FM P. Chidambaram: He's got the moolah; now he has to manage it

It has been one of the country's most outstanding success stories. Just 14 years after almost defaulting on its foreign borrowings, India is now faced with the "problem" of excess foreign exchange. As on March 11, 2005, the country had $140.229 billion (Rs 6,17,007.60 crore) in reserves-enough to cover more than 18 months of imports. And concerned economists are calling for a squeeze on dollar inflows.

On the face of it, their worry is easy to understand. Greater inflow of dollars into the economy means that the rupee becomes stronger and, hence, Indian-made goods become dearer for importers. Not that this is a concern right now: the rupee has appreciated 8.5 per cent versus the dollar in the last two years, but that hasn't dampened India's exports-up by $12 billion (Rs 52,800 crore) to $75 (Rs 3,30,000 crore) billion in the last two years.

Helped by it exports, foreign investments in stock markets and industry, India has added $65.42 billion (Rs 2,87,848 crore) of reserves in the last two years alone. "There is very little the government can do as long as the foreign financial institutions continue to pour in billions of dollars because of the market's attractiveness,'' says Ajit Ranade, Chief Economist at the Aditya Birla Group.

Theoretically, the Reserve Bank of India could mop up excess dollars from the market and keep the rupee from hardening. Then, there are two problems with this course of action. One, buying up dollars and parking them in short-term us government securities earns the Indian government a paltry 1.5 per cent return, which is less than the rate of inflation in the country. In other words, the government is actually losing money on the investment. Two, the money that the RBI pumps into the market to buy dollars tends to stoke inflation.

There are ways to beat the problem. One option is to increase the share of non-dollar currencies in the reserves. That's already happening. The euro's share is up 25 per cent in the last three years. Diversification, however, isn't a good enough solution. The real issue is to make the reserves sweat in such a way that doesn't fuel inflation, yet helps economic growth.

One option, proffered by the Deputy Chairman of the Planning Commission, Montek Singh Ahluwalia, is to use forex reserves to fund infrastructure projects in the country. Predictably, there are critics-including the Finance Ministry and RBI-of this plan. They say that such a move would increase money supply in the market, affecting inflation, apart from widening the fiscal deficit.

That need not necessarily happen. For instance, infrastructure projects could be contracted out to foreign companies, who could then be paid in dollars. That way, there will not be any surge in money supply and consequently, in inflation. The economic efficiency arising from better infrastructure would spur growth and increase the government's revenue collection.

Another solution is to allow full convertibility on the capital account, which will mean that big-ticket industrial projects and overseas acquisitions absorb billions of dollars.

The ideal solution, however, may be in continuing with reforms that catalyse industrial investment, resulting in rapid growth of non-oil imports. In a growing economy like India's, dollars are better spent than locked up in poorly-paying foreign debt.

-Ashish Gupta

Depreciation Fundamentals
Why industry is unhappy with Budget 2005's take on depreciation.

India Inc. would like to adopt the concept of free depreciation. Instead, it finds itself having to toe the government's line (laid out in Budget 2005) and reduce the rate of depreciation from 25 per cent to 15 per cent. The result, says Sanjiv Chaudhary, a partner at audit firm KPMG, will be far from beneficial: "The net effect will not be beneficial to capital intensive industries; then, as taxable profits increase, so will tax." The conventional logic behind the concept of depreciation is to amortise the value of fixed assets over their lifecycle and provide funds for their replacement. However, the reduction in the rate from 25 per cent to 15 per cent means that the average life of an asset increases from 11 years to 18-19 years. "This may not be in line with today's dynamic economy," says Vinod Gupta, a tax expert attached to the Federation of Indian Chambers of Commerce and Industry, an industry lobby. That, it isn't.

-Kumarkaushalam

DEPRECIATION NORMS

Australia: Depends on its effective life cycle; can be determined by company/tax authorities Bangladesh: 20 per cent on plant and machinery Brazil: Varies between 15 per cent and 25 per cent Canada: 20 per cent on plant and machinery; 30 per cent on plant and machinery for manufacturing/ processing Finland: Companies can choose between 0 and 25 per cent for all machinery and equipment with a life of more than three years Hong Kong: Immediate write-off of 100 per cent of expenditure on prescribed manufacturing plant and machinery, and on computer software and hardware; 60 per cent for non-manufacturing plant and machinery and office equipment in the year of purchase. UK: Free depreciation, where an enterprise chooses the quantum and the years of claim

ON THE ROAD DEPARTMENT
India's IT Girls
The proportion of women in the IT sector is high, but not as high as companies would like.

The fact that Accenture chose to celebrate International Women's Day (March 8) across its offices shouldn't surprise anyone. After all, this is a company that proudly mentions, on its entry in the Where Women Want To Work web site (www.www2wk.com) that it has "84 items of evidence about attracting, retaining and advancing women...". Of the 106,000 people the company employs, 35 per cent are women. In India, however, only 25 per cent of Accenture India's 11,000 employees are women. Which could explain why the company thought March 8 an opportune time to express the launch of an initiative that seeks to hire more women. "Homogenity in any form is not good for the organisation," says Rekha Menon, Head (Geographic Service), Accenture.

Accenture India may consider its own record at hiring women inadequate, but its 25 per cent is a point above the industry average of 24 per cent. India's National Association of Software and Service Companies (NASSCOM) says this is the proportion of the 700,000 people employed by the Indian it industry that are women. Accenture isn't the only company that believes in a focussed approach when it comes to women; Hyderabad-based Satyam Computer Services has constituted a Working Women's Forum, made up of senior women execs, which seeks to hire more women and make the company a better place to work for them. Women face the challenge of balancing work and life, explains

T. Hari, Senior Vice President (hr), Satyam, and companies need to institute policies that make things a little easier for them. Not everyone believes in preferential policies-"Positive bias converts into a glass ceiling, so the emphasis should simply be on making the workplace gender-neutral," says Bhaskar Das, Director (hr), Cognizant Technology Solutions-but there is some degree of unanimity in the Indian it industry that it needs to hire more women without compromising on the principle of meritocracy.

That isn't as simple as it sounds. At most engineering colleges, women constitute between 15 per cent and 20 per cent of the population, a statistic that makes the industry average of 24 per cent look impressive. One reason for that could be the high proportion of women in the first quartile (in terms of academic performance) of graduating batches at engineering colleges. And as more women opt for engineering, reckons Satyam's Hari, the proportion of the gender in the industry should increase.

The case for increasing the proportion of women employees in the IT industry is strong. The average age of an engineering graduate in India is around 21, an age when women tend to be mature beyond their years and men tend to be, well, boys. For an industry plagued by issues related to attrition and scarce leadership potential at lower levels, the choice is clear: maturity does translate into stability and the ability to lead. "In the Indian context, the emotional maturity of women candidates is higher than men," agrees Cognizant's Das. Then, it also helps that the primary market for it companies is the US, a country where companies have to be equal opportunity employers by law.

Despite the 24 per cent thingamajig, however, the it industry has its share of gender-related issues, the most pressing one being the dearth of women in senior management positions (estimates with this magazine put the number at 3-4 per cent). Marriage and children, the usual suspects, are to blame for this and although India's it companies are working to combat the impact of the two-think flexibility in terms of timings, the option of working from home, day-care centres and the like-they eventually find themselves against the very social fabric of India. Now, that's a challenge!

-Supriya Shrinate

SCARE
IT Under Attack

Convergys@Gurgaon: Under threat?

When international terrorists wanted to show America's vulnerability to the world, they picked the most visible signs of its economic supremacy: the twin towers of the World Trade Centre. In India's case, the targets are proving to be its big it companies. On March 9, one of Wipro's offices in Bangalore received a call saying that a bomb had been planted in the building. Infosys received a similar call on March 15. In both cases, the calls proved to be a hoax. The bomb scare wasn't limited to Bangalore. Convergys, an American BPO in Gurgaon near Delhi, is said to have received a similar threat. So far, the culprits seem to be pranksters, and not real terrorists. In Wipro's case it was an employee who wanted to "test the level of alertness". "We have beefed up our alert levels (in the city)," says Bangalore's Police Commissioner, S. Mariswamy. But expect it honchos across India to sleep less soundly at night.

-Venkatesha Babu

"This Is A Game For Big Players"

In a way, he started it all. It was 48-year-old Dominic Proctor, Chief Executive Officer of Mindshare Worldwide, who teed off the trend towards consolidation of media agencies by launching WPP's Mindshare way back in September 1997. In India recently, he spoke to BT's Shailesh Dobhal. Excerpts:

Is there any role left for independent media agencies outside large ad networks?

No. I think it is very different for the creative, because price of entry in the creative business is very low. On the media side, it has really become a game for big players. You need really big scale to afford research and (other) resources.

What are the major challenges for a global media agency like Mindshare?

The main challenge, frankly, for our agency is to keep up our fantastic growth momentum. The other challenge in terms of growth is not just momentum of size, but developing new products and new areas.

Is Mindshare positioned to take advantage of the shift away from traditional media?

It certainly is in India. And one of the reasons I am happy to be here is because (for Mindshare) India is a blueprint for global developments. We have very high market share here, which we have ambition to grow, and because of it we're going into new areas like television production and film business. We're forming alliances with producers and studios, so that we can tailor their outputs to our needs as well as find sponsorship (opportunities) that exist already.

Everyone is jumping into the branded content bandwagon, so where's the differentiation?

It has become a catch-all description, branded content -(it includes) anything from product placement to clients commissioning TV shows and films where they may not even have (their) products in, but reflects their marketing ambition. The whole involvement of marketing companies with content companies is very under-explored. The differentiation that we will hopefully bring is in the way we will do it. And the way we're doing it is to take in people from the studio and production side that understand the business and marry them with media planners and strategists who understand the (client's) brands.

Does the advent of global holding company-level pitches for business mean that even media is being bought at a global level?

I think they are two different subjects. On pitching at holding company level, it is too early to call it a trend. The second question, if we have global accounts, whether they are integrated or not, will there be global (media) buys? The answer is yes.

What about the perception that companies like Mindshare are becoming too powerful for the good of the media?

We treat media owners with respect and as partners. But if your question is, do we demand the most acute prices in the market? The answer is absolutely yes. I don't feel awkward about it all; I feel incredibly strong about that. The base of what we do as a business, and we do lots of things as a business, but the base is (media) buying. So that's the bedrock of our business and that's never going to change. We will always take a strong position on buying.