fear this is another way to cut down the share of taxes due to the state governments from the divisible pool.</p> <p>“Why should there be CSSs for items in the state list? If the Union government should contribute for health because it is nationally important, should states not contribute for defence?” argued Bibek Debroy, chairman of the Economic Advisory Council to the Prime Minister, setting the stage for another prospective Centre-state clash.</p> <p>Hammering away at the powers and prerogatives of the states by the Centre is neither new nor limited to economic issues. In 1980, storming back to power at the Centre, Indira Gandhi wasted no time in gunning for the opposition governments in states. During the Emergency, she transferred five crucial subjects, including education and forests, from the state list to the concurrent list.</p> <p>Ironically, from being ‘vocal for local’ when he was chief minister, Narendra Modi seems to have taken an about-turn since he became prime minister six years ago. “It was expected that he would understand the perspective of states and make genuine efforts to empower states and practise cooperative federalism,” said Mehta. “While some laudable efforts were made in the beginning, the recent shift to ‘one nation’ policy is visible to enable him to take credit of successes, position him as a strong leader, and offer him a long-term stint at the Centre.”</p> <p>This was seen in the many schemes like Ayushman Bharat, Swachch Bharat, PM Kisan and Ujjwala, where bureaucrats from Delhi monitored the progress of implementation at the local level, irking state administrations. The BJP’s election campaign also went to town advertising these as ‘Modi’s schemes’, reaping rich dividends.</p> <p>The fault lines may be more gaping now, with both the Centre and states strapped for cash following the lockdown. But there seems to be no option but cooperation. “There are issues. But for the Centre, too, states are critical for growth as well as ground level implementation of schemes and stimulus measures,” said Sreejith Balasubramanian, economist (fund management), at IDFC Asset Management Company. “This deficit issue is not going to improve in just one year, so it is important that both coordinate in spending, to address supply side issues and get the maximum growth multiplier.”</p> <p>Lekha Chakraborty, economist at National Institute of Public Finance and Policy said this was an uncharted territory in Centre-state relations. “Coordination is significant to tide over this dual crisis—public health crisis and macroeconomic crisis. The debt-deficit dynamics between the Centre and states is the pivot. How we recalibrate the fiscal rules will be the game changer,” she said.</p> <p>But beyond the economy and the pandemic, the Centre-state tussle could continue to be vexing. “Powerful Central governments try to assert their power and tame state governments,” said Bindra, also a motivational speaker. “But in a country as large and diverse as India, the Constitution gives state governments distinct political and fiscal authority, and this must not be compromised.&nbsp;</p> Thu Oct 29 14:47:50 IST 2020 stocks-at-a-discount <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p><b>BE IT THE NEIGHBOURHOOD</b> kirana shop or the modern retail outlet, bargaining gets best deals. The premise here is that the seller is not quoting a price that is favourable to the buyer. Hence, negotiations happen. Investing in stock market is quite similar. The only difference here is that things are online and it is a bit tough to negotiate with thousands of faceless investors sitting around the country trading by ‘ticks’.</p> <p>&nbsp;</p> <p>For a seasoned investor, however, there are always pockets of bargain available in the market. They often happen to be spaces that are overlooked, avoided or unloved by the crowd at large. For a long-term investor, they are an opportunity to make outsized gains, as you get to buy a good company at a price less than its intrinsic value.</p> <p>&nbsp;</p> <p>Spotting such opportunities may be a tough and time-consuming task for a retail investor. Also, one may not have the resources to find out the true value of a stock. This is where mutual funds come to the rescue. Investors who are looking for such opportunities can opt for the value category schemes where one gets an opportunity to own stocks that are thoroughly vetted by market experts but available at a bargain.</p> <p>&nbsp;</p> <p><b>Finding value</b></p> <p>Warren Buffett’s take on value is best summarised in this quote; ‘Price is what you pay; value is what you get’. Is the market price of a stock its true value? Not necessarily. Without understanding the intrinsic value of any object, you will be susceptible to deals that are only good for the sellers.</p> <p>&nbsp;</p> <p><b>Margin of safety</b></p> <p>Value-oriented equity mutual funds look for stocks that offer ‘value’ at the price it is quoting. The stocks in a value portfolio would be names which are available at a discount to its intrinsic value. But, how much should be the discount? This is where ‘margin of safety’ comes in. Like it sounds, margin of safety indicates the difference between intrinsic value of a stock and market value. The higher the difference, the higher is the margin of safety.</p> <p>&nbsp;</p> <p><b>Means to identify value</b></p> <p>There are various ways in which a value stock can be identified. It could be with the help of financial matrices such as the Price to Book Value (P/B) or Price to Earnings (P/E) ratio, to name a few. Once the stock becomes a part of the portfolio, the waiting begins. The aspect one has to remember while waiting is that markets can remain irrational for long periods of time.</p> <p>&nbsp;</p> <p><b>Why now?</b></p> <p>As the market recovered from the lows in March, it was quality and not value that led the recovery. In the times ahead, there is a good probability that value will make a strong comeback, as quality fatigue sets in. Also, there are several pockets in the markets that provide a good opportunity for investments with attractive valuations, healthy dividend yield, and earnings comfort.</p> <p>&nbsp;</p> <p><b>Fund pick</b></p> <p>Among the value funds, ICICI Prudential Value Discovery Fund is the largest with around Rs12,000 crore assets and it has an excellent track record basis the fact that 80 per cent of the time in the past 15 years its five-year daily rolling returns was more than 12 per cent. A SIP of Rs10,000 a month in the fund since inception would have grown to Rs64 lakh!</p> <p>&nbsp;</p> <p>The scheme is flexible in moving across market capitalisations to explore attractive investment opportunities. Currently, the portfolio suggests that the fund manager is bullish on software, pharma and power stocks while it is underweight on banking and financials. The portfolio composition suggests that the fund is well positioned to withstand volatility, owing to relatively higher exposure towards stocks/sectors that are offering high margin of safety and are defensive in nature.</p> <p>&nbsp;</p> <p><b>Author is co-founder, Griffin Capital Advisors LLP.</b></p> Fri Oct 23 15:49:32 IST 2020 cashbacks-are-not-sustainable <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p><b>WITH MORE THAN</b> 230 million registered users, PhonePe has become a household name. The digital wallet and online payment company saw a spike in its business during the lockdown. Rahul Chari, cofounder and chief technology officer of the company, talks about the opportunities, challenges and intense competition in the segment and what the future holds for the digital payment platforms.</p> <p>&nbsp;</p> <p><b>How has the digital payments segment been affected by the pandemic and the lockdown?</b></p> <p>&nbsp;</p> <p>During the nationwide lockdown, digital payment platforms were an essential service given their utilitarian nature. According to NPCI, the UPI transactions in February 2020 were at an all-time high of 132 crore transactions, corresponding to a transaction value of Rs2.21 lakh crore. While there was a fall over the following two months owing to the lockdown, the rebound happened in May and June and the transactions have been increasing with each passing month since then.</p> <p>&nbsp;</p> <p>In September, UPI registered 180 crore transactions with a transaction value of Rs3.29 lakh crore. We saw the highest ever organic user acquisition during this period. Our new user acquisition numbers have increased by 50 per cent and it is heartening to see digital payments being adopted by users across age groups, income levels, and locations. The growth momentum is expected to continue in the festive season and the subsequent months with the economy opening up.</p> <p>&nbsp;</p> <p><b>What are the challenges that the segment has to deal with, especially when it comes to regulations?</b></p> <p>&nbsp;</p> <p>The digital payments segment is going through a massive growth cycle. The government and the regulators have played a critical role in enabling the growth. Regulations have played an enabling role for all stakeholders and we continue to adapt to any new changes. Merchant acceptance is a very important factor contributing towards growth of digital payments and merchant discount rate (MDR, a fee merchants are charged for processing card transactions) plays a critical role in fuelling the growth of acceptance across the country. Without any incentive the prevailing zero MDR regime will impact investments in building merchant acceptance. We are hopeful that the government and regulators will consider the needs of the payments ecosystem and bring in a reasonable MDR structure.</p> <p>&nbsp;</p> <p><b>Acquiring new customers and retaining them are a challenge for digital wallet companies. How do you deal with it?</b></p> <p>&nbsp;</p> <p>When the product experience and the service quality are good, there is natural affinity and loyalty from customers. Service quality parameters such as the speed of transactions, customer support and user interface matter more to customers in the long run. This is because beyond a certain value of transactions, reliability of the transaction plays a more important role than the incentives.</p> <p>&nbsp;</p> <p>We have always maintained that cashbacks are not sustainable and our cashback disbursal has significantly gone down over the past 12 months. We use machine learning to decide when somebody needs an incentive and typically incentivise only the first transaction. The cost of acquiring users and the need for capital is lower now than what we had spent in 2018 and 2019. We believe that as long as we provide a safe, secure and user-friendly digital payments platform and continue to innovate, the adoption and usage will take care of itself.</p> <p>&nbsp;</p> <p><b>What are some of the key consumer trends in the digital payments segment and what is its future in India?</b></p> <p>&nbsp;</p> <p>The new environment has already started changing consumer and business habits across a variety of sectors. We will continue to see a surge in the adoption of digital payments in the country across all demographic segments. Businesses, both online and offline are keener than ever to partner with digital payment platforms to accelerate their growth. In particular, offline merchants are embracing additional business models including home delivery in addition to opening up a digital presence. Users are also increasingly comfortable buying financial services products digitally. Payment platforms with their large consumer base and a wide variety of use cases will actively enable and shape the above consumer and business habits.</p> <p>&nbsp;</p> <p><b>What will be the key focus areas for PhonePe over the next few years?</b></p> <p>&nbsp;</p> <p>Our focus will be on growing our user base to 500 million from the current 230 million, launching more products in the financial services space, growing the offline merchant network to 25 million, covering every corner of the country and partnering with more brands on our Switch platform. Currently we have 220 partner apps.</p> <p>&nbsp;</p> <p><b>There have been reports that PhonePe is planning an IPO in the next two years.</b></p> <p>&nbsp;</p> <p>PhonePe has a line of sight to become profitable by 2022 and plans to file for an IPO in 2023. It is a bit too early to comment on the specifics.</p> Fri Oct 23 15:48:31 IST 2020 tough-stake <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p><b>December 18, 2019</b>, was a day of celebration for Cyrus Mistry, who had been sacked unceremoniously as the chairman of Tata Sons in October 2016. The National Company Law Appellate Tribunal (NCLAT) had ruled that day that the sacking was illegal, and he would have to be reinstated as the chairman of Tata Sons. The NCLAT verdict sent shockwaves through Bombay House; the Tatas did manage to get a Supreme Court stay on the order a few days later.</p> <p>The Shapoorji Pallonji Group (SP Group) owned by the Mistrys had invested in Tata Sons in the 1960s. Reports suggest that J.R.D. Tata was not quite happy with having an outsider in Tata Sons. But the two sides shared a cordial bond over the decades. The relations soured after Cyrus was fired overnight. And it got worse when the Tatas blocked SP Group’s move to raise funds by pledging their shares in Tata Sons.</p> <p>The Mistrys, who have an 18.4 per cent stake in Tata Sons, needed the funds to tide over the crisis triggered by the Covid-19 pandemic. The Supreme Court has barred the group from selling or pledging any Tata Sons shares until October 28, when it is likely to start hearing the final arguments in the case. This judgment might have been the final nail in the coffin, which prompted the Mistrys to finally decide that the time had come to separate from the Tatas.</p> <p>The Tata Trusts—which are into various philanthropic activities—hold 66 per cent shares of Tata Sons, which in turn exerts control over a 100-odd companies manufacturing salt to software. The SP Group pegs its stake in Tata Sons at around 01.8 lakh crore. This is based on the value of the operating companies as well as the brand value of the Tatas. The Tatas may not agree to the valuation, and they do have a right of first refusal, according to the articles of Association of Tata Sons. While the SP Group has reportedly lined up institutional investors for the stake sale, the Tatas may not want the shares falling into the hands of a third investor. The Tatas have told the apex court that they are open to buying the SP Group’s stake. However, it is easier said than done.</p> <p>The Tata Group is also saddled with huge debt, notably in its power, automobile and steel companies. The SP Group in its statement alleged that debt in major Tata Group companies had increased by 01 lakh crore in the last three years. So, buying out the Mistrys may not be so easy for the Tatas.</p> <p>“It may not be easy for both parties to agree on valuations. It is also not clear how the Tatas are going to raise the funding required to buy the shares,” said Shriram Subramanian, founder and managing director, InGovern Research Services, a corporate governance advisory firm.</p> <p>Nirmalya Kumar, Lee Kong Chian professor of marketing at Singapore Management University and distinguished fellow at INSEAD Emerging Markets Institute, says Tatas may have to get an outside investor. But who will invest $20 billion with restraints on liquidity and transferability of those shares, he asks.</p> <p>If the Tatas want to buy out the stakes of the SP Group, there are four major options. “One option is to sell stakes in some companies like TCS; or divest some businesses completely; or raise some private equity funding; or raise some financing over a period of time,” said Subramanian.</p> <p>Proxy advisory firm Institutional Investor Advisory Services (IiAS) estimates that Tata Sons may have to sell a 16 per cent stake in TCS, which will bring down its shareholding to 56 per cent from 72 per cent. For the past several years, Tata Sons ability to infuse equity and provide liquidity support to its businesses has been driven by TCS dividends and buyback. According to IiAS, the sale of 16 per cent of TCS will restrict the financial flexibility of Tata Sons and somewhat weaken its ability to hold the group together.</p> <p>“The easiest way for this separation, if you want to do it, is to give them (SP Group) equivalent value of TCS shares, and tell them that they would be free to do what they want with those shares,” said Kumar. “This will resolve around two-thirds of the valuation issue, and Tatas will continue to hold a 51 per cent-plus stake in TCS.”</p> <p>Alternatively, experts suggest that Tata Sons could sell non-core assets and pledge the equity of its listed companies to raise funds. But that would mean that the group will be deeper in debt. The Tatas may also look at roping in institutional investors to buy out the SP Group stake. Sovereign wealth funds have also been reportedly sounded out.</p> <p>Exiting Tata Sons by offloading its stake will address the SP Group’s debt woes completely (According to CARE Ratings total reported debt of Shapoorji Pallonji &amp; Company Private Ltd on standalone basis stood at 011,745 crore as on March31, 2019). The decision to separate from the Tata Group has lifted the shares of the two listed companies of the SP Group—Sterling &amp; Wilson, and Forbes &amp; Co—over the past week.</p> <p>But are these celebrations premature? Time will tell.</p> Thu Oct 01 15:46:59 IST 2020 old-trade-new-tools <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p><b>Two years ago, </b>a late evening meeting changed Kishan Rathor’s perspective on agriculture. After the meeting, with agriculture startup Gramophone, he decided to divide his 10-acre farm in Dewas district of Madhya Pradesh into two. He used traditional methods of sowing <i>moong</i> (green gram) in one half and in the other he followed the advice of Gramophone’s app.</p> <p>“The production cost decreased, while output increased from 22 quintals to 27 quintals,” said Rathor. “It was the first time I realised agriculture can be profitable.” He is classified as a medium farmer; 13 per cent of the farmers in the country fall into this category, which is under threat of being pushed into poverty if the farmers do not use resources well. Luckily for them, increased penetration of cheap smartphones in rural areas has opened up access to information like never before. And the younger farmers are willing to try new things on their farms.</p> <p>Over 1,000km from Dewas, in Muzaffarpur, Bihar, litchi farmer Sunil Kumar, too, harnessed the power of technology. As lockdown disrupted supply chains, he got himself listed on Kisan E-mart, powered by Pune-based startup Agri10x.The listing caught the attention of a London-based buyer. After a deal was negotiated, the purchaser’s kin checked the produce prior to shipping.</p> <p>There are over 500 such agritech firms and many of them were founded in the last five years mostly by IIT and IIM alumni. They are bringing innovation into agriculture, primarily digitising the farm-to-factory and farm-to-fork processes, and focusing on minimising wastage across the supply chain and empowering farmers to make informed decisions.</p> <p>Though the market penetration of these firms is only around 1 per cent, the entry of a new wave of entrepreneurs is starting to transform the way food is produced, marketed and consumed. Covid-19, the bane of millions worldwide, became a boon for agritech companies. These companies also stand to benefit from the Centre’s agricultural reform laws, which diluted the Essential Commodities Act, gave legal framework for contract farming, and allowed farmers to sell to anyone, anywhere. As a result, they are now poised to scale-up operations. As per a recent Ernst &amp; Young report, agritech in India has a market potential of $24 billion by 2025.</p> <p>“We help farmers increase their productivity and reduce production costs by 20 per cent by giving right advice, and managing their farms through a technological platform, right from sowing to harvesting,” said Tauseef Khan, co-founder, Gramophone. “This is something which is in the control of the farmers, unlike prices and output which are dictated by market dynamics. We help them reduce uncertainty in decision making.” He added that they also educate farmers about scientific agricultural practices and provide better quality seeds, and better crop protection and crop nutrition products than what is available in the market.</p> <p>Gramophone’s Krishi Mitra app allows farmers to engage with experts and even send them pictures of their crop on WhatsApp. The platform also uses advanced image recognition technology to process farmer queries and return relevant information.</p> <p>Karthik Jayaraman, CEO and co-founder, WayCool, a Chennai-based company, said that the improvement of road networks in the last 20 years has made movement of goods easier and is one of the enabling factors for the agritech space. “Second is the transformation in the cost of communication and the digitisation of money, which enables faster movement.These are important components of the supply chain and we thought now was the time,” he said.</p> <p>He added that with the government reforms, the focus had shifted from ramping up production to ramping up the supply. Jayaraman said that the focus should now be on improving the supply chain by building infrastructure to improve cold storage, even in villages.</p> <p>In another critical area of the agricultural value chain comes companies like Agribazaar, which replicates the mandi using an online aggregation model. A farmer lists his produce and buyers like merchants, traders and corporates can place orders. Once the transaction is complete, Agribazaar picks up the produce and the payment is credited to the farmer’s bank account.</p> <p>“Our app is helping local farmers go [pan India],” said Amith Agarwal, CEO and co-founder, Agribazaar. He said that in April 2020, the app facilitated the transport of over 8,000 trucks worth of produce, even from far-off places like Ladakh, Sikkim and Lakshadweep. “The response during this lockdown was encouraging,” he said. Founded in 2016, the startup has connected around 10,000 traders and processors, and over 100 farmer producer organisations with its network of over three lakh farmers across 36 states and Union territories. The app has facilitated sales of Rs14,000 crore since its inception, said Agarwal.</p> <p>Agri10x partnered with the government to help farmers access their marketplace to sell their produce, like the litchi farmer in Muzaffarpur did. “We now have access to the government’s common service centres (CSCs), access points that deliver e-services to rural and remote areas in the country,” said Pankajj Ghode, founder and CEO, Agri10x. “We charge a trading fee of 6 to 10 per cent, which is equally divided among farmers and traders. The two players save a lot of cash, which would otherwise be spent on middlemen. The size of the operation itself is enormous as volumes start from 200 tonnes and go up to 1,000 tonnes.”</p> <p>AgNext, a Mohali-based company set up by Taranjeet Singh, measures the quality of agricultural produce. Using its in-house Qualix platform, it helps food-processing businesses analyse the trading and safety parameters of commodities. It provides test reports over the phone within 30 seconds.</p> <p>The pandemic has brought about a visible change in consumer behaviour. Safety concerns have come to the fore and consumers are reading the labels more closely. Ninjacart, a Benguluru-headquartered fresh food supply chain company, introduced “end-to-end food footprint traceability” for fruits and vegetables. “Footprint is Ninjacart’s first but significant step towards ensuring food safety,” said Thirukumaran Nagarajan, co-founder and CEO, Ninjacart. “It allows the consumer to trace the complete footprint of the products purchased from Ninjacart. For every product one buys from Ninjacart, it will tell you the farmer details, warehouses that handled the produce, the truck that carried the item to stores and more.”</p> <p>Before the government’s recent reforms, each state had a different set of rules and it was hard for agritech companies to understand. “We could not expand our base outside south India as we did not know the rules,” said Jayaraman. “At some places, we had to pay extra for every kilo bought from farmers. Grains could only be sourced through APMCs (agriculture produce market committees).”</p> <p>The dilution of the Essential Commodities Act is also a boost. Jayaraman explained: “There is demand for onions in the Middle East,” he said. “But we were not reliable suppliers as we could not store under the Essential Commodities Act. Now, with reforms, storage has been made possible.”</p> <p>A report by Maple Capital Advisors pegged that venture capital investments in agritech startups are expected to exceed $500 million in the next two years. Pankaj Karna, managing director, Maple Capital Advisors, said: “The golden age of Indian agriculture may well have just begun, backed by unparalleled digital access to farmers, overarching reforms and government support.”&nbsp;</p> Mon Oct 05 16:45:36 IST 2020 winds-of-change <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p><b>THERE IS A</b> category of funds in Europe that saw record inflows of nearly $65 billion in just three months between April and June. The category saw an unprecedented inflow totalling $10.4 billion in the US market in the same period. Combined with the first three months of 2020, the cumulative half-year flows in US stood at $20.9 billion, which is just a tad lower than 2019’s full year flows of $21.4 billion.</p> <p>&nbsp;</p> <p>So, which is this category of funds that investors are falling over each other to invest? What is the potential they see, especially amidst a global pandemic that has caused most asset class losing their sheen?</p> <p>&nbsp;</p> <p>Welcome to the world of Environmental Social and Governance Funds, popularly known as ESG Funds. It is also called sustainable investing by a growing community of fund managers and investors who believe that the time has come to look at companies that respect factors like responsibility towards the planet, social obligations and good corporate governance.</p> <p>&nbsp;</p> <p><b>What is an ESG Fund?</b></p> <p>Simply put, an ESG Fund would only invest in companies that incorporate in their operations and functions, things like efficient disposal of waste, conservation of water and energy, climate change, gender equality, women empowerment, labour rights, donating for social causes, strong internal controls in terms of efficient management and ethical practices among other things.</p> <p>&nbsp;</p> <p>In terms of broad sectors, companies involved in alcohol, tobacco, gambling and controversial weapons are often kept out of ESG ambit.</p> <p>&nbsp;</p> <p>One may feel that while ESG is quite big on the global scale, it is still nowhere in the reckoning in India. Quite true to a large extent, but the winds of change are here, and could be here to stay for the long haul.</p> <p>&nbsp;</p> <p><b>Return generation potential</b></p> <p>Let us first see the benefits of ESG investment in terms of returns—after all returns are what everyone invests for—and then the options that Indian investors have.</p> <p>&nbsp;</p> <p>Not many might be aware but there is a Nifty 100 ESG index that serves as the benchmark for the few ESG Funds that are offered by mutual funds in India. More importantly, the ESG index has managed to outperform the benchmark Nifty in the recent past as Covid issues continue to impact the stock market.</p> <p>&nbsp;</p> <p>From the highs in January, the 50-share Nifty fell by around 40 per cent by March and since then has gained a little over 53 per cent. On the other hand, the ESG index fell around 37 per cent between January and March and since then has surged over 56 per cent.</p> <p>&nbsp;</p> <p>In terms of total returns, an investment of 0100 in ESG index would have got you 0226 in the last nine years while the same in Nifty would have made 0198. So, numbers clearly favour ESG index over the benchmark Nifty.</p> <p>&nbsp;</p> <p>Incidentally, in the current calendar year, the ESG index is marginally in the green while the Nifty is down nearly 5.50 per cent.</p> <p>&nbsp;</p> <p><b>Investment avenues</b></p> <p>Now, the all-important part of investment avenues. Well, if the returns are there then investment options are what one needs to know. As mentioned earlier, there are not too many options currently though three fund houses—Axis Mutual Fund, SBI Mutual Fund and Quantum Mutual Fund—offer ESG Funds.</p> <p>&nbsp;</p> <p>ICICI Prudential Mutual Fund has come out with a New Fund Offer (NFO) of its ICICI Prudential ESG Fund which is currently underway and is open till October 5, 2020. The fund will have both growth and dividend options along with the option of direct plan in both the variants.</p> <p>&nbsp;</p> <p>Corporates today are increasingly aware that millennial generation is increasingly mindful of the ESG practices they follow. Also, regulations are catching pace in the ESG space, all of which is leading to more compliance in terms of ESG practices. At such a time, it is interesting to see that an increasing number of fund managers and investors are looking at ESG investing. In the years ahead it is very likely that deep pocketed pension funds, large institutions and even millennial, which account for 60 per cent of our population who are comparatively more aware of environmental and social issues, would actively scout for ESG complaint funds to invest their money.</p> <p>&nbsp;</p> <p><b>The writer is managing director, InvestAscent Wealth Advisors Pvt Ltd.</b></p> Fri Sep 25 19:27:49 IST 2020 far-from-over <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p>During a retail industry summit in September 2016, Kishore Biyani, founder of Future Group, said: “We would love to be seen as a consumer goods company having its own distribution.” Four years hence, Biyani, who was the king of modern retail in India, has been left with just that—his consumer goods company, apart from apparel merchandising and a small furniture retail business. He agreed to sell much of his retail business to Mukesh Ambani’s Reliance Industries.</p> <p>&nbsp;</p> <p>Biyani’s entry into retail business was in 1987, when he launched Manz Wear. It was renamed Pantaloon Fashions, one of the few fashion and apparel retail chains in the 1990s. The first Pantaloons store opened in 1997 and the brand soon became popular. In 2001, Biyani launched Big Bazaar, among the first modern big box hypermarket chains. Over the next two decades, he would go on to establish an empire that spread across fashion, lifestyle, grocery and consumer electronics retailing.</p> <p>&nbsp;</p> <p>Along the way, he made many marquee acquisitions. But, as his empire grew, so did his debt. In 2012, as the debt rose to Rs7,800 crore, Biyani sold Pantaloons to Aditya Birla Group. That would not deter his ambitions, though. The same year, he acquired Big Apple, a convenience store chain in the National Capital Region and, two years later, Nilgiris, a retail chain in South India.</p> <p>&nbsp;</p> <p>The biggest move was in 2015, when he acquired the retail business of Bharti Group. In 2016, he acquired the retail business of Heritage Foods, a company promoted by former Andhra Pradesh chief minister N. Chandrababu Naidu. The next year, Future Retail acquired hypermarket chain HyperCity from Shoppers Stop.</p> <p>&nbsp;</p> <p>But, the debt continued to rise. It is estimated to be around Rs13,000 crore now. After earnings took a hit because of Covid-19, servicing the debt became a challenge and Biyani was left with little choice but to sell the retail business. Future’s key group companies—Future Retail, Future Lifestyle Fashions, Future Consumer, Future Supply Chains and Future Market Networks will merge into Future Enterprises Limited. The retail and wholesale business, which includes key formats like Big Bazaar, fbb, Easyday, Foodhall, Nilgiris, Central and Brand Factory, would be sold in a slump sale (for a lump sum without values being assigned to individual entities) to Reliance Retail. Future Group will also sell the logistics and warehousing business to Reliance Retail. The deal is worth Rs24,713 crore.</p> <p>&nbsp;</p> <p>The deal will help Reliance expand its already large, albeit electronics-heavy, retail business and become India’s largest grocery and fashion retailer, in terms of revenue. As per broking firm Sharekhan, its total store area would increase by 83 per cent to 52.5 million square feet. Reliance Retail will also invest 11,200 crore in the preferential share issue of Future Enterprises for a 6.09 per cent stake and Rs400 crore in warrants convertible into equity shares, which when converted upon payment will result in a further 7.05 per cent stake.</p> <p>&nbsp;</p> <p>“As a result of this reorganisation and transaction, Future Group will achieve a holistic solution to the challenges that have been caused by Covid-19 and the macro economic environment,” said Biyani. “This transaction takes into account the interest of all its stakeholders including lenders, shareholders, creditors, suppliers and employees, giving continuity to all its businesses.” But, what does this deal leave Biyani with?</p> <p>&nbsp;</p> <p>Much of the proceeds will be used to repay debt. There are also dues pending to suppliers, vendors and landlords. As per a letter by Dhairyashi Patil, president of The All India Consumer Products Distribution Federation, written to Biyani, the outstanding “is in hundreds of crores.” Biyani is learnt to have told suppliers that part of the deal’s proceeds has been set aside to repay all such dues.</p> <p>&nbsp;</p> <p>Post this, Future Enterprises will be largely debt-free. It will retain the manufacturing and distribution of FMCG goods and integrated fashion sourcing and manufacturing business and its insurance joint ventures with Generali and the joint ventures with NTC Mills. The company has been in talks to sell the insurance ventures.</p> <p>&nbsp;</p> <p>Future Enterprises has said the deal with Reliance will help it expand with a focused business model and a stronger balance sheet. “There will be around 14,000 crore of food manufacturing and Rs3,000 crore of fashion and garment manufacturing that will remain in Future Enterprises,” said a source in the know. More importantly, there is a supply agreement with Reliance Retail and Fashion. So, Future Enterprises will be manufacturing the brands for the Reliance ecosystem, which will be a strong revenue stream. Future Enterprises will also be able to create new brands in the fashion and consumer goods space and ink supply deals with other firms.</p> <p>&nbsp;</p> <p>Biyani is not one to remain quiet. People who have known him a long time say he remains gung-ho about the opportunities that lie ahead. Retail industry veterans say that Biyani’s knack for building brands will help him emerge in a new avatar. “Biyani is a brand man,” said Govind Shrikhande, former managing director of Shoppers Stop. “So, brand manufacturing and FMCG manufacturing, the huge food parks that he has built will be with him; that is a big opportunity.” Over the years, Future Group has invested in setting up large food parks that would help it strengthen and expand its private brands. Future Consumer Ltd, which is headed by Biyani’s elder daughter Ashni, now houses close to 25 FMCG brands and it has in the recent past inked deals with global consumer goods firms like New Zealand’s dairy major Fonterra, US-based organic food maker Hain Celestial and beverage brand Sunkist. Biyani will come back strong on the brands, manufacturing and FMCG fronts, said Shrikhande.</p> Fri Sep 11 19:24:41 IST 2020 in-for-the-long-drive <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p><b>THE MANTRA</b> we are looking at is rethink, reimagine and recalibrate your business,” said Shashank Srivastava, executive director of Maruti Suzuki, at THE WEEK auto webinar on ‘Powering Past the Pandemic’. As the lockdown and its business travails ricochet across the board, this is a philosophy that is helping not just Maruti, but all automakers to weather the Covid storm.</p> <p>&nbsp;</p> <p>‘So far so good’ seemed to be the consensus in the webinar panel, which included Gaurav Gupta, chief commercial officer of MG Motor India, Santosh Iyer, vice president (sales &amp; marketing) of Mercedes-Benz India, and Tarun Garg, director (sales and marketing, and service) of Hyundai Motor India, besides Srivastava. Rebound has been positive, and better than expected, they all agreed. Yet, with the precarious state of the economy, change in consumer behaviour, worries over a second wave of infections, and more crucially, uncertainty over the arrival date of a vaccine, there was no magic mantra anyone was proffering to break the coronavirus spell.</p> <p>&nbsp;</p> <p>“I am not an astrologer or a scientist,” quipped Garg. “I wish I could know how many days away a vaccine is. But, I would say that the Indian economy has been resilient in the past. I believe very strongly that car penetration being what it is, customers are still looking to buy a car.”</p> <p>&nbsp;</p> <p>But the rules of the game have changed, perhaps irrevocably. Despite being the third largest in the world, the past few years have not been good for the Indian auto industry. Even before the pandemic hit, it had become the poster boy of the country’s economic slowdown, with sales in a free fall right from the autumn of 2018. Since then, it has been all downhill, with threats of newer technologies like electric mobility, youngsters preferring shared cabs to buying a vehicle, stricter emission norms and the hike in the cost of insurance and loan, all taking a toll.</p> <p>&nbsp;</p> <p>THE WEEK webinar, thus, came at a crucial juncture—what the industry is planning to do will have a domino effect not just on the auto sector, but the very trajectory of the economy and the consumption patterns. And, the four doyens had all the answers.</p> <p>&nbsp;</p> <p><b>Unusual business</b></p> <p>“The pandemic and the lockdown have given us a great chance to relook at what we were doing,” pointed out Gupta. Even while helping local communities and tying up with ventilator makers, auto companies also started looking inwards. This meant new ways of doing business, from cutting costs and newer models to increased digitisation.</p> <p>&nbsp;</p> <p>“The pandemic has made us much more agile, more innovative and more flexible,” said Garg. For instance, a launch usually would have meant fancy hotels, inviting scores of journalists and influencers, test drives and road shows. But Hyundai was forced to launch a new model through an online webcast during the lockdown, only to realise that it could reach millions of potential buyers instantly.</p> <p>&nbsp;</p> <p><b>What buyers want</b></p> <p>The triple effect of a global disease spread, the lockdown and the resultant churn in the jobs market were bound to change customer behaviour. The thing is, auto makers are still figuring it out.</p> <p>&nbsp;</p> <p>Take, for instance, the spiralling popularity of sports or multi utility vehicles. Though as a category it went up 8-9 per cent in the past few years, it dramatically shot up by 26 per cent as sales re-started after the lockdown, something Srivastava found “surprising”. “There is a huge uptick in pre-owned cars. And, first-time buyers are increasing,” he said. With the fear of infection topmost in public mind, it seems the shared cabs success story has been brought to a fateful halt, at least for now.</p> <p>&nbsp;</p> <p>“Customers are looking for brands that can provide solutions, something very different,” suggested Garg. This has already translated into subscription models, balloon schemes, and different formats of loans and EMIs.</p> <p>&nbsp;</p> <p><b>Rebound</b></p> <p>Clutching at green shoots, auto companies have been relieved by the sales rebound in June, July and August. September, November and December make the festive season when sales normally stay robust. But worries abound. “There has been a faster rebound than expected, especially in the SUV segment,” said Gupta. “Having said that, we are still not out of the woods.”</p> <p>&nbsp;</p> <p>And the carmakers have modest expectations. “Even if we can come to last year’s level (when the slowdown had already led to decline in sales), I would call it great,” said Iyer.</p> <p>&nbsp;</p> <p><b>Festive offers</b></p> <p>Of course, there is one tried and tested formula to push sales—give discounts. The problem? While sales are down, costs have gone up, right from the investment in BS6 technologies to currency exchange fluctuations that make import of components costlier.</p> <p>&nbsp;</p> <p>“We will have to increase prices,” said Iyer. “There is a lot of stress in the system. So, to expect freebies or deals will be a fallacy, at least for a majority of OEMs.”</p> <p>&nbsp;</p> <p>The other companies, however, are still in a dilemma. “We need to get volumes up, but cost has also gone up. We are debating on how to balance this out,” said Srivastava. There would be more offers on the financing aspect, mobility membership programmes, add-ons and faster delivery, rather than outright price discounts.</p> <p>&nbsp;</p> <p><b>Moving forward</b></p> <p>“The auto industry-GDP co-relation is very high,” said Srivastava. “Going forward, auto demand will depend on the GDP performance, as also on (public) sentiment. Cars are a discretionary purchase.”</p> <p>&nbsp;</p> <p>While the rebound after the lockdown has been satisfactory, there is a worry that there could still be a dip after the festive season, once the rural harvest bonanza and the urban Diwali bonuses run out. As such, projections are that the overall industry will be down by around 23 per cent this financial year. Adding to the uncertainty is that it could still go either way—a vaccine upside (if it hits the market faster) and a virus downside (if the spread continues unabated).</p> <p>&nbsp;</p> <p>If there is one sentiment that is powering all the four honchos to look beyond the woes of the pandemic, that is hope and optimism, though tempered with some caution. “We remain optimistic!” exclaimed Gupta. “This is like a T20 match; you play every over and try to get the maximum runs.”</p> <p>&nbsp;</p> <p>Iyer summed it up succinctly: “Why waste a good crisis? If we can figure out new ways of doing business, that would be a positive outcome to this crisis.”</p> Fri Sep 04 11:40:35 IST 2020 app-on-top <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p><b>Joy Sebastian, 44,</b> wears many hats. When he is not at his office in Infopark Cherthala, an IT park in Kerala’s Alappuzha district, Sebastian helps out at a people's hotel in the neighbourhood, mentors students at the local library or takes classes on palliative care in local panchayats.</p> <p>Sebastian was in the news recently as the developer of India's own videoconference app—a next-generation alternative to the popular Zoom (made by a US company that has workforce and servers in China). Sebastian’s Techgentsia Software Technologies won a national competition organised by the Union information technology ministry for developing a world-class videoconference app, a crucial service during the pandemic.</p> <p>Sebastian's Vconsol outsmarted products from 1,983 companies, including topnotch IT firms like HCL and Zoho. Apart from winning Rs1 crore as prize money, Vconsol also bagged the contract to provide videoconference solutions to all Central institutions for the next three years. “The trials have already started and every government institution will be able to use it soon,” said Sebastian.</p> <p>Vconsol can support up to 80 active and 300 passive participants simultaneously with minimum bandwidth, providing good audio and video quality. “The government's demand was for 18 active participants, but we could offer a more capable product,” he said. Vconsol has addressed all security concerns and has all the features available on Zoom’s premium variant.</p> <p>Sebastian said the jury must have selected his product as it married sound technology with the best security features. “I was sure about the quality of my product, but not so much about my presentation skills,” he said. He should know. Job interviews were always a big headache for him. “I would always clear the written tests for campus selection. But I always lost out in interviews because of my poor English,” said Sebastian, who hails from a family of poor fishermen in Alappuzha. “I did my schooling in Malayalam medium, in government schools.” He got his first job after an interview board allowed him to talk in Malayalam. “Luckily, they valued my knowledge and skill sets over my English,” he said.</p> <p>Sebastian keeps this in mind while hiring. “A majority of my 65-member team have rural backgrounds. They may not speak polished English, but they are the best, technologically,” he said. “Vconsole is a software filled with the qualities of the countryside.”</p> <p>Sebastian attributed his success to the good-heartedness of those around him. He grew up in a one-room house built by the government. He now lives with his wife (a high school teacher), two kids and his parents. He is also grateful to Kerala’s public education system. “If there were no good government schools or colleges, people like me would never have dared to dream high,”he said.</p> <p>Sebastian’s motto is—help those in need. After his big win, one of his Facebook friends asked if he would still be able to help out at the people’s hotel. “I will always be there,” he replied. “This award may have changed the profile of the company, but I will not allow it to change my life.”&nbsp;</p> Thu Aug 27 15:02:52 IST 2020 space-craft <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p><b>IT IS QUITE</b> possible that, in some years, we might hear a modified version of American composer Bart Howard’s classic ‘Fly Me to the Moon’ from humans living in space colonies longing to visit earth. Sounds farfetched, right? Well, not if a young Hyderabad startup has its way.</p> <p>&nbsp;</p> <p>Skyroot Aerospace, a two-year-old company with a mix of 40 scientists and engineers, want its rockets to be the catalyst for human habitation and exploration in space. Not surprisingly, many in the team idolise Elon Musk and SpaceX.</p> <p>&nbsp;</p> <p>Skyroot Aerospace is equally ambitious. Its immediate plan—assemble a rocket in less than 48 hours and send it to space whenever required.</p> <p>&nbsp;</p> <p>While SpaceX launched its first rocket, Falcon 1, six years into its existence, Skyroot Aerospace is in a hurry; it wants to launch its first rocket by December 2021.</p> <p>&nbsp;</p> <p>On August 13, the company put out a video of it test-firing an upper-stage rocket engine, called Raman, reportedly making it the only private company in India to successfully do so.</p> <p>&nbsp;</p> <p>It helps that the minds powering the startup are former Indian Space Research Organisation employees. CEO Pawan Kumar Chandana was an ISRO engineer closely involved with rocket launches and co-founder Naga Bharath Daka was an ISRO flight software engineer who designed and realised multiple avionics modules for launch vehicles. They are supported by senior vice president of propulsion V. Gnanagandhi, a Padma Shri awardee and former director at ISRO’s Liquid Propulsion Systems Centre.</p> <p>&nbsp;</p> <p>The startup is currently developing three rockets—Vikram-1, Vikram-2 and Vikram-3—which will act as small satellite launch vehicles (SSLV) carrying payloads ranging from 225kg to 720kg. The team wants to tap into the global market of small satellites and is also designing its own software and using 3D printing for rocket hardware. The company wants to be the most affordable satellite carrier in the segment, and charge around Rs15 lakh a kilo. It has already raised Rs31.5 crore and is looking to raise Rs90 crore more in a year. A few more rocket stages will be tested before the big launch.</p> Thu Aug 20 18:29:45 IST 2020 we-want-space-flight-to-be-as-cheap-as-air-flights <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p><b>Q/ Is this your first attempt at test-firing an upper-stage rocket engine?</b></p> <p>&nbsp;</p> <p>A/ Yes. This is a full-scale one. We have done short-scale and smaller ones in the past. This is the actual engine that will be launched later. This is only the upper stage and there are many other stages involved, which will be tested in the next one year. They will all be integrated closer to the final launch. We want to give it our all and [attain] perfection. It is quite rare for rocket engines to be successfully test-fired in the first attempt, so that is a great achievement.</p> <p>&nbsp;</p> <p><b>Q/ What sets the Vikram series apart from other small satellite launch vehicles?</b></p> <p>&nbsp;</p> <p>A/ It is the simplicity of the rocket. It is a simple rocket that can be manufactured, assembled and launched very fast. Then there is the cost. It will be much cheaper than other rockets in similar segments in the international market.</p> <p>&nbsp;</p> <p><b>Q/ The Indian government recently opened up the space sector to private players. How has your company streamlined plans after this decision?</b></p> <p>&nbsp;</p> <p>A/ It has come at the right time. In the next one year, most of our sub-systems and rocket stages will be tested. Our hardware is in the final stages of manufacturing. We can now use ISRO facilities, which was not the case earlier. So, this will help our testing. Also, launching requires licencing and regulatory procedures. We feel there will be no delay from the government’s side and that perfectly matches our timeline.</p> <p>&nbsp;</p> <p><b>Q/ Can you talk about the usage of 3D printing technology in your rockets’ bi-propellants?</b></p> <p>&nbsp;</p> <p>A/ The bi-propellant fluids that you are talking about are hypergolic, [whose components ignite] once they come into contact. The inside channels of the injector should not leak and, for that, we need to create two independent channels to make sure there is no explosion. It is a very critical technology. It can only be done using 3D printing. Conventionally, we used to have multiple parts assembled together. There were separate parts for the oxidiser and for the fuel. In these assembled parts, leakage is a problem. Now, all these are integrated into a single piece and the channels are made in such a way that [the components] are independent of each other. Only once they come out into the rocket chamber do they mix and burn. This way, there is more flexibility in designing sub-sets. Usually, it takes several months to manufacture (using the earlier method), but we hardly took two to three weeks. Due to this [3D-printing] technology, reliability will increase and failure points will decrease.</p> <p>&nbsp;</p> <p><b>Q/ Your team plans to insert various satellites into multiple orbits in a single mission. Could you elaborate?</b></p> <p>&nbsp;</p> <p>A/ It is very rare to insert multiple satellites into multiple orbits. We have seen multiple satellites being inserted into a single orbit. So, what happens here is that different satellites require different orbits. If you are taking 20 to 30 satellites, five of them want to go into one orbit, and another five want to go to different altitudes. All this is possible with our rocket because it can restart.</p> <p>&nbsp;</p> <p>The restarting phase is a critical technology and is very rare. We need to design engines specifically crafted for that. Our engine and our propellants are perfect for restarting. We can restart the rocket as many times as we want and send it to as many altitudes as we want.</p> <p>&nbsp;</p> <p><b>Q/ SpaceX is working on reusable rockets and there are other agencies focusing on reusable rocket parts. What about your rockets?</b></p> <p>&nbsp;</p> <p>A/ Reusability has more advantages when it comes to bigger rockets. In huge rockets, the hardware is so costly that it is worth creating hardware infrastructure around it to bring it back. When it comes to smaller rockets, they are better off being single-use.</p> <p>&nbsp;</p> <p><b>Q/ Can you talk about the small satellite-launch market? How is it looking for players like you?</b></p> <p>&nbsp;</p> <p>A/ In the next five to seven years, more than 10,000 small satellites are set to be launched. And up to 2027, the cumulative market will be [worth] close to $15 billion. Currently, there is only one operational player, a New Zealand-US company, which serves the small-satellite segment; it launches smaller satellites with small rockets. There are a few other companies in advanced stages of development and a couple of others that had their first launch but did not succeed. In the next two to three years, you will see up to five companies doing their first launch, and we will be one of them.</p> <p>&nbsp;</p> <p><b>Q/ In terms of business, are you looking at the global market?</b></p> <p>&nbsp;</p> <p>A/ When it comes to launching satellites, more than 90 per cent of our market is overseas.</p> <p>&nbsp;</p> <p><b>Q/ Does this also mean that you will tie up with companies outside India for launches?</b></p> <p>&nbsp;</p> <p>A/ Yes. It depends on the customer’s requirement. From India, a lot of orbits can be reached. If there is an orbit that cannot be reached from India, we can go to different places and launch from there.</p> <p>&nbsp;</p> <p><b>Q/ What is your ultimate goal?</b></p> <p>&nbsp;</p> <p>A/ The goal is to create a space-based economy. Today, we have an earth-based economy. We feel that resources are only available on earth, and that is because we cannot go to space at a very low cost. In the long run, we want space flight to be as cheap as an air flight so that anybody can go to space. Either for space tourism or to utilise the resources there.</p> <p>&nbsp;</p> <p>Space has plenty of planets, comets, asteroids, and a lot of metals and resources readily available. Going to space becomes easier when it becomes existential. We can create a space-based economy where human beings can travel and live there. Expanding humanity out into space is the ultimate goal.</p> <p>&nbsp;</p> <p><b>Q/ What are your thoughts on Elon musk and SpaceX?</b></p> <p>&nbsp;</p> <p>A/ SpaceX is the biggest inspiration for any space company, not only us. It is basically a showcase of what a single company can do. We also want to go as close to SpaceX as possible.</p> <p>&nbsp;</p> <p><b>Q/ Would you associate with government projects, including in the defence sector? What are the advantages of such an association?</b></p> <p>&nbsp;</p> <p>A/ India has a lot of requirements, especially in defence, when it comes to launching a large number of satellites or building different kinds of rockets. It will be a huge advantage because private companies can build things much faster as there will not be much red tape.</p> <p>&nbsp;</p> <p>If we want to order parts, we have to just choose our vendor and buy it in a few days. When it comes to government organisations, they need to go for a purchase order and it takes a really long time to even buy simple things. Compared with bigger organisations, operationally, startups can be more efficient, bolder and faster. Because of fewer rules and regulations, there is more innovation in smaller companies.</p> <p>&nbsp;</p> <p><b>Q/ How was your personal experience working with ISRO?</b></p> <p>&nbsp;</p> <p>A/ It was phenomenal. I loved working there. In fact, I had a lot of hands-on experience working on various launch vehicles. It gave me great exposure, which actually [gave us] the confidence to build something ourselves. That was only possible because of the exposure and the fascination I had after working on India’s largest rockets for five to six years.</p> Fri Aug 21 13:31:16 IST 2020 focus-on-focused-equity-funds <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p><b>THE YEAR 2020</b> has been a roller coaster ride, especially for investors in the equity markets. The year began with euphoria as Indian benchmark indices scaled new heights. However, the spread of the Covid-19 pandemic brought an abrupt end to the party. The subsequent weeks witnessed sharp fall in these indices. But the tide turned again quickly, with markets showing a sharp recovery since the lows touched in March.</p> <p>&nbsp;</p> <p>The situation makes it difficult for an average investor to decide what to do and what not to do. The sharp recovery, led by some selected high-quality stocks across the spectrum make many people sit back and think that the same stocks were available at a steep discount just a couple of months back. The quality of those stocks and the companies was never in question hence an experienced and skilled investor or a fund manager would have doubled down on those stocks in such a period.</p> <p>&nbsp;</p> <p>That being said, such ups and downs are part of market cycles and hence it is good to be prepared for the next round of opportunity. One way to do that is by investing in Focused Equity Funds. Let us understand how this category can help you.</p> <p>&nbsp;</p> <p><b>What is a Focused Fund?</b></p> <p>Focused Funds are a category of equity funds as defined by the Securities and Exchange Board of India. As per the market regulator’s categorisation, these funds portfolio can hold up to a maximum of 30 stocks. The portfolios of this type of fund largely tend to have a multi-cap approach.</p> <p>&nbsp;</p> <p>From an investor point of view, one way of looking at any fund is where it fits in the risk-reward spectrum. Some funds come with high risk while some others come with a relatively lower risk. One way in which risk goes up or down is through diversification. Accordingly, a large-cap equity fund could aim to reduce risk by investing in over 50 stocks. Similarly, a sectoral fund would invest only in a handful names in a targeted sector, thereby increasing concentration risk.</p> <p>&nbsp;</p> <p>The Focused Equity Funds hit a sweet spot between the two categories explained above. So while the portfolio of such a fund will be a little concentrated, it will not be very concentrated to take the risk to dangerous levels. At the same time, the diversification will not be so wide that the gains become miniscule. In other words, these funds are concentrated yet diversified!</p> <p>&nbsp;</p> <p><b>Is it a good time to invest in Focused Equity Funds?</b></p> <p>As the sharp recovery of the markets is already indicating, quality businesses and their stocks will continue to perform. However, there could be phases where this type of fund may witness a temporary blip in performance. However, the recovery is also expected to be equally sharp.</p> <p>&nbsp;</p> <p>That being said, uncertainties still remain as global and local economies continue to reel under the impact of the spread of Covid-19. As a result, in the near term several companies across sectors will be impacted by the disruption brought about by the virus. In the light of this, it makes absolute sense in placing your faith in high quality businesses. For a lay investor, this can be easily achieved through investing in Focused Equity Fund which aims to invest in good quality businesses across the spectrum and is market capitalisation agnostic.</p> <p>&nbsp;</p> <p><b>Picking a winner</b></p> <p>There are several offerings from various fund houses in this category. However, if one looks at the consistency in fund performance across market cycle, there is a fund which stands out of the pack and is ICICI Prudential Focused Equity Fund.</p> <p>&nbsp;</p> <p>The performance of the fund can be easily gauged on how the fund performed over the last six months—a time when markets were at its volatile best. As on August 17, the fund returns stood at 7% vis-à-vis the peer group return at -6%. The numbers are similar for a three-month and one-year periods as well, indicating significant out-performance compared to its peers.</p> <p>&nbsp;</p> <p>What also makes this fund special is the methodology the fund house uses to pick stocks which are to be a part of the portfolio. All the stocks selected by the fund manager have to be market leaders, or have a strong balance sheet, or are low-cost producer sin their area of speciality or are having an attractive valuation vis-à-vis its potential. Such an organised approach ensures that the selection remains largely on the side of the impeccable. Moreover, it is a multi-cap focused fund, thereby, not restricting itself to only large or popular names.</p> <p>&nbsp;</p> <p>If an investor wishes to partake in the India growth story and gain from the potential of the Indian economy, investing in a Focused Equity Fund like ICICI Prudential Focused Equity Fund can be a good starting point.</p> <p>&nbsp;</p> <p><b>Author is consultant at Nila Investment &amp; Services.</b></p> Fri Aug 21 12:06:33 IST 2020 trade-winds <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p>Saurabh Arora always invested in real estate. He had tried trading stocks, but burnt his fingers during the 2008 financial crisis and had stayed away ever since. The Delhiite, however, recently started buying blue chip stocks. At a time when the economy has taken a knock from the Covid-19 pandemic, what made Arora take the plunge once again?</p> <p>“I have followed stock markets for some time and done a lot of reading,” he said. “Now I am buying stocks that I am confident will ride the crisis and do well in the long term.”</p> <p>Some 500km away from Delhi, in Kota, Rajasthan, medical practitioner M.S. Suri, 65, also has been learning the tricks of the trade in equity investing. At an age when most people would be content with bank deposits or debt funds, Suri is waiting patiently for the markets to correct themselves and then buy again. “Earlier, I was also a conservative investor,” he said. “But now I have changed the strategy after I got in touch with financial advisers. Buying stocks has become a hobby for me. I sold some recently, and I am now waiting for a correction so that I can re-enter and invest in pharmaceuticals, an area I understand well, as well as consumer goods and good quality infrastructure companies.”</p> <p>Typically traditional investors, Indians always considered equity markets risky, and therefore parked their money in bank deposits or other fixed interest bearing instruments like small savings certificates and public provident fund. Buying real estate and gold were other preferred avenues.</p> <p>That, however, is changing, as many of them have woken up in the past few years to the advantages of systematically investing in mutual funds. Now they are venturing into the capital market and buying stocks. The number of people opening demat accounts and starting trading in equity has steadily been growing. That number jumped a few notches up since the stocks crashed in March and the pandemic forced people to stay at home.</p> <p>The average daily turnover of stock exchanges in June was Rs61,395 crore, a 69 per cent jump from the average daily turnover of Rs36,432 crore recorded in the year that ended in March 2020.</p> <p>Nithin Kamath, cofounder and CEO of Zerodha, India’s largest online stock broking firm, said it was adding 70,000 to one lakh new customers a month even before the pandemic struck. In the past few months, it added 1.5 lakh to two lakh new customers a month. Upstox, another online broking firm, has seen its customer base jump from one lakh to 10 lakh in two years. Ravi Kumar, its cofounder and CEO, said it hoped to double that in the next six months.</p> <p>The growth is not restricted to online brokerages. Motilal Oswal Financial Services is now averaging around 5.5 lakh account openings a month. Angel Broking has recorded its highest monthly client additions, about a lakh, since the lockdown started.</p> <p>Ajay Menon, CEO of broking and distribution division of Motilal Oswal Financial Services, said a large number of clients who open accounts are first-time investors and many of them are coming from tier II and tier III towns.</p> <p>These first-time investors, interestingly, are confidently venturing into the derivatives market and options strategies. Volumes in the derivatives segment rose 22 per cent year-on-year in June. “Motilal Oswal has seen strong momentum in account opening and market share gains across cash, derivative and advisory products,” said Menon. “We think this trend may continue as clients have got hooked onto digital platforms, the corporate sector is looking more confident of the revival and global markets have rebounded, wiping out the entire loss post Covid.”</p> <p>A big reason behind the growing interest in stocks is the fall in interest rates. Interest rates have been reduced all over the world as central banks and governments have pumped in money in the form of stimulus measures. In India, the interest rate at which the Reserve Bank lends to banks (repo) is 4 per cent, the lowest in two decades.</p> <p>This has in turn led to lenders slashing their deposit rates. State Bank of India is now paying an interest rate of just 2.7 per cent on its savings bank deposit accounts, and the highest term deposit rate for general public is 5.4 per cent. HDFC Bank is paying 3 per cent interest on savings deposits up to 150 lakh and fixed deposit rates max out at 5.50 per cent. “Falling interest rates on savings raise the attractiveness of equities,” said Dhiraj Relli, MD and CEO of HDFC Securities. As a large number of people have been working from home in the past few months, many of them are dabbling in equities during their spare time and see it as an additional source of income.</p> <p>“The Indian customer is an intelligent individual and will move money where he sees the best return,” said Ravi Kumar. “When other asset classes are not doing well, it makes more sense to invest in equity market, where returns in the longer period have shown to be better.”</p> <p>In the last decade, Indians invested heavily in property. In the recent years, however, especially after demonetisation, the residential real estate market has been subdued. According to consulting firm Knight Frank, between January and June, house sales in India’s top eight cities halved to 59,538 units, a ten-year low. “A lot of people realised that all of a sudden they couldn’t sell their gold or land quickly in this environment to meet their short-term financial needs and that they should be keeping their savings instead in financial assets, which are more liquid and you could have access to money on a rainy day,” said Kumar.</p> <p>The emergence of new platforms makes it easy to buy stocks listed not just in India, but also the blue chip companies listed globally. Upstox, for instance, is launching global investing on its platform that will allow buying stocks from 60 exchanges.</p> <p>As the stocks started looking attractive when the equity markets crashed in March, there was a huge inflow of investors. In the same period, major economies rolled out trillions of dollars in stimuli. The surge in retail investments on the one hand, and the huge stimuli on the other, have led to one of the fastest rebound in equity markets. The Sensex almost touched the 38,500 levels on July 28, just four months after it hit a low of 25,638.90 on March 24.</p> <p>The biggest question, however, is how long will this rally last, given that the pandemic is showing no signs of subduing and several sectors remain badly impacted. While the rating agency Fitch expects India’s GDP to contract 5 per cent this year, another agency, Nomura, sees the economy shrinking by 6.1 per cent. Given this uncertainty, should investors continue to pour money into equities?</p> <p>Avinash Gorakshakar, director, research, at ProfitMart Securities, said the markets were not looking at the fundamentals at all and the rally was purely liquidity driven. “The central banks are driving the markets. As long as there is going to be an easy money policy, a lot of liquidity will come into the markets and will chase equities from emerging markets.”</p> <p>If investors want to continue investing directly in equity, then choosing the right stocks is crucial at all times; more so when overall economic uncertainties persist. “There is no better wealth creation tool than equity. But, never compromise on quality,” said Anant Laddha, a certified financial planner and founder of advisory platform Invest Aaj for Kal. “You should always go for growth stocks, focus on fundamentals and not just look out for stocks that are cheaply available.”</p> <p>But, many investors are splurging cash on penny stocks hoping to make a quick buck. For instance, shares of a bankrupt telecom company have soared 350 per cent since June 1. “This is a trading market, where everybody just wants to play the<br> momentum. There are many companies, which have poor balance sheets, no corporate governance. There are a category of investors who are willing to take the extra risk. But, once a fall comes, these will be the first ones to get destroyed,” warned Gorakshakar.</p> <p>There are worries ahead. The RBI’s Financial Stability Report has warned that gross non-performing assets could surge to 12.5 per cent by&nbsp;March 2021 from 8.5 per cent in March 2020. Several sectors like airlines, retail and infrastructure have been hit hard and there are no turnaround signs yet. Public sector banks may also need another round of government recapitalisation given the pressure on their balance sheets. Even large companies, like Maruti Suzuki, reported a loss in the June quarter. “At the current valuations, you have to be very selective,” said Gorakshakar. “I don’t think today is the time that you can go out and buy confidently.”</p> Thu Aug 13 17:54:57 IST 2020 current-situation-is-accelerating-shift-to-digital-business-models <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p>New Jersey-based Cognizant Technology Solutions is one of the largest IT services companies in India. After a decade of rapid growth, the company underwent large scale restructuring recently. The company had a dream run under CEO and co-founder Francisco D’Souza, from whom Brian Humphries took over last year. In the short period at the wheel, Humphries has focused on giving the company a strategic direction. In an exclusive interaction with THE WEEK, he talked about the restructuring and the growth challenges. Excerpts:</p> <p>Q/There have been several high profile exits from Cognizant of late.</p> <p>&nbsp;</p> <p>A/We are focused on returning Cognizant to its position as the IT services industry bellwether. To achieve this, we need a combination of Cognizant veterans and newcomers who can bring in fresh perspectives to our business. That is why I have sought to create a senior leadership team that balances internal promotions with external hires. We decided recently to hire a more senior Indian MD who will join our executive committee. A comprehensive search is under way, and it has seen a lot of interest.</p> <p>&nbsp;</p> <p><b>Q/What kind of challenges does Cognizant see in the current business scenario and how do you see things shaping up in the future?</b></p> <p>&nbsp;</p> <p>A/We are confident that our industry, geographic and customer segment mix, strong balance sheet, momentum in our digital imperatives, and growing competitiveness allow us to compete well on a relative basis, regardless of the macro environment. While there are certainly demand challenges in some sectors such as travel and hospitality, we believe that the current situation is leading customers to accelerate their shift to digital business models. This secular trend plays directly into our strategy around our four digital imperatives. Companies that proactively manage this crisis will emerge stronger than those that assume an eventual return to business as usual.</p> <p>&nbsp;</p> <p><b>Q/Cognizant has been witnessing growth challenges for quite some time. What are you doing to fix it?</b></p> <p>&nbsp;</p> <p>A/We are gaining commercial momentum. This is illustrated by our bookings trends, which grew 14 per cent year-over-year in the first half of 2020. North America, which grew more than 25 per cent in the first half, is particularly strong. This momentum speaks to how well clients have embraced our strategy and have responded to our renewed sense of client centricity. It also (illustrates) how our executives and their teams have embraced our focus on growth.</p> <p>&nbsp;</p> <p>At the same time, we are making noteworthy progress in the digital space with revenue up by 14 per cent in Q2, and 1H 2020 digital bookings up almost 50 per cent year-over-year. Digital is now 42 per cent of our mix. This becomes a virtuous circle as the greater our digital mix, the greater our overall company growth prospects. As digital reshapes business landscapes and competitive environments, Cognizant is focused squarely on four key areas where we believe we have industry leading capabilities, deep industry knowledge and the best global service delivery teams. These are cloud, digital engineering, internet of things, and artificial intelligence and analytics.</p> <p>&nbsp;</p> <p><b>Q/How does Cognizant intend to grow—organically or inorganically?</b></p> <p>&nbsp;</p> <p>A/Our growth strategy has two parts. First, we are protecting and optimising our core portfolio, which includes increasing efficiency, tooling and automation and delivery optimisation, protection of renewals, strengthening our industry alignment, and scaling our international footprint. And second, we are building leadership positions in the four key digital imperatives I had mentioned earlier. We are investing aggressively in these areas. And as we do so, we expect to accelerate our revenue growth. The two parts of our strategy reinforce each other. It is our core portfolio that has built our strength in the market and that historical strength means that we know how to help clients transition from managing their current legacy state to enabling their digital future.</p> <p>&nbsp;</p> <p><b>Q/What has been your approach while hiring local people in overseas markets, particularly in the US?</b></p> <p>&nbsp;</p> <p>A/North America is 75 per cent of Cognizant’s revenue and we have a momentum in the region, with bookings up by 27 per cent in 2020. Our customers expect us to have diversity and inclusion in our workforce to represent society at large. As a global company, we are committed to hiring in all geographies. We are building a global delivery network with centres throughout the world that will complement India, which will always remain our major delivery centre and is home to our two lakh talented and engaged colleagues. Building a global delivery network is important because we need to better reflect today’s world of agile development, where solutions are created in a rapid, iterative and flexible manner by having more near-shore and onshore skills, more automation and greater access to talent.</p> <p>&nbsp;</p> <p><b>Q/What about campus hiring?</b></p> <p>&nbsp;</p> <p>A/We plan to hire 20,000 new graduates in India this year and have strong relationships with major Indian universities. We are also investing in upskilling and reskilling tens of thousands of our employees in newer digital technologies where we are seeing demand above industry averages.</p> Fri Aug 07 10:45:55 IST 2020 peace-and-perseverance <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p><b>SHOULD I STOP</b> investing in ongoing Systematic Investment Plans? I am ready to invest, but where should I put my money? I have lost my job; is there an order in which I should liquidate my assets? The rain of questions during THE WEEK-Aditya Birla Sun Life Mutual Fund webinar series highlighted two things: investors are worried, and hungry for credible information.</p> <p>&nbsp;</p> <p>The tumult in the bourse, the uncertainties of the job market and the worldwide health scare have all contributed to this feeling of deep unease. The webinars were launched against this backdrop, to reassure investors and to fill the knowledge gap. From a purely financial theme, the series quickly widened its scope to include well-being, too.</p> <p>&nbsp;</p> <p>Financial speakers on the series were K.S. Rao, who heads the investor education and distribution development wing of Aditya Birla Sun Life AMC Ltd; Gaurav Mashruwala, author, expert on yogic wealth and founder of financial planning firm ACE; Amit Trivedi, author, trainer and founder of Karmayog Knowledge Academy; and Dhirendra Kumar, founder of financial advisory firm Value Research. To this galaxy of financial gurus, the last two episodes added two sought-after motivational speakers: Gaur Gopal Das of ISKCON and Dr Hansaji J. Yogendra, director of The Yoga Institute, Mumbai. Yogendra’s session also had a virtual yoga class by Varsha Gala, a certified yoga practitioner and PhD research scholar.</p> <p>&nbsp;</p> <p>As a seasoned investor educator, Rao says, “Often, what affects an investor the most is not the fluctuations in the market, but the fluctuations of his own mind. Unless one invests holistically and harmoniously, the rewards can be elusive.” He cannot stress enough the fact that an “informed investor is a protected investor”.</p> <p>&nbsp;</p> <p>A master of plain speak, Mashruwala says that one question often asked by investors is, “How big should my corpus be for me to retire?” His answer: “I tell them that they can never retire. You are basing your retirement on a number. And you arrived at that number after considering variables. What happens when these variables change? Change is constant. Hence, you can never retire.” As with many things in life, retirement, too, is a decision that must be based on multiple factors. In fact, the upcoming webinar is exclusively on retirement planning.</p> <p>&nbsp;</p> <p>Mashruwala also spoke at length on yogic wealth and said that it was based on three kinds of riches—social, physical and financial. “It is like a three-legged stool,” he said. “Many investors do not realise that their wealth is incomplete if one of the legs is missing.”</p> <p>&nbsp;</p> <p>Emphasising the need to remain calm in these uncertain times, Gaur Gopal Das, popularly known as Prabhuji, said that while “worry does not rob tomorrow of its sorrows, it certainly does rob today of its joy”. A former engineer with HP, he quoted from the scriptures and corporate case studies with equal ease. The quote that stayed with listeners much after his session was one by American writer William H. Johnsen: “If it is to be, it is up to me.”</p> <p>&nbsp;</p> <p>The graceful Yogendra told viewers that she had a free tool to help them make decisions calmly. “Pranayam,” she said. “Pran is bio-energy and ayam is management. Manage your breathing and your body will come into balance. Your thoughts will soon follow.”</p> <p>&nbsp;</p> <p>There were hilarious moments like the time a young investor asked Trivedi if this was the right time to invest. Trivedi had a grin and a question for him: “Why do you want to invest at all?” He elaborated that all investments must be tied to goals. One does not invest or stop investing because the market is down. One can certainly re-look one’s portfolio, Trivedi said, but that is a rational process and not a knee-jerk reaction.</p> <p>&nbsp;</p> <p>Kumar’s thoughts were in line with other panellists’. A simple habit every investor must follow is to write down his plan and stick to it, said Kumar. “You decide you will invest when the market is down by 10 per cent. When it touches that mark, you will wait for it to go down further,” he said. “However, if you write down your decision, you are more likely to carry it out. It is a promise to yourself.”</p> <p>&nbsp;</p> <p>All panellists agreed that these are unprecedented times and that new rules will be in place going forward. This was reflected in a recent tweet by Kumar. It was the photo of a mug with the abbreviation EBITDAC. The abbreviation minus the C is known—earnings before interest, taxes, depreciation, and amortization. C for coronavirus.</p> Fri Aug 07 10:43:09 IST 2020 what-we-expected-to-happen-in-three-years-happened-in-three-months <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p>India-born Rajesh Subramaniam started his career in FedEx as an entry level marketing analyst 29 years ago. He rose through the ranks to become president and chief operating officer of the courier behemoth last year. In an exclusive interview with THE WEEK, Subramaniam talks about his company’s strategy during the pandemic, its prospects and his early life in Kerala and Mumbai. Excerpts:</p> <p>&nbsp;</p> <p><b>Q/ The past few months must have been challenging for FedEx. How did you deal with it?</b></p> <p>A/ Currently, we have found ourselves on the frontline of the war against pandemic, with more than five lakh employees delivering aid and medical supplies across the globe and keeping commerce in motion. Our organisation has helped transport 31.8 kilotonnes of PPE kits since February 1, including over 1 billion masks, across the globe. At the same time, we have orchestrated more than 100 chartered flights and 1,000 ocean containers to supply critical PPE kits. We have also facilitated the transport of more than 7,300 humanitarian aid shipments globally through collaborations with our non-profit partners. At the same time, we have continued to see a significant surge in e-commerce shipments as people stay at home and order online.</p> <p>Our strategy was built for this growth. We were skating to where the puck was going, but instead, the puck came to us. What we expected to happen in the next three years happened in a matter of three months. We are also reimagining FedEx at the intersection of physical and digital networks. We are also excited about our recently announced alliance with Microsoft to leverage data and technology to add value.</p> <p><b>Q/ What kind of changes have you made in the style of functioning at FedEx?</b></p> <p>A/ I believe in three roles of the leader—vision, team, and execution. It is critical to establish the vision, and make sure we have the right team in place to take the vision forward and execute it. I am also highly focused on a culture fuelled by collaboration and teamwork. I believe we are stronger together, and the best ideas and results come when we share ideas and work together across the company.</p> <p><b>Q/ What have you learnt from the chairman and founder of FedEx, Fred Smith?</b></p> <p>Within a few months of joining the company, I had the opportunity of meeting our chairman and founder, Fred Smith. He spoke to a small group about his vision for the future of FedEx, particularly regarding international expansion. He is an inspiring leader, and his vision, which was well ahead of its time, got me hooked. I was lucky to be part of the conversation that early in my career, and I immediately knew I wanted to be part of the global growth.</p> <p>Five years after that meeting, I was working in management at the FedEx headquarters in Memphis. I got an opportunity to go to Hong Kong to be part of our Asia Pacific division as the managing director of marketing. It was a calculated risk, but it was a unique opportunity to be part of the FedEx growth story in Asia. I learned a lot—it was like running a small business inside of a big business. The scope of the job was vast, as I was responsible for many aspects of the business. This was a pivotal part of my career, and to this day, I credit my seven years spent in Hong Kong as the single biggest move that helped me both personally and professionally.</p> <p>I was promoted while in Asia, and then the next opportunity was to be the president of our operations in Canada. My time spent in Canada was again an experience I will never forget. There is true learning as you move from a staff function, in my case marketing, to then run as a general manager of operations, for the whole company in Canada. When I first moved to Canada I visited the stations and met with our frontline couriers at 5:30am. I quickly learnt that they were dealing with different issues, and it became evident how vital communications was to the role. Then, an opportunity came to be part of a reality TV show the Big Switcheroo in Canada. (CBC TV). I swapped jobs with somebody from the frontline for a week, and it all played out on reality TV. I learnt a great deal from my time in Canada, the biggest of which was that at the end of the day, the FedEx business is a people business. We can talk about customer experience all we want, but at the end of the day, it is people interacting with people.</p> <p><b>Q/ You studied chemical engineering. How did the transition to FedEx happen?</b></p> <p>A/ When growing up in India studying maths, physics and chemistry, you are on a straight and narrow path. If you do reasonably well at the IIT, then you are likely to get a scholarship to go to the US. That was my case. I arrived in the US with a $2 bill in my pocket, which I still have, to attend Syracuse University for my master’s. It was only after that point that I began to think ‘is this a career I want to be in, or do I want to broaden myself and go into the world of business?’ It quickly dawned on me that I needed to be thinking broader, that I needed to look for opportunities outside of engineering. I figured the logical path to take would be to get an MBA. I found the cheapest of the top 20 schools I could go to—the University of Texas in Austin.</p> <p>I graduated in 1991 when the US was in the middle of a recession. Jobs were very tough to come by, especially for somebody like me who did not have a green card. I had been through several interviews and many times I was asked about my green card. So when I walked into my interview with FedEx, I didn’t say good morning or even hello. Instead, I walked in and right off the bat told them I did not have a green card and did not want to waste their time if that was going to be an issue. They looked at me, baffled, and said, “Son, let’s first figure out whether you have what it takes to work at FedEx, then we will worry about the paperwork”. I was hired as an entry-level associate marketing analyst.</p> <p><b>Q/ How were your growing-up years in India?</b></p> <p>A/ I was born in Thiruvanantha-puram and it was a simple way of life focused on education. My father retired as DGP of Kerala and my mother a doctor. From the beginning I had a big focus on sports. My father is an ace sportsman, and sports have been our passion. I played everything, but focused primarily on cricket and badminton. At age 15, after my education at the Loyola School in Thiruvananthapuram, my father thought that it was prudent for me to move on to Mumbai. Overnight I moved from a nice, comfortable house in Thiruvananthapuram to a 200-square-foot apartment in the middle of a teeming city. Honestly speaking, I enjoyed my time in Mumbai. This change was made very quickly, so the ability to adapt to change and thrive in new circumstances was instilled in me at a very young age.</p> <p>I was also fortunate to be selected to IIT Bombay. It was a fantastic experience of four years with wonderful colleagues who remain lifelong friends. My biggest learning from IIT Bombay was how to compete in a tough environment. I also learned how to be logical, analytical and strategic. While I studied chemical engineering, I do think these core skills were instilled in me for the rest of my life.</p> <p>My wife, Uma, who is an IIM Ahmedabad graduate, was at FedEx in the early 90s. When we moved to Hong Kong, we decided that one of us had to take the back seat. It could have easily been the other way, and she would have been more successful than me. We have two children whom we are very proud of.&nbsp;</p> Sat Aug 01 18:01:27 IST 2020 the-great-wall-of-india <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p>It seemed like a detail so small that scant attention was paid to it. Amid a long list of proposals, reforms, wish lists and tax and duty rejigs in Nirmala Sitharaman’s last budget presentation, there was an innocuous item—customs duty on toys, tricycles, dolls and scale models imported into India was sought to be hiked from 20 per cent to 60 per cent.</p> <p>It was one of the first salvos India had fired against China in what has now become a trade war, though it took a while for many to realise the significance. The Indian toy market, worth Rs1.12 lakh crore, had been flooded by Chinese products. Additionally, the government started enforcing high BIS quality standards on all toy imports, even while offering subsidies and land at concessional rates to Indian toy makers.</p> <p>China’s deep involvement in India’s business scape goes beyond the usually-talked-about trade deficit, the dominance of Chinese majors in India’s telecom sector and the dragon’s deep coffers fuelling India’s startup success stories. “Chinese business presence in India is huge,”said trade economist Anusree Paul. “There are more than 75 companies in e-commerce, fintech, aggregation services and logistics.” The total Chinese money invested in India is around 06 lakh crore, spawning 1.87 lakh jobs.</p> <p>While Chinese tech and telecom brands like Xiaomi, Oppo and Vivo are household names in India, names like Sany, Dezan Shira or Benling are unlikely to ring a bell. Yet, these are the flag-bearers of the Chinese juggernaut in India. “Apps and mobile handset makers apart, China’s ‘smart’investment has been in garnering the lucrative B2B contracts and infrastructure projects from India,”said a government official who did not wish to be named. “The public may not be familiar with these brands, but that is where big bucks and deep inroads can be made.”Sany, for instance, is among the world’s biggest concrete machinery makers and it has six units in India, with the main manufacturing plant in Chakan, Pune.</p> <p>Chinese investments in metals and renewable energy sectors are more than Rs55,000 crore each, way above telecom and auto sectors that get talked about more. “Manufacturing generated the highest number of total jobs and greatest investment, with a total of 1.46 lakh jobs and $22 billion dollars of investment,” said a report by fDi for CII. “Electricity and construction have the largest project size on average in terms of investment and jobs creation.”</p> <p>Interestingly, even while improving its technological prowess with research labs like those of Huawei in Bengaluru, China has also been following a two-pronged strategy to make the maximum out of the Indian ecosystem. One, using their experience in executing cost-effective and big-scale construction, these firms bid for big government infrastructure projects. And two, making long-term investments in sunrise sectors like electric vehicles and solar/wind energy projects.</p> <p>A paper by Brookings Institute (March 2020) says Chinese companies like Lany, Longi and CETC aim to invest $3.2 billion dollars in India’s renewable energy sector. Chinese automakers in India have lined up EVs. Ironically, two out of three memoranda of understanding that Maharashtra signed with Chinese companies on the very day of the Galwan clash involved Chinese automakers Great Wall and Photon.</p> <p>With the tide turning, that strategy may just come face to face with the great wall of India. While the ban on Chinese apps like TikTok made headlines, even more significant were the restrictions India brought about on Chinese companies in the infrastructure and heavy industries area. The Maharashtra MoUs were the first to be put on hold, along with the Rs471-crore signalling work on the Kanpur-DDU railway line given to Beijing National Railway Research.</p> <p>Nitin Gadkari, Union minister for transport and MSME, also banned Chinese firms from road construction, saying he will tweak norms. “Construction norms are not good, so I have asked to change it…so we can encourage Indian contractors,” he said. With Rs100 lakh crore set to be invested in constructing roads, it is a blow to Chinese business interests.</p> <p>The power ministry has announced a ban on power equipment sourced from Chinese companies besides cancelling an order for 20 lakh smart meters. The state-run telecom operator BSNL was forced to put on hold its Rs8,697 crore 4G tender, when the Telecom Export Promotion Council alleged that it ignored ‘Make in India’ norms to favour foreign (read Chinese) companies. NITI-Aayog also pitched in, suggesting that BSNL rework its tender to use only India-made equipment. TRAI chairman R.S. Sharma put in his own bit by saying local telecom gear makers must be given preferential market access.</p> <p>The trick with these piecemeal responses, which were followed by a sweeping order on July 23 limiting Chinese companies from bagging government contracts and making security clearance from the home and external affairs ministries mandatory, seem to be to get the economic boycott message across loud and clear, even while keeping India immune from accusations of targeting China or contravening the World Trade Organisation norms. That is why none of the government decisions mentions China directly. An order in April banning automatic FDI, as well as the end-July amendment on government orders, speak only of countries India shares land border with, while the ban on power equipment says it is applicable to ‘prior reference countries.’ Even the 100 per cent inspection of Chinese shipments at Indian ports was carried out without any written order.</p> <p>The biggest lacunae in India’s strategy, however, is that the balance of trade is heavily lopsided in China’s favour. Even if India stops all imports from China, it just forms 3 per cent of the total exports of the People’s Republic. In contrast, 14 per cent of the materials India imports are from China, including crucial raw materials on which India’s pharmaceutical industry is dependent, and components for anything from electronic products to mobile phones and automobiles made in India.</p> <p>The bigger question is if Indian industry will give up Chinese imports and raw material that give them immense cost advantage. JSW Group chairman and managing director Sajjan Jindal announced that his company would bring down its $400 million import of clinkers, the base rock for manufacturing cement, from China down to zero in two years. A few others also have made similar statements.</p> <p>“We have faltered as a country by going for the ‘cheapest’ as the only criteria,” said Vinod Sharma, managing director of Deki Electronics. “That is not very strategic. We have to always be careful not to put all our eggs in one basket.”His game plan? Work towards an alternative over the next 18-24 months, with the government providing incentives ranging from ‘star rating’to GST rebates for companies going for increased localisation.</p> <p>Mukesh Aghi, CEO and president of the US-India Strategic Partnership Forum concurred. “You have to divert from China,”he said. “There is no other option. We have to move from cheap goods to quality goods. It is not just cost that should define your process. Look at it strategically. Let us say your profit goes down 5-7 per cent, it is still worthwhile. Once you do that, you will find ways to innovate, to become efficient and competitive.”</p> <p>However, knee-jerk responses like slowing down imports from China at Indian ports only seem to have boomeranged. “That, and measures like cancelling MoUs, only make us lose credibility when we go back on our word,” said Chandrakant Salunkhe, president of the India China Business Council. “We support any move in our national interest, but it should be systematic. Let China learn the lesson from our strong points.”</p> <p>India knows well the limits of its economic muscle, and is hoping for a strategic leverage. But the developments could mark a turning point in India’s trade plans. “We must move in mission mode to be <i>atma nirbhar</i> in at least 15 critical sectors,” said Deepak Sood, secretary general of Assocham. “We should work on a twin track of not only investing more to ramp up capacity, but also ensuring that the end consumers get best quality products at internationally competitive prices.” Assocham has come up with a two-year roadmap to ramp up domestic capacity in 15 large import items, ranging from oil and electronics to steel.</p> <p>The move to reduce dependency on China could be significant in a post-Covid-19 world order. “India will have to muscle its way onto the high table,” said Aghi, “and make sure it does not instead end up being part of the menu.”&nbsp;</p> Thu Jul 30 16:04:37 IST 2020 xi-jinping-sees-breaking-up-india-to-be-of-great-benefit <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p><b>Q/ Where is the US-China technology war headed?</b></p> <p>A/ The winner of the US-China tech war will dominate our era. Beijing was not considered a tech contender a decade ago. Now, some call it a leader. America is already behind in critical areas. Focused on other matters, Americans did not mobilise themselves to meet Beijing’s challenges. Now, the Trump administration is thinking of how to get back control of cutting-edge technologies. Just look at how the US is now going after Huawei Technologies. At the beginning of the year, Huawei looked like it was going to dominate 5G. Now the company is in retreat in the world’s most important markets.</p> <p><b>Q/ How should India respond to Chinese aggression—military versus economic costs?</b></p> <p>A/ India needs to put more forces on its border than China has. Ultimately, however, it will be economic pressure that forces the Chinese military to pull back. Boycott of Chinese goods, banning of China’s apps, removal of Huawei equipment from India’s telecom backbone, ejection of Chinese businesses and the like will pressure China to return to its side of the border for good. India must teach China a lesson it will never forget.</p> <p>The costs imposed on China must be greater than the benefits Beijing believes it obtains with its hostile conduct. Because Xi sees breaking up India to be of great benefit, New Delhi—and the Indian people—must be willing to impose severe measures on him and his dangerous regime. India’s only option is to be strong. If it is not strong now, China will dismember India. India is in the same position as the rest of the world when it comes to China. India cannot think it can escape decades of misguided policy towards Beijing without cost.</p> <p><b>Q/ How has the Covid-19 pandemic impacted China’s relations with the rest of the world?</b></p> <p>A/ An arrogant Xi Jinping, who has always believed his China should dominate the world, saw an opportunity during the coronavirus pandemic to extend Chinese influence while countries were stricken by and preoccupied with the disease. China’s generals thought they would catch the Indian Army snoozing on the border.</p> <p><b>Q/ Is China overtaking a declining US?</b></p> <p>A/ No. China has reached the limits of what it can do. There is wide disagreement on why China has gone full “wolf warrior”, as it is called. Some believe China went on this bender because Xi thought China was strong, and others argue he did so because he thought his regime weak. I am in the latter camp. I think Xi saw a closing window of opportunity. The arrogant leader knew China’s economy was stumbling, the environment was giving out, the Chinese people were restless, and the country’s demography was entering a long period of accelerating decline.</p> <p>India is of particular concern for Xi. The Chinese people take great pride in being the world’s most populous tribe, and he knew that India was just about to overtake his country in population size. Xi could see that demographic trends, which he could do nothing about, would mean India would soon leave China in the dust. For Xi, it was now or never, the last moment to humble India.</p> <p><b>Q/ What does the future hold for China’s ambitions of emerging as a superpower?</b></p> <p>A/ China has reached the limits of its power, and in the ordinary course of events would be starting down a decades-long slide into weaknesses. We should, however, be aware that a declining China is still a dangerous one—perhaps even more dangerous than a strong one. Xi, presiding over a deteriorating situation, now has all the reason in the world to lash out, especially because he has seen that Chinese intimidation has worked in the past. If India stands its ground, it will prevail.&nbsp;</p> Thu Jul 30 15:59:38 IST 2020