Business

consolidation-is-the-way-ahead-in-the-visual-media-segment-and-corporate-money-is-fuelling-it

Sat Mar 09 15:25:21 IST 2024

In a recent advertisement, Sachin Tendulkar urges the audience to watch the Indian Premier League “only on” JioCinema. Clearly, when the ad was commissioned, the brief was to draw the audience away from Star Sports, which also will telecast the IPL starting on March 22. After the new turn of events, however, it seems neither Tendulkar nor JioCinema would mind people watching on either platform.

When the Board of Control for Cricket in India (BCCI) sold the IPL broadcasting rights for the 2023-27 cycle, the rights for digital platforms and television were split into two packages. Star Sports, controlled by Disney, retained the television rights paying Rs23,575 crore and Viacom18 (JioCinema’s parent, owned by Reliance Industries Ltd) bagged the digital rights for Rs20,500 crore. And the two engaged in an advertising war. JioCinema got cricketers M.S. Dhoni and Suryakumar Yadav encouraging fans to watch the matches live from anywhere. Star Sports roped in Virat Kohli to emphasise the experience of watching it on television screens. JioCinema stumped everyone by streaming IPL for free.

The rivalry, however, has become a thing of the past, as Viacom18 and Disney are joining hands to create a 070,000-crore media giant. The media undertaking of Viacom18 will be merged into Star India Private Limited through a court-approved scheme of arrangement. Reliance will invest Rs11,500 crore in the joint venture in which Viacom18 will hold 46.82 per cent, Disney 36.84 per cent and Reliance 16.34 per cent.

The JV will be unparalleled in size and scale on the Indian visual media landscape. The new entity will become the largest broadcaster in the country with 110 television channels in multiple languages, two leading OTT streaming platforms (JioCinema and Disney+ Hotstar) and a viewer base of 750 million across the country. It is estimated that the it will have around 40 per cent market share in advertising and subscription. It will have in its kitty top satellite channels such as Star Plus, Colors, Star Gold, Star Sports and Sports18, and content from the vast library of Walt Disney. JioCinema also has the rights to stream the popular HBO shows.

But the prize catch will be cricket. “BCCI rights (television and digital) are with Viacom18, whereas International Cricket Council (ICC) rights are with Disney-Star. Further, digital rights of IPL are with Viacom18, while television rights are with Disney-Star. In effect, post-merger, the JV will emerge as a cricketing rights powerhouse,” said Jinesh Joshi, analyst at Prabhudas Lilladher.

It will have a significant presence in football broadcast as well with the popular English Premier League on Star Sports and Hotstar, and the Indian Super League and the Spanish LaLiga on Sports18 and JioCinema.

There will be a lot of synergies in the combined entity. “On the OTT side, despite being a late entrant, JioCinema has expanded aggressively, initially by bagging IPL rights and subsequently with the content of NBC Universal and Warner Bros. However, it still lacks a big content library, which has prevented it from building up a sizeable subscriber base. Disney+ Hotstar, on the other hand, has been a market leader in terms of paid subscribers. With this merger, JioCinema can take advantage of Hotstar’s superior technology,” said Pulkit Chawla, analyst at Emkay Global Financial Services.

There will be some cross-leveraging beyond the segment as well. RIL’s Jio is the largest player in the telecom space and the company could make use of this base to offer bundled plans.

The merger comes at a time when streaming platforms are seriously thinking about tweaking their subscription-based model in favour of advertising supported video on demand (AVOD). “In the OTT segment, 2023 saw subscription video on demand (SVOD) models take a bit of a backseat, with premium sports available for free across almost all platforms,” said Vibhor Gauba, associate partner, KPMG in India. “We believe that 2024 will continue to see the same phenomenon and hence SVOD monetisation is likely to be under pressure. Also, consumption is likely to see a robust growth, with premium sports properties primed to gain from advertisement/AVOD spends on digital.”

Two other major players, Zee Entertainment and Sony Pictures Network, were also in an advanced stage of a merger but it was called off by Sony. The deal had received most approvals, including from shareholders and the Competition Commission of India. Sony has filed a case in Singapore Arbitration Centre seeking compensation from Zee for not meeting the criteria for the merger, and Zee has approached the National Company Law Tribunal in a bid to get the merger deal enforced. For either party, the termination of the deal is a setback as they will have to take on the might of the combined strength of Disney and Viacom.

A merger between Zee and Sony could have created an entertainment behemoth with 75 channels, and Sony was planning to infuse $1.5 billion in the merged entity, which could have been utilised for content acquisition. This could have been a strong competitor to the Reliance-Disney JV.

Zee’s managing director Punit Goenka, however, remains upbeat on the network’s prospects. He said his company’s intrinsic value remained intact, and he had chalked out a structured plan to bring back its margins to industry-beating levels. “How I envisage taking the company forward in the coming quarters is centred on three key aspects. The first is frugality, the second is optimisation, and the third, the most important, is sharp focus on quality content,” said Goenka.

But analysts are concerned. “Though Zee is actively implementing measures to revive the business and efficiently run business operations as a stand-alone entity, concerns around weak financial positioning, corporate governance, and litigation outcomes continue to remain,” said Chirag Maroo, research analyst at Keynote Capital.

The focus of major broadcasters on OTT comes as no surprise―it is where the future is. According to the consulting firm PwC, India’s OTT revenue is expected to grow at a 14.32 per cent compounded annual rate to Rs3.51 lakh crore by 2027. It was only Rs1.80 lakh crore in 2022.

Content in regional languages has undoubtedly been a big driver of OTT growth. It is estimated that more than half of the movies on OTT platforms are regional titles. Similarly, regional content accounts for nearly half of the original content on OTT. According to PwC, “OTT video will continue to get its boost from regional play.”

OTT has also given companies a platform to expand their offerings in sports. Earlier, cricket and the major events in football, hockey and tennis accounted for bulk of sports coverage. But, today, companies have leveraged OTT to drive sports broadcasting in e-sports, kabbadi, basketball and volleyball, in addition to deepening the coverage in existing sports programming.

Not surprisingly, advertisers are also looking at digital marketing in a big way, with television advertising seeing a muted growth. As per an estimate of FICCI and EY, entertainment OTT platforms will generate around Rs6,000 crore of advertising by 2025.

Big companies are better positioned than the smaller ones to benefit from this booming market, as they could exercise significant bargaining power with advertisers and viewers. “Even the subscription business will get a fillip as bouquets [of channels] will be created around sports,” said Joshi of Prabhudas Lilladher. “Further, they may consider putting sports content behind paywall and raise subscription prices for OTT packs as well.”

Clearly, consolidation is the way ahead in the segment. “Consolidation should happen in the industry,” said Chawla. “Small individual players cannot take on Reliance and Disney. So, it becomes necessary for the smaller players to get together.”

Infusion of corporate money has also accelerated the consolidation. Adani Group took big media bets with its AMG Media Networks acquiring news broadcaster NDTV in 2022 . It has started expanding to regional languages. In December 2023, Adani Enterprises acquired a majority stake in the news agency IANS. It also controls Quintillion Business Media. “At the moment, the focus is to consolidate, expand the offerings across platforms and grow these businesses to become a preferred news destination for Indians in India and for a global audience,” said a spokesperson for AMG Media Networks.

Will there be an Adani vs Ambani battle in the entertainment broadcasting space, too? Will Zee and Sony shake hands again or will a new suitor emerge? Will OTT trump television as 5G gains traction? The broadcasting space has all the ingredients of a gripping soap opera.

itc-hit-the-ground-running-when-the-government-s-millets-initiative-took-off

Fri Feb 16 15:26:10 IST 2024

BUSINESSMAN, agriculture innovator, professional entrepreneur, social reformer. The last one is one epithet S. Sivakumar, head of ITC's agri-business division, may do a double-take on, but it is certainly true.

In the early 2000s, ITC's e-Choupal empowered lakhs of farmers through digitisation. An internet kiosk installed in select villages provided valuable information on anything from weather conditions for farming to procurement price at various mandis. While it became a much feted bridge between technology and the farming community, few actually know that it almost came unstuck because of one stark Indian reality―caste.

Initially, the internet kiosk was installed in the house of a Choupal sanchalak, a coordinator selected by the company, in each village. That sparked off the first roadblock―many villagers complained that at least two kiosks should be provided, for each of the two dominant castes in the area.

After much deliberation, the company put its foot down. “Our belief was that we were building an economic institution, and it should be agnostic to social and political aspects,” said Sivakumar. “We said we would follow the screening parameters for an ideal sanchalak, and then see if other [castes] would use it or not.”

While those not from the same caste as the sanchalak kept away during the following sowing and harvest season, the differences slowly started to dissolve by the second and third seasons, as the economic benefits of getting on the platform became evident to the villagers.

“First, farmers sent their sons to ask about prices; then by next season, it seemed as if the caste differences became secondary. I think social equity was an indirect benefit which came through because of this economic primacy. So long as the value was demonstrated, the other issues took a back seat,” said Sivakumar.

Another pleasant outcome of e-Choupal was women empowerment. Even in the conservative villages of Uttar Pradesh and Madhya Pradesh, women started participating “a lot more, in terms of decision-making on when and where to sell.” They also started asking about additional source of livelihood for women, beyond agriculture. This led to ventures like incense sticks.

Using the internet and technology to further progress, be it in a boardroom or on a farm, may today sound so commonplace. But e-Choupal pioneered it in more ways than one, as does its post-millennial avatar, ITC MAARS (Metamarket for Advanced Agriculture and Rural Services). But for Sivakumar, who is on to his fourth decade at ITC, it has always been about staying ahead of the curve and innovating to make that decisive impact.

Nothing exemplified this better than how the company hit the ground running when the government’s millets initiative took off, with the UN and its Food and Agriculture Organisation (FAO) declaring 2023 as the ‘International Year of Millets’. Prime Minister Narendra Modi declared that India was “honoured to be at the forefront of popularising millets”, while FAO Director General Qu Dongyu pointed out how millets can “empower smallholder farmers, achieve sustainable development, eliminate hunger, adapt to climate change, promote biodiversity, and transform agri-food systems”.

Not to forget its superfood benefits. “Bajra boasts gut-friendly fibre and kodu millet aides in cholesterol control. Ragi provides vital calcium and fibre, which is particularly beneficial for new mothers. Millets are naturally anti-acidic, rich in niacin, are gluten-free and low on the glycaemic index,” said nutritionist Suman Agarwal.

Sivakumar already knew that. While the data tracking division of ITC had noticed the consumer trend towards wellness, the agribusiness and its push for climate-smart agriculture had hit upon millet cultivation as a panacea for many ills plaguing the system―their cultivation consumed less water, and the crops were more climate resilient, hence providing high productivity. Also, a good chunk of existing millet crops were going off as animal feed, for malting or for the farmer’s own consumption at home, with only a small portion going out into the market.

In fact, Aashirvaad, ITC's atta brand, had come up with a millet-based variant even before the UN announcement. But there was an impediment―most consumers did not know what to do with it.

“We realised the consumer was used to rice and wheat, but did not know what to do with kodo and bajra and all that,” said Sivakumar. “Even simple things like making a (millet) roti is a complex process because there is not enough gluten to roll them into proper rotis.”

Entered ITC’s other divisions. While chefs from its hotels (as well as many other leading star hotels in the country) whipped up recipes incorporating millets, the consumer foods division unleashed a campaign to raise awareness, releasing millet-based products from biscuits and noodles to poha and even chocolates. “The government provided both the highway and the fuel. And so we built the right car, and hopefully it will scale,” said Sivakumar. The crowning glory was when ITC was enlisted as the caterer to the world leaders at the G20 Summit at Delhi’s Bharat Mandapam last year, where it unleashed an array of millet-based haute cuisine.

“The vectors of growth will happen slowly,” said Sivakumar. “If you look at the total consumption of all grains to that of millets, millets is still a small fraction. (But) consumers who are using millets have adapted to it. But what it used to be versus what it is now, it has grown manifold.”

The ITC agribusiness team is already on to its future forward ventures. “In terms of value-added products, we are working on medicinal and aromatic plants that are major ingredients in nutraceuticals,” said Sivakumar. Focus now is on scientific segregation of properties and efficacies of traditional Indian formulations, the various herbs and spices, and also, with a backend traceable value chain, all cultivated sustainably using climate smart agriculture methods.

unveiling-the-dynamics-of-large-and-mid-cap-category

Sat Feb 03 12:33:21 IST 2024

IN THE VAST and ever-evolving realm of investment opportunities, investors are often presented with a spectrum of choices. Among these, the large- and mid-cap category stands out as a nuanced and strategic option, offering a blend of stability and growth.

Large-cap: The pillar of stability

Large-cap, short for large capitalisation, are companies that form the top 100 companies in the average market capitalisation. The list for the same is published on the AMFI website every six months. Market capitalisation is calculated by multiplying the company’s current stock price by the total number of outstanding shares. These companies are often industry leaders, characterised by their stability, established market presence and significant market share.

Investing in large-cap stocks provides a degree of stability that appeals to risk-averse investors. These companies are generally well-established, with a proven track record of weathering economic downturns. They often also have a global presence, diversified revenue streams and the financial strength to withstand market fluctuations.

Mid-cap: The sweet spot of growth

Mid-capitalisation companies are the 101 to 250 of the largest companies on the stock exchange. Mid-cap stocks represent a diverse group of companies that have outgrown their small-cap status but are still in the growth phase.

Mid-cap stocks are often seen as the sweet spot for growth-oriented investors. These companies, while not as established as their large-cap counterparts, have the potential for substantial expansion. They are agile, responsive to market trends and have the capacity to capitalise on emerging opportunities.

The power of combination

The large- and mid-cap category is a strategic fusion of both large-cap and mid-cap stocks. Herein, the fund manager must maintain large-cap and mid-cap exposure at a minimum of 35 per cent each.

In times of economic uncertainty or market downturns, large-cap stocks act as a stabilising force. Meanwhile, mid-cap stocks contribute to the portfolio’s overall growth potential, ensuring that investors are not solely reliant on established giants but are also positioned to benefit from the dynamism of mid-sized, high-potential companies.

Why you should invest in large- and mid-cap

The large- and mid-cap category caters to a broad spectrum of investors, each with distinct preferences and risk appetites. For example, investors enthusiastic about diversifying their portfolios across market caps and sectors can leverage the large- and mid-cap categories to achieve a well-rounded mix.

Next, investing in this category can help an investor ride out market cycles, capitalising on both stability and growth over an extended period. However, the caveat here is that these investments should be made at least with an investment horizon of five-plus years.

Furthermore, this category offers a comprehensive solution that caters to a diverse range of long-term investment objectives such as creating a corpus for retirement, child’s education or marriage.

Taxation

When you decide to redeem the units of your large- and mid-cap fund, you realise that capital gains are subject to taxation. The applicable tax rate, however, hinges on the duration of your investment in the fund, commonly referred to as the holding period. Capital gains accrued during a holding period of less than one year are termed short-term capital gains (STCG) and are subject to a tax rate of 15 per cent.

Conversely, capital gains acquired from a holding period exceeding a year fall under long-term capital gains (LTCG). As per the current regulations, gains surpassing Rs1 lakh incur a tax of 10 per cent without any benefit from indexation.

There are 26 offerings with a total asset under management of Rs1.75 lakh crore in this category. Within these, one of the consistent performers with over two decades of track record is ICICI Prudential Large & Midcap Fund. Over the last three years, the fund has delivered returns of 20.56 per cent and 27.66 per cent compared to its benchmark, which delivered 19.92 per cent and 23.34 per cent.

Deepesh Mehta is founder, Happy Investor Finserv LLP

nmdc-chairman-and-managing-director-amitava-mukherjee-interview

Sat Feb 03 11:36:04 IST 2024

Interview/ Amitava Mukherjee, chairman and managing director (additional charge), National Mineral Development Corporation

National Mineral Development Corporation, India’s largest iron ore producer, has transitioned itself into a much stronger entity in the recent times with a busy order book, robust results and a dream run on the stock markets. Amitava Mukherjee, NMDC’s chairman, is not only looking to diversify its portfolio by mining other minerals from overseas mines but also working towards supplying lithium in India. He shares NMDC’s vision, policies and strategy in an interview. Excerpts:

Q \ What are NMDC’s growth targets?

A \ This financial year, our guidance has been around 47 million metric tonnes to 49 million metric tonnes (iron ore production). Now with the delay in getting the approvals for the Kumaraswamy iron ore mine in Karnataka, realistically it would be lower. We were targeting 50. But there was also a delay in the commissioning of our fifth line in Bacheli. We were expecting it to be commissioned in August. In the next financial year, we should be able to do 53 million metric tonnes.

Q \ Between April and November 2023, your production of iron ore went up by 17 per cent.

A \ Two or three factors led to it. A major reason was the planning by our team. Second, we have made huge investments in machineries. Last year we bought 11 dumpers. We have a five-year equipment replacement policy. We are taking advance action by two years now, so anything that has to be replaced in 2026 will be ordered now because of the cycle time. In the earlier process, we would have placed the order only in 2026. Also, one of our major mines that was doing only two shifts is doing three now with the additional usage of dumpers.

Q \ The share price of NMDC has doubled since last August.

A \ I think our production and dispatch mechanisms were one of the major reasons. We have also been open to the market about our future plans―that we are completely reorienting our energy, overhauling our dispatch systems and our marketing strategies as well. In the long run, we do not wish to dispatch from the minehead because there are essential physical constraints there. So we want to make blending hubs and dispatch yards. The market can see how we are changing ourselves and now they are confident that we will be able to execute projects at projected timelines. We talk to investors and analysts every three months, so they are aware of what we plan to do in the next five or six years. Generally, the steel industry is upbeat, looking at the way capital expenditure is being planned and the way expansion is happening. Also, our customers are increasing.

Q \ Do you think the demerger from NMDC Steel has proven to be beneficial to NMDC?

A \ Yes. The value unlock of the NMDC share has happened. When the steel plants were in our books, we did not get any traction out of it in the share prices. So it was a free carry that way. The market was also complaining about that. Once the demerger happened, the value got released.

Q \ What are the developments in the field of coal and gold mining?

A \ We have decided to surrender the gold mine we had in India because the revenues did not justify the investments. It was a conscious decision to not start operations of the Chigargunta-Bisanatham gold mine. But that doesn’t mean we won’t do gold mining. In fact, of the seven or eight minerals that we want to diversify, gold is one. We are mining gold in Australia in a small mine because we wanted to gain some mining experience in that country. We have a lot of other gold mining terrains across the mine that we have started. Now we are making a plan for accelerated exploration of all those five or six other terrains. So if you get five to six mines to be explored fast and if we can hopefully make two or three operational, our portfolio of gold would be substantial. Right now it is minimal.

Coking coal is a matter of interest. We have a coking coal terrain which has been given to us on reservation. We are looking at coking coal even outside India. The demand for coking coal in India will last for at least another 60 to 200 years because of the blast furnaces that are coming back. We have looked at a mine in Indonesia. We do not want virgin mines and we want to invest in producing mines. If you take a virgin one, it takes around 12 years to develop it. As far as coking coal is concerned, because the requirement is immediate, wasting 12 years on exploration and development of the mine is illogical.

Q \ Is NMDC in the race to produce lithium?

A \ If things go right, and I am saying this with a big disclaimer, then I am sure that NMDC would be the first company to get lithium into India. We are talking to various people who have mines in Australia and Africa, trying to get into some sort of an understanding with them, some sort of an equity participation. It is the same coking coal route where you have to go in for some of the working mines or just about-to-start working mine. Take some stakes there, have some off-take agreement, and do some exploration in virgin terrains. We have a site in Australia where we are in a partnership with the very big mining company, Hancock Perspective. It is called handbrino. With them we have a magnetite project on the huge terrain, Mount Bevan, and traces of lithium might be from there. We are looking at Africa, too, but those are essentially virgin mines. So that is going to take some time. But in Australia, we are talking to a couple of miners who have either working mines or mines that can start to work and this will be our immediate target.

Q \ What are the employee-friendly measures being implemented by NMDC?

A \ We maintain regular communication with the workers and unions. When I speak to them, my standard line is that whatever we have done in the past 66 years, we need to do in six years. We have been telling our employees that we have reached from zero to 45 million tonnes in 66 years, and in another six years, we have to go from 50 to 100. Now, we are mining outside India. We are doing a lot of things that we have not done in 66 years. This message has gone to them and to motivate the employees, we have introduced awards to recognise their extraordinary work. We have made certain policy changes. For example, now dependent daughters and dependent sisters of employees are eligible to get medical benefits. We are also providing housing to them. I believe that the management is extremely worker-friendly and that is why our employees respond to our call.

nirmala-sitharaman-s-interim-budget-expectations

Sat Jan 27 12:13:58 IST 2024

DANCING TO ‘NAATU NAATU’ in Singapore is surely not out of the scheme of things, considering the city state’s huge diaspora. But when Simon Wong, Singapore’s high commissioner to India, expressed a desire to do so to Union Finance Minister Nirmala Sitharaman recently, he was referring to a very specific wish―with India being the ‘biggest bright spot’ in the world economy, will there be another super-charged budget that will have the markets and global investors dancing away?

Sitharaman did not give in to the temptation to open up. “I am not going to play spoilsport, but it is a matter of truth that the budget will just be a vote-on-account because we will be in election mode.” Her reply, made at the Global Economic Policy Summit in Delhi, set tongues wagging.

Hazaaron Khwaishein Aisi (A thousand wishes like this)

Although Sitharaman tried to tell the world there would be “no spectacular announcement” in the interim budget she will present on February 1, it has not stopped India’s economy and business from looking forward to big-ticket announcements. Called a ‘vote-on-account’ as per British tradition, an interim budget presented by an outgoing government on the eve of elections is aimed at meeting expenditure for a few months till the new government comes in after the polls and issues a budget based on its own policy objectives.

Try telling that to the thousand wishes blooming across the land, from corporate leaders to the MSME (micro, small and medium enterprises) entrepreneur, right down to the common man expecting ‘Amrit Kaal’ right away. Or even to the satraps of the ruling party―an election-eve budget is one of the most effective campaign manifestos one could hope for, and who would ever let go of such an opportunity?

“In light of the impending elections, populist policies may be the main focus of the budget in an attempt to win over voters,” said Subhashish Banerjee, founder of P3 (People, Policy, and Politics), a strategic advisory organisation. “Anticipate changes to policy targeted at major problems like health care, unemployment and economic recovery. The government might launch programmes to encourage the creation of jobs and increase consumer spending. There may also be initiatives to support the health care industry and provide funding for social welfare initiatives.”

RRR

Or rise, rallies and risks. The good news is that India remains a bright spot on the global economic firmament, even as China’s growth slows down and rich western nations stare at possible recession. Every rating agency has been progressively revising upwards the GDP growth rate this financial year as the Indian economy rallied on from strength to strength―latest estimates hover just below the magical 7 per cent figure, with super-optimists feeling it would not be a surprise if even that is surpassed.

This type of rise and rally is not without the risks, though. Sanjay Kumar, partner, Deloitte, along with economist Rumki Majumdar spoke about the four risks the Indian economy could face if one got too carried away: “Inflation, particularly high food prices; the impact of a long drawn out election season [as it promises to be till mid-May]; geopolitical uncertainties with two major wars and the contagion effect on global supply chains; and the diverging demand gap seen since Covid, with rural demand not seeing sustainable growth the way high income segment has.”

Baahubali

All this means that to treat the interim budget as just a stop-gap expense accounting exercise would not be too prudent. Not to forget the need to check all the boxes when it comes to pre-poll posturing. Sure, Prime Minister Narendra Modi’s government is on a strong wicket as things stand. But the BJP election machinery likes to ensure that all bases are covered and go all guns blazing. The budget is too juicy an opportunity to miss. And it would be the perfect opportunity to address the K-shaped conundrum, with the lower middle class and poor never really recovering from the devastation of the pandemic aftermath.

“The agriculture sector and the rural sector itself have not been doing particularly well compared with the urban and business sectors,” said Sethurathnam Ravi, economist and former chairman of the Bombay Stock Exchange. “So I see more tax incentives there. Because that is one area of concern for everybody, as food inflation is rising.”

Looking back at the 2019 elections, one cannot discount the trickle-down effect that direct benefit transfers and social welfare schemes like the Ujjwala Yojana had, which indirectly translated into support for the ruling party. While Modi has spoken against freebies, it really should not come in the way of Sitharaman targeting the crucial rural voter base. “Considering the prime minister’s anti-freebies stand, even the best of direct beneficiary plans will be represented as citizen schemes, which will be drafted not only to clear the government’s stand on benefiting the masses, but it will also generate considerable economic boost among the lower and middle classes,” said Banerjee.

“A democratic government owes to its voters that the last man on the street takes precedence,” said R.D. Sahay, adviser policy, Sharda University. “The common man must have a stake. He needs to find that there is something for him in the system.”

Going hand-in-hand with welfare would be an impetus on job creation and social security, like additional funds for PM Shram Yogi Maandhaan (for old age protection and social security of unorganised workers) and Ayushman Bharat Yojana (public health insurance scheme). “Targeted incentives may stimulate investment, job creation and industrial expansion, supported by increased allocations for skill development, incentives in the informal sector and stable working conditions,” said Rohet Ramesh, director of the talent management and business consulting firm Layam.

Chak de! India

Sitharaman’s stint as finance minister has been characterised by a ‘go big or go home’ spending strategy, with a massive capital expenditure push particularly in the post-Covid years. The aim was to reignite growth, as much as spur investment from the reticent private sector.

Nobody really expects it to be toned down now, with Deloitte’s Kumar and Majumdar flagging how most of it has been concentrated on roads and railways. “On the other hand, over the past two years, spending on urban development and energy as a share of GDP has declined,” they said. This big-ticket spending spree, though helpful in boosting growth and employment, has led to a ballooning fiscal deficit. The Black Swan circumstance of the pandemic was an excuse to let caution to the winds and let the deficit increase, but it could haunt the economy if adequate measures are not taken soon.

The pressing question is whether North Block will go cautious and stick to its target of reducing the fiscal deficit of Rs6.43 lakh crore, which is 6.5 per cent of the GDP, down to 5.9 per cent, at least by the next financial year by splurging less, or whether the temptation of an election year will be too much.

Kal ka Avtar (Tomorrow’s avatar)

Electoral compulsions notwithstanding, Sitharaman is expected to do all that is possible within the ambit of an interim budget to state India’s future forward credentials, especially on the heels of the G20 summit. This could include incentives for clean energy, waste management, pollution control, agriculture technology and logistics.

“As we approach this year’s budget announcement, there is an expectation that the momentum of the green growth initiative from the previous year will strengthen, reflecting a sustainability-first approach,” said Arun Awasthy, president and managing director of Johnson Controls India. There is a win-win in many of this. For example, agriculture logistics, like warehousing and supply chain, could directly contribute to reducing food inflation, while pollution and waste management initiatives could be huge employment generators.

From EV sops to hydrogen to artificial intelligence, new-age technologies are now too crucial for any budget to ignore. “The overriding theme of the budget should centre on sustainability, innovation and self-sufficiency… and a strategic focus on R&D,” said Nitin Gupta, cofounder and CEO of Attero, a lithium battery recycling firm. “The industry expects measures that will position India as a global leader in the green economy.”

For all the speculation on which sector will get incentives and which areas the budget will focus on, nothing garners the greatest interest like the question that captivates the salaried middle-class come every budget season― whether there will be an upward revision of the personal income tax slabs.

While a nudge towards the newer personal income tax regime―lower rates but with no availing of deductions―is the likely long term scenario, the poll-eve timing means nothing is off the table. “For more dramatic decisions we should probably wait till July,” said Ravi. “Every year, people would get excited over that, but nothing happens. Maybe the government has reserved it for the election year… that is still possible.” Who will dance to ‘Naatu Naatu’ on February 1 remains locked up in Sitharaman’s red bahi-khata pouch for now.

gift-city-on-the-way-to-becoming-an-international-financial-hub

Sat Jan 13 12:03:40 IST 2024

Gujarat is officially a dry state. But soon, investors flocking to the Gujarat International Finance Tec-City, or GIFT City, which is located between the state’s largest city Ahmedabad and its capital Gandhinagar, will be able to raise a toast, as the government has given hotels, restaurants and clubs there permits for wine and dine facilities.

GIFT City has always been an exception. The ambitious project envisioned by Prime Minister Narendra Modi wants to challenge global financial hubs like Dubai and Singapore. Conceptualised in 2007, when Modi was Gujarat chief minister, its foundation stone was laid in 2012 and business commenced in 2015.

It is still a work in progress, and a far cry from the global financial hub it aspires to be, but it is steadily getting there. “Once major players set up shop in GIFT City―some of the foreign banks are already there and some have set up back office operations―it is only a matter of time before we have all types of players from the ecosystem,” said Sriram Krishnan, chief business development officer, NSE. “In the next few years, GIFT City will be how Bandra-Kurla Complex in Mumbai looks today.”

GIFT City has already established itself as an international financial services centre (IFSC). Last year, the popular SGX Nifty, the Singapore Stock Exchange-traded futures on the NSE’s benchmark Nifty50 index, was rebranded GIFT Nifty and all the derivative contracts earlier traded in Singapore were moved to the NSE International Exchange (NSE IX) in GIFT City. This shift of derivatives trade worth $7.5 billion was a big step in attracting more investors. Some 59.13 lakh contracts were traded on international stock exchanges in GIFT City with a traded value of $194.88 billion till September last year.

Modi recently said he wanted to make GIFT City a global nerve centre of new age global financial and technology services. Many tech giants have shown interest. Google and Oracle have already taken up space to set up their fintech centres. Many global business leaders attended the Global Fintech Leadership Forum at GIFT City, organised as part of the Vibrant Gujarat Summit, on January 10.

Bhavin Shah, partner and leader (deals) at PwC India, said the establishment of International Financial Services Centre Authority (IFSCA) as a unified regulator for GIFT City had ushered in a new era of progress. “IFSCA has been proactive in introducing regular updates and amendments, offering robust regulatory support to enhance the business environment. The goal is to streamline business procedures and lay down a ‘red carpet’ to investors and businesses who opt for GIFT City, instead of the proverbial ‘red tape’,” he said. Some 400 entities have already opted to establish operations in GIFT City.

Twenty-three IFSC Banking Units (IBUs) already have presence in GIFT City. IBUs are branches of banks that offer international banking services. Assets of these IBUs―trade finance, investments, commercial loans and interbank placements―touched $46.48 billion in September 2023.

Asset managers and alternative investment funds, too, have been steadily driving in, as having a base in GIFT City enables both inbound and outbound investments. These funds can offer products to global investors, and, at the same time, offer local investors options to invest in global markets through the liberalised remittance scheme (LRS) route.

A lot of the global capital is managed out of Singapore and Dubai. GIFT City gives the option of managing this money through Indian shores. DSP, for instance, manages around $19 billion in funds, of which around $2.5 billion is managed through its offshore office in Mauritius, where it has raised money from global investors. It is now moving the office to GIFT City. “There will be focus on products for inbound investors, foreign institutional investors, hedge funds, family offices and pension funds, and outbound investors can invest in global opportunities,” said Jay Kothari, senior vice president and global head of international business at DSP Asset Managers.

It is not just the banks and financial institutions that are setting up shop in GIFT City. Aircraft lessors, ship leasing companies and fintechs are moving in in droves. Air India’s recent acquisition of Airbus A350 aircraft in a finance lease was facilitated by AI Fleet Services (AIFS), a finance company registered in GIFT City. AIFS will be the primary Air India entity for wide-body aircraft financing. IndiGo, India’s largest airline, also has plans to set up a unit in GIFT City to finance lease aircraft.

Along with regulatory support, cost effectiveness also sets GIFT City apart. “Compared to other international financial centres, the operational costs in GIFT City are notably lower, making it an attractive destination for businesses seeking a thriving and conducive economic environment,” said Shah of PwC.

GIFT City offers a 10-year tax holiday for units. There is no goods and services tax on services received by a unit. Investors are exempted from securities transactions tax (STT) and stamp duty for transactions done on international exchanges in the IFSC. Funds operated from there are exempt from distribution tax. Interest payable by a unit to non-residents is not taxable in India and the minimum alternate tax (MAT) rate for income earned in convertible foreign currency is 9 per cent against the actual 18.5 per cent.

“A recent notification also grants exemption from the requirement to obtain permanent account number (PAN) for non-residents undertaking specified transactions with an IBU. This reflects a deliberate effort to attract foreign investors and create a business environment at GIFT City that is notably friendly and conducive to investors,” said Shah of PwC.

The government actively removes any speed bump on the way of GIFT City’s smooth progress. The dual approval needed to set up a unit there―one from the development commissioner of special economic zone and the other from the IFSC authority―was a headache. To overcome this, Finance Minister Nirmala Sitharaman announced a proposal in the 2023-2024 Union Budget to give IFSC Authority powers under the SEZ Act. A single window IT portal was also created to get approvals.

As new businesses move to GIFT city, authorities are also focusing on building the social infrastructure that will be key to attracting people to live there. Gujarat Chief Minister Bhupendra Patel recently said that there were plans to develop the riverfront along the Sabarmati. Metro rail connectivity from Ahmedabad to GIFT City is expected to be operational by July and approval has already been granted for constructing more residential units. Patel said town planning schemes would be devised as part of the phase two development plan and a large township would be constructed in the adjoining areas of GIFT City.

Australia’s Deakin University opened its first overseas campus in GIFT City on January 9. For now it offers postgraduate courses in cyber security and business analytics. “The location of the site―one of the biggest financial and tech hubs in India―makes it very attractive. It suited what we wanted to have, a focus on employment related to postgraduate qualifications, working in cyber security, business analytics, where business are crying out for well qualified graduates, and this makes it a good option,” said Prof Iain Martin, vice chancellor of Deakin University. The University of Wollongong, Australia, is also planning to open a campus in GIFT City.

Aided by the upswing in demand, the real estate in GIFT City is witnessing a surge. “The government has allocated some 22 million square feet space so far, and $240 million committed investment,” said Swapnil Anil, executive director & head of advisory services, Colliers India. “The residential prices in GIFT City have increased 25-30 per cent in the past a few quarters. These advancements have resulted in a notable rise in the residential and commercial real estate markets along the Ahmedabad-Gandhinagar corridor.”

unlocking-investment-potential-the-case-for-multi-asset-allocation-funds

Sat Jan 13 11:59:30 IST 2024

WITH THE CONFLICT RAGING in the Middle East, the equity markets in India and world over has turned volatile as investor sentiment has dampened over the past few weeks. You, too, might have pondered the question, “How should I protect the value of my investments, or how can I reduce erosion in portfolio value?” The answer could lie in multi-asset allocation funds. These funds have been gaining traction and are increasingly becoming a go-to option for both seasoned and new investors.

Multi-asset allocation funds, a sub-category of hybrid funds, are a distinct type of mutual funds. These funds are specifically designed to invest in a diverse range of asset classes, which can include equities (stocks), debt (bonds), commodities like gold and/or silver, and real estate investment trusts (REITs). The primary aim of this offering is to combine these asset classes in a way that optimises returns while mitigating risk.

One of the most compelling reasons to consider multi-asset allocation funds is the ease of diversification they offer. Diversification is the investment strategy of spreading your money across various assets to reduce risk. With multi-asset funds, you do not need to agonise over creating the perfect asset mix. The fund manager does that for you. They dynamically allocate assets based on market conditions, aiming to balance the risk-reward trade-off. This simplifies your investment journey and ensures that your portfolio is well-rounded.

Additionally, asset classes can be volatile, with each having its market dynamics. Equity markets can soar to great heights, but they can also experience severe downturns. Debt provides stability but might not offer substantial growth. Multi-asset funds harness the potential of different assets during various market cycles. For instance, when equities are down, investments in debt and gold can provide stability. Conversely, when equities are bullish, they can drive higher returns. This dynamic approach can help reduce portfolio volatility and enhance risk management.

Finally, multi-asset funds are managed keeping tax efficiency in mind. Depending on the fund’s stated asset allocation, they can be structured to be treated as equity funds or as non-equity funds with indexation benefit.

The meaning of tax treatment as equity fund means that they can offer you favourable tax benefits, such as only long-term capital gains tax at 10 per cent and short-term capital gains tax at 15 per cent. Plus, you do not have to worry about capital gains taxes when the fund rebalances its assets, which is a cost you might otherwise incur when managing asset shifts independently.

In the Union Budget 2023, there was an introduction of non-equity funds where at least 35 per cent equity investment has to be maintained so that the fund receives indexation benefit.

Whether a fund employs equity taxation or non-equity taxation with indexation benefits, the multi-asset fund generally has a much lower standard deviation as a whole. In 2015, 2020 and 2022, when the market volatility was significantly higher, a multi-asset approach emerged as a superior investment strategy.

Multi-asset funds also offer time efficiency. With these funds, you can free yourself from the constant monitoring and rebalancing that managing a diverse portfolio of individual assets would require. The fund manager takes care of the nitty-gritty, ensuring your investments are well-maintained and aligned with market conditions.

With rising geopolitical uncertainties, high inflation, and increased market volatility, multi-asset allocation funds are positioned to offer a more stable and rewarding investment experience. In such an environment, having a well-balanced portfolio that spans equities, debt, commodities and real estate investments is a prudent strategy for 2023 and beyond.

In conclusion, multi-asset allocation funds are a versatile and efficient way to harness the potential of various asset classes while minimising the complexity and risks associated with managing them individually. These funds simplify diversification, enhance risk management, and offer favourable tax treatment.

Kumar is founder, Perpetual Investments.

a-comprehensive-exploration-of-aggressive-hybrid-funds

Sat Jan 13 11:55:46 IST 2024

IN THE COMPLEX LANDSCAPE of investment options, aggressive hybrid funds stand out as a traditional choice for investors. These mutual funds, nestled within the hybrid scheme, predominantly invest in stocks while also incorporating a measured allocation in debt instruments. This unique blend positions them as a well-rounded investment avenue, providing a strategic mix of risk and stability.

According to SEBI scheme categorisation, aggressive hybrid funds are mandated to maintain a balance, allocating between 65 per cent and 80 per cent of their portfolio to equities and related instruments. The remaining portion finds its place in debt securities. This strategic allocation strategy aims to spread investments across different avenues, mitigating risk and thereby ensuring these funds are less volatile than their pure equity counterparts.

Equity, as an asset class, bears the potential to generate long-term wealth, while debt offers stability and a steady income stream. Aggressive hybrid funds, by combining these elements, strive to deliver the best of both worlds within a single investment product. The equity portion fuels return during market upswings, while the debt component acts as a stabilising force during market downturns, offering a unique dual-role investment proposition.

Aggressive hybrid funds present an attractive option for a broad spectrum of investors, from beginners to seasoned market participants. Specifically designed for those looking to step into equity investments without exposing themselves to the full risk inherent in pure equity funds, these funds are well-suited for individuals with a three- to five-year investment horizon or longer. Investors can align these funds with financial goals anticipated within the next three to five years, making them a versatile addition to a diversified portfolio.

The aspect investors must be mindful about is that though this type of fund is not as risky as pure equity mutual funds, aggressive hybrid funds carry moderately high risk because of their substantial equity component. During market corrections, investors may witness a decline in the investment value, but it is generally less severe compared with a pure equity mutual fund. And, in rising markets, these funds might underperform pure equity funds, given their allocation to debt instruments. However, over the long term, the return differential between aggressive hybrid funds and pure equity funds is relatively modest.

The hallmark of aggressive hybrid funds lies in their ability to provide true diversification. With a portfolio encompassing both high-risk, high-return equities and low-risk, low-return debt, investors benefit from this balanced approach. This not only ensures returns are not solely contingent on equity market movements but also provides a cushion during market corrections, underscoring the dual role played by the debt component.

Another advantage is their capacity to eliminate the necessity of buying multiple funds for exposure to different asset classes. The fund manager takes on the responsibility of asset allocation between equities and debt, simplifying the tracking effort required from investors. Also, an investor need not worry about the rebalancing process. Current regulations mandate a minimum of 20 per cent investment in debt funds at all times. As markets rise, the equity holdings increase in value, tilting the allocation mix in favour of equity. To restore balance, the fund manager sells stocks and invests in debt instruments, strategically selling equities at high points and purchasing them at lower levels.

Aggressive hybrid funds are treated as equity funds for tax purposes. This advantage provides investors with a tax-efficient investment avenue that combines the benefits of both asset classes. Short-term capital gains, realised within one year, are taxed at 15 per cent, while long-term capital gains are tax-free up to Rs1 lakh and taxed at 10 per cent beyond that.

To conclude, aggressive hybrid funds emerge as a compelling investment option, seamlessly combining the growth potential of equities with the stability of debt. Their strategic asset allocation, and tax advantages, make them a versatile choice for investors seeking a balanced and adaptive investment strategy. As investors navigate the complex world of finance, aggressive hybrid funds offer a roadmap that bridges risk and stability, potentially unlocking long-term wealth creation.

Sunila is founder, Jupiter Fintech Solutions

events-that-will-determine-how-much-india-leaps-ahead-in-2024

Sat Jan 06 14:02:46 IST 2024

Swag. It was not a traditional Indian attitude. But from Salman Khan’s Tiger who sang ‘Swag se karenge (Will do it with confidence)’ to the alpha male heroes of the recent movies, swag has very much been appropriated by Bharat. Even as the world braces itself for a round of uncertainty about the wars, the narrative on desi streets―high, low and Dalal―couldn’t be more different. Indians are flush with swag and swagger leaping into 2024.

Prime Minister Narendra Modi referred to the zeitgeist on New Year’s Eve. “India is brimming with self-confidence,” he said. “We have to maintain the same spirit and momentum in 2024 as well.”

While political India’s eyes will be pinned on the Lok Sabha elections in the summer, the mood of the nation will be determined not just by the incoming government’s policies, but by some major, far-reaching developments on the economy side of affairs, some of which are already under way.

The most talked-about, of course, is the hyperbole of how India is all set to become a $5-trillion economy in 2024-2025, if not the calendar year itself. While that has more milestone value than anything else, many significant developments across the technology, finance and commerce spaces could upend the world around us as we know it.

I, Robot

The good news? We’ve only scraped the surface of what artificial intelligence can do. The bad news? We’ve only scraped the surface of what artificial intelligence can do.

While we were mighty impressed by what generative AI programmes like ChatGPT could churn out, 2024 could unfold the true extent of what AI is capable of. Tata Sons chair N.Chandrasekaran told his employees to “proactively pursue the benefits of AI―economically, operationally and socially”. As the year progresses, we will see increasing adoption of AI across India Inc, stretching right up to factory floors.

Of course, Chandra added a caveat: “We must be prepared for more disruption and volatility.” These disruptions may not be pretty to those working in jobs like cashiers, customer care executives, secretaries and administrative assistants, going by a US Bureau of Labor Statistics prediction on jobs that are shrinking the quickest. Or to fresh-in-the-job-market youngsters who find their qualifications already outdated by technology.

Then, there is the threat of misuse. “As the Lok Sabha elections approach, the intricate interplay of AI and deepfakes adds a layer of complexity to the overall system,” warned Ibrahim H. Khatri, CEO and Founder of Privezi Solutions, a Mumbai-based corporate data security and management firm. “Though AI can be a driving force behind effective campaigning and educated voter participation, the improper use of deepfakes can jeopardise the democratic process by increasing the spread of misinformation and manipulation.”

Updating legislation will be crucial, but important legal frameworks in this effort―the Digital India Act and the Data Protection Act―are yet to be fully implemented. The government seems content on passing on the onus to tech companies and social media platforms.

Swipe right

India is on a courtship spree, trying to sew up free trade agreements left, right and centre. The one with the UK, negotiations for which are on its last leg, is crucial for both and could see fruition before the elections are announced. For the UK, it will go a long way in making up for its Brexit misadventure; while for India, it will not just be a nice poll point (many Indians hope it means cheaper Johnnie Walker scotch!), but part of its larger gameplay to counterbalance China’s Regional Comprehensive Economic Partnership (RCEP), which India had refused to join.

However, the UK FTA is just one of the many agreements New Delhi is negotiating. Other ongoing talks include the long-pending ones with the US and the EU, as well as those close to completion like the one with Oman and the four-nation bloc comprising Iceland, Liechtenstein, Norway and Switzerland.

“India aspires for fair, transparent and mutually beneficial agreements that make our businesses competitive, opening new markets for them,” said Piyush Goyal, minister of commerce and industry. “FTAs expand trade and commerce, and accelerate economic growth, thus creating jobs and business opportunities.”

The ground beneath our feet

Through the last one-and-a-half decade, India’s real estate sector was stuttering, wreaked by the global financial meltdown in 2008-2009, demonetisation and RERA. But over the past year or so, the sun has been shining on realty, with some of the biggest value increases since the boom of the early 2000s. And what more, ticket prices are firmly up, with homebuyers with a penchant for premium housing sniffing around for good picks. “We expect projects in the premium and luxury segments (Rs2 crore and above) to continue experiencing healthy growth,” said Anshuman Magazine, chairman & CEO of the real estate consultancy CBRE India, pointing out how sales of high-end flats and villas grew 75 per cent last year. “Affordability is no longer the sole decisive factor for homebuyers, as health and safety, community living, sustainability, and integration of smart home technologies emerge as key factors in home purchase decisions.”

Pie from the sky

India’s space odyssey will hit a pivotal point in 2024 with the unmanned test flight of Gaganyaan. While that will, science willing, be an illustrious high point, the nation’s space progress, especially in the area of space business and startups, notches up way higher than such marquee moments. While XpoSat is already successful and Aditya L1 is set to reach its designated orbit, other high profile rollouts slated for 2024 include the earth observation satellite NISAR, a Venus mission and the second Mars mission.

Another landmark would be when Airtel’s OneWeb starts its broadband internet from space service. It will be expensive in the beginning, but will help rural and remote areas get access to high-speed communication. Elon Musk’s Starlink and Jeff Bezos’s Project Kuiper are also waiting in the wings to launch similar services in India. “Broadband services will improve further and telecommunication will connect all remote areas, which will further improve mobile telephone, video and data management,” said G. Narahari Dutta, former ISRO deputy director and professor at NITTE Meenakshi Institute of Technology, Bengaluru.

But the proof of the pie will be the fledgling Indian space startups showing use cases and profits. “Early-stage startups continue to make strides and augment their capabilities across upstream and downstream,” said Apurwa Masook, founder & CEO, SpaceFields, a space startup. “India is well positioned with increased cooperation and global partnerships in space amid escalating geopolitical tensions in various regions.”

New year, new energy

Despite COP-28 and the debate over fossil fuels, the fact that a good chunk of India’s energy still comes from coal is unlikely to change in 2024, or in the near future. But that does not mean there isn’t a whiff of change in the air. Last year saw momentum in the adoption of electric vehicles, and that is set to accelerate this year as well. “Despite the reduction in FAME subsidy, India’s EV market has recovered and electric two-wheeler sales are 5 per cent of total two-wheeler sales, with an year-on year growth of 11.5 per cent,” said Anirudh Ravi Narayanan, CEO of BNC Motors, a clean energy two-wheeler startup. “This is an important step because the crutches are coming off the industry. What can help now from the policy side is to provide stability and a long-term view so that the industry can plan accordingly.” Also on his wish list? Enabling battery swapping in the country.

Big brothers

Is a hyper-consolidated business good or bad? 2024 could well point the way for Indian media and Big Tech. For all the television channels, newspapers and magazines and their legacy, two Big Tech entities Alphabet (YouTube and Google) and Meta (Instagram, Facebook and WhatsApp) have a grapple hold of our online lives, and they earned a neat revenue of Rs43,000 crore last year. The will-they-won’t-they merger of Zee with Sony, as well as Disney Star with Reliance (Jio, TV18, Colors, etc), could create two formidable players with heft. What does it mean for the average media & entertainment consumer? The writing’s on the airwaves.

Phoenix rising?

After the nightmare that was 2023, Gautam Adani would be hoping the only way is up in 2024. Hindenburg revelations’ specific casualty was his flagship company’s much-touted follow-on public offer (FPO), through which it was hoping to mop up Rs20,000 crore for its expansion. It had to be called off, as the company faced months of bad press.

That done and the company slowly clawing back up, it seems the good days are back―Adani is reported to be holding a series of roadshows for investors, and with the current bull run, it wouldn’t be a surprise if it decides to revive the FPO. The billion dollar question will be―before or after the polls?

Slumdog trillionaire

Indian economy may or may not hit $5 trillion this year, or surpass Germany and Japan to become the world’s third richest nation, but all agree that it is on a roll, and it is not just the stock markets. Financial year 2024-2025 could see India easily attaining an above 7 per cent GDP growth, reinforcing its position as the fastest growing major economy in the world.

“That is a big positive, particularly in view of the global headwinds,” said Sanjay Kumar, partner, Deloitte India. “Oft-understood reason for this strong sentiment on growth is robust capital investments with widening crowding in of private capital expenditure in related areas. Systemic financial risks are also seen to be declining.”

Kumar does throw in a cautionary note, though: “This, however, needs continued policy support, vigilant supervision and liberal framework to manage emerging vulnerabilities.”

Markets believe the likely return of Modi, for a third term, will be lucky for the economy, with a push for further market-friendly economic reforms likely in the ‘actual’ budget to follow in the summer. Yet, more work is to be done, as Kumar points out: “We need policies focused on promoting high quality job-rich growth, with continued reform in areas of education, health, land, agriculture, and labour markets, including improving equity and inclusion in labour force participation.”

farmer-producer-organisations-could-fix-many-problems-of-india-s-fragmented-agriculture-sector

Sat Jan 06 13:17:29 IST 2024

Pushkar, in Rajasthan, is a popular tourist destination. It is also known for its roses. Some 700 hectares in the region are dedicated for rose cultivation. The flowers are mostly exported.

Though Pushkar gives the highest per-hectare yield of roses in the country, the farmers' earnings were limited because of the highly fragmented land holding in the area. In 2015, Nand Kishor Saini decided to fix it. He brought together all the rose farmers in the region and set up a farmer-producer organisation (FPO), Pushkar Rural Agricultural Youth and Employment Producer Company (PRAYE). It started with 260 shareholders, and now has 500 shareholders and 350 unregistered members. The company has facilities where the produce is processed into value-added products like gulkand (a sweet preserve of rose petals), rose water, rose syrup and dehydrated rose petals. These products are sold under the brand Pushkarwala.

PRAYE collects 500-600kg pink roses a day. “Before the formation of the company, an individual rose farmer got Rs50 a kilogram for the crop. Now, he gets more than Rs65,” said Saini. Last financial year, PRAYE's revenue topped Rs1 crore.

The synergy helps in every aspect―from fetching better yield to extracting higher price for the produce, as Anita Malge, who runs Yashaswini Agro Producer Company in Solapur, Maharashtra, affirms. “We started with a small group of 10 people,” she said. “We collectively bought seeds and agri chemical, and started cultivating together.” Started in 2015, the company's goal is improving the lives of women farmers in the district. Today, it has more than 1,400 women shareholders from 32 villages.

Yashaswini focuses on millets and pulses, and sources them from farmers and then converts them into food products like biscuits and cookies, and sells them. “We have 55 products now, and our revenue was close to Rs8.27 crore in 2022-23,” said Malge.

Indian agriculture has for long been constrained by fragmented land holdings. According to the National Bank for Agriculture and Rural Development (NABARD), some 85 per cent of the land holdings belong to small and marginal farmers. The use of latest farm machinery is limited in small land parcels and, more importantly, these unorganised farmers are unable to get good value for their limited produce. They are also at the mercy of the vagaries of nature.

That is where FPOs like Yashaswini and PRAYE can make a difference. They are owned by farmers and the profits are shared among the shareholders. Each FPO has an elected board of directors. NABARD, government departments, banks and international aid agencies provide financial and technical support to these companies.

FPOs eliminate many layers of exploitation. Typically, local collection agents collect a farmer's produce for a commission. Then brokers sell it to a trader and the trader eventually sells it to institutional buyers. There is commission at every step and the farmer ends up getting very low price for his produce. And, he has limited say in negotiations.

FPO model changes all this. An FPO procures inputs, provides market information to the members, helps them get access to finance and typically has storage and processing facilities. FPOs also help in brand building, packaging and marketing the produce to large buyers.

Sahyadri Farmer Producer Company, based in Nashik, in Maharashtra, is a good example for how collective strength can reap huge benefits for farmers. Famous for its grapes, Nashik, over the years, has emerged as the wine capital of India. In 2011, four smalltime farmers led by Vilas Shinde came together and formed Sahyadri. Today, it services more than 18,000 registered farmers covering 31,000 acres and nine crops. Its turnover in the 2022-23 financial year was Rs1,007 crore, including Rs352 crore from exports.

The core crops that Sahyadri focuses on are grapes, tomato, pomegranate, oranges, sweet lime and sweet corn. The company has also launched processed food products like tomato ketchup, puree, frozen fruit pulp and frozen vegetables. It is the largest exporter of grapes from India. “We are striving to replicate the nation's commendable global presence in the dairy sector in horticulture,” said Shinde. “There is ample opportunity for collaboration within the agriculture sector, driven by unwavering commitment and a clear direction.”

According to the ministry of agriculture and farmers welfare, there are more than 7,000 FPOs registered through agencies like NABARD and Small Farmers' Agribusiness Consortium (SFAC). In 2021, the government launched a scheme called 'Formation and Promotion of 10,000 FPOs' with the budgetary provision of Rs6,865 crore. Under the scheme, FPOs are provided financial assistance up to Rs18 lakh for a period of three years. Provision has been made for matching equity grant up to Rs 2,000 a farmer with a limit of Rs15 lakh per FPO and a credit guarantee facility up to Rs2 crore per FPO from an eligible lending institution.

In May 2023, the ministry of cooperation decided to set up 1,100 new FPOs in the cooperative sector. Under this scheme, 033 lakh is being given to each FPO and 025 lakh per FPO to cluster-based business organisations.

P. Chandra Shekara, director general of the National Institute of Agricultural Extension Management, said the challenge was how the small holders could be brought together to bring in economies of scale. “The farmer is confined to production,” he said. “Much of the profit is not in production, but in processing and marketing, where farmers play a minimum role.”

The farm sector in India is a tale of two sides. While farmer producer companies like Sahyadri, Yashaswini and PRAYE have shown that working together can have huge benefits, hundreds of farmers kill themselves every year unable to pay off their debts. Creating more FPOs might help them collectively cultivate a better future.

inside-the-integral-coach-factory-in-chennai-where-vande-bharat-express-trains-are-manufactured

Sat Dec 23 19:14:58 IST 2023

Clang! The sound of metal striking metal welcomes one to the Integral Coach Factory in north Chennai’s Perambur. Large pieces of steel and metal plates are spread on the factory floor. As you walk down a green epoxy pathway, taking in the huge cranes on either side, men and women in dark blue uniforms walk past you with rods and wires in their hands. Some of their colleagues are carrying steel sheets, others are operating the cranes, which are moving heavy frames to an assembly point.

Sparks fly as women wearing protective helmets wield welding torches. Adjacent to the assembly unit, at the furnishing unit, men are lying under the chassis, tightening bolts, laying wires, fixing rubber beading on doors and windows. A team of young men are installing the propulsion system’s controls in loco pilot’s cabin.

The ICF, which makes coaches for Vande Bharat Express trains, has a full schedule this fiscal. It is aiming to roll out 600 Vande Bharat coaches before March 31, 2024, and manufactures 16 to 18 train sets (units of eight or 16 coaches) a month. “ICF is best suited for the manufacture of VB coaches as we have expertise in a variety of coaches, especially air-conditioned coaches,” ICF general manager B.G. Mallya told THE WEEK. “We also have expertise in self-propellant coaches.”

Within the factory, there is a separate facility with more than 800 employees for the manufacture of specialty train coaches. It has a dedicated assembly and furnishing division. Mallya said this saves a lot of time, particularly during furnishing. Contract workers from ICF’s vendors work on propulsion, brakes and pre-fabrication. There are more than 200 vendors, including the firms which supply the smaller items. “Around 80 to 90 per cent of VB trains are indigenous,” said Mallya. “Items like the forged wheels are imported. The forged wheels [were being] imported from Ukraine and China. But, as a result of the war in Ukraine, they are [now also] being made at the Durgapur Steel Plant. But, manufacturing is a bit slow because of constraints at the plant.”

The Vande Bharat trains are a cause of much enthusiasm among railway travellers in India. Introduced as Train 18 in 2018 and renamed Vande Bharat Express ahead of its first service the following February, they are the first semi-high speed trains in India. They can reduce journey time by 25 per cent to 45 per cent and have aeroplane-style passenger amenities. The maximum speed has been set at 160kmph, but tracks have to be upgraded to allow them to reach that speed. So, for now, they mostly run at up to 130kmph.

“A train set has four basic units,” said Mallya. “A basic unit is independent; [capable] of moving on its own power. Like a locomotive with space for 300 passengers. VB trains don’t require locomotives as power is distributed among the coaches and each unit acts as a locomotive. Even if one unit fails the train continues to run without any technical glitch.”

To allow higher acceleration, the trains have motors fitted in every second coach. An eight-coach train set needs 7,000kw of power. All this means that the trains accelerate and decelerate faster. They also have an intelligent braking system, which uses a mix of electric braking and pneumatic braking (air/gas braking). And, during braking, the system generates electrical power from the energy and momentum of the fast-moving trains and feeds it back into the supply. Called regenerative braking, this process aids energy efficiency.

The furnishing division of ICF works on the top-notch facilities and state-of-the-art safety features. The seat cushions are more comfortable than those in AC chair cars in conventional trains. The seats recline 19.37 degrees; better than the average aeroplane seat. Every seat has a mobile charging point, snack table, footrests, bottle holders and newspaper/magazine bags. The air conditioning has improved energy efficiency and there is a special mechanism for neutralising germs. The windows have fabric-based roller blinds. The lights in the luggage racks have been upgraded from resistive touch to capacitive touch (more accurate touch sensors for ease-of-use). The toilets are bio-vacuum, like in aeroplanes.

Safety has been given the utmost priority in these trains. There is an aerosol-based fire detection and suppression system and CCTV surveillance inside and outside the train, including four cameras to monitor stone-pelters. The trains are also equipped with the Kavach (armour) train collision avoidance system. It includes features to aid the loco pilot when visibility is low and even automatic braking if the loco pilot fails to act in time.

Additionally, the passage connecting coaches is stable and wide, unlike the partially open and shaky passages in conventional trains. Overall, the design of coaches is such that when the train runs at high speeds, it will be like sitting in your home, said Mallya. There are 25 Vande Bharat trains running across India and that number will be close to 100 in the next one year. The cost of manufacturing a 16-coach Vande Bharat train is about Rs120 crore.

Mallya said the ICF was working on new variants of Vande Bharat coaches. “We are working on sleeper class, short-distance commute travel and non-AC train set during this fiscal,” he said. “We are also planning to launch two push-pull trains with non-AC LHB coaches (Linke Hofmann Busch are German-made passenger coaches which have been in use since 2000). These will provide the same experience as the VB trains.” They will have a seating capacity of 1,834 passengers and will be economical.

Mallya said the sleeper coaches are on schedule and will be launched before the end of this financial year. “[They] will have 11 AC three-tier coaches, four 2-tier coaches and one first-class AC coach,” he said. “The ambience will be much different from the existing trains. The lights will be warm and even the ladder to climb to the upper berth will be of a different standard. The sleeper will [eventually] be able to substitute the existing trains.”

india-s-key-scientific-and-technological-innovators

Sat Dec 23 11:35:32 IST 2023

Krishna Kumar had a problem at hand. He had India’s biggest business empire backing him and a high-quality product―the finest tea from the most famous hills. But by the time it was transported in wooden boxes from the hills, he realised, there was a distinct loss of freshness.

“KK was a brilliant mind,” brand expert Harish Bijoor recalled the iconic managing director of Tata Tea, who passed away this year, and the simple idea with which he revolutionised India’s favourite drink. “But you don’t need a brilliant mind to come up with an innovation. All it takes is a simple idea!”

KK’s idea was simple, and, as it turned out, very effective. Along with fellow honcho Darbari Seth, he figured out that while the wooden chest was classy, it did lead to loss of quality. His solution? Laminate polypacks to vacuum seal the tea so that it is not spoilt in wooden or carton boxes during transportation and retail.

Bijoor was then working at Hindustan Lever, Tata Tea’s main rival. “I was on the other side of the fence, and my first reaction was ‘this is downgrading packaging!’ Marketers’ brand paradigm is that products must look glossy and upmarket, tempting people to buy. And Tata Tea was downgrading packaging,” he said.

Down the line, Bijoor and rest of the market realised it was packaging that was functionally correct. Not only did sealing keep the tea fresh, the reduced size and weight of polypacks meant the trucks coming down from the estates could carry a lot more load. This ‘polypack revolution’, as Bijoor called it, not just changed how tea was packed, but also “pioneered the way in many other categories”.

AN IDEA CAN CHANGE YOUR LIFE

The power of innovation has always been the driving force behind the advancement of human civilisation. And India, historically, has not done too badly. Right from Aryabhata inventing the ‘zero’ and the Indus Valley folks coming up with buttons to keep their clothes together, to giving the world anything from chess (initially called Ashtapada) to cataract surgery (Sushruta used a curved needle), we have been there, done that, and earned the historical laurels.

But, are we still at the top of the ideas game?

As it turns out, we are pretty well sorted. Of course, it might seem that innovations would today have evolved beyond the home lab or that ashram by the stream. In the case of technology, that may well be correct, but an idea ‘that can change your life’ need not always be science or hyper-fangled tech geeks coding it out. It could be as simple as a company hitting upon a new way of packaging that improves quality and saves money, as much as it could be a vaccine which had thousands of specialised researchers working in tandem, racing against the clock.

Today, ideas come fast and thick anywhere―a boardroom in Mumbai or a pharmaceutical lab in Gujarat or a garage workstation in Bengaluru. Or, for that matter, very much in the bedrooms of small towns or even the fields of rural India. If you doubt it, ask Sridhar Vembu, who virtually runs his software-as-a-service startup Zoho from a village on the foothills of the Western Ghats. Zoho’s revenue last year was around Rs 7,000 crore.

And they needn’t be all about advanced technology or inventing something from scratch. Sometimes, the power of an idea is very much the necessity it was spawned by, and the circumstances in which it took shape.

Like Operation Flood, for instance, the much-talked about dairy cooperative movement that made India the world’s largest milk producer. The programme, later billed the ‘white revolution’, came out of the search for solutions to a basic problem―the fluctuation in milk production, with animals producing more milk during the flush season leading to wastage, and less during the lean months causing scarcity across the country.

Dr Verghese Kurien came up with a two-pronged strategy―a cooperative of farmers coordinating through a network of centralised milk sheds that linked them to consumers, as well as a method to turn excess milk into milk powder. Unlike the west, India produced more buffalo milk than cow milk. So it required some nimble innovation on the part of Harichand Megha Dalaya (Kurien’s batch mate from college who came for a visit to Anand and was persuaded to stay on) to devise skim milk powder and condensed milk from buffalo milk.

THIS DRIVE IS UNIVERSAL

‘Global first’ innovations may seem to be the preserve of the west, but once you start counting, Indians do notch up a decent tally. While Sabeer Bhatia being the founder of Hotmail is pretty well known, the name Ajay V. Bhatt may not ring a bell except in tech circles. The Gujarati is the inventor of the USB, or universal serial bus, that helps us connect and transfer data effortlessly. Bhatt moved to the US after finishing studies in his home state, before ending up heading the team from Intel which worked with other tech biggies like Compaq to work out the universal standard.

And he is not the only one. Perhaps there is a reason Indians bloom bigger abroad.

HOW GREEN IS MY VALLEY

“A strong ideation ecosystem exists in India,” said business coach Ratish Pandey. “But if the idea is great and funding comes in, often these companies move to Singapore or other countries.”

Tax is not the only reason they do that. “You become far more ‘investible’ if you are based abroad,” said Pandey. “It is easier for investors to fund and to take their money out when the time comes.” This manifests itself as a different form of ‘flight of capital’. “Sure, the idea may have germinated in India, but ultimately, a whole lot of ‘Indian’ unicorns are registered in the US or Europe or Singapore,” said Pandey.

And even when companies based in India come up with innovative products or services, quite often they delay patenting it, or do it with the US Patents office. “There is a significant difference in the number of patents that get registered in India compared to the western world,” said Pandey. The Indian government has been trying to reverse this flow by offering incentives like covering a part of the cost of the patent process.

LOOK MA, IT’S THE GOVERNMENT!

While it is no surprise that the spirit of pioneering a new innovation is being held aloft by the startup community, the surprise package in the whole deal is the government itself. “A lot of innovative thinking is happening in the government space; the government as an enabler,” said Prashant Mishra, dean of the School of Business Management at Narsee Monjee University, Mumbai. “From the Jan Dhan-Aadhar-Mobile (JAM) innovation to the vaccine rollout to ONDC, this government has innovated in a manner many other countries are actually learning from it.”

Beyond innovation, most central ministries have also been spurring ideation through its agencies and schemes. “There is a significant government push. The amount of grants you can manage if your idea is good is not small, starting from Rs25 lakh. Pretty much every ministry is putting away money for startups,” said Pandey.

IMMACULATE CONCEPTION

Another area which has come into its own has been the support initiatives by academia. “A significant shift I have seen is that every technical institute and university is putting in place incubation labs, because they want to capture every possible smart idea that these young students are developing,” said Pandey.

Starting with some of the IITs, many universities and technical institutes today offer incubation labs, grants and guidance on scaling the idea to a workable business. “We check if the startups have science at the core of it, and then whether there is a market opportunity,” said C.S. Murali, chairman of the entrepreneurship cell, Foundation for Science, Innovation and Development at Indian Institute of Science (IISc), Bengaluru. “If it all works, we say yes to incubation―provide space and seed capital, faculty become technical mentors and give them access to lab and equipment.”

IISc has to its credit startups like Bellatrix Aerospace, which provides end-to-end solutions for satellites and launch vehicle systems. The better known IIT Madras Research Park has spawned success stories like Ather, now one of India’s biggest electric two-wheeler makers. It has so far incubated 280 startups with a cumulative valuation of Rs33,000 crore.

MAKE FOR INDIA

But if the proof of the pudding is in the eating, where are all those innovative products and services? Bijoor puts the blame on the Indian mentality of jugaad. “Innovation is a process and a science in itself. We need patience to face failures. In India, we seem to be taking the patli gali (narrow bylane) of jugaad instead of the super highway of mega innovation,” he said.

This, however, is attributed to two distinct situational realities. One, India’s consumption levels are still below the global average. Take tea, for example. It might seem that the whole nation is gulping down cupfuls round the clock, but India does not feature even in the top 20 tea drinking nations when it comes to per capita consumption.

“For company marketers, that is a market still untapped. So their focus is on expanding reach to improve consumption,” said Pandey. “Innovation will come only once we reach a certain level of consumption. Then you start thinking, ‘now what is the new thing I can bring into play to excite the customer?’ In that sense, we are behind the curve vis-a-vis the western world in terms of innovating. Right now Indian businesses have so much of space to just produce and sell that they don’t really need to innovate.”

Second, while India does have a few ‘global firsts’, its pioneering spirit seems to be at its best in taking existing standards and innovations and adapting it. “Of late, India’s most significant achievements have been through process-based innovations or improvements for unique contexts in which Indian businesses operate,” said Mishra. “That way, Indian firms have shown much ingenuity and much greater resilience compared to many of the US-based or western origin firms.”

How? “India is complex and varied in its geography, climate and culture. A firm can’t just offer a standard product in many cases. Tackling that diversity requires higher agility, and much decentralised planning and execution,” said Mishra, giving examples of companies like Unilever coming with soaps and cleaning liquids that use less water and L&T’s engineering solutions to build railway tracks in difficult terrains.

Or even the Mangalyaan mission. It is not like ISRO reinvented the wheel―there were spaceships and missions to Mars even earlier. ISRO’s achievement was the process efficiency, driven through frugal innovation that eventually cost a fraction of NASA’s missions.

THE FUTURE IS CLOSER THAN YOU THINK

India could just crack the ‘global first’ criteria more frequently in the near future, if one sees the pace at which its startup ecosystem is thriving. Using technology as the backbone and the huge scale India’s population offers, startup ideas have been changing the country’s landscape. From UPI, a digital payment mode that is now a model for other countries, to tech-assisted agriculture, Indian startups are driving innovation. “Sadly our mainstream companies are not pioneering new ideas much,” said Bijoor. “But my happy factor is our huge startup ecosystem. They are not just a glimmer of hope, but millions of glimmers of hope!”

1955

FIBRE FOR GROWTH

Unless you are someone who checks the Padma awards list every year meticulously, the name Narinder Singh Kapany is unlikely to ring a bell (He got Padma Vibhushan in 2021, a year after his death). His fame beyond the Sikh diaspora in the US and the scientific academia is sketchy at best. Not surprising that a leading magazine recently billed the physicist one of the “greatest unsung heroes of mankind”.

It is no hyperbole. The modern telecommunication ecosystem, from telecom to broadcast and everything in between, owes it all to one not-so-humble invention Kapany played a pivotal role in inventing―fibre optics. After working in Indian Ordnance Factories in Kanpur, Kapany moved to Imperial College London in the early 1950s and worked with Harold Hopkins on achieving good image transmission through bundles of optical fibres. Coupled with the invention of optical cladding by Dutch scientist Bram van Heel, it spawned the era of fibre optics and modern communication.

FUN FACT

Jawaharlal Nehru asked Kapany to come back from London and become scientific adviser to his government. If Kapany had said yes, he might have got his Padma award earlier, but we may not have had today’s telecommunications!

1970

LET THERE BE FLOOD

Harichand Megha Dalaya came back to India just for a visit, but was given a job by his good friend Verghese Kurien. And the result was a flood.

Operation Flood turned India from a milk deficient country to the world’s biggest producer. In fact, India had a rather peculiar problem with milk before the White Revolution. During the flush season, so much of it went to waste; but during rest of the time, there was scarcity across the country. Until then, machines that converted excess milk into milk powder existed only for cow milk, and they could not be used effectively for buffalo milk because of its high fat content. Dalaya used his tech know-how and engineering capabilities to instal the world’s first spray dry machine for buffalo milk at Amul.

FUN FACT

Freedom fighter and father of the cooperative movement Tribhuvandas Patel, who set up the Kheda Cooperative, was known as the ‘father’ and Kurien the ‘son’ of dairy cooperatives. The publicity-shy Dalaya was its ‘holy ghost!’

1971

THE CUP OF LIFE

Dilip Mahalanabis came up with an idea that saved crores of lives while in a swampy refugee camp during the Bangladesh liberation war. Cholera and diarrhoea were rampant in the camps, and the traditional treatment was huge amounts of intravenous fluids. But Dilip, a paediatrician, realised this was not viable in developing countries. His solution was an oral solution of 22g glucose, 3.5g salt and 2.5g baking soda mixed with a litre of water.

Today we know this life-saver as ORS, or oral rehydration solution, easily available even in the remotest parts of the world, that does not need a health professional and can be easily mixed with clean water and works wonders with patients.

FUN FACT

After Mahalanabis started using ORS, the death rate in the refugee camp came down to 2 per cent from 30 per cent. And stories on this life-saving formula started getting broadcast on the underground radio station that beamed programmes to the Bangla freedom fighters deep inside East Pakistan.

1993

CHIPPING INTO THE FUTURE

As we in the 2020s see Intel and Apple take the chip battle into another era, it almost feels quaint harking back to that one product that was the must-have ‘inside’ every PC worth its RAM once upon a time. Intel came out with the Pentium chip in the early 1990s, giving a fillip to the PC revolution that was already under way. The fight to be the top cat of the chips block was intense―there were many consortiums vying with their products, including one led by Apple, IBM and Motorola and another by Compaq and Microsoft, besides others.

But none had Vinod Dham, who was later called ‘The Pentium engineer’. The Indian immigrant believed that Intel’s ‘focus and execute’ would pull through, and Pentium’s eventual market dominance is testament to the man’s vision. Dham has several other inventions to his credit, right from Intel’s first flash memory technology to, believe it or not, the K6, often referred to as ‘the Pentium killer’, brought out by Intel rival AMD, where he joined after leaving Intel.

FUN FACT

An Intel Pentium chip designed by Dham occupied the pride of place at Washington’s Smithsonian Museum’s ‘Beyond Bollywood’ exhibition on the life and contribution of Indians in America.

2011

PLASTIC, FANTASTIC

Urban Indians are used to the sight of plastic waste on streets and overflowing the dumpsters. Well, take solace in the fact that some of that plastic is beneath your feet.

As per government figures in 2021, more than 700 km of national highways alone have been made by mixing plastic waste. The actual number would be higher as this is the figure for national highways. Many municipal bodies are doing their own bit for the environment by constructing roads using discarded plastic.

Madurai-based scientist and chemistry professor Rajagopalan Vasudevan was instrumental in coming up with an innovative method of mixing shredded plastic waste with bitumen and using the polymerised mix in road construction. Not only does it make the transport glide faster on such roads, it also makes roads more resistant to monsoon damage.

FUN FACT

Countries like the Netherlands and Indonesia have constructed roads with plastic-asphalt mix, while the UK has announced that it will implement Vasudevan’s technology along with some of its own secret compounds to make the roads in London, Gloucester and Durham.

2013

MY SKY UNDER MY STAR

NavIC, or Navigation with Indian Constellation, came about when the US refused to allow Indian military use of its Global Positioning System (GPS). The Manmohan Singh government approved the project in 2006, with ISRO opening a Deep Space Network station in Karnataka and launching a bunch of IRNSS satellites. Almost every bit of this project is indigenously developed. Today, anyone from fishermen out in the sea to cargo vans on national highways use NavIC to find their way.

FUN FACT

NavIC currently covers only the Indian territorial landmass and 1,500 km beyond. There are plans for further extension, and new commercial usage is also likely.

2016

MONEY GOES MOBILE

From buying a tender coconut from a roadside vendor to a television set at a fancy mall, Indians are not swiping, but scanning―Rs17 lakh crore last month alone. Say thanks to the Unified Payments Interface (UPI).

While digital money transfer existed before UPI, this Indian model’s success lay in the government intervention that ensured that all such payment mechanisms were standardised. Due to the low penetration of credit cards and net banking, the RBI-initiated idea, concretised by the National Payment Corporation of India in 2016, was a runaway success, as anyone with a mobile phone and data connection could link their banks to their phones and use the apps for almost any payment. The entry of private operators like GooglePay and PhonePe only catalysed the popularity.

Today, UPI forms 84 per cent of all digital transactions in the country, and the rest of the world is also interested. Already, non-resident accounts in countries like the US, the UK and Singapore can use UPI.

FUN FACT

Inspired by the success of UPI in India (where its GooglePay is the second biggest player), Google’s suggestion to incorporate it as a template was accepted by the US Federal Reserve for the recently launched real-time payment system called FedNow.

2020

INDIA STACK

It is rather abnormal for a list of pioneering innovations to feature a governmental initiative. But that is exactly what India seems to have pulled off with the India Stack, its unified software platform to digitise service delivery between governments, businesses, startups and developers.

First off the block was Aadhaar, a unique identity number for citizens. Despite controversies over its data management, Aadhaar is today the go-to identity marker across India.

With Jan Dhan direct benefits using Aadhaar and UPI becoming a popular hit, and the massive vaccination programme success achieved digitally using India Stack as the fundamental, it is well on its way towards its aim of a digitised society. “India’s innovation ecosystem is now one of the fastest growing in the world. As the prime minister said, the next decade can be India’s ‘Tech’ade!” said Rajeev Chandrasekhar, Union minister of state for electronics & IT.

FUN FACT

The Indian government has been conducting hackathons, inviting developers to play and develop more applications using the India Stack open source programme.

former-reserve-bank-governor-raghuram-rajan-interview

Sat Dec 09 16:16:52 IST 2023

Exclusive Interview/ Raghuram Rajan, former Reserve Bank governor

Raghuram Rajan revels in his post-RBI governor status as a sort of conscience-keeper of India’s political economy, ignoring trolling and allegations of ‘Modi bashing’. It helps that he is not present on any of the popular social media platforms except LinkedIn.

But as Rohit Lamba, economist at Pennsylvania State University and co-author of Rajan’s latest book, Breaking the Mould, tells me, “People should engage with the message, not the messenger! We wrote this book because we seriously think there is a political economy path vision problem, and we are proposing a different path forward.”

In the book, Rajan explains, point by point and with examples galore, why India is on the wrong path with its post-pandemic focus on manufacturing, with its production linked incentive (PLI) schemes and China + 1 focus. One highlighted example is incentives offered to Micron to set up a semiconductor plant in Gujarat. “You are spending Rs16,500 crore to set up a chip plant that is not even cutting edge, spending more than one-third of the entire education budget of the central government to generate just a few hundred or thousand jobs,” argued Lamba. “Where are your priorities? Do you have a vision broad enough to tackle growth and jobs for the coming decades for India?”

Rajan himself had more to say. Excerpts from an exclusive interview:

Q\ You’ve given a thumbs down to the economic model of PLIs and manufacturing. How do we strike a balance, how do we go about trying a new model?

A\Services is where India needs to focus on. Not just the old-style services, but new services related to value-added part of manufacturing, the intellectual property, the content and the creativity that goes into that. The problem the China model is running into is creativity. The authoritarian government does not create an environment where creativity can flourish.

India with its democracy has an advantage here. If we strengthen our democracy, if we allow all this creativity to flourish, it can capture the high ground. What we are worried about is that we are spending so much money trying to capture the low ground [of manufacturing] where we will be competing with Vietnam and China, and not the space that is available for the taking, where we are competing a little bit with the west.

Think, for example, a consultant. Today if you hire a consultant in the west, they will cost you $200,000 upwards a year. But if you hire a brilliant consultant from IIM Ahmedabad, they will cost you maybe $40,000-$50,000 a year. This is a huge possibility of high value-added labour arbitrage, if we can get many more kids through institutions like the IIM. So, the need of the hour is not so much factories like Micron, but intellectual capital factories like IIMs, but [with] higher quality.

Q\ Perhaps since our education levels are not so high, the government thinks that low skill manufacturing is something we can do. Most Indian states have a dismal record when it comes to education as well as health. The pandemic would have been a great point to reset, but I don’t think it really happened.

A\ It takes a really long time to get any improvement in health care, to get any improvement in education. The emphasis seen in the recent elections is all about freebies, as opposed to much better school and health care. The provision of social goods takes back seat to the provision of freebies.

Now, we are not entirely against targeted transfers, because they can give people spending power, especially the poor, and they can use that to get some of the social services that they don’t get. But that said, I think government has to focus on improving the quality of social services. To my mind, that requires changes in government also. This is a holistic approach. We need decentralisation, so that people can hold somebody to account. If you are not getting a good school, if the teacher is absent, if the dispensary doesn’t open regularly, if the medicine is not available, they have to have somebody to protest to. That is where local governments become much more important.

Our sense is that our (centre-state government) structure was set up post-independence when national integration was more important than anything else. And now that national integration is largely assured, we need to think about what is the best government for the 21st century. It is not about changing the Constitution. But within the Constitution, can we do some things that we always thought we will do, the third layer of [localised] government that has sort of been arrested in the country at the state level for now.

It is a two-pronged approach, both directly on measures to improve education, health care, finance, but also, the governance that allows those things to flourish, that allows the bottom up pressure to come, that allows the system to respond. The system will respond, but the pressure has to come.

Q\ The current focus is on improving GDP numbers by manufacturing and infrastructure development, as seen by reforms initiated during the pandemic. Because, if you focus on education and health, it will be a generation before those dividends start to show.

A\ We need to learn the lessons from the pandemic. Many countries instituted inquiries to find out what they did well and what they didn’t; we haven’t. Because we claim we did really well!

As you know, there is a lot of discussion about the statistics, whether we grossly undercounted our deaths. If we properly counted it as per WHO says, maybe we had a disastrous performance. We need to better understand what we did and that goes back to the point that data should not be suppressed, but used to inform, so that we can improve our governance.

Yes, anything done well is going to take time. But we had 10 years of this government. Since Atal Bihari Vajpayee started the thrust on primary education in the early 2000s, it has been two decades. Time builds up, and we benefited from the Vajpayee push. The question is, do we need to do more now, to compete in the global economy?

We are not against low-skill manufacturing by any means. We should encourage it. But what we are saying is that there are diminishing returns to going there, because we are not competing with the west anymore. We will be competing with Vietnam and China that already have well-educated workers that are moving up the value chain. And it will be very hard to carve a niche for ourselves.

Take all this talk of cellphones that are coming through PLIs―we are importing most of the parts! This is not a huge value add! This is the lowest part of the value add in the chain. Let’s be clear―we are spending a lot of subsidies in getting this low value-added manufacturing in here. Improving our infrastructure will bring some of it; our large market will get some of it. But we don’t need to pay to get it. What we should pay for is scaling up improvements in education and health care, which will create the labour force that people will want to employ. They will bring factories in.

In a sense we are saying [the current government policy] is very short-term thinking, and very much focused on subsidising manufacturing to a great extent. And what happens when you find at the end of the subsidies they are not willing to stay? Because they are not bringing in a huge amount of investment if you look at the numbers. While subsidies are there, they will be happy to stay. But even if you are looking at the China + 1 pressure, companies looking at an alternative to China, we are not getting a large part of those.

Q\ Are we frittering away our demographic dividend with this focus on low-skill manufacturing policy?

A\ I would say we are in danger of frittering away our demographic dividend not so much by the low-skill manufacturing policy, but by not investing enough in education and health care.

Take the pandemic. When you take the data of some of the states, it is alarming how poorly kids are doing in school. They haven’t come back to school in the same numbers; many have dropped out. They are not learning because they have forgotten a lot of what they learnt, because schools were closed during the pandemic. What kind of labour force are we expecting to have, when these kids have dropped so much behind and are dropping out?

As a country we must look to our human capital. What are we missing? Forget creating a 21st century labour force, even to create a 20th century workforce, we need to repair the damage that has been done by the pandemic. The key resource in the 21st century is going to be brains; not brawn, not buildings.

Q\ You hint in the book that the GDP growth is too unreal and does not reflect ground reality.

A\ We don’t want to enter that debate because there are more learned people than us engaged in that debate. What is true is, if you are a relatively poor country, you are going to grow faster. The fact that we are the fastest growing GDP in the G20 becomes less meaningful when you recognise that we are also the poorest country in the G20.

The key question is, are we growing enough to provide the jobs, to take advantage of the demographic dividend? There, almost surely the answer is no, if you look at the growing unemployment, if you look at kids trying to take the civil services exams, trying to enter military service, any kind of government service. There is an enormous number of people applying for government jobs because the private sector is not creating enough jobs.

You would think that in an economy which is growing as splendidly, jobs would be plentiful. Of course, there are good jobs, there are lots of good stories coming out of India. But that is not enough right now.

The only way we can do far more is by focusing on the factories of the future, which are schools, medical clinics, hospitals, universities. Those are going to be the factories that will manufacture human capital. And that is where we need to be focused on right now. Because we are just not doing it right.

Q\ A K-shaped recovery has seen many sections of people falling off. You make the startling observation that our youth are jobless but distracted by cheap mobile data videos.

A\ The narrative is so ebullient, newspapers full of this being inaugurated, that being inaugurated, that there is a sense that if I am not participating in it, there must be something wrong with me. Meanwhile, the intellectual class is benefiting from the tremendous upper-level job growth―their kids are being employed by the likes of Goldman Sachs in Bengaluru! So in that sense, they are doing fine.

The real question is how long this sort of separation can persist. [These are] parents whose kids are dropping out of school because they did not get enough attention during the pandemic, the ones who are going back to agriculture because there are no jobs in industry? At some point, this will start to blow up. What we are seeing right now are small mutinies―Manipur, tussle over reservations. These are examples of the way in which they come out in our country. Frustration then looks for immediate sort of cause, and sort of boils over.

Once many more reach workable age and we don’t provide the jobs for them, it turns into a demographic curse. And the most worrisome will be if youth don’t get jobs and they are not distracted. Then that will be a problem.

Q\ From critiquing ‘vishwaguru’ to criticising every point of the present government’s narrative, you have now crossed over firmly into ‘Modi bashing’ territory. Does it bother you?

A\ There is an attempt to portray me as being with some party or the other. I actually worked with Yashwant Sinha, who was finance minister in the BJP government. What I want is, really, how India can do better. India’s strengths are its democracy, its willingness to talk, its willingness to debate, and these are going to be huge strengths in the 21st century. And we should not give these up lightly in an attempt to go the China way. And from all that we hear, that seems to be the closest model we are moving to―manufacturing-led, infrastructure-led, and more focus on buildings than on debate and brains.

Let us focus on India’s strengths, and if we can do that, India will become a vishwaguru. There will be an outpouring of knowledge from India, which will make people point to India. In fact, a whole lot of companies are coming to India to exploit that availability of our smart young people. But we can do far more. We can own that intellectual capital. And we can grab the higher value-added parts of the supply chain. Why should Satya Nadella be only in Microsoft? Can’t we replicate him in Indian companies and make a huge movement upward?

We should also recognise that 75 years after independence, there are some changes we should make, given that the challenges we face are different from the challenges after independence. But it’s not in the direction of giving up on inclusion and moving towards majoritarianism. It is by trying to get governance into people’s hands. Becoming more democratic than less democratic. Getting more information, more power into people’s hands. We should continue on that trend rather than reverse it.

Breaking the Mould: Reimagining India’s Economic Future

By Raghuram Rajan and Rohit Lamba

Published by Penguin Random House India

Pages : 336; Price: Rs799

indians-are-getting-more-and-more-credit-cards-and-swiping-them-more-often-than-ever

Sat Dec 09 16:11:02 IST 2023

CREDIT CARDS HAVE been around for a few decades. In fact, it is the primary mode of payment for purchases in many countries. But in India, they had never really taken off as they were seen as being out of bounds for most of the salaried, and retailers were reluctant to accept them.

That is, however, a thing of the past. Not only are more and more people getting credit cards, but also they are using them more frequently. The most recent data on payments and settlement systems by the Reserve Bank of India says the number of active credit cards in India was 9.13 crore in August 2023. It was just 7.8 crore a year before that—that is a 17 per cent growth. In January 2020, it was just 5.6 crore. So, in some three and a half years, the number of credit cards surged 63 per cent.

The growth in credit card usage is even more impressive. In August this year, credit card spends touched Rs1.48 lakh crore, up 2.7 per cent from the month before that and up 32.3 per cent from August 2022.

What is driving this growth?

“The continued increase in discretionary spending on vacation, travel, entertainment and consumer durables in metros and beyond, and digital payments have propelled credit card usage in India,” said Puneet Bhatia, vice president, acquisition and product management, American Express Banking Corp. India.

Indians are swiping their cards everywhere. “PoS (point of sale) spends across all key categories, including consumer durables, furnishing and hardware, apparel and jewellery, have increased significantly, indicating consumers’ strong preference for offline shopping experiences as well,” said Abhijit Chakravorty, managing director and CEO, SBI Cards and Payment Services. Promotions by large e-commerce platforms in the festive season have also been a big driver.

In Amazon's recent Great Indian Festival sale, one out of every three purchases was made using the co-branded credit card Amazon Pay has with ICICI Bank, the Amazon Pay Later option or via EMIs (equated monthly instalments). The usage of the Amazon Pay ICICI credit card soared 65 per cent, said Mayank Jain, director, credit and lending, Amazon Pay India.

Co-branded cards offer excellent value proposition to users. For instance, Amazon Prime members can get up to 5 per cent cashback each time they use it on Amazon. “You can maximise benefits by capitalising on exclusive rewards, discounts and perks offered by the partnering brands,” said Gaurav Chopra, founder and CEO of IndiaLends.

Promotions and offers by banks on EMI purchases on cards is another driver for growing cards usage. In the first 48 hours of Amazon's Great Indian Festival sale, EMI payments emerged as the top choice, with one in four shopping orders placed in instalments, and three out of four EMI orders qualified for no-cost EMI benefits, said Jain.

The biggest boost, however, would have been the option to link credit cards to UPI. For now, this is restricted to RuPay cards. “Customers will benefit from the ease and the increased opportunity to use their credit cards. Merchants will benefit from the increase in consumption by being part of the credit ecosystem with acceptance of credit cards using asset lite QR codes,” said National Payments Corporation of India, which manages UPI.

Many retailers, especially smaller ones, were earlier not keen on accepting credit cards owing to the charges associated with them. For instance, a retailer would need to buy a PoS machine and pay the merchant discount rate (MDR), generally two to three per cent, as well. If a consumer makes a purchase of Rs10,000 and pays by credit card, the retailer would have to pay an MDR of Rs200 to Rs300.

There are no such charges on UPI payments. Also, the person paying via the credit card linked to UPI can scan the same QR code that one would scan for normal UPI payments and all the payments can be consolidated in just one app, making it convenient to monitor and manage all the expenses.

Parag Rao, country head of payments, liability products, consumer finance and marketing at HDFC Bank, said his bank had seen a ten-times growth in UPI on credit card spends in the past six months and it had around 45 per cent share in the segment. Chakravorty of SBI Cards said 9 per cent of its RuPay cardholders had enrolled for the UPI usage.

A lot of this growth is not from the metros. It is estimated that by 2025, tier III and tier IV towns in India will have a combined GDP of around $1 trillion, and they would add around 250 million new financial consumers to the market. “Aspirational young Indians with high disposable income, increased awareness, and heightened taste for premium have been empowered by economic growth, growing entrepreneurship, and deeper penetration of e-commerce. This is propelling growth in spending on cards like never before,” said Bhatia of American Express.

The rise in credit card spending mirrors the strong growth the banking and financial services industry is seeing in retail credit, especially unsecured loans given to consumers. According to the financial stability report of the Reserve Bank of India, overall gross advances grew at around 14 per cent between March 2021 and March 2023. Retail credit grew at a compounded annual growth of around 25 per cent in the same period. Credit card dues crossed Rs2 lakh crore for the first time earlier this year. This surge in retail lending has got the RBI concerned, with the regulator warning banks and NBFCs to be careful.

“If you look at the past couple of years, the year-on-year average growth on retail credit has been close to 30 per cent in most institutions and secured retail credit has grown at 23 per cent,” said Swaminathan Janakiraman, deputy governor of RBI, in the post monetary policy briefing in October. “If you see that in the context of the rest of the credit growth, which is in the range of 12-14 per cent, it looks to be an outlier. So, as a supervisor, it is our intention to inform the banks that this is an outlier level of growth.”

Of late, the RBI has introduced several security measures for cards such as tokenisation, where sensitive data like the card number and security code are anonymised with a unique token. Janakiraman said banks should strengthen their internal surveillance mechanisms so that any risk that might likely be building up was “handled upfront rather than coming to grief at a later time”.

In a move to check the rampant growth in consumer loans, the RBI recently raised risk weights in respect to consumer credit exposure of commercial banks, including personal loans, by 25 percentage points to 125 per cent. Risk weights on credit card receivables of scheduled commercial banks and NBFCs were also raised by 25 percentage points. Essentially it means banks and NBFCs have to back their retail loans with more capital.

While credit cards have their advantages, they can become debt traps if dues are not paid regularly. Banks allow users to pay credit card dues every cycle fully or partially. The interest rate on credit card overdue is steep—2.5 per cent to 3.5 per cent a month. Also, the interest is charged on the outstanding balance as well as subsequent purchases once the interest free period lapses.

taj-mahal-palace-hotel-ihcl-celebrates-120-years

Sat Dec 09 16:51:58 IST 2023

As imposing as the Gateway of India―the archway that was erected in 1924 to welcome George V, the first British monarch to arrive on Indian shores―is its neighbour, the Taj Mahal Palace Hotel. One could say it has served as a more memorable guidepost, too, since it was built in 1903, two decades before the Gateway was conceived.

Then called the Taj Mahal Hotel, after India’s most famous monument of love, and built in the Indo-Saracenic style, it was the first to introduce the country’s famous hospitality to the rest of the world. It was the finest hotel east of the Suez Canal then and it transformed not just the face of Bombay, but also the image of India. The New York Times called it “a resplendent debut”, as it was Tata Group founder Jamsetji Tata’s first hotel under the aegis of the Indian Hotels Company Limited (IHCL). On December 16, 2023, this magnificent edifice celebrates its 120th birthday.

The hotel continues to earn its place in history. Maharajas considered it their second home. During the freedom movement, leaders like Muhammed Ali Jinnah and Sarojini Naidu held court in its suites. Mahatma Gandhi and Jawaharlal Nehru were both visitors, as were writers Somerset Maugham and Aldous Huxley who supported India’s independence. In fact, independent India’s first speech to industry leaders took place at this hotel.

The Taj Mahal Hotel’s list of eminent guests is probably rivalled only by the Rashtrapati Bhavan―King Charles III, Margaret Thatcher, the Clintons, Jacqueline Onassis, David Rockefeller, the Obamas, George Bernard Shaw, Irving Stone, Barbara Cartland, Richard Attenborough, Mick Jagger, Yehudi Menuhin, Andrew Lloyd Weber, Brad Pitt, Angelina Jolie, Madonna and the prince and princess of Wales William and Catherine, too, had stayed at the Taj.

“This building houses not just the history of the Taj hotels and of India, but also the history of the world,” says Puneet Chhatwal, managing director and chief executive officer of IHCL. “This is natural given our 120-year history of being an iconic crown jewel of India.”

The hotel was the first in India to have a licenced bar (its famous Harbour Bar has the licence number 1) and electric elevators. And it introduced jazz and cabaret to India.

IHCL went on to be counted among the finest luxury hotel chains in the world. It began by opening its doors to India’s palaces. It opened up tourism in states like Rajasthan, Kerala and Goa, the Andamans and, more recently, the northeast. Iconic properties in the UK and the US followed, too. What started as a single hotel in 1903 is now a hospitality ecosystem with world-class service and a bouquet of properties across luxury and business hotels. IHCL today has a portfolio of 274 hotels, including 82 under development, across four continents and 11 countries. It is India’s largest hospitality company by market capitalisation. This year, Brand Finance named Taj India’s Strongest Brand.

SeleQtions is a collection of hotels under the IHCL umbrella, along with the upscale Vivanta, a lean luxe segment with Ginger, and a charming portfolio of private bungalows and villas in picturesque spots called amã Stays & Trails.

This year, IHCL has also announced its 104th luxury hotel property. “We are among the top three luxury hotel chains of the world, and the fastest growing in this space,” says Chhatwal. “These include our iconic assets like The Pierre in New York, or the St James Court and the Taj 51 Buckingham Gate in London. There are three hotels in operation in Dubai, and one under development. We are in all the neighbouring countries, except in Kathmandu, Nepal.”

Chhatwal says the next decade will see the chain develop a strong presence in Singapore, Thailand, Vietnam, Indonesia and maybe a few properties in continental Europe. “Personally, this gives me a sense of pride,” he says. “It gives me a sense of accomplishment. I believe that when you serve the Taj, you serve the nation. Because that’s exactly what we do. The majority of the G20 events took place at a Taj property. The host of the B20 was the Taj Palace in New Delhi, a lot of the dignitaries were staying both at the Taj Palace here and the Taj Mansingh, too.”

IHCL’s service to the nation was especially evident during the Covid-19 pandemic. “If you are the largest hospitality ecosystem of India, automatically what you are doing is in alignment with the strategy of the national leadership,” Chhatwal explains. “This becomes like a service to the nation if you are at the forefront hosting 1,20,000 beds a night for frontline workers, or six million meals (during Covid as well as the Assam floods), all hosted through the Taj Public Service Welfare Trust, which was formed in the aftermath of the 2008 terror attacks.”

The group worked closely with the Brihanmumbai Municipal Corporation and government hospitals in Mumbai and took care of frontline staff as well as migrant workers. “There were 12 to 13 hospitals we were catering to,” Chhatwal says. “This is all a part of the DNA of the group; we have always been large-hearted,”.

When Chhatwal joined the group in 2017, IHCL was a loss-making entity. He turned it around in a year, reporting a profit of Rs101 crore. When the hotel industry worldwide was hit by the pandemic, the hospitality industry reported major losses. But IHCL recovered by 2022-23 itself, recording its highest-ever profit of Rs1,003 crore.

How did he manage the crisis? “We have been blessed to have gone to good schools, colleges, and business schools,” says Chhatwal. “They teach you sensitivity; what happens if your revenue drops by 20 per cent to 30 per cent. But I don’t think anybody ever taught what happens if your revenue becomes zero. When the lockdown was announced at that time, I don’t think anybody ever thought how long it would last. If we had known in the beginning that this was going to go on for two years, a lot of us would have given up. Because we thought it was going to come to an end, we started working before the second lockdown came. That is what kept us going. The leadership of the Tata Group chairman was critical in this space. So there was no panic reaction. For example, we didn’t put any of our full-time employees in furlough. I will say 200 people of the top management took a voluntary salary cut to support contractual employees. We did whatever we could for the people who were directly or indirectly associated with us.”

The pandemic was also a wake-up call for resetting costs. “We invented luxury home stays with amã. We went into luxury home delivery with Qmin. It kept evolving and everybody was kept busy. We opened in Mumbai in May 2020. Then we extended to four cities in the next month, then to 10 or 12 in the next 12 months. So it is not always just about revenue or profitability, but the system was busy, something was always happening. Today, even that has evolved as a business. The all-day dining of all Ginger hotels will be called Qmin. Today, we have 40 operational outlets for Qmin. It will soon have 100 outlets. So, 100 Qmin restaurants that started from an idea of home delivery,” says Chhatwal.

All of this is part of Chhatwal’s strategy to keep IHCL iconic as well as profitable. His call to action was called Ahvaan 2025, and he is making the chain asset light.

When the Taj Mahal Palace Hotel turned 100, a renovation programme was put into place. International architects were invited to work with local artisans and hotel staff to bring about a loving update. The Taj Mahal Palace has collected some 4,000 paintings and works of art―possibly the largest collection in the country after Air India’s, which is yet to be archived. More than 250 of these are museum-quality pieces. Giant Belgian chandeliers and the finest Bastar tribal art have been curated and displayed together. Anglo-Indian inlay chairs, Goan Christian artefacts, Mughal jaali-inspired designs and contemporary sculpture―the hotel is a veritable living museum of the finest talents.

The 120-year celebrations promise to be as iconic. It will start on December 17, with a sound and light show at the Gateway of India. A year of celebrations across all hotels will follow.

“We call March 24, which was otherwise the worst day for the hotel sector, a TAJNESS day. We will celebrate it across our hotels from breakfast to dinner. All guests, employees and stakeholders will be involved in the celebration. TAJNESS stands for Trust, Awareness and Joy, our three pillars of hospitality,” says Chhatwal. Musical evenings, black-tie dinners and the like will be hosted across major Indian cities.

A luxury brand celebrating 120 years also shows how the hotel has held on to both strings of legacy as well as modernity. The Taj Mahal Palace hotel as well as the IHCL group are constantly evolving. Social media promotions are a serious business now. Newer concepts to timeless spaces are constantly being planned. “Whether we did a Wasabi a few decades ago or a Souk, our restaurants are thriving. The once popular Zodiac Grill also comes back as a weekend Chambers (one of the most sought-after private clubs) dining. Now we will be going into renovation with the Chambers. We did the entire pool side and a new spa. We will be doing a new salon. We will be doubling the size of Chambers and taking a floor above that,” says Chhatwal.

The Taj Mahal Palace and IHCL are focused on an inclusive and sustainable growth, and to be major drivers to make India a top travel and tourism economy. The latest World Travel and Tourism Council (WTTC) report expects the sector to create 126 million jobs globally with at least 20 per cent of these coming from the Indian subcontinent.

“At the end of the day, you are still dealing with human beings, you are still dealing with emotions, you are still dealing with the experience,” says Chhatwal. “The experiences are getting more and more in focus than just the brick and mortar.”

indigo-is-not-satisfied-with-the-dominance-in-the-indian-sky

Sat Dec 02 16:44:18 IST 2023

SOMEONE SUGGESTED THAT we just look at the map and…” Pieter Elbers makes a motion resembling a dart being thrown, and laughs. “That’s not really how we select a new route to fly to,” he says, the grin firmly in place.

Elbers, CEO of IndiGo, Asia’s biggest airline and eighth largest in the world, is in his element after another round of laughing all the way to the bank―four quarters of profits in a row even as many fellow airlines are floundering or staring at bankruptcy. And the ‘going international’ strategy, which he set in motion a year ago, is now in top gear.

It is this choice of destinations that has the aviation world agog, and the subject of the question to Elbers. After starting the predictable India-Gulf routes a few years ago, the airline dialled up the expansion push by many notches this year with flights to, wait for it, Baku (Azerbaijan), Tbilisi (Georgia), Nairobi (Kenya), Jakarta (Indonesia) and more.

“We establish some market info first, looking into general parameters like GDP and foreign investments. Then we looked at whether Indians want to go to these places, how much of a detour is necessary to get there today and what options they have now,” says Elbers in an interaction with THE WEEK.

Third, he adds, is the entrepreneurial approach of taking a risk with a new route, as much as using the weight of IndiGo’s dominance in the domestic market as an advantage. “A Delhi to Baku flight is actually an India to Baku flight, because we connect so many domestic destinations to Delhi,” he says. “I’m encouraged by what I see in some of these new markets. The appetite of the Indian consumer to explore internationally is just about to start. We’ve only seen the tip of the iceberg.”

We might have as well seen just the tip of the iceberg as far as IndiGo’s insatiable thirst for market dominance is concerned. Founded in 2006 by travel entrepreneur Rahul Bhatia and Rakesh Gangwal, who was president & CEO of US Airways, the airline quickly captured the nation’s imagination with its lean, mean business model, and leapfrogged established players like Jet Airways and Air India to become India’s biggest in barely six years.

Swiftly adding new destinations in India and the neighbourhood (Gulf and Southeast Asia), the airline had even freaked out the Directorate of Civil Aviation, which warned that such rapid expansion could impact safety. As Kingfisher Airlines, Jet Airways and Go First went belly up over the years, IndiGo steadily increased its market share, which currently stands at a staggering 62.6 per cent, a dominance rarely seen in open aviation markets.

But Bhatia (Gangwal is on his way out, diluting his stake as per an armistice reached between the warring co-founders recently) and Elbers are not content. “Our internationalisation strategy is coming to fruition,” says Elbers. “Traditionally, IndiGo was focused on the Gulf region. We are now stretching our wings.”

While Medina (Saudi Arabia) and Bali (Indonesia) are the next two international destinations to be added, taking up the total number to 14, they are only a small part of a larger strategy. IndiGo already has a code-sharing partnership with Turkish Airlines, which has seen not only Indian passengers being herded to the Istanbul hub for flights to destinations across Europe, but also the biggest international flight from India―the wide-bodied Boeing 777s that can carry 531 passengers.

This larger-than-life approach is what gives a different dimension to IndiGo’s plans. It is not just satisfied with being a domestic market leader or even the biggest international operator from India; its aim is to carve for itself a niche as a global operator by turning India into a global hub, similar to what Emirates has done for Dubai, or Singapore Airlines for the city-state.

“About 65 per cent of the world population lives within the range of our aircraft (from India) today; so we have a lot of opportunity to find new routes and destinations,” says Elbers, pointing out how India’s geographical range is helping it to develop its network. For instance, while its current aircraft can fly from Mumbai to Nairobi, it will need bigger planes to do the same destination from Delhi. The vastness of the country allows the airline to operate different destinations from different cities. And the situation will further improve when the aircraft on order, like the Airbus A321XLR (Extra Long Range), come in.

IndiGo’s intent to take the battle to the global carriers is clear. It is offering India as a new hub opportunity for international travellers between east and west, and herding in the increasing number of Indians who are travelling abroad by offering them direct routes, instead of transits through Doha or Dubai.

“I don’t see why foreign carriers can fly to so many places in India and we remain limited to Delhi and Mumbai,” says Elbers. “We can do it ourselves. If Singapore Airlines can fly to more than 10 destinations in India, why should we limit ourselves in India to only fly from one destination to Singapore? It is India’s time. It is also our time. That is the strategy we set for ourselves one year ago.”

But with all that breakneck expansion spree, IndiGo does foresee trouble ahead, particularly with technical glitches and supply chain issues nagging it since the pandemic. The latest, a powder metal problem with its Pratt & Whitney engines. Along with the earlier issues with the A320neo engines, the number of planes to be grounded is estimated to cross 70 by the new year.

“We have adopted a whole range of mitigating measures―leases extended, inducted new ATRs, and have recently arranged for another 11 damp lease aircraft,” says Elbers. But cost control will remain an issue, as leased aircraft will come with older engines, which means less fuel efficiency, which in turn will squeeze profit margins in a business where margins are even otherwise razor thin.

So far a tightly run ship, IndiGo will be in unfamiliar waters with the global expansion owing to the changes to the format it has operated in so far. The departure of Gangwal, a staunch advocate of the low-cost model that had included using only one type of aircraft for cost optimisation in maintenance and pilot training, might have an effect. Some international routes of IndiGo are rumoured to be loss-making, and the airline is yet to make a decision on having business class service, which rakes in a lot more money, on its newer routes. The planes will have to be reconfigured accordingly if the decision is positive though the buzz has picked up pace over the past few days.

Then, there is, of course, the Tatas. Air India is on a five-year transformation exercise, while the nimble Vistara continues to wow passengers with its service excellence so much that the Tatas are said to be going slow in its merger with Air India. The real threat for IndiGo, however, would be from Air India Express, which Bombay House plans to position as an aggressive low-cost carrier for domestic and nearby international routes. Considering that the Tatas’ have deep pockets and deeper patience, IndiGo would need to keep its domestic flanks protected during its eager push into becoming a global carrier.

Elbers though is cool as cucumber, and he has set his eyes on doubling the size of IndiGo by the end of the decade. “Bigger, better and global―that is what IndiGo is doing,” he says. “Representing the size and potential of India itself.”

Aiming high

IndiGo CEO Pieter Elbers on the carrier’s plans

Business class on IndiGo

We are awaiting our Airbus A321 XLR (Extra Long Range) aircraft order. We are awaiting Airbus to share the final capability. We haven’t decided yet whether to introduce business class (on international flights). We will keep that flexible.

Exact configuration (all economy or a mix of economy class and business class) will have some impact on the range (depending on) whether you have 230 passengers or 190. And we have the flexibility to decide on the exact number of XLRs.

India as a transit hub

Our new international destinations are not only connections in itself, but has even (created) connectivity―we now see people flying from Tbilisi to Delhi and then connecting to Phuket. New traffic flows help us realise the vision of India becoming an aviation hub and not only a big market.

Partnerships

New code-share with BA; same with Qatar Airways, Qantas from earlier. Code-share with Turkish means five cities in the US and 30 destinations in Europe. In India, everyone knows IndiGo; outside India, there is still work to be done. These code-shares will help in that.

Geographical position of India is extremely helpful. Not only are we operating domestic in the largest population on earth and the soon-to-be third largest economy in the world, we are also located with a big market to the north, and a relevant market to the east and west. You can go east, west and north from India itself and we develop our partnerships with exactly this in mind. So BA brings in passengers from the UK, Qantas from Australia and with that we are building our global presence.

Increasing delays

I would love to have 1,900 flights a day all leaving on time. Check our OAG (a provider of digital flight information) data, we are thinking as a very ‘on time performance’ airline domestically.

Udan

Some of the Udan routes are building up to be structural routes. Udan is a temporary scheme. Against that backdrop, it is good for IndiGo to participate in it. Routes are opening and we are participating in it. We have the ambition to fly those routes even when Udan is no longer there.

The typical Indian traveller

India hosts today a huge variety of travellers. So we have people who fly Delhi-Mumbai every week, people who fly all over the country because their factories are all over. But we also have first time travellers―people who used to travel on trains but are now coming onboard. The Udan scheme is helping in that. The Indian consumer is a huge variety. On an average plane of IndiGo, if you ask who is flying for the first time, you see a lot of hands going up. Udan has played a significant part in that.

Flying to Russia and China

I don’t want to speculate. We will monitor the Indian government’s position on this (flying to Russia) before deciding. Today, it’s not in our planning, but we are not ruling out anything going forward.

Regarding China, we have opened our flights to Hong Kong, and, of course, we monitor the situation there closely.

Looking ahead

We will continue our network expansion. We have 85 destinations within India, and we will continue adding new routes.

chief-economic-adviser-to-the-union-government-v-anantha-nageswaran-interview

Sat Dec 02 12:12:50 IST 2023

Genial but sharp, soft-spoken but articulate, V. Anantha Nageswaran has a knack for balancing extremes. The chief economic adviser to the Union government does not see the economy slowing down in the near future, but has already identified factors that would affect it in the long term. In an interview with THE WEEK, he talks about the effects of the Palestine-Israel conflict to India, the debt of the states and the need to prioritise health. Excerpts:

Q/ You said the short-term economic prospects of India were good and growth will be steady in the medium term, but beyond 2030, there would be major challenges. What are the issues that we should address now so that we can sustain the good growth rate?

A/ I believe our current growth rate is sustainable, maintaining a robust average of around 6.5 per cent per annum in real terms until the end of this decade. However, to sustain or even surpass this growth rate afterwards, there are internal challenges that we must address.

A key focus should be on ensuring that education and skilling of young Indians are adequate, making them increasingly employable. While there has been significant improvement―with the employability of graduates rising from one-third to 50 per cent―further enhancements are necessary.

Certain sectors still face skill shortages, indicating that graduates in specific specialisations are not yet job-ready. This aspect requires attention and transformation.

The second is the need for India to prioritise health and fitness. We must learn from the mistakes made by the west. We don’t have to go through the same cycle of learning; we can glean insights from their experiences. It is crucial to avoid repeating the cycle of errors, such as the overconsumption of junk food and sugar-rich beverages, as well as neglecting physical activity. Only a healthy economy can be a productive economy, only a healthy citizen can be a productive citizen.

The third concern is the imperative of ensuring energy security for sustained growth. While the emphasis on renewable energy and energy transition is significant, prioritising energy security takes precedence. If these three things are addressed by all levels of government, not just the Union government, and also by the citizens themselves, then the growth will be sustained.

Externally, we must remain vigilant regarding geopolitical conflicts. The worsening of such conflicts can lead to uncontrollable consequences, including disruptions in trade and the flow of raw materials. We must be prepared to address them as they arise.

Q/ How would the Israel-Palestine conflict impact India’s long-term economic growth plans?

A/ At this stage, I don’t believe it will directly impact us unless there is a significant disruption in global crude oil supplies. Interestingly, over the past month and a half, since tensions escalated between Israel and Hamas, the oil price has decreased. As of November 17, Brent crude, closely linked to the Indian crude oil basket, is just above $80 per barrel. Therefore, asserting that it will significantly impact the Indian economy necessitates making assumptions that may be far-fetched at this stage.

Q/ Are we facing a situation where we are failing to create enough jobs despite high economic growth?

A/ That is not true at all. According to the periodic labour force survey, the unemployment rate for Indian youth has decreased from 17 per cent to 10 per cent. It is perplexing why there is such reluctance to take the periodic labour force survey seriously. India’s overall unemployment rate, which rose during the Covid-19 pandemic, has significantly declined. This improvement is evident in both rural and urban employment, as well as in youth employment. Across these categories, unemployment rates are decreasing and have made substantial progress since the peak of the pandemic. The Indian economy is, indeed, generating jobs. This optimism is reflected in household perceptions of job creation, as indicated by the RBI survey of consumer confidence.

The optimism expressed by households aligns with the eagerness of industries to hire, a sentiment evident in the industrial outlook survey conducted by the Reserve Bank of India. This willingness is further reflected in the job growth of listed companies in India. In the fiscal year 2022, job growth in listed companies stood at about 8 per cent, and in FY23, it was around 5 per cent, accompanied by commendable wage and compensation growth. Contrary to a prevalent misconception, the data affirms that the Indian economy is actively generating employment. The evidence suggests that job creation is on an upward trajectory and is poised to further escalate in the coming years.

Q/ Bibek Debroy, chairman of the Economic Advisory Council to the Prime Minister, recently said the government was losing revenue due to the GST, which should be revenue neutral with a single rate. Do you share his view?

A/ I need to delve into the specifics of what he mentioned because I haven’t had a chance to read the report on the statements made by the EAC PM. When the GST was implemented in 2017, the revenue-neutral rate was closer to 15 per cent. However, it seems to have decreased by about three percentage points now, settling somewhere between 11 per cent and 12 per cent. I believe that was the point he intended to convey. The decrease in the revenue-neutral rate can be attributed to various exemptions, resulting in a lower effective GST rate. And that is a legitimate point to make.

Q/ Many states are neck-deep in debt. How much would you attribute the freebie culture to this situation? Also, some states say that the Union government is trying to undermine their fiscal freedom.

A/ In the larger scheme of things, the GST implemented by states has exhibited a much swifter growth compared to the individual state sales tax revenues of the past. That is why this argument is no longer being raised. Moreover, states retain the authority to impose taxes on property and increase user charges; products like alcohol and petroleum products are still outside the GST framework. Additionally, states possess the flexibility to enhance their fiscal situation by making decisions in areas still under their control. Before raising concerns about their revenue generation scope being curtailed, states should first demonstrate that they have fully utilised and tapped into all potential sources of revenue available to them.

Drawing conclusions about if deficits have widened due to a freebie culture requires a detailed analysis of the specific factors contributing to the increase in debts among certain states. Making off-the-cuff statements is challenging without a comprehensive breakdown of these causes. Generally, the fiscal deficit of state governments is well below 3 per cent, but concerns arise from elevated debt ratios in some states. To address this, it is crucial to investigate the reasons behind the growing debt burden. This includes examining whether it results from a freebie culture, a failure to adjust user charges for key consumption items and utilities, or a lack of revision in property index values and property tax rates. A thorough examination of these details is necessary before attributing the debt increase to a particular factor.

Q/ Some states have complaints about the central government stopping the GST compensation.

A/ I believe this is a matter for the GST Council to deliberate upon. It [GST compensation] was originally meant for five years. The GST, as an indirect tax revenue system, has proven its mettle and has come of age. The actual revenue growth has consistently increased year after year. In that sense, this may be a moot point.

Q/ Are we on track to achieve our commitments on green transitioning? Also, what are the challenges we are facing now in balancing our industrial growth and green commitments?

A/ I believe we have performed exceptionally well so far, surpassing many others. A report by the International Finance Corporation released in early October highlights that among the G20 countries, India has made the most significant progress in shifting towards renewable energy. In this context, India is well ahead of many other nations in its energy transition. Importantly, this transition has not impeded industrialisation; rather, it has facilitated it.

However, looking ahead, as the proportion of renewable or non-fossil fuel energy increases in India’s overall energy mix, challenges will arise. It is important to note that this is not unique to India; many countries, including advanced ones, grapple with similar issues. Concerns such as grid stability, battery storage, and the availability of critical minerals and rare earths essential for renewable energy are shared challenges faced by the global community. In this regard, India has navigated its transition toward non-fossil fuel energy more effectively than many other nations, as acknowledged by the IFC report.

Q/ On the economic side, how are we preparing ourselves to fight with China?

A/ I don’t perceive it as a matter of contention or a trade-off. China’s rise occurred during a period when the US and western countries were flourishing. Likewise, it is not a zero-sum game. I think there is enough scope for India to rise, even as China’s growth rate levels off. Because it has now reached a certain level in the GDP, where naturally its growth rate will be lower. India is ready to pick up the baton, and India’s growth rate will improve.

understanding-multi-asset-investing

Sat Nov 18 12:12:48 IST 2023

‘DON’T KEEP ALL EGGS in one basket’ is a popular adage in the investment world. Simply put, concentrating your investments in a single asset class ties your fortune to the vagaries of that asset class. Investors increasingly realise that having a well-balanced and structured portfolio is key to long-term returns and peace of mind. This is why multi-asset investing as a single-window and all-weather solution has gained prominence.

Story of multiples

Due to the dynamic nature of global markets and economic cycles, it is impossible to consistently invest in the winning asset class. Also, each asset class may have prolonged cycles of outperformance and underperformance. Historical data also demonstrates that no single asset class performs consistently well. An investor who invests 100% of their hard-earned money in a single asset class leaves their investment vulnerable to the asset’s ups and downs. During good times, this may pay off, but during bad times, such a strategy may not suit the investors’ risk appetite. This can cause a suboptimal return experience.

Multi-asset investing, which is best routed through a multi-asset mutual fund in India, can provide diversified exposure to various asset classes through a single fund. The mandate of such a fund is to invest in three or more asset classes. Typical asset classes where multi-asset allocation funds invest are equity, equity arbitrage, debt/fixed income, gold, silver, international equities, REITs, and InvITs. As a result, investors who wish to lower portfolio volatility and aim for greater predictability of returns should consider a multi-asset offering as a core part of their portfolio.

By virtue of having a diversified portfolio, multi-asset funds help reduce risks. Diversification works best when the constituents of a portfolio do not move in tandem as a result of a macroeconomic or market development. Different assets move in response to various factors and thrive in different types of market conditions. Instead of focusing on one or two asset classes, multi-asset investing is about finding the right asset allocation mix across a number of assets and fine-tuning exposure as and when required. These are the important factors that will determine your actual return experience. By spreading your investments across different assets, you are essentially betting on the entire team rather than a single star player.

Mix and match

There are different approaches to multi-asset investing, each with its pros and cons. Within the multi-asset mutual fund offering, there are various types available. If the goal is to generate low-volatility fixed-income equivalent returns, the multi-asset investment approach should focus on fixed-income and equity arbitrage. The other assets serve only as a supplement to the primary goal of capital preservation. Here, gains would be taxed in a debt-like manner.

However, if the goal is to generate growth-like returns, the multi-asset framework should focus on equities while using other assets as counterbalancing forces. Even in this approach, where equities have the upper hand, the priority would be to mitigate volatility. Taxation of gains would be more optimal, given the equity edge.

The benefit of multi-asset investing is that the investment approach is dynamic in terms of asset allocation decisions and allows for choosing the instruments that best play each asset class. Another significant advantage of multi asset investing is that shifts made across asset classes within the fund by the fund manager are not taxed at the hands of the investor, while if one tries to do this on a portfolio level, the tax liability on these changes could be significant.

Over the long term, such an approach leads to better risk and tax adjusted returns.

Choices available

Multi-asset falls under the hybrid category of mutual fund schemes. With over a dozen offerings, this category has more than Rs 34,000 crore in investor assets under management. Given the nature of the fund, it is ideal for both new as well as experienced investors. According to Value Research data, multi-asset funds posted 14.45 per cent in the one-year period ending September 5, 2023. In the 3-year period, the returns are higher at 16.12 per cent.

Given the wide variety of options available, investors should look at the fund management team’s strength when selecting a fund. This is because multi-asset funds carve their niche by surviving in an environment of complicated interplay between multiple assets and investment decisions involved. So, an experienced team that has over the years managed to grow investor wealth is essential.

In conclusion, a multi asset fund deserves a place in every portfolio, both, through the lumpsum and SIP route, in order to optimize risk and return over the long term given market volatility and changes in the economy.

Writer is managing partner at Credel Capital Financial Services LLP

why-insolvency-and-bankruptcy-code-remains-a-work-in-progress

Tue Nov 21 15:25:02 IST 2023

The Insolvency and Bankruptcy Board of India (IBBI) admitted the petition of Bank of India to initiate insolvency proceedings against Future Retail Ltd on July 20, 2022, after the company defaulted on payments to lenders. The proposal is yet to be resolved.

Jet Airways was referred to the National Company Law Tribunal for bankruptcy proceedings in 2019, and the consortium of Dubai-based businessman Murari Lal Jalan and the UK’s Kalrock Capital won the bid for the airline in 2020. The deal has been mired in a legal tussle between the consortium and the committee of creditors on issues related to funds infusion, and the airline is still grounded.

What necessitated the Insolvency and Bankruptcy Code (IBC), brought in by the Narendra Modi government in 2016, was the inordinate delay in resolving such cases. Under the IBC, the settlement had to be completed within 180 days, with the option of 90 days extension. The timeline was later extended to 330 days. The Future Retail and the Jet Airways cases well past that timeline.

And these are not the only cases that were delayed. The Bhushan Steel case took more than 500 days to resolve. Telecom company Aircel shut shop in March 2018 and filed for bankruptcy. The resolution plan was approved by the NCLT in June 2020, some 800 days later.

And it is not getting any better. According to the IBBI, as on June 30, the average time taken for closure of a corporate insolvency resolution process (CIRP) was 643 days for financial creditors, 635 days for operational creditors and 541 days for corporate debtors. This is significantly more than the average time taken for closure of CIRP a year ago (552 days for financial creditors, 555 days for operational creditors and 518 days for corporate debtors).

And the realisations are abysmally low. For instance, the highest bid for Future Retail was just about Rs550 crore, when the lenders’ claims were for more than Rs19,000 crore. If the lenders are to accept this bid, they will have to take a haircut of 97 per cent. Naturally, differences have emerged among the lenders whether to accept the bid or not. According to the IBBI, financial creditors could realise only 34 per cent of their total claims as of June 30, 2023. The realisations for operational creditors and corporate debtors were far lower at 17.7 per cent and 18.3 per cent, respectively.

“Judicial delay is one of the most significant reasons for the delays in resolution,” said Soumitra Majumdar, partner at the law firm J. Sagar Associates. “Multiplicity of litigations and the time taken by the courts in resolving them have pushed up the resolution timelines.”

These cases often have many legal complexities, and there could be many rounds of litigation and bureaucratic delays. “The judicial system, overburdened with cases, can contribute to these delays, especially when the matters involve intricate financial and legal issues that require comprehensive review,” said Sonam Chandwani, managing partner at KS Legal and Associates. “Moreover, stakeholder conflicts and challenges in obtaining clearances and approvals have also exacerbated the timeline.”

In fact, the delays are often responsible for the lower resolutions. “With chronic delays in resolution, often a large part of the value is lost, resulting in reduced real recoveries by the creditors,” said Majumdar. Many cases have ended in liquidation. In such cases, stakeholders barely realise 6 to 9 per cent of their claims.

Of the 6,815 cases that had been admitted for CIRP till June 30, says IBBI data, resolution plans were approved in 720 and liquidation orders were passed in 2,120. There were 2,073 ongoing cases, 897 cases were withdrawn, and 1,005 cases were closed on appeal or review, or settled. Analysts say the number of cases going into liquidation is likely to remain high going ahead. “As of the first quarter of FY24, 65 per cent of ongoing cases have passed 270 days since admission, with another 10 per cent crossing 180 days,” said Kotak Institutional Equities analysts M.B. Mahesh and Nischint Chawathe.

Why has the IBC failed to achieve desired results?

Some experts say it is still a work in progress. “Earlier we were dependent on BIFR (Board of Financial Reconstruction). We have now moved to IBC. And like any institutional framework, IBC is also maturing with constant evolution. Data released last year showed they have made 84 amendments to 18 regulations made under the code. Also, the government has amended the code six times in the past six years,” said Sagar Desai, senior analyst at India Ratings and Research. IBBI are working towards things like common IT infrastructure or portal among all the stakeholders where the IBC process could be managed and tracked from start to end. In some cases, differences in valuation reports given by different valuers also complicates matters, said Desai.

Nonetheless, “IBC has been successful in bringing a behavioural change among the borrowers, by enforcing the fear of losing control of the business,” said Desai.

Experts suggest a multi-pronged approach to improve realisations. “Adopting standardised valuation methodologies can ensure a more realistic and fair asset pricing,” said Chandwani. Encouraging out-of-court settlements before resorting to formal IBC procedures can also improve recoveries and reduce the time for resolution.

Strengthening the bankruptcy courts will be instrumental in realising the full potential of the IBC, and bolstering the information utilities will reduce the time spent in establishing default, leading to quicker initiation of the process. “Sticking to the specified timelines and timely resolutions will preserve the asset quality. Naturally, this should lead to improved realisations and reduced costs,” said Majumdar.

Banks have significantly reduced their non-performing assets. But, of late, credit growth has also picked up. Last financial year, scheduled commercial banks’ credit grew around 16 per cent, outpacing deposit growth by 3 per cent. The expectation is that this year, too, the credit growth will be 14 per cent to 15 per cent.

After the global financial crisis in 2008, banks saw strong double digit credit growth between 2009 to 2013. That was followed by a cycle of sharp rise in bad loans, which eventually led to the enactment of the IBC. This time around, however, corporates have largely remained strong. But only time can tell how things pan out in the years to come. The stakeholders are banking on a more evolved IBC to deal with resolutions, should the number of stressed assets go up again.

how-an-indian-boy-fulfilled-his-dream-of-making-airplanes

Fri Nov 10 18:04:36 IST 2023

All that little Augustine dreamt of were airplanes―flying them high in the sky, soaring over the clouds. He lived near an airport, and he knew a way to get past its fence and the security guards. Often, he would wait until it was dark, and hide near the runway. He felt a thrill every time he saw a plane approach, its lights shining brightly and its engine roaring, and his body would shake with the loud noise and the rumbling. He would imagine himself in the cockpit, steering the bird to its destination.

The more he watched them, the more he wanted to fly them. In fact, he wanted to make them. The small-town boy did not know how he was going to. But he never stopped dreaming.

And then a door opened. “I had the opportunity to join the National Cadet Corps,” says Captain Augustine Joseph on a video call from California. The little boy from Thiruvananthapuram is now the proud owner of the American high-performance aircraft manufacturer Lancair Aerospace International. It sells in 34 countries and has manufactured some 2,400 airplanes.

“You get one or two flights in the NCC, and the interest kept growing,” says Joseph, 56. He could have joined the flying club in Thiruvananthapuram, but he was not keen on flying the low-performance planes they had. “My interest was to fly those powerful jets,” he says. “And I found out that if I joined the Air Force, I could fly big jets and fighter jets.”

After clearing most tests for admission to the National Defence Academy, he ran into an unexpected hurdle at the Command Hospital Air Force in Bangalore. On the last day of the medical, he was told that he was overweight by 21kg and so they had to let him go. “Not knowing what to do, I reached the commander’s office, but was not let in,” says Joseph. He tried every day for a week to meet the officer, but without success. “One day, as he was walking out for lunch, he stopped and asked, ‘Son, I’ve seen you here a few days. Why are you here?’” He explained the situation, and somehow convinced the officer to give him a month to reduce his weight. “I went home, and from morning till night, I was running, playing basketball, cycling and swimming, and one month later, I was down by 18kg. I went back to him in Bangalore. He was very happy. And that’s how I got admission into the NDA.”

NDA changed everything he had thought about flying. “Little did I know that it took many years of physical training and other education to get started,” he says. After the training at NDA, he went to the Air Force Academy in Dundigal, Telangana.

A career in the Air Force was probably the best thing Joseph could have had in India of the 1980s and 1990s. “I was enjoying my flying,” he says. “I flew in many parts of the country, including the Himalayan region, and had exciting missions. But then as you become senior, you get into the administrative side of things. And when it got to that stage, I realised that I was not flying much.”

Joseph always had a keen interest in making aircraft more efficient by designing them better. Though he was not an engineer, he spent a lot of time with the mechanics and the maintenance crew. “Very few pilots would really spend time with them,” he says. “I was knowledgeable about the mechanics and technical side of aircraft.”

But he hated pushing files, and did not want to spend the rest of his life doing that. And so, he made a big decision. “I decided to take voluntary retirement from the Air Force,” he says. “My family thought I was being stupid. They were very proud of my being an Air Force officer.”

And he was leaving that with no other job in sight. “It was just a dream,” says Joseph. “Only my mother supported me.” His mother, Roma, had lost her husband quite early and had raised five children on her own. A social worker, she raised 27 orphans in her house after her children left the nest. “She told me to follow my dreams,” says Joseph.

And he did. But it was not easy. “It was a big, big decision,” says Joseph, who retired as a wing commander. He did not think about moving to another country at that time. He wanted to realise his dream of building planes in India. “I tried that path for some time, and I realised that I was pushing the wall, he says. “Those days, it was not easy to get anything done there. The system was heavily loaded against you. That was when I started thinking about going to a place where it could be done.”

Joseph moved to the US in 2000 on a student visa, along with his wife, Nancy, and son, Theodore. He had figured out that he could convert his licences in the US and then get into the aviation industry. But for that he had to attend a school there. It was expensive; so, he secured a bank loan to fund it.

When they landed in the US, he suddenly realised that he did not have a place to stay or a car to drive. “I used to be chauffeured around in government cars in India,” he says. “From there, I became a nobody.” He rented a small place and started training. “It was frustrating for me that I was much more experienced than the instructor who was teaching me, and I was paying him to teach me,” he says.

He worked overtime to get the licences as quickly as possible. “I ended up taking eight licenses―all the airplane licenses from the beginning to the highest and all the helicopter licenses from the beginning to the highest―in three months, which had never been done in the US,” says Joseph.

The real test, however, was getting a job. He had started applying for one even before he got the final licence. But nobody wanted to hire him because he was not American. But he did not give up. “I sent out hundreds of applications and got two responses,” he says. One of them was in Hawaii to fly helicopters. Joseph rang up the employer and asked if he could start the following Monday. Then he called up his examiner and asked if he could do the final test on Sunday. “It was Easter Sunday, but he agreed. I sold everything I had and took a one-way ticket to Hawaii,” he says.

Apparently, he had a Plan B. “I would have worked in a restaurant or sold peanuts and beef,” he says. “I had a friend who worked at Taj Kovalam in Thiruvananthapuram. He was the chief of the culinary science school there. I learned to make tandoori chicken from him.”

His Plan A, though, worked out quite well. He worked so hard that he soon became a director, and his employer let him run the company. A few years later, he started his own helicopter company. It had contracts from cruise ships to take their passengers to the active volcano Kilauea and to the waterfalls and valleys on the Hawaiian islands of Kauai, Maui and Oahu, where the movie Jurassic Park was shot. It also had contracts from the government geology department to take geologists to the volcano. It was a flourishing business. But then tragedy struck.

“One day, I was flying a helicopter with the geologists, eight passengers on board,” says Joseph. “When I was on top of the volcano, the engines failed. There was no place to land because it was all lava around. I knew that there was a small trail behind me that the geologists used to take. I quickly turned it around and crash-landed it on the slope of the volcano. Everybody survived. I broke my back, neck and a bunch of other bones. That got me into the hospital for several years.”

His doctors told him he would never walk again. But he refused to accept that. “I went every day to the gym, the swimming pool, and physiotherapy,” he says. And he went back to college and did two majors in business administration. But the hospital experience was the real education. He started a health care company called Surgery Planet that used technology to help patients get treatment at a lower cost. It was a success, with thousands of patients and hospitals signing up.

But Joseph knew he had to get back into flying as quickly as possible. “In the military, if you have an accident or somebody has crashed and died in your squadron, they typically have everybody fly the next day itself. So that people don’t have that mental block,” he says.

He got back on his feet in three and a half years. And he went straight back to the helicopter. “I had to do it to overcome that mental block, but I was sweating and my heart rate was very high,” he says. “But I had to control it and learn how to be comfortable inside the cockpit. It was a long process.”

Joseph had to sell his helicopter company to take care of the legal proceedings. “My passengers sued me because it was my company,” he says. He lost everything, including his house, and lived out of his car for months. “Every other week I was in deposition with the attorneys, going to the court, in a wheelchair,” he says. “And I had to raise two kids. People often think that a stroke of luck or an easy path made you successful. But, you know.”

Joseph sold the health care company, started a tech company, and sold that, too. He always wanted to be in aviation. And for that he had to be physically capable. “The fifth year after my accident, I ran the San Francisco Marathon, the Oakland Marathon and the Bay to Breakers footrace, which gave me the confidence that I was back,” he says. “I got my medical certificate and then I started a company for pilot training called JetEXE Aviation. It trains some 200 pilots a year from all over the world. We have 60 to 100 students every year from India.”

And then the Lancair opportunity came up. “It is not like one day I woke up and decided to buy Lancair,” says Joseph “I was maybe six or seven when I first dreamt about making planes. And after 50 years, the dream came true.” JetEXE acquired Lancair in October 2023.

Founded by Lance A. Neibauer in 1981, Lancair (pronounced lance-air) sold its first airplane kit in 1984. A kit aircraft is built by private individuals rather than in a factory, and is generally meant for recreational use. They are popular among enthusiasts because they are highly customisable. Lancair sells both kits and fully-assembled aircraft. And it has both experimental and certified planes as well. “The only difference between the certified and the non-certified is that you cannot use non-certified planes for commercial purposes,” says Joseph.

Currently, Colombian and Mexican defence forces also use Lancair aircraft for training of pilots. “There are several other countries that have used it,” says Joseph. Cessna bought one of its models, Columbia 400, and sold it for many years.

Experimental aircraft play an important role in innovation in aviation, because it is much easier to make changes on them than on certified aircraft. “The time it takes for getting certified by organisations like the FAA, or the DGCA in India, is very long and it is very expensive. It can take five to 10 years after you finish producing an airplane to get it certified. So, it is very difficult to make any changes.”

Unfortunately, the experimental aircraft ecosystem is almost non-existent in India. But Joseph wants to change that. “My dream now is to bring Lancair to India and start developing the market and make aviation a lot more prominent,” he says. “By the time some of our organisations finish the design, it is obsolete. We want to do it faster, keep up with technology and advancement so that we are competing globally.”

He is planning to associate with an Indian company with a presence in the segment. “We are looking into several leading organisations, which are already big manufacturing houses,” he says. “We have intelligent, smart, skilled people in India, and we can produce our own planes with our engineers. This is a good base from which we can start innovating and creating. It is not just for the Indian market. You can produce it in India and sell it worldwide.”

the-week-and-apollo-hospitals-walkathon-navi-mumbai-breast-cancer-awareness

Fri Nov 10 18:00:01 IST 2023

Sundays are for snooze. But on October 29, Mini Seashore Ground in Vashi, Navi Mumbai, woke up to the sound of happy feet.

THE WEEK, in association with Apollo Hospitals, Navi Mumbai, organised a walkathon to create awareness about breast cancer. But first came warmup―-participants attended a high-on-energy Zumba session for 30 minutes. At 6.30am, the walkathon was flagged off by Santosh Marathe, CEO, western region, Apollo Hospitals, lead consultant for breast surgery Dr Nita S. Nair and senior consultant for medical oncology Dr Tejinder Singh of Apollo Cancer Centres, Navi Mumbai, and Richa Bhargava, wellness and leadership coach associated with Apollo Hospitals.

“Today more than a thousand people have gathered at the venue and this shows how crucial it is to tackle the issue of breast cancer,”said Dr Rajesh Shinde, oncologist, Apollo Hospitals. Shinde, who also walked for the cause, stressed on the need for regular checkups among women, especially those above 40 years.

Richa Bhargava said it was important for women to look after themselves. Agreed Dr Kiran Shingote, who said that through this initiative “we, at Apollo Cancer Centres, hope to highlight the significance of early diagnosis in breast cancer”. The event also saw five breast cancer survivors share their journey. They were later felicitated with mementos.

Given the overwhelming response to the event, THE WEEK’s resident chief general manager Shree Kumar Menon said that THE WEEK would continue with this initiative and remain committed to the cause of breast cancer awareness.

how-premiumisation-trend-defines-this-festive-season-s-shopping-spree

Sat Oct 28 12:24:21 IST 2023

From hero to zero, before you knew what hit you. In the cut-throat world of smartphones, it has been a recurring story―from Nokia dominating the scene at one time to going ‘crash-boom-bang’, to BlackBerry’s transition from everybody’s buddy to a nobody.

Chinese phone maker Xiaomi would truly understand it. A decade ago, it stole the thunder of desi smartphone brands like Micromax and Lava with a slew of inexpensive but feature-rich smartphones through brands like Redmi, Mi and the sub-brand Poco. It soon became the largest seller of mobile phones in the country. Even the Covid-19 pandemic and the anti-China sentiment post the clashes in Ladakh did not slow it down. But then it got hit by a curious shift in the Indian consumers’ preferences.

About a year ago or so, more and more Indians began coveting premium phones, moving away from Xiaomi’s budget offerings. With the market share of phones costing less than Rs10,000 falling significantly, Samsung overtook Xiaomi as India’s top-selling phone brand.

Premium smartphones sales more than doubled in the April-June period, while sales of the ultra-premium foldable phones tripled last year. This is when the overall smartphone market declined 3 per cent.

This new trend could solidify now, as Diwali sales hit a crescendo. “Many people time their purchases with the festive season, and they are increasingly opting for premium smartphones,” Arushi Chawla, senior analyst with Counterpoint Research wrote in a blogpost.

It is not just phones. As the festive shopping season progresses, the trend of premiumisation―customers going in for pricier models of anything from cars and consumer durables to jewellery and houses―seems to be only getting stronger. A recent nationwide survey said about half of India would spend an average of Rs10,000 on festive purchases this season. This is two-and-a-half times higher than last year.

This change is leading to tectonic shifts in the manner in which retail businesses operate. “Evolving demographics and favourable economic conditions are leading to growth,” said Balbir Singh Dhillon, head of Audi India. “The ongoing festive season is expected to spur further demand.”

It is the most important time for all consumer-facing sectors, “be it fast-moving consumer goods or alco-bev or consumer services,” said Nita Kapoor, CEO of the International Spirits and Wines Association of India. “Post the pandemic, we have experienced a noticeable shift. Consumers now prefer good quality products and are willing to pay a higher price.”

The trend has been distinctly visible in aspirational consumer segments like electronics, consumer durables, real estate and jewellery. Real estate prices, especially of premium properties, have been on an upward swing. India Sotheby’s International Realty, which deals in luxury homes and villas, clocked 50 per cent more sales last financial year.

Similar is the trajectory of India’s gold and jewellery businesses―they are now going designer and social media savvy with a vengeance. “Evolving sensibilities among a segment of consumers as well as an intent to break away from the conventional design narrative are driving the premiumisation wave in jewellery retail,” said M.P. Ahammed, chairman of Malabar Gold & Diamonds.

In automobiles, sports-utility-vehicles now rule the asphalt, comprising about half of all passenger vehicle sales in India. And big bike brands like Royal Enfield are laughing all the way to the bank with steadily increasing sales.

“Three or four years ago, when a customer walked into a car showroom, he would have asked, ‘What is the base model price?’ or ‘What is the mileage?’ Not any longer. Today, they ask about the top trim, or the second from the top. And they ask about features, tech, power or torque, not mileage. In fact, the No.2 variant accounts for as much as 40 per cent of the sales in most models,” said Rajeev Singh, partner, Deloitte India. “Mind you, I am not talking about luxury brands, but cars that are sold in large numbers. To see that as a shift is very clearly an indication of the customer’s psyche. Customers are looking beyond price.”

This premiumisation trend has spread across categories one does not usually associate with going upwardly mobile. Take rice, for instance. “There is a noticeable transition from loose to packaged rice in tier-two cities. Consumers are increasingly inclined to branded rice products,” said Atul Garg, managing director of GRM Overseas, a basmati rice exporter. “During these festive times, there is a shift in cooking and eating habits, leading to increased consumption and, consequently, a 20 per cent rise in orders over regular sales.”

Or paints, even. While traditionally the period between the end of the monsoons and Diwali is the time many in north India paint their houses, the trends have been changing in recent years. “Customers are not just paying 20 per cent to 30 per cent more for paints, but now have better know-how of which products to use,” said Kuldip Raina, director (sales & marketing) of Shalimar Paints. “Post-Covid they have become more conscious. Any paint just won’t do anymore―they want protective coating, paints that are easily washable and that last long.”

Many believe all these changes are due to the pandemic, but it is only partly true. “Purchases in the top-end segment are primarily driven by sentiment,” said Dhillon. “Post-Covid, the ‘You Only Live Once’ attitude and the pent-up demand were the factors that were aiding growth. This growth has now been sustained in India, in a positive manner.”

While the pandemic reminded people about the ephemerality of life and nudged them to take a fresh look at their priorities, what changed their attitude could be economic reasons. “Though spending was curtailed during the Covid years, it allowed for more spending to happen as savings went up,” said Singh of Deloitte. “And after Covid, it is not that money in hand has increased considerably―money earning has gone up at the same average rate of 7 per cent to 8 per cent, but saving rate is going down, as discretionary spending has gone up. As the pent-up demand for goods like cars and consumer durables begin to soften at some places, we are now seeing the demand for experiential going up―airlines, hotels, foreign travel, even luxury cruises. When did we ever see Indians spending this kind of money? Today, people want such experiences and are ready to pay.”

The digital first lifestyle also has had a role to play. With access to latest technology and trends through social media, whether you are in Bengaluru or Begusarai, aspirations are now geographically levelled. Ahammed of Malabar Gold & Diamonds, in fact, credits social media as one of the main reasons for the premiumisation trend in the jewellery business. “Thanks to the social media boom, more and more people want their accessories to reflect their personal choices and are ready to pay a premium for design excellence,” he said. “Because of this growing awareness of design innovation, the concept of premiumisation in jewellery is gradually taking shape and spreading beyond metro cities.”

The biggest factor, perhaps, could well be a generational shift that has happened. Gen Z, or those born after the turn of the millennium, are now entering the workforce, and their way of thinking about their financials is different.

“When I got my first job, my parents told me the first thing I should do with my first salary was to take an LIC policy,” said Singh of Deloitte. “Go and convince a post-liberalisation youngster to get insurance―he will never do it! Maybe later, but that’s not what they will do with their first salary, which they will splurge! This generation believes in living life, in spending and enjoying, not saving for a rainy day. I think that is also because of the overall confidence factor that as a country we are getting into.”

That confidence, however, is not universal. Experts warn that premiumisation is largely an urban trend, and many rural areas are struggling with a range of problems. “The K-shaped economic revival we talked about after Covid is still playing out, and two years down, it just seems to be widening in some manner,” warned Singh.

While SUV and big bike sales are going through the roof, sales of commuter bikes―largely brought in villages and small towns―have been lagging behind for two years now. Many FMCG companies that had launched smaller size packs to make them more affordable during Covid, are still selling them because there is demand. With monsoon being erratic and inflation a worry point, it is clear that many rural areas do not share the gung-ho mood that urban shoppers feel. “We need to see both these trends perspectively,” said Singh. “We should be careful not to get carried away.”

While there is a divergence in spending, an analysis of income tax data showed that there is scope for hope. The number of Indians earning above 05 lakh a year was just 38 lakh a decade ago; it is now 1.8 crore, almost a five-fold increase. Income rise, the easy availability of loans and some dramatic changes in spending habits are together scripting the transformation towards premiumisation in India.

indians-are-shrugging-off-their-reticence-to-travel

Sat Oct 28 12:18:54 IST 2023

October 5 this year came bang in the middle of Shradh, the two-week inauspicious period before festivities start. But in Goa, it was almost as if festivities got an early-bird ticket. The belly dancers jiggled while a Russian acrobat played with fire, even as the cocktails flowed and partygoers got into the vibe that India’s sunshine state oozes with round the year.

The occasion was the glitzy fiesta that launched Ibis Styles Goa Vagator, the latest from the kitty of Accor, the world’s second largest hotel chain. “Anticipating a substantial influx of both domestic and international tourists this season, the hotel promises a distinctive and immersive experience tailored for business and leisure travellers alike,” said Puneet Dhawan, senior vice president, Accor (India & South Asia).

The property’s high booking rates is testament to the eagerness not just in Goa, but across the country, for the tourist season. This is the first full year of recovery after the pandemic, and the stellar performance of the travel and hospitality industry in the past few months has raised hopes for a bumper year. With 31 lakh foreign arrivals in just the first four months of the year and a total of 1.64 crore expected before the year bows out, this will surpass the standing record of 1.09 crore registered back in 2019.

Valued around Rs16 lakh crore, India’s tourism industry is expected to grow at around 13 per cent through 2027. Many top hospitality brands―ITC (north Goa & Tirupur), Taj (Arunachal Pradesh & Sikkim), Oberoi (Anand Vilas in Mumbai) and InterGlobe (Novotel Bengaluru)―have opened new properties or are on the verge of opening soon. Lemon Tree’s Aurika, Mumbai Skycity, which opened doors earlier this month near the international airport, is the largest hotel in India, with 669 rooms.

The projections are peachy, with hotels in key markets having occupancy of 70 per cent or above, and flights to just about anywhere packed like sardines despite the high airfares.

The redeeming factor the travel and hospitality industry is falling back on is the surge in domestic tourists. And there has been the event-based boom. The spiralling of room rates at the Cricket World Cup venues is an indicator of the possibilities. “The season demand is going to get bumped up 10 per cent to 20 per cent for the rest of the year,” said J.B. Singh, president & CEO of InterGlobe Hotels. “More than a festive season focussed sector, the hotel industry is moving towards an event-based ‘season’, with conference centres coming up.”

Craig Michael Monteiro, founder of Marketd, a hotel sales consulting firm, said corporate conferences and festivals would play a major role in further streamlining travel and logistics experience. Monteiro was primarily talking about Goa, which has events ranging from the National Games (on till November 9) to the International Film Festival of India and Sunburn Music Festival. With the opening up of MICE (meetings, incentives, conferences & exhibitions) venues like Bharat Mandapam and Yashobhoomi recently, he could just as well have been talking about the whole travel and hospitality industry in the country.

the-transformation-of-indian-two-wheeler-market

Sat Oct 14 15:24:35 IST 2023

FOR LONG the preserve of scooters and some clunky motorcycles, India’s two-wheeler market revved up with the first sign of real action in the mid-1980s, when the Japanese rolled into the country through collaborations with local firms. Escorts brought in Yamaha, which launched the iconic RX100―adored and cherished to this day. Bajaj tied up with Kawasaki to launch a few models that extolled the virtues of speed and performance.

Yet, the one that laughed all the way to the bank was Hero, which tied up with Honda. While Yamaha and Kawasaki focused on style and power, Hero Honda catered to middle-class India’s primary concerns―affordability, manoeuvrability and, above all, mileage.

Through unforgettable campaigns like ‘Fill it, shut it, forget it’, Hero Honda became India’s, and then the world’s, largest selling two-wheeler brand. Hero retained its numero uno position even after exiting the partnership with Honda in 2011. And this continued value proposition meant competitors had to rework their strategies, as India over the decades became a commuter bike market firmly focused on low-power (mostly in the 100cc-125cc range) and high fuel efficiency.

That is, however, changing.

In July, Hero announced the first bike in its ambitious collaboration with the American motorcycle maker Harley-Davidson. While it is perhaps the most iconic two-wheeler brand in the world, Harley-Davidson had a tough time in India owing to crippling import duties and flat sales, and it left the country in 2020. But only to make a comeback in a tie-up with Hero, first for servicing and selling accessories and merchandise, and now as a joint manufacturer. The collaboration’s first product, the Harley-Davidson X440, was developed at Hero’s R&D centre in Jaipur.

“Harley-Davidson brings its iconic brand image, heritage and expertise in the premium motorcycle segment, while we have market leadership, strong distribution network, R&D, manufacturing capabilities, and a huge customer base and understanding of emerging markets,” said Ravi Avalur, head, Harley-Davidson business unit at Hero MotoCorp “By working together, we are creating a unique value proposition for customers in the Indian market and target a wider range of motorcycle enthusiasts.”

Just two days later, Bajaj also threw its hat into the ring, announcing the launch of the first two bikes under a partnership with the British motorcycle maker Triumph. Bajaj already has under its belt the premium bike brands KTM of Austria and Husqvarna of Sweden.

Why are the likes of Hero and Bajaj toying with 400cc and bigger bikes when their bread and butter is the 100-125cc range?

Rajiv Bajaj, CEO of Bajaj Auto, summed it up. “I don’t think it is we who are shaping the market. It is the consumer. Our job is to cater to it,” he said, adding a cheeky anecdote. “A bank robber was asked why he robs, and he said, ‘Because that is where the money is’. If the money is in Royal Enfield, then we have no choice but to rob that bank!”

Ever since Eicher and its maverick managing director Siddhartha Lal turned around Royal Enfield and made the 250cc plus category a hot selling one, Hero and Bajaj have been trying to get a share of the pie. Enfield singlehandedly expanded the premium bike category in the country―from less than one per cent of the motorcycle market in the 1990s, to close to 10 per cent now, with sales of eight lakh last year. Enfield straddles this segment with 93 per cent market share. “There is only one direction a 90 per cent marketshare can go―that is south. We are okay with that,” said Lal. “We believe the market will grow tremendously in the next few years. It is only 1 million, it can only grow. And premiumisation is happening (and) first-timers, kids who have never driven a motorcycle, are coming in.”

“Big bikes have become a sizeable market in the last six to eight years or so,” said Rajeev Singh, partner and automotive lead, Deloitte India. “The number of people in the higher income bracket is going up. An entire youth cult, with biking clubs, rallies and meet-ups has been created. And, infra in the country has also improved.”

It has also helped that post-Covid, consumers have increased spending. “There is a sudden drop in India’s savings rate from before Covid,” said Singh. “People were earning money before Covid as well, but the amount of money they are splurging now is significantly higher.”

This has resulted in an overall premiumisation of consumer behaviour, with more buyers going in for premium products. “We see this in designer bags, gems and jewellery, luxury watches and high-end mobile phones. All these segments are growing easily 20 to 25 per cent, higher than the GDP growth rate which is only 6.5 to 7 per cent,” said Singh.

Both Hero-Harley and Bajaj-Triumph have priced their India models around the sweet spot of Rs2.3 lakh. Not only does this make these models the most affordable Harleys and Triumphs anywhere in the world, but also puts them in the price range of Royal Enfield bikes.

It will not be easy, though. Royal Enfield has become a cult brand among aficionados in the country over the past few decades. With smart pricing, improved technology and the right marketing mix of nostalgia and the projection of a ‘cool’ alternative lifestyle promise, it has solidified its presence. That coupled with a robust dealer and supply chain network and a massive manufacturing presence (it has plants in India, Nepal, Argentina, Brazil, Colombia and Thailand), RE is a formidable competitor.

Just ask those who tried. In 2018, retro brand Jawa and Honda with its BigWings range made a move, but hardly caused a ripple. So did the tie-up between TVS and BMW.

“Our products continue to perform well across India and international markets, and we are optimistic that our exciting line-up of motorcycles will enthral pure motorcycling enthusiasts across the globe,” said B. Govindarajan, CEO of Royal Enfield.

It is no secret that every bike manufacturer in the country is gunning for the premium bike category. TVS, which had tested waters with the Apache 310 a few years ago, tried it again with the Ronin (225cc) last year. Most of the new launches from all domestic manufacturers over the past two years had been in the premium category, according to CLSA India Auto Sector Outlook. And the premium motorcycle segment is expected to grow at 15 per cent compared with the overall two-wheeler sales growth at just 9 per cent.

The reason is simple. “Motorcycling is changing… from a functional purpose to enabling self-expression, freedom and the willingness to explore,” said Vimal Sumbly, head of business (premium) at TVS Motors. “This is thereby transforming premiumisation into personalisation, creating a trend in the two-wheeler segment.”

Also, it is a vast untapped market. “The mass market bike segment is pretty crowded, and is seeing its own churn in the move towards electric mobility. But the performance bike segment is relatively less crowded,” said Singh of Deloitte. “Also, who would want to miss out on a segment that is growing at such a high rate? For India, premium bikes as a percentage of the overall market is even now significantly low, which only indicates there is a high potential to grow.”

A pleasant byproduct of all this flurry in the premium bike space has been a leg up for the ‘Make in India’ push. Hero is manufacturing the Harley 440X at its plant in Neemrana, Rajasthan. Deliveries are slated to start in October. The Triumph bikes are made in Bajaj’s plant in Chakan near Pune. Indications are that Bajaj will be exporting the Triumph models sooner rather than later. All this could boost the chance of India grading up in the ‘manufacturing-for-the-world’ sweepstakes.

Jochen Zeitz, Harley-Davidson’s chief executive, said that it was likely to use its manufacturing facilities in India to make products for other countries. “We were manufacturing our 750cc for the international market (here), so I am not ruling that out,” he told a publication.

“Tying up with a global brand and manufacturing in India suggests our manufacturing has quality,” said Nandip Vaidya, associate professor, ASMSOC, Narsee Monjee Institute of Management Studies. “We are moving up the curve. The very fact that we are improving, getting more competitive, exporting more means we can compete with global stalwarts, European, American and Japanese brands.”

freedom-sip-your-route-to-financial-independence

Sat Oct 14 12:25:37 IST 2023

IN HIS WONDERFUL book The Psychology of Money, Morgan Housel makes an important point on financial freedom: “The ability to do what you want, when you want, with whom you want, for as long as you want to, pays the highest dividend that exists in finance.”

Many want to retire early, see the world, follow their passion and volunteer their time for social causes. Others want to take the regular path by retiring when it is eventually time for it, but they, too, would have to plan for a long life after retirement.

Be it a professional in the early phases of their work life, or a mid-career employee, or someone who is just a decade or so away from retirement, she would like to be financially free―to reach the stage defined by Housel. Such freedom is earned only with meticulous long-term planning of your money matters and investments.

But what if you have a wonderful tool that gives you the means and tools to achieve financial freedom in a systematic manner? That is where the ICICI Prudential Mutual Fund’s Freedom SIP comes in. By combining the best of systematic investing and withdrawals, it is a great way for people of all income levels and ages to save for a peaceful life.

How the Freedom SIP works

As with any financial planning task, the process starts with determining the target amount, available monthly surplus for investing, time horizon, and risk appetite. Now, here is where the Freedom SIP comes into play. There are two phases to this tool.

The accumulation phase: You can choose the amount you want to invest each month in the scheme of your choice. This is called the source scheme. The time horizon can be one of eight, 10, 12, 15, 20, 25 or 30 years. So, the earlier you start and the longer you stretch your investment horizon, the higher your accumulated corpus.

The withdrawal phase: Once you finish your investment tenure, the corpus created is moved to another scheme called the target scheme. It is from this scheme the withdrawal phase starts―the time to reap the rewards of discipline. Here, you have the option of maintaining the target scheme the same as the source scheme. Either way, the setup is such that your corpus will continue to grow, even as you withdraw every month.

For withdrawal purposes, you can either specify the amount you wish to withdraw each month or allow Freedom SIP to work with a formula. For investors who invested via SIPs for eight years, the Freedom SIP tool allows them to withdraw the same amount every month that was invested during the accumulation phase.

For 10, 12, 15, 20, 25, and 30 years, the withdrawal amount will be in multiples of the SIP amount. For example, if you invested Rs10,000 every month for eight years, you can withdraw Rs10,000 every month after the accumulation phase. If you invested for 30 years, you can withdraw Rs1.2 lakh every month as long as your corpus lasts.

Illustrating the returns

Let’s say you invest Rs10,000 a month for a period of 20 years. You will end up investing Rs24 lakh in total. At the end of 20 years, assuming that the ICICI Prudential fund that you choose gives 12 per cent returns annually, you would have a corpus of Rs99.91 lakh. According to the Freedom SIP formula, you can withdraw Rs50,000 every month. You will end up withdrawing 6 per cent of your accumulated corpus every year.

You can start Freedom SIP first for a long tenure. Then you can invest in another scheme as your surplus increases. An investor can start the Freedom SIP of say Rs20,000 for 30 years first. Five years later, as her surplus increases, she can invest another Rs20,000 for 25 years and so on.

To conclude, Freedom SIP allows an investor to invest and withdraw in a staggered and disciplined manner. In this manner, an investor can achieve one’s goals and have a steady stream of cash flow in the later years of one’s life.

Praveen Kumar is managing director, Future First Financials Pvt Ltd

duopoly-in-indian-aviation-sector-risk-analysis

Sat Sep 23 12:27:07 IST 2023

On a sultry monsoon evening in August, the who’s who of India’s aviation industry gathered at a plush hotel in Delhi for a coming out party. The banquet hall was full, and the menu and cocktails were impeccably curated on the theme ‘taking India to the world, and the world to India’. Television and YouTube channels streamed the event live.

It did not matter that the 'new kid on the block' was nearly a century old. The excitement over the ‘relaunch’ of Air India was palpable, as a new logo, the Vista, and a bold new livery were unveiled.

“There is more than a little bit of Air India in everyone,” said N. Chandrasekaran, chairman of Air India and its parent company, Tata Sons. “Our aim is to make this airline a truly world class and iconic airline that every Indian will be proud of.”

The average Indian was thrilled when Air India flew back into the hands of its original owners, the Tatas, in 2022, after floundering under government control for decades. But will Indians continue to feel the same?

The duopoly

The consolidation of the four airlines in the Tata fold and the domination of the market leader Indigo Airlines have led to a duopoly in the Indian skies. As a result, the affordable ticket rates that India was known for since the early 2000s have suddenly disappeared. According to the Airports Council International, India saw the highest increase―41 per cent―in airfares in the Asia-Pacific region in the first three months of this year over pre-Covid times. One reason is the impressive passenger growth. Domestic flyers increased by 43 per cent during January-March this year, compared with the same period a year ago. Nine crore people flew till June from the beginning of the year.

But there is another major reason―all other airline companies have become marginal or are facing existential challenges because of the market clout of Indigo and Air India. “Duopoly is not good for the Indian aviation market especially when India is on the cusp of an aviation boom,” said Sidharath Kapur, aviation consultant and former head of the airports divisions of GMR and Adani groups. “It needs at least one more player, if not two. Airline pricing depends on cost and competition.”

It was the intense competition that had led to the cheapest tickets in aviation. Things are very different now. Indigo carried 6.69 crore of about 9 crore domestic flyers in the first six months of the year―a market share of 63.4 per cent, which is unheard of in any open aviation market. Air India came second with a market share of 9.9 per cent. If you put all four Tata airlines together, they have a market share of 25.8 per cent.

In other words, two players control more than 89 per cent of the market.

And both have aggressive expansion plans. Between them, Air India and Indigo have ordered some 1,000 planes. This indicates the massive growth they expect in domestic flying, as well as their plans for global expansion. Air India is already on to the second phase of its transformation plan called Vihaan.AI, and Indigo has been starting new routes virtually every day, from Shivamogga in the Western Ghats to Nairobi in Kenya. Indigo's 531-seater Boeing 777 from Istanbul to Delhi is said to be the biggest non-A380 international commercial flight in the world.

The runaway leader

It took Indigo barely six years to become India’s biggest airline. Now, it is the largest in Asia, bigger than China Southern and Emirates. Right from its inception in 2006, the airline had set out some parameters that contributed strongly to it becoming the behemoth it is now. It boasted punctuality and good connectivity, and it till recently operated only one type of aircraft, the Airbus A320. This helped in keeping maintenance and pilot training costs under check.

Indigo uses the ‘buy, sell and lease back’ policy to reap huge benefits. It orders a large number of planes and, as delivery of planes starts a few years later, it sells them to leasing companies at higher market prices, and then leases them back. This business model ensures that while the leasing firm makes money from interest, the airline does not have to pay huge capital upfront.

But what is good for the goose may not be good for the gander. “When only two large airlines dominate, customers don’t have much of a choice. They end up paying high prices,” said Sangita Dutta Gupta, associate professor at School of Management, BML Munjal University, Gurugram. “Two dominant players can indulge in price wars and that can drive away smaller players.”

It does not help that the other domestic airline companies remain in a state of perpetual churn. SpiceJet has been to the brink of closure and back many times. It is also fighting many court cases.

Go First, the low-cost carrier promoted by the Wadias, went bankrupt in May, just as the peak summer rush was beginning. The airline was operating an average 200 flights a day and had a market share of about 7 per cent when it went belly up.

The impact was immediate. Airfares, which were already high, spiralled. Fares on the Delhi-Mumbai route, the busiest in the country, increased by 37 per cent. Leh, a destination where Go First was strong in, faced worse. Ticket prices to Delhi went up from less than Rs5,000 to about Rs27,000.

Go First may still make a comeback―it is going through bankruptcy procedures via the Company Law Board. But another bankrupt airline that tried the same route, Jet Airways, has not managed to get airborne yet. Its new owners, the Jalan-Kalrock Consortium, have been at loggerheads with creditors over arrears, and one wonders whether the airline has a second chance.

“Jet’s new promoters have to infuse Rs200 crore now. Running the airline is going to be significantly more challenging than just getting it off the ground,” said Kapur. “Probably, Jet is history. Even if they get it off the block, running it and sustaining it will need deep pockets.”

That leaves just the dark horse which came out of nowhere last year. Akasa Air took to the skies―sneakers, jazzy livery and a cheerful smile in place―and has notched up 20 aircraft and a market share of about 5 per cent in just one year. Many are placing their bets on this fledgling airline.

But Akasa’s launch was anything but auspicious. A few days after its inaugural flight, its billionaire promoter Rakesh Jhunjhunwala died of a heart attack, posing a question mark on whether the funding tap will remain open for the first few crucial years. “Whether the Jhunjhunwala family continue to be a committed player or not, we don’t know,” said Kapur. “They will have to continue to bear losses for the next two to three years at least, and will need to dip into the pockets of the shareholders for years, and that is uncertain.”

There are many other challenges, such as pilot shortage. By some estimates, airlines in India have ordered about 2,000 passenger aircraft, which will be coming in in a few years. A ballpark estimate is that the country will require 18,000 to 20,000 new pilots over the next decade; that is at least 2,000 a year. “Effectively, India can only produce 700 to 800 pilots a year,” said Kapur. “That is going to be a big constraint. Demand for pilots is going to be so massive that we will have to compete for pilots internationally. We need to ramp up our training facilities.”

This industryscape definitely calls for some careful strategising by the smaller players. “The smaller airlines will have to find an operating niche and probably choose select sectors and concentrate on service delivery,” said Jagannarayan Padmanabhan, senior director (consulting), the rating agency CRISIL. “It will be prudent to not get into a price war to gain market share.”

It is an uphill task. Not an impossible one, though. What they need are friends with deep pockets. “You need a strong financial backer if you have to grow,” said Kapur. “And you may not be able to grab the market share from the larger players, but you can grow with the growth in the market itself.”

But, for this, the smaller players will have to make sure that they are operationally efficient and provide a passenger experience that gets planes filled up. “A marginal player simply cannot afford to have their planes flying half empty,” said Kapur.

Ground realities

What a duopoly means for the Indian air passenger is that discount pricing may just be a thing of the past. In fact, Gupta of BML Munjal University says some sort of governmental or regulatory intervention is needed. “The government says it will not intervene because it is market economics,” he said. “Fine, but you cannot allow companies to take advantage of the market mechanism and make the consumer pay up more. Festive season price hike due to demand is okay; that has been the case over a period of time. But airfares cannot be high throughout the year.”

As airfares peaked during the summer vacation, the usually reticent civil aviation minister, Jyotiraditya Scindia, called on airlines to develop a system to ensure reasonable fares. By the government’s own estimates, rates came down by 61 per cent within a week.

The market mechanism is likely to ensure that airfares do not shoot through the roof. “I tracked passenger traffic at Srinagar, a destination Go First was strong in. When Go First withdrew, seat supply went down. Naturally, demand being high, prices went up. But interestingly, soon enough, there was a 13 per cent drop in passengers compared with the previous year,” said Kapur.

What it means, according to Kapur, is that if you try to increase airfares unreasonably, demand will go down. “Indians can postpone travel or look at other options,” he said. “With Vande Bharat and other fast trains, Indian Railways in some ways is an indirect competitor to this duopoly!”

vistara-airlines-ceo-vinod-kannan-interview

Sat Sep 23 12:15:21 IST 2023

Is the future of India's aviation firmly on the low-cost side?

We believe that there is room for all players, full-service carriers (FSCs) as well as low-cost carriers (LCCs). It cannot be denied that majority of the Indian aviation market share is with LCCs. However, FSCs continue to be relevant for discerning travellers, more so in the current, post-pandemic scenario.

Vistara also fills somewhat of a void in the market as a modern, full-service carrier offering the best of Indian hospitality while maintaining world-class standards, at a very competitive price. With spacious cabins, lesser density of seats, enhanced comfort, gourmet food and a slew of other services, an increasing number of travellers continue to prefer full-service carriers.

With the increased preference among customers for non-stop direct connectivity, Vistara is very strongly positioned in the market, especially with our wide-body operations to Europe.

Or would you say that, there is still a demand for quality star-rated airline experience from the typical Indian passenger?

India is a highly price-sensitive market. While we are observing a growing preference for premium cabins, especially on metro routes, deploying the same product on certain (other) routes does not yield similar results. We are addressing it by deploying all-economy aircraft on certain domestic routes where the demand for premium cabins is negligible.

Rising air fares has been a concern. What is that sweet spot which an airline CEO strives for, that balance between expenses and offering an attractive fare to the end customer?

Taxation is very high in our country, especially on fuel, and maintenance costs are high, too. The volatility in fuel prices and currency valuation, coupled with high taxes, adversely impacts the already high cost of operations, thereby putting pressure on the airlines’ bottom line. We minimise the impact by trying to control expenses in areas that do not face customers.

the-challenges-ahead-for-india-to-become-an-electronics-manufacturing-hub

Sat Aug 19 12:00:38 IST 2023

AUGUST 3 WOULD have been just another Thursday for the electronics industry but for a seemingly business-as-usual notification issued by Directorate General of Foreign Trade. As the fine print of the notification became clear, realisation dawned across time zones that this was anything but business-as-usual. It ordered an immediate ban on import of personal computers, laptops, tablets, ultra-small computing devices and servers without a permit. About 65 per cent of India’s Rs66,000 crore market for these devices is imports.

While alarm bells rang and heads of electronics giants lined up outside ministers’ offices in the following days, the order was given a three-month breather a few days later, now set to come into effect from November 1. The hardware retail sector is bracing for an upending of the laptops and tabs supply chain, leading to price rise and reduced availability when the Diwali shopping season kicks off.

“Nothing is being disrupted,” said Ashwini Vaishnaw, Union minister for communications, electronics & IT. “We had eight to 10 months of detailed discussions with leading hardware and electronics manufacturers. Already 44 companies have registered for the production-linked incentive (PLI) scheme. We are implementing only what has been discussed and decided. A clear transition period has already been set [and] notified, too.”

Industry doyens are sceptical. “Overnight policy decisions is not the right way,” said Arjun Bajaj, director of Videotex, a leading contract manufacturer that churns out 14 lakh televisions a year and is aiming at doubling its capacity. “Industry has to be prepared, recommendations from experts have to be taken. Changing policy and implementing it the next day? Global majors are watching and they get scared.”

Ironically, it is these same global majors that the government is hoping to entice with this move.

It started long before the Covid-induced global supply chain and logistics mismatch that led to scarcity of many goods and awakened western countries to the dangers of putting all its manufacturing eggs in the China basket. What was earlier some loan support to MSMEs or tax sops for startups expanded in scope into a ‘Make in India’ campaign in 2015, whereby Prime Minister Narendra Modi unveiled his vision of turning India into a production-oriented economy.

At the forefront of this thrust was the PLI scheme, which gave incentives to companies to set up manufacturing in India. Currently available across 14 categories such as medicines, telecom equipment, automobile components and solar photovoltaic modules, its biggest success has been in mobile phone manufacturing.

Until Nokia, then the market leader, set up a factory in Chennai in 2006, India imported all its mobile phones. The PLI scheme for large-scale mobile phone manufacturing aimed to get big brands to set up plants. The idea was that the 4 to 6 per cent incentive on incremental sales will offset the cost advantage of importing from China or Vietnam.

The result? India became the second-largest mobile phone manufacturer in the world, after China. Exports of mobile phones in financial year 2023 was worth nearly Rs1 lakh crore. All the big handset makers are making in India, not just for the domestic market, but for exports as well.

The government is obviously hoping to replicate the model―manufacturing incentives coupled with import restrictions and tariff hikes―in other critical areas, from lithium-ion batteries to electric cars and semiconductors. Just like the big fanfare over Apple’s contractors setting up production in India a few years ago, all efforts are on to hook in American electric vehicle maker Tesla and Taiwanese semiconductor giant TSMC.

But, in all this Arjuna-like focused push to become big, is the Indian government losing track of the finer nuances, the fallout on local manufacturers, or even violating WTO regulations? And, isn’t the PLI just the old ‘licence raj’ packaged in post-millennium jargon?

“PLIs and import restrictions are aimed at developing domestic manufacturing capabilities, reducing excessive import dependence and improving the country’s trade balance. Unlike permit raj, where it was not possible to import or export beyond a certain limit, these restrictions are positive in nature and encourage manufacturers to expand their production capacities,” said Saket Dalmia, president, PHD Chamber of Commerce and Industry.

Running afoul of WTO’s trade and tariff agreements is a possibility, but it depends on other countries raising the dispute, an unlikely scenario. “India always puts its best efforts to comply with WTO agreements while undertaking various moves related to import restrictions, duty hikes on exports and PLIs,” said Dalmia, pointing out that the country recently settled six disputes with the US.

There has been a global shift in dynamics after the pandemic, where countries are trying to protect their trade and geostrategic interests by not getting too dependent on one exporter, in most cases, China. “Post-Covid realities do call for sea change undoubtedly. India has been flexible while using these trade measures to serve the best possible interests of the nation and its industrial sector in particular and increasing the export trajectory of the country,” said Dalmia. The ‘China plus one’ strategy, whereby countries that depend on China for manufacturing are now looking for an alternative factory base, also works in India’s favour.

Not that it is all win-win. In the rush to woo global majors to set up manufacturing plants in India, domestic manufacturers are getting the short end of the stick. More crucially, how much of ‘Make in India’ is actually ‘make’ in India?

“India is all assembly manufacturing,” said Bajaj. “We are not manufacturing them here, we are reliant on other countries.”

This is where having an ecosystem of component manufacturers and semiconductors is needed, and for India currently, that is sorely lacking. “Putting up an overnight ban does not immediately develop a local industry. Ultimately components come from abroad and we assemble it here and call it ‘Make in India’,” he said.

More than 90 per cent of components that go into a mobile phone are imported from countries like China and Taiwan, even though the phone eventually has a ‘Made in India’ tag. It will be similar for parts like printed circuit board, transistors and integrated circuits that go into making computers and tabs, even if the import restriction forces companies to set up plants in India.

The country simply does not have any capability to make nano chipsets used in computers, and with some recent collaborations like Foxconn and Vedanta not getting off the ground, it will be years before India gains this capability. “We are not backing out. We do see a future of India as a manufacturing hub,” said Bajaj, “We have the ability, we just do not have the capability or the infrastructure.”

challenges-ahead-for-indian-banks

Mon Aug 21 15:00:07 IST 2023

The year 2018 was a particularly bad one for India’s banks―losses ballooned and bad debt was spiralling out of control. The gross non-performing assets (loans that have gone bad) of scheduled commercial banks were 11.5 per cent in March 2018, and that of state-owned lenders were 14.6 per cent, prompting the Reserve Bank to initiate strong measures to save the sector from sinking.

Five years later, however, things cannot be more different. Gross NPAs of scheduled commercial banks in March 2023 are 3.9 per cent, the lowest in a decade. The net NPAs were just 1 per cent, a level not seen since 2011. And profits are soaring. The cumulative profits of public sector banks were more than Rs1 lakh crore in 2022-23, a sharp contrast with the Rs85,000 crore net loss they reported in 2017-18.

One of the many reforms that the government initiated in the banking sector in the past few years was consolidation of public sector banks. Several small PSU lenders were merged with larger ones―Dena Bank and Vijaya Bank were merged into Bank of Baroda; Andhra Bank and Corporation Bank were merged into Union Bank of India; United Bank and Oriental Bank of Commerce were merged into Punjab National Bank; Allahabad Bank was merged into Indian Bank; and Canara Bank took over Syndicate Bank. The state-owned banks have shrunk from 27 in March 2017 to just 12 now.

“This strengthened the market position of many of these banks,” said Ajit Velonie, senior director, CRISIL Ratings. “This has also led to greater efficiency in operations and capital utilisation.”

In the latest April-June quarter, State Bank of India, the country’s biggest lender, registered a net profit jump of 178 per cent to Rs16,884 crore, from Rs6,068 crore a year ago. HDFC Bank, the largest private sector lender, reported a 30 per cent year-on-year rise in standalone net profit at Rs11,952 crore in the same period, and ICICI Bank reported a net profit of Rs9,648 crore, up 40 per cent.

Banks over the past few quarters have been boosted by a strong growth in credit, which has outrun the growth in deposits. Last financial year, for instance, scheduled commercial banks saw close to 15 per cent credit growth. A year earlier, this was just 11.5 per cent.

Notably, the credit growth this time around has largely been driven by retail customers, rather than large corporate borrowers. In fact, with companies still facing supply-related bottlenecks and concerns about a slowing economy, new investment and large capital expenditure programmes are yet to pick up. On the other hand, the housing sector is seeing a strong revival. According to data from realty consultancy Knight Frank, housing sales in the top eight cities were 1.56 lakh units in January-July 2023, the second highest in the decade in that period.

Small-ticket loans and personal loans have also seen double-digit growth, as discretionary spending increased. “Retail has been growing at a healthy pace and gaining share in the overall loan book of banks. Within this, while home loans have been growing steadily, unsecured loans have grown faster. This trend is expected to continue,” said Subha Sri Narayanan, director, CRISIL Ratings.

The ease of getting credit is one of the main reasons behind the growth of retail loans. “Digital and information-oriented lending is fuelling the growth of retail credit, especially in unsecured consumption-led products, which grew at 47 per cent between March 2021 and March 2023,” said Rajesh Kumar, MD and CEO of TransUnion CIBIL.

Even as retail credit growth is expected to remain strong this year, some experts are concerned about it, especially the growth on unsecured credit. The total number of credit cards rose from 7.52 crore in 2021-22 to 8.53 crore in 2022-23, and the total credit card outstanding rose to Rs2 lakh crore, a 30 per cent yearly increase. And the gross NPAs for credit cards have increased to 18 per cent in March 2023, from around 9 per cent a year earlier.

While the reduction in the overall NPAs has helped banks improve profits, there are concerns about the slow recovery from the bad loans. Also, a major reason behind the reduction in bank NPAs is loan write-offs. Typically, banks write off loans when chances of recovery are low, and move them from assets to losses. In 2022-23, banks wrote off around Rs2.09 lakh crore; in 2021-22, Rs1.74 lakh crore; and in 2020-21, Rs2.02 lakh crore.

To be fair, a loan write-off does not mean that a bank is giving up on it; it is technical in nature. For instance, once an account becomes an NPA, the bank has to make provisions for it, and these get augmented depending on the age of the NPA and its realisable value over time. Once the NPA has been fully provided for, banks, as a part of their balance sheet management, write off the loan. But they still have to try to recover from it as much as possible. In the past three years, though, they have recovered just about 18.6 per cent of loan write-offs―Rs1.09 lakh crore of Rs5.86 lakh crore.

The dismal recovery has not escaped the regulator’s gaze. Swaminathan Janakiraman, deputy governor of RBI, said that this issue was discussed in a recent interaction of the RBI governor and chief executives of banks. “We would like the banks to redouble their efforts and we would like to see more and more recoveries because they directly go into aiding the profit and loss of the banks and contribute to the financial well being of the banks,” he said.

Karthik Srinivasan, senior vice president at rating agency ICRA, says he will be watchful of the rising interest rates, overleveraging by the borrowers because of easy credit availability and slower wage growth in certain sectors as they can “potentially have an adverse impact on retail asset quality”.

As of now, however, the overall asset quality in the retail portfolio is stable, thanks to the higher share of home loans. Gross NPAs in the retail segment have declined to 1.4 per cent as on March 31, compared with 1.8 per cent a year earlier and 2 per cent in 2018, said CRISIL’s Narayanan.

Corporates have largely strengthened their balance sheets in the past few years and the NPAs in the corporate loan segment are expected to come down further, say analysts. Still, there are a few things to watch out for.

Veloni pointed out that volatile commodity prices had impacted profitability, especially that of micro, small and medium enterprises (MSME). Also, export-oriented sectors are facing headwinds emerging from the slowdown in their major markets. “This may not lead to any significant increase in slippages in the near term, but it is important to monitor any emerging risks,” he said.

While the consolidation phase of public sector banks seems over, it is still under way in the private sector. HDFC, the country’s largest housing finance company, merged itself to its subsidiary HDFC Bank, which will be a big boost for the country’s second largest lender on various fronts.

First, HDFC Bank is getting a large secured loan book on its balance sheet, which, in turn, will reduce the share of unsecured loans. Second, HDFC Bank can now sell all its products to the large customer base that comes with HDFC. Third, HDFC Bank was earlier only a distributor of the products of HDFC’s sister concerns. Now all these companies―HDFC Securities, HDFC Asset Management, HDB Financial, HDFC Ergo General Insurance, HDFC Life Insurance and HDFC Capital―will become subsidiaries of HDFC Bank.

“HDFC Bank with its stronger digital platforms and physical branch network will have the ability to offer the home loan customer a complete bouquet of the bank’s and subsidiaries’ products and services. Savings accounts, personal loans, insurance cover, SIPs can all be bundled along with a home loan to create a compelling value proposition to the customer, that probably does not exist in the market at the scale at which this is envisaged,” said Sashidhar Jagdishan, managing director and CEO of HDFC Bank.

Infrastructure financing company IDFC Ltd has also initiated a merger with IDFC First Bank, which would simplify the corporate structure of IDFC Ltd, IDFC Financial Holding Company and IDFC First Bank into a single entity. The lender also aims to grow its balance sheet by 25 per cent a year in the near-to-medium term after the merger.

These mergers come at a time when analysts expect retail credit growth to remain strong and corporate credit growth has seen a pickup, especially for working capital. With the RBI expected to keep its benchmark repo rate on hold for some time, interest rates might have peaked and that could bode well for borrowers as EMIs will remain steady.