Business en Fri Apr 29 17:36:20 IST 2022 what-zomatos-10-minute-food-delivery-model-means-for-quick-commerce-sector <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p><b>PUTTING THE ‘FAST’</b> in fast food is the flavour of the season. Recently, food aggregator giant Zomato launched a 10-minute food delivery service. For now, it is confined to Zomato’s affluent home base of Gurugram, but it plans to scale it to other cities soon.</p> <p>&nbsp;</p> <p>“Nobody in the world has so far delivered hot and fresh food in under 10 minutes at scale and we were eager to be the first to create this category, globally,” said Deepinder Goyal, cofounder &amp; CEO of Zomato.</p> <p>&nbsp;</p> <p>The move to inject the white-hot business model of quick commerce into food delivery seems to have shaken up India’s burgeoning e-commerce space. Delivery of grocery and essential items within 10 minutes or so is already a thing, pioneered by startups like Zepto and Blinkit (formerly Grofers) and also by the likes of Reliance’s JioMart and Tata-owned bigbasket. Meanwhile, Zomato’s rival Swiggy, which already has a thriving instant grocery delivery model, is reportedly planning to extend it to food as well. And, Bhavish Aggarwal has also turned his attention to the model with Ola Dash.</p> <p>&nbsp;</p> <p>But as one analyst quipped: are we counting our chicken biryanis even before the eggs are hatched?</p> <p>&nbsp;</p> <p>“Is there a demand for food delivered within 10 minutes? I don’t think thousands of people wrote in saying that if you don’t deliver in 10 minutes, we will stop ordering,” said Rashmi Daga, founder of cloud kitchen chain FreshMenu. “Consumers need to be educated on the costs associated with demanding speed. We are just creating undue pressure on everyone around us.”</p> <p>&nbsp;</p> <p>When Goyal announced Zomato’s 10-minute delivery model in a blog in March, it was criticised for putting delivery agents under undue stress and causing traffic problems.</p> <p>&nbsp;</p> <p>“I will seriously question the quality of such food that can be cooked, packaged and delivered in 10 minutes, anybody would as well,” said restaurateur Rachel Goenka, head of the Mumbai chapter of the National Restaurant Association of India.</p> <p>&nbsp;</p> <p>Goyal was obviously prepared for such reactions, and clarified, “We do not put pressure on the delivery partners to deliver food faster, nor do we penalise [them] for late deliveries. Time optimisation does not happen on the road, and does not put any lives at risk. The 30-minute average delivery time [presently] is too slow, and will soon have to become obsolete. If we don’t make it obsolete, someone else will.”</p> <p>&nbsp;</p> <p>Therein lies a clue. The pandemic provided a growth opportunity like never before. But despite orders shooting up and commission rates varying between 18 per cent and 30 per cent, food aggregators soon realised that after the deep discounts, delivery costs and average low order value (less than Rs500), there was not much money to be made.</p> <p>&nbsp;</p> <p>Enter quick commerce, as a value-add to incremental business. It is no coincidence that Zomato’s recent acquisition of Blinkit, a quick delivery platform for groceries, preceded the 10-minute food delivery announcement. Also, it had noticed Swiggy dashing past it in revenue in recent years after going beyond food delivery with InstaMart (essential items delivery) and Genie (courier).</p> <p>&nbsp;</p> <p>“There is massive growth for quick commerce due to online penetration, and the multifold growth witnessed across tier 2 and tier 3 cities,” said Harsha Razdan, national leader (consumer markets, life sciences and internet business), KPMG in India. “Given the thin margins on deliveries, it is important for quick commerce companies to understand the complexity of operations and work on core levers driving efficiencies to be able to maximise benefits and provide timely, quality deliveries.”</p> <p>&nbsp;</p> <p>Contrary to popular belief that a 10-minute delivery model involves food being re-heated or cooked quickly and sent out with delivery boys in a rush, the way it works is quite different. It involves targeting what companies call “high demand neighbourhoods”, essentially places with apartment complexes or affluent customers who order frequently as per their records, and setting up finishing stations in partnership with restaurants. Only selected dishes are offered in the 10-minute window, depending on popularity and possibilities of standardisation—a sandwich is easy to standardise, a lamb raan, not easily so.</p> <p>&nbsp;</p> <p>Technology comes into play in a major way here, ranging from robotic machines like that of Bengaluru’s Mukunda Foods that can make anything from dosa to momos faster to data sets ranging from predictive analysis to logistics planning used to maximise efficiency and cut the time taken. “[Having] finishing stations 1-2km away from [the customer means] delivery partners have to travel just 3 to 6 minutes at a nominal bike speed of 15-20km. Our delivery partners actually have to travel shorter, defined routes for this,” said Rinshul Chandra, Zomato’s vice president who is leading the 10-minute food delivery project.</p> <p>&nbsp;</p> <p>Zomato obviously is hoping the 10-minute model will be a double-engine booster. The best-case scenario is that this experiment will give it a more efficient model of finishing stores and shorter delivery cycles, leading to more orders and hence more revenue. Also, along with Blinkit, it can find synergies between food delivery and grocery delivery, a bus it has missed so far where others are making hay.</p> <p>&nbsp;</p> <p>Like Zepto, founded by two Mumbai teenagers just after the pandemic and which jolted the market with its 10-minute delivery proposition. “At a time when other grocers were delivering in four-five days, we experimented with rapid deliveries—45 minutes, 30 minutes and then 10 minutes. The reaction we got from customers, retention rates and other scores just shot up post the 15-minute mark,” said founder and CEO Aadit Palicha. “People get excited with the 10-minute bit, but what really drives repeat usage is a high degree of accessibility and convenience. Ten minutes is a sort of representation of that—the reliability of it all.”</p> <p>&nbsp;</p> <p>The bigger goal with this model, however, would be to be a ‘one-stop deliverer’ for all things essential. The recent unveiling of super apps like Tata Neu and JioMart stand testimony to this.</p> <p>&nbsp;</p> <p>Yet, for a country where the quickest food option for long was getting pizza at ‘30 minutes or free’, the new offering has a chance to upend many habits. A recent RedSeer report said India is ahead of other leading markets (including China) when it comes to quick commerce adoption, and it could be a market worth more than Rs4 lakh crore in three years time.</p> <p>&nbsp;</p> <p>Fast or slow, the proof of the pudding is finally in the eating.</p> Sun May 01 13:02:33 IST 2022 10-minute-delivery-will-eventually-lead-to-reduction-in-prices-rinshul-chandra-of-zomato <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p><b>How did Zomato hit on 'Instant', the 10-minute food delivery model?</b>&nbsp;<br> Customers are increasingly demanding a quicker response to all their needs. Nobody wants to plan; nobody wants to wait.<br> From any tech industry standpoint, innovating and leading from the front is the only way to survive. If we had not done it, somebody else would have! So we thought, why don’t we take the lead on this? We started working on it the last couple of months.&nbsp;<br> <b></b></p> <p><b> So how does the model work?</b>&nbsp;<br> We are not bulk-buying anything from restaurant partners; they work closely with us. Let me explain the modus operandi. Food delivery has two major components—item preparation, which happens in the kitchen, and then delivery to the customer. To deliver to a customer [faster], we needed to optimise both of these legs. The quick delivery promise relies on a network of dense finishing stations, which are located in close proximity to high-demand customer neighbourhoods.&nbsp;<br> And on the preparation side, it lies with the restaurant partners. We are working with just 20 to 30 of the top-selling items, which can be standardised. Basically, we have created a supply chain and logistics and warehousing network that restaurant partners are leveraging, and we are selling these items with a hyper-local reference standpoint.&nbsp;<br> <b></b></p> <p><b> So these items are already in your finishing station and once an order comes, you re-heat it and send it across to the nearby apartment?</b>&nbsp;<br> No, that is not how it works! I will not be able to share all details with you, but I can tell you a lot of backend work goes into this. We have robust dish-level prediction algorithms and in-station robotics, which helps in ensuring that the food is high in quality and freshness.<br> <b></b></p> <p><b> So a finishing station is like a cloud kitchen?</b>&nbsp;<br> These are not kitchens. These are finishing stations; the restaurants are also involved here. They are co-owned between restaurant partners where they also come in, put in their inventory [while] we give them warehousing and supply chain logistics services. Food is prepared by the restaurants. There are a lot of demand prediction algorithms, which we have built for our traditional businesses that we are leveraging for this [and] a lot of data sciences [that] we have been able to build over the past few years.&nbsp;<br> <b></b></p> <p><b> Is an order that is delivered in 10 minutes charged extra?</b>&nbsp;<br> We are not yet charging anything extra from our customers. We expect ‘Instant’ to create a significant impact for all our customers on all our three tenets—accessibility, quality and affordability. We believe that eventually this will lead to economies of scale kicking in and reduction in end prices to customers.&nbsp;<br> <b></b></p> <p><b> The loudest complaints have been over how delivery executives will be exploited and how this could even lead to a traffic issue.</b>&nbsp;<br> Quick delivery promise lies on finishing stations, which are literally 1-2km away from you. That means our delivery partners have to travel just 3 to 6 minutes at a nominal bike speed of 15-20km. Our delivery partners actually have to travel shorter, defined routes for this!&nbsp;<br> Also, not just for ‘Instant’ but for our overall ordering business, delivery [executives] are never informed of the delivery time, so they have no pressure, no penalties or no incentive for delivering on time.&nbsp;<br> <b><br> How does this work as a business model? Does it involve extra expense? Or, does it involve cost savings?</b>&nbsp;<br> We are trying to build the future of this business. It is a long-term strategy.&nbsp;<br> <b><br> What has been the response so far?</b>&nbsp;<br> It has been more positive than we expected. Having said that, we have a long road ahead. And, we are actively working on getting more people to try out this new value proposition.&nbsp;<br> </p> Sun May 01 12:57:38 IST 2022 power-crisis-Improve-domestic-coal-availability-streamline-projects-using-imported-coal <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p><b>MANISH KHEDEKAR</b> is a software developer in Mumbai. With work from home still continuing, he made a trip to his village in the Konkan region of Maharashtra, hoping to spend some time with his family. But a crippling 12-hour power cut in the sweltering heat in his coastal village has made him think of returning quickly to Mumbai.</p> <p>&nbsp;</p> <p>Across India, especially in the country’s vast hinterlands, power cuts are not uncommon. This time around, hotter-than-normal weather in several states has led to a surge in demand for electricity, which power generation companies are barely able to keep up with.</p> <p>&nbsp;</p> <p>A shortage of coal available at power plants is a major reason behind this situation. The Maharashtra State Power Generation Company (Mahagenco) has a coal-based power generation capacity of 9,330MW. According to Shailendra Dubey, chairman of the All India Power Engineers Federation, Mahagenco’s daily coal requirement—for the full load generation, with 85 per cent plant load factor—is 1.35 to 1.40 lakh metric tonnes. Typically, each power plant must have coal stocks of around 22-25 days. But, as on April 22, coal stocks at Mahagenco’s various power plants were sufficient for just about two to six days.</p> <p>&nbsp;</p> <p>Maharashtra is not alone. Over the past five years, average coal stock at power plants was at around 17 days. This time though, the comparable figure is just around nine days.</p> <p>&nbsp;</p> <p>Thermal power plants still account for 75 per cent of electricity generation in the country. With domestic coal supply affected and price of imported coal going up because of the war in Ukraine, power generation is facing a major challenge, at a time when demand has jumped because of the unprecedented heatwave conditions.</p> <p>&nbsp;</p> <p>“The country has 173 thermal power plants of which 96 have critical coal reserves, which means about 60 per cent power plants are facing coal shortage,” said Vikram Kasat, head, advisory, at the financial services organisation Prabhudas Lilladher. He said both supply and demand factors were responsible for the current crisis.</p> <p>&nbsp;</p> <p>Electricity demand in the first 24 days of April increased by 11 per cent year-on-year. Between April 1-12, the average daily peak demand was more than 194GW. In comparison, in the January-March quarter, daily peak power demand had averaged at 187GW. At the same time, power plants that are dependent on imported coal have curtailed generation significantly. Gas prices, too, have surged.</p> <p>&nbsp;</p> <p>Given the challenges in passing on the fuel cost increase to distribution companies (discoms) under power purchase agreements, independent power producers that are dependent on imported coal and gas have reduced production. “Imported coal prices used to be around $100 per tonne, it is now ranging $300-$400 a tonne. The result is that thermal power stations, which were operating with 100 per cent of imported coal, have either stopped or reduced production,” said Dubey.</p> <p>&nbsp;</p> <p>Domestically, Coal India has increased its production and said it raised its supplies to thermal power stations by 14.2 per cent in the first half of April; supplies touched 1.64 million tonnes per day in this period, compared with 1.43 million tonnes in the same period a year ago.</p> <p>&nbsp;</p> <p>“To tide over the intense demand, Coal India has made available additional 8.75 million tonnes of coal to state and Central gencos (generating companies) for lifting through rail-cum-road mode, till May 31,” the company noted. Experts, however, say that not all of it is reaching power plants in time, shortage of railway wagons being a major issue. “As many as 453 railway rakes are required per day to transport coal from mines to power stations. Till a few days ago, only 379 rakes were available. It has now gone up to 412,” said Dubey.</p> <p>&nbsp;</p> <p>Failure of discoms to pay their dues on time is also a challenge, according to analysts. “Coal supplies have been impacted as discoms have delayed or defaulted on payments to power generation companies, which in turn, have difficulty in paying for coal supplies,” said Kasat. He said discoms owed Rs1.23 lakh crore to gencos. This coupled with high spot prices is also affecting their ability to buy power from the open market.</p> <p>&nbsp;</p> <p>Most countries are trying to increase renewable energy generation, from sources like solar, wind and hydro power. India has set a target of 500GW or 50 per cent of energy capacity to come from renewable sources by 2030. But meeting this target would require huge investments.</p> <p>&nbsp;</p> <p>“In FY 2022, capacity addition in the renewable energy sector increased to 14GW from 7.4GW in FY 2021. While the growth in capacity addition is positive, a significant scale up in annual capacity addition to over 40GW is required to meet policy targets. The investment requirement for such a large capacity addition is estimated to be over $280 billion, without considering the cost of augmenting transmission infrastructure and developing storage infrastructure,” said Vikram V., vice president and sector head–corporate ratings, ICRA Limited.</p> <p>&nbsp;</p> <p>It would also require easing the land acquisition process for renewable energy projects, augmentation of power transmission infrastructure, development of storage infrastructure for integrating renewable power with the grid and a sustainable improvement in the financial position of state distribution utilities.</p> <p>&nbsp;</p> <p>“Solar power costs roughly 02-03 per unit. But, the storage cost is about 07-08 per unit. There is work going on. Over time, the costs are expected to come down,” said Dubey. But for now, fossil fuels will remain the key to fuelling India’s energy requirements. Addressing coal supply constraints will then be crucial to resolve the brewing near-term crisis. “India has adequate installed capacity to meet the demand,” said Vikram. “Augmenting domestic coal availability and improving the utilisation of imported coal-based projects are required to address the power shortage.”</p> Sun May 01 13:03:49 IST 2022 volatile-markets-cautious-investors-force-tech-startups-to-rethink-ipo-plans <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p>Indian equity markets had a dream ride in 2021, with 63 companies going public and raising Rs1.19 lakh crore. Among them, One 97 Communications, the parent company of the fintech major Paytm, made the biggest buzz, raising Rs18,300 crore in November 2021 and overtaking state-run miner Coal India’s Rs15,199 crore IPO in 2010 as India’s biggest.</p> <p>&nbsp;</p> <p>Eight other tech startups also went public last year—beauty products e-tailer Nykaa (FSN Ecommerce), food aggregator Zomato, gaming company Nazara Technologies, travel technology company RateGain, travel platform EaseMyTrip, insurance aggregator PolicyBazaar (PB Fintech), online automotive portal CarTrade Tech and MapMyIndia (CE Infosystems). Amid an equity market euphoria fuelled by easy money policies of global central banks in the wake of the pandemic, investors lapped up the shares of these new-age companies. The issue of Nazara Tech, for instance, was subscribed as much as 175 times, EaseMyTrip 159 times and Nykaa 82 times.</p> <p>&nbsp;</p> <p>Some of them went on to touch new highs post listing. Nazara Tech share was worth Rs3,354.40 on October 11, 2021, a three-fold gain over its issue price. Nykaa and Zomato more than doubled.</p> <p>&nbsp;</p> <p>The fortunes, however, seem to have reversed in 2022. Paytm, which had set an issue price of Rs2,150, closed at Rs661.85 on April 18—a 69 per cent slump in five months. CarTrade Tech was down 61 per cent since listing, PB Fintech was down 21 per cent and RateGain had fallen 10 per cent from its issue price.</p> <p>&nbsp;</p> <p>Even those shares that hit prices higher than the issue price have seen sharp corrections. Nazaara Tech, for instance, is down 52 per cent from its peak. Zomato is down 51 per cent from its life high, PolicyBazaar has declined 47 per cent and Nykaa 29 per cent. These corrections, however, are in sync with the wider global tech stock sell-off this year.</p> <p>&nbsp;</p> <p>If 2021 was a year in which cheap money sloshed around, 2022 began with central banks tightening the screws and mopping up the excess liquidity in the system, as inflation surged to multi-decade highs. The Russian invasion of Ukraine further spoiled the mood, and foreign institutional investors rushed out of emerging markets.</p> <p>&nbsp;</p> <p>Experts, however, say the high valuations at the time of going public are equally responsible for the fall. “The India internet sector valuation commands a three times premium over global valuations, driven by its high-growth opportunity and penetration story,” said Amit Chandra of HDFC Securities.</p> <p>&nbsp;</p> <p>It is, however, expected that eventually markets will react to earnings in the larger scheme of things. “Due to the kind of valuations or future expectations that were laid out at the time of listings, the investor psyche was to just get in. The realisations started seeping through once the [earnings] numbers started coming in,” said Mayuresh Joshi, head of equity research at the stock broking firm William O’Neil.</p> <p>&nbsp;</p> <p>Paytm is a case in point. The company started in 2009 as a platform for mobile phone recharges. Over the years it expanded into mobile wallet and today it is a super app of sorts offering everything from payments and ticket booking to shopping and digital lending. The expansion has helped drive its revenues up, but profits still remain elusive. In the nine months to December 31, 2021, Paytm’s revenue from operations surged 73 per cent, from Rs1,987 crore in the same period a year ago to Rs3,433 crore. At the same time, its loss widened 30 per cent, from Rs1,256.6 crore to Rs1,633.9 crore.</p> <p>&nbsp;</p> <p>With the advent of the unified payments interface (UPI), which has made instant bank-to-bank transfer a breeze, Paytm’s mobile wallet service has become largely redundant. It also faces stiff competition in most segments it operates in. Zomato and PolicyBazaar, too, have been reporting losses despite revenue gains.</p> <p>&nbsp;</p> <p>In the past few years, India’s digital ecosystem grew dramatically, especially during the pandemic. This also resulted in intense competition. Zomato, for instance, faces stiff competition from Swiggy in the food ordering business. It is expanding into quick commerce, a segment where competition is even fiercer and outlook uncertain. PolicyBazaar, which is well placed to benefit from the rising insurance penetration, faces competition from insurers that are also scaling up digital offerings as well as digital-first insurance companies like GoDigit.</p> <p>&nbsp;</p> <p>Against this backdrop, consistency in earnings will be something investors will be closely watching out for. “A lot of these companies have to demonstrate their longevity and improve profitability,” said Kenneth Andrade, chief investment officer of Old Bridge Capital. “All of them have hit critical sizes as far as turnover is concerned. A lot of investors will be watching how they convert that opportunity and build sustainable future without external capital. Very few of them will come to the next level. We will have to give them time.”</p> <p>&nbsp;</p> <p>In the past few months, as central banks have begun tightening the purse strings, foreign institutional investors have been pulling out of equity markets in emerging markets in droves. So far in 2022, FIIs have sold close to 01.08 lakh crore in Indian equity. With liquidity getting withdrawn and inflation surging, this is a testing time for companies. “This is when better-rated companies who are able to tide over the cycles come into the picture and the others just fall by the wayside,” said Joshi.</p> <p>&nbsp;</p> <p>While some startup stocks have bounced back, the recoveries have mostly been technical. “The markets will re-rate when valuations are cheap and earnings trajectory looks lucrative. But, when the earnings visibility looks choppy, at the same time valuations are on the lower side, then the outlook looks a little bit jarred,” said Joshi.</p> <p>&nbsp;</p> <p>Amid last year’s euphoria, several companies like Delhivery, Mobikwik and PharmEasy had filed papers to go public. However, with easy money drying up and the market’s growing volatility—owing to geopolitical uncertainties and inflation worries—many of them have delayed their plans and are waiting for stability. In the first three months of 2022, there have been six IPOs that raised a total of Rs7,819.24 crore, says data from Prime Database. There were 16 IPOs in the first three months of 2021 that raised a cumulative Rs14,996 crore.</p> <p>&nbsp;</p> <p>Investors seem cautious. “There is no dearth of money for good companies,” said Avinash Gorakshakar, director (research) at Profitmart Securities. “But, where valuations are very high and profits are uncertain, people are going to be cautious. I don’t think the ‘big money’ approach people had earlier will be there. Even private equity investors will think twice and will be a little sceptical.”</p> <p>&nbsp;</p> <p>Against the backdrop of the slump in the share prices of some of the startup tech companies, market regulator Securities and Exchange Board of India floated a consultation paper earlier this year, which proposed more transparency on the pricing of IPOs. The market regulator said the new-age companies should provide details on how the IPOs were being priced, compare it with pre-IPO fund raising and publish presentations to investors before the IPO.</p> <p>&nbsp;</p> <p>Parameters like earnings per share and price-to-earnings ratio could not be applied to the new age companies, considering many of them are generally loss making.</p> <p>&nbsp;</p> <p>“It is obvious that disclosures in ‘Basis of Issue Price’ section, particularly for a loss-making company, are required to be supplemented with non-traditional parameters like key performance indicators (KPIs) and disclosure of certain additional parameters such as valuation based on past transactions/fund raising by issuer company,” said the paper.</p> <p>&nbsp;</p> <p>If these guidelines are accepted, then undoubtedly the process will become more transparent and investors will be able to make a more informed choice. At the same time, loss-making companies may not be able to garner high valuations and some may even find it difficult to go public.</p> <p>&nbsp;</p> <p><b>TROUBLED MARKET</b></p> <p>&nbsp;</p> <p><b>Many tech startups that were keen on IPOs have delayed their plans</b></p> <p>&nbsp;</p> <p><b>Delhivery</b><br> The logistics unicorn is planning to raise 15,000 crore through fresh issuance of shares and an offer for sale of Rs 2,460 crore. Got Sebi approval, but has delayed IPO.</p> <p>&nbsp;</p> <p><b>PharmEasy</b><br> Received clearance from Sebi in February, but the IPO is likely to be delayed. It was planning a 16,250 crore issue.</p> <p>&nbsp;</p> <p><b>Oyo Hotels and Homes</b><br> The hospitality unicorn is planning to raise 18,340 crore, but it might delay the IPO and reduce its issue size.</p> <p>&nbsp;</p> <p><b>Mobikwik</b><br> The payments firm received Sebi’s approval in October 2021 for its 11,900 crore IPO, but the company is waiting for the market conditions to improve.</p> Sun Apr 24 10:22:18 IST 2022 that-shrinking-feeling <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p>The price of diesel hit three figures for the first time in Maharashtra on March 30. Though it was expected, as fuel prices have been climbing steadily for a while, it seemed to have a psychological effect on goods transporters. “There are close to 20 crore people linked to the transportation industry. If costs continue to rise and they are not passed on, small operators will not be able to sustain, leading to higher unemployment,” said Bal Malkit Singh, chairman of the core committee of the All India Motor Transport Congress.</p> <p>&nbsp;</p> <p>Fuel prices had been on a freeze from November 2021 to February 2022, probably because of the assembly elections in some crucial states. But from March 21, the oil marketing companies raised petrol and diesel prices almost daily amid a global price rise of crude owing to the Russian invasion of Ukraine. “Diesel is about 65 per cent of our costs,” said Singh. “Eventually there comes a time when they become unbearable. We have been waiting and watching where this rise would stop. But, the transportation cost will go up more than 15 per cent.”</p> <p>&nbsp;</p> <p>That is bad news for everybody. The rise in transport costs will lead to a rise in the cost of everything from cars and consumer durables to groceries and vegetables. “This is a double whammy for us,” said a delivery van operator. “First we have to pay more for fuel and then we pay more for the daily necessities.”</p> <p>&nbsp;</p> <p>The price headwinds come on the heels of a broader inflationary pressure already being seen across sectors. Consumer goods companies, for instance, raised prices several times in the last few months; first because of the supply-side disruptions caused by the pandemic, and then the Russia-Ukraine conflict.</p> <p>&nbsp;</p> <p>Refined sunflower constitutes 10 per cent of India’s consumption of 240 lakh tonnes of edible oils, and Ukraine and Russia account for as much as 90 per cent of India’s annual crude sunflower oil requirement, according to ratings agency CRISIL. Palm oil prices are also on the boil, as Indonesia, a major producer, curbed exports to control domestic prices. In February, sunflower oil prices rose 4 per cent, groundnut oil gained 1 per cent and mustard oil was up 9 per cent month-on-month, according to data from retail intelligence platform Bizom. Compared with pre-pandemic levels, sunflower oil has soared 50 per cent, palm oil is up 23 per cent and soybean oil has gained 17 per cent.</p> <p>&nbsp;</p> <p>Palm oil is a key ingredient in soaps, detergents and shampoos. It is also a major ingredient in the snack foods and bakery industry. “The Russia-Ukraine crisis is seeing oil and logistics prices move up further, causing more pressure on profitability of FMCG companies. This is leading to an increase in prices of both food and non-food products that use oil as a key ingredient,” said Akshay D’Souza, chief of growth and insights at Bizom.</p> <p>&nbsp;</p> <p>In March, Hindustan Unilever, India’s largest consumer goods maker, raised prices of soaps and detergents by 3 per cent to 5 per cent. It had raised prices in February across its product portfolio. Over the past month, Amul and Mother Dairy raised the prices of milk. Prices of all food items, from coffee to cookies, have hardened.</p> <p>&nbsp;</p> <p>It is not just consumer goods companies that are feeling the pinch. Builders are worried about the steep rise in the cost of cement and steel. Power and freight comprise 50 per cent to 55 per cent of the total operating cost of the cement industry, and therefore the surge in diesel and coal prices is likely to significantly impact their earnings, said Abhishek Lodhiya, lead analyst at Yes Securities.</p> <p>&nbsp;</p> <p>Cement prices went up in many regions in the January-March quarter. In west and south India, prices were up 9 per cent from a year ago, while in central and east India, prices gained 1 per cent to 2 per cent. They may go up again if the companies try to maintain profit margins. “On every $20 per tonne increase in fuel cost, a price hike of 3 per cent to 5 per cent (Rs10-17 a bag) has become imperative to maintain EBITDA (earnings before interest, taxes, depreciation and amortisation) per tonne at third quarter levels,” said Lodhiya.</p> <p>&nbsp;</p> <p>Real estate developers say they are considering various measures to counter rising costs, including raising the prices of unsold units by 10-15 per cent. “Developers have absorbed the incremental cost for a long time and will now look at passing it on to the home buyers as they have no choice,” said Dhaval Ajmera, secretary of the industry body CREDAI-MCHI.</p> <p>&nbsp;</p> <p>The rising cost of steel, aluminium and other commodities has forced several automakers to raise their prices. Tata Motors, for instance, recently raised prices of its commercial vehicles by 2 per cent to 2.5 per cent. Toyota Kirloskar raised prices by up to 4 per cent on April 1.</p> <p>&nbsp;</p> <p>These are all adding to India’s surging inflation. Sonal Varma, MD and chief economist at Nomura, sees headline inflation continuing to breach the Reserve Bank’s comfort band of 2 per cent to 6 per cent for much of 2022 and average around 6.3 per cent year-on-year. There are also fiscal risks for India. A near doubling of global fertiliser prices may lead to a rise in the fertiliser subsidies by 0.3 per cent of the GDP over the budgeted amount, said Varma.</p> <p>&nbsp;</p> <p>“With oil sustaining above $100 per barrel and other commodity pressures remaining intact, the current account deficit to GDP ratio may touch 2.8 per cent to 3 per cent of GDP in the financial year 2022-23,” said Madhavi Arora, lead economist at Emkay Global Financial Services. “Capital account also remains tricky, implying that balance of payments may get back to a deep deficit of $45 billion in FY23 after $40 billion expected in FY22.”</p> Sun Apr 10 12:11:05 IST 2022 situation-based-investment <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p><b>INVESTORS</b> who joined the equity markets in the Covid-19-infused correction in 2020 are witnessing one challenge after the other in their investment journey. The Russia-Ukraine conflict has been the latest trigger for the broader equity markets to correct almost ten per cent. At the same time, the emerging situation led to a sharp rally in the prices of certain commodities like crude oil or metals like Nickel.</p> <p>&nbsp;</p> <p>Just a few months ago, the automobile industry was under stress due to the shortage of semi-conductors. Before that, when the spread of Covid-19 was at its peak, real estate was under performing and it was evident in the stock prices of realty companies, too.</p> <p>&nbsp;</p> <p>All these are just a few examples of how changing situations can have a positive or negative effect on specific sectors. Accordingly, it makes sense to take advantage of these conditions. For instance, investing wisdom suggests buying when a particular sector, which is usually cyclical, is under stress.</p> <p>&nbsp;</p> <p>However, in reality, it is not so simple. After all, how does a retail investor, with limited time and energy at their disposal, figure out which special situation they can take advantage of? Even if someone tries to get to the bottom of the story, by then, the event passes by. In other words, you need foresight and expertise to utilise the investment opportunities arising out of such circumstances. Hence, the best way to go about finding such opportunities is to hand over the reins to a skilled fund manager who can identify the situations in your favour.</p> <p>&nbsp;</p> <p><b>Investment options to capture special situations</b></p> <p>Within thematic fund universe, several fund houses offer special situation theme based offerings. As per the Securities and Exchange Board of India categorisation of mutual funds, thematic funds are a category of equity mutual funds, wherein at least 80 per cent of the total assets of a fund are invested in a specified theme or sector.</p> <p>&nbsp;</p> <p>Special situations here could mean events like geo-political or socio-economic events, corporate restructuring, government policy or regulatory changes, or even temporary unique challenges that specific companies or sectors could face.</p> <p>&nbsp;</p> <p>Essentially, fund managers of these schemes maintain a 360-degrees lookout for opportunities where they believe that the buying price for the stocks of a company is much lower than what the actual value should be. This temporarily depressed value could be on account of any of the reasons highlighted above.</p> <p>&nbsp;</p> <p>This also makes these funds to have somewhat concentrated portfolios, despite being an open-ended equity scheme. At the same time, these funds try and maintain a diversified portfolio.</p> <p>&nbsp;</p> <p><b>How to invest?</b></p> <p>An investor before considering investing in such a fund should evaluate the track record of the fund managers, the success of their previous bets as well as the past performance of the fund. This provides a fair idea how the fund manager has been able to capitalise on the opportunities in the past.</p> <p>&nbsp;</p> <p>Among the offerings available in this space, the Indian Opportunities Fund from ICICI Prudential Mutual Fund ticks all the right boxes. It is being managed by senior fund managers with close to five decades of collective experience. Since its inception, this scheme has given a return of 21.2 per cent compared to 18.7 per cent for its benchmark Nifty 500. Even in two-year, one-year and six-month periods, the scheme has outperformed the benchmark by several percentage points. However, a word of caution is appropriate here—Past returns cannot be a guarantee of future performance.</p> <p>&nbsp;</p> <p>The best way to invest in this fund is through a systematic investment plan as special situations keep arising in one form or the other. Qualified fund managers can spot such opportunities across different sectors and can buy and sell accordingly. Also, an investor opting for such a fund should stay invested for at least three years and more so that they can benefit from the turnaround story to be played out.</p> <p>&nbsp;</p> <p>To conclude, turbulence in the equity markets on account of any development can certainly be a cause of worry for investors. However, with solution like special situations fund, investors can turn times of crisis into investment opportunities which have the potential to deliver rich returns in the long run.</p> <p>&nbsp;</p> <p><b>The writer is a mutual fund distributor.</b></p> Sat Apr 02 11:36:27 IST 2022 housing-the-next-big-theme-for-wealth-generation <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p><b>WHEN IT COMES</b> to investing, a lament is quite common. “I wish I knew about this sector or company five or ten years ago. My investment would have multiplied manifold by now. Do you know what the next big theme is?” Such a train of thought or discussion comes up time and again in investor conversations. The struggle always is to identify the next big theme.</p> <p>&nbsp;</p> <p>Simply going by basics, you can put your finger on a few trends. For instance, the Indian economy over the last few decades have turned into an agricultural powerhouse and has also evolved into a major textiles’ exporter. The third element that completes the trinity of ‘Roti, Kapda, Makaan’ is housing. This is also an area where India needs massive investments. As a means to address this gap, both Central and state governments have taken steps to boost the realty sector.</p> <p>&nbsp;</p> <p><b>The next big theme</b></p> <p>&nbsp;</p> <p>With rapid urbanisation taking place all over the country, millions of people are expected to move from rural to urban areas over the next decade. These many people will need housing, and accordingly, the real estate sector is likely to grow to double in size from less than $500 billion at present to over a trillion USD, by the end of the current decade. This will also mean that real estate’s contribution to the Indian GDP will go up from around 6-7 per cent at present, to approximately 13 per cent.</p> <p>&nbsp;</p> <p><b>What makes real estate so promising in India?</b></p> <p>&nbsp;</p> <p>The sector is already speeding up after the economic slowdown caused by the Covid-19 related lockdowns. The housing sales volume across seven major cities in India went up by 113 per cent in the last one year. With incentives coming from schemes like the Pradhan Mantri Awas Yojana (PMAY), the residential real estate sector is expected to grow significantly going forward too.</p> <p>&nbsp;</p> <p>All of this is expected to continue given the unique demographic advantage India has. Over the next decade, the working population is India is expected to grow while dependent population is likely to be comparatively lower. In other words, more and more households will have rising income levels. At the same time, the median age in India even in 2030 would be around 30-years, while the same globally could be 32-years and 37-years in China.</p> <p>&nbsp;</p> <p>Moreover, the growth in the economy is already leading to significant wealth creation from other avenues, while real estate affordability is at its best, at least in the last 15 years, as per the Knight Frank Affordability Index. The Reserve Bank of India’s housing price index, which was growing upwards of 20 per cent in the earlier part of the 2010-20 decade, is now growing at a muted low single digit rate. This means low gains on land and building prices over the last decade, leading to a time correction in value, is making the sector attractively valued at present.</p> <p>&nbsp;</p> <p>All these factors combined with low penetration and housing interest rates at its lowest in almost 15 years, has turned the tide for real estate and housing as a theme in general.</p> <p>&nbsp;</p> <p><b>How to tap into this opportunity?</b></p> <p>&nbsp;</p> <p>The impending boom in the housing sector will also benefit many other sectors. After all, housing is a culmination of several inputs like financing, engineering design, raw materials like cement, steel and paint, and then also leads to increased consumption in power, consumer durables, among others. Hence, to tap into this promising opportunity, you should keep an eye on, and invest in all of these sectors proportionately.</p> <p>&nbsp;</p> <p>The best way to do that is through a mutual fund scheme that captures all of the sectors mentioned above, in a strategic and systematic manner. A housing based thematic fund, that invests at least 80 per cent of its corpus in these sectors can be a good investment choice. As a means to make this available for investors, one of the leading fund houses ICICI Prudential Mutual Fund is launching a new fund offer based on the opportunities in housing theme.</p> <p>&nbsp;</p> <p>With the consumption cycle in housing sector turning, this makes for a good opportunity to gain from the growing housing needs of the Indian economy over the next decade. This time around, you know the next big theme, which is very likely to be rewarding.</p> <p>&nbsp;</p> <p><b>R. Venkatesh, Founder, GuruRam Financial Services</b></p> Thu Mar 24 15:32:51 IST 2022 maruti-plans-to-recover-lost-ground <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p><b>HEAVING OUT OF </b>the arid rock-and-shrub topography of the Vasant Kunj suburb of Delhi is a massive semi-circular monolith that is agog with war-like mission readiness. Spread across three lakh square feet of glass, aluminium and granite, the headquarters of Maruti Suzuki is bracing itself for the fight to conquer India’s sport utility vehicle market.</p> <p>&nbsp;</p> <p>India’s largest carmaker knows it is late to the SUV party. And after two-and-a-half years with no new vehicles (except for an upgrade to the hatchback Celerio in November 2021), the game plan now is to ‘shock and awe’ the market with a flurry of launches of new models and variants, and a few updates. It is a no-brainer that the new models will be in the SUV segment.</p> <p>&nbsp;</p> <p>Maruti rode the Indian car buyer’s ‘small is beautiful’ phase for a long time, but was caught out of step with the shift in recent years to ‘big is better’. There is now a distinct preference for spacious, feature-rich, yet affordable vehicles, and it is transforming the market dynamics.</p> <p>&nbsp;</p> <p>For Maruti, it is a battle to protect its supremacy. Its market share in passenger vehicles has dropped to 42 per cent, a far cry from the glory days when it sold more than half of the cars in the country. In December, its sales were down year-on-year from 1.32 lakh to just above one lakh units. While the semiconductor shortage, as well as price rise and unavailability of some components, did affect its production, experts blame it on the big gap in Maruti’s product offerings.</p> <p>&nbsp;</p> <p>“Maruti Suzuki is losing market share because of supply chain issues as well as because it does not have a compact SUV,” said Vinkesh Gulati, president of the Federation of Automobile Dealers Association of India.</p> <p>&nbsp;</p> <p>Maruti’s strength in hatchbacks seems to have turned into a weakness. It dominates this segment, right from entry-level Alto to premium hatches like the Swift and Baleno. But when it comes to SUVs, it virtually draws a blank, with the exception of the ageing Vitara Brezza. “SUV is the only segment where Maruti’s market share is a little low,” admitted Shashank Srivastava, executive director of Maruti Suzuki India. “Our market assessment could have been better and probably we could have acted faster in this segment.”</p> <p>&nbsp;</p> <p>In tune with the rest of the world, SUVs have been riding a popularity wave in India over the past few years. From just 18 per cent five years ago, they closed 2021 as the fastest-growing category, accounting for 38 per cent of the overall market. The once-dominant small cars’ share shrank to 40 per cent.</p> <p>&nbsp;</p> <p>Going by the trends in the evolved global markets, SUV sales plateau at about half of overall car sales. This means they are set for years of robust growth in India. “SUVs have become extremely important for the market. Beyond numbers, if you take value, they are much, much more,” said Tarun Garg, director (sales, marketing &amp; service), Hyundai India.</p> <p>&nbsp;</p> <p>How did this happen in what was once stamped and sealed as a ‘value-for-money small car market’? The only answer is ‘compact SUVs’.</p> <p>&nbsp;</p> <p>In the early 1990s, Tata Motors’s Estate and Sierra and some Mahindra models were the harbingers of the SUV revolution to follow. “These vehicles oozed a macho image and car buyers looked up to them and wanted to click pictures with them, but owning them was not an option. They were expensive, not as comfortable as a car to drive, and were looked up to as niche vehicles meant for off-roading or rallies,” said Gulati.</p> <p>&nbsp;</p> <p>This changed when automakers caught on to this aspirational value among customers. “Slowly, car manufacturers got the message that customers wanted bigger size and better ground clearance than the small cars and sedans, but at a price that was a bit more comfortable,” said Gulati. Thus came the Tata Safari and the Mahindra Scorpio and both became quite popular.</p> <p>&nbsp;</p> <p>“Car companies, media and auto buffs can keep on talking segments and subsegments, but an Indian customer finally decides based on his budget,” said Gulati. And the price divide was breached in the summer of 2013 when Ford launched the compact SUV EcoSport at a starting price of Rs5.59 lakh.</p> <p>&nbsp;</p> <p>“That was a price nobody expected an SUV to be available at. That was the inflection point for customers to shift from entry-level cars to compact SUVs,” said Gulati.</p> <p>&nbsp;</p> <p>Cut to 2022, and the trickle has turned into a torrent. MG Motor and Kia entered the Indian market and have stolen the thunder with only SUVs in their portfolios.</p> <p>&nbsp;</p> <p>Purists may shake their heads at all sorts of vehicles being billed as SUVs, but not too many seem to be bothered. Certainly not the automakers. While the original definition of an SUV specifies a vehicle with 140mm of ground clearance, today any car with a good enough ground clearance and ‘tall boy’ look can be termed an SUV, right from a Nissan Magnite, which, in another era, would have probably been called a small car.</p> <p>&nbsp;</p> <p>The loser in all of this has been sedans, the conventional epitome of what a car should be. They accounted for about a quarter of the Indian car market till a few years ago; the share now has fallen to less than 10 per cent. With realisation dawning, auto companies are cutting down on investing in sedans, and very few options are left in the market. “Just like the growth of SUVs has been seen in other countries, we have seen the decline of sedans also everywhere,” said Srivastava.</p> <p>&nbsp;</p> <p>The reason is straightforward. Compact SUVs offer all that customers want at a price that is easy on the pocket. “Compact SUVs are clearly doing well. It fits in with the whole trend of customers shifting from hatch to SUVs,” said Garg.</p> <p>&nbsp;</p> <p>Today’s SUVs are not just easier to drive than the ones in the 1990s, they also come packed with features, ranging from sunroof and air purifiers to internet connectivity and voice assistants. “Indian consumers’ aspirations are definitely going up,” said Garg. “SUVs were traditionally about space, not design. But that has changed.”</p> <p>&nbsp;</p> <p>The popularity of SUVs is not limited to sales. Said Sunil Gupta, MD &amp; CEO of Avis India, a car rental agency, “We constantly receive requests for SUVs for long-term rentals.” Sakshi Vij, the founder of the car subscription and rental platform Myles Cars, explained why. “SUVs give a reasonable price point for a vehicle that can be used for outstation trips as well as provide ample comfort within congested city roads,” she said.</p> <p>&nbsp;</p> <p>The centrepiece of Maruti’s ambitious strategy will be an SUV being jointly developed with Toyota. “We are about 12 per cent in SUVs while in other categories we are at 66 per cent and 95 per cent,” said Srivastava. “It is our objective to preserve this market share.”</p> <p>&nbsp;</p> <p>It will not be easy as rivals are also upping their game. Tata Motors recently tasted success in the compact SUV segment with the Nexon and the Punch. The models have been doing so well that Tata surpassed Hyundai as India’s second largest carmaker in December.</p> <p>&nbsp;</p> <p>Hyundai also has its own plans—as many as four SUV launches are planned for 2022, including a facelift for the immensely popular Creta. “You cannot wait for a market to develop,” said Garg. “We launched an electric car when there was no market (Kona in 2019). As a technology leader, you have to be in touch with customer trends, and the moment you spot a need, you have to go ahead and launch a product.”</p> <p>&nbsp;</p> <p>Hyundai has announced six electric cars for India over the next few years which, Garg said, would be dominated by SUVs. Maruti believes its market muscle will carry it through once the new SUVs come out later this year, even while planning a hybrid route to electric cars eventually. The battle for the SUV pie promises to be electric, in more ways than one.</p> Sat Mar 19 12:33:13 IST 2022 we-would-like-to-quickly-bring-in-new-suvs <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p><b>Q/ What would be Maruti’s future strategy for SUVs?</b></p> <p>&nbsp;</p> <p>A/ We are the market leaders in the entry-level SUVs, which form 50 per cent of the market. The full-fledged SUV market share is less. Our focus is on the mid-level SUV segment, where there are models like the Hyundai Creta, Kia Seltos and Tata Harrier.</p> <p>&nbsp;</p> <p><b>Q/ Do you think Maruti was slow in launching more models in this category?</b></p> <p>&nbsp;</p> <p>A/ In the entry-level (compact) SUV, we were pretty much the first movers. Actually, the segment became big only after we introduced the Brezza. In that sense, we created this segment. [In Compact SUVs] I don’t think we were late.</p> <p>&nbsp;</p> <p>In the mid-level SUV segment, you are right. I think the pace at which it has come up, obviously, we could have been faster in this segment. But remember, we had this conversion from BS 4 to BS 6 and this was a major (shift) and we were focused on that. Probably, our market assessment could have been better and probably we could have acted faster in this segment.</p> <p>&nbsp;</p> <p><b>Q/ Going forward, how would Maruti take this on?</b></p> <p>&nbsp;</p> <p>A/ Once we identify a segment as important and requires reinforcement, we have always been strong in producing new products. And we would also like to bring in new products as quickly as possible in this segment.</p> <p>&nbsp;</p> <p><b>Q/ Would you now accept that SUV is a trend that’s here to stay, or would you call it just an urban trend or a passing fad?</b></p> <p>&nbsp;</p> <p>A/ I don’t think it is a passing fad, because we are seeing consistent growth, not a one-off growth. In the past five years, the CAGR for SUVs is much higher than the overall auto market.</p> <p>&nbsp;</p> <p>Secondly, the design preference across the world seems to be moving towards SUVs, whether you look at Latin America, China or the US. There is something to be said about the design, and this design preference makes it not a passing fad. Although, there will be a point in time when it will plateau out, and we have seen this in the other markets the SUVs plateau around 47 per cent of the overall market. We are still some way away from that. We are right now at 38 per cent (in 2021), so we are still somewhat away from that.</p> <p>&nbsp;</p> <p><b>Q/ SUVs seem to be growing by eating away the market share of sedans. Will that trend continue? Will hatchbacks as a category shrink?</b></p> <p>&nbsp;</p> <p>A/ The SUV segment has grown to 38 per cent (market share). In the same period, hatchbacks have remained constant at around 46 per cent. Obviously, the growth of SUVs has not come at the cost of hatchbacks, but at the cost of some other segment. And that other segment seems to be sedans, which used to be 23 per cent and has now come down to less than 10 per cent. This decline is seen also in other countries.</p> <p>&nbsp;</p> <p><b>Q/ What are Maruti’s electric vehicle launch plans?</b></p> <p>&nbsp;</p> <p>A/ All powertrains are open. One is the type of vehicle segment, and the other is the type of powertrains. We are of the belief that through the hybrid route we can reach the electrification of vehicles.</p> Sat Mar 19 12:13:48 IST 2022 the-promise-of-digital-rupee-and-the-subsequent-collateral-damage <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p>The big takeaway from Union Budget 2022 was that India is set to launch its own digital currency. The proposed ‘digital rupee’, by all means, looks like a silver bullet aimed at slowing the cryptocurrency boom that has gripped Indian investors. It could, however, end up with significant collateral damage—bringing the banking system to its knees, no less.</p> <p>&nbsp;</p> <p>“Central Bank Digital Currency (CBDC) could cause a shift away from bank deposits,” warned T. Rabi Sankar, deputy governor of the Reserve Bank of India. “Reduced dis-intermediation of banks carries its own risks. If banks begin to lose deposits over time… interest margin might come under stress, leading to an increase in the cost of credit.”</p> <p>&nbsp;</p> <p>To put it in layman’s terms, a digital rupee that can be sent and received by private citizens through digital wallet apps loaded on their phones and guaranteed by the RBI would reduce the need to keep money in bank accounts or transact through them. If banks have less money in their accounts, they have less money to lend. That means loans would get more expensive, as the interest charged will be higher.</p> <p>&nbsp;</p> <p>Of course, the real impact of the digital rupee still remains hard to predict, just like the ether on which it will move around in bits and bytes in a gloriously paperless, and uncertain, future. Much will depend on what shape and form it will finally make its debut in, with the RBI looking at various models that could offset the impact on banks.</p> <p>&nbsp;</p> <p>But the intent is crystal clear. “Introduction of CBDC will give a big boost to digital economy… [and] will also lead to a more efficient and cheaper currency management system,” Finance Minister Nirmala Sitharaman said in her budget speech on February 1, while announcing the introduction of the digital rupee that will use blockchain and “other technologies”.</p> <p>&nbsp;</p> <p>Though discussed in theory for long, the digital currency gained urgency among Central banks only recently, after they were faced with the potential rise of cryptocurrencies as an alternative to currencies ordained by governments’ fiat. The rollercoaster ride of crypto’s poster boy, Bitcoin, in recent years, along with assorted fellow cryptocurrencies like Ethereum and Dogecoin, captured the world’s imagination.</p> <p>&nbsp;</p> <p>It also saw the mushrooming of an ecosystem around it, including crypto miners, traders and exchanges, besides celebrity proponents like Elon Musk. And when Facebook announced its intentions of launching its own digital currency, governments realised they had to act, or lose the plot.</p> <p>&nbsp;</p> <p>In India, cryptocurrencies seem to have broken through the tech ceiling. An October 2021 study by broker comparison platform BrokerChooser claims that there are more than 10 crore crypto users in the country. The government reaction, however, has been mostly cringingly knee-jerk.</p> <p>&nbsp;</p> <p>While an inter-ministerial committee recommended the introduction of CBDC way back in November 2017, nothing much was done for the next four years. Instead, the authorities made many attempts, though in vain, to stomp out the ‘challenger’. An RBI ban on cryptocurrencies in 2018 was thrown out by the Supreme Court in 2020, while a bill proposing a blanket ban on all forms of cryptocurrency was hurriedly sent back from Parliament for consultations and re-drafting a few months ago after a popular pushback. The RBI has been repeatedly pushing its demand that cryptocurrencies should be banned since then.</p> <p>&nbsp;</p> <p>Was the budget announcement of a digital rupee, along with hefty taxes on crypto and other ‘digital assets’, another knee-jerk reaction?</p> <p>&nbsp;</p> <p>In comparison, a survey by BIS, an international organisation of the world’s central banks, found that 86 per cent of nations were actively researching the potential for CBDCs, 60 per cent were experimenting with the technology and 14 per cent were deploying pilot projects. First off the block are Nigeria and the Bahamas, which have already launched digital versions of their currencies. China is on the verge of launching it, with trial testing in four cities taking place last year.</p> <p>&nbsp;</p> <p>The digital rupee is officially aiming at an early-2023 launch but is likely to be delayed. From deciding on its underlying technology (blockchain or something else), use cases (on retail private use or for wholesale bank transactions only) and format to trials and testing, all are likely to take time.</p> <p>&nbsp;</p> <p>“It might get delayed. Other nations have taken four-five years [before] getting digital currency out in the market,” said Sumit Gupta, co-founder &amp; CEO of CoinDCX.</p> <p>&nbsp;</p> <p>There will also be issues of privacy and security to be figured out. Unlike an anonymous wad of notes, a digital currency will leave a digital trail across transactions. “Needless to say that CBDC design must have robust data governance and data protection frameworks,” argued Shehnaz Ahmed, senior resident fellow at the Vidhi Centre for Legal Policy. “Policymakers will have to balance between safeguarding privacy and oversight for the prevention of financial crimes.”</p> <p>&nbsp;</p> <p>The risk of cyberattacks, fraud and cheating, particularly in a country with low financial literacy levels like India, is also worrisome. “CBDC ecosystems may be at similar risk for cyber attacks [like] current payment systems,” said Sankar. “Ensuring high standards of cybersecurity is therefore essential.”</p> <p>&nbsp;</p> <p>But where India has an immense advantage is the way it adopted fintech in recent years, especially its spawning of UPI that has become a runaway hit. This augurs well for the digital rupee.</p> Sat Feb 19 13:30:56 IST 2022 digital-currency-and-crypto-go-hand-in-hand <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p><b>Q/Once the government’s digital currency comes in, will cryptocurrencies decline?</b></p> <p>&nbsp;</p> <p>A/One thing everyone needs to get clear and [over which] there is still a lot of confusion [is that] both are independent. The CBDC is a digital version of the rupee on the blockchain, and crypto assets have different use cases. There is no competition, there is just a common underlying technology—blockchain. Both go hand in hand. In fact, as they get popular, the adoption of blockchain technology will also go up. If CBDC gets popular, so will crypto.</p> <p>&nbsp;</p> <p><b>Q/After the budget announced a digital currency and took cognisance of cryptocurrency with a 30 per cent tax, is the glass half-full or half-empty?</b></p> <p>&nbsp;</p> <p>A/It’s a great step. At least there is no scope for ambiguity. People were not clear and that was preventing a lot of investors from coming into the market. At least, now there is going to be standardisation. But the flat 30 per cent tax could push a lot of retail customers who looked at crypto as a portfolio investment to move out. Secondly, early tech adopters could shift base—you might see a brain drain, with startups also moving out of the country.</p> <p>&nbsp;</p> <p>Globally, many countries are coming up with pro-crypto legislation, so that they become crypto hubs and get the advantage. But, if in India you are going to tax it on the same levels as betting or gambling, it is going to affect the industry in the long run. Crypto is a new technology [that] can add a lot of value to the country’s GDP. A lot of innovations can happen from it and it can create employment opportunities. India can become a technology powerhouse, if you build the right policy framework.</p> <p>&nbsp;</p> <p><b>Q/Do you feel there is progress?</b></p> <p>&nbsp;</p> <p>A/Some progress has been made. But we are not privy to detailed information on what the government is thinking. Nobody has yet seen the draft of the bill. The sense that we are getting is that the government has become more open. But to what extent, nobody has any idea.</p> Sat Feb 19 13:24:04 IST 2022 save-tax-while-accumulating-wealth <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p><b>WE LOOK FORWARD</b> to taxation reforms in every Union budget. None of us, whatever be our occupation or salary, enjoys the bite of taxation. As soon as your salary crosses the base limit for taxation, you begin looking for ways to stem the outflow and bring home as much of your CTC as possible. What if you are told that you could save on tax while also accumulating wealth? That is exactly what you can achieve by investing in equity-linked saving schemes, or ELSS. This investment option allows you to partake in the high growth potential of equities while also enjoying tax rebates up to $1.5 lakh a year.</p> <p>&nbsp;</p> <p><b>ELSS: EVERYTHING YOU SHOULD KNOW</b></p> <p>Eligible for tax deductions under Section 80C of the Income Tax Act 1961, ELSS mutual funds are an excellent choice when you want to save taxes. The asset allocation for ELSS ordains that at least 80 per cent of the entire corpus should be invested in equity and equity-linked securities like listed shares, while the remainder can be parked in fixed income assets. Further, as ELSS funds come with a lock-in of just three years, they can be a great alternative to other, longer tenure instruments that fall under the purview of the 80C provision. Given the fact that you can begin investments with as little as $500, ELSS can act as your long-term investment plan for saving taxes as well as accumulating wealth.</p> <p>&nbsp;</p> <p>In addition to the tax-saving properties of the fund, ELSS also offers you an opportunity to participate in the growth of your country’s economy and stock markets. This is especially possible if you choose to invest via the systematic investment plan (SIP) option as you will allocate money on regular intervals, through market ups and downs. This ensures that you enjoy the benefits of rupee cost averaging and compounding, thereby enabling you to both save taxes as well as grow your money over the long term.</p> <p>&nbsp;</p> <p><b>BENEFITS OF ELSS</b></p> <p>The main benefit of ELSS is the tax saving that you can achieve through this investment. In line with the provisions of the Act, an investment of up to $1.5 lakh can be claimed as a tax deduction in a financial year. Let’s take an example to better understand the tax savings that can accrue with an ELSS investment.</p> <p>&nbsp;</p> <p>Assume that you fall in the highest tax bracket but your income is less than $50 lakh a year. You will be paying tax at the rate of 30 per cent plus cess @ 4 per cent of taxes paid. Now, if you invest $1.5 lakh in ELSS, then let’s see how much money you can save by minimising your tax outgo.</p> <p>&nbsp;</p> <p>Tax + cess = 30% + 4% of 30% = 31.2%</p> <p>Amount invested = Rs1.50 lakh</p> <p>Tax saved = 31.2% x Rs 1.50 lakh</p> <p>= Rs46,800</p> <p>&nbsp;</p> <p>The above calculation makes certain assumptions to arrive at a tax-saving figure of $46,800. Nonetheless, it will still give you an idea about the amount of tax outgo you can save by investing in ELSS.</p> <p>While ELSS undoubtedly offers the benefit of tax saving, it also provides some additional benefits.</p> <p>&nbsp;</p> <p><b>The potential to create long-term wealth:</b></p> <p>While the lock-in period for ELSS is three years, leaving your money in ELSS funds for longer can let you benefit from the long-term growth opportunities provided by equities.</p> <p>&nbsp;</p> <p><b>SIP for discipline and saving habits:</b></p> <p>When you invest in an ELSS, you also have the option of investing via regular SIPs. This means that you invest a fixed amount monthly or quarterly, thereby ensuring that your tax saving is well-planned. Further, the benefits of rupee cost averaging, compounding and disciplined investing will also accrue to you over the long term.</p> <p>&nbsp;</p> <p>So, if you are looking for an avenue to save tax while boosting your wealth, ELSS is a way to beat inflation while also staying ahead of the tax monster. Pick wisely and you have a winner at hand!</p> <p>&nbsp;</p> <p><b>The author is a mutual fund distributor.</b></p> Sat Feb 19 13:14:36 IST 2022 politically-correct-budget <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p>The Union budget has some clear-cut plans to ensure the country’s long-term growth in the next 25 years, said economist Prof Sachin Chaturvedi. “The budget has a special focus on three fronts: infrastructure, protecting the environment and creating quality human resources,” Chaturvedi said, as he decoded the Union Budget at the 23rd edition of the Malayala Manorama annual budget lecture on February 4.</p> <p>&nbsp;</p> <p>Creating world-class infrastructure and ensuring more connectivity between rural and urban areas will be crucial for inclusive growth, he said. “The budget has laid clear plans for developing digital and physical infrastructure,” he added. Chaturvedi added that the transition to a digital economy is significant for the country’s progress. “The Union government’s plan to introduce a digital currency, digital university and e-passport should be seen as moves in this direction,” he said. But Chaturvedi did not mince words on the lack of clarity about control measures on digital assets like cryptocurrencies.</p> <p>&nbsp;</p> <p>He called the latest budget a “politically correct” one. “There are no new taxes on anybody,” he said. “We have a lot of taxes already. If the income or corporate tax is further increased, it may bring a negative impact as the citizens are already under financial stress because of Covid-19.” The economist observed that the budget is the one that hopes for and promotes more private investments in India. “The private investors should invest more in India understanding the favourable chance offered to them by the finance minister,” he said.</p> <p>&nbsp;</p> <p>Chaturvedi said there are good measures on the budget to ensure a low carbon trajectory and India’s leadership on the climate change segment. He said the states will have to play a crucial role in the fruition of many plans laid in the budget. Chaturvedi also observed that many state governments have fallen into a debt crisis because of the pandemic. “The Union government should offer more support to cash-strapped state governments,” he said.</p> <p>&nbsp;</p> <p>Chaturvedi pointed out that the budget offers ambitious plans to boost technological capacities and skill development. “It also aims to create quality human resources in the country,” he said.</p> Mon Feb 21 11:57:48 IST 2022 over-optimism-and-ignorance-of-ground-realities-could-spoil-the-party <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p>What’s in a name? A currency by any other name would sound just as sweet. Sans a hefty 30 per cent to Caesar, it should.</p> <p>&nbsp;</p> <p>Semantics is what Finance Minister Nirmala Sitharaman took refuge in over the confusion within the government on what to do with cryptocurrencies. Consultations are on over re-drafting the Cryptocurrency Bill, which originally sought a blanket ban. Hence, the next best thing—keep a straight face and refuse to call it ‘cryptocurrency’, even while you impose a tax on it.</p> <p>&nbsp;</p> <p>“Loosely what we refer to as crypto is not currency…[only] what Reserve Bank will issue will be digital currency—anything that prevails outside is not currency [but] assets. Nothing stops me from taxing it,” Sitharaman said about her budget proposal to impose a 30 per cent tax on ‘virtual digital assets’.</p> <p>&nbsp;</p> <p>Ironically, that may well be one of the clearest intentions the finance minister expressed in her fourth budget outing. Most of the rest ride high on a wing and a prayer of earnest optimism of massive government spending on highways, railways and other infra projects leading to a domino effect of increased money flow through the system generating jobs, which making people spend more, which making the private sector invest more, which leading to economic growth…. you get the drift.</p> <p>&nbsp;</p> <p>As Sitharaman releases the piston on her booster shot of capital expenditure—35 per cent higher than the last year’s at nearly 011 lakh crore (when you include grants to states for investing in capital expenses)—the expectation is that the private sector will step up by loosening its purse strings, leading to wealth generation that will ‘trickle down’, spurring all-round growth and prosperity. “[This] is a speaking budget,” said Sitharaman. “The estimates are not unrealistic.”</p> <p>&nbsp;</p> <p>The budget might have spoken, but the five-trillion-dollar question remains. Is India Inc listening?</p> <p>&nbsp;</p> <p>“PM Modi’s vision of making India ‘atmanirbhar’ is clearly supported by a plan for the future, and backed by allocations, specifically in the areas of infrastructure, digital transition, planet resilience, education and health—to support Indian ambitions,” said N. Chandrasekaran, chairman, Tata Sons. Added Pawan Munjal, chairman &amp; CEO, Hero MotoCorp, “The focus on infrastructure will not only improve the quality of lives and generate jobs but also help Indian industry become globally competitive.”</p> <p>&nbsp;</p> <p>But, going by the industry’s track record, this remains to be seen. Most companies did more of a ‘wait and watch’ instead of sticking their necks out and investing in capacity during the slowdown days of 2019 and the pandemic, despite several rounds of stimulus and easing of credit. Sanjiv Mehta, chairman and managing director of India’s biggest consumer company, Hindustan Unilever, said as much when he called the budget “bold”. “We are all conscious that it will take some time for private consumption and private capital expenditure to pick up [but] increasing capex by 35 per cent is absolutely the right thing to do,” he said.</p> <p>&nbsp;</p> <p>To Sitharaman’s credit, however, the budget refused to succumb to the temptation of populist sops in a year of crucial assembly polls. And it has steadfastly stuck to continuity, going forward with the structural reforms and advancing the ‘nudge’ theory of transformation, which is at the core of saffron economics.</p> <p>&nbsp;</p> <p>The nudge theory aims at ‘nudging’ the financial system into a pro-market economy that is organised, corporatised and digital, either through regular shocks to the system (demonetisation, GST) or through dramatic fundamental changes (Atmanirbhar Bharat or farm bills).</p> <p>&nbsp;</p> <p>No wonder Sitharaman said ‘digital’ 35 times and ‘tech’ 26 times in her budget speech, and the announcement of the digital rupee grabbed all the headlines. From chips in your passport and using drones for delivering fertilisers to a Make in India push for gaming and converting post offices to banks, the digit‘all’ quotient was indeed high.</p> <p>&nbsp;</p> <p>“The budget announcement mainstreams India’s digital economy,” said Vikas Agnihotri, operating partner of SoftBank in India. “It points to the deepening role of tech across sectors, from agri to education to health to financial services, in making value chains efficient and resilient.”</p> <p>&nbsp;</p> <p>Added Divya Gokulnath, co-founder of the learning app Byju’s, “The budget’s focus on setting up a digital university as well as e-content in all spoken languages for delivery via the internet, mobile phones, TV, radio and digital teachers confirms that edtech will play an integral role in bridging gaps in education caused by the pandemic.”</p> <p>&nbsp;</p> <p>But the weak links in a seemingly exuberant ‘spend-big-and-make-it-big’ strategy are the host of glorious uncertainties that could trip up the ‘wish’ horses. Chances of oil prices crossing the $100 barrier, wholesale inflation at highs never seen after the 1990s, the still convoluted global supply chain mismatch and the fear of another wave of Covid-19 all remain high risks, especially for a budget that pins its hopes on a ‘multiplier’ strategy. The government’s confidence stems from the higher-than-expected tax revenues (GST collections hit a record of 1.4 lakh crore in January) and the faster-than-expected business recoveries witnessed. But that does not discount possible future shocks.</p> <p>&nbsp;</p> <p>Considering this fragility, the reduced allocation for welfare, especially for health in the middle of a pandemic, has been surprising. Health expenditure goes down from 0.41 per cent of the GDP to 0.37 per cent next year. Money allocated for the rural job guarantee scheme NREGA continued its annual drop, falling from Rs98,000 crore to Rs73,000 crore. The outlay for food subsidies, which is at 1.23 per cent now, is estimated to fall to 0.80 per cent next year.</p> <p>&nbsp;</p> <p>“Amrit Kaal (as the budget refers to the next 25 years until India hits 100 years of independence) may be digital with robust infra, but the present [is full of] distress and stagnant income,” said economist Yamini Aiyar, president and chief executive of Centre for Policy Research. “Clearly we have chosen to learn little from the ravages of Covid-19.”</p> Sat Feb 05 12:34:14 IST 2022 high-capital-expenditure-to-boost-economy-sluggish-demand-deficit-are-concerns <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p>Capital investment holds the key to speedy and sustained economic revival and consolidation through its multiplier effect,” said Finance Minister Nirmala Sitharaman during the budget speech. And she remained true to her word, increasing capital expenditure by 35.4 per cent to Rs7.50 lakh crore for the year ending March 2023. The government has also proposed to give Rs1 lakh crore in 50-year interest-free loans to states for capital investment. According to Sitharaman, the effective capital expenditure of the Central government is estimated at Rs10.68 lakh crore next year, about 4.1 per cent of the GDP.</p> <p>&nbsp;</p> <p>“The underlying macroeconomic strategy behind this budget is one of pump-priming the economy through public investments, hoping that economic buoyancy would crowd in private sector capex,” said Abheek Barua, chief economist at HDFC Bank. The overall expenditure of the government has been estimated at Rs39.45 lakh crore, which is about 13 per cent more than the previous budget estimate and 4.6 per cent more than the revised expenditure estimate.</p> <p>&nbsp;</p> <p>Capital investment helps create jobs, inducing demand for goods and services. “Instead of redistributive direct fiscal support, an investment-led growth remains the government’s economic management mantra,” said Barua.</p> <p>&nbsp;</p> <p>The government is betting on the PM GatiShakti Master plan, planning huge investments in roads, railways, logistics parks and ropeways. The national highways network will be expanded by 25,000km in 2022-23. The railways will make 400 new-generation Vande Bharat trains, and 100 cargo terminals for multi-modal logistics facilities will be developed in three years. Contracts for eight ropeway projects are to be awarded next year. Under the PM Awas Yojana, 80 lakh houses will be built and Rs48,000 crore has been allocated for this. And Rs60,000 crore has been allocated for the ‘Har ghar nal se jal’ (tap water in every household) programme.</p> <p>&nbsp;</p> <p>The finance minister announced an additional Rs19,500 crore allocation for production linked incentive for manufacturing solar modules. The government also plans to launch a scheme for design-led manufacturing to build a strong ecosystem for 5G as a part of the PLI scheme.</p> <p>&nbsp;</p> <p>“The budget is unambiguously focused on reviving growth, via higher public capex,” said Sonal Varma, MD and chief economist, India and Asia ex-Japan, Nomura. “Capital expenditure generally results in a higher growth multiplier, so the continued focus on infrastructure spending, including support to states to spend on capex, is important at a time when private capex is sluggish.”</p> <p>&nbsp;</p> <p>There are, however, demand related problems. “Now the lift in consumption cycle is going to be tied to a broad-based pickup in economic activity and not to a specific government support that is coming in,” said Dipti Deshpande, principal economist at CRISIL. “A policy support to ensure revival in consumption in this budget would also have incentivised manufacturers to invest in expanding capacities to meet what they perceive as rising demand.”</p> <p>&nbsp;</p> <p>The government, for instance, could have looked at expanding the NREGA, which would have generated more rural jobs and helped revive consumption. Rs73,000 crore has been allocated for the rural jobs guarantee programme in 2022-23, which is 25 per cent lower than the revised budget estimates of Rs98,000 crore for 2021-22. Deshpande said frontloading some of the planned capex investments could usher in a faster economic recovery.</p> <p>&nbsp;</p> <p>However, the government already runs a large fiscal deficit. In the last budget, it had estimated the fiscal deficit at 6.8 per cent of the GDP, which has now been revised to 6.9 per cent. The fiscal deficit in 2022-23 is estimated at 6.4 per cent.</p> <p>&nbsp;</p> <p>Buoyant tax collections should help in driving the higher capex. The government has revised the tax revenue collection upwards from the estimated Rs15.45 lakh crore to Rs17.65 lakh crore in the current financial year. For 2022-23, the budget estimates tax revenue at Rs19.34 lakh crore.</p> <p>&nbsp;</p> <p>At the same time, however, the government is expected to fall significantly short of its disinvestment targets. It had earlier targeted earning Rs1.75 lakh crore from selling its stakes in public sector compnaies. But, this has now been revised down to Rs78,000 crore. While Sitharaman said that the initial public offering of LIC is expected soon, most other planned share sales, including BPCL and two state-owned banks, seem to be delayed. Disinvestment targets for 2022-23 are even lower at Rs65,000 crore. The speculation now is that the government may offer to sell only 5 per cent stake of LIC.</p> <p>&nbsp;</p> <p>Deshpande said the disinvestment target for the next year was realistic but market conditions next year would not be as buoyant as they were in the last two years. “The tightening of financial conditions amid monetary policy normalisation could further add challenges in raising capital by divestment in the coming fiscal,” she said.</p> <p>&nbsp;</p> <p>Government borrowing is expected to remain high to meet the requirements. According to budget documents, total market borrowings in 2022-23 are estimated to be around Rs11.59 lakh crore. In the previous budget, the market borrowings were estimated at Rs9.68 lakh crore, which have been revised down to Rs8.76 lakh crore. The gross borrowing next year is pegged at Rs14.95 lakh crore.</p> <p>&nbsp;</p> <p>In the bond market, “a significantly higher than expected borrowing” would put further pressure on yields at a time when interest rate cycles were at the cusp of turning, said Barua. He expects the 10-year bond yields to touch 6.9-7.0 per cent by the first half of FY23, with a possibility of it breaching 7 per cent.</p> <p>&nbsp;</p> <p>The Reserve Bank’s monetary policy committee is meeting soon. So far it has maintained an accommodative stance, but analysts expect it to harden its stance this year, more so given an expansionary fiscal policy and rising rates internationally.</p> <p>&nbsp;</p> <p>While Barua sees the RBI raising the repo rate by 50 basis points (25 bps each in August and December 2022), Nomura Securities expects repo rate to go up 100 bps in 2022. With the government now showing its cards, all eyes will now be on the RBI.</p> Sat Feb 05 12:33:13 IST 2022 the-government-has-been-in-a-silent-fiscal-crisis-rathin-roy <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p>Rathin Roy is a senior visiting fellow at the Centre for Policy Research. &nbsp;He is also the managing director (Research and Policy) at the Overseas Development Institute (ODI). His policy interests and research are mainly focused on fiscal and macroeconomic issues pertinent to human development in developing and emerging economies. Roy was also formerly the director and CEO of the National Institute of Public Finance and Policy (NIPFP) in New Delhi and worked as an economic diplomat and policy advisor at the United Nations Development Programme (UNDP), with postings in London, New York, Kathmandu and Brasilia. He served as an economic advisor with the Thirteenth Finance Commission, in the rank of joint secretary to the Government of India. In an exclusive interaction with THE WEEK, Roy talks about the urgent need for corrective measures to speed up growth in the Indian economy &nbsp;and why the government needs to have credible plans to help in the economic growth of the country. </p> <p><b>What do you think of the Union Budget? Was it as per your expectations? </b></p> <p>I have never had any expectations from a budget for more than a decade now because there is no medium term plan to which the governments have been operating the public finances. If you do not have a medium term plan—and that has only gotten worse now—how can one have expectations. Nobody from the government will be able to answer questions such as ‘what would be the share of agriculture in GDP in 2026?’ ‘what will be the total fiscal deficit then and what will be the total tax GDP ratio?, ‘what will be the composition of public spending?’ etc. So, if you are not working towards a medium term blue print, then every year budgets are essentially <i>jugaad </i>plus. This year is also not very different from the earlier budgets. </p> <p>For the last one decade, the government of India has been operating on a short term auto pilot, and there is no strategic vision going forward. Besides, there are targets and statements set, but there is no credible plan to achieve them. In these disappointing state of affairs, one must therefore cease to have expectations from a document such as the budget.</p> <p><b>Where has the government gone wrong on the economy front? </b></p> <p>For the last few years, the central government has been in a silent fiscal crisis and it is almost like a silent heart attack. This is because since 2017, the government has not been able to mobilise the resources it said it would, year after year. Basically, the government of India, for a long time, has aspired to achieve a tax GDP ratio of 8 per cent. In the last few years as it was not able to meet that target, it began to aspire towards large disinvestment targets. In the previous year, they aspired to disinvest Rs 1,75,000 crore. &nbsp;They felt short of that by Rs 10,000 crore. </p> <p><b>How then were they able to meet their tax revenue targets which they claim?</b>&nbsp;</p> <p>They were able to exceed and meet their tax revenue target because they lowered their ambition so much last year that they were able to achieve this very modest target which is way below the 8 per cent that they had aspired for. When the government talks about good tax performance, let us not forget that two things happened—one is that the majority of tax revenues they have collected from the GST have not come in from domestic sources but from imports. I do not think that it is a good thing. Are we saying that we are sacrificing our current account deficit to make sure that we have tax health. Profit tax buoyancy is, by no means, as high as the growth in profits. Just take a look at what has happened at the stock market till the last week—it has boomed during the pandemic but have corporate taxes boomed in equal measure? No, absolutely not. Have income taxes boomed in equal measure—absolutely not. So these are not real tax gains. </p> <p>If the government is unable to generate taxes, then it cannot spend. In a post pandemic year, when they are trying to come out of the recession, the government has cut its expenditure. Its expenditure GDP ratio has fallen by 1.5 per cent. The size of the government's overall budget is 1.5 per cent of GDP, smaller than last year. Contrary to this, the &nbsp;government is claiming that this is an expansionary and a supportive budget. </p> <p>A combination of incompetence on the resource mobilisation side and inability to do anything, except cut expenditure, has been a hallmark of Indian government's budget over the last few years. The only exception is that from next year, the disinvestment and the tax targets are very modest. I want to praise the government on this count, that the government has recognised its incompetence on its own. It is a very sad state of affairs. </p> <p><b>What can be immediately done to improve the situation?</b></p> <p>We really need to do something about it. I wish the government should have done what it said on disinvestment. It is like telling a school boy what you could have done better in your exams. You were targeted to achieve a certain grade and you failed to achieve it by not just one per cent or ten per cent but by 200 per cent. You have collected only one third of the disinvestment receipts that you would collect. Imagine a situation when the government would have met its disinvestment target and had Rs 1,00,000 crore. Then we would not have a smaller budget, then we would have genuinely expansionary spending. </p> <p><b>The government is saying that it has increased capital expenditure. Is it the right move?</b></p> <p>The government is saying that we have increased capital expenditure. It is correct and that it has been doing consistently over the last three years. However, the overall spending has gone down, but capital expenditure has gone up. It can only happen if revenue expenditure falls. The capital expenditure has not gone up because it has been financed by increasing revenues, it has gone up because the fiscal deficit has gone up massively. Even this year, the projected fiscal deficit is 6.8 per cent. It is double of what it was before the pandemic. So, incremental borrowing has financed incremental capital expenditure, and lowered revenue expenditure has financed incremental capital expenditure. However one needs to note that the quality of revenue expenditure is still very poor. </p> <p><b>What is your take on subsidies by the government? </b></p> <p>If one compares to the FY 2019 &nbsp;subsidies have gone up and not down. They may have gone down when compared to last year. But if you take the medium term, they would be higher this year than they were before the pandemic. To my surprise, post pandemic there has been a large cut in NAREGA. My question to the government is why did seven million households last year not get work from NAREGA when they asked for it. So, I feel that the quality of revenue expenditure has suffered. </p> <p><b>The government has stressed on the growth of healthcare and infrastructure in the budget. How will it help the economy? </b></p> <p>Paradoxically, the government's total expenditure on healthcare as a percentage of GDP &nbsp;is lower than what it was before the pandemic. I agree that the vaccination demand has gone down, and the Covid cases are abating, but that does not mean that commitment to build a better health infrastructure was a lie to be given to the public and forgotten the moment Covid is over. I am concerned that the cuts in revenue expenditure affect the lives of people disproportionately. Meanwhile, bad things in revenue expenditure that could have been cut have not been cut. That is how the capital expenditure increase has been achieved. I would like to add that this is a pro-rich capital expenditure expansion. The expansion is supposed to build highways, to build and upgrade railway networks. I am curious to know as to what proportion of this capital expenditure is going to happen in the poorer parts of India. The finance minister has not even mentioned cold chain in the budget. I have not seen anything in the budget that addresses the rural sector. All I am seeing is building infrastructure such as roads, metros, and highways. The demand and utilisation for them will be higher in the richer parts of the country unless you specifically target the infrastructure spending to the poorer parts of the country. There is nothing for the urban poor in this budget, except for a commitment to build low cost housing which I welcome. The budget also does not have an eye on those who suffered in the pandemic.</p> <p><b>Please elaborate on investment and capital expenditure</b></p> <p>When the government increases public investment, people are happy because they say that they will bring growth. However, what people are forgetting is that the government is suddenly increasing public investments because the private sector has stopped investing. Normally the private sector stops investing in a recession because economic conditions are bad and their profits fall. That has not happened during the pandemic. The private sector, the big corporates etc. have stopped investing but their profits have gone up. But the government has not been able to tap into those profits to increase corporate taxes. So, it is borrowing to increase private investment. 100 per cent of &nbsp;public investment is financed by borrowing. </p> <p><b>What could have the budget done for the banking segment? </b></p> <p>The budget could not have done much for the banking segment. However, the government owns banks. If the government has taken a policy decision to privatise the banks, then they should do as little as possible for the banks other than recapitalise &nbsp;the public sector banks. The government should stick to its decision to privatise the banking sector. It is inappropriate at this juncture to have such a large banking system in the public domain in which the tax payers have bailed them out multiple times. It has got to stop. For all this, we need a competent finance ministry to execute the privatisation of banks. At the moment, I am seeing none of that competence in the ministry and that is why the targets are so modest and the state of affairs very unsatisfactory. Hence, more money should not be poured over a publicly owned banking system and subsidising people who default on their loans at the taxpayers expense. </p> <p><b>Your views on the MSME segment and jobs. What can be done in this regard? </b></p> <p>It is not the government's business to create jobs. Jobs are created by increasing activities. The total MSME sector in this country has shrunk and we have lost jobs there. Jobs have also not been created in the other sectors of the economy yet, and therefore we need to basically raise the magnitude, scope and quality of economic activities so that jobs are created. It would involve a rapid increase in GDP growth particularly in manufacturing but also to restore GDP growth to where it was before the pandemic. My estimate is that we need to just get back to where we were before the pandemic. After all, if the pandemic had not happened, we would have grown at the average of the last five years and that is a very modest average. In the absence of a pandemic, the Indian economy would have grown around 5 per cent a year for three years. It has not happened. Effectively, we are now back to zero. To get back to FY 2019-2020 levels, we will now for the next five years have to grow at 7.5 per cent. I feel that the government has no plan and strategy to grow at 7.5 per cent. Therefore, I see nothing in the budget that shows me any kind of link between the aspiration of that 7.5 per cent growth which is ultimately necessary but not enough to create jobs.&nbsp;</p> Sun Feb 06 16:52:03 IST 2022 white-hat-rising <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p><b>AHMEDABAD-BASED ETHICAL</b> hacker Falgun Rathod was inspired by Om Jai Jagadish (2002), in which Abhishek Bachchan's character uses his skills as a hacker to create a security software. Rathod also got motivated by Die Hard 4 (2007), in which a young hacker helps the authorities stop a cyber attack, and Hackers (1995).</p> <p>&nbsp;</p> <p>When Rathod started as an ethical hacker, around 2009, the concept was fairly new. Having worked in different industries, Rathod learned that it was extremely difficult for an industry to survive cyber attacks without the help of ethical hackers. Especially in the banking and insurance segment. “I knew ethical hacking had a future and decided to pursue it as my career,” he said.</p> <p>&nbsp;</p> <p>However, it has not been easy. The integrity of those who pursue ethical hacking is always under scrutiny. Rathod said clients are “naturally” reluctant to trust an ethical hacker. “They believe that hackers will hack into all that is available and misuse the data,” he said. “Thus, proving our integrity is crucial and, at times, difficult,” added Rathod.</p> <p>&nbsp;</p> <p>But, of late, an increase in cyber attacks and data breaches have led to an increased demand for ethical hackers or white hat hackers, who attack clients' technology to identify weaknesses; they also detect and resolve bugs. Recently, Solapur-based ethical hacker Mayur Fartade was paid Rs22 lakh for reporting a malicious bug on Instagram. It allowed access to archived posts, stories and reels without following the user, even when the profile was private. IT companies and police cybercrime cells are increasingly employing ethical hackers. Market reports have time and again stressed that there is a dearth of ethical hackers and skilled cyber security experts in India.</p> <p>&nbsp;</p> <p>Rathod said knowledge of operating systems, like Linux, IOS and Windows, is a key skill. He added that interpersonal skills are also important for creating and maintaining good business relationships. “Also, one may or may not be certified, but there is no substitute to knowledge,” he said. “There are free tutorials, open notes, research papers and case studies available to learn from. I have seen students from diverse streams—pharma, mechanical, business—who have managed to self-learn. A student who has knowledge of programming languages such as PEARL and PHYTON has an edge.”</p> <p>&nbsp;</p> <p>Ethical hacker Trishneet Arora, founder and chief executive officer of TAC Security, a cyber security company, developed an interest in ethical hacking at a young age. “I remember when my father first brought the computer home, I played games on it for a day and dismantled it the next day to see what is inside and how it works,” he said. Arora, like Rathod, said there are challenges to being an ethical hacker. “The negative connotations have been a hindering factor,” he said. “The other factor is education. I have often seen people enter the field and then not have enough knowledge to make an informed decision on which side to choose. They become heavily invested in the dark web and end up on the wrong side of the law.” Arora added that those who do become ethical hackers cannot stop learning or evolving as the adversaries do not stop. He added that it was important to try new things and think out of the box.</p> <p>&nbsp;</p> <p>Both Rathod and Arora have had their share of interesting experiences. Rathod recalls a case where an educational institution received a strange email. “This institution has thousands of students and hundreds of teachers, which makes it difficult to identify where the email came from.” he said. “It could have come from the dark web. We worked on it for months, but could not resolve it. It has been a couple of years and our team is still clueless. So yes, that happens.” Arora feels that each case is unique and a new challenge. “But, we like the challenges that come our way everyday,” he said. “It helps us understand threats and explore new ways to secure cyberspace.”</p> <p>&nbsp;</p> <p>Benild Joseph, a cybersecurity researcher, TEDx speaker and podcaster, echoes such views. “I had developed an interest in ethical hacking when I was in high school, but, when I ventured into the field around 2009, hackers were known as digital robbers,” said Joseph, who is an advisory board member of Cybersecurity Ventures, New York, and president, Information Systems Security Association, India chapter. He said there was hardly any opportunity to study about ethical hacking during his youth, but added that the field had evolved in India.</p> <p>&nbsp;</p> <p>During his career, Joseph has hacked into more than 40 corporates and found critical vulnerabilities for the likes of Facebook, Yahoo, Blackberry, Sony Pictures, Tesco, AstraZeneca, Vodafone and Deutsche Telekom. He said that though the situation around cybersecurity had improved in India, there were still a lot of skill gaps. Experts feel that the future of ethical hacking is bright. “As automation continues, there will be more demand for ethical hackers, not only in India, but also globally,” said Rathod.</p> <p>&nbsp;</p> <p>There are many options to choose from when it comes to a career in ethical hacking, like cyber security analyst, data analyst, information security analyst, web vulnerability researcher, malware analyst and forensic researcher. “Firms have more budget for cybersecurity and there are more roles for an ethical hacker,” said Arora. “We currently lack a workforce compared to the jobs available.”</p> Thu Jan 27 17:45:24 IST 2022 silver-etfs-new-opportunity <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p><b>WHEN IT COMES</b> to investing in commodities, the first thing that comes to an investor’s mind is gold. This is largely because a lay investor did not have access to invest into any other commodities thorough investment routes like mutual fund. However, in 2021, SEBI (Securities and Exchange Board of India) approved and issued operating norms for Silver ETF (Exchange Traded Fund), whereby such MF schemes will have to invest at least 95 per cent in silver and silver-related instruments. This has opened the doors for a lay investor to take exposure to silver as well through ETF or Fund of Fund (FOF) route.</p> <p>&nbsp;</p> <p>So why invest in commodities at all? The answer to this lies in the fact that commodities are generally considered as a bet against inflation as their prices are highly linked to general price levels in the economy. Apart from this, commodities also offer an investor the opportunity to diversify a portfolio given it is relatively lower correlation with equity market. Traditionally, in India, investors used gold and silver as a part of asset allocation in their portfolio. While gold could be held through a fund or ETF form, silver was largely held in physical form. Very savvy investors held silver through trade in commodity futures.</p> <p>&nbsp;</p> <p><b>What makes silver attractive</b></p> <p>Silver is among the preferred option globally when it comes to investing in precious metals. Historically, in times of increasing inflation, the value of silver increases and vice versa. Interest rate hikes play a role in inflation, thereby increasing attractiveness of silver while decreasing the attraction of other asset classes.</p> <p>&nbsp;</p> <p><b>Why silver ETFs</b></p> <p>With the introduction of norms for Silver ETFs, investors will now be able to invest in silver in a more liquid manner compared to traditional methods of investing in silver. In India, investors have been investing in Silver through Silver bars.coins/jewellery and some through silver futures. But in the physical space for silver, investors have to pay GST, which is a loss to them. As an unregistered dealer, they would not have a GST number hence they would have to pay out of pocket. Price efficiency is also likely to be better as compared to the traditional options.</p> <p>&nbsp;</p> <p>A major demand source for silver metal is industrial in nature. Industrial demand for silver as a proportion of total demand has increased due to increasing application in modern environmental friendly manufacturing. Consumption of silver is highest for electronic mobility and appliances indicating increased future demand as more renewable energy and mobility solutions are adopted. The demand-supply mismatch is expected to run up the price of silver.</p> <p>&nbsp;</p> <p><b>Ways to invest in silver</b></p> <p>Silver is more a tactical allocation as opposed to Gold, which is more of a strategic allocation. Silver, by nature, is very bulky. Hence it is not very easy to store the metal. Today an investor can invest in silver through silver ETF. By investing in silver ETF, investors will not have to worry about its purity, theft, storage or liquidity. This has made investing in silver easier, accessible and transparent for investors, who will benefit from professional fund management.</p> <p>&nbsp;</p> <p>ICICI Prudential is the first among its peers to offer silver based investment products. For investors with a demat account, they have Silver ETF and those without a demat account can invest through fund of fund. The benchmark for these offering is the rupee cost of silver as derived from the LBMA (London Bullion Market Association) AM fixing prices. The investment in these instruments start with as low as Rs 100.</p> <p>&nbsp;</p> <p>At a time when almost all the asset classes have rallied and are expensive in terms of valuation, silver prices have largely been muted thus far. It is very likely that in the near future owing to developments such as reflation in different parts of the world, there could be a spike in silver prices. Investors can consider at least a 5-10 per cent allocation to silver ETFs as a part of their portfolio.</p> <p>&nbsp;</p> <p><b>Santosh Joseph is founder and partner, Germinate Investor Services LLP.</b></p> Thu Jan 27 17:14:42 IST 2022 budget-watch-list-will-govt-focus-on-female-participation-in-the-economy <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p>Nupur Singh was living her dream before Covid struck. She held a senior position in an event management company which ensured a comfortable life, good salary and opportunities to travel. The pandemic, however, brought her world crashing down and dented her confidence completely.</p> <p>&nbsp;</p> <p>“I was without a salary for a year. I have always been an independent woman, so I found it hard to ask my husband to pay for me. There were days I would confine myself to my room. All our plans for the future appeared hazy,” said the 45-year-old Noida resident.</p> <p>&nbsp;</p> <p>Bereft of choices, she was forced to work as a data analyst with an American company. She is now learning coding. “Gone are the days of compulsive shopping. Now, I value money, and look at ways to save more. The lesson I learnt is to have a back-up plan at all times,” she said.</p> <p>&nbsp;</p> <p>Like Singh, Kritika Kashyap from Delhi, too, found a life saver in an area which thrived despite the pandemic. After losing her job as a stewardess with Lufthansa, she dipped into her savings to go to Rishikesh to train as a yoga instructor. “Everyone is becoming a yoga teacher these days. I am upgrading my skills to study fitness and nutrition, which will help me become an expert,” said Kashyap.</p> <p>&nbsp;</p> <p>Nitya Sudhakaran from Mumbai faced a prolonged period of distress when her employer, Jet Airways, closed shop. After spending 12 years in the revenue management unit at Jet, she found work in an allied field, but which required a different skill set. “Never be comfortable in one place. Keep upgrading your skills and move around. That is my big learning,” said Sudhakaran.</p> <p>&nbsp;</p> <p>Highly ambitious and self driven, these career women were forced to move away from the formal economy during the pandemic. With their grit and determination, they have started earning again, but there are lakhs of women who continue to remain unemployed. ‘She-cession’, derived from recession, is the term often used to describe how the failing economy is unkind to women.</p> <p>&nbsp;</p> <p>The missing women workforce has been captured by several studies. According to the World Economic Forum’s Global Gender Gap Report 2021, India slipped 28 places from its 112th position, to 140. In south Asia, only Pakistan and Afghanistan now fare worse than India.</p> <p>&nbsp;</p> <p>The gender gap report found that among the drivers of this decline is the substantial decrease in women’s labour force participation rate, which fell from 24.8 per cent to 22.3 per cent. The share of women in professional and technical roles declined to 29.2 per cent. These figures were reaffirmed by the Union ministry of statistics and programme implementation’s first-ever time-use survey.</p> <p>&nbsp;</p> <p>In India, only 20.6 per cent of women aged between 15 and 59 years are engaged in paid work, compared with 68.5 per cent of men in the same age bracket. In case of unpaid work, 94 per cent of women did so against 49 per cent of men.</p> <p>&nbsp;</p> <p>Rosa Abraham, assistant professor, Azim Premji University, Bengaluru, who co-authored a report titled ‘State of Working India, 2021’, said the decline has been visible since 1993. “These women are from poor households and are primarily employed in agriculture. They have moved out of jobs that were not good for them as their household income increased. While the women were able to withdraw from bad jobs, there are no new jobs created for them in the economy.”</p> <p>&nbsp;</p> <p>For every 1 per cent growth in the GDP, the accompanying growth in employment has steadily slowed. “When jobs are rationed, historically, women are the first to get rationed out. Good jobs are not being created. It is an issue that has not been addressed,” said Abraham.</p> <p>&nbsp;</p> <p>While women may have been at the receiving end of economic upheavals, they remain a decisive force when it comes to exercising their voting rights. Known as silent voters, they rallied behind those governments, be it in Bihar, West Bengal or Assam, whose policies positively impacted their lives. As five states go to the polls, political parties have made promises to women including Rs1,000 per month, free mobile phones, 40 per cent quota in jobs, women-centric manifestos and more tickets to contest.</p> <p>&nbsp;</p> <p>When Finance Minister Nirmala Sitharaman rises to present the Narendra Modi government’s ninth budget on February 1, one of the key issues to watch out for is whether the government would orient its focus on women jobs and would elevate their participation in the economy. Overall, job creation and inflation have emerged as main concerns for the government, which are turning into key election issues.</p> <p>&nbsp;</p> <p>As research has shown, young workers are also impacted by the pandemic. Jaipur-based graphic designer Tanvi Parnami was laid off when her online media company could no longer support its employees during the pandemic. “I worked from 7am to 11pm during the pandemic, my company knew that I was good and I thought that I would keep my job,” said the 22-year-old. Still, she lost her job.</p> <p>&nbsp;</p> <p>She then applied to nearly 150 employers and the only offer she got was from a Bengaluru-based startup. “There were financial issues at home as I was the only earning member,” said Parnami. “My mother, a schoolteacher, was paid just Rs500 a month during the pandemic. My father even started working at a factory after 22 years.”</p> <p>&nbsp;</p> <p>Things, however, may be finally looking up for youngsters like Parnami as companies are making an effort to recruit young talent, but the situation is far from rosy. “Less than 20 of 100 working age women have economic agency of their own. Among working women, the entrepreneurs were hit hard. The entrepreneur’s job is a 24x7 one. Most of them found it difficult and had to shut shop,” said Madhura Dasgupta Sinha, founder and CEO of the Mumbai-based startup, Aspire for Her. “Our aim is to bring one million women into the workforce by 2025 by building community, education, entrepreneurship and upskilling.”</p> <p>&nbsp;</p> <p>It is here that Bengaluru-based entrepreneur Farheen Quadri’s experience comes in. She left a high paying corporate job to start Zoey Cafe. When the pandemic hit, she continued to support her staff, despite shutting down one of her units. “I knew I had to go on. I loved cooking. So I decided to shift to cooking for those who fasted during Ramzan. Orders started pouring in. Soon, people started placing bigger orders on seeing my enthusiasm,” said Quadri.</p> <p>&nbsp;</p> <p>While the women in the formal sector are vocal about their needs, it is those in the informal sector, which constitute over 90 per cent of the country’s workforce, that suffer the most. “My two surveys among women in Delhi revealed how they faced hardship and higher mental stress during the pandemic,” said Shiney Chakraborty of the Delhi-based Institute of Social Studies Trust. “Among them are people who run their business from home, street vendors, construction workers and domestic helps. They had to take loans at very high interest rates to sustain themselves.”</p> <p>&nbsp;</p> <p>While the Central government has stepped in with schemes like Pradhan Mantri Ujjwala Yojana and Swachh Bharat and offered enhanced maternity benefits and upskilling training for women, the implementation of most schemes has not been up to the mark. Chakraborty said schemes like the Ujjwala Yojana were marred by the rising costs. “Most women told me that they switched to LPG as the first cylinder was free, but paying for new cylinders was not possible for most of them.”</p> <p>&nbsp;</p> <p>While women look at Sitharaman with hope, the options before the finance minister are rather limited. While several positive indicators point to an economic recovery, many sectors continue to suffer. India Ratings and Research Pvt Ltd expects the economy to grow by 7.6 per cent in 2022-23, a meaningful expansion after two years. The bigger challenges, however, are job growth and inflation.</p> <p>&nbsp;</p> <p>“There are challenges in the MSME (micro, small and medium enterprises) and the informal sector. We informed the finance minister about the issues as the rising commodity costs have impacted MSMEs. There are issues of credit requirement and working capital NPAs for the MSMEs,” said Gopal Krishna Agarwal, the BJP’s expert on economic affairs.</p> <p>&nbsp;</p> <p>The Central government looks at filling the employment gap by increasing spending on infrastructure. But the gap is huge. According to a report by the Centre for Monitoring Indian Economy (CMIE), as of December 2021, there are still over 35 million people who are not employed and are actively looking for jobs. Another 17 million unemployed are not actively looking for work, but are willing to work if there are suitable jobs.</p> <p>&nbsp;</p> <p>According to the CMIE, of the 35 million unemployed who are actively looking for work, 23 per cent are women. The corresponding figure among the 17 million passively unemployed is 53 per cent. “It is worth investigating why such a large number of women who tell interviewers that they are willing to work are not actively applying for work or making other efforts in finding work,” said CMIE CEO Mahesh Vyas in his report.</p> <p>&nbsp;</p> <p>Abraham said although the workforce participation rate may have returned to pre-pandemic levels, there was a change in the nature of the workforce. A lot of new women have entered the workforce, especially those from distressed households. “We have also found that those who have lost jobs are daily wagers and unskilled labourers. But those who are likely to return are men who had more experience. If you have education, you are likely to get work. But for women, the recovery is agnostic of their experience or education.”</p> <p>&nbsp;</p> <p>Politically, job creation remains Sitharaman’s biggest challenge. The government’s push for higher spending and capex can further raise the fiscal deficit. With India being in the third wave of the pandemic, it has been a cause of concern. Anubhuti Sahai, head (South Asia), economics research, Standard Chartered Bank, said Omicron had only a limited impact on the economy. Sahai said, “Tighter global conditions will have an impact on India, but the budget will be formulated based on the domestic macroeconomic conditions. We would hope that there are certain steps for targeted sectors, like contact intensive sectors where recovery has been delayed.”</p> <p>&nbsp;</p> <p>Sahai said the finance minister needed to ensure enough expenditure thrust to keep the growth momentum supported. She also called for fiscal consolidation if the government wanted to be included in major global bonding indices. “Fiscal deficit will have a direct impact on the interest rates and, therefore, on economic recovery,” Sahai said. “The finance minister is likely to strike a fine balance, with a target of 6 per cent in the next fiscal.”</p> <p>&nbsp;</p> <p>Experts expect that the budget will have to keep in mind the fiscal condition, but should still have steps to ease the situation for the poor, women, youth, middle class and the marginalised.</p> <p>&nbsp;</p> <p>While many economists pitch for fiscal consolidation to bring the deficit down to 6 per cent, Agarwal said fiscal consolidation should not be steep in the medium term as it would impact expenditure to boost growth. “The government should give a roadmap for fiscal consolidation on what can be done in the next two years to boost investors’ sentiment,” he said.</p> <p>&nbsp;</p> <p>Agarwal also called for some changes in direct taxes to put more money in people’s hands. The BJP has asked Sitharaman to devise a mechanism by which money can be transferred directly into the accounts of beneficiaries of Central schemes that are blocked by certain states.</p> <p>&nbsp;</p> <p>To address the jobs crisis, Chakraborty wanted the government to extend job guarantee schemes like the Mahatma Gandhi National Rural Employment Guarantee Act in urban areas, with reservation for women. Other government schemes like the Mudra loans, too, can be fine-tuned to extend further benefits for women.</p> <p>&nbsp;</p> <p>Abraham, meanwhile, said the government should continue its scheme of contributing to the employees’ provident fund, especially for women, to incentivise companies to hire more women, and also bring some kind of wage subsidy for young workers without jobs. Two sets of graduates have passed out in the last two years, but they are without any relevant experience. The government should bring an apprenticeship scheme and even conduct bridge courses to upgrade their skills to keep them relevant.</p> <p>&nbsp;</p> <p>For Sitharaman, the challenge may just be beginning with the new budget.</p> Thu Jan 27 17:08:17 IST 2022 budget-has-to-prioritise-growth-while-staying-on-the-fiscal-consolidation-path <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p>Omicron may be less severe, but has still caused some economic disruption, particularly in the services sector, because of the restrictions imposed in various states. Several economists have recently revised their GDP growth forecasts for the year ending March 2022 to 8.5 per cent to 9 per cent, around 0.5 per cent to 1.0 per cent less than earlier projections.</p> <p>&nbsp;</p> <p>Therefore, the 2022-2023 Union budget’s thrust area will be boosting economic growth and ensuring that all sectors are ready for a post-pandemic world, while being prepared for future waves. This will require a lot of funding, which is in limited supply. When the pandemic hit in early 2020, GDP growth was already slowing. In 2020-2021, the fiscal deficit was allowed to slip to 9.3 per cent of the GDP to fund stimulus measures. In the 2021-2022 budget, the government targeted a fiscal deficit of 6.8 per cent, much lower than the previous year, but still way above the fiscal glide path of getting it to under 4.5 per cent by 2025-2026.</p> <p>&nbsp;</p> <p>As private investments are yet to pick up in a big way, the government will have to do the heavy lifting again, but Finance Minister Nirmala Sitharaman will also be expected to take a few more steps towards fiscal consolidation. A comforting factor is that revenue collection has been strong. Between April and November, the revenue collection was Rs13.6 lakh crore, 76 per cent of the budget estimate (against 40 per cent in the same period last year).</p> <p>&nbsp;</p> <p>The net tax collections stood at Rs11.4 lakh crore (73.5 per cent, compared with 42 per cent last year). The GST collections, too, have been strong at Rs10.7 lakh crore (85 per cent of target). But, this will be offset by higher than expected payouts on food and fertiliser subsidies, health care and rural jobs schemes. Moreover, the Centre is also likely to miss its disinvestment target.</p> <p>&nbsp;</p> <p>Disinvestment has generated only Rs9,329 crore, so far, against the target of Rs1.75 lakh crore. The government had ambitious plans to take the LIC public, divest stake in Bharat Petroleum, and privatise two public sector banks and a state-run general insurance company, among others. The divestment of BPCL is going to be pushed to next year. The privatisation of two state-owned banks and one general insurer also seems to be delayed.</p> <p>&nbsp;</p> <p>But, the government is hoping to complete the public issue of LIC stock by the end of March. There is hectic activity, from the bureaucratic corridors of Delhi to investment banking offices in Mumbai, to complete what will be the largest IPO in the country by far. By some estimates, the LIC’s IPO, which is expected to fetch a valuation of Rs1 lakh crore or more, will be the third largest insurance IPO in the world.</p> <p>&nbsp;</p> <p>However, the insurer is yet to file its draft prospectus with the market regulator SEBI. “I am not sure the IPO will go through by March,” said Madan Sabnavis, chief economist, Bank of Baroda. “Clearance normally takes over two months. So, even if they file the papers by the end of January… it will [have to] be one of the fastest jobs SEBI has done, while being doubly cautious, given the size and scale of the issue.”</p> <p>&nbsp;</p> <p>Also, as M. Govinda Rao, chief economic adviser, Brickwork Ratings, pointed out, even if the government carried out the divestment of the LIC in the current fiscal year, there would still be a shortfall of close to Rs70,000 crore from the budgeted target. Rao, a member of the Fourteenth Finance Commission, added that as per the nominal GDP estimate (17.6 per cent; first advance estimates), the fiscal deficit works out to be 6.5 per cent.</p> <p>&nbsp;</p> <p>However, analysts differ on whether the government will be able to meet its fiscal deficit target. Sabnavis and Arun Singh, chief economist, Dun &amp; Bradstreet, felt the fiscal deficit may be around 7-7.1 per cent. “The government has made supplementary demands for Rs3 lakh crore additional expenditure,” said Sabnavis. “So, if this is spent and we fall short of Rs50,000 crore in disinvestment, even if tax revenue increases by Rs1 lakh crore, we could overshoot the target.”The government is expected to peg an even lower target for the next fiscal year. Expectations range from 6-6.5 per cent.</p> <p>&nbsp;</p> <p>Over the last few years, the Narendra Modi government has emphasised lifting the economy with huge capital expenditure in infrastructure. This is expected to form a big chunk of the budgeted capex this time, too. Defence will also take a big share. At the same time, the government will have to try to boost consumption. Rural consumption has slowed down because of uncertainty over income and a global rise in commodity costs and supply chain disruptions. Singh said there needs to be more money in the hands of the masses through schemes such as NREGA and the PM-Kisan programme.</p> <p>&nbsp;</p> <p>But, the government’s borrowings are already high. In the next financial year, gross borrowing is expected to be around Rs12 lakh crore (net borrowing: Rs8-9 lakh crore). “The budget faces acute policy trade-offs between nurturing a nascent recovery and diminishing fiscal space with challenging debt dynamics,” said Madhavi Arora, lead economist, Emkay Global Financial Services.</p> <p>&nbsp;</p> <p>So, in order to reign in the fiscal deficit, where can the government look to cut back? Singh said it may have to look at non-important spending, like some of the subsidies on non-merit goods. Better resource allocation and possible fiscal funding by aggressive asset sales or infrastructure monetisation would also be key, said economists.</p> <p>&nbsp;</p> <p>In this backdrop, the government is not in a position to increase capex by much, said Sabnavis. “Free food may have to be given; there will have to be more spending on health care,” he said. “Fertiliser subsidies may go up. There will be certain other commitments, too. Therefore, there is not enough scope for a big time rise in capex. Maybe it can go up from Rs5.5 lakh crore to Rs6 lakh crore, but nothing substantially higher than that.”</p> Thu Jan 27 16:52:15 IST 2022 bring-real-estate-petroleum-alcohol-and-power-into-gst <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p>Though the Indian economy is in recovery mode, the underlying growth impulses are weak, says economist Montek Singh Ahluwalia. The former deputy chairman of the Planning Commission says the situation calls for specific corrective action.</p> <p>In an exclusive interaction with THE WEEK, Ahluwalia talked about a range of issues—from fiscal deficit to tax reforms and employment. Excerpts:</p> <p><b>Q/What is the current state of the economy? Will the third wave of the pandemic affect recovery?</b></p> <p>A/There is no doubt that the economy is recovering from the shock of the pandemic in 2020-21. The whole world is. The question to ask is, are we doing better than others?</p> <p>The National Statistical Office has projected 9.2 per cent growth this year, based on data for the first two quarters. Signs of recovery weakened in the third quarter and independent analysts are projecting lower growth of 8.5 per cent. This will still leave us the fastest-growing major economy this year, but that is only because we had the largest contraction last year. Other economies have recovered sufficiently to raise their GDP to a level higher than the pre-pandemic year of 2019-20. In our case, we will just about get back to the 2019-20 level.</p> <p>A basic problem with the recovery is that it is not even. Several sectors have performed well, but the services sector (hotels, airlines, restaurants, etc) is badly hit. The third wave will postpone the recovery in these sectors further. It is called a ‘K-shaped’ recovery because those in the upper-income groups have done well but those lower down, especially those in the informal sector, have been badly hurt. Jobs have been lost and poverty has increased.</p> <p>Other economies have recovered sufficiently to raise their GDP to a level higher than the pre-pandemic year. In our case, we will just about get back to the 2019-20 level.</p> <p><b>Q/What should be the finance minister’s priorities in the budget?</b></p> <p>A/It depends on how she diagnoses the underlying problem. If she believes the economy is recovering strongly, then perhaps she might focus all her attention on making sure that the macroeconomic situation--basically the fiscal deficit--remains under control and there is progress on the reforms front. However, if she believes the underlying growth momentum is weak, she needs to address the specific reasons for that weakness.</p> <p>I think the underlying growth impulses are weak and call for specific corrective action. The National Sample Survey Office projected growth in the first two quarters as averaging 13.7 per cent, but for the year as a whole, it has projected 9.2 per cent. This can only mean that the average growth in the third and fourth quarters will be around 4.9 per cent. In other words, the underlying growth momentum as we enter the next year will be about 5 per cent or so.</p> <p>The IMF has said India could grow much faster next year and that is based on the judgment that India has the potential for higher growth—provided some of the policy support needed is forthcoming. I agree with this assessment but to make it happen we have to take the critical steps that will have an impact in a relatively short time.</p> <p>The demand side does present problems. Private consumption is weak and the consumption of the poorest segment has been adversely affected by the K-shaped recovery. A sustainable revival in consumer demand in this segment depends upon a recovery in employment. This will come if growth can be accelerated. The problems of micro, small and medium enterprises need special attention. There is a case for programmes that support income for the poor. The MGNREGA scheme for example, where states have said they are not getting enough funds should be fully funded.</p> <p><b>Q/What is your view on the fiscal deficit and what should it be next year?</b></p> <p>A/The fiscal deficit target of 6.8 per cent for the current year is likely to be achieved. Tax revenues have done better than [what was] targeted, but this is offset by shortfalls in privatisation revenues. Quite a lot of the expenditure takes place in the last quarter. I hope that the finance ministry does not try to contain it in order to show that the fiscal deficit is on track. They should provide fully for the National Rural Employment Guarantee Scheme. They should also provide fully for procuring vaccines for the current year and also in anticipation for the next year.</p> <p>For the coming fiscal year, I assume the finance minister will want to show a modest improvement, reducing the fiscal deficit for 2022-23 to say 6.3 per cent. That is still high, but given the weak growth impulses at present, and the likelihood that monetary policy may have to be tightened because of inflation fears, a sharper fiscal correction is not warranted.</p> <p>The important thing on the fiscal side is to implement a credible medium-term plan of bringing the deficit down in the future. Here again, achieving higher growth is the best way of reducing the fiscal deficit as a percentage of GDP. So, we should look at what policy initiatives can be pushed in that context.</p> <p>While on the subject of fiscal deficits let me add that the macroeconomic health of the country is usually judged by the combined deficit of the centre and the states. This presents a worrying picture. The states complain that they have not received the compensation for the shortfall in GST (Goods and Services Tax) revenues that they were promised when they agreed to the GST. They are being allowed to borrow more, but that borrowing adds to the fiscal deficit. They are also being allowed to borrow more to finance power sector reform. These additional borrowings add up to a worrying picture.</p> <p><b>Q/Should tax reforms be high on the agenda?</b></p> <p>A/Taxes are a core budget issue. I am sure the minister has received many requests for lowering rates on income and corporate tax. I hope she ignores these requests. Corporate taxes were lowered recently and they are now at very competitive levels. As for personal taxation, the rates are quite modest.</p> <p>The area where tax reform is desperately needed is the Goods and Services Tax. This is widely regarded as a pathbreaking reform that was meant to generate greater revenue buoyancy. GST revenues have done well in the current year, but that is only a recovery from the depressed levels last year. GST revenues as a per cent of the GDP are the same as they were before the pandemic.</p> <p>We need to bring about some basic changes in the structure of GST rates if we are to reap the full revenue benefits. The list of exempted goods is too large and it should be sharply pruned. Second, instead of the present four rates (5, 8, 18 and 28 per cent) we should cut the number down to two, say 10 and 15 per cent, plus a ‘sin tax’ on selected luxury goods. We should also bring real estate, petroleum, alcohol, and electricity into the GST.</p> <p>Changes in the GST cannot be legislated by Parliament. It has to be done by the GST Council. But it would be good for the finance minister to say in Parliament what she wants the reform to be and indicate that she will try and push it through the GST Council later in the year. Support for these changes in Parliament would help push them through the GST Council.</p> <p>I also wish she signals the start of a process of reversing the increase in customs duties that was started three years ago. Our customs duty rates are too high and they reduce the cost competitiveness of industry. These high rates prevent us from integrating with value chains in East Asia at a time when geopolitical developments around the world have created a desire to reduce the high dependence of these value chains on China. We should use this opportunity to integrate more closely with supply chains in Asia. If we want to help particular industries for a period, let us do so through the PLI scheme, but not through higher customs duties.</p> <p><b>Q/What are the other reforms we need to ensure a higher growth rate?</b></p> <p>A/There are many, but let me just mention two. Since private investment will take time to rebound, we should aim at expanded public investment in infrastructure. India has a huge deficit in infrastructure. Closing this gap will be the best way of stimulating a strong revival of private investment. The national infrastructure pipeline is an attractive slogan. Implementing it on the ground, based on some clearly identified projects with a defined timeline, would have huge payoff.</p> <p>Second, I would emphasise the need for pushing reforms in banking. This is in the domain of the finance ministry itself, but action has been very slow. I do not know the latest position on the proposal to privatise two public-sector banks, but if a timeline can be announced, it would help.</p> <p>Apart from privatisation of individual banks we should consider ways of removing the restrictive control the finance ministry exercises on public sector banks, which is not consistent with these banks becoming efficient and competitive with private sector banks. Unlike privatisation, this would not evoke any resistance from the unions and substantive progress in this area would be a big plus.</p> <p>The Insolvency and Bankruptcy Code was another important reform which has not had the impact it was expected to have. It was then effectively put in cold storage because of the pandemic and the perception that recovery efforts had to be put on the back burner. As the situation begins to normalise, especially for the formal sector, it needs to be put back on the front burner, with banks encouraged to use it to deal with problem accounts.</p> <p>Bringing the banking system back to good health is essential if the economy is to grow more rapidly. It is also essential for ensuring that MSMEs get access to credit as they start the process of rebuilding in the post-pandemic world.</p> Sun Jan 30 21:56:37 IST 2022 no-alternative-to-privatising-the-banking-sector-arvind-panagariya <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p>India’s economy has recovered fast from the pandemic-induced crisis, says Arvind Panagariya. A professor of economics and the Jagdish Bhagwati Professor of Indian Political Economy at Columbia University, Panagariya was the first vice chairman of NITI Aayog. In an exclusive interaction with THE WEEK, he talks frankly about the Indian economy. Excerpts:</p> <p>&nbsp;</p> <p><b>Q/What is the current state of the Indian economy and where is it headed?</b></p> <p>&nbsp;</p> <p>A/The economy has recovered speedily, with India’s growth rate in 2021-22 almost sure to be the highest [among major economies], just as the IMF forecast of October 2021 had predicted. Provided that Covid-19 does not force significant lockdowns, we can count on growing 7-8 per cent a year in the coming decade. If we do a few more key reforms, we can do better.</p> <p>&nbsp;</p> <p><b>Q/Do you feel that the economy is moving on the right path? Prices have been steadily rising and inflation has surged.</b></p> <p>&nbsp;</p> <p>A/Currently, inflation is well within the assigned target range (2 to 6 per cent). I do not think that the RBI has to begin tightening the moment it sees inflation exceeding the mid-point of the target range. In a developing economy in recovery, I am comfortable with inflation being in the 5 to 6 per cent range.</p> <p>&nbsp;</p> <p><b>Q/What kind of steps should be taken in the budget to revive the economy?</b></p> <p>&nbsp;</p> <p>A/The underlying question is whether the government should run a large fiscal deficit to stimulate the economy. My answer is no, for three reasons.</p> <p>&nbsp;</p> <p>First, by the end of the current fiscal year, the debt-to-GDP ratio is predicted to cross 90 per cent according to the IMF. Even at the low average interest rate of 6 per cent on public debt, interest on outstanding public debt would absorb 5.4 per cent of GDP. This is too large a proportion of total government revenues and needs to be brought down.</p> <p>&nbsp;</p> <p>Second, adding to debt only increases the tax burden on future generations, which is unfair to them. Finally, and most importantly, private investment is now picking up and the fiscal deficit will work to crowd it out. We need to give space to private investment.</p> <p>&nbsp;</p> <p><b>Q/Are any reforms required on the income tax front?</b></p> <p>&nbsp;</p> <p>A/We desperately need to broaden the tax base. In 2018-19, the number of income tax payers was astonishingly small, at 1.46 crore. Likewise, 50 per cent of the items in the consumer price index basket are out of the Goods and Services Tax net and many others attract the low rate of 5 per cent. So, the masses are effectively out of the tax base of both income tax and GST.</p> <p>&nbsp;</p> <p>But with the mass of the income accruing to the masses, you cannot increase tax-to-GDP ratio without taxing the masses. You may keep raising the tax rate on the few individuals and commodities in the existing tax base, but after a point, such hikes will only translate in corruption, evasion and reduced effort or consumption.</p> <p>&nbsp;</p> <p>Given the political challenge in expanding the income tax base—for example, no government will tax the farmers—the only alternative I see is a major GST reform that brings all items into the base and adopts two tax rates of 12 and 18 per cent.</p> <p>&nbsp;</p> <p><b>Q/How long will it take for the economy to return to pre-Covid levels? Anything on the GDP projections?</b></p> <p>&nbsp;</p> <p>A/According to the advance estimate just provided by the ministry of statistics and programme implementation, GDP in 2021-22 has crossed pre-Covid level. The IMF forecasts a growth rate of 8.5 per cent for 2022-23.</p> <p>&nbsp;</p> <p>If we undertake a few more reforms such as further opening of the economy to trade, and privatisation of public sector undertakings and public sector banks, we could aspire to reach a 9 to 10 per cent rate. At the same time, we need to continue strengthening the financial sector, including non-banking financial companies. Beyond that, I am confident that as the economy recovers, consumer spending will pick up.</p> <p>&nbsp;</p> <p><b>Q/What is your perspective on banking reforms? Is the bank amalgamation exercise showing results?</b></p> <p>&nbsp;</p> <p>A/It is imperative to proceed with privatisation of PSBs. The difference in the performance of private banks and PSBs along nearly every dimension is so stark, and the absorption of taxpayer money by PSBs on account of recapitalisation due to repeated episodes of NPA (non-performing assets) accumulation so high, that I see no alternative to privatisation in the banking sector.</p> <p>&nbsp;</p> <p><b>Q/What steps can be taken to create jobs?</b></p> <p>&nbsp;</p> <p>A/We need to open the economy wider and allow the rupee to depreciate. The states also need to implement the new labour codes expeditiously. They need to empower firms of all sizes to lay off workers under the Industrial Relations Code. Under the law, they can do it by a simple notification.</p> <p>&nbsp;</p> <p><b>Q/Do you see any possible impact of the ongoing third wave of the pandemic on the Indian economy, especially on the micro, small and medium enterprises segment?</b></p> <p>&nbsp;</p> <p>A/Our main challenge is to escape significant lockdowns in order to control any such impact on the Indian economy, especially the MSME segment.</p> Thu Jan 20 15:36:38 IST 2022 affluent-seniors-fuel-india-silver-economy <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p>Beena moved her parents from Pune to a house near hers in Bengaluru, to care for them. But it turned out that they needed more than that. Her parents, Sarojini, 86, and Moti Shahnani, 92, required catheter support besides daily care. And Covid was the last straw.</p> <p>&nbsp;</p> <p>“I was not able to take them to doctors,” said Beena, who turned in desperation to Portea, a health care startup that offers services ranging from basic nursing assistance to tailor-made packages based on patients’ requirements. Beena signed up for a package that included daily nursing care at home, medical monitoring, catheter change and emergency medical attention. “My parents stay in their own independent house, but I know that there is help at hand at any time of the day,” she said.</p> <p>&nbsp;</p> <p>On the other end of the spectrum is Ila Gupta, 66. The Gurugram-based homemaker joined Senior Dance Wellness, a programme curated exclusively for seniors by the dance wellness company You Can Dance, a while ago. “Dance was a passion for me, but I was busy with duties at home. But now that my children are settled, I can finally indulge in it,” she said.</p> <p>&nbsp;</p> <p>“We felt there was a huge gap in the market,” said You Can Dance’s co-founder Yatan Ahluwalia, who, along with co-founder &amp; creative director Pulkit Sharma, designs the session keeping in mind the health conditions of the seniors.</p> <p>&nbsp;</p> <p>These are just the tip of the opportunity iceberg that the silver economy is. The term refers to products and services aimed at the purchasing potential of the elderly. While this primarily brings to mind real estate projects billed ‘senior living’, of late it has moved on to cover a lot more in its ambit, ranging from financial solutions, transport, food, insurance, robotics, internet, sports and leisure. There is even a television channel aimed specifically at senior citizens!</p> <p>&nbsp;</p> <p>The government itself is pushing its silver economy agenda seriously. In December 2020, it came out with a draft National Policy for Senior Citizens, with appropriate regulations and standards, tax structures, policy support and subsidised financing. Ayushman Bharat has provision for an Asha worker to check on senior citizens, at least on paper. There are high expectations that the 2022 Union budget will have sops beyond the tax exemptions.</p> <p>&nbsp;</p> <p>But the most exciting government plan has been a business incubator project called SAGE, or Senior Ageing Growth Engine. It aims to “give a boost to private participation in the elderly care sector by selecting and promoting new startups with innovative ideas,” said R. Subrahmanyam, secretary in the ministry of social justice.</p> <p>&nbsp;</p> <p>SAGE will have a screening committee that will provide a funding of Rs1 crore as one-time equity to startups that suggest business ideas on elderly needs not just in health and housing, but also technology access to finances, wealth management to legal guidance.</p> <p>&nbsp;</p> <p>SAGE is joined in the acronym-craze of the Modiverse by SACRED, or Senior Able Citizens for Re-Employment in Dignity, which will work à la an ‘e-marketplace’ for senior citizens looking for a job, be it full-time or gig work or even pro bono options. Those retired from the armed forces as well as public sector companies and nationalised banks could be part of the first set of seniors to be thus employed.</p> <p>&nbsp;</p> <p>The reason for this heightened interest in the silver economy is not hard to figure out. A recent study in The Lancet noted that the life expectancy of an average Indian had risen by more than 10 years since 1990—from 59.6 years to 70.8 years. This means, and estimates by the UN as well as the Confederation of Indian Industry confirm, that about one in every four Indians will be a senior citizen by 2050. In sheer numbers, that will be equal to the population of the US.</p> <p>&nbsp;</p> <p>Looking after the welfare, including specific health requirements, of such a large number of people can be mind boggling. This is why Bibek Debroy, chairman of the Economic Advisory Council to the prime minister recently said, “India is often portrayed as a young society, with a consequent demographic dividend. But India also has a greying-cum-ageing problem.”</p> <p>&nbsp;</p> <p>However, there is a silver lining. While the challenge is to meet the requirements of this big group and to see how they can be made productive, it also throws up an opportunity. Thanks to the rising incomes and retirement benefits, and better investment opportunities, the elderly now play a significant role in driving the economy. In fact, studies put senior citizens, along with professionals in the 45 to 64 age group, as the ‘wealthiest age cohort’ in the world. And they would like to lead a full and productive life through the sunset years.</p> <p>&nbsp;</p> <p>“A large number of senior citizens today are independent, well-travelled, financially stable and socially connected,” said Prashant Thakur, director &amp; head (research) at the realty consultancy firm ANAROCK. “They have every right to decide how they want to live in their golden years.”</p> <p>&nbsp;</p> <p>And it is a market that is buzzing with a bevy of products and services—some old, some new and some borrowed from the west, where the silver economy is already a thriving segment.</p> <p>&nbsp;</p> <p>Ratan Tata, chairman emeritus of Tata Sons, is an investor in a startup—started by his protege Shantanu Naidu—called GoodFellows. It aims at providing companionship to the elderly in their day-to-day activities. The pilot is on and a launch is planned for early-2022.</p> <p>&nbsp;</p> <p>Naidu will face competition from the likes of Seniority, a shopping destination for seniors. Its members-only Evergreen Club is a web and app-based platform where anyone above 55 can socialise with others in the age group over shared interests, games, competitions and skill sessions.</p> <p>&nbsp;</p> <p>And, why limit those interactions to just socialising? Happy Seniors, a Pune-based dating community, does cupid proud as a dating service for elders. Many old-age homes and marriage service firms are offering ‘alliances’ for those in the older age brackets; some apparently even match seniors interested in a live-in option, considering how companionship is the biggest need for most seniors.</p> <p>&nbsp;</p> <p>And, the importance of retirement planning is also increasing. According to Prashant Tripathy, managing director &amp; CEO of Max Life Insurance, “There are no alternative retirement instruments available for senior citizens other than traditional ones like post office savings, bank fixed deposits, like different type of annuities.” Max Life Insurance recently did a retirement index study to gauge the financial capability of Indians to lead a healthy, peaceful and financially independent life once they retire.</p> <p>&nbsp;</p> <p>While the real estate projects aimed at ‘senior living’ initially came up at the turn of the century, it seems to have come of age now. A recent study showed that there were at least 55 specific senior living building projects in various stages of completion across India. This is an estimate from just 12 big realty firms. The Association for Senior Living India (ASLI), the umbrella body of developers which liaison with the government on policies, says it is adding three or four new members every month.</p> <p>&nbsp;</p> <p>That the potential requirement of senior living in the years to come is way more than what is available or under development explains the interest. Max India’s Antara, for instance, recently announced a Rs300 crore investment to build senior living projects across big cities.</p> <p>&nbsp;</p> <p>“Many seniors do not (want to) settle for traditional old-age homes as they prefer, and can afford, autonomy and the company of age peers in well-equipped retirement communities,” said Anuj Puri, chairman of ANAROCK. “A recurring theme of this pandemic has been seniors living alone, struggling for basics, managing without house help and anxious about medical issues. The need for homes in a setting where these factors are taken care of is now undeniable.”</p> <p>&nbsp;</p> <p>The pandemic clearly accentuated the need for senior-specific developments. “Residents of senior living communities were safer, better served and remained socially engaged during the pandemic. This was in direct contrast to the difficulties faced by seniors living on their own,” pointed out Mohit Nirula, CEO of Columbia Pacific Communities, one of the first multinational firms to venture into senior care in India.</p> <p>&nbsp;</p> <p>Senior living options have transformed from the days of being cooped up at old-age homes run by charitable or religious organisations. From retirement communities outside city limits to separate apartment complexes with scalable facilities (a bed with wheels or health monitors, for example), medical help on call and round-the-clock security, it has now evolved into even hybrid options.</p> <p>&nbsp;</p> <p>Realty major Puravankara’s Capella complex in Whitefield in Bengaluru, for instance, is now planning two towers exclusively for senior living. “The advantage is that you can have the child and the parents living in the same community in the same complex,” said Ashish R. Puravankara, managing director. Puravankara now plans to incorporate this model in all its large projects in the future.</p> <p>&nbsp;</p> <p>Hospital care at home is also picking up steam. “Many procedures can be effectively done at home, and insurance companies are also supporting them. This is starting to become mainstream,” said Meena Ganesh, MD, co-founder and chairperson of health care startup Portea Medical. “A health plan which tracks health condition and over a period of time intervenes as appropriate is what we have seen to be very popular.”</p> <p>&nbsp;</p> <p>According to Ankur Gupta, chairman of ASLI and joint-managing director of Ashiana, the first real estate company to launch senior living in India, the taboo has reduced considerably and the conversation has completely shifted. “It is such a delight to see seniors wanting to live a quality life and keep their kids independent,” he said. “It will help the sector at one level, and the country at another. We are making everyone capable of taking care of themselves at a greater level.”</p> Tue Jan 11 14:01:28 IST 2022 cooperative-sector-is-best-model-for-bharat-growth <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p>Few Indian brands enjoy the recognition and reputation that Amul does. The dairy giant is now expanding the milk products portfolio and getting into new products like vegetables and frozen fruits. In an exclusive interview, R.S. Sodhi, managing director of Amul, talks about its plans and the bigger role Amul has to play in the cooperative sector. Excerpts:</p> <p><b>Q/ What are Amul’s expansion plans?</b></p> <p>&nbsp;</p> <p>A/ Amul’s expansion plans are based on how much milk we will be getting. Generally, every year there is an expansion by Rs800 crore to Rs1,000 crore. We are getting 9 per cent more milk, which means 25 lakh litres. That means an investment of Rs1,000 crore. We are investing in Gujarat and outside in various product categories.</p> <p>&nbsp;</p> <p>We are expanding in fresh products (milk, curd and butter milk). A Rs500-crore dairy is coming up in Rajkot; land is being allocated by the state. Within two years, big dairy plants will also come up in Bagpat, near Delhi, Varanasi, Rohtak and Kolkata. The total investment would be between Rs300 crore and Rs500 crore.</p> <p>&nbsp;</p> <p>We are also eying Rs1,000 crore in exports. Amul exports to some 55 countries, though mainly to neighbouring countries.</p> <p>&nbsp;</p> <p><b>Q/ What are the new technologies Amul is introducing?</b></p> <p>&nbsp;</p> <p>A/ In milk production, we recently introduced two new technologies and these are doing really well. One is sorted sex semen, which leads to 95 per cent of calves born being female. The technology is subsidised (70% to 80%) for farmers. Second is embryo transplant, which helps to multiply the numbers (of high-yielding cows). Usually, a cow will deliver only one calf in a year. Using embryo transplant, 100 to 150 calves can (come from the same cow) every year, as the embryo can be transplanted into a non-productive cow as well. The calf will have the genes of a good bull.</p> <p>&nbsp;</p> <p>Milking machines are now being used more. Each machine costs Rs50,000. As not all farmers can afford it, we have mobile machines.</p> <p>&nbsp;</p> <p>For milk collection, we are working on solar-powered bulk milk coolers. Also, our tankers can measure fat and other parameters and feed it into the system even as the milk is pumped into the tanker. This ensures that nobody tampers with the quantity and quality of milk.</p> <p>&nbsp;</p> <p>We recently built Asia’s biggest milk powder plant. We are also working on a technology which can store perishable sweets like barfi and kalakand for up to 45 days.</p> <p>&nbsp;</p> <p><b>Q/ What are the new products in the pipeline?</b></p> <p>&nbsp;</p> <p>A/ New variants in butter and cheese, and we are investing a lot in Indian traditional fresh sweets. We want to make these products and fresh paneer in plants closer to consumption areas, and not centrally in Gujarat.</p> <p>&nbsp;</p> <p>We are working on high protein dairy products. We will be adding more markets for products like atta (flour) and honey. Bakery, frozen fruits and vegetables are other areas we are expanding to.</p> <p><b>Q/ There is buzz about organic and healthy food.</b></p> <p>&nbsp;</p> <p>A/ It is a growing category; at the moment, it is very niche, small and scattered. In dairy, we can definitely work. But in fruits and vegetables, we will have to get into the main category first and then organic. India’s organic market is Rs4,000 crore to Rs5,000 crore a year.</p> <p>&nbsp;</p> <p>In the fruits and vegetables category, we will add organic. The planning is on and it should happen in a year. We have forward distribution in the market, unlike others. We also have a pan-India frozen chain. No other company has this advantage.</p> <p>&nbsp;</p> <p><b>Q/ What are the key challenges before Amul?</b></p> <p>&nbsp;</p> <p>A/ As such, Amul and the dairy industry have the same challenge—how to increase productivity of animals to decrease the price of milk. The price of milk is increasing, but we have to ensure that milk and milk products are reasonably priced so that consumption increases. It is about meeting these two diagonally opposite demands by making the supply chain more efficient.</p> <p>&nbsp;</p> <p>Another challenge is dissuading the government from entering into free trade agreements for the import of dairy products, as this will harm the interest of dairy farmers. Till now, the government has responded favourably.</p> <p>&nbsp;</p> <p>Another challenge is the propaganda by vested interests against milk, which is a universally accepted super food and healthy product. PETA and other groups are unleashing false propaganda. In some countries, there are vested interests who do not want India to become a big force in the dairy industry.</p> <p>&nbsp;</p> <p>The whole world is surprised by how well India is doing. This is providing very good income for farmers in rural areas. There are 10 crore farmers (families) in animal husbandry in India and Amul has 3.6 crore farmers (families) under its fold.</p> <p>&nbsp;</p> <p>Another challenge is keeping Amul a contemporary, modern food brand for youngsters and villages. It is the only food brand that is accepted by all age groups, income brackets, geography, castes and religions. It is about keeping this image of the brand intact. The brand has to be modern, contemporary and innovative. It is not easy. Any decision you take, be it packaging, technology, pricing or policies, you have to see that in no way is it harming that image.</p> <p>&nbsp;</p> <p><b>Q/ How do you see the competition from private dairies?</b></p> <p>&nbsp;</p> <p>A/ Liberalisation happened in 1991. Many dairies have come up, many have survived and many have closed down. There is scope for everybody. In India, the dairy sector is worth Rs9 lakh crore and the organised sector is worth Rs3 lakh crore. In another decade, the organised sector can be worth Rs10 lakh crore.</p> <p>&nbsp;</p> <p>Competition will bring in more transparency, better prices for the farmers and better products. It will also help us to continue to work in supply chain innovation and expansion.</p> <p>&nbsp;</p> <p><b>Q/ Is Amul helping others set up cooperatives?</b></p> <p>&nbsp;</p> <p>A/ Cooperatives command 60 per cent market share in India. And all have come out of the knowledge and experience of Amul. This has been happening since Dr Verghese Kurien formed the National Dairy Development Board in 1965 to replicate the Amul model through it.</p> <p>&nbsp;</p> <p>In 2010, we decided to increase our milk procurement from outside Gujarat. So, we get milk from other states, including the northeast. We are helping cooperative sectors. For example, we are promoting the Jammu and Kashmir Milk Producers Union. It is now a Rs300 crore industry. We are also helping Andhra Pradesh to set up a cooperative.</p> <p>&nbsp;</p> <p><b>Q/ Union Cooperation Minister Amit Shah said he had a lot of expectations from Amul.</b></p> <p>&nbsp;</p> <p>A/ This is because, if India has to grow Bharat has to grow. Bharat means small workers and small farmers. For this, the cooperative sector is the best model in which they are not exploited by middlemen.</p> <p>&nbsp;</p> <p>Cooperative is the way of doing small business by small people, through small people. India is a country of small farmers, entrepreneurs, retailers and consumers. And only cooperatives can take care of these segments.</p> <p>&nbsp;</p> <p>Cooperatives are the only way to distribute wealth and remove income disparity. I think the government has realised this, and Amul is the time-tested, profitable, well-recognised model that the government would like to replicate.</p> Sun Jan 09 10:15:36 IST 2022 finfluencers-breaking-down-finance-for-the-masses <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p>Pune-based Rachana Ranade always wanted to be a teacher. She cleared her chartered accountancy exam in 2008 and declined high-profile job offers from multinational corporations to start teaching. As recently as 2019, she was teaching MBA and CA students. At one point, she was a visiting faculty in as many as seven colleges. Today, Ranade is a YouTube star, dishing out information on all things finance—from basics of the stock market to futures and options trading for beginners and analysis of initial public offerings.</p> <p>&nbsp;</p> <p>“Other than CA and MBA, the stock market was one area I loved,” she said. “I have been investing in stocks since 2006. My husband and brother also used to always talk about stocks. So, that is what got me interested and I slowly started learning. Once a group of CA students approached me to take a class on stock markets. While conducting a class for a small batch, I realised that the stock market was a subject that could be taught.”</p> <p>&nbsp;</p> <p>As more students got interested in her lectures on stock markets, people started demanding recorded lectures. The first lecture that Ranade uploaded on YouTube was a lengthy 90 minutes. It still got 25,000 views in three months. That proved to be a game changer, she said. The lecture has since received over 10 million views and Ranade has left teaching to become a full-time financial influencer.</p> <p>&nbsp;</p> <p>Hyderabad-based Prasad Lendwe’s interest in the stock market began when he was in college. While pursuing an engineering degree in Mumbai, he started following the stock market through a financial daily that his friend bought regularly. His interest piqued, he moved on to second-hand books and magazines. Initially, with his limited knowledge, he suffered huge losses in the market.</p> <p>&nbsp;</p> <p>Rather than calling it quits, he learnt more about stocks and started working part-time to raise seed money for investing. To share the learnings from his mistakes, he posted a video on the basics of the stock market in 2014. The YouTube video got 14,000 views in around two months and continued to attract more. This led to requests for more such content and Lendwe started uploading videos every few months. Now, he is also a full-time financial influencer (commonly known as a finfluencer).</p> <p>&nbsp;</p> <p><b>Locked down, investment up</b></p> <p>When the pandemic led to lockdowns across the world, people seemingly found more time to look at the markets. Equity investing definitely grew in a big way. On October 25, the unique registered investors on the National Stock Exchange (NSE) crossed 50 million. The growth from 30 million to 40 million had taken 15 months. But, the next 10 million were added in just seven months, according to the NSE.</p> <p>&nbsp;</p> <p>A record 14.2 million new demat accounts were opened in the year ended March 2021—over three times the 4.3 million accounts opened in the previous financial year. A large part of this growth was fuelled by discount brokerages like Zerodha, Upstox, Groww and 5Paisa. As more people have taken to direct stock market investing, their quest for information has also grown. This has led to skyrocketing views for finfluencer videos.</p> <p>&nbsp;</p> <p>Ranade’s YouTube channel now has over 3.2 million subscribers. Raipur-based Pranjal Kamra’s YouTube channel on finance has over 3.3 million subscribers. Mukul Malik’s personal finance channel has touched 2.8 million. Lendwe’s channel has crossed 1.6 million. The underlying thing that has clicked is that all these influencers try to explain difficult topics in simple language that common people can understand.</p> <p>&nbsp;</p> <p>“The amount of views that all good influencers are getting clearly shows that the younger generation, which has come into the market, wants to learn,” said Anant Ladha, the founder of Invest Aaj for Kal. “They are not just here to get so-called tips on what to buy and sell. During lockdown, people had time and wanted to learn something new. There has been a clear bifurcation between good and bad, and channels providing good educational content have exploded.”</p> <p>&nbsp;</p> <p>Ladha, a chartered financial analyst and a certified financial planner, was doing offline financial advisory sessions. But, by doing these sessions for small groups, he felt that he can only ever reach one lakh to two lakh people. So, Ladha decided to tap into social media platforms and began uploading videos on YouTube. His channel now has over six lakh subscribers. Initially, his videos used to get 2,000 to 5,000 views. They now fetch 60,000 to 80,000, some even hit one lakh.</p> <p>&nbsp;</p> <p>Chennai-based options trader P.R. Sundar, who also has a YouTube channel on stock markets, has seen similar growth. Sundar taught mathematics in Gujarat for around six years. Then, in 1994, he started teaching in Singapore. He returned in 2005 and, in 2007, started investing in stocks. His YouTube channel is under two years old. In April 2020, he had 20,000 subscribers. That has surged to around 7.8 lakh now—a growth of over 3,000 per cent in less than two years. His videos, on average, get around one lakh views.</p> <p>&nbsp;</p> <p><b>The influencer revenue model</b></p> <p>As the clicks on videos uploaded on YouTube increase, so does the platform’s revenue. YouTube then shares this revenue with the content creators, based on the number of views. The YouTubers can also enable channel memberships. Members-only benefits vary—YouTubers usually explain these while asking viewers to become members.</p> <p>&nbsp;</p> <p>Another revenue stream is sponsorships; videos by finfluencers is logical content for stock broking firms to sponsor. Several broking firms are reaching out to finfluencers. The partnership could be as simple as enabling links on a channel, which would direct a viewer to a demat account opening page on a broking firm’s website. Bhuvanesh R., a business analyst at discount broker Zerodha, said that the firm has an affiliate partner programme where partners get a share for bringing people to it. There could also be other benefits. For example, Sundar said that his YouTube videos had helped him attract more people to his workshops.</p> <p>&nbsp;</p> <p>Ranade enabled paid memberships last year and YouTube’s CEO Susan Wojcicki mentioned in her official blog that it accounted for the majority of Ranade’s YouTube revenue, with around $100,000 (about 076 lakh) in less than a year. “This is just membership revenue,” said Ranade. “Then there are advertisements, brand deals and there are courses.” But, she is quick to add that while there is money to be made, one needs to have perseverance and stick to one’s schedule of uploading videos without fail. Ranade’s husband, who is also a CA, has recently quit his job and joined her full time. Ranade publishes videos twice a week and plans her upcoming videos weeks in advance after discussions with her team.</p> <p>&nbsp;</p> <p>Sundar, who does market analysis daily, agreed there is a lot of hard work that goes into making a YouTube channel successful. He pointed out that even on vacations, he has had to make time and publish his videos through his phone.</p> <p>&nbsp;</p> <p><b>The untapped markets</b></p> <p>Until a few years ago, people from states like Maharashtra and Gujarat and the metros elsewhere formed a major chunk of stock market and mutual fund investors. But, that is changing fast. Data from the Association of Mutual Funds of India shows that assets from B30 (cities beyond the top 30) touched 06.16 trillion in September 2021, compared with 04.47 trillion in September 2020—a 38 per cent year-on-year increase.</p> <p>&nbsp;</p> <p>However, despite the surge in stock market investors and mutual fund flows hitting a record, the overall equity market penetration still remains in single digits. As smartphone penetration and media consumption in the small towns grow, this is a huge addressable market for influencers. “Earlier people had to rely on news magazines or business channels for content,” said Sundar. “Now, because of the phenomenal growth of platforms like YouTube, Facebook and Twitter, a lot of people have got opportunities to be content creators and content receivers.”</p> <p>&nbsp;</p> <p>Finfluencers like Lendwe, Kamra and Ladha largely have content in Hindi. But, there is huge potential in other regional languages, too. Sharique Samsudheen, who does YouTube videos on the stock market and personal finance in Malayalam, has over 8.9 lakh subscribers.</p> <p>&nbsp;</p> <p>Sundar plans to start a Tamil language channel in a few months; there have been many requests for the same, he said. Lendwe also expects traction for vernacular medium content in the next few years. He is currently setting up a team and plans to hire anchors to start YouTube channels in different languages, especially targeting people who do not understand Hindi.</p> <p>&nbsp;</p> <p>Ranade says there is a huge scope for generating financial education aimed at kids. “My third standard kid said that ‘When I keep money in banks, they are providing a service; so why shouldn’t we pay them to keep our money safe, rather than them paying us’,” said Ranade. “I realised that children do understand a lot. So, finance for kids is a dream project. This will be a long-term project, but I do feel that there is a need for such content targeting children, too.”</p> <p>&nbsp;</p> <p>While many finfluencers are providing great content, there is a flip side. “Some of the influencers are honest and are doing it for a purely educational purpose,” said Bhuvanesh. “But, the garbage is 100 times the decent content out there.”</p> <p>&nbsp;</p> <p>Also, many influencers are not licenced as financial advisers. Lendwe, for instance, clearly mentions that his videos are based on the knowledge he gathers. Furthermore, investment goals and horizons will depend on each individual. This is a big road block for YouTube influencers as many of them give generic information.</p> <p>&nbsp;</p> <p>K.S. Rao, head, investor education and distribution development, Aditya Birla Sun Life AMC, said that while finfluencers were helping improve the learning curve of investors, there should be regulation in the space. “If I have one lakh followers, a statement I make will have an impact the next morning,” he said. “If the statement is motivated, then it could be dangerous for people who are following me.” So, while finfluencers play a big role in investor awareness and education, financial planners or advisers will remain key.</p> Sun Jan 02 10:58:56 IST 2022 dividend-yield-and-portfolio <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p><b>WHEN YOU CALCULATE</b> returns from equity investment, you must take into consideration two sources of returns. One, the return from an appreciation in price, and two, the revenue generated from dividend income. Simply put:</p> <p>&nbsp;</p> <p>Equity returns = capital appreciation + dividend</p> <p>&nbsp;</p> <p>Inarguably, the capital appreciates or price appreciates element holds maximum sway and has a large impact on your total returns from equity investments. However, the dividend element should not be ignored. A lot of well-established companies in India regularly pay dividends, and you can create a small source of dividend income for yourself by investing in these companies. If direct equity investing is not your cup of tea, then you can simply consider investing in a dividend yield fund.</p> <p>&nbsp;</p> <p><b>What is a dividend yield fund?</b></p> <p>A dividend yield fund is a type of equity fund that invests in stocks of companies that have a high dividend yield and have historically been regularly paying dividends. Generally, a dividend yield fund invests approximately 70-80 per cent of its corpus in stocks that have a high dividend yield (historical dividend yield should be higher than market dividend yield) and the balance they invest in other stocks. It is important to note that the criteria for selection are not high dividend but high dividend yield. Before we move on to understanding how a dividend yield fund can add value to your investment portfolio, let us first understand the difference between dividend and dividend yield.</p> <p>&nbsp;</p> <p>A dividend refers to a sum of money that a company pays to its shareholders from its profits. Two factors need to come together for a company to pay dividends. One, it should be making profits and should have surplus cash. And, two, it should choose to pay out the profits rather than reinvest it back in the business.</p> <p>&nbsp;</p> <p>Dividend yield is the dividend expressed as a percentage of the share price of the company. It is usually expressed annually and it tells you what percentage of a company’s share price is paid out in dividends.</p> <p>&nbsp;</p> <p><b>More than a bear market friend</b></p> <p>What dividend funds essentially do is that they reduce the volatility of your investment portfolio. Now, historically, companies that have consistently declared dividends are those that are profitable and well-established. They have weathered multiple market cycles and are now in a position to generate profits and redistribute them amongst shareholders. Exposure to such companies will add stability to your equity portfolio and enhance returns in the form of dividends. However, while talking about returns, it is also important to understand that since these companies are no longer in a high growth phase, they are unlikely to generate exponentially high returns. Another thing about dividend yield funds is that they invest in companies that have a high dividend yield, i.e., the dividend relative to the current share price is high. Inevitably, they end up becoming value funds since the stock price relative to the dividend is low. While value funds can underperform for extended periods, over an entire economic cycle, they can also generate potentially good returns. Thus, when you invest in a dividend yield fund, you must have a long-term investment horizon.</p> <p>&nbsp;</p> <p>More importantly, know why you want to invest in a dividend yield fund. If it is just for dividend income, exponential returns, or short-term gains then it might not be the right investment for you. On the other hand, if you have a long-term investment horizon and are looking for stability and the potential for consistent income and good returns over a longer period, then a dividend yield fund might just be the solution for you. To that extent, they can be a good addition to every kind of portfolio. An important thing to remember is that dividend yield funds are not mandated to pay out dividends. Thus, when you invest in a dividend yield mutual fund you must ensure that the fund has a decent sized corpus, low historical volatility, consistent dividend payout history, and low expense ratio. For example, ICICI Prudential and Templeton are some of the top-performing funds in this category.</p> <p>&nbsp;</p> <p>At the end of the day, all investments that you make must be well-aligned with your asset allocation strategy, adhere to your risk and investment time horizon constraints, and have the potential to generate the desired returns.</p> <p>&nbsp;</p> <p><b>The writer is co-founder, Money Tree Services.</b></p> Sat Jan 01 12:13:01 IST 2022 bengaluru-indias-tech-capital-is-also-its-rose-basket <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p>Rose Day (February 7) kicks off Valentine week, during which affections are revealed or strengthened with the exchange of roses. But, on the outskirts of Bengaluru, every day is Rose Day. Around four to five lakh roses are harvested daily in the city; the greenhouses together cover about 2,000 acres. Open field cultivation, too, produces a significant number of roses. The flowers are grown throughout the year in India’s tech capital, which has emerged as the nation’s rose basket.</p> <p>&nbsp;</p> <p>The many floriculturists who migrated to Bengaluru suburbs in the 1990s have reaped rewards. Shrikanth Bollapally, who hails from Andhra Pradesh, moved to Doddaballapur near Bengaluru around 20 years ago. He grows roses in greenhouses on his 35-acre farm. Bollapally, who is president of the Flower Council of India, is from an agricultural family. But, no one in his family is into floriculture; they grow sugarcane, paddy, soybeans and sunflowers in Andhra Pradesh.</p> <p>&nbsp;</p> <p>“I wanted to do something innovative in floriculture,” Bollapally told THE WEEK. “I took a bank loan and started greenhouse rose cultivation.” His business had grown and was doing well. But, Covid-19 posed a major challenge because of the postponement and cancellation of weddings and other events. “I am dependent on the Indian market,” he said. “Other big floriculturists in the area also export.” Things are slowly getting back on track for Bollapally and many others like him.</p> <p>&nbsp;</p> <p>Open field cultivation has been a tradition in and around the city for a long time, while greenhouse cultivation became popular only in the mid-1990s. People used to grow garden variety roses, but greenhouses focus on hybrid varieties of Dutch roses. The Indian government was quick to recognise the potential for export. “In the western hemisphere, one cannot grow roses for six months because of the cold and if roses have to be grown in lighthouses, the energy costs go up,” said Thilak Subbaiah, a Bengaluru-based horticulture consultant, who specialises in rose cultivation. He added that roses generally grow well in places where the average temperature is between 28 to 30 degrees Celsius during the day and between 20 to 25 degrees Celsius at night.</p> <p>&nbsp;</p> <p>“European countries were importing roses from Africa and Central America. So, in the mid-1990s, the government directed many banks and financial institutions to help floriculturists,” Subbaiah said. He added that this helped cover the high capital expenditure. “Initially, rose cultivation in and around Bengaluru used to depend on Israeli technology,” he said. “We imported a lot of material, but gradually home-grown innovations developed.”</p> <p>&nbsp;</p> <p>The result is that greenhouse cultivation, which experts point out is only 20 to 30 per cent of the overall rose cultivation area, has already exceeded open field cultivation in terms of production capacity. The quality, too, is superior. “Open field roses have short stems and are of inferior quality,” said Subbaiah. Bollapally said the cost of setting up greenhouses could be as high as Rs50 lakh per acre (one-time investment on infrastructure, including irrigation, and plants and maintenance costs). This is in stark contrast with open field cultivation where there are no major infrastructure costs.</p> <p>&nbsp;</p> <p>“Each rose bush lasts for five to six years, depending on the maintenance,” said Bollapally. “On average, an acre [in greenhouse cultivation] can grow 35,000 rose plants and one can get around 2,000 flowers per day per acre. That adds up to over seven lakh flowers per annum per acre.” He said there was huge demand from major cities across India, such as Delhi, Hyderabad, Pune and Kolkata. For domestic distribution, roses are packed in cartons and are transported by air or road. “Once the rose is plucked, it has five to six days of life—if it is maintained at the right temperature,” said Bollapally. “If it is not handled carefully, it will wilt the same day. For domestic dispatch, a temperature of 20 to 25 degrees Celsius has to be maintained. For exports, it needs to be around 3 to 6 degrees Celsius during storage and around 15 to 20 degrees Celsius in air cargo.”</p> <p>&nbsp;</p> <p>The Middle East, Malaysia, Singapore, Australia and Europe are now major export markets for Bengaluru roses. The city also boasts the International Flower Auction Bangalore (IFAB)—the only organised flower auction house in India that is running successfully. It has been functional for over two decades and runs 365 days. IFAB representatives collect the roses from the floriculturists. The auction prices are transparent and a message is sent to farmers when their flowers are sold. They receive payment on every eighth day.</p> <p>&nbsp;</p> <p>“There has been no default in payment for the last 20 years,” said M. Vishwanath, managing director, IFAB. He added that the auction house was registered under the Companies Act and worked in tandem with both growers’ and buyers’ associations. “On average, we get around 2.5 lakh to three lakh rose stems per day,” he said. “They are usually auctioned the same day. There has been a steady increase in growth, but it has been flat for the last two years because of Covid-19. We have more than 300 registered farmers/growers. Anyone can register with us.” He added that the pricing was based on demand and supply. “There is no lobbying during the auction,” he said. “The buyers are given tabs. The auction starts at 8:30am and goes on till around 2:30pm every day. During the festive season and close to Valentine’s Day, the auction can go on till 8pm.”</p> <p>&nbsp;</p> <p>Vishwanath said the elevation of Bengaluru—over 800m—was one of the major factors that made it suitable for rose cultivation. “We get good-sized buds because of the elevation and favourable climatic conditions,” he said. He added that even in a greenhouse, the temperature can only be manipulated by around 4 to 5 degrees Celsius, and therefore the local climatic conditions were vital. He said that the prices were currently good. “The average price is 04 to 04.50 per rose stem,” he said. “If the same price continues for the next three to four months, and if the Covid situation stabilises, we can expect an increase in rose production in the area in the future.” The K.R. Market (Krishna Rajendra Market) is already one of the largest rose markets in the country. Around two to three lakh roses are sold here in a day. The market has a mix of both open field produce and greenhouse roses. But, the majority of greenhouse roses go to the IFAB and open field roses are primarily sold at K.R. Market.</p> <p>&nbsp;</p> <p>Bollapally said that even the recent ban on garlands and bouquets by the Karnataka government has not had a major impact on rose cultivation. He added that the ban notwithstanding, the government has been supporting the business and has given subsidies to floriculturists. “Now, we are even seeing professionals such as doctors, engineers and lawyers getting into the rose cultivation business,” he said.</p> <p>&nbsp;</p> <p>But, not everything is rosy in the rose cultivation business. Labour and water shortage are major issues. It is believed that 60 to 70 per cent of the labourers at rose farms in and around Bengaluru are migrants from Bihar, Uttar Pradesh, Chhattisgarh and Jharkhand. Subbaiah said pests and diseases were also challenges. So, the new entrants will need to prepare for such problems. As the saying goes, there is no rose without thorns.</p> Sun Dec 19 17:03:51 IST 2021 balancing-act <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p><b>BALANCED ADVANTAGE FUND</b> (BAF), also known as Dynamic Asset Allocation Fund, is a category of hybrid mutual fund schemes that invest in asset classes like equity and debt and keep modifying their asset allocation based on the market valuation. As a result, this category of funds has lower risk than pure equity funds but has the potential to give higher returns than debt funds. The highlight of the category is that the fund manager has the flexibility to move anywhere from 0 to 100 per cent allocation in a particular asset class based on market conditions.</p> <p>&nbsp;</p> <p>BAFs use various tools to gauge an asset class. Some rely on valuation tools such as price to earnings and price to book ratio, or a combination of these to ascertain the proportion of investment in equity and debt.</p> <p>&nbsp;</p> <p>A traditional hybrid fund would have a predefined ratio of 70:30 in favour of equity or debt, depending on whether you opt for an aggressive or a conservative fund. In effect, the leeway to shift the asset mix was predefined and limited. That is where BAFs have an edge.</p> <p>&nbsp;</p> <p>Several fund houses use a model-based approach to decide on the allocation mix. Such an approach is generally perceived to remove fund manager bias, if any, towards an asset class. These models indicate which asset class is attractive and the fund manager decides to invest in that particular asset class. Owing to this approach, the portfolio undergoes automatic reallocation so that the fund is invested into equities when the market is cheap and vice versa.</p> <p>&nbsp;</p> <p>BAFs over the past few years have been increasingly gaining popularity due to their inbuilt asset allocation practice. Almost all the major fund houses today have a BAF in their product offerings. However, the way in which it is managed varies. There are a few options where equity allocation is largely static at over 70 per cent. Such offerings will tend to deliver returns during a bull market. The same goes with equity allocation which is momentum based.</p> <p>&nbsp;</p> <p>On the other hand, there are some very conservative offerings where the equity allocation is less than 30 per cent. Most of the BAF universe, however, tends to be somewhere in the middle of the spectrum. These funds dynamically change their equity allocation to keep pace with the changing market conditions. HDFC Balanced Advantage Fund, the largest fund in the category, has an equity exposure of up to 75 per cent, while ICICI Balanced Advantage, the second-largest, has an equity exposure of 37.2 per cent. Most other funds in the category have an equity allocation between 30 and 55 per cent.</p> <p>&nbsp;</p> <p>One of the major challenges for an investor is to ensure that the wealth created by a bull market rally remains protected. In such a scenario, BAF emerges as a good option for lump-sum deployment. Here, one can park all the gains and can rest assured that the investment will not be subjected to undue risks. The caveat here is that one should have deployed money in a conservatively managed BAF.</p> <p>&nbsp;</p> <p>By being a part of a conservatively managed BAF, one can have an allocation towards equities while being sufficiently hedged. This means your investments will largely remain protected due to limited equity exposure even in case of a correction.</p> <p>&nbsp;</p> <p>A pioneer in the category, the ICICI Prudential BAF has a track record of more than a decade. The allocation calls in the fund are based on a tried and tested model. Even though the average equity allocation over the last decade was around 54.6 per cent, the returns generated by the fund were at par with Nifty 50. In effect, what an investor of this fund has achieved is that despite the reduced equity allocation, which means lower risk, the return profile has been that of a fully invested equity fund.</p> <p>&nbsp;</p> <p><b>The author is managing director, J2 Wealth &amp; Investments.</b></p> Sat Nov 20 16:47:19 IST 2021 residential-real-estate-market-on-the-rebound-headed-for-consolidation <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p><b>IN MUMBAI,</b> the largest residential real estate market in India, 8,576 houses were sold in October, the highest for that month in a decade. November, it seems, is going to be as good—1,441 properties were registered in the first week of the month, according to the real estate consultancy Knight Frank India.</p> <p>&nbsp;</p> <p>The past six years had been rough for the residential real estate sector. Demonetisation, disruptions caused by the Real Estate Regulation and Development Act and the goods and services tax and a liquidity crisis had driven down demand for houses. The pandemic was the final blow. Inventories piled up and developers hit the brakes on new launches.</p> <p>&nbsp;</p> <p>The hard times, however, seem to be over now, with buyers returning to the market. As the prices are steady, it continues to be an excellent market for buyers. The biggest draw, however, is the all-time low interest rates. During the pandemic, central banks around the world slashed interest rates and pumped money into the system. The Reserve Bank of India cut the repo rate (the benchmark rate at which it lends to banks) to just 4 per cent. Banks, in turn, slashed their rates. Some banks offer home loans at 6.40 per cent interest now.</p> <p>&nbsp;</p> <p>“A healthy environment fostered by low home loan interest rates is set to continue as the RBI has kept key policy rates unchanged for the eighth consecutive time in early October,” said Shishir Baijal, chairman and managing director of Knight Frank India.</p> <p>&nbsp;</p> <p>Home sales in the July-September quarter in India’s eight largest cities surged 92 per cent year-on-year to 64,010 units. This was 104 per cent of the quarterly average in 2019, indicating that sales are now above the pre-pandemic levels. “The residential market has been witnessing pent up demand. The market will further be buoyant on festive tailwinds, supplemented by conducive market dynamics like low interest rate and deal sweeteners from developers,” said Niranjan Hiranandani, managing director of Hiranandani Group.</p> <p>&nbsp;</p> <p>The momentum can be seen across all major markets. Mumbai saw sales more than double year-on-year to 15,942 units in the September quarter, according to Knight Frank India. In Hyderabad, sales jumped more than three-fold to 5,987 units. In Bengaluru, sales surged 131 per cent from a year ago to 11,337 units. Sales rose 94 per cent in Pune, 75 per cent in Kolkata and 48 per cent in the National Capital Region. In Kolkata, 6,861 units were sold in the third quarter, 244 per cent more than the 2019 quarter average.</p> <p>&nbsp;</p> <p>“The way the market has bounced back is better than the pre-Covid times,” said Rajeev Ramaswamy, joint managing director, Sreevatsa Real Estates. “The lockdown last year made people realise that they need a larger space. So, people now have specific requirements. Young families with children, for instance, are looking for larger homes.”</p> <p>&nbsp;</p> <p>A few states in the last year announced measures that helped drive the demand. West Bengal, for instance, announced a 2 per cent rebate on stamp duty for property registrations done between July 9 and October 30, 2021. “We have been seeing green shoots of recovery across the state and broader eastern India,” said Harshavardhan Neotia, chairman of the Kolkata-based Ambuja Neotia Group. “Projects like condominiums or integrated townships are in huge demand because facilities like gym, recreation, parks, gardens and daily essential stores are all located within the society premises,” he said.</p> <p>&nbsp;</p> <p>The demand for larger homes is likely to continue. “We are incorporating a higher percentage of larger units/extra bedrooms in our product mix and configurations,” said Pavitra Shankar, executive director, Brigade Group.</p> <p>&nbsp;</p> <p>As sales have improved, developers have stepped up on project launches. Real estate consultant JLL says 32,863 units were launched in the July-September period, up 21 per cent from 27,057 in April-June. Just for comparison, 12,654 units were launched in the September 2020 quarter. However, these are still below the pre-Covid January-March 2020, when around 40,500 units were launched. The focus is on clearing the inventory and aligning launches with actual market demand.</p> <p>&nbsp;</p> <p>Hyderabad accounted for 31 per cent of new launches between January-September 2021, followed by Mumbai (18 per cent), Pune (17 per cent), Bengaluru (16 per cent) and Delhi NCR (10 per cent), showed data from JLL.</p> <p>&nbsp;</p> <p>The pandemic has changed not only buying preferences but also selling methods. Developers have invested heavily in technology, and customers can now view projects from the comfort of their homes in augmented and virtual reality. Developers have also streamlined online home buying platforms. JLL expects digital marketing to become the primary channel in the sector to generate leads.</p> <p>&nbsp;</p> <p>There are, however, plenty of challenges as well. Prices of key raw materials such as steel, cement, aluminium and copper have risen sharply this year, driving up construction costs. Developers have not been able to pass on these to customers, worried that it would dampen the demand. Shortage of skilled labour is also adding to the costs. “As demand for housing becomes imperative, developers are hopeful of sustainable post-pandemic demand. The sharp pressure of cost escalation will ultimately get passed on to the consumer,” said Hiranandani.</p> <p>&nbsp;</p> <p>The pandemic has resulted in customers shifting preferences to big brands and reputed developers. This is expected to bring in a wave of consolidation. “Owing to healthy balance sheets, access to capital, and weaker developers being shunted out of the market, the market share of large organised developers is set to grow further in the next two-three years,” said Adhidev Chattopadhyay of ICICI Securities.</p> <p>&nbsp;</p> <p>According to property consultant Anarock, the overall housing sales share of the top eight listed players rose to 22 per cent in 2020-21, from just 6 per cent in 2016-17. Non-listed big developers increased their share to 18 per cent from 11 per cent in the same period. “Organised and seasoned developers will get opportunities to take over languished projects through the joint venture/ joint development route,” said Neotia. “The sector will also witness acquisitions of a portfolio of projects of smaller companies by larger developers.”</p> <p>&nbsp;</p> <p>Unsurprisingly, realty stocks have been on a dream run. The NSE Nifty Realty index hit an all-time high this year and is up over 100 per cent in a year. With housing demand expected only to pick up the pace, this bull run could be just the beginning of many.</p> Sat Nov 20 13:06:17 IST 2021 shortages-and-price-rise-caused-by-the-supply-chain-breakdown-may-persist <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p><b>BESIDES MULLING</b> over climate change and global corporate tax, and pow-wowing with the Pope, there was one last-minute addition to the agenda at the G20 Summit in Rome that Prime Minister Narendra Modi agreed to without batting an eyelid—a meeting hurriedly convened by US President Joe Biden. The agenda? Discuss supply chain challenges and other disruptions affecting global commerce.</p> <p>&nbsp;</p> <p>“Supply chains are something that most citizens never think twice about until something goes wrong,” said Biden at the meet. “Now that we have seen how vulnerable these lines of global commerce can be, we cannot go back to business as usual.”</p> <p>&nbsp;</p> <p>Chipped in Modi: “In the initial months of the pandemic, we all felt the shortage of raw materials to make essential medicines, health equipment and vaccines. Now that the world is gearing up for economic recovery, the supply problems of semiconductors and other commodities are coming in the way of healthy growth.”</p> <p>&nbsp;</p> <p>The supply chain is the non-glamorous stepsister of global business; she toils away in the kitchen and the backyard, and nobody talks about her as long as the work gets done. But when this sis stops working and throws a fit, the world and its boardrooms and showrooms sit up and take note.</p> <p>&nbsp;</p> <p>And, that is exactly what has happened now.</p> <p>&nbsp;</p> <p>“There is a huge mismatch between demand and supply,” said Rajeev Chaba, president and CEO of MG Motor India. “Most economies had scaled down their production after wave one and wave two (of the pandemic). With economies opening up, there is a huge demand for goods. And prices are going up like crazy because (shipping) containers are not there, there is a shortage of equipment, lifts and labour (at ports), steel prices are going up, and there is a huge chip shortage. There is chaos right now!”</p> <p>&nbsp;</p> <p>According to Ajay Nair, partner and leader (supply chain transformation), at the consultancy major PricewaterhouseCoopers (PwC), “Nobody anticipated the quick pick-up (in consumer demand), disruption on the supply side and volatility on the demand side. The impact on the global economy has been substantial.”</p> <p>&nbsp;</p> <p>A confluence of factors led to this crisis. Lockdowns and restrictions saw both production and consumption plummeting. As many factories work on the ‘Just In Time’principle of stocking enough inventory (raw materials needed for production)—as stocking more for a longer period means both spending more money and requiring more storage space—they cut down on this as they expected the economic scenario to remain muted for a long time. But the pent-up demand and the ‘worst-is-behind-us-so-let-us-splurge’mentality after the second wave meant that shoppers came back with a vengeance much before businesses expected them to.</p> <p>&nbsp;</p> <p>A big problem was that of container shortage. The global supply chain runs on the smooth movement of containers—primarily from Chinese ports—moving raw materials and finished goods back and forth. As Covid hit, these containers stopped moving, and when the demand suddenly recovered, there were not enough of them at the points where they were needed. This had a domino effect on the rest of the world.</p> <p>&nbsp;</p> <p>“A container from China to Mumbai earlier took 15 to 18 days; now it takes up to 50 days,”said Nitin Arora, managing director of MEO International Logistics. “While Indian ports are fast in turnaround, it is all part of a global chain and it doesn’t help that many containers are stuck in US ports due to delays in unloading because of lack of labour and equipment.”</p> <p>&nbsp;</p> <p>It also did not help Indian businesses that after the Ladakh clashes, authorities withheld imports from China at Indian ports, and relented only after realising that they were only hurting Indian businesses. “Indian industrial production is totally dependent on consignments from China,”said Arora. “Finding an alternative is not possible in a hurry.”</p> <p>&nbsp;</p> <p>The sudden spurt in demand also saw prices of commodities used in industrial production—steel, aluminium, copper and zinc—suddenly going up. Oil and gas prices have shot up 60 per cent in recent months to around $85 a barrel. Some analysts expect it to cross $100 next year. Retail prices of petrol and diesel have been hiked virtually on a daily basis in India, pushing up the price of almost everything.</p> <p>&nbsp;</p> <p>Add to that one-off events like a global shortage in semiconductors, an energy crisis in China and the blocking of the Suez Canal back in the summer. These led to the birth of a perfect storm that has battered the world’s supply chain network.</p> <p>&nbsp;</p> <p>While the situation in India is not as visible as in the US, where department store shelves go empty quite often these days, it is just as acute. A glitch in the coal supply chain saw India’s electricity supply flickering last month. Many states were forced to go in for power cuts. While officially the government maintains that all is well and coal supply has been buffered up, Union Power Minister R.K. Singh did admit that “it’s going to be touch-and-go”for the next few months.</p> <p>&nbsp;</p> <p>It may be hard to believe there is a demand-supply mismatch when you see festive merchandise spilling over from shops to pavements and exuberant shoppers thronging marketplaces. Dig a bit deeper, and you find the fault lines just simmering under the surface.</p> <p>&nbsp;</p> <p>Manufacturers are struggling with a shortage or delay in getting crucial raw materials. On the consumer side, people are struggling to cope with the rise in the prices of almost everything.</p> <p>&nbsp;</p> <p>The mobile handset market declined 5 per cent in the past three months, and the dip could be as much as 30 per cent for some models. “During the September quarter, we saw supply constraints that were even more severe than those experienced during the June quarter. The global semiconductor shortage finally also took a toll on the end consumers,”said Tarun Pathak, research director at the consultancy Counterpoint.</p> <p>&nbsp;</p> <p>The chip shortage saw carmaker Maruti Suzuki’s profits going down 65 per cent in the September quarter as it had to cut down production. The issue is the same for anything from cars to high-end watches to other premium products. “There has been a huge deluge of last-minute orders. It is an order cycle issue,” said Pushpa Bector, executive director, DLF Retail.</p> <p>&nbsp;</p> <p>It could just get worse before it gets better. “For consumers, availability of products dependent on chips is going to continue to be a challenge,”said Nair. “Net price implication is going to go up. And for companies, this will put pressure on profitability.”</p> <p>&nbsp;</p> <p>But, for India, it need not be as bad as other countries, if the government deftly manages electricity production and keeps the spiralling fuel costs under check. “These are unusual dynamics, but hopefully (by) next year, they should sort out,”said Chaba.</p> <p>&nbsp;</p> <p>In the long run, it also depends on how well we take the lessons from this post-pandemic crisis, ranging from digitising supply chains to diversifying and developing alternatives to China. For example, Uttar Pradesh-based commodity trader-turned-FMCG company BL Agro. “We faced a shortage of raw materials we were importing, so are now procuring from the domestic market,” said its managing director Ashish Khandelwal. But, while Atmanirbhar Bharat and production-linked incentive (PLI) schemes are a good start, they are long-term measures. “Volatility is here to stay,”said Nair. “Disruptions will keep on happening—it could be climate change or another pandemic next time. That is the nature of the world and we need to be prepared.”</p> <p>&nbsp;</p> <p><b>WHEN THE CHIPS ARE DOWN</b></p> <p>&nbsp;</p> <p><b>Covid is just one of the many reasons for the shortage of semiconductors that has crippled industries.</b></p> <p>&nbsp;</p> <p><b>WHY IS IT SO IMPORTANT?</b></p> <p>Semiconductors can variably conduct electricity as per requirement. This makes them mighty useful in the amplification of signals, switching and energy conversion. In other words, they are required for anything from computers and phones to cars and data servers to work properly.</p> <p>&nbsp;</p> <p><b>WHAT HAPPENED?</b></p> <p>As demand fell when Covid hit, production went down. Then as work-from-home spawned a huge pent-up demand for laptops, phones and gaming devices, chipmakers struggled to meet orders on time.</p> <p>&nbsp;</p> <p>A series of unfortunate events happened—a snowstorm caused blackouts that halted production at chip factories in Texas, while a fire swept through one in Japan.And a drought hit Taiwan, the world’s biggest hub for semiconductor manufacturing. In case you have not figured out where this is going by now, know this: chip making requires water; lots of it.</p> <p>&nbsp;</p> <p><b>THE NET RESULT</b></p> <p>The electronics and auto industries are the worst affected. Car factories across the world have been forced to cut production. Many mobile phone models have disappeared from shops and e-commerce sites.</p> <p>&nbsp;</p> <p><b>WHEN WILL THE SITUATION IMPROVE?</b></p> <p>Not before the second half of next year, according to experts. India is said to be negotiating with Taiwan to set up a semiconductor plant, but that is a long-term plan and will be no solution to the current crisis.</p> Tue Nov 16 21:30:33 IST 2021 the-nimble-indian-saas-startups-are-all-set-for-the-global-game <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p><b>SOON AFTER MILIND</b> Borate cofounded Druva, a startup providing software as a service (SaaS), in 2008, he realised that his focus clients, those in the financial service sector, were reluctant to buy critical software from a small India-based company. Borate and his team quickly tweaked the company’s strategy and launched a product designed for general enterprise uses, especially remote offices and employees. The new product found many takers and its success paved the way for Druva’s first round of funding.</p> <p>&nbsp;</p> <p>Today, the Pune-based company is one of the largest cloud data protection platforms and has customers across industries such as health care, manufacturing, media and entertainment, financial services and education. “We were the first data protection company to be fully offered as a service,” said Borate.</p> <p>&nbsp;</p> <p>Druva is just one of the many Indian SaaS startups that are cashing in on the pandemic, which is forcing companies around the world to offer their services remotely. India currently has around 1,000 SaaS startups and ten of them are unicorns (those with $1billion valuation or more). Their combined annual revenue is around $3 billion, says a McKinsey report. This could go up to between $60 billion and $70 billion by 2030, accounting for 4 to 6 per cent of the global SaaS market.</p> <p>&nbsp;</p> <p>In 2020, Indian SaaS startups got about $1.5 billion in venture funding, including the $150 million that Postman, a unicorn, received. Chennai-based Freshworks, the first Indian SaaS unicorn, made its debut on Nasdaq on September 22, and is currently valued at around $13 billion. “It is time for the world to wake up to India’s product innovation,” said Girish Mathrubootham, chairman and CEO of Freshworks. “Indian SaaS companies will put India on the world map as a product nation.”</p> <p>&nbsp;</p> <p>In the SaaS model, the software is licensed on a subscription basis to clients and it is hosted on cloud. It is managed digitally and centrally, reducing the dependence on human resources. It saves enterprises capital investment and the need for an entire technology team.</p> <p>&nbsp;</p> <p>“There are so many different services that can be delivered through software. The large companies cannot possibly offer all of them or do all of the functions well,” said Krish Subramanian, co-founder and CEO of ChargeBee, a unicorn that provides billing services.</p> <p>&nbsp;</p> <p>Launched in 2011, ChargeBee currently has customers ranging from e-learning companies to storage and food services. It supports more than 100 currencies and two dozen popular payment gateways. “We solve the issues around subscription billing, allowing customers to change pricing, run promotional campaigns easily and automatically solve issues around declined payments,” said Subramanian.</p> <p>&nbsp;</p> <p>Many factors fuel the growth of the SaaS sector. “On the one hand, the SaaS business model helps move high capex (capital expenditure) to opex (operational expenses) from a business perspective. And on the other hand, it means a more predictable and recurring revenue business for software companies and their investors,” said Vaibhav Gupta, principal, practice head (private equity and principal investor), Zinnov management Consulting. “The flexibility it offers to businesses in functionality, scale, and remote productivity, in addition to the sticky revenue stream and capital efficiency, have made SaaS the first choice for both investors and entrepreneurs alike.”</p> <p>&nbsp;</p> <p>Gupta said Indian SaaS players had reached a noticeable mass. “The pandemic has expedited five to seven years of transformation in just two years and has now increased the reliance on technology. As businesses and enterprises become more open to consuming technological interventions, SaaS demand will continue to grow. We also see immense potential in the Indian SaaS companies giving global giants a run for their money. India as an ecosystem offers all the key ingredients for SaaS companies to be global leaders,” he said.</p> <p>&nbsp;</p> <p>Big IT players are focused on customer applications or system integration and work with platforms like Oracle, SAP or Microsoft Dynamics and provide a turnkey solution. This concept can work for large enterprises. But mid-size and small businesses usually do not have the budget to work with large IT players and would rather choose a SaaS provider. “SaaS from India has a significant advantage if they can provide a complete solution running on a cloud at affordable cost,” said Mohan Kumar, managing partner, Avataar Ventures, a venture capital firm.</p> <p>&nbsp;</p> <p>Venture funds have been increasingly taking interest in funding SaaS startups. “We evaluate a SaaS company on its product differentiator with regard to its competition,” said Kumar. “Other factors include team, growth trajectory and market size. We also look if the company’s product has accelerated adoption, which is a big positive sign that it is essential and a must have for a business.”</p> <p>&nbsp;</p> <p>Unicorn India Ventures, a Mumbai-based early-stage fund house, has a special focus on SaaS investments since its inception and has invested in SaaS startups such as Sequretek (cyber-security), Fedo (insurance), Gamerji (gaming), Probus (energy infrastructure) and OpenApp (access management).</p> <p>&nbsp;</p> <p>“It remains to be seen what disruption and potential innovation will emerge in this space in the next five to ten years. In general, smaller companies and startups can be nimbler in execution of new ideas, have less inertia in the face of changing market conditions and are more perceptive to the articulated and unarticulated needs of the niches they serve. So that can be seen as possibly another reason for the faster than benchmark growth,” said Bhaskar Majumdar, managing partner of Unicorn India Ventures.</p> <p>&nbsp;</p> <p>Venture funds also consider the fact that the SaaS model is globally scalable, non-capital intensive and has non-linear scalability. “There are no last mile execution challenges, unlike the conventional structure of businesses like consumer packaged goods and retail, making it the most sought-after area,” said Ankur Mittal, cofounder of Inflection Point Ventures, an angel investment platform. “SaaS products that come out of India are efficiently built, the business model is tested and sustainable, and can scale and generate revenue in global markets easily.”</p> <p>&nbsp;</p> <p>The specialised SaaS players are expected to grow exponentially on the back of the demand from global small and medium-size enterprises. “We estimate that the SaaS market valuations in India will surpass that of IT services before 2030,” said Gupta.</p> Thu Oct 28 15:42:13 IST 2021 a-one-stop-portfolio-diversifier <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p><b>THE MOST COMMON</b> way of investment by retail investors is to invest in an asset class that has performed well recently. Equities are a preferred choice for investing based on the juicy returns of the past year.</p> <p>&nbsp;</p> <p>A typical investor strives to attain reasonable returns with a low probability of losing capital, rather than a sporadic jump in the net asset value for a brief period. So, although the current period offers umpteen reasons to invest in equities, one must remember that a single asset class has periods of outperformance and drawdowns. Therefore, a well-thought asset allocation is required to generate long-term returns. If an investor is aiming for long-term capital appreciation with superior risk-adjusted returns, multi-asset funds are an ideal choice of investment.</p> <p>&nbsp;</p> <p><b>Why allocate across asset classes</b></p> <p>Over the last decade, the asset returns have been quite divergent in nature. Different asset classes outperform in different cycles, therefore staying across asset classes is a quintessential way to achieve healthy and consistent returns. Several empirical studies have proved that 90 per cent of the portfolio returns are based on asset allocation, and less than 10 per cent of the return is generated by stock selection. Allocating funds solely to a single asset class is not prudent, and chasing last year’s top-performing asset class can be detrimental.</p> <p>&nbsp;</p> <p>For instance, gold posted the best return in 2020, with a return of 31 per cent, followed by 20 per cent by international equities, 16 per cent by local equity and 12 per cent by debt funds, while in 2019, the international equities delivered a return of 34 per cent versus gold, which posted a return of 21 per cent. So, changing the asset allocation by looking at last year’s returns could dent wealth creation. From 2007, if one invested in the asset class based on its previous year’s winner, it would have resulted in a return of around 8 per cent on an annual basis, while if invested in the asset class which was the worst performer in the previous year, it would have delivered a return of 11.8 per cent. The most optimal returns have come if the investor invested equally in the four different asset classes, with a return of 13 per cent. This shows that combining multiple assets not only offers superior returns in absolute levels but also carries low volatility.</p> <p>&nbsp;</p> <p><b>Why multi-asset funds</b></p> <p>Now that we know the importance of being invested in different asset classes, it is time to consider how this can be achieved in practical terms for a lay investor. The challenge here is multifold—to recognise which asset class to invest into, when to rebalance and how to minimise the tax incidence when re-balancing. So, in effect, it is not easy to execute a multi-asset strategy without sinking in some time and effort. To address these challenges, several fund houses over the past decade have been offering multi-asset funds.</p> <p>&nbsp;</p> <p>As per the SEBI scheme categorisation definition, a multi-asset fund is one that invests in at least three asset classes with a minimum allocation of at least 10 per cent each in all three asset classes. One stand out name here is the ICICI Prudential Multi-Asset Fund, which invests across equity, debt, gold and REITs/InvITs. Here, equity brings in capital appreciation, debt offers stable returns, gold provides a hedge against inflation and REITs/InvITs play a role in yield enhancement. Over the last decade, the 10-year daily rolling returns of the fund have been more than 12 per cent, nearly 81 per cent of the time. When considered over a five-year time frame, the fund has never delivered negative returns. Over the last year, the fund has outperformed its benchmark by 12.6 per cent, and when it comes to returns the figure stands at 42.7 per cent.</p> <p>&nbsp;</p> <p><b>The author is founder &amp; MD of Orange Rise Pvt Ltd.</b></p> Fri Oct 22 19:41:09 IST 2021 buyers-are-back-and-carmakers-are-trying-hard-to-meet-the-demand <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p>Mahindra and Mahindra opened the bookings for its new sports utility vehicle, the XUV700, on October 7, but was forced to stop in an hour owing to overwhelming response. The company received 25,000 bookings in an hour, which would take it six months to deliver. The next day, 25,000 more units were booked in two hours.</p> <p>&nbsp;</p> <p>A month earlier, Volkswagen received some 12,000 bookings for the Taigun SUV even before its launch.</p> <p>&nbsp;</p> <p>India’s largest carmaker, Maruti Suzuki, has racked up 2.2 lakh pending bookings, according to its executive director, Shashank Srivastava.</p> <p>&nbsp;</p> <p>As India is getting out of the Covid-19 pandemic, there has been an increased demand for personal mobility, and carmakers are struggling to keep pace. “Covid has made consumers evaluate their mobility preference and we have been seeing a considerable transition from shared to personal mobility in the last 18 months,” said Veejay Nakra, CEO of the automotive division of Mahindra and Mahindra.</p> <p>&nbsp;</p> <p>“From July, we have seen an increase in consumer demand,” said Vivek Srivatsa, head of marketing (passenger cars) at Tata Motors. “As the vaccination programme is progressing, the confidence of customers is coming back. Revenge shopping and revenge travel are on the cards and car purchase has moved much higher up in priority than what it was earlier.”</p> <p>&nbsp;</p> <p>SUVs have specifically been in high demand. In the July-September quarter, they outsold cars—3,67,457 SUVs against 3,43,939 cars. “There has been strong demand for UVs with the opening up of markets post the second wave of Covid, and we see this continuing as we get into the festive season,” said Nakra.</p> <p>&nbsp;</p> <p>Not surprisingly, companies are targeting this segment. In addition to the XUV700, Mahindra launched the Bolero Neo, and its off-roader, the Thar, continues to be in high demand. Skoda launched Kushaq, which shares the platform with the Taigun. French carmaker Citroen, which entered India with the C5 Aircross SUV earlier this year, recently unveiled the smaller C3 compact SUV, which will be launched next year. Morris Garage’s new launch, the Astor compact SUV, takes on the popular Hyundai Creta and the Kia Seltos.</p> <p>&nbsp;</p> <p>The hottest launch in the segment so far has been the sub-compact Tata Punch. Priced between 15.49 lakh and 19.09 lakh, it has been seeing strong bookings. “Punch is on the way to becoming our top-selling product in line with the Nexon or slightly above it,” said Srivatsa. The success of the Safari and the Nexon has helped Tata Motors regain the position of the third-largest carmaker in the country and the Punch could help it cement that.</p> <p>&nbsp;</p> <p>Srivatsa pointed out that first-time buyers were increasingly looking at products in higher segments. “Almost half of the customers of the compact SUV Nexon and premium hatch Altroz are first-time buyers,” he said.</p> <p>&nbsp;</p> <p>Unfortunately, though, what could have been a blockbuster festive season is turning out to be a disappointment for carmakers owing to an acute semiconductor shortage. A car has hundreds of chips—many more in the high-end models—be it the infotainment system, digital instrument panels or even the remote locking and keyless entry system. A surge in demand for consumer electronics—because of the rise in work and study from home—and the glitches in the supply chain owing to the pandemic have hit carmakers hard.</p> <p>&nbsp;</p> <p>Maruti Suzuki, for instance, could produce only 77,782 units in September, compared with 1,61,668 units in the same period a year ago. It is more or less a similar situation across the industry. “Owing to the semiconductor shortage, in September 2021 there was a drop in production of about 37.46 per cent for passenger vehicles and 17.15 per cent for two-wheelers,” said Rajesh Menon, director general of the Society of Indian Automobile Manufacturers (SIAM).</p> <p>&nbsp;</p> <p>Typically, before the festive season sets in, automakers increase wholesale to ensure there is enough stock with the dealers, and dealers build up a stock of around 40 days. This time, however, it is barely 15-20 days, or even less in some cases. “Today in the passenger vehicle segment, barring entry-level vehicles, it is supply rather than demand that has become a challenge, and dealers are losing business due to this. The semiconductor issue is so bad that the normal waiting period of 2-3 months has gone up to 12 months for certain models and variants,” said Vinkesh Gulati, president of Federation of Automobile Dealers Association.</p> <p>&nbsp;</p> <p>Worse, automakers do not expect this to be fixed soon. “Semiconductor is a worldwide issue. Demand is going up across all categories. So, we don’t see the issue getting solved anytime in the near future and will remain a challenge,” said Srivatsa.</p> <p>&nbsp;</p> <p>Companies are focusing on managing their product mix by optimising supply chains and maximising production with parts that are available. But semiconductors are not the only headache. Raw material prices have surged this year, forcing many companies to raise prices multiple times. Since January, prices have gone up 7-10 per cent.</p> <p>&nbsp;</p> <p>Another concern is the rising fuel prices. Across the country, petrol prices have topped Rs 100 a litre mark. Two-wheelers, especially those in the entry-level segments, have been hit hard as value-conscious buyers are worried about the cost of ownership. According to SIAM, only 15.28 lakh two-wheelers were sold in September 2021, compared with 18.49 lakh units in September last year. For the July-September period, two-wheeler sales stood at 41.14 lakh units, against 46.90 lakh units in the same period a year ago.</p> <p>&nbsp;</p> <p>But, there are signs of a turnaround. As the pace of vaccination has picked up, states are opening educational institutions and many companies have resumed work from the office. This augurs well for two-wheeler sales. Month on month, sales are already up 15 per cent. “Dealers expect double-digit growth in urban areas. Demand is expected to be subdued in rural areas as customer sentiments are yet to normalise after the Covid second wave,” said Raghunandan N.L. of Emkay Global Financial Services.</p> <p>&nbsp;</p> <p>Anticipating a revival in demand, two-wheeler makers have been lining up new models and offering attractive finance options. TVS has launched the Jupiter 125 CC scooter and Hero MotoCorp has launched a new variant of its Pleasure scooter and the Xtreme 160R Stealth Edition. Bajaj Auto launched the KTM RC 125 and RC200 earlier this month.</p> <p>&nbsp;</p> <p>Even carmakers are offering EMI holidays and longer loan durations. “We expect good demand during Navratri and Dussehra, particularly from tier 1 and tier 2 cities,” said Wiseline Sigamani, associate general manager (sales and strategic marketing), Toyota Kirloskar Motor. Honda, Hyundai, Renault and Nissan are also offering discounts in varying degrees.</p> <p>&nbsp;</p> <p>The demand for CNG-powered vehicles has been on the rise as their running cost is much lower than petrol and diesel vehicles. “Diesel has come down to 16-17 per cent now of the total industry, while CNG is now 12-13 per cent,” said Srivastava. Here also, the semiconductor shortage is playing spoilsport. The waiting period for the Maruti Suzuki Ertiga CNG, for instance, is nine months.</p> <p>&nbsp;</p> <p>Electric vehicles are also seeing strong demand. In September, 34,316 EVs were sold, a three-fold jump from 10,637 units sold a year ago, according to JMK Research. Month-on-month EV sales were up 19 per cent. Electric two-wheelers and passenger three-wheelers are driving the EV sales, followed by cargo three-wheelers and passenger cars. Hero Electric in partnership with Massive Mobility plans to set up 10,000 EV charging stations across the country. Earlier this year, Hero MotoCorp tied up with Taiwan’s Gogoro to set up a massive battery-swapping network. Ola Electric, which recently launched an electric scooter, also plans to build a nationwide fast-charging network.</p> Fri Oct 22 19:34:35 IST 2021 chip-shortage-is-a-long-term-problem-says-maruti-suzuki-shashank-srivastava <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p><b>Q. How is the demand in the festive season?</b></p> <p>&nbsp;</p> <p>A. From a demand perspective, if you look at those parameters of enquiries and bookings, those are pretty strong. Reiterating the original thesis that demand for public transport and shared mobility is coming down and demand for personal mobility is going up. It is reflected in the demand pattern.</p> <p>&nbsp;</p> <p>But, the problem is supply, unlike previous years. Just before Navratri, there is a shradh period, which is inauspicious as per the Hindu calendar. During this period, generally, the retail is slow, but wholesale happens, with the resultant buildup in stocks at dealerships. So, when demand spikes in the Navratras, the vehicles are supplied to the customers.</p> <p>&nbsp;</p> <p>This time, the spike in demand seems to be there, but on the supply side, we have not been able to increase the stocks. So, the dealership stocks at the beginning of the festive season have been low and that is a worrying factor, because it means waiting periods have gone up, pending bookings are going up, that is an across-the-industry-phenomenon and it is certainly true for Maruti as well.</p> <p>&nbsp;</p> <p><b>Q. How long is this chip crisis going to last and how are you addressing it?</b></p> <p>&nbsp;</p> <p>A. It is a slightly long-term problem as you have to build fresh capacities of chip manufacturing for this to go away. What we have been doing as a small-time measure for the past six-seven months—because we have a large portfolio of vehicles with added different levels of electronics—depending on the availability of chips, we have been trying to adjust production across models and variants of the same models. So, for instance, we may be making more Swift V and VXI, not Z grade. We have 14 brands. So in that sense, we are a bit better off. However, in the last month, after doing all these adjustments, we are seeing it becoming difficult.</p> <p>&nbsp;</p> <p>We are also trying to supply vehicles, prioritising those geographies, depending on the festive season. So, we prioritised vehicles to Kerala in August for Onam and to the west in September for Ganesh Chaturthi. Now, the Pooja in east India is very important. Dussehra is big in Karnataka. Dhanteras is big in central, west and north India. So, whatever supplies we have available, we will try to maximise retail by modulating dispatches to different geographies.</p> <p>&nbsp;</p> <p><b>Q. Essentially, the underlying demand is there.</b></p> <p>&nbsp;</p> <p>A. Exactly. If you see, the estimated bookings in the industry are around 4.5 lakh to five lakh. We have close to about 2.2 lakh bookings pending.</p> Fri Oct 22 19:26:56 IST 2021 tatas-air-india-acquisition-will-give-aviation-sector-the-lift-it-desperately-need <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p><b>L</b>ong before Yana Gupta injected some blood-red oomph into flight safety demos at Kingfisher, and before Indigo stewardesses in their Pan Am vintage look taught India a lesson or two in ‘6E’ efficiency, the original mascot of Indian aviation was a portly, whiskered gentleman in a turban.</p> <p>Created by Umesh Rao, an artist at the ad agency JWT, in consultation with Air India’s then commercial director Bobby Kooka, the Maharaja made multiple generations not just in India but around the world dream of the glamorous travel aboard the ‘palace in the sky’. It made Air India an epitome of Indian hospitality and world-class excellence.</p> <p>The exuberance amid India’s chattering classes over the government confirming the sell-off of the beleaguered national carrier to Tata Sons stems a lot from this nostalgia. And the weight of expectations.</p> <p>The salt-to-software conglomerate, after all, was the original owner of Air India. Even after it was nationalised after independence, J.R.D. Tata continued to run the airline through the glorious years of aviation in the 1950s and 60s, maintaining its high standards, and then some. Until, of course, a change of government at the centre saw prime minister Morarji Desai unceremoniously dumping Tata. The <i>babus</i> took over and the Maharaja’s downward spiral kickstarted.</p> <p>The nosedive reached its nadir with Air India’s disastrous merger with Indian Airlines in 2007. The company has not made profits since then, as a classic Delhi (where Indian Airlines was based) versus Mumbai (where Air India was based) turf war to wrest control of the new entity played out. For the record, the capital prevailed, even as the airline’s loss of capital ballooned.</p> <p>A crash-landing was averted with occasional refuelling—bailouts running into thousands of crores of taxpayer money many times over the past 13 years. And, after a series of near-misses and ‘zero visibility’ cancellations, the government finally managed to deplane the white elephant. Hopes are obviously up that the long-cherished symbol of ‘India’s best’ could again regain its place up among the best in the skies.</p> <p>“Air India can grow and become one of the finest airlines in the world. But that can happen only in private hands,” Ashwani Lohani had told THE WEEK when he was chairman and managing director of the airline in 2019.</p> <p>“It is a very, very good buy,” said Sidharath Kapur, former CEO of Adani Airports &amp; former executive director of GMR, which runs two of India’s biggest airports at Delhi and Hyderabad. “It is good for the government, it is good for the Tatas and it is good for India’s aviation sector. Having a strong domestic and international airline like AI under Tatas will support developing International hubs in India, which was a lost opportunity for India.”</p> <p>“The consolidated Air India and Air India Express will catapult Tata into a league of mega carriers, with over 200 aircraft, flying to every part of the world,” said Jitender Bhargava, former executive director of Air India. “What would have taken Vistara 10 years and a lot of expenses, they are getting it on a platter.”</p> <p>But the road to a possibly glorious tomorrow is paved with uncertainty and challenges. The first being the question of how to deal with four very different airlines in the kitty “(The Tatas) will in due course of time amalgamate the airlines, because otherwise it can’t become an economical operation,” said Bhargava. But it will test Tata’s mettle, with very little in common between the four. Air India and Vistara are full-service carriers, but have different aircraft types and organisational structures. Air Asia India is a domestic low-cost carrier, while Air India Express is an international low-cost carrier, with one using Boeing 737s and the other Airbus A320s.</p> <p>“History clearly suggests that mergers have not worked well in Indian aviation, be it Jet Airways and Air Sahara, Kingfisher and Air Deccan or Air India’s own merger with Indian Airlines,” warned business guru and motivational speaker Vivek Bindra. Vinamra Longani, head of operations at Sarin &amp; Co, a law firm specialising in aircraft leasing and finance, said the four airlines had vastly different cultures. “They are unique in their own way and have their own set of problems,” he said.</p> <p>Then there is the trickier challenge of dealing with the 14,034 employees. As per the terms of bidding, no employee can be fired in the first year and a voluntary retirement scheme has to be offered after that. With around 5,000 permanent employees retiring over the next five years and 4,000 staff on contract, Tata will have to deal with it nimbly. Unlike those in the other carriers, Air India unions are vocal and a lot will depend on how they conduct themselves. While the medical benefits issue seems to have been settled by the government, pilots remain an unhappy lot, with a list of demands ranging from arrears with interest to promotions.</p> <p>“While AI has good trained manpower, work needs to be done over HR policies and culture,” said Kapur. “Other areas to address will be dealing with the high manpower, upgrading the ageing fleet and improving maintenance. Given the Tatas will have multiple airlines, work needs to be done on integrating operations, connectivity, network planning, manpower planning, route development and fleet optimisation. They will have to do a deep dive and over a period of 3-5 years restructure their entire operations.”</p> <p>Bhargava pointed at multiple areas of “wasteful expenditure”. The crew complement on Air India’s long haul flights, for instance, is way higher than other airlines. “The ability to optimise costs and streamline operations will be a formidable challenge and the key to profitability,” said Suman Chowdhury, chief analytical officer at Acuite Ratings.</p> <p>While India’s aviation market is yet to come to its senses after the pummelling by the pandemic—all airlines are bleeding—the Air India sale does come as a silver lining. “The prospects are looking good,” said Bindra. “India is already bilaterally engaging with countries to establish a mechanism for mutual recognition of vaccine certificates. So, these steps, along with factors like revenge travelling and businesses opening, would surely bring ‘<i>achche din</i>’ again for Indian aviation.”</p> <p>It is this sense of optimism that has also seen two airlines waiting in the wings. One is the new avatar of Jet Airways being readied for take-off in early 2022 by its new owners—the Dubai-based Murari Lal Jalan and London-based investor Kalrock Capital—who snapped it up from bankruptcy courts.</p> <p>“Jet 2.0 aims at restarting domestic operations by Q1 of 2022 and short haul international operations by Q3-Q4 of 2022,” said Jalan, who would become the non-executive chairman of the new entity. “Our plan is to have 50 plus aircraft in three years and over 100 aircraft in five years.”</p> <p>The other one is Akasa (means ‘sky’ in Sanskrit), an ultra-low-cost airline floated by ‘Big Bull’ Rakesh Jhunjhunwala, which is expected to take flight by summer. The airline got a no-objection certificate from the government a week ago and is planning to place an order for about 50 Boeing 737 Max aircraft soon. “We believe that having a robust air transportation system is crucial for our nation’s progress,” said Vinay Dube, CEO of Akasa.</p> <p>That is no mean feat considering the dire market scenario. Every airline in the country, nay world, has been losing money since the pandemic broke out. Air India’s annual losses rose from Rs8,556 crore before Covid to about Rs10,000 crore this year. And, oil prices have been zooming up. Aviation turbine fuel prices have gone up 9 per cent in the last month, and 80 per cent in a year. Fuel cost comes to as much as 40 per cent of the cost of running an airline these days.</p> <p>“High oil prices and pandemic issues will get addressed over a period of time,” said Kapur. India had 14 crore domestic air travellers a year before Covid hit, and expectations are that it will be surpassed once normalcy is restored. “Even if you look at an average middle class Indian travelling once a year, the potential is three times what it is currently. India is an underpenetrated market for air travel,” he said.</p> <p>While that makes the field attractive for entrepreneurs, for the regular Indian wannabe flyer, the rush of many airliners means the effective index cost of travel has plateaued or actually come down in the last decade. While that helps, sometimes it is more than just economics. As Bindra put it, “Air India is India’s pride, it has an emotional connect with Indians. Its relaunch will benefit passengers and Indian aviation in terms of low fares and more options to fly.”</p> <p>—<b>With Pradip Sagar</b></p> Thu Oct 14 17:41:37 IST 2021 operating-air-india-fleet-will-cost-the-tatas-more <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p>Apart from reviving the ailing Air India, its new owner will have to shell out a few thousand crores to run its huge fleet. The Tatas will have to spend nearly Rs2,000 crore for repairing AI’s grounded aircraft. Another Rs1,000 crore will go towards cabin upgrades of the entire fleet.</p> <p>Air India operates 141 aircraft, including Air India Express’s 24 Boeing B737-800s. At least 43 of these are leased. The Air India fleet includes Airbuses (A319-100, A320-200, A320-200neo, A321-200) and Boeings (B747-400, B777-200(LR), B777-300(ER) and B787-800). The number of permanent employees per aircraft at Air India is 133, and 55 at Air India Express.</p> <p>Despite having its maintenance, repair and overhaul facility in India, Air India has a dismal record of fleet maintenance. About 20 per cent of its aircraft has been grounded over the past few years owing to lack of spares. Currently, 23 aircraft in its fleet are grounded.</p> <p>There is little AI engineers can do when spares are not available. A key Air India official said, “Engineers of Air India are well qualified, but the outdated work practices (from the monopoly era) and demoralised workforce has led to poor maintenance of aircraft.”</p> <p>Private airlines only do line maintenance and scheduled checks locally; major overhauls are usually done in London and other European cities as it is cheaper than setting up and maintaining their own facility in India.</p> <p>Air India has several aircraft on sale and leaseback (SLB). In the SLB model, an airline acquires the aircraft at an attractive price and sells it to a lessor—ideally at a profit—and leases it back for its own use. AI did it to improve cash flow, though it is a costly proposition in the long run. Most of AI’s Boeing 787 Dreamliners are SLBs.</p> <p>Experts believe that to successfully run Air India, the Tatas may have to lease new aircraft and upgrade interiors of existing aircraft, especially executive class seats, to match rivals.</p> <p>&nbsp;</p> Thu Oct 14 17:26:27 IST 2021 how-earlier-government-tried-and-failed-to-privatise-air-india <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p>Perhaps there is such a thing as third time lucky. The privatisation process of Air India that achieved fruition recently is the third attempt of the Indian government to offload the money-guzzling national carrier. In fact, attempts were on as early as at the turn of the century.</p> <p>Atal Bihari Vajpayee, who was prime minister from 1998 till 2004, had kicked off an ambitious project to divest government ownership of many public sector companies, with aluminium maker Balco, VSNL in telecom infra and ITDC in hotels to be the first off the block. The government’s thoughts soon veered towards Air India.</p> <p>In May 2000, the Union cabinet decided to sell 60 per cent of its holding in Air India. Tatas were keen then, too, forming a joint venture partnership with Singapore Airlines to bid for the airline that was once theirs. The Hindujas were the other serious contender. However, the disinvestment process did not move forward and both players withdrew from the race two years later.</p> <p>Before the next attempt at privatisation 18 years later, the airline went in for a disastrous strategic merger with domestic carrier Indian Airlines, under civil aviation minister Praful Patel. It only made its bottom line worse, with AI lapsing into a morass of loss it never recovered from.</p> <p>Patel’s successor, Ajit Singh, even exasperatedly said in an interview that “privatisation is the only way to save Air India”. But true to the United Progressive Alliance’s stated resolve to not go for disinvestment, no move was undertaken.</p> <p>After the UPA fell and Narendra Modi took over as prime minister, the Union cabinet again bit the bullet, this time putting up 76 per cent of the airline’s stake for sale. It was a ‘zero visibility’ cancellation of take-off this time, as the deadline came and went in 2018 with no bidders. Whispers in the market made it clear that no private player was ready to take on the debt-laden burden of the airline and on top of it deal with interference from the government that held the remaining 24 per cent stake.</p> <p>With realisation dawning, the government formed a group of ministers under Home Minister Amit Shah to actively pursue the sell-off. They sweetened the deal by offering 100 per cent stake, hiving off the debt into a separate asset management company and letting the bidders quote enterprise value. And third time’s obviously a charm as the government finally got the albatross off its back. For the Tatas, though, the hard work is just beginning.&nbsp;</p> Thu Oct 14 17:23:53 IST 2021 we-must-assess-ibc-success-relation-objective-reorganisation <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p><b>Q. Five years ago, the insolvency and bankruptcy code was enacted so that stressed assets could be resolved in a time-bound manner. What are the key achievements of the IBC?</b></p> <p>In a short span of five years of its existence, the Insolvency and Bankruptcy Code, 2016 has established the supremacy of markets and the rule of law in the resolution of stress and professionalised the process of stress resolution. From providing freedom of exit to rescuing companies in financial stress to releasing idle resources from inefficient uses to helping creditors realise their dues and, most importantly, bringing about a behavioural change amongst the debtors and creditors alike, the list of achievements of the Code is a long one. As per the latest Doing Business 2019 report, India has made a quantum leap in its ranking in resolving insolvency parameter to 52nd position from 136th rank three years ago.</p> <p>There is a tendency to consider the Code as a panacea for all economic evils and then look at its success in relation to those. Instead, we must look at its success or otherwise in relation to its objective, which is reorganisation, as stated in its long title.</p> <p>The Code provides for reorganisation in two ways, first by the rescue of the company through a resolution plan, failing which, by the closure of the company through liquidation. It enables the market to make the choice. The market usually chooses to rescue a company if its business is viable or close it if it's unviable. The stress of over 20,000 companies, for which applications have been filed for initiation of insolvency proceedings, has been resolved. The resolution has happened both prior to admission and after the admission, and by way of withdrawal, resolution plan or liquidation. What is important to look at is the time frame of and the cost incurred in such resolution, and the quality of resolution in terms of value maximisation. In terms of all three parameters - time, cost, and quality of outcome - the Code has delivered a multiple of those obtained under the erstwhile regime.&nbsp;&nbsp;</p> <p><b>Q. In some of the early resolutions, we saw banks recovering a sizable portion of their dues. But, in some of the recent cases, we have seen hair cuts of as much as 95 per cent to creditors. Are lenders getting a raw deal now?</b></p> <p>It is axiomatic that a company coming to IBC does not have adequate assets to fully repay all its creditors. The companies, which have been rescued by resolution plans till March 2021, had assets valued, on average, at 22% of the amount due to creditors when they entered the IBC. This means that the creditors were staring at a haircut of 78% to start with. The IBC not only rescued these companies but also reduced the haircut to 61% for financial creditors.</p> <p>About a year ago, Ghotaringa Minerals Limited, and Orchid Healthcare Private Limited caught media attention. They together owed Rs 8,163 crore to creditors, while they had absolutely no assets when they entered the IBC process. Obviously, creditors had to take a 100 per cent haircut. On the contrary, Binani Cements and MBL Infrastructure have yielded zero haircuts, in addition to rescuing the companies. Why does IBC yield zero haircut in one case and 100 per cent in another depends on several factors, including the nature of business, business cycles, market sentiments, and marketing effort? It, however, critically depends on at what stage of stress, the company enters the IBC, as much as at what stage a patient arrives in the hospital. The best hospital can do little if the patient reaches with a substantial haircut to his health. Similarly, if the company has been sick for years, and the assets have depleted significantly, the IBC may yield a huge haircut or even liquidation.</p> <p>It may be appropriate to see a haircut in relation to the assets available on the ground and not the claims of the creditors. Because the market offers value in relation to what a company brings to the table, and not what it owes to creditors. IBC maximises the value of the assets at the commencement of the process, not of the assets which probably existed earlier.</p> <p><b>Q. Do you think banks are perhaps delaying starting insolvency proceedings against stressed borrowers?</b></p> <p>Banks weigh various options available to them. They choose IBC only when they find it better than any other option in a case of a stressed asset under the circumstances.</p> <p>Subject to their commercial wisdom, they should use it in the early days of stress, when the value of the company is intact, and close the process quickly before value recedes further, to minimise the possibility of liquidation or even avoid haircut. In the early days of default, enterprise value is typically higher than the liquidation value and hence the stakeholders have the incentive to resolve the stress of the company rather than liquidate it. The longer it remains in stress, the higher is the loss of its value. With the passage of time, the possibility of resolution of stress by a resolution plan decreases or a resolution plan yields a larger haircut.</p> <p>There was some reluctance in the early days of IBC, which required an amendment in banking law enabling the RBI to direct banks to invoke IBC in specific cases. The reluctance has disappeared as the banks experienced wholesome outcomes of IBC.</p> <p><b>Q. The conduct of the Committee of Creditors has also come into question of late. IBBI too reportedly is looking to increase the capacity of CoC. What are the issues here and what needs to be fixed?</b></p> <p>The Code rests on the commercial wisdom of the CoC. This requires the CoC to have the capability to distinguish between a viable company to be rescued by a resolution plan and an unviable one to be closed through liquidation. It needs to assess the feasibility and viability of competing resolution plans. It needs to visualise limitless possibilities of the resolution, including restructuring by way of merger, amalgamation, or demerger; a change of management, technology, or product portfolio; acquisition or disposal of assets, businesses, or undertakings; restructuring of the organisation, business model, ownership, or balance sheet; strategy of turn-around, buy-out, acquisition, or takeover; and so on. It needs to visualise the underlying value of the distressed asset and make the value visible to the prospective resolution applicants.</p> <p>Further, it needs to play its role in accordance with the Code. There are several instances where its conduct has not been above board. In some cases, it has strayed into matters which do not fall into the commercial domain and has unduly influenced the resolution professional. If any of the decision-makers does not play its role, as envisaged in the Code or does not cooperate or resorts to active non-cooperation or malafide actions, the process may not either conclude in time or yield the optimum outcome. To address the issues, the IBBI has been organising workshops for banks and has recently proposed to introduce a code of conduct for CoC.</p> <p><b>Q. Data from IBBI shows of 2,653 CIRPs that were closed as of March 31, liquidation was commenced in as many as 48 per cent of them, while a resolution plan was approved only in 13 cases. Why is that so?</b></p> <p>This narrative of more CDs landing up in liquidation is not correct. You are watching only the end game, where you see about 2600 cases reaching the finishing line, that is, ending up with a resolution plan or liquidation. Please consider the universe of companies for which applications are filed for initiation of the IBC process. Over 90 per cent of them are closed midway either before or after admission. Of the universe, the percentage of companies proceeding for liquidation is negligible. I am not even considering the resolution happening outside IBC, but on account of IBC.</p> <p>Further, of the companies proceeding for liquidation, three-fourths were defunct, and of the companies rescued, one-third were defunct. This means that two-thirds were defunct to start with. The companies ending up with liquidation had assets, on average, valued at about 6% of the outstanding debt, when they entered the CIRP. If a company has been sick for years and its assets have depleted significantly, the market is likely to liquidate it.</p> <p>In value terms, companies accounting for 70% of the stressed assets were rescued, while those accounting for 30% of the stressed assets proceeded for liquidation.</p> <p>I anticipate that post disposal of pre-IBC legacy matters, as relatively ‘recent’ stress cases, are dealt with, liquidations will be less. Let me make it clear that liquidation per se is not all bad. It is one of the means of reorganisation envisaged under the Code. It is through liquidation that the resources sunk in the failed firms are released for more efficient uses in the economy.</p> <p><b>Q. The IBC has gone through several amendments in the past few years. Do you think in legislations like this, where there was no precedence, a periodic review is the way forward?</b></p> <p>An economic law is essentially empiric, and it evolves continuously through experimentation. The Code is no exception. The Code has witnessed six legislative interventions since its enactment to strengthen the processes and further its objectives, in sync with the emerging market realities. Each of the six amendment Acts addressed specific issues which could not have been anticipated earlier. Addressing the issues promptly is testimony to the dynamism of the journey and the commitment of the Government to the underlying reform. A standing committee, the Insolvency Law Committee, continuously reviews the implementation of the Code to identify issues and make recommendations to address them.</p> <p><b>Q. In bankruptcy cases, should existing promoters be given a chance if they come up with a credible plan?</b></p> <p>There is absolutely no prohibition on promoters wresting control of their companies through a resolution plan. The prohibition is only on a person, whether a promoter or not, who does not have credible antecedents. Any person, who is connected or related to the prohibited person, is also prohibited. This disincentivises opportunistic behaviour and helps to reduce moral hazards.</p> <p><b>Q. What are key things that you feel need to be addressed to make IBC more effective?</b>&nbsp;&nbsp;</p> <p>An insolvency proceeding is like an orchestra where many constituents have specific roles. In particular, the CoC needs to be in the shoes of businessmen and its conduct needs to be above board; Government needs to submit claims in time and avoid litigation relating to claims post-resolution, and it must ensure a clean slate for successful resolution applicant; the Adjudicating Authority needs to have adequate bench capacity to admit applications for commencement of insolvency proceedings, approval of resolution plans and dispose of applications in respect of avoidance transactions, in a time-bound manner; and promoters and board of directors need to avoid resistance to commencement of insolvency proceedings on frivolous grounds and extend all co-operation to the IP in running a business as a going concern. Some process improvements are required to ensure certainty of outcomes. Markets for distressed assets should become deeper so that for every distressed asset, there are many resolution plans for value maximisation.</p> Mon Oct 11 15:56:26 IST 2021 bad-bank-will-help-banks-clean-their-books-but-wont-solve-problem-of-npas <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p><b>Many things have </b>been tried by the government and the Reserve Bank to fix the problem of bad loans that have plagued India’s banking system for a long time<b>—</b>from debt recovery tribunals to the scheme for sustainable structuring of stressed assets<b>—</b>but with little success. The Insolvency and Bankruptcy Code implemented five years ago was widely seen as a solution that would work. It had some initial successes. But after that recoveries fell sharply and cases started dragging on, putting some banks into an existential crisis.</p> <p>Now the government has a solution for that<b>—</b>a bad bank, which will take over a chunk of the non-performing assets from banks, thus reducing the stress on their balance sheets while also trying to get a better resolution for the assets.</p> <p>Bad banks, or asset reconstruction companies (ARCs), are nothing new in India, but their impact has been limited as they were all in the private sector. The process of sale and transfer of bad loans to private ARCs has been very slow owing to valuation issues and the huge upfront capital required to buy large non-performing assets. The government bad bank, or the National Asset Reconstruction Company Ltd, is expected to address such problems. “The NARCL is expected to buy out Rs2 lakh crore of bad assets over time, which would be 45 per cent of what all ARCs have collectively acquired till March 2021. That’s sizable, not only in the context of banking sector NPAs but also for the ARC industry,” said Krishnan Sitaraman, senior director and deputy chief ratings officer at the ratings agency CRISIL.</p> <p>In the first batch, bad loans worth Rs90,000 crore are expected to get transferred to the NARCL.</p> <p>The NARCL and the India Debt Resolution Company (IDRCL) will play a critical role in the management and resolution of large corporate bad loans. The NARCL, in which state-owned banks will hold 51 per cent stake and private sector lenders the rest, will aggregate and consolidate stressed loans. It will pay up to 15 per cent of the net asset value upfront in cash and security receipts will be issued for the remaining. The government will provide Rs30,600 crore guarantee for these security receipts.</p> <p>“The sovereign guarantee will support the regulatory provisioning requirement of the RBI and allow banks to free up that capital without the burden of additional provisioning, effectively allowing more participation from the banks to resolve their NPAs through the bad bank,” said Anish Mashruwala, partner, J. Sagar Associates.</p> <p>The IDRCL, in which public sector banks and financial institutions will hold 49 per cent, will manage the assets and engage market professionals and turnaround experts.</p> <p>Some of the NPAs are several years old and recoveries in such cases have been dismal. “The average recovery run rate of insolvency proceedings barring certain large assets has been early double digits. Most of the Rs90,000 crore in the first phase will accrue from the list one and two that the RBI had asked the banks to move to the insolvency process a few years back. Chances of material recovery from these assets look bleak,” said Nilanjan Karfa and Amit Nanavati, analysts at Nomura Securities.</p> <p>So, how efficiently the stressed assets are resolved under a new mechanism will be a key thing to watch. “One can argue that the bad bank is likely to become a warehouse for stressed loans without expected recovery, as it will be difficult to find buyers for legacy assets,” said Kunal Shah, an analyst at ICICI Securities. “If initial cash receipts are more or less equivalent to the amount invested by banks, would it then be merely shifting the problem from one place to another without fundamentally solving it?”</p> <p>It might, however, to an extent solve the problem of banks getting shortchanged in resolutions. According to the Insolvency and Bankruptcy Board of India (IBBI), as of June 30, 2021, there were 396 insolvency cases with approved resolution plans. Of the total claims of more than Rs6.82 lakh crore, financial creditors could recover just under Rs2.46 lakh crore, which is just 36 per cent.</p> <p>In the approved resolution of the bankrupt Videocon, billionaire mining baron Anil Agarwal’s Twin Star Technologies’ offer was Rs2,962 crore. The admitted claims were to the tune of Rs64,838 crore, which meant lenders would have to take a haircut of more than 95 per cent. Bank of Maharashtra, which had a small portion of the loan, appealed against the order in the National Company Law Appellate Tribunal and obtained a stay.</p> <p>More recently, on August 12, the Chennai bench of the NCLT ordered the liquidation of Siva Industries and Holdings. The erstwhile promoters of the company had offered a one-time settlement of Rs328.21 crore, which was rejected by the tribunal. The admitted claims in this case from financial creditors were Rs4,863.87 crore. The claims from operational creditors and other creditors were Rs461.02 crore and Rs40.55 crore, respectively.</p> <p>In the resolution of the bankrupt carrier Jet Airways, which has been sold to a consortium of Kalrock Capital and Dubai-based businessman Murari Lal Jalan, financial creditors would recover only 5 per cent of their total claims of around Rs7,807 crore.</p> <p>Legal experts blame lenders for accepting such lowly payouts in some of these resolutions. “India’s bankruptcy resolution system is hampered by low recoveries and long delays. Banks got a bad deal in the cases of Videocon and Jet Airways and this was due to creditors’ acceptance of an unreasonable bargain,” said Sonam Chandwani, managing partner at KS Legal and Associates.</p> <p>Creditors lose patience because many cases have been going on for a long time. The IBC stipulates that the resolution process be completed in 270 days. However, IBBI data shows that 79 per cent of the ongoing cases have exceeded the time limit. “The IBC intended to expedite the corporate insolvency process; nevertheless, the lag caused by litigations has crept into the process,” said Chandwani.</p> <p>In the initial years of the IBC, some large NPAs, like Essar Steel and Bhushan Steel, were resolved and creditors recovered a fair bit. In the Essar Steel case, for instance, the lenders recovered 92 per cent of the Rs49,000 crore claims.</p> <p>One reason behind the low recoveries now is that many of the underlying assets have lost their value over time. “Any buyer that is coming in is buying for the current worth and not for the value that banks have on their books,” said Tarun Bhatia, MD and head of South Asia for Kroll, a provider of services related to valuation, governance and risk. “What is outstanding with the banks is not an input to the valuation itself. If a certain company has lost its core value, then the buyer is only going to pay for certain benefits.”</p> <p>Videocon, for instance, had acquired Thomson’s colour picture tube business a decade ago, which will command little value today for a buyer given that most of the world has switched to LCD and LED televisions. In the case of Jet Airways, most of the planes were leased and offices rented. The slots it had commanded had also been allocated to other airlines.</p> <p>Some of the NPA accounts have also been declared as fraud by banks, where there was usually a disconnect between the assets and the loans. “A buyer will only offer to pay that much amount based on the actual assets on the ground and the utility of the assets to him. If an entity borrowed Rs100 and the assets are worth only Rs50, then you can’t expect the buyer to pay anything more than Rs50,” said Jindal Haria, director at India Ratings and Research.</p> <p>Experts say, to avoid huge haircuts, lenders should initiate the insolvency process early when a stressed company is still operational. That way, there are chances that the value of the asset could be maximised. Also, say analysts, lenders should keep a watch on how loans were used by companies.</p> <p>The IBC has been a step in the right direction. But, changes may well be necessary if it is to become more efficient.</p> Thu Oct 07 15:45:33 IST 2021 ambani-vs-adani-coming-war-for-green-energy <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p>The air was smokey and sulphurous,” said Varun Sivaram about what greeted him when he got off a train in Korba, deep in Chhattisgarh. With more than a dozen coal-fired power plants as well as India’s largest open-pit coal mine, Korba is a crucial link in India’s power sector, producing cheap electricity that powers the country’s development aspirations.</p> <p>&nbsp;</p> <p>Korba is also one of the most polluted places on earth.</p> <p>&nbsp;</p> <p>For Sivaram, senior adviser to US Special Presidential Envoy for Climate John Kerry, Korba is a “hellscape,” symbolic of India’s “deadly addiction” to cheap power from coal. To him, the question is simple, “Should India sacrifice development for breathable air?”</p> <p>&nbsp;</p> <p>Two-thirds of India’s energy needs are met by polluting fossil fuels—primarily coal, but also oil and gas. India is the only major country that is increasing its coal consumption. Not surprising, as it has coal reserves that can satisfy its energy needs for at least 300 years. That lure of cheap energy, however, comes with a lethal sting in its tail—carbon emissions that are the third highest in the world, leading to not just air pollution, but global warming and climate change.</p> <p>&nbsp;</p> <p>“There is huge international pressure on India to reduce,” said Debasish Mishra, partner at Deloitte India. “The only way that can happen is renewable energy, through solar plus storage.”</p> <p>&nbsp;</p> <p>India has been lumbering along on increasing its non-polluting renewable energy capacity by setting up solar and wind farms over the years. But, lack of economic viability and little interest from state governments and distribution companies were obvious. India has often missed its clean energy targets, and will most likely miss the ambitious one to achieve 175 gigawatts (GW) of power through renewable sources by 2022. Currently, the total capacity, including small hydel projects, is estimated to be around just 100GW.</p> <p>&nbsp;</p> <p>Cue in the richest man in the country to shake things up.</p> <p>&nbsp;</p> <p>“We will transform our legacy business into a sustainable, circular and net-zero carbon materials business…(and) help transition India and the world from an industrial civilisation to an ecological civilisation,” declared Mukesh Ambani at the annual general meeting of Reliance Industries in July, signalling a pivotal shift for the conglomerate.</p> <p>&nbsp;</p> <p>Reliance plans to pump in Rs75,000 crore into its new energy business, the biggest single investment in green energy in India. The plan includes building four factories to manufacture critical components for an end-to-end renewable energy ecosystem—solar photovoltaic (PV) modules, storage batteries, electrolysers to split hydrogen from water, and fuel cells to convert hydrogen into mobile and stationary power.</p> <p>&nbsp;</p> <p>“Surya dev has blessed India with almost limitless sunlight,” Ambani said. “I envision a future when our country will be transformed from a large importer of fossil fuels to a large exporter of clean, solar energy solutions.”</p> <p>&nbsp;</p> <p>For Reliance, it is both a paradigm shift that was the need of the hour and an opportunity it could not let go by. The company’s foundation is in oil and petrochemicals, which is likely to slow down in the years to come, and just like its foray into telecom and retail last decade, another shift was in order. The Union government’s production-linked incentive scheme (PLI) for solar PVs notified in April, which offers Rs4,500 crore in benefits to those who set up manufacturing units, has only sweetened the deal.</p> <p>&nbsp;</p> <p>“The potential for renewable energy in India is nearly 1,000GW (currently we are at around 100GW). The economic impact of achieving the Paris agreement targets could boost the global economy by $26 trillion by 2030 and create 24 million jobs. This highlights the potential for this sector and justifies the interest shown by corporate powerhouses,” said Divakar Vijayasarathy, founder and managing partner of DVS Advisors LLP.</p> <p>&nbsp;</p> <p>Ambani’s foray into green energy is significant beyond the investment amount or the fact that he will square off with fellow Gujarati billionaire Gautam Adani in a battle royale for the ‘green pie’. Adani is planning to invest $20 billion in 10 years across renewable energy generation, component manufacturing, transmission and distribution.</p> <p>&nbsp;</p> <p>The sudden gold rush of big guns from private and public sectors into green energy could literally transform the face of India. “There is a huge interest from corporates who have installed some large capacities,” said Sanjay Aggarwal, president of the PHD Chamber of Commerce and Industry. “A lot of players have grown fast, because of the FDI and valuation they have been able to attract.”</p> <p>&nbsp;</p> <p>Tata Power has announced that it would no longer build coal power plants, putting its future eggs all in the renewables basket. The public sector NTPC earlier this month told its investors that it planned to instal 60GW of renewable energy capacity in a decade. Indian Oil Corporation chairman Shrikant Vaidya recently said his company was “investing in solar and wind energy in a big way”.</p> <p>&nbsp;</p> <p>“More than contributing, corporates are driving this space,” said Bose Verghese, head of green initiatives at Infosys, which became carbon neutral last year. “New technologies and innovations (in green energy) carry high risks and high initial costs. (So) corporates can invest in such technologies and help startups and entrepreneurs in this space,” he said.</p> <p>&nbsp;</p> <p>Startups, too, have flourished in the game, more so with valuations than with actual power supply and net gains. Gurgaon-based ReNew Power, which supplies power from solar and wind farms, entered the unicorn club a few years ago. While investment worth Rs1 lakh crore is estimated to have flowed into this sector in the past three years, this year’s PLI scheme could increase this torrent. US giant First Solar recently announced a Rs5,000 crore investment to set up a PV solar module plant in India, while Hyderabad-based Premier Energies announced an investment of Rs1,200 crore over the next two years. Kolkata-based Vikram Solar and Mumbai-based Waaree Energies are looking at hitting the stock markets to cash in on the surging interest in the sector.</p> <p>&nbsp;</p> <p>Globally, investments are now redirecting to businesses that are mapped to be high on the environmental and sustainability aspects, referred to as ESG funds. “Globally, many investors have declared that they will not invest in coal-based power generation or in refineries. In renewables, the profits may not be high, but the valuations are going high because investors believe that is the future. And their shareholders are asking them to invest in ESG compliant firms,” said Mishra. A recent study showed 90 per cent of millennial investors will invest only in green businesses.</p> <p>&nbsp;</p> <p>But, as usual, there are challenges galore in India, particularly the gap between talk and action. For instance, 20GW of solar and wind power projects were auctioned in the past three years, but less than one-fifth of them have been commissioned. Then there is this disconnect between the Centre’s targets and state government priorities. “Many projects awarded by the Centre get stuck as state governments go slow in allotting land,” said an industry observer.</p> <p>&nbsp;</p> <p>Policies could also do with a firming up. While Prime Minister Narendra Modi has often been emphatic in the government’s push for green energy—the latest target is to achieve 450GW by 2030—no roadmap is in place. This is particularly troubling because there is a conflict between the coal lobby and the international pressure to go carbon zero.</p> <p>&nbsp;</p> <p>“In a country like India, a combination of solutions is what is required,” said environmentalist and AnantU fellow Ruchie Kothari. “But we definitely do not need any more coal. We may not have a definite strategy to get there, but it is definitely feasible.”</p> <p>&nbsp;</p> <p>The wind may be blowing in favour of a cleaner, greener India and world. The biggest drawback of solar and wind energy, that they are intermittent, may be solved soon with the availability of better battery storage solutions. It is estimated that solar power, last auctioned at less than 02 a unit in May, could hit a price below 01 by 2030. These factors combined would mean there would be no credible reason left anymore to mine coal and use it to produce electricity.</p> <p>&nbsp;</p> <p>“Storage, if available at the right cost and quality, is the ideal catalyst for large scale solar adoption in our country,” said Gagan Vermani, CEO and founder of the solar startup MYSUN. “The cost of storage has substantially reduced over the years (and is expected) to make financial viability by 2023.”</p> <p>&nbsp;</p> <p>A green future beckons, and for India, it is time to walk the talk. Not just because it offers dividends and prosperity. Ambani was not really going hyperbolic when he said new energy was the “most exciting, most challenging and the most purpose-driven mission” he would be pursuing in his life.</p> <p>&nbsp;</p> <p><b>More power to you</b></p> <p>&nbsp;</p> <p>Technology is proving to be the disruptor in all aspects of life, and the power sector is no exception. Electricity produced in a conventional power plant and distributed through a wired grid could soon become a thing of the past.</p> <p>&nbsp;</p> <p><b>Hydrogen</b></p> <p>The buzz is the highest when it comes to hydrogen. The power potential of hydrogen was never in doubt, considering its intensive use in steel and fertiliser factories. The challenge was generating it in a viable manner. Electrolysers are used to split water into oxygen and hydrogen, but now it seems this could finally be done in an eco-friendly manner using renewable energy.</p> <p>&nbsp;</p> <p><b>Fuel cells</b></p> <p>Think those Eveready batteries, but strong enough to power up your home. Fuel cells storing green hydrogen, if tech advances keep pace as promised, could run anything from an off-shore oil rig to buses and cars.</p> <p>&nbsp;</p> <p><b>Biomass</b></p> <p>Go beyond those compost pits by your neighbourhood RWA. Energy from biomass―referring to organic matter like dead plants and organisms―is produced by harnessing methane, produced by biomass waste decomposition. It already contributes to more than 5 per cent of America’s energy consumption, derived from burning waste as well as from ethanol. The Indian government is seriously looking at using ethanol, made from sugarcane, as an alternative fuel.</p> <p>&nbsp;</p> <p><b>Oceans</b></p> <p>Ocean waves can produce immense energy, but the jury is still out on this one. The main problems stem from the need for heavy machinery, which may disturb the marine ecological balance, as well as the fact that this energy can be intermittent and would require either supply grid or storage solutions.</p> <p>&nbsp;</p> <p><b>Body heat</b></p> <p>Not an OTT title. Stockholm railway station uses the body heat of its 2.5 lakh daily users to power a nearby office building. A mall in the US redirects the body heat of its visitors through pipes into a storage tank, which is then used to heat the building in winter.</p> <p>&nbsp;</p> <p><b>Cheers to that</b></p> <p>Our personal favourite renewable energy source―alcohol waste! In Scotland, many whisky makers redirect grain used in the distilling process to power thousands of homes nearby. All the more reason to have an extra peg!</p> Thu Sep 30 16:18:23 IST 2021 why-you-should-invest-in-mnc-funds <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p><b>When it comes</b> to employment, multi-national companies are a preferred lot because they are considered as cash-rich companies with strong fundamentals. They have a wider bouquet of businesses with their global presence. So, why not consider investing in them as the traits mentioned earlier make for an ideal investment as well?</p> <p>In India, MNCs are present in sectors such as consumer, automobiles, industrial manufacturing, metals, information technology, cement and pharma, to name a few. When you hear the names of companies like Colgate, Hindustan Unilever, Nestle and Tata Motors, you know every single household is using their products. Then there are companies such as Castrol, Ashok Leyland, Bosch, Siemens, Hindalco and Ambuja Cement that cater to the industrial needs.</p> <p>Let us consider what makes MNCs special and why they should be a part of one’s portfolio.</p> <p>&nbsp;</p> <p><b>Wider moat</b></p> <p>When you invest in stock market, you should look for a company with a competitive business moat that sets it apart. A moat represents the ability to stave off competition and to thrive in the market place. It could be in the form of strong brands, patent rights or low-cost manufacturing ability.</p> <p><b>Robust management</b></p> <p>This is one of the basic requirements one needs to look at when investing in a company. Strong management is the backbone of any successful company. It ensures corporate governance and operational efficiency, which ultimately leads to maximising shareholder wealth.</p> <p>&nbsp;</p> <p><b>Technological edge</b></p> <p>MNCs generally have good technical know-how, innovative engineering and production processes that give them an edge over peers. Consumers tend to prefer products manufactured by MNCs owing to their quality.</p> <p>&nbsp;</p> <p><b>High RoE</b></p> <p>Return on Equity helps identify well-managed companies by measuring how much profit a company generates from its total net assets. It ensures the efficient use of available resources. A high ROE is indicative of competitive advantage that separates them from their peers. MNCs usually stand atop on the RoE chart.</p> <p>&nbsp;</p> <p><b>Strong fundamentals</b></p> <p>Most MNCs tick the boxes when one analyses the fundamentals of the companies before investing. A strong balance sheet indicates a company has no significant debt, allowing financial freedom to fund operations, meet obligations and withstand negative surprises. It puts the company in a position to re-invest the capital into overall growth of the company. Besides, such firms offer high dividends.</p> <p>&nbsp;</p> <p><b>Strong global brand</b></p> <p>MNCs are characterised as having strong global presence by consistently promoting universally appealing messages that promotes a “global”culture.</p> <p>&nbsp;</p> <p><b>Investing in MNCs</b></p> <p>When it comes to investing into the MNC space, investors have the option of Indian MNCs such as Cipla, Infosys, Hindalco, Tata Motors and Wipro, and global MNCs listed in India like Grindwell Norton, P&amp;G Hygiene &amp; Healthcare and Cummins. Currently, there are a few mutual fund houses that offer MNC funds through which an investor can conveniently take exposure across MNC space.</p> <p>One of the standout funds in this space is the ICICI Prudential MNC Fund. Apart from investing in Indian and global MNCs listed in India, the fund allows an investor to take exposure to global MNCs that are not listed in India such as Amazon, Bank of America and Ralph Lauren. Since markets around the globe perform differently each year, diversification to international markets may allow investor’s portfolio to take potential advantage from stocks listed outside India. As of August 2021, 20 per cent of the portfolio consisted of foreign equities. The fund has managed to outperform the benchmark since inception (June 2019). On a one-year basis, it has delivered 63.98 per cent as compared to 36.97 per cent by its benchmark, Nifty MNC TRI. Starting an SIP with a long-term view of at least 5 years would give you better risk-adjusted returns.&nbsp;</p> Thu Sep 16 21:22:50 IST 2021 business-luxury-carmakers-are-betting-big-on-electric-in-india <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p><b>THE E-TRON IS ONE HECK</b> of a ride, even for an Audi. The sports utility vehicle is quick, sporty and luxurious. It can race from zero to 100kmph in just 6.8 seconds. And, it is loaded with all the bells and whistles you would expect in an Audi.</p> <p>&nbsp;</p> <p>The e-tron, launched in July, is the German carmaker’s first electric vehicle in India, and it joined an impressive fleet of EVs that luxury carmakers are showcasing in the country. The first luxury EV to come to India was from Mercedes-Benz—the EQC electric SUV, last October. In March, Jaguar Land Rover launched the Jaguar I-Pace SUV.</p> <p>&nbsp;</p> <p>Mercedes, the runaway leader in the Indian luxury car market, said on September 9 that it was expanding the retail sales of the EQC from the six metros to 50 cities. The first batch of EQCs allotted to India sold out; Mercedes is accepting bookings for the next batch.</p> <p>&nbsp;</p> <p>Mercedes unveiled the EQS luxury electric sedan earlier this year. A derivative of its top-of-the-line S-Class, the EQS is likely to make its way to India next year. “The EQS sets a new benchmark in the luxury EV segment globally. It is surely a strong potential product for the Indian market,” said Martin Schwenk, managing director and CEO of Mercedes-Benz India.</p> <p>&nbsp;</p> <p>These may be baby steps for the luxury carmakers in the EV market, but they seem to be ahead of the mass-market players. India’s largest carmaker Maruti-Suzuki, for instance, is yet to launch an EV. It has been testing an electric Wagon-R. Mahindra has been working on many models, but has managed only one on the road (the eVerito). Hyundai has one model (the Kona), Tata Motors has two (the popular Nexon EV and the recently launched Tigor EV) and MG has one (the ZS EV). And, that is it.</p> <p>&nbsp;</p> <p>On the other hand, luxury carmakers are rapidly scaling up and setting definite targets to become all-electric. Mercedes, for instance, has announced it would go all-electric by 2030, where market conditions allow. It plans to launch only EV architectures from 2025 and there will be an electric variant available for all its passenger vehicles. “The tipping point is getting closer,” said Ola Källenius, chairman of Daimler AG and Mercedes-Benz.</p> <p>&nbsp;</p> <p>In India, EVs account for a small share of the passenger vehicles market. In the last financial year, 4,588 electric four-wheelers were sold; it was just about 3,000 a year earlier. In contrast, the overall passenger vehicle sales last year was 27.11 lakh units.</p> <p>&nbsp;</p> <p>India may not be ready yet to wean itself off fossil fuels, but luxury vehicle makers are optimistic about improving demand for EVs. “It would be fair to state that the EV industry is evolving in India and volumes may increase multi-fold in the coming years,” said Balbir Singh Dhillon, head of Audi India. Globally, Audi has plans to launch only EVs from 2026 and will stop manufacturing petrol and diesel engines from 2033. In India, it is aiming for 15 per cent of its sales from EVs by 2025.</p> <p>&nbsp;</p> <p>Electric vehicles’ green quotient is a big draw for the potential customers of luxury vehicles. “There is a growing concern around pollution in cities and overall environmental sustainability, which is triggering the demand for EVs,” said Rohit Suri, president and managing director of Jaguar Land Rover India. “The 21st-century luxury customer is also keen to adopt the latest in technology, and EVs are absolutely at the top of the pyramid in this aspect.”</p> <p>&nbsp;</p> <p>Jaguar is planning to become an electric-only brand in four years. Also, 60 per cent of Land Rover SUVs globally will have zero-emission powertrains by 2030. Suri said that JLR’s India strategy would align to the global plans.</p> <p>&nbsp;</p> <p>Swedish luxury carmaker Volvo will phase out diesel offerings by the end of this year. The company plans to launch the electric XC40 Recharge in India soon and one new EV each year from 2022. “We have the ambition to achieve 80 per cent of our sales from electric cars by 2025, and by 2030 Volvo Cars will become an all-electric car company,” said Jyoti Malhotra, managing director, Volvo Car India.</p> <p>&nbsp;</p> <p>What makes luxury carmakers think that the tide is turning in favour of EVs and go ahead with grand plans even as the wider adoption of EVs in India is way behind global markets?</p> <p>&nbsp;</p> <p>A key is the percentage price differential when one is looking to shift from a petrol or a diesel vehicle to an electric car, said Rajeev Singh, partner and leader, automotive sector, at the consulting firm Deloitte. “A luxury car is already in a certain price bracket. At that price bracket, while moving from an internal combustion engine to electric, the increase in price as a percentage is comparatively less than price increase in a compact car.”</p> <p>&nbsp;</p> <p>Also, electric cars naturally give several features that luxury carmakers strive for, said Singh. For instance, low noise and low vibration.</p> <p>&nbsp;</p> <p>A key issue that is hampering a big shift to EVs in India is the limited charging infrastructure, even in big cities. Currently, there are fewer than 2,000 charging stations in the country. “Charging anxiety remains one of the key feedbacks of early adopters of EV in India,” said Schwenk.</p> <p>&nbsp;</p> <p>Things, however, are changing. Private players like Tata Power and fuel retailers like Hindustan Petroleum are setting up fast chargers. Central and state governments also plan to improve charging infra, and carmakers have been setting up fast chargers at their network points, apart from providing home charging solutions.</p> <p>&nbsp;</p> <p>And, the carmakers are sharing the charging infra. Mercedes has opened up its 100 charging stations to Audi and Jaguar. Collaboration is going to be very important since the cost of infrastructure is very high, said Singh of Deloitte. “If each company decides to be completely independent, then it will become a big challenge. That is where the government effort is going to be important. There can be some way where there is more amount of standardisation that happens,” he said.</p> <p>&nbsp;</p> <p>Luxury EVs can afford to pack in higher capacity batteries compared with mass-market EVs that need to keep costs in check. The Audi e-tron 55, for instance, has a 95kWh lithium-ion battery that gives a range 359-484km on a single charge. The Jaguar I-Pace has a range of around 470km. The Mercedes EQC can go up to 450km on a full charge, said Schwenk.</p> <p>&nbsp;</p> <p>Governments have been looking to incentivise electric vehicle usage. The goods and services tax levied on EVs is 5 per cent, compared with 28 per cent on petrol and diesel vehicles. However, some of the components in EVs are still taxed at 18-28 per cent.</p> <p>&nbsp;</p> <p>The EV push by luxury carmakers comes at a time when Tesla, the global leader in electric vehicles, is scaling up rapidly in markets like the US, Europe and China. Tesla is planning a launch in India and to set up a plant in Karnataka. “We want to do so, but import duties are the highest in the world by far of any large country,” said its founder, Elon Musk, earlier this year.</p> <p>&nbsp;</p> <p>The import duties on EVs are same as those on petrol and diesel cars. “The customs duty does not differentiate whether you are importing an electric car or an ICE car. That is why some of the companies are making a business case to say these should be treated differently, because one is a cleaner vehicle as compared with the other,” said Singh.</p> <p>&nbsp;</p> <p>The import duty on completely built cars is around 60-100 per cent. One reason behind the high duties is that the government wants automakers to make in India. Luxury EVs, despite the growing sales, are far away from a stage that will make a case for local production. “To set up even an assembly plant, you need a certain minimum volume. The overall luxury car market is small at 35,000-40,000 units today. A small percentage of that will become EV and the volume will get divided among a few players. So, none of them will have the business case to set up an assembly facility in India, unless the volumes go up,” said Singh.</p> <p>&nbsp;</p> <p>The hope is that the many launches in the luxury EV space will help generate enthusiasm among potential customers who would demand more affordable products. Once volumes gain traction, costs will reduce and the charging infra will expand, helping the luxury EVs to gain momentum and, in turn, drive the wider market.</p> Thu Sep 16 20:38:08 IST 2021 will-ondc-kill-amazon-and-flipkart-as-we-know-them <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p><b>The mood was</b> light in Lutyens Delhi. A cantankerous Parliament session had just ended and the ‘Amrit Mahotsav’ festivities for the 75th year of independence were being launched. Commerce Minister Piyush Goyal, however, was all business as he chaired an innocuous meeting at his office, a virtual gathering of about a dozen people to discuss a project the government had initiated. Goyal did most of the talking, laying down the roadmap for what, in true <i>sarkari</i> style, had its own new-fangled abbreviation—ONDC, or Open Network for Digital Commerce.</p> <p>Later that night, as the government issued a statement outlining the rough contours of the project and its aim, alarm bells started ringing. From the glitzy glass-and-steel towers of Bengaluru all the way down to the US, the uneasy whispers had just one question. Is this aimed at finishing off Amazon and Flipkart in India?</p> <p>The official government note was circumspect. “ONDC is a globally first-of-its-kind initiative that aims to democratise digital commerce, moving it from a platform-centric model to an open network,” it said. “[It] will enable buyers and sellers to be digitally visible and transact through an open network. No matter what platform or application they use.”</p> <p>Goyal was more blunt. It will end the monopolistic practices in digital commerce in India, he declared. “ONDC will not just be limited to products but also to services,” he added.</p> <p>In one stroke, ONDC went from being just another government initiative to perhaps the most potent weapon the ruling dispensation has yet unleashed on India’s e-commerce duopoly. By Goyal’s definition of “not just limited to products”, it instantly made its target not just Amazon and Flipkart, but virtually every online seller in the country—anyone from a ticket booking site to a food delivery aggregator.&nbsp;</p> <p>According to Pallab Saha, general manager (India) &amp; chief architect at The Open Group, a Silicon Valley-based global consortium working towards open technology standards, “ONDC is aimed to completely rewrite and re-architect the digital commerce landscape in India. A revolution is imminent, and revolutions by definition are disruptive.”</p> <p>This “revolution”can make life difficult for e-commerce players. Right now, they work on their own proprietary platform, often using their own software. The information analytics generated is kept to themselves while algorithms are tweaked and configured as per their inferences. Remember how allegations used to fly thick and fast that Amazon India promoted its subsidiary companies like Cloudtail and Appario Retail by putting them at the top of search results offered to a shopper? Well, now ONDC mandates all online businesses to operate using the same ‘open source’ standards that the committee, possibly a regulatory body at a later stage, notifies.&nbsp;</p> <p>In a marketplace-centric model, a buyer first selects a platform and then searches for a product there; in the new model, the buyer will search for the product first and then pick the right seller offering that item. The platform the seller is on becomes secondary.</p> <p>“It has been evident in the past that open-source platforms have helped small players and organisations innovate and develop a more sustainable model,” said Sumit Shandilya, adjunct professor, School of Management, BML Munjal University, Gurugram. “This would certainly provide all the small and medium fishes in the ocean with an opportunity to grow big, and simultaneously give a boost to Make in India.”</p> <p>While what shape ONDC will take remains unclear, the power-packed composition of the committee makes it clear that the government means business. Nandan Nilekani, non-executive chairman of Infosys, and retired bureaucrat R.S. Sharma, who were the forces behind Aadhaar, are on it. So is Dilip Asbe, MD and CEO of the National Payments Corporation of India (NPCI), the entity behind Unified Payments Interface. The standardised open-source platform of UPI, where many private players like Google Pay and Paytm offer mobile money transfer services, has been cited as the model envisaged for rolling out ONDC.</p> <p>But the presence of two other members in the committee leaves no doubt as to which way the cookie crumbles—Praveen Khandelwal, secretary-general of Confederation of All India Traders (CAIT) and a loud critic of e-commerce companies, as well as Kumar Rajagopalan of Retailers Association of India. There is no representation of the e-commerce companies.</p> <p>Along with the dramatic growth of e-commerce in the past few years, on rise has been the opposition against it, particularly from physical retailers. Allegations by CAIT and others have ranged from predatory pricing and prioritising certain sellers to the foreign ownership of Amazon and Flipkart.&nbsp;Though an Indian startup, Flipkart was taken over by the American retail giant Walmart in 2018.</p> <p>Goyal had also not bothered to hide his dislike of tech giants in general, and Amazon in particular. In January 2020, when Amazon boss Jeff Bezos announced an investment of $1 billion in India, Goyal said, “It’s not as if they are doing a favour to India when they invest a billion dollars.” Bezos was not given an audience with Prime Minister Narendra Modi or Goyal during his last India visit.</p> <p>While the pandemic sparked an even more widespread adoption of online shopping—a Bain &amp; Company report says the market grew 25 per cent last year—it has also been met with more resistance. This has come in the form of government pronouncements, inquiries by the Competition Commission of India, court cases and even a new draft e-commerce policy that sought to put stringent curbs on operations of e-commerce entities.</p> <p>ONDC goes beyond all these and intends to change the rules of the battle itself. But how much will it benefit the small shopkeeper and trader, and how much will it help in providing more freedom of choice to consumers?</p> <p>“ONDC is not going to help the small businessman, if that is the intention,” said a senior official at one of the top e-commerce players who did not want to be named. “It is skewed towards the middlemen, who are politically connected and have been pressuring the government to crack down on us. If you want to help MSMEs, as per the PM’s call to push for Indian exports, it can’t happen with this current open-source internet. It can only happen with someone like an Amazon, who is also present on the other side.”&nbsp;</p> <p>An industry insider even argued that there was a pattern in the steps taken against the American e-commerce giants. “It is always related to trade talks with the US—these are then used to put pressure on the US government and negotiate something better out of them.”</p> <p>While there is consternation in the e-com world, none of the big players is willing to comment on the development. A leading fresh food e-tailer’s strategy team told THE WEEK that it had advised the CEO to not respond to queries about ONDC as it was “sensitive in nature”.</p> <p>ONDC could end up as sweeping in scale as some of the national digital public network initiatives, like GSTN, UPI or the CoWIN app, and that brings with it its own issues. “E-commerce is a complex business where every business has its unique supply chain and processes and it will be a challenge for the government to have standardisation,” pointed out Kapil Makhija, CEO of Unicommerce, which has been working with sellers from tier-2 and tier-3 cities.</p> <p>For leading e-commerce players, it will be a tough reconfiguration, including a complete revamp of their systems and losing advantages like control over the user interface and consumer behaviour insights. For the government, it will provide better control over what is sold and bought. For example, in UPI, a recent government stipulation set a market share limit of 40 per cent for any service provider, immediately dampening the growth of market leader PhonePe (interestingly, owned by Walmart).</p> <p>It also remains to be seen if the physical world retailers get a level playing field advantage because of ONDC. “Trade wars were always about survival of the fittest and never about the survival of the privileged,” said Shandilya. “Let’s wait and see who is the fittest of them all.”&nbsp;</p> Thu Sep 09 17:15:53 IST 2021 indias-5g-networks-will-rely-on-indigenous-technology <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p><b>Sixty-seven countries</b> have active 5G networks, according to an S&amp;P Global Market Intelligence report. And this group is rapidly expanding. India, however, is likely to take a while to get there. Though the department of telecom took the crucial step of allocating trial 5G spectrum to telecom companies in May, it is said that spectrum auction and commercial rollout of 5G services might happen only next year.</p> <p>DoT has allowed trials in rural and urban areas of Delhi, Mumbai, Bengaluru, Kolkata, Pune and Hyderabad, and Gujarat. Telecom companies can use their existing frequency and have also been allotted additional spectrum for this. Reliance Jio, India’s largest telecom services provider, has started trials in Mumbai; Airtel, the second-largest player, is at it in Gurugram and Mumbai. Vi, the third-largest, has started 5G trials in Pune and Gandhinagar with its network partners, Finland-based Nokia and Ericsson of Sweden.</p> <p>Historically, telecom equipment and architecture were the domain of a handful of multinational companies. India’s 5G network, however, is getting a local touch, thanks to the emergence of platforms like the Open Radio Access Network (O-RAN) Alliance and the partnerships that Indian telecom companies have inked with local and global partners.</p> <p>Jio, for instance, says it has indigenously developed the next-generation 5G stack, which will make the technology affordable and accessible. A protocol stack refers to a group of protocols that are interoperable. Jio has collaborated with global technology firms to develop an open and interoperable interface-compliant architecture-based 5G solution.</p> <p>“Together with our partners, we have tested the Jio 5G solutions in India and we successfully demonstrated speeds well in excess of 1 Gbps. Our made-in-India solution is comprehensive, complete and globally competitive,” said Mukesh Ambani, chairman of Reliance Industries, at its annual general meeting a month ago. Jio has installed 5G networks in its data centres across India and its trial sites in Navi Mumbai.</p> <p>Last year, Qualcomm Ventures, the investment arm of American chipmaker Qualcomm Inc, invested Rs730 crore in Jio Platforms. Qualcomm Technologies and Jio, along with Jio’s subsidiary Radisys Corporation, have been developing open and interoperable interface-compliant architecture-based 5G solutions with a virtualised RAN. RAN is essentially a type of network infrastructure (radio base station and antennas, in simple terms) used for mobile networks.</p> <p>“Radisys is a company that works on virtual RAN or open RAN. We work with them very closely. We have worked in the US along with them and demonstrated quite a few examples of what 5G can deliver,” said Rajen Vagadia, VP and president, Qualcomm India and SAARC.</p> <p>And, it is not just Jio; Airtel and the Tatas, too, have joined hands in developing 5G network solutions. Tata has developed O-RAN-based radio and NSA/SA core, and has integrated a totally indigenous telecom stack, leveraging the capabilities of its group companies and partners. NSA, or non-standalone architecture, is essentially 5G built over an existing 4G network, while SA or standalone architecture, is independent 5G with no connection with any existing network. Separately, Tata Consultancy Services, a software giant, will bring its expertise in systems integration, with the network and equipment increasingly embedded into the software.</p> <p>Tata is now looking to strengthen the hardware expertise through the acquisition of a controlling stake in Tejas Networks, a developer and seller of networking products. Tejas’s products range from broadband access to optical transmission. This should help in making networking gear. “Tejas Network was started with a vision of creating a top tier global telecom equipment company from India. The association with Tata Group will accelerate the realisation of this vision and enable us to address the large market opportunity available to us to build a financially strong global company,” said Sanjay Nayak, CEO of Tejas Networks.</p> <p>“Local partnerships can catalyse the 5G infra rollout by speeding up the process of equipment manufacturing and setup,” said Lt Gen S.P. Kochhar, director general, Cellular Operators Association of India.</p> <p>Airtel will start the pilot in January 2022. It is also working with Qualcomm and will utilise Qualcomm’s 5G RAN platforms to roll out virtualised and open RAN-based 5G networks.</p> <p>The O-RAN Alliance was founded in February 2018 by some of the biggest telecom firms in the world—AT&amp;T, Deutsche Telekom, China Mobile, NTT Docomo and Orange—to shape the RAN industry towards more open, virtualised and fully interoperable mobile networks. It is now a worldwide community that includes mobile network operators, vendors, and research and academic institutions. Airtel is a board member of the O-RAN Alliance and TCS is a member.</p> <p>“The design of 5G is modular and this implies that the carriers can buy various components from different vendors and make the system work,” said Radhakrishna Ganti, associate professor, department of electrical engineering at IIT Madras. “This has been accelerated with the O-RAN consortium. With this modular architecture, it is now easy for Indian companies to provide 5G technology and products to the carriers.”</p> <p>The flexible and scalable architecture of O-RAN will create new opportunities for small and medium-sized businesses. “O-RAN allows you to use standard, ‘template-ised’, readily available off-the-shelf hardware and then put software on top of it and use that as a part of the network. Both Airtel and Jio are working actively on O-RAN,” said Vagadia.</p> <p>One big advantage that O-RAN architecture brings is the scalability of the network. So, instead of investing heavily in infrastructure like network towers and masts, telecom operators can use O-RAN small cells fitted on the existing infrastructure like light poles, and then scale it up as and when required.</p> <p>“Scalability of 5G networks comes with O-RAN. That is a massive value for a competitive country like India, where the ARPUs (average revenue per user) are a tenth of that of a developed economy. We are under financial stress and need to find optimal solutions. Here O-RAN comes as a massive advantage,” said Vagadia.</p> <p>Nokia is producing 5G equipment at its factory in Chennai. It was the first to make the 5G New Radio (the global standard for a unified 5G) in the country. It has also started manufacturing massive Multiple Input Multiple Output (mMIMO) solutions. MIMO is a radio communications technology used to multiply radio link capacity using multiple transmission and receiving antennas. This helps in improving data quality and radio transmission capacity.</p> <p>Apart from indigenous technology and architecture, India’s 5G networks will also have a local flavour. The department of telecom has encouraged companies to use the 5Gi standard, in addition to 5G, during the trials. Developed by IIT Madras, the Centre of Excellence in Wireless Technology (CEWiT) and IIT Hyderabad, 5Gi is one of the three 5G technologies that were approved by the International Telecommunications Union as a 5G standard.</p> <p>But, why is India pushing for its own 5G standards over the globally accepted 3rd Generation Partnership Project (3GPP) standard? “The 5Gi standard is built as an enhancement over the 3GPP standard and has the required capability for increased cell size coverage for rural areas,” said Ganti. “The 5Gi standard would provide better rural connectivity with fewer base stations, thus bridging the critical urban-rural connectivity divide in India.”</p> <p>Some telecom companies are reportedly unhappy with this requirement to use the 5Gi standards. Gopal Vittal, CEO of Bharti Airtel South Asia, had earlier said it would lock India out of the global ecosystem and slow the pace of innovation.</p> <p>The Telecommunications Standards Development Society of India (TSDSI), however, disagrees. “5Gi is a superset of 3GPP technology. Both technologies will interwork permitting roaming nationally as well as internationally. 5Gi handsets will work with 5G base towers and 5Gi base towers will work with 5G handsets,” a spokesperson for the TSDSI told THE WEEK.</p> <p>5Gi can play a big role in giving rural India access to a faster telecom network. “The greatest advantage of this technology is that it increases coverage to nearly 6km. This is sufficient to cover 95 per cent of India’s villages since they lie within 6km of BharatNet PoPs (points of presence). This also reduces the number of base stations required to provide rural coverage and thus the cost of total deployment will come down significantly,” said the TSDSI spokesperson.</p> <p>All eyes are now on the government, which is yet to decide on a date for the auction of the 5G spectrum. Some reports have suggested that it was likely to be delayed to 2022.</p> <p>A sensitive issue is going to be the price. The Telecom Regulatory Authority of India (TRAI) had earlier recommended a reserve price of Rs492 crore per megahertz of spectrum in the 3,300Mhz-3,600Mhz band. Telecom companies say the high pricing will make the commercial launch of 5G unviable for them. “India is a price-sensitive market,” said Kochhar. “Effective spectrum pricing is critical for a healthy sale of spectrums. Otherwise, high reserve prices can lead to spectrums remaining unsold, thereby making for unviable and unsustainable business cases.”&nbsp;</p> Thu Aug 26 16:23:04 IST 2021 despite-the-hype-over-electric-two-wheelers-they-are-not-buyers-first-choice <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p>Ashish Agarwal, a Varanasi-based businessman, uses a 2019 model Hero electric scooter for his daily commute. He says it is more convenient, easier to maintain and cheaper to ride than a conventional scooter. “Its pickup speed is faster than a petrol scooter and maintenance is minimal,” said Agarwal.</p> <p>&nbsp;</p> <p>Most users of electric scooters share Agarwal’s opinion. And many others are planning to shift from petrol scooters because of the exorbitant fuel prices. There has been a rash of e-scooter launches in the past year; by startups and traditional biggies, at different price points. The hype rose to a crescendo on Independence Day 2021 when Ola Electric launched its e-scooters—Ola S1 and Ola S1 Pro.</p> <p>&nbsp;</p> <p>Few businessmen are as optimistic about the future of e-scooters as Bhavish Aggarwal, the founder of Ola, who is on a mission to make all two-wheelers in India electric by 2025. “Ola is committed to leading the electric mobility revolution in the country and we have exuded the capability to build in India for the world,” he said at the launch.</p> <p>&nbsp;</p> <p>It might not be that easy, though. “It took more than a century to develop an ecosystem around internal combustion engine (ICE) vehicles,” said Rishi Bhatnagar, president of Aeris Communications, which provides IoT solutions to many electric scooter companies. “It may take time before a matured ecosystem develops around electric vehicles as they have been around only for a decade.”</p> <p>&nbsp;</p> <p>As per CRISIL Research, the high-speed electric two wheeler category expanded by almost seven times between April and July as compared with the same period last year. As a result, the penetration of electric two wheelers surged from 0.2 per cent of total scooters sold to 0.7 per cent in the period. “Although only 47,000 electric two-wheelers were sold till July in the fiscal year 2022, Ola Electric alone has received more than one lakh pre-bookings within 24 hours of starting bookings. This highlights the underlying latent potential in electric two-wheeler demand,” said Ajay Srinivasan, director, CRISIL Research.</p> <p>&nbsp;</p> <p>Experts at CRISIL said petrol prices crossing the psychological barrier of 0100 a litre had been a critical factor in driving interest for electric vehicles. The increase in incentives from the Central government and additional incentives from states like Delhi, Gujarat and Maharashtra have drastically brought down the prices of electric scooters. “As per CRISIL Research’s assessment, Ola S1 is almost 20 per cent cheaper to own even at annual usage of 6,000km at 0100 a litre of petrol for a vehicle registered in Delhi. Even if petrol prices were to correct to 085 per litre, electric scooters are expected to maintain their affordability lead over ICE counterparts at an annual usage of 6,000km,” said Srinivasan.</p> <p>&nbsp;</p> <p>The manufacturers are all upbeat about the market. “Of late, we have been getting three to four times more inquiries. We have witnessed a surge in sales in the range of 1.5 to 2 times,” said Nilay Chandra, director of charging infrastructure at Ather Energy, a Bengaluru-based e-scooter manufacturer. Ather’s 450 Plus and 450X were game-changers in the segment with their excellent build quality and connectivity features. It is currently present in 18 cities. Chandra said it would be in around 100 cities by the end of 2022-23.</p> <p>&nbsp;</p> <p>Most makers of high-end e-scooters are following Ather’s playbook, but also trying to offer something extra. Bengaluru-based Simple Energy, for instance, recently unveiled its first model, the Simple One, with Bluetooth connectivity, geo-fencing, over-the-air updates, onboard navigation and many other features and it claims to have almost twice the range of the Ather 450.</p> <p>&nbsp;</p> <p>Most of the high-end electric scooters are not sold as standalone products. “We have created a digital ecosystem for the consumers,” said Manu Saxena, vice president (future mobility), TVS Motor Company, which recently launched its first electric scooter, the iQube Electric. The company is also building the EV business around smart products aided by technology. “Our strategic tie-ups with government bodies like CESL and other public charging partners are towards building a network of public charging infrastructure that will help us expand into the next set of cities in the future,” said Saxena.</p> <p>&nbsp;</p> <p>Though manufacturers are vocal about expansion plans, there are concerns that e-scooters may remain an urban phenomenon. “Scooter ownership is not widely prevalent in tier III cities given their relatively higher cost of running as compared with motorcycles, and (because of) poor quality of roads. In case of electric scooters, the lack of availability of sustainable home charging and higher cost of acquisition compared with ICE motorcycles are likely to be the key impediments to their adoption in rural areas,” said Srinivasan.</p> <p>&nbsp;</p> <p>Availability of finance is another major challenge. Financiers are not yet comfortable lending to EVs as there is no reliable way to assess the value of repossessed vehicles, with battery price being a major component of their value. “Higher acquisition cost along with challenges on financing side were hurdles,” said Srinivasan. “With additional government incentives, additional state incentives and attractive pricing by Ola and Simple One, acquisition-cost related concerns are resolved to a great extent but financing scenario still remains a challenge.”</p> <p>&nbsp;</p> <p>The charging infrastructure could be a challenge even in urban areas. “In urban clusters, where most of the people live in apartment complexes, dedicated charging ports in parking space is a major challenge,” said Jinesh Gandhi, research analyst at Motilal Oswal Financial Services. “The charging infrastructure in rural and tier II and III cities also needs to develop. In rural areas where many people commute 50km daily on an average, the scooters may not take off in a big way.</p> <p>&nbsp;</p> <p>Much of the consumer anxiety, however, stems from a high upfront cost. While the running cost of e-scooters is lower, India’s price-sensitive consumers seem reluctant to pay a higher initial price for e-scooters. “A higher depreciation rate compared with fossil-fuel vehicles also influences consumers’ decision to stay away from EVs,” said Samarth Kholkar, co-founder and CEO of Blive, an EV experiential platform. “EVs can cover a limited distance on a single charge and thus have a higher dependence on charging infrastructure. India needs a strong network of charging stations for the EV market to prosper.”</p> <p>&nbsp;</p> <p>One way to tackle the charging infrastructure problem is developing a common platform for fast-charging. “Companies are slowly opening up patented technology to help bridge the gaps in the ecosystem,” said Kholkar. “For instance, Ather Energy recently announced opening its patented charging infrastructure tech to all e2W makers to enable a common charging infrastructure, which is a great step towards building a robust electric mobility ecosystem.”</p> <p>&nbsp;</p> <p>India is the largest market for two-wheelers in the world, and it offers a huge opportunity for manufacturers of electric scooters. That is why all big two-wheeler manufacturers have grand plans for the segment. Once the likes of Hero MotoCorp (a launch is imminent), Bajaj (launched the electric Chetak), Suzuki (planning an electric Burgman Street) and Honda are in the mix, the segment may well get over the hiccups and have a smooth ride.</p> Thu Aug 19 16:44:43 IST 2021 financial-freedom-through-sip-swp <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p><b>IT IS A KNOWN</b> fact that while financial freedom remains an elusive goal for most of investors, they miss their goals by a wide margin often due to lack of planning and sometimes discipline. This is where products which automate savings and withdrawal at a time when it is required gain precedence.</p> <p>&nbsp;</p> <p>Freedom SIP and Freedom SWP (Systematic Withdrawal Plan), both by ICICI Prudential Mutual Fund, are notable products in this regard. Freedom SIP encourages an investor to invest regularly in a disciplined manner via SIP and enjoy the benefits of regular cash flows post completion of SIP period. On the other hand, through Freedom SWP, an investor, say during retirement days, can generate a cash flow stream through withdrawals in a systematic manner.</p> <p>&nbsp;</p> <p><b>Freedom SIP</b></p> <p>The journey to financial freedom through Freedom SIP comprises of three steps. First, an investor should decide a monthly SIP amount and choose a pre-defined tenure of 8 years, 10 years, 12 years or 15 years. Second, on completion of the SIP tenure, units accumulated are transferred to a pre-selected scheme which is mostly a hybrid fund. This step ensures that the corpus generated over the years is not exposed to undue risk which the equity market presents.</p> <p>&nbsp;</p> <p>Third, a systematic withdrawal plan is activated after the transfer. If a SIP is registered for eight years, then the monthly SWP installment is 1x monthly SIP Installment. In case of 10, 12 and 15 years, the withdrawal is 1.5x, 2x and 3x respectively. For example: If initial SIP registered for tenure of 12 years is 010,000 per month, then SWP will be 020,000 (2x 010,000). In this manner, a disciplined investor can create a sizeable corpus over the years and meet one’s long-term financial goals comfortably.</p> <p>&nbsp;</p> <p><b>Freedom SWP</b></p> <p>One has to prepare for retirement during the working years itself. Through Freedom SWP feature, an investor can manage his/her future growing expenses in a very simplified manner. This feature is an innovation over the traditional SWP and helps overcome the shortcomings of traditional SWP.</p> <p>&nbsp;</p> <p>In case of a traditional SWP, while expenses increase over the years due to inflation, the cash-flow from SWP remains constant, thereby resulting in a huge gap between expenses vs cash flow as the time progresses. However, when it comes to Freedom SWP, the cash flow gradually increases with time to meet one’s increasing expenses.</p> <p>&nbsp;</p> <p>Through this feature, investors can withdraw a fixed amount ie 6 per cent per annum from the investment corpus along with an option of annual top up of either 3 per cent, 4 per cent or 5 per cent. The point to note here is that through this feature, investors can register for monthly withdrawals only. So, how does this feature work?</p> <p>&nbsp;</p> <p>Under Freedom SWP feature, investors make a lump sum investment into any of the eligible schemes, which are mostly from the hybrid category. These schemes aim to benefit from volatility and manage equity exposure based on valuations. Thereafter, one has to make two choices—top up percentage and SWP start date.</p> <p>&nbsp;</p> <p>The SWP of 6 per cent per annum will be calculated on the basis of the lump sum invested. Through this arrangement an investor can ensure that he/she can maintain a certain lifestyle in future.</p> <p>&nbsp;</p> <p>For example: For an initial investment of Rs10 lakh and an initial SWP of 6 per vent per annum, the withdrawals over the next 5 years will be as follows:</p> <p>&nbsp;</p> <p>To conclude, financial freedom need not be an elusive dream. It can be a reality if one is ready to invest patiently over the longer time frames.</p> <p>&nbsp;</p> <p><b>Sivasankar is the chief consultant at Samish Financial Services</b></p> Thu Aug 19 19:53:41 IST 2021 the-turmoil-in-chinas-financial-markets-could-be-indias-big-opportunity <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p>The world was an entirely different place for Jack Ma nine months ago. Ant Group, a fintech company owned by his retail giant, Alibaba, was all set for a $34.4 billion initial public offering, the world’s biggest. It had got $3 trillion worth of bids from individual investors across its dual listing in Hong Kong and Shanghai. The bidding for the IPO was so aggressive that the servers of some brokerage platforms in Hong Kong reportedly crashed owing to the overwhelming number of orders.</p> <p>Ant Group’s shares were expected to trade in Hong Kong and Shanghai on November 5, 2020. But it never happened. On November 3, Chinese regulators summoned Ma and told him that Ant’s days of relaxed government oversight were over; they later shut down the IPO saying there were shortcomings in the process. The<i> Wall Street Journal</i> reported that Chinese President Xi Jinping had personally halted the IPO because an outspoken Ma had irked the government. Though he was the poster boy of Chinese entrepreneurship, Ma always had an uneasy relationship with the government, as he seldom hesitated to criticise its policies. He was rarely seen in public after the botched IPO.</p> <p>While it looked like Ma had brought it upon himself by antagonising the government, it soon became clear that he was just a scapegoat. The Communist Party of China’s policy shift was what killed Ant’s IPO. In what is said to be the biggest ideological shift in the past 40 years (since Deng Xiaoping set economic development as the socialist country’s ultimate priority in the second stage of reforms in the late 1980s), the authorities started cracking down on developers, crypto miners, tech companies, health care providers and tutoring firms. All targets got hit with radical rule changes or aggressive regulation in the past nine months. China’s uber-rich lost $30 billion in the carnage in the markets between November 2020 and July 2021. And it was not Jack Ma, but his main competitor, Tencent Holdings Ltd’s boss Pony Ma, who lost the most. Pony, who strenuously avoids the limelight, lost $14 billion.</p> <p>Many analysts see it as the end of the four-decade-long free run of the market economy in China and the beginning of a new era wherein the government has put the ruling party’s core ideology before the interests of corporations and shareholders. “A new era that prioritises fairness over efficiency has begun,” said Alan Song, founder of Beijing-based private equity firm Harvest Capital.</p> <p>As much as it is an ideological whim, this shift was a response to the growing discontent among the Chinese middle class over exorbitant costs of housing, education and medical care. The reforms are seen as being beneficial to the masses at the expense of rich businesses. “These policies were announced to reflect the party’s progressiveness,” said Zhaopeng Xing, senior China strategist at ANZ, to Reuters. “They send a message that China is not a capitalist country, but it embraces socialism.”</p> <p>But they have raised questions about the future of Chinese companies’ engagement with foreign capital markets and foreign investment. According to the US-China Economic and Security Review Commission, there are 248 Chinese companies listed on three major US exchanges, with a total market capitalisation of $2.1 trillion. In 2020 alone, 29 Chinese companies debuted on the US exchanges. Some 60 more were planning to do it this year, according to the New York Stock Exchange. Many of them, however, are unlikely to materialise as Chinese regulators have announced that they would tighten rules for companies seeking to list or sell shares outside the country.</p> <p>The Chinese technology companies listed in the US are facing regulatory challenges there as well. The Holding Foreign Companies Accountable Act, signed into law by President Donald Trump in December 2020, is aimed at removing companies from US exchanges if they do not comply with American auditing standards for three years in a row. The rules also require firms to prove to the Securities and Exchange Commission, the US market regulator, that they are not owned or controlled by a foreign government. Many of the dual-listed Chinese tech companies have filed secondary offerings only in Hong Kong, which could be an indication that they are unlikely to comply with new US audits.</p> <p>American investors, too, seem concerned. Chinese ride aggregator Didi’s New York Stock Exchange debut in June was the second-largest among Chinese companies, after Alibaba’s IPO in 2014. However, On July 4, the Cyberspace Administration of China ordered app stores to remove Didi, after flagging violations about the company’s collection and usage of personal information. Its stock lost about half its value. The Invesco Golden Dragon China ETF (PGJ), which tracks US-listed Chinese shares consisting of ADRs of Chinese companies, has lost a third of its value from its February peak. ADR, or American depositary receipt, is a way for American investors to buy stakes in foreign companies.</p> <p>The developments could be a great opportunity for India, not just because global investors have already started looking for markets with stable policies, but also because many Indian startups seem ready to take it to the next level. After food aggregator Zomato’s spectacular IPO last month, e-tailer Flipkart, payments company Paytm, insurance aggregator Policybazaar, logistics company Delhivery and cosmetics retailer Nykaa are planning public offerings.</p> <p>Some of them are looking at an overseas listing. Flipkart and grocery seller Grofers are said to have explored a listing in the US through a special purpose acquisition company (SPAC). A SPAC is a company formed to raise capital through an IPO for acquiring an existing company. ReNew Power, India’s largest renewable energy company, is all set for a merger with a Nasdaq-listed SPAC at an enterprise value of about $8 billion. The new entity, ReNew Energy Global Plc, will be listed on the Nasdaq.</p> <p>“India will benefit from the Chinese crackdown on its tech startups, as people may become fearful of investing in China,” said Mohandas Pai, chairman of Aarin Capital and Manipal Global Education. It might have already started. The data compiled by research firm Preqin says the total value of venture deals in India in July ($7.9 billion) was higher than in China ($4.8 billion), a first in eight years.</p> <p>The real deal, however, will be in foreign direct investment. Thanks to the stupendous economic growth in the past few decades and rising wages, China is now an upper-middle-income country. That means manufacturing in China does not give as much of a cost advantage as before. In fact, many manufacturing companies have already shifted their operations to countries with lower labour costs. India’s per capita income is just about a fifth of China’s and it stands a good opportunity to attract at least a part of these investments. “The government should form marketing teams with state governments to market India to the world’s manufacturing companies,” said Pai. “We should talk to global manufacturers who are already here and incentivise them. The production-linked incentive scheme is a great start.”</p> <p>According to the World Investment Report 2021 by the UN Conference on Trade and Development, India was the fifth-largest recipient of FDI inflows in 2020. It received $64 billion, while China got $149 billion.</p> <p>It will take a while for India to match China’s manufacturing prowess, but what will work to its advantage (other than the cost factor) is the changing dynamics of global politics. Xi’s China is on a collision course with the US, as the communist nation no longer hides its ambition to become the world’s dominant power. While the two countries’economic interests have so far been only marginally affected by their political differences (they are still among the world’s largest trading partners), that is likely to change. And that will be India’s biggest opportunity to make it big.</p> <p>—<b>with Abhinav Singh</b></p> Fri Sep 17 12:34:59 IST 2021 auto-industry-has-been-forced-to-reconfigure-the-way-it-does-business-is-it-enough <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p><b>Indian automobile</b> industry’s days of glory had started waning much before the coronavirus hit India, with a protracted slowdown putting the brakes on sales in late 2018 itself. Things have only got worse since then. What is staring at the once-poster boy of India’s post-liberalisation economic engine is a tougher tomorrow, where every day is not just a survival game, but one played to a whole new set of ways and rules.</p> <p>“India’s auto industry will show a 20 per cent growth this year over last year. But if you compare it with 2018, the last time sales were growing, it is nowhere close,” said Rajeev Chaba, president and managing director of MG Motor India. “Having said that, Covid is unpredictable. Everybody is learning as we speak.”</p> <p>Sales may go up. In fact, June sales figures showed healthy signs after two months of sales drop. But they are much lower than the boom years of 2012-2018. Still, the auto sector is coming out of the ordeal by fire shaken, stirred and smarter.</p> <p>Lighter, too. “The automobile industry is glamorous with seven-star infrastructure, slick showrooms, music bands performing and pujas conducted when premium cars are sold. But Covid taught us that it is more important to be agile,” said Vinkesh Gulati, president of the Federation of Automobile Dealers Association.</p> <p>Just before the pandemic hit, the auto industry’s biggest worry was the impending imposition of BS 6 emission norms, which involved jacked up prices and investment in cleaner technology. But then, when the national lockdown shut down supply chains, factories, showrooms and deliveries overnight, it seemed like the last nail in the coffin. “Automakers took a little time to figure out the risk, but quickly took corrective measures and rose to the challenge…the industry started continuously innovating,” said Rajeev Singh, partner and automotive leader at Deloitte India.</p> <p>Buying a car or bike is a milestone for most Indians, and traditionally it involves umpteen visits to dealers and haggling over deals. All that went out the window as the industry quickly realised that many consumers were no longer comfortable with physical visits to showrooms. The solution? Digitisation.</p> <p>“All possible processes were automated,” said Gulati. Manufacturers revamped their websites for immersive experiences, while dealers cut down on showroom sizes and salespeople as well as the use of glossy brochures, instead sending PDF files with all details to customers, following up enquiries on WhatsApp video calls. Premium brands like Mercedes-Benz cut down on inventory with its new direct-to-customer retail model by holding car models centrally. This has reduced the cost to dealers not only for keeping vehicles in showrooms, but also security and showroom rentals.</p> <p>Digitisation is happening not just to the sale, but also for add-on processes like financing, insurance and registration. “From an average five to eight visits to a showroom before buying, now customers come in just twice or thrice,” said Gulati. “While you had to personally sign 20 papers earlier, now it is only two or so due to automation. Efficiency has gone up.”</p> <p>“A lot of companies cut down on the number of people visiting corporate offices and plants, with people working from home,” said Singh of Deloitte. “Barring the core team in manufacturing and quality checks, functions like logistics, procurement and marketing, they managed from home.”</p> <p>Interestingly, many new models have also upped their digital quotient, adding features like touch screens and facilities like live traffic, weather and music streaming through an internet connection on the go. “Features like the Internet of Things (IoT) and GPS systems will be prominent in automobiles,” said Pankaj Tiwari, chief marketing officer of the EV startup Nexzu. That, inadvertently, threw up an unexpected challenge in the process.</p> <p>Connected to a global supply chain—particularly China—for components and raw materials, India’s auto sector has been left clutching at straws as a global mismatch of supply and demand made many parts unavailable or expensive. Besides the scarcity of steel, aluminium, copper and precious metals, the global semiconductor shortage hit production in Indian plants—top-selling car models have waiting periods running into months.</p> <p>“Not imagining that consumption would come back so strongly after lockdown, we had allocated our requirement to other industries. But fortunately, or unfortunately, we came back very strongly,” said Vinnie Mehta, director general of the Automotive Component Manufacturers Association, the apex body of auto ancillary makers in the country. “The semiconductor problem is not going to go away very soon, as adding capacity takes two good years,” he said.</p> <p>The over-dependence on China means that any further localisation would take years. India, for instance, is a large producer of steel. Yet, most of the specialised steel that the auto sector requires is imported from China. “We have the technology in the country and the capability, but sometimes it is cheaper to import from China,” said Mehta. “The volume is not high and hence it is not economical to localise.”</p> <p>The solution to this, as suggested by a recent insight report by McKinsey, would be to focus more on the export market. “International markets, especially those in Africa that are similar to India, are experiencing a rise in per-capita GDP and reaching the levels at which automotive sales tend to expand significantly. By expanding internationally, Indian automakers will increase growth and sales volume while diversifying risks and reducing demand cyclicality,” said the report.</p> <p>That last bit is crucial. Buoyed by the ever-increasing sales figures between 2012 and 2018, many manufacturers had invested in expanding their capacities—which have now become an albatross around their necks. While brands like Bajaj and Hyundai have been exporting for long, many others have just started looking at this prospect.</p> <p>That is not the only pivoting the auto industry has had to deal with. While a mass-market shift to electric vehicles may still take a few years, the sector has realised that changes will be hitting it much more frequently. This ranges from new fuel options like ethanol being pushed by the government to shifts in consumer preferences.</p> <p>The SUV trend visible before the pandemic has now solidified into an across-the-categories preference at the expense of sedans, the car category conventionally considered the centrepiece in any brand’s offering. Many carmakers got into the compact SUV category initially because market leader Maruti Suzuki did not have a presence in that segment. After the pandemic hit, consumers now see added value in buying an SUV instead of a sedan, as they are more suitable for family mobility, long trips and even weekend getaways. Hyundai’s Creta, for instance, was selling just above 6,000 units a month two years ago; now it is selling nearly 12,000.</p> <p>“The kind of growth compact SUV has seen is not present in any other segment,” said Gulati. Conscious of the risk of infection, urban users are increasingly buying functional, affordable cars. Used cars are also finding more takers.</p> <p>With an uncertain future and the march of technology that will require carmakers to adapt quickly, analysts believe that a shakedown and consolidation is inevitable in the auto industry. “Development cost for alternative technologies is very high. Rather than bearing the burden by themselves, alliances would help it get shared between two or three players,” said Singh of Deloitte. “The results can be equally shared—the vehicle (brand) may be separate, but the core technology could be common.”</p> <p>For all the dramatic makeovers it has been subjected to, India’s auto industry will still be in the doldrums in the foreseeable future. It will take years to achieve real growth, and they will need to be on their toes to deal with faster changes in technology and consumer preferences. Electric vehicles are just waiting for a catalyst to go mainstream, while the spiralling petrol and diesel prices pose another clear and present danger.</p> <p>“Covid has caused deaths and economic stress, and the fuel prices are going up. But at the same time, there are so many positives, with personal mobility becoming even more important,” said Tarun Garg, director (sales, marketing &amp; service) of Hyundai India. “Vaccination is gathering pace. GDP estimates are still in double digits, which means the economy should come back. The Indian market has shown us that it is very, very resilient, especially if you look at the last two years. We are cautiously optimistic.”</p> Thu Jul 29 17:10:22 IST 2021 auto-industry-will-only-grow-from-here <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p><b>Q</b>/<b> Over the course of the pandemic and looking forward, what has changed for India’s auto industry?</b></p> <p><b>A</b>/ 2018 was the peak for India’s auto industry, with around 3.5 million cars sold. Then there was a slowdown in 2019, and last year Covid happened. Last year I would have said that the auto industry had slipped by one and a half years. But after the second wave, I think we have gone back by two years. If you go month by month, the picture looks rosy. But if you compare it with 2018, we are nowhere close, yet.</p> <p>The second wave has been devastating, but we have learned our lessons. From that perspective, I think the auto industry will [only] grow from here. I believe strongly that we will cross 2018 figures next year. Only downsides we need clarity on are chip shortage, mismatch in logistics and raw material prices going up, which will force OEMs to pass on the cost to consumers.</p> <p>&nbsp;</p> <p><b>Q</b>/<b> What are the reasons behind the semiconductor shortage and raw material prices going up?</b></p> <p><b>A</b>/ It is all due to a global mismatch of demand and supply. Most economies had scaled down their production during the pandemic. Suddenly, as countries start opening up, there is an unusual surge in demand for everything, because post-Covid everyone is trying to buy items and indulge. At ports, there is a shortage of equipment, lifts and labour—even the containers are not there. There is a huge global mismatch. So, the freight rates have gone up. In China, one container used to cost $3,500, but now they are charging $14,000!</p> <p>And there is a huge shortage of chips, needed for everything from mobiles to the auto industry. There is chaos right now. These are all unusual dynamics. Hopefully next year, they should sort out. But a return to actual prices may take up to two years.</p> <p>&nbsp;</p> <p><b>Q</b>/<b> One of the shifts we have seen is the growing popularity of SUVs. Another is electric vehicles. Do you see a big uptake for EVs?</b></p> <p><b>A</b>/ EV as a trend is catching up. EV volumes maybe only 10 per cent in five years, but we have had a great start. MG Motor has disrupted the market in EV and our offerings represent the future of mobility. The Hector was the first connected car. Our EV is the best in the industry. The Gloster is an autonomous level one car, first in the segment. We will come out with more mobility solutions this year based on our CASE (Connected, Autonomous, Shared and Electric) vision.</p> <p>&nbsp;</p> <p><b>Q</b>/<b>Going forward, what are the shifts you foresee in consumer preferences?</b></p> <p><b>A</b>/ An obvious change we see globally and in India is connected cars. Touch screens, streaming music, live weather and traffic, call centre connections, these are going to become the cost of entry in the future.</p> <p>Millennials globally are much more conscious about sustainable supply chains, ethical sourcing and environment. The discussion in the mainstream segment will be much more than fuel efficiency and horsepower—it will be about entertainment, information, connectivity and sustainable way of doing business. In India also it will become very important in the next five years. Covid has accelerated this kind of thinking.</p> <p>In terms of trends, mobility solutions will come back. It may take one and a half years to two years to stabilise and settle down to pre-Covid situation, but it will come back—whether it is shared mobility, (car) pools or EVs.</p> <p>&nbsp;</p> <p><b>Q</b>/ <b>As a company, and the industry in general, how would you say you have transformed in the last 15 months?</b></p> <p><b>A</b>/ Covid taught us that staying connected to the community and ensuring we have the latest technology was fundamental. Community here means employees, dealers and customers. During both waves we did a lot of initiatives, whether it was making ventilators, producing masks or providing ambulances.</p> <p>Secondly, sustainability and digital. We are trying to make ourselves a very flexible company and provide very digital non-human contact solutions to buy a car, from our website to our showrooms. We are working with a lot of startups and trying to find a lot more solutions.&nbsp;</p> Thu Jul 29 17:05:32 IST 2021 advent-of-electric-vehicles-sets-the-munjals-against-each-other-over-hero-brand <a href=""><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="" /> <p><b>IT IS ALL IN A NAME,</b> all in the family, but all is not well.</p> <p>&nbsp;</p> <p>A tussle over the ownership of the Hero brand is hotting up between two branches of the Munjal family, and at stake is the future domination of India’s two-wheeler market—the biggest in the world.</p> <p>&nbsp;</p> <p>“We are very clear on our rights, very clear on our assignments and very clear on the ownership,”said Naveen Munjal, managing director of Hero Electric. “If somebody comes in, we will have to take legal recourse.”</p> <p>&nbsp;</p> <p>Naveen’s side of the family runs the electric two-wheeler business with the Hero branding. It is the leader of the nascent segment, with a market share of 36 per cent and turnover of around Rs350 crore. On the other hand, Hero MotoCorp, headed by Naveen’s uncle Pawan Munjal, has around 37 per cent market share of the conventional two-wheeler automobile segment, and it is a behemoth with a turnover of around Rs31,000 crore.</p> <p>&nbsp;</p> <p>Hero MotoCorp is now all set to enter the electric vehicle space. Reports indicate that its first launch could happen in six months. The catch is that it might violate a family agreement.</p> <p>&nbsp;</p> <p>In 2010, a family division initiated by patriarch Brijmohan Lall Munjal, who founded Hero Group along with his brothers Dayanand, Satyanand and Om Prakash, had divided various areas of the business among four branches of the family. There was no restriction on one side of the family entering into a business where another family side was present or competing with them—but the right to use the Hero trademark and its variants was given only to one family wing in a specific area of business.</p> <p>&nbsp;</p> <p>The Pawan Munjal side of the family walked away with the biggest prize then, the fossil-fuel powered two-wheelers. Cut to 2021. Trends, technology, policy and regulation all seem to deem that the sun is setting on the conventional ICE (internal combustion engine) vehicle business, and that the future belongs to environment-friendly technologies. The family partition bestows non-emission (effectively meaning electric vehicles and all such future technologies) to Naveen’s side of the family. Pawan is Brijmohan’s son, and Naveen’s father, Vijay, is Dayanand’s son.</p> <p>&nbsp;</p> <p>So, Hero MotoCorp’s EV foray throws up a face-off. It has a stake in the Bengaluru-based electric two-wheeler startup Ather, and it has tied up with Taiwan’s Gogoro Inc to set up battery swapping stations across the country and make Evs.</p> <p>&nbsp;</p> <p>Naveen sees a potential violation of the agreement here. “Anybody can manufacture anything, there is no limitation on that. There is a very strong non-compete on the usage of the Hero branding. For non-polluting, environment-friendly vehicles as we defined it, the ownership of the brand is with our (wing of the) family,”he said.</p> <p>&nbsp;</p> <p>The stakes are high. ICE two-wheeler sales in India peaked at 2.1 crore in 2019, and they have been in decline ever since. EVs, however, have been capturing more and more mind space. They may still be a blip in the rear-view mirror, but they are catching up. More electric two-wheelers have already been sold in India in the first six months of this year than all of last year, according to the portal Autocar Professional.</p> <p>&nbsp;</p> <p>“A lot of pieces of the puzzle are in place now,”said Naveen. “The triggers for explosion (in growth) are already thereìThis year is going to be very, very critical.”</p> <p>&nbsp;</p> <p>In more ways than one, considering how quickly his uncle is pushing his play into the segment. Hero MotoCorp’s deep coffers and marketing muscle make it a formidable challenger, even when it is new to the game. “It is very difficult to predict the market scenario of the future,”said Shriyance Jain, business observer and managing director of the University of Engineering and Technology Roorkee. “Today, Hero MotorCorp is realising the possibility of an emerging market alternate to its own and which might, in turn, affect its present market share. If these factors were known earlier, it would have definitely affected the decisions made at the time of separation.”</p> <p>&nbsp;</p> <p>With the deep-pocketed Ola set to make a big splash entry, and traditional rivals like Bajaj and TVS increasingly shifting their focus to EVs, it might not be a good time for the Munjals to bicker. “They can amicably resolve this issue by dividing among them who will do what, to achieve economies of scale in case both of them want to use the Hero family name on their brands,”said Shiv Shankar Tripathi, assistant professor (strategic management), MDI Gurgaon.</p> <p>&nbsp;</p> <p>It is still not beyond the realm of possibility that some kind of settlement could be worked out by the first family of India’s two-wheeler industry. And possibly in the drawing room, rather than the courtroom.</p> Thu Jul 22 18:50:22 IST 2021