f o r    m a n a g i n g    t o m o r r o w
NOV. 19, 2006
 Cover Story
 BT Special
 Back of the Book

Rural-Urban Divide
The rural-urban divide continues despite a high growth rate. According to the 61st round of the National Sample Survey, apart from rural-urban wage differentials, gender differentials are very much a part of the present-day Indian economy. The urban regular wage earner earned Rs 194 a day, which was one-and-a-half times the rural average of Rs 134 a day in 2004-05. Interestingly, the wage gap is most pronounced among graduates. An analysis.

The Asian Agenda
Is a region-wide free-trade area a realistic goal? So far, 183 free trade agreements have either been signed or are being proposed or negotiated across Asia. The share of intra-regional trade has risen to about 55 per cent last year from 40 per cent in the early 1990s. Aside from trade in goods, there is a need to focus on free trade in services. Given the stalled WTO talks, it is vital for Asian countries to pursue further market opening and structural reforms.
More Net Specials
Business Today,  November 5, 2006
Xenophobia Inc?
Are vested interests using national security as a shield to fight competition?

Till just about a few months ago, it appeared that the most pressing security issue was that in the energy domain. Financial dailies screamed about how public sector companies were aggressively scouring the earth to secure our future energy needs. However, the exit of Mani Shankar Aiyar from the petroleum ministry saw the demise of this zeal, as it also meant the exit of ONGC chief Subir Raha who led this thrust. And so, while global crude oil prices continued to soar, the pursuit for it was tempered with moderation-ONGC was reminded that its core business was not M&A activity, but that of exploring oil and gas. One of the recommendations that played a role in the exit of Raha came from M.K. Narayanan, the head of the National Security Council (NSC).

While the NSC has helped tame one raging fire, it has lit another one-that of national security concerns and how several global corporates pose a threat to the sovereignty of the country. The NSC has emphatically argued that companies like Huawei (Chinese, managed by former members of the Chinese Communist Party) and Orascom (a large telecom operator in Pakistan and Bangladesh, allegedly funded by late Palestine Liberation Organisation chief Yasser Arafat's camp) should not be doing business in the country. Not surprisingly, help for the foreigner comes from the country's Left parties. "Security considerations are non-negotiable. However, restrictions should be area-specific and not country-specific," says Sitaram Yechury, CPI(M) politburo member and Rajya Sabha MP. The Left parties are lobbying for a Chinese company with operations in Pakistan to be allowed to execute a port contract in Kerala.

Q&A: Paul R. Adams
Mediclaim Rates Up
Chennai Goes WiMax

Ironically, there is another issue on which help comes from the least expected quarters, the Left parties. The issue: blue collar labour from overseas. Defending Reliance's move to hire Chinese workers to lay gas pipelines, Yechury says: "We would of course prefer our labour class to be used by the private sector. However, the sanctity of commercial contracts must be honoured. If Reliance has hired a Chinese company to build its pipelines, then surely, it must be given a free hand in hiring labour." Even as this controversy rages on comes news that the Russian underworld is investing large sums of money in Goa through a string of front companies.

Will the security issue be used by the private sector as a handle to restrict competition? That's unlikely to happen. However, fears about domestic industry's attempts to raise the barrier are not unfounded. Liberalisation of the Indian economy in the early '90s did not turn out to be a one-way ticket. In 1998, the government formulated a policy that made it mandatory for foreign players having a presence in the country to take the government's and its domestic partner's approval before embarking upon a wholly-owned business. Press Note 18 cut both ways. While it proved to be an insurance cover for those domestic corporates sprucing up their skills to compete in the global environment, it also made for rent seeking amongst the laggards. Indian corporates did use this instrument-the K.K. Modi Group delayed Walt Disney's plans to enter the country; and Baron International resisted Chinese major TCL Electronics' move to enter the domestic market on its own. These are but two illustrative examples from a much wider and exhaustive list.

Last year, this norm was eased with a lighter provision-Press Note 1. That still does not deter domestic companies from taking refuge under it. The ongoing tussle between Modi Rubber and the us-based Guardian International highlights it. While the government's approval for Guardian's wholly-owned unit is a step in the right direction, the decision faced considerable resistance from entrenched sections of Indian industry.

Clearly, the ongoing globalisation process reinforces Darwin's theory!

The fortnight's burning question.

Second Quarter results have been outstanding. The BSE Sensex is flirting with the 13,000-mark once again. Does it make sense to buy Sensex stocks?

No. U.R. Bhat, Managing Director, Dalton Capital Advisors

Current valuations are stretched and it doesn't make sense for retail investors to buy Sensex stocks. They should follow a bottom-up approach and buy shares of companies with sound fundamentals and fair valuations.

Yes. Nilesh Shah, CIO, Prudential ICIC AMC

For long-term investors with a time horizon of 5-10 years, buying stocks at current levels is not a bad idea. With India and India Inc. on a growth trajectory, you will not be disappointed even if you buy stocks at current levels.

Maybe. Sameer Narayan, Senior Portfolio Manager, ABN Amro Asset Management

It completely depends on one's risk appetite, investment horizon and expectations on returns from the investment. One can't really recommend a one-size-fits-all kind of a strategy.

"India Is Very Important To Us"

Paul R. Adams, Senior Vice President of Engineering at the $9.3-billion (Rs 42,000-crore) aircraft engine maker Pratt & Whitney was in India recently. He spoke to BT's on a wide variety of subjects. Excerpts:

Why is India important to Pratt & Whitney?

We look at India as a key market for us and we've done very well here. In the commercial market, 75 per cent of all aircraft have our engines or one developed by one of our JVS. And given India's high growth rates, we see it as a very key long-term strategic market.

Do you have any plans of outsourcing work here?

We see India as a key location in our global search for world class talent. But our biggest worry in India is the attrition rate among engineers.

What work do you do here?

There is a broad span of work we do here, we have a six-year relationship with (Hyderabad-based engineering services provider) Infotech Enterprises. Then, we have over 550 engineers at our two sites in Bangalore and Hyderabad doing hi-tech, high-value design and analysis work in the gas turbine space.

Will you step up your engagements with L&T and HAL?

We will. We will do some design work and also undertake some production activity. For example, we are getting some tooling and some engine components from HAL. We are still in the early stages of this relationship.

Mediclaim Rates Up

Public sector insurance companies are taking a closer look at their health insurance portfolios. Oriental Insurance Company (OIC) has increased premiums by 10-100 per cent for different age groups. Others like The New India Assurance Company, National Insurance Company and United India Insurance Company are expected to follow suit with similar hikes. Private insurers like ICICI Lombard already charge much higher premiums than public sector companies.

"OIC incurred a loss of Rs 160 crore on medical insurance last year. For every Rs 100 premium, oic pays Rs 120 by way of claims. That is obviously unsustainable," says a company official.

Apart from hiking the premiums, the public sector companies, which have a combined market share of 70 per cent, are also tightening the terms of their medical policies. OIC has capped hospital room rents (which in some cases could be as much as 50 per cent of the total claims) to discourage policyholders from passing on unnecessary and unrealistic costs of rents to the insurers. Customers above the age of 45 will also have to compulsorily undergo check-ups at medical centres identified by the company.

This is only the start of a rationalisation process. "Premiums will rise further in future in line with costs. Health insurance is a commercial business, after all," said the official.

Chennai Goes Wimax

Chennai will shortly become the first city in the world to be totally WiMAX-enabled. WiMAX, or Worldwide Interoperability for Microwave Access, technology allows wireless internet access across large areas and even across entire cities, unlike Wi-Fi, which allows wireless access only within a smaller zone.

Beta trials, carried out over the last 12 months, have been successful and the system is already functional in 70 per cent of the city. "Over 200 SMEs in Chennai are already using WiMAX," says Ram Shinde, Business Head, Aircel Business Solutions, which is implementing the project. The remaining 30 per cent will become operational within 90 days. "Internet access will be at market rates," says Shinde, adding that Aircel's main competition will come from BSNL and MTNL, which have the last mile copper wires in place and so, do not need to use wireless connectivity.

Says B.K. Jena, a scientist at the National Institute of Ocean Technology, who uses Aircel's new service. "The Wimax service is quite satisfactory at our institute and we get good support from Aircel." By 2008, the company plans to deploy WiMAX across 44 cities including Delhi, Bangalore, Pune, Ahmedabad, Coimbatore and Hyderabad.




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