me cassandra. It seems a trifle demented to make a claim such
as the one above in a year that could be India's best yet in terms
of foreign direct investment (FDI). By some estimates India will
end December this year with some $8 billion (Rs 36,000 crore)
of that. Then, there's the money being invested in Indian stock
by Foreign Institutional Investors (FIIs)-until November 12, they
had invested $7.7 billion, Rs 34,650 crore-although this amount
shouldn't really be taken into account because the breed will
sell or buy to feed its hunger for return, not out of some desire
to participate in a country's long-term growth story.
India, for those who haven't been reading
the papers, even this magazine (and thereby missed reading the
utterances of such leading corporate lights as Arun Sarin, Vodafone's
CEO, or John Chambers, Cisco's), is the country to do business
in for any company. Its companies are doing well, although the
rate at which revenues and earnings are growing has come down
a bit (as it will), and some of its consumers, especially those
who live in cities and towns and work for the private sector or
the government, are consuming more of everything, talk-time and
televisions, cars and consumer goods, even loans. There is a large
number of people, at least half the country's population of a
billion-three (1.3 billion), that doesn't do any of this, but
that doesn't seem to bother companies, both domestic and local.
The other half, the consuming one, is still large enough to be
bigger than entire countries.
In an economically far-sighted country, the government
of the day would try and use one, and the gains of it, to offset
the other. That would simply mean taking from the rich and giving
to the poor. When the United Progressive Alliance came to power
in May 2004, its Finance Minister, the erudite lawyer P. Chidambaram,
promised a fresh approach to tax (and its collection). Alas, this
approach has degenerated into more ways to harass the very people
who pay tax, rather than find those who don't. A recent move to
target those people who spend more than a certain amount on their
credit cards or invest more than a certain amount in mutual funds,
is likely to result in no gains; tax evaders believe in cash,
not credit cards, and anyone who invests in mutual funds (at least
above a certain mandated amount) is required to furnish details
of a Permanent Account Number (PAN) assigned to all tax-payers.
If the UPA doesn't manage to take from the rich, how will it ever
give to the poor? Its noble intentions, evident in schemes such
as those that guarantee 100 days of assured employment to one
member of poor families under the National Rural Employment Act
(cost: Rs 10,000 crore in the first year, and more in subsequent
ones), and Bharat Nirman, a four-year plan to develop rural infrastructure,
roads, power, water, telephony, housing, irrigation, the works
(cost: Rs 1,74,000 crore over the period) may have to be funded
out of deficits than additional tax revenues.
|If the UPA doesn't manage to take from
the rich, how will it ever give to the poor?
There are other signs
of the government's inertia: Disinvestment is off, although now,
with the end of the financial year a mere four months away, some
noise is being made about a new list of companies where the government
will sell a minority interest; banking-reforms have proved a non-starter
(no one is sure what a status of a Bill that would have brought
down the government's stake in public sector banks to 33 per cent
is); FDI in retail remains a grey area; the pension sector is
still closed to the private sector; labour reforms are a taboo
subject; and the National Urban Renewal Mission, which would have
improved infrastructure across 60 cities through a Centre-state
partnership, is taking far too much time to be created (even as
cities such as it-showpiece Bangalore slowly rot). Worse, it has
rendered effete the reform-minded Electricity Act of 2003 by extending
the deadline for State Electricity Boards to unbundle their transmission
and distribution operations from December 2003 to December 2005.
Then, as economist Surjit Bhalla puts it, the UPA is a populist
government and, "since populism is the very antithesis of
reform, it would be foolish to expect reforms from such a government".
The fortnight's burning question.
Q. Should companies/ CEOs interfere in
the governance of cities/states/countries?
Interfere, No. Participate,
Yes. Rahul Bajaj, Chairman, Bajaj Auto
According to the Global Competitiveness Report,
2005, India ranks 50 in growth competitiveness (this is the government's
job), and 30 in business competitiveness (the job of companies);
so companies can help improve governance.
Koppar, President, MphasiS Technologies and the Bangalore Chamber
of Industry and Commerce
Large companies are as powerful as the government
and have the means and ability to help it achieve the goal of
good governance. Elected representatives should not see the guidance
given by the corporate sector as "interference".
No, and Yes.
Sanjiv Goenka, Vice Chairman, RPG Enterprises
Fundamentally, it's not a CEO's job to run
a city or a state. But if they can contribute in improving the
public services, then they should be allowed to do it. I don't
see a reason why corporates shouldn't have a greater role (in
250+ Day Wait
February 2 this year, the government decided to increase the ceiling
on Foreign Direct Investment in the telecom sector to 74 per cent.
Nine months and a few days later, on November 7, it notified this
decision. This was a few days after Vodafone's deal with Bharti
Tele-Ventures (the global telco took a 10 per cent stake in the
Indian one for $1.5 billion or Rs 6,750 crore), and by then, most
people knew that the notification was a few days away and a mere
formality at that.
Still, nine months is a bit, and not quite
in keeping with the image of a country that sees itself as an
emerging economic powerhouse. Contrary to popular perception,
however, the delay had more to do with hammering out the details,
than an opposition from the communist parties, key allies of the
ruling United Progressive Alliance. Clauses such as those mandating
that management control must vest with an Indian entity had already
assuaged their concerns by the time the government made the announcement
in February. It was the niggling details-the beneficial stakes
of foreign companies in telcos through their minority stakes in
public sector banks, for instance, is not to be taken into account
while calculating the FDI ceiling-that took time. That and some
What's The Pay-off?
Forget the kickbacks, just how much did Indian
firms make? Nothing, it would emerge.
|Volcker: What, no money?
independent inquiry committee into the Oil-for-Food Programme
has named over 120 Indian firms in an exercise that shows how
the previous Iraqi regime manipulated the programme and diverted
some $1.8 billion (Rs 8,100 crore) to purposes other than those
mandated by the un. The report has already cost external affairs
minister Natwar Singh his job and worried the Congress; both are
described by the report as non-contractual beneficiaries.
As far as the companies, such as the ones
listed on the table on this page, are concerned, they have nothing
to worry about, says M.C. Pandey, formerly India's first secretary
in the Indian Embassy at Iraq (2000-05). All their "transactions
happened through a United Nations'-monitored Line of Credit".
The non-contractual beneficiaries, especially those that lifted
some amount of oil, seem to have gained financially. Reliance
Petroleum maintains that it paid no kickbacks or surcharges (the
report alleges that it did). And Natwar Singh and the Congress
party say they have had no financial dealings with Iraq, as alleged
in the report.
|The Non-contractual Beneficiaries:
What Did They Make?
Unlike the firms named in
the table above, non-contractual beneficiaries leveraged
an arbitrage opportunity to good effect. The oil was issued
to them at a discounted rate; even after a surcharge of
$0.25 (Rs 11.75 then) per barrel levied illegally by Iraq
in 2001, they stood to gain because the market rate was
appreciably higher. The actual difference was a function
of when the oil was lifted and the prevailing market rates
on that day. According to this magazine's estimates, the
profit on the 'Natwar Contract' could have been at least
Rs 7 crore (or it could have been around Rs 12.05 crore),
that on the `Congress Contract' could have been Rs 2.93
crore, or it could have been as high as Rs 23 crore, and
that on the 'Reliance Petroleum' contract could have been
as high as Rs 300 crore (or it could have been appreciably
lower). The variance arises because oil prices did fluctuate
pretty wildly in 2001 when the oil is presumed to have been
lifted by these 'beneficiaries' based on the dates when
the surcharge payments were made. It is impossible to arrive
at the exact amount without knowing the date on which the
oil was sold because crude oil prices on the spot market
tend to move erratically.
|Flying out?: No, just making
a trip to the mall
have always known that there is money to be made from the fact
that their customers are captive. At 30,000 ft above sea level,
there is, literally, nowhere to run, nowhere to hide. It is only
now, with discount airlines-at last count there were four of them
operating in the country-flying high, that they are looking at
parlaying this knowledge into more money for themselves and cheaper
tickets for passengers, the kind of result management consultants
like to refer to as a win-win. That's the kind of thinking that
has allowed Michael O'Leary's Ryanair to offer tickets at prices
as low as one Euro cent (55 paise); indeed, the man is now considering
an on-board casino, in the hope that revenues from this operation
will allow him to charge people nothing for flying them from point
A to point B.
Captain G.R. Gopinath, MD, Air Deccan, thinks
likewise. "Advertising, and the products we sell, can make
a large dent in the price we charge for the ticket and at the
end of the day, our passengers want a cheaper ticket." Air
Deccan has an arrangement with Delhi-based ava Marketing to sell
branded products at highly discounted prices on flights. A Hidesign
bag that retails at Rs 2,000, for instance, is available on-board
an Air Deccan flight for Rs 1,500. The prices are low because
AVA Marketing sources the products directly from the manufacturer.
"Within the next three-four years, I would expect 15 per
cent of our revenues to come from things other than selling passenger
seats," adds Gopinath whose company gets a 3-4 per cent commission
Other airlines have similar plans. "We
aim to give our guests (the airline quirkily terms passengers
thus) a complete experience and we will tie-up with brands that
we believe share the same philosophy as Kingfisher," says
Girish Shah, gm (Marketing), Kingfisher Airlines, which will soon
start selling products on-board.
Jet Airways did try something a few years
ago, but dropped it "because it was obviously not making
money for us", according to a spokesperson. The key, as any
good retailer will vouch, is to offer a range that is large enough
to capture the passenger's interest at prices low enough to encourage
|Dawnay day's Vajpeyi: Of
course, there's room for everyone
they were pure brokerages, merely executing deals in the stock
market. Now, Anand Rathi Securities, Karvy Stock Broking, Edelweiss
Capital and new-kid-on-the-block Dawnay Day Financial Services
are diversifying into businesses such as commodity trading, investment
banking and real estate funds. The opportunities presented by
a booming market, and the fact that multinational brokerages offer
all these services to customers that prefer to deal with one entity
rather than several, is one reason for this diversification, according
to Amit Rathi, MD, Anand Rathi Securities, which recently launched
a Rs 500-crore real estate fund. "Apart from diversifying
risk for the brokerage, this helps hold on to customers by providing
products across all asset classes and markets," says Ambareesh
Baliga, VP, Karvy Stock Broking.
Thus, Dawnay Day is planning a real-estate
fund, Edelweiss has already diversified into investment banking
(for initial public offerings) and commodity trading, and will
soon launch a real-estate fund, and even banks such as Yes Bank
and UTI Bank have ventured into i-banking . The market is still
out there, reasons Alok Vajpeyi, Vice Chairman and MD, Dawnay
Day Financial Services. "Players haven't even scratched the
surface." Then, more businesses mean the need for more expertise
and smaller firms may soon find themselves in consolidation-mode
or part of someone's consolidation plans.
Cricket's back, say some experts. Was it
ever away, ask others.
the time this magazine hits the stands on November 17, the Indian
cricket team would have begun its five-match one-day international
(ODI) series against South Africa, and depending on its outcome
(and on how the Indian team won or lost), people in the business
of cricket will know how close they are to cashing in on a Rs
2,000-crore advertising opportunity. Three weeks ago, at the start
of the seven-match ODI series against the visiting Sri Lankans,
that opportunity, the amount of advertising and endorsement money
at stake between now and World Cup 2007 (see Un-ending Season
for India's schedule), looked out of reach. The Indian cricket
team was in a disarray following a very public spat between its
coach and captain, and its performance, nothing to worry the six
teams ahead of it in the International Cricket Council's ODI ranking.
| AN UN-ENDING SEASON
January: Pakistan host India
February: India host England
April: West Indies host India
October: ICC Champions Trophy in India Bangladesh
November: Asia Cup in Pakistan
December: South Africa host India
January : South Africa host India
February: New Zealand host India
March: New Zealand host India World Cup in West Indies
April: World Cup in West Indies
June: England host India
July: England host India
August: England host India
October: India host Zimbabwe
December: Australia host India
January: Australia host India
February: India host West Indies
Now, the Lankans, #2 in the rankings, are
heading back after a 6-1 blue-wash, and the new cricket calendar
is beginning to look promising. Advertising rates, that had plunged
600 per cent to Rs 50,000-70,000 for a 10-second spot earlier
this year, are poised to rise again and the faith of broadcasters
and advertisers alike in cricket has been restored (actually,
most of them claim it never went away). "Cricket is a winning
property any day," says Sharmistha Rijwani, Managing Director,
Taj Television (it owns Ten Sports). "It only gets better
if the Indian cricket team is in its element." Actually,
says Vijayalakshmi Chabbra, Director (Marketing), Prasar Bharati,
it got better once India announced a new-look cricket team (sans
former captain, the controversial Sourav Ganguly, although she
doesn't mention this) and registered an emphatic victory in the
first match of the series against the Lankans at Nagpur. "We
managed to sell a 10-second spot on DD Sports for Rs 2,50,000
and DD1 for Rs 2,00,000 against the Rs 50,000-70,000 we got for
the Indian Oil Cup in August this year." Prasar Bharati's
total take from the series against Sri Lanka: Rs 130 crore.
Broadcasters such as set Max and Ten Sports,
which own five of the 10 cricket properties that make up the next
season, expect a 50-60 per cent increase on those rates. "We
expect to get a higher premium because we have the best of cricket
properties lined up till the World Cup," says Rohit Bhandari,
Executive Vice President, set. And advertisers are playing along
with even those who do not usually advertise during cricket telecasts,
such as consumer products behemoth Hindustan Lever Limited jumping
on to the bandwagon. "Return on investment in cricket still
remains the highest," says Ashutosh Srivastava, CEO, Group
M India, a media buying house. "It continues to remain the
only property on television with a pan-India appeal and a much
higher reach." Moreover, cricket's TRPs are also on an upswing.
Average TRPs of the India-Sri Lanka series, at between 6 and 8,
have been much higher than the IOC Cup's 3-5, and this change
has happened in two months.
The endorsement business is booming too,
with everyone from captain Rahul Dravid, new sensation M.S. Dhoni
to old favourite Sachin Tendulkar raking in big bucks. Then, a
miserable series against the South Africans could change everything.
"India Is Closed To Us"
Fernandez, J.P. Morgan's Head
of Emerging Asia Research, based in Singapore, speaks to BT's
on the trends in
foreign inflows into debt instruments in emerging markets and
the road ahead. Fernandez, who was earlier an economist in the
Council of Economic Advisors in the George Bush administration,
makes a strong case for pushing up short-term interest rates at
a measured pace. Excerpts:
In the past few years, emerging markets,
including India, have witnessed record equity inflows from foreign
institutional investors. What has been the situation in safe heaven
asset 'debt' markets in terms of foreign inflows?
Foreign inflows have been at a record level
in the debt market as well. As the developed market suffered from
a low-yield factor, global fund managers needed to diversify.
In most places, the fund inflows outstrip supply. In many places,
the imbalance has been very large. This has brought spreads in
emerging markets down further. We have also seen foreign debt
players increasingly diversifying their debt investment portfolio
outside the traditional sovereign debt to high-yield corporate
Which are the preferred destinations for
foreign investors in the debt market space?
Brazil is probably the most preferred destination
for global market players followed by Russia. In our view, Asia
typically suffers from absence of high-yield debt securities.
The fundamentals are strong, but it suffers from the same fate
as the developed market due to a low-yield factor.
Back home we have seen a waning interest
among foreign investors in the Indian debt market. In 2005, the
foreign investors have pulled out over $555 million (Rs 2,497.5
crore) from the debt market. How does India fare in the debt market
India doesn't have any foreign currency-denominated
sovereign debt. There are also restrictions on the amount of foreign
capital participation into India's local debt instruments. The
reality is that the Indian debt market is effectively shut for
We have all seen how (in the US) Federal
Reserve Chairman Alan Greenspan has addressed inflationary pressures
through a measured hike in the short-term Fed (bank) rates, which
have moved from a decade-low of one per cent in June 2004 to 4
per cent now. How have the central banks in emerging markets been
reacting to inflationary pressures?
Globally, this trend toward higher rates is
fairly uniform. There are exceptions in places like Turkey and
some places in Latin America, where the inflation is still falling
and they can afford to cut interest rates. But having said that,
the us Fed has really set the tone without doubt with successive
policy rate hikes at a measured pace since June last year. The
gradual inflationary pressure is now being felt in Asia too. I
think the central banks in Asia are gradually following the Fed.
Are they doing enough?
The cautionary tale here would be what happened
in Indonesia (on November 1, the country increased the rates by
125 basis points to 12.25 per cent) where the Central Bank waited
and waited too long and then had to pay for that with very sharp
currency weakness followed by sharp increases in interest rate
movement in order to tide over the inflationary expectations.