magazine doesn't know why Infosys needs 845 acres of land. Nor
does it know at what rate Infosys acquired the land on which its
leadership centre in Mysore stands (this is the one where Deve
Gowda is hinting a scam). This land was allotted in 1997, when
the J.H. Patel-led government was in power in the state.
What does emerge in a review of all land
allotted to it firms across the states of Karnataka, Tamil Nadu,
Andhra Pradesh and West Bengal is that the practice of attracting
such firms by offering significant discounts is a common one.
In West Bengal, for instance, where information on specific instances
is unavailable, land in the Salt Lake (Sector-V) area, which is
valued at Rs 1.5 crore an acre, is offered to it firms at Rs 66
lakh, a discount of 56 per cent. In Rajarhat New Township area,
land is offered at Rs 1.5 crore an acre against a market price
of Rs 2-2.5 crore, a discount of 25-40 per cent.
There is no harm in cities and states accelerating the rate of
their development by proffering subsidies such as this to companies.
However, governments would do well to remember that Mumbai's mill
land controversy has its origins in a similar practice followed
in the early- and mid-1900s.
it was finnish telecom equipment major Nokia that announced its
decision to put down a manufacturing facility in Tamil Nadu. Now,
it is the turn of Singapore-based electronic manufacturing services
(EMS) biggie Flextronics to decide in favour of the state. The
entry of EMS companies usually indicates the emergence of a local
economy as a viable base for manufacturing (their business model
revolves around cost and efficiency) and this case is no different.
Tamil Nadu government officials say that a clutch of other investments,
from smaller manufacturing companies, are in the pipeline. When
that happens, Tamil Nadu will supplant neighbour Pondicherry as
the centre of gravity of hardware manufacturing in the country
(it helps that it Minister Dayanidhi Maran is from the state).
With Chennai emerging the preferred destination for software firms,
Indian and multinational, TN could well be the state to watch.
That would only be in the fitness of things for a state that was
the first in the country to draft an Information technology policy.
Advertising, Korean Style
|A Hyundai ad: Doing it the Korean way
as global marketers closely follow and copy the model adopted
by Korean chaebols in the consumer electronics and automobiles
industries, Hyundai Automotive Group (which includes, besides
Hyundai Motors, Kia Motors, INI Steel and other affiliates) has
gone ahead and copied an age-old, and now outdated, communication
model of some European multinationals.
By setting up Innocean, a company-owned advertising
agency to handle its $300-million (Rs 1,350 crore)-plus global
advertising budget, including that in India, Hyundai has done
what Lever Brothers (Unilever now) did way back in the 1920s when
it created an in-house agency, Lever International Advertising
Service, later Lintas, now Lowe, and part of the Interpublic Group.
Why, even India's fourth biggest agency, Mudra, started out as
an extension of the Reliance Group.
The need to tightly control both costs and
creative output, is being cited as the reason for this move. "Agencies
have lost their identities and are only as good or bad as their
people, who are constantly on the move," says Sanjiv Shukla,
Marketing Head at Hyundai Motors India, on the reason behind the
move. There's no telling whether Innocean will escape that trend.
For the record, Hyundai did have an in-house
communication unit in South Korea, Diamond Ad, which was sold
off to UK's Cordinat Communication Group (which was subsequently
acquired by WPP in 2003) in 1999. Even after Hyundai Motors spilt
with the larger Hyundai Group in 2000, Diamond Ad continued to
be the automaker's agency in Korea till last year.
Most Korean firms do seem to prefer an in-house
agency. Samsung owns Cheil and LG likes its advertising to be
handled by LG Ads (now owned in most markets by WPP). "In
the last four-five years, as Korean companies went global, their
agencies have simply followed them," says Viren Razdan, Senior
Vice President, Cheil Communications. Only Hyundai has gone the
whole hog and given Innocean (a creative-only agency) all its
work in India. Cheil still handles just about 70 to 75 per cent
of Samsung India's ad business, with Grey Global being the outsider
Is Retail Worth It?
Another IPO, another high valuation, but what's
stock market boom sees companies strive for maximum pricing in
their IPOs (initial public offers). The current boom is no different.
The instances of Jet Airways and Suzlon Energy that commanded
significant premia for their stock during an IPO, yet managed
to be over-subscribed, are still fresh in the minds of most investors.
Piramyd Retail, which has priced its issue in the Rs 120-140 band,
is another such. In a recent report on the sector, Citigroup maintains
that retail stocks are overvalued. "High sales and earnings
growth expectations, scarcity premiums, and acquisition premiums
are being built into current retail stock valuations," it
states. Retail stocks have seen their prices rise some 300 per
cent in the past 12 months. "All this has been made possible
on account of few companies in the sector being listed, which
may not be a sound enough reason to justify that kind of valuation,"
says the head of research at a Mumbai-based brokerage.
So, is the Piramyd stock worth the asking
price? Not really, says a report issued by equity research firm
BRICS that has given the stock an 'Avoid' rating. One reason for
that is the company's low net profit in the first half of this
year (Rs 50 lakh). Still, given that stocks in the sector still
enjoy a scarcity premium (one that will rapidly erode as more
companies in the business tap the market), the Piramyd stock is
likely to do very well.
Reforming Our Administration Ommission
|ARC Chairman Moily: A reformist
a man says he believes in "rightsizing, not downsizing"
and that the "effective use of technology is key to administrative
reforms", you know he is serious about his mandate. The man
is Veerapa Moily, the former Chief Minister of Karnataka, and
he has been appointed Chairman of the second Administrative Reforms
Commission (the first one dates back to 1967 and was headed by
the late Morarji Desai who went on to become India's Prime Minister).
Moily says his commission will look at everything from improving
the organisational structure of the government to facilitating
public-private partnerships and insists that he took up the job
only after India's PM Manmohan Singh assured him that his "recommendations
would be implemented". Is this just another panel or something
that will expedite administrative reform? Only time will tell.
A Vote For The India Story
The Board of India Today Economists is bullish
|The Great Indian Saga: Get,
set and go, says the BITE panel
Board of India Today Economists (BITE), a heavyweight panel comprising
five of the country's leading economists, have given the country's
economic growth story a resounding vote of confidence.
Says Ajit Ranade, Chief Economist, the Aditya
Birla Group: "I am confident that the consumption growth
is sustainable." His logic: credit offtake has been growing
at 30-35 per cent a year for the last two years, an all-time record.
As proof, he points to the turnaround in the FMCG sector, which
is increasingly being driven by rising rural incomes.
This is important, as India's growth is being
fuelled primarily by domestic consumption, which accounts for
over two-thirds of GDP-unlike China's investment and export-led
growth. "Incomes are growing at around 7-7.5 per cent per
annum; therefore, total consumption expenditure is likely to grow
at over 6 per cent. The EMI story has made things affordable,
limited one's cash outflows and positively impacted businesses
like durables and automobiles," says Siddhartha Roy, Chief
Economist, Tata Group.
This, despite an imminent hardening of interest
rates! "Rates may rise about 25 basis points, but I don't
think this will have any impact on consumption," says Bibek
Debroy, Director, Rajiv Gandhi Institute of Contemporary Research
But Subir Gokarn, Chief Economist, CRISIL,
warns of a possible consumption bubble developing. "Housing
is not a risk-lending business in India because the average home
owner invests 30 per cent of the value himself. But the chances
of defaults will rise as banks become more aggressive, and the
home buyer's equity drops to 5-10 per cent." Shankar Acharya,
Member, 12th Finance Commission, too, sounds a note of caution.
"People are increasingly shying away from publicly provided
facilities such as education and healthcare in favour of private
facilities, for the simple reason that the former does not work.
But this is an area of concern as the absence of publicly funded
services hurts the poor who do not have other options." But
despite these caveats, all the panelists were unanimous that the
GDP will grow at 7 per cent at least. The discussion was moderated
by Jairam Ramesh, Congress MP and a veteran economis.
The Rural Cellphone Boom
Every market reaches
a point of saturation at some point in time. At that stage, companies
need to think on their feet and identify new markets quickly.
The case of wireless telephony in India is perhaps the most interesting,
with urban India reaching comfortable levels of penetration and
the rural hinterland waiting to be tapped. "The growth of
wireless subscribers from rural India is sure to be the next big
story," predicts Bhagwan D. Khurana, Group President, Reliance
Infocomm. His company has rolled out its services across the country
and Khurana himself admits to being surprised by the way some
of the markets have responded. So, where did the surprise come
from? "From places like Bihar and Orissa," he points
out. According to T.V. Ramachandran, Director General, Cellular
Operators Association of India (COAI), almost all urban centres
have been covered. That clearly leaves 750 million residents of
semi-urban and rural centres as a potential market. "It is
most certainly not a case of these people not being able to afford
the service. It's just that they are waiting for the service to
reach them," he explains. That's already beginning to happen.