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TRENDS: LEADER Nostra-hack: The Next Four Months With just four months to go to the end of the financial year, this is how the larger numbers related to the Indian economy in 2001-02 will look.
It's still a little early for India Inc.'s movers to pick what they'll wear on February 28, 2002, but most are, understandably curious about the weather then. Will it be a cold-recessionary spring or a warm-one that brings with it the promise of a recovery? Economists, like meteorologists, often get to witness their predictions go horribly wrong, but even amateur tea-leaf readers should be able to get this one right. The global economy is in a recession and the government is unlikely to be able to have a nostrum up its sleeve to boost demand in the domestic market. The classical economists believe the solution lies in 'pump-priming' the economy. But additional government spending can only be cleared after the presentation of the supplementary budget to the Parliament in December 2001, and given the pace at which projects are appraised in India, money won't flow into the economy until March, maybe April 2002.
With India's major trading partner, the US-it accounts for 20 per cent of India's product-exports and 60 per cent of its software-exports-in all sorts of trouble, things will be tough on the export front. ''There is always a chance that export growth actually turns negative,'' admits Sanjay Kothari, the chairman of the Gems and Jewellery Export Promotion Council. Don't read too much into the government's projections of a 12 per cent growth in exports, then. Other numbers for the year won't look any better. GDP growth (4.4 per cent and 4.6 per cent in the first two quarters) may not cross the 5 per cent barrier. And officials at the Finance Ministry confess that the shortfall in tax collection will be around Rs 20,000 crore. With the government borrowing freely to meet its non-plan expenditure, there's little chance that the fiscal deficit stays at 4.7 per cent of GDP or Rs 1,16,314 crore as laid out in Budget 2001. Some economists believe it will be closer to 5.1 per cent. Oops. Die-hard optimists point to the signs of revival (there are a few) and claim things will set themselves right without any governmental intervention. But if things are to look up in the first quarter of 2002-2003, the government may have to prime the pump some. ''The supply side equation of the macro situation calls for a Keynesian approach to fiscal expansion, including the printing of currency, however much this may be unpalatable to the fiscal purist,'' explains S.S. Bhandare, an advisor to the Tata Group. So, is mama going to kiss it and make it better? -Ashish Gupta POLICY
Only five of the eight hotels of hospitality major India Tourism Development Corporation (ITDC) found buyers, with no takers for the prized Ashoka Delhi. Only three of the five hotels of Air India subsidiary Hotel Corporation of India (HCI) were sold. And with international long distance telephony likely to be opened up by March, it's unlikely that the sale of Videsh Sanchar Nigam will rake in the megabucks. So are our crown jewels little more than tinsel trinkets? Not really; investor interest has been dampened by a combination of global business sentiment, industry-specific problems and some slip-ups by the government. With the worldwide economic slump, says a Delhi-based investment banker, company boards are getting tougher on chief executive officers (CEOs). Stock markets too are getting more demanding about short-term results. CEOs are, therefore, less willing to take risks. Investor interest could have been retained if the sales were structured properly. Unfortunately, they weren't. Take the case of the Delhi Ashoka. Prospective buyers had to pay a Rs 14.17 crore annual lease rental to the land and development office (L&DO) plus a minimum guarantee assured price (MGAP) or 18 per cent of turnover, whichever was higher, on a 30-year lease. That effectively worked out to forking out 21 per cent of turnover each year for 30 years. No other five-star hotel in Delhi shells out that kind of money except Le Meridian which pays 21 per cent but the matter is in the courts now. The Taj Mansingh, for example, pays 17 per cent of its turnover to the L&DO. And Hotel Intercontinental pays 13 per cent. And these hotels, are on a 99-year lease, which makes it easier for them to recover costs. Is it any wonder that investors cold-shouldered Ashoka? HZL, a consistently profit-making PSU, was a victim of both a depressed mining industry (global zinc prices are at their lowest in the last 50 years) and a bad deal. The government slipped up in not getting the environmental audit done. Bidders, therefore, chickened out. Or, as in the case of Sterlite, discounted future liabilities from the price they were willing to pay. The HZL plant is now tackling that issue, but it will take another three months. Will bidders still be interested? It's anybody's guess. The lesson from all this? Yawn: don't waffle on privatisation. Step on the gas. -Seetha
Scams and universal banks must be the flavours of the financial services domain in 2001-02. Minister of State for Finance Babasaheb Vikhe Patil is convinced that no financial institution, large or small, thriving or floundering, can survive on its own. His cure-all solution? Universal banking. So, it came as a surprise to no one when, in early November, the minister suggested that Exim Bank find ways to convert itself into a 'universal' bank.
The only response of the organisation's Managing Director, T.C. Venkat Subramanian was that to do so, Exim Bank would need to work on its branch infrastructure and acquire a larger customer base. Today, the bank has all of 12 branches in India. But it isn't just the network that could prove problematic. The real issue is whether there is any logic at all for a bank set up in the mid-1980s to finance and promote international trade to convert itself into a me-too all purpose bank in a market that is rapidly becoming cluttered. Over the years, the bank has evolved into an institution that has commercially viable relationships with globally-oriented companies. Exim Bank also remains profitable, although its net profit has fallen some: from a high of Rs 201 crore in 1997-98 to Rs 154.10 crore in 2000-01.The bank attributes the fall to the drop in lending rates, and the increase in its average cost of funds. And compared to the Rs 16,064.3 crore of bids approved in 1999-2000, the bank did just Rs 4,288 crore in 2000-01. In the same period, the value of export contracts secured by it fell from Rs 3,444 crore to Rs 1,833.10 crore; the amount of loans sanctioned, from Rs 2,831.80 crore to Rs 2,174.30 crore. A few bad years, though, isn't enough rationale for a transformation into a universal bank. Unlike the development financial institutions-their primary objective (industrial development by making funds accessible to companies and entrepreneurs) is no longer relevant in an era where access to finance isn't really a constraint-the Exim Bank still has a role to play as a promoter (and financier) of international trade, especially for a country that wants to be a exports powerhouse. Bad call, Mr Patil. -Roshni Jayakar THIRD PARTY
India's software biggies will be content to grow by 30-40 per cent this year. Which is why it seems strange that most of them are ignoring the growing domestic market for IT-outsourcing. A study by Accenture says the market could be worth Rs 175 crore and be growing at over 50 per cent a year. Globally it-outsourcing-put simply, companies just outsource their entire it requirements-is a business valued at over Rs 120,000 crore ($25 billion) a year. And Accenture (its Indian arm has just signed on Indo Rama Synthetics as a client), EDs and IBM Global Services are significant players in the market. It isn't easy convincing Indian companies to outsource their it requirements. ''It is an issue whether companies have the mindset to outsource,'' says Sanjay Jain, Country Managing Director, Accenture. Still, companies that go in for such arrangements benefit from transferring all their it-concerns to firms that are best equipped to take care of them. Which could explain why Tata Steel, Ballarpur Industries, Cadilla, and Whirlpool India have done so. As for the reluctance of the top-tier of India's software industry to get its hands dirty in the domestic market, that's easily explained. The price tag attached to these services-analysts estimate hourly billing rates to be well below the $25 that the typical software company charges for offshore work-may seem disproportionate to the effort involved. After all, as Arun Maheshwari, the CEO of the Indian arm of Computer Sciences Corporation puts it: ''Unless companies scale up their services, it won't be easy to get into this business.'' But surely, some business is better than a large bench? -Ashutosh Sinha TECHNOLOGY A phone is a phone is a phone. Right? Not really, if the phone is question is an IP phone (or Internet Protocol phone). That is no buzzword. It is just another technology. An IP phone looks like a regular phone but it will make the latter appear a dumb device. The reason it is called an IP phone is because it works over the internet, where voice signals are broken into digital packets, each transmitted across the network independently, and reassembled for the listener at the other end. Compared to that, a traditional telephone network, circuit switched as it is called, hogs a dedicated line while two people are talking. Needless to say, IP phones use available bandwidth more efficiently than circuit switched regular phones.
The IP phone has so much intelligence packed into it that the regular phone that you use at home and work could appear to belong to the stone age. So, if you are going out, just programme the phone so that calls from some people can be forwarded to your cellphone while the rest can leave a voice mail. The phone can also help you check the last 30 calls dialled or voice mails received. Says Manoj Chugh, Country Manager, Cisco Systems which is marketing its IP telephone in India, ''The IP phone helps integrate computing and telephony, which helps drive significant cost benefits to businesses.'' Indian telecom regulators are now giving the finishing touches to the guidelines for internet telephony in the country. If Internet Service Providers are allowed to offer voice services, IP technology could come in handy. That will open the market for differential tariffs, meaning much, much cheaper phone calls. -Ashutosh Sinha
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India
Inc. has, over the years, perfected its own unique rite of spring. It's
called the Union Budget. For the men (and women) of industry, standing up
and acclaiming the performance of the master of ceremonies, the Finance
Minister, has become a ritual to signify the end of the cold, dark, months
of the last quarter of the fiscal.
It
was meant to be a big pre-diwali privatisation blast, with the ministry of
disinvestment lining up a slew of strategic sales for mid-November.
Instead, it turned out to be a damp squib. Blue-chip mining company
Hindustan Zinc Ltd (HZL) had only one bidder, Sterlite Industries, which
bid less than the reserve price.
U-BANK
