f o r    m a n a g i n g    t o m o r r o w
DEC. 4, 2005
 Cover Story
 BT Special
 Back of the Book

Interview With Giovanni Bisignani
After taking over the reigns at IATA, Giovanni Bisignani is in the cockpit directing many changes. His experience in handling the crisis after 9/11 crisis is invaluable. During his recent visit to India, Bisignani met BT's Amanpreet Singh and spoke about the challenges facing the aviation industry and how to fly safe. Excerpts.

"We Try To Create
A Joyful Work"
K Subrahmaniam, Covansys President and CEO, spoke to BT's Nitya Varadarajan.
More Net Specials
Business Today,  November 20, 2005
Paradise Lost
The government of the day is doing its best to ensure that India loses its charm for foreign investors.

Call 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.

The 250+Day Wait
Volcker: What's The Pay-off?
Captive Customers
Brokers Unlimited
It's Back
Q&A: David Fernanzez

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.

Yes. Anant 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 governance).

The 250+ Day Wait

On 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 red tape.

Volcker: What's The Pay-off?
Forget the kickbacks, just how much did Indian firms make? Nothing, it would emerge.

Volcker: What, no money?

The 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.

Captive Customers
Cabin-economics 101.

Flying out?: No, just making a trip to the mall

Airlines 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 on sales.

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 purchase.

Brokers Unlimited

Dawnay day's Vajpeyi: Of course, there's room for everyone

Once 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.

It's Back
Cricket's back, say some experts. Was it ever away, ask others.

By 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.


January: Pakistan host India
February: India host England
April: West Indies host India
October: ICC Champions Trophy in India Bangladesh host India
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"

David 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 paper.

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 ranking?

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 foreign players.

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.




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