FM Jaswant Singh: No panic here

For those who came in late, in September 2002, international credit rating agency Standard & Poor's downgraded India's local currency debt from investment grade to junk-bond status. The agency cited the setback to the disinvestment process and the mounting fiscal deficit by way of explanation. Now, four months on, S&P has reaffirmed its rating and justifiably so: despite India's increasing foreign exchange reserves (some $69 billion or Rs 3,31,200 crore at the end of December 2002) and the low rate of inflation, things haven't looked up since September. The combined fiscal deficit of the centre and the states-11 per cent of GDP-hasn't come down; total tax receipts will likely fall short by Rs 20,000 crore to Rs 25,000 crore; and imminent bail-outs of beleagured developmental financial institutions will only increase the strain on the centre's reserves.

In the normal course of events, S&P's move would have set alarm bells ringing in North Block, the seat of India's finance ministry, and triggered a mini-collapse on Dalal Street. It did neither. That seems overly sanguine given the possible fallout of the poor rating: the increased cost of borrowing from foreign markets; lower levels of investor interest in overseas issues of Indian companies; and lower Foreign Direct Investment.

Still, the indifference isn't inexplicable, says Arun Kaul, Chairman and MD, Punjab National Bank Gilts, pointing to the surfeit of funds available with domestic lenders at attractive rates. "Where is the need to tap international markets?" he asks. And the downgrade hasn't really hit FDI either. India closed 2002 with $4.2 billion. The government has already decided not to borrow from foreign markets and finance ministry officials point out that should the need for money arise, India should have no problems borrowing from either IMF and World Bank-it has an unblemished record of paying its debts on time.

North Block's diffidence may also stem from fm Jaswant Singh's strategy of focussing on growth, not poring over the fiscal deficit. His style of fiscal prudence, says a North Block resident, factors in accelerated growth achieved through stimulating new investments and gains in productivity. If that has the desired result-fast growth-even the most die-hard fiscal economist will forgive the Indian government its fiscal laxity.

-Ashish Gupta

FAMILY BUSINESS
Branching Out
Recent diversifications by two Delhi-based business groups may well be efforts to find a place for a growing family.

Apollo's Onkar S. Kanwar: Insurance, it is

The companies themselves will likely attribute their recent unrelated diversifications to emerging opportunities but chances are, Apollo's foray into insurance through a joint venture with Vijaya Bank, Punjab National Bank, and Principal Group, and the Hero' group's entry into the business of bill collection through Easy Bill, are efforts to find space for a growing family. Apollo's investment was routed through Apollo International, a company run by Kanwar's younger son Raja; elder son Neeraj is already coo of Apollo Tyres. Easy Bill is to be headed by Rahul Munjal, son of the late Raman Kant Munjal, the first Managing Director of Hero Honda. ''I definitely had the choice of joining Hero Honda,'' he says, ''but chose to follow the Honda philosophy which embodies the joy of creation." And diversification.

Vinod Mahanta

INTERVIEW
"The VC Market Is Over-Corrected"

Ken Wilcox, President & CEO, Silicon Vall Bank: Biding time

Ken Wilcox is President and Chief Executive Officer, Silicon Valley Bank-a $3.8-billion commercial bank focussed on technology and lifesciences. In Delhi recently, Wilcox discussed the state of tech funding in the US with BT's Vinod Mahanta. Excerpts:

What brings a Silicon Valley banker to attend a conference for the "Indus Entrepreneurs" (TiECon)?

I came here to get better acquainted with India. A quarter of our clients have Indian leadership, and about a third have some sort of alliance with India. This visit provides me a opportunity to take a closer look at obstacles and opportunities in India.

There is a lull in startup activity. How is the bank managing to find customers?

There is a bit of lull. If you were to look at how venture capital came-the amount of money going to tech companies-the graph will show a sharp increase 1997 onwards, peaking in 2000 and then, a gradual decline. We are at '97 levels today. There are 4,000 VC-backed companies in our portfolio. We are increasing the number because a number of our competitors are falling and we are picking their portfolio.

How has tech funding changed after the boom?

We have gone through a number of developments since the onset of the decline of nasdaq. For entrepreneurs, it is now much more difficult to get funding, especially (for) start-ups. There is no stampede by VCs to fund companies. Earlier, it was not investing, but gambling. There was no due diligence; VCs would run to grab the opportunity thinking if they waited a couple of days, they would lose the opportunity. It was a race to find deals. We are now back to fundamentals, but I think we are over-corrected.

Have investors started looking at the old fashioned way of investing?

Certainly, investors have started to look at companies the old fashioned way. In the US, we had a huge backlog of venture backed companies-around 11,000. It's far too many for the IPO market. Now it has fallen to 8,000, and the number is likely to fall further. But what has happened is that a number of companies who have good technology have also started suffering. VCs think there are no buyers of technology. These companies were also capitalised at high valuations, so their capital structure doesn't work in the new investment climate.

Given low tech spending, how do you pick companies to invest in?

We are still investing across the board. No matter how crowded the space, there is always space for some good ones. We are looking at a lot of wireless stuff, software, and lifesciences. We believe that the next wave could be a series of small waves instead of a big one.

How do you look at India as a market?

India's strength lies in a number of areas. Bangalore is the fourth largest tech centre after Silicon Valley, Boston, and London. Indians have managed to build good tech teams and also a considerable entrepreneurial community. In specific areas like business process outsourcing and call centres, there is a highly educated workforce that places India in good stead. Ultimately, we would like to have a physical presence in India, but it is not an easy thing to do. But we are exploring ways of working in India.