In the ideas-economy, it is the venture
capitalists who are, at once, patrons, catalysts, and liquidators.
The year when it became evident that the internet changed everything
other than the laws of classical economics, 2000, took the wind
out of veecee-sails. And last year, 2001, (notably, the events of
9-11) transported the entire investing community into a fog so thick,
few could see beyond their hard noses. In number-speak, the quantum
of venture capital doled out in the US in 2001 was, at $40 billion
(Rs 192,000 crore), a mere 39 per cent of the largesse that was
showered in 2000. The corresponding Indian figures-$1.2 billion
(Rs 5,760 crore) in 2001 and $500 million (Rs 2,400 crore) in 2000-actually
look a lot healthier.
In India, consolidation has suddenly become a buzz word in an
industry rarely given to non-tech shibboleths. Global Technology
Ventures (GTV), and CDC Advisors are focusing their efforts on their
existing portfolio. ''We look at a two-four year period to build
a company,'' says Westbridge Capital's Raj Dugar whose primary aim
these days is to ensure companies have enough funds to get them
through that period comfortably. Elsewhere in the country, veecees
are continuing to bet on apple-pie (read: everlasting favourites)
investments in areas such as Business Process Outsourcing, Biotech,
and Bioinformatics.
BPO is the universal favourite. The business grew at over 70 per
cent last year-software clipped along at a relatively snail-like
30-odd per cent-and almost all of India's software heavies jumped
on to the bandwagon. ''Cost and arbitrage efficiency are critical
in the (BPO) business, and tilt the scale in India's favour,'' says
Poornima Jeyaraj, a partner at Global Technology Ventures. GTV isn't
the only one; Chrysalis, Walden, CDC, everyone wants to be part
of the boom.
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DEBT
Is Foreign Paper Always Better?
Not really, but the rupee could make it
so.
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First, the facts: budget 2002
allows Indian mutual funds to invest in debt issued by foreign
corporates. Given lower interest rates overseas, though, does
it make sense for fund managers to exercise this option? Yes,
say managers like Binay Chandgohtia, who manages the debt
segment of IDBI Principal Mutual Fund: ''The currency exposure
could yield attractive returns, if managed well.'' In simpler
terms, an investment in foreign debt would appreciate when
the rupee depreciates. The Reserve Bank of India is yet to
announce the guidelines for such investments, but when it
does, given the currency-exposure aspect, several funds may
go the foreign paper way.
-Shilpa Nayak
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If BPO is old, then the list of other domains considered promising
by veecees is downright ancient. This correspondent encountered
responses that frequently featured enterprise software, wireless,
products, and chip design. One venture capitalist listed nanotechnology,
but stuttered when asked to provide details of Indian companies
working in the area. ''Domain specific service companies that operate
in the higher end of the value chain will attract investments,''
says Sudhir Sethi, Director and Chief Representative, Walden International.
There's no shortage of such companies in India, and the fact that
the likes of Pramati, Hellosoft, Adamya, and Netkraft, wrapped up
a successful second round of funding in early 2002 bears Sethi out.
The surprise package this year could well be buy-outs of what
veecees call late-stage companies. CDC attempted a buy-out with
a surprise bid for CMC, but its application was deemed non-compliant.
That hasn't discouraged Donald Peck, the head of the company's Indian
ops. With India Inc in the throes of a restructuring drive, he expects
many more opportunities. ''We are looking at government disinvestments
and parts of large Indian companies.''
Still, no one, not even Peck, wants to talk about taking buy-outs
to their logical denouement and launching vulture funds. Popular
in the US-Hicks, Muse, Tate & Furst, Thomas H. Lee Partners,
and Accel Partners are three well-known specimens of the genus-these
specialise in buying out underperforming companies either for their
assets, or on the belief that their underperformance is caused by
poor management. The fund then strips and sells the assets, or puts
a new management team in place to turn things around. If the gamble
works, the fund sells the now profitable company at a premium.
Will 2002 see increased veecee activity? Going by numbers, one
would think so. Conservative estimates put veecee investments in
India in 2002 at Rs 5,280 crore; the actual figure, many reckon,
will be higher. CDC, which invested $50 million (Rs 240 crore) last
year, is looking to increase its investments by 50 per cent. ''If
you look at projections for an economic rebound in late 2002, and
you consider the long-term horizon of venture capital, then investing
won't be affected by the current recession'' says Rishi Sahai, Principal,
Infinity Venture Fund. Only, it is no longer a question of tracking
the lemmings.
-Vinod Mahanta
HEAVY METAL
No Schadenfreude In Steel
The decision of the US to impose a duty on
steel imports from developed countries such as Japan, Russia and
the EU may actually hurt India.
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| George W. Bush: A back-handed slap to
Indian steel |
The Indian Steel Industry's stoic
response to the US's imposition of a 8-30 per cent duty on imports
of steel from the EU, Japan, and Russia is understandable. India
accounts for less than 1 per cent of the 34 million tonnes of steel
imported into the US (the bulk of it, galvanised, and cold rolled
steel exported by smaller steel companies such as Jindal Steel,
and Bhushan Steel), and the duty won't change that. Says B Muthuraman,
Managing Director, Tata Steel: ''Anyway, Indian exports to the US
had already become virtually zero or negligible.''
In 1998, the US levied an anti-dumping duty of 72.49 per cent,
and a counter-vailing duty of an additional 12.82 per cent on Indian
hot rolled steel coils, and an anti-dumping duty of 45 per cent
on Indian cut-to-length steel plates, effectively ending India's
steel exports to the US. While the EU's retaliatory action-already
signalled by trade commissioner Pascal Lamy-will also exclude India,
all these barriers will increase the quantum of steel floating around
the global market.
That could impact the domestic sales of Indian steel companies:
import duties on steel have just been brought down in India, from
35 per cent to 30 per cent. Either way, the Indian steel industry
loses.
-Ashish Gupta
TRADING PLACES
Why Maran can't Play Father Christmas
On All Fools Day, Commerce Minister Murasoli
Maran will present an Export-Import policy for the next five years.
Here's why it won't matter.
| MARAN'S HANDS ARE TIED BECAUSE: |
|
 »
WTO frowns on direct as well as indirect subsidies
» Reducing
transaction costs is outside his powers
» Labour
reforms, even in special zones, is outside his powers
» Tariffs
have been fixed by the FM
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Like the 17-odd commerce ministers
who have held office before him, Murasoli Maran will soon present
an exim policy for the next five years. The minister's spin on exports
should be interesting because there is little the government can
do: the exim policy is becoming irrelevant. ''The days when the
Commerce Ministry could play Santa Claus are over,'' says B. Bhattacharyya,
Dean, Indian Institute of Foreign Trade, referring to the government's
inability to dispense largesse in a market where most commodities
can be brought into the country by anyone willing to pay the requisite
duty under Open General Licence (OGL).
Nor can the government dole out direct subsidies to exporters-it
risks being dragged to the dispute settlement body of WTO if it
does-or create tariff barriers: Finance Minister Yashwant Sinha
has promised to bring down the peak import duty to 20 per cent over
the next three years. And although it seems to have acceded to demands
from the exporter community for the continuation of the DEPB (Duty
Entitlement Pass Book) scheme, essentially targeted at negating
import duty on the import content of the exported product, the Commerce
Ministry may have to eventually phase it out: WTO guidelines recognise
DEPB as a subsidy.
The one way in which the exim policy can help exporters is by
reducing the transaction costs of exports. That, says T.R. Kathuria
of Delhi-based Globe Enterprises, can be achieved by ''reducing
the interest on export credit, and creating world-class infrastructure''.
Neither is within powers of the Commerce Ministry, although the
reduction in the interest rate on small savings (by 50 basis points)
announced in Budget 2002 could portend a move to lower the interest
rate on export credit. And as S.K. Saraf, the Vice President of
the Federation of Indian Export Organisations, points out, ''by
levying a 5 per cent tax on inland haulage services, storage, and
warehousing in his new budget, Sinha has further added to transaction
costs''.
But the growing irrelevance of the exim policy isn't all grey:
it may prompt exporters to strive for competitiveness built around
their own abilities. As for the government, explains Bhattacharyya,
''if it does something about infrastructure and allows the rupee
to find its own level against the dollar, things should be fine''.
-Ashish Gupta
DÉJÀ VU
Rollback Redux
Political compulsions force the Finance Minister
to dilute some already insipid budget proposals.
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| Yashwant Sinha: Wasted words? |
For those who came in late, in 1998,
Yashwant Sinha was forced to go back on some bold measures he had
announced in his budget for the year by the Bharatiya Janata Party's
political allies like Chandrababu Naidu of the Telugu Desam and
Mamata Banerjee of the Trinamool Congress. One of those rollbacks-still
remembered-had to do with a fairly insignificant rise in the price
of urea.
Budget 2002 will bring back memories of those rollbacks-which earned
him the sobriquet Rollback Sinha-to the finance minister. This time
too, his hand could be forced by allies of the BJP, even by insiders;
and there is little the fm can do despite his articulated determination
to ''protect the integrity of the budget''.
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MOTION Ps
A Beautiful Business
Why businesses should cheer Russel Crowe
this Oscars.
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Crowe: From
gladiator to economist |
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It's john F. Nash Jr.'s day
at the Oscars this year. The man is the father of modern game
theory; his 27-page dissertation dated 1951 outlined one of
the most ubiquitous tools in contemporary business-the Nash
Equilibrium. This assumes that no player can improve his or
her payoff, without a clear understanding of the other player's
strategy. The Equilibrium is vital in domestic and international
trade, auctions (for 3G licences, say), pricing strategies
and the like.
For his work, Nash, who lapsed into near madness in the
1960s (he thought aliens were sending him messages through
the columns of newspapers) won the Nobel Prize for Economics
in 1994. Russel Crowe plays Nash in the motion picture, and
is one of the nominees for best actor. Should he win, economics
will have its very first Oscar. Hurrah!
-Moinak Mitra
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Not only have the weeks following the budget seen
a chorus of demands by the BJP's co-constituents in the ruling National
Democratic Alliance (led by Naidu and Banerjee again) on rolling back
hikes in the price of LPG and kerosene, even sections of the BJP have
joined in. The riots in Gujarat, and the crisis that Ayodhya is fast
turning out to be have made the BJP vulnerable and economics will
likely be sacrificed at the altar of political exigency.
The riots come in the wake of the BJP's dismal showing in elections
in four states, and the party is in no position to reject the demands
of its allies-not if it wants to complete its term in office. ''We
will oppose any anti-poor measures taken by the government,'' says
Yerran Naidu, the TDP leader in the Lok Sabha.
Result: Petroleum Minister Ram Naik says (on the issue of the
hikes in LPG and kerosene prices), ''the Prime Minister has said
he will look into it''.
The hike in urea prices will probably go too. To keep its allies
happy, the government could bring dividend income within the purview
of section 80 L of the Income-Tax Act so as to grant tax-payers
some relief. And it is said to be considering a reduction in the
service tax on insurance policies.
Left to himself, the fm would never agree to a rollback. He will
probably be sensitive to being labelled Rollback Sinha again, but
the political dice is loaded against his proposals.
-Ashish Gupta
OPPORTUNITY
Bengal's Newest Cottage Industry
The expiration of copyrights on the works of
Tagore spawns a T-boom.
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| Tagore galore: Going cheap now |
Circa 2002, say hello to rabindra-rock.
sacrilegious as that may sound, it's happening. For 60 years, Vishwa
Bharati, the university Rabindranath Tagore founded retained sole
rights to his works. The period ended on the last day of 2001, and
the party has just begun in Bengal's publishing and music industries.
Of the Rs 3.5 crore of business conducted at the recently concluded
Kolkata book fair, some publishers estimate close to Rs 1 crore
to have come from the works of India's first nobel laureate.
One reason is price: a copy of Sanchayita, which used to cost
Rs 175 in the copyright regime, is now available for Rs 90. Expectedly,
the translation market is looking up with publishers like Rupa and
oup ready to hit stores with their offerings. And the vast repertoire
of Tagore's poems now on offer is a potent lure for every Bangla-pop
artist worth his or her name. Says reigning Bengali pop icon Nachiketa:
''Now we have access to lyrics that we have been dreaming about."
Saregama, the music company that is part of the RPG Group, has set
the ball rolling by releasing a Hemant Kumar album featuring four
of Tagore's poems. And new age Bengali pop band Parash Pathar is
set to record an album featuring Tagore numbers. The purists are
unhappy. ''Tagore is a national institution and we should ensure
that the sanctity of his works are preserved,'' warns Vishwa Bharati
Vice Chancellor Sujit Basu. Welcome to the market economy, Mr Basu.
-Debojyoti Chatterjee
D-DAY
Much Ado Over Dividend
New SEBI honcho G.N. Bajpai's first display
of affirmative action hasn't pleased companies and investors alike.
So, what's new?
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| SEBI chief G.N. Bajpai |
The party ended on March 6. By then,
in the five days since Budget 2002, 350-odd companies had declared
interim dividends, an effort to circumvent Finance Minister's Yashwant
Sinha's pronouncement on dividends being taxable in the hands of
recipients. In a terse message, the Securities and Exchange Board
of India (SEBI) asked all stock exchanges to adhere to Clause 16
of the Listing Agreement, which stipulates that a 30-day notice
period be given before fixing the date for dividend payouts for
shares traded in the DEMAT form.
That blow dashed the hopes of millions of shareholders and a few
hundred promoters (more the latter, one would think) who expected
to make a killing. Says Prithvi Haldea, CEO, Prime Database: ''The
government has taken refuge in an antiquated guideline, which has
no relevance today.'' With the entire market in DEMAT mode, argues
Haldea, there is little relevance in maintaining the 30-day notice
period.
Feeling the pinch of SEBI's move will be companies that have already
announced dividends, Reliance Industries (Rs 500.6 crore), Tata
Steel (Rs 1,47.3 crore), Tata Power (Rs 99 crore) Gujarat Ambuja
Cement (Rs 62 crore) and Dabur (Rs 31.6 crore) among them: if dividends
are not paid within a stipulated period, then the directors of the
companies can be prosecuted.
Then, there's the issue of double taxation: since companies declared
the dividend in March 2002, under the old tax scenario, they stand
to pay a 10 per cent distribution tax, but if the dividend is deferred
and it reaches shareholders in April, then under the revised tax
proposals, the latter will be taxed. Little wonder, then, the Confederation
of Indian Industry has declared the SEBI notice on interim dividend
a ''reason for serious and protracted litigations''. End word: what
is blood for one is business for another. SEBI's decision could
fetch the Central Government at least Rs 1,500 crore by way of tax
on dividends.
-Ashish Gupta
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