Nineteen ninety-five to now, it's been a stunning decade for the Indian entrepreneur. Few could have imagined back then that in a country where restricting manufacturing capacities was a stated policy for decades, there would emerge entrepreneurs who lead the notoriously difficult world of commodities. Yet, the unthinkable has happened. In a range of industries, the Indian entrepreneur is the biggest manufacturer or at least among the top manufacturers globally. Lakshmi Niwas Mittal of Mittal Steel is the world's biggest manufacturer of steel by far, with an annual capacity of 70 million tonnes (mt); his nearest rival, Arcelor, has a capacity of just 40 mt. Purnendu Chatterjee of the Chatterjee Group has just acquired the world's largest manufacturer of plastic polypropylene, Basell, from Royal Dutch/Shell for a whopping $5.7 billion or Rs 25,080 crore (you find a story on him elsewhere in the issue). The Ambanis of Reliance Industries run the world's largest polyester plant in Patalganga, with a capacity of 1.8 mt per annum. Kumar Mangalam Birla of the Aditya Birla Group is the world #1 when it comes to viscose staple fibre and white cement. His group also operates the world's largest single-location refiner of palm oil, and is the world's fifth-largest producer of carbon black. The list doesn't end there. The Munjals have been in the Guinness book since 1986 as the world's largest manufacturer of bicycles, rolling out 5.2 million of them last year. And Subhash Chandra is the numero uno manufacturer of laminated tubes, producing 4 billion tubes every year from 18 manufacturing plants in 12 different countries. Even in chemicals and pharmaceuticals, India has global leaders.

Commodity industries aren't the easiest of businesses to operate in. Demand is cyclical, because of which prices are volatile and profit margins thin. Economies of scale are a must, costs must be squeezed out of every single process every day, and poor production planning can easily tip the manufacturer into the red. So what makes the Indian entrepreneur so adept at the commodities game? His process and finance skills. Those who manufacture in India also leverage other advantages like relatively cheap raw materials and labour. For example, even though Mittal operates all his steel mills outside of India, his core team of turnaround managers comprises seasoned Indians, who walk into rust bucket factories that he typically acquires, but quickly turn them into some of the most efficient producers of steel.

Similarly, Reliance has a track record of executing complex, multi-crore projects at the lowest costs and in record speed. A proof of Reliance's in-house project management capability is its $6-billion (Rs 26,400-crore) integrated Jamnagar complex, which it executed in a record three years. It's believed to have been done at 30 per cent lower capital cost than a comparable global plant. "This fundamental strength is at the heart of Reliance's low-cost positions in all its businesses," Dhirubhai Ambani once said. Last year, Reliance acquired a high-cost polyester producer, Trevira GmbH of Germany. The idea is to get entry into the European markets and in the long term transfer those production capacities to India. The Noida-based Moser Baer, too, continues to tinker with production processes to shave some milli-seconds off, say, the etching process. Says Rakesh Govil, Head of Corporate Strategy, Moser Baer: "We are 10-15 per cent cheaper than our Taiwanese competitors because we have been able to do a fair amount of line integration ourselves, including design (thus reducing turnaround time), and been able to do a a lot of chip fabrication in-house, besides substituting imported raw material." Hero Cycles uses an Indian version of just-in-time production to drive costs down.

Perhaps, something more important that's driving the emergence of the Indian entrepreneur on the global commodities stage is the newfound sense of confidence. "I see that Indians are showing outstanding confidence based on their increased competitiveness and global outlook," says Tarun Das, Chief Mentor of CII and who's watched Indian industrialists from close quarters for more than four decades. Agrees Rahul Bajaj, Chairman of Baja Auto: "The common factor here is that entrepreneurship is blossoming in a free market environment post-1991."

What's also helping is that countries that traditionally were centres of manufacturing are now finding their competitiveness getting eroded by other low-cost countries and, therefore, are opting out of the game. In Europe, for example, a lot of small auto-component manufacturers are selling out and are being snapped up by the likes of Bharat Forge. In other industries like textiles and apparel, factors such as low labour costs and access to raw materials are forcing a shift in industries to low-cost countries.

Tomorrow, it could even be industries like automotive. Are the Tatas and Mahindras listening?

-Sahad P.V.

DOGGED
Simputer Ver. 2.0

Showtime: Science & Technology minister Kapil Sibal (L) with CSIR Director General R.A. Mashelkar at the Mobilis launch

Okay, it's not an upgraded simputer, but encore software's newest laptop offering, the Mobilis, comes with the same philosophy of low-cost computing. Priced between Rs 10,000 and Rs 20,000, the Mobilis (like its two other variants) doesn't have a hard drive (it uses Flash Memory), has a smaller seven-inch display and shorter battery life compared to conventional laptops. Why does Encore feel it can sell 25,000 Mobilises in Year One? "It has its own market and applications, but will be able to run Simputer applications too," says Mark Mathias, the company's President. Its big hope, however, is a deal with itc for the tobacco giant's e-Choupal initiative.

SECOND
The Crisis In Cooperative Banks
Urban cooperative banks go belly up with a frightening regularity. There's only one way to prevent that: Make RBI their sole regulator.

Seeking answers: Depositors protest outside a failed cooperative bank

In the last five years, at least 10 cooperative banks have gone bust. In 2001, Ahmedabad-based Madhavpura Mercantile Cooperative Bank went famously belly up following its involvement in the Ketan Parekh scam. An estimated Rs 600 crore of the total deposits of Rs 1,200 crore belonged to small depositors, most of whom were farmers. The following year, urban cooperative banks (UCBs) fell like ninepins. Wardha District Central Cooperative Bank, Osmanabad District Central Cooperative Bank, Satguru Jangli Maharaj Cooperative Bank of Pune and Nagpur District Central Cooperative Bank were forced to down shutters after the Home Trade scam. In 2004, it was the turn of South Indian Cooperative Bank and Maratha Mandir Cooperative Bank to go under-simply because the banks had racked up huge non-performing assets (NPAs), eroding their capital base.

There are about 2,100 UCBs in the country with more than Rs 1,00,000 crore in deposits and Rs 65,000 crore in advances (yes, their assets and liablities don't match). According to the RBI's Trends and Progress in Banking Report of 2004, 1,926 UCBs had an average NPA of 17.60 per cent of their total advances. Needles to say, depositors in these banks are at risk of losing their hard-earned money.

But why are the UCBs in such bad shape? The answer has to do with the way such banks are run. To start with, the UCBs (because they are cooperatives) are owned by a limited number of members, belonging either to a specific community or vocation. Because only shareholders can borrow from such banks, the biggest borrowers often tend to be bigger shareholders, meaning that the banks have little incentive in going after them, should the loans turn bad. And since the administration of such cooperatives is with the state-level Registrar of Cooperatives, and the Reserve Bank of India (RBI) only oversees banking transactions in a limited way, there's rampant mismanagement of the UCBs. (One classic example: Madhavpura's Chairman Ramesh Parikh even used the bank's money to settle his stockbroker son, Vinit's market dues.) Says Ashwin Parekh, Executive Director, Deloitte Touche, a global consulting firm: "The current ownership model of the UCBs won't work in the long term."

Changing the nature of ownership of the UCBs is trickier than ensuring better management. The latter is easily achieved by giving the RBI greater powers to regulate them, and bringing in banking norms that make them at least as well managed as other commercial banks. That apart, the government may need to help the UCBs restructure their balance sheets, by strengthening their capital base. Various expert committees in the past have also suggested that the central and the state governments should share the cost of such a restructuring. Indeed, following the release of its vision document for UCBs in March this year, the RBI has begun the process of involving state governments in rehabilitating the weak banks.

The rationale of cooperative banks is infallible. It's just that they need to be run like they are supposed to.

-Roshni Jayakar

UPA Vs NDA: The First Year
Which of the two coalition governments worked harder in its first year?

Governments, like CEOs, get their first year in power watched closely. Why? First impressions matter. Based on how much enthusiasm governments show to get cracking on key issues, stakeholders make their call on the course of the economy-and the longevity of the administration. The Manmohan Singh-led United Progressive Alliance (UPA) finished its first year on May 21, 2005. Did the dream team work any harder than the Atal Bihari Vajpayee-led National Democratic Alliance (NDA) government that it replaced?

THE UPA SCORECARD

» Implemented the Fiscal Responsibility and Budget Management Act » Introduced National Food for Work Programme » Introduced the products patents regime by pushing through the Patents (Amendment) Act, 2005 » Scrapped the restrictive (to a foreign partner in a JV) Press Note 18 » Hiked FDI in telecom to 74 per cent and real estate to 100 per cent » Signed an Air Transport Agreement with the US » Put in place strategies to enhance access to oil in India and abroad » Implemented the long-pending switchover to Value-Added Tax

THE NDA SCORECARD

» Replaced the fixed licence fee regime in basic and cellular services with a revenue-sharing system » Opened up long distance services in telecom to all players » Allowed derivatives trading in commodities » Raised the limit for foreign corporate acquisitions from $15 million (then Rs 64.5 crore) to $50 million (Rs 215 crore) » Exempted tax on dividend income from equity mutual funds » Proposed divestment (via IPO) in national carriers Air-India and Indian Airlines » Divested 18 per cent in GAIL via Global Depository Receipts » Passed the Insurance Regulatory and Development Bill

To your right is a quick comparison of the key initiatives the two governments unleashed in their first 365 days in power. It's obvious that the UPA regime, despite recidivist communist allies, has pushed through more important policies than the NDA did. A word of caution, though: When the NDA came to power (for the second time, after a short-lived 13-month stint in 1998), the global economy was just recovering from a slump. The East Asian countries like South Korea and Hong Kong were still suffering from a hangover of their currency crisis, Japan showed no signs of emerging out of its recession and Brazil had just devalued its currency, real. The UPA, in contrast, took over at a time when the Indian economy was galloping at 8.5 per cent a year and the stock market had started on its bull run. But then, who says life is fair?

-Ashish Gupta

CREDIT
Will Debt Get Dearer?

Indian banks: Good borrowers wanted

Almost certainly, if not immediately. Interest rates on housing loans have already started moving up, and other retail loan segments-cars, durables and personal-could get dearer too. "The cost of funds (for banks) has gone up in the last quarter of 2004-05," says V. Vaidyanathan, Head of ICICI Bank's Retail Business. So why haven't rates hardened across the board yet? "While funding costs have increased, so has competition," explains Nicholas Winsor, Head of Personal Financial Services at HSBC India. In other words, there's more money to lend than good borrowers. Still, if interest rates in the US continue to climb, bankers in India may be emboldened to follow suit.

-Swati Prasad