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JUNE 17, 2007
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Rupee Rise
Though an appreciating rupee is a cause for concern for many industries, it is proving to be a boon for some, particularly those that have large foreign currency borrowings. A weaker dollar is making repayments cheaper. Also, state-run refineries and those in the aviation sector are well-positioned to benefit from the stronger rupee. The Indian currency is up 8 per cent this year and is Asia's strongest currency against the dollar in 2007.

The ECB Route
The cap on maximum external commercial borrowings (ECBs), an annual ritual for the government, is fast losing its significance. Since the bulk of the foreign borrowings is raised under the automatic route by companies, it is becoming difficult to enforce the cap. The government had raised the annual limit of ECBs last year from $18 billion (Rs 81,000 crore) to $22 billion (Rs 99,000 crore). Now, it seems that total inflows will cross the $22-billion mark.
More Net Specials

Business Today,  June 3, 2007

The Rupee's Next High
We present the best case, worst case and likely scenarios on the rupee-dollar front.

Is the rising rupee really combating inflation? RBI Governor Y.V. Reddy thinks so

The shoe was pinching for a while but now it has begun to hurt. Exports of textiles, gems and jewellery, tea, spices, leather and marine products have been particularly hit by the rise in the rupee's value from Rs 44.28 to the dollar to Rs 40.84 over a period of just 10 weeks. Says R.K. Dhawan, Chairman (Northern Region), Federation of Indian Export Organisations (FIEO), the apex body of Indian exporters: "This is a matter of concern for exporters." Result: the government's export target of $160 billion (Rs 6,56,000 crore) in 2007-08 will be difficult to meet.

IT companies, for whom the us is the biggest market, will also be hit, albeit on a lesser scale. The sector, which reported stellar results in 2006-07, had projected a firm demand outlook going forward, based on a rupee-dollar exchange rate of Rs 43. However, the impact of the higher rupee on earnings will be limited in the immediate future as most companies have hedged their earnings. Says Sujan Hajra, Analyst, Anand Rathi Securities: "The impact will depend on the onsite-offsite revenue mix of individual companies." it giants like Infosys, Satyam, TCS and Wipro will suffer as 40-50 per cent of their revenues come from offsite projects.

How the rupee-dollar rate will impact the economy.

Best case
Rs 43-44
This will fuel double-digit export and higher
Worst case
Rs 36-37
Exports, output and employment to be hit hard. Small and medium enterprises to bear the brunt
Rs 40-41
Export growth to slow down to single digits. Manufacturing sector to face increased competition from imports of finished goods

For RBI, though, a rising rupee is a tool for combating inflation-an appreciating rupee means cheaper imports of oil and foodgrains, and, therefore, cheaper retail prices of these, and other, commodities. So what does it mean for the rupee-dollar exchange rate going forward? Says Jamal Mecklai, CEO, Mecklai Financial: "If the dollar weakens globally, the rupee will continue to rise. I don't think the RBI will be able to prevent it." Mecklai Financial, in its latest report, estimates a range of Rs 40.50-41.50 in the near term for the rupee, Rs 41-43.50 in the medium term and under Rs 40 over the long term.

Others feel that the RBI will intervene decisively once it is comfortable with the inflation level. Says Marut Sen Gupta, Head-Economic Policy, CII: "For RBI, the acceptable level of inflation will be 4-4.5 per cent. But I doubt if it will let the rupee appreciate below Rs 40." Adds Siddhartha Roy, Economic Adviser, Tata Group, "Manufacturing companies will face increased competition from imports of finished goods; and export growth will slow down to single digits (compared to 21 per cent in 2006-07)."

Aggressive RBI intervention, however, could help the rupee depreciate to Rs 44 levels. A Goldman Sachs report emphasises that a widening current account deficit and slowing FDI inflows will exert significant downward pressure on the rupee. Analysts feel it could bring rupee down to Rs 43-44 levels against the greenback. This is expected to fuel double-digit export growth, higher manufacturing sector growth and better earnings for the services sector. But it could also mean a return of inflationary pressures in the economy-especially on account of the high share of crude oil (33 per cent) in India's import basket. Counters Roy: "We will be better off reducing taxes and duties on oil to bring down retail prices and check inflation." Currently, taxes account for more than 50 per cent of the retail price of petrol and about 30 per cent of the retail price of diesel.

On the other hand, if RBI stays away, the rupee could harden further. Says Ajay Shah, Senior Fellow, National Institute of Public Finance and Policy (NIPFP): "The rupee could firm up 10 per cent to Rs 36-37 levels if the current account deficit does not widen, and the government delivers on economic reforms." Yes, the country will save considerably on its oil import bill, but, as the Goldman Sachs report points out: "... the cost in terms of foregone growth in exports, output and employment will outweigh any further benefits that upward flexibility could bring".

The fortnight's burning question.


No. Abhishek Singhvi, Congress Spokesman

Looking at UPA's Common Minimum Programme and performance over the last three years, I can say with confidence that no other government ever has acted with greater special focus on the aam aadmi than the current government, be it in health, education, or Bharat Nirman. The journey can never be complete, but we have covered many significant miles.

No. Surjit Bhalla, MD, Oxus Research

I am more inclined to believe that the Union Minister whose utterances have engendered this question seems to have lost touch with reality.

Yes. Sitaram Yechury, CPI(M) Politburo member and Rajya Sabha MP

The UPA government is on the verge of losing touch with the masses. So many promises of the Common Minimum Programme, which have to do with the common man, have not yet been taken up. The crisis in the farm sector continues, procurement is in a shambles, and the issue of strengthening the public distribution system (PDS) has not been addressed.

"Indian IT Firms not a threat"

Kevin Campbell, group chief Executive (Outsourcing) for technology giant Accenture, was in India recently to review his company's growth in the country. He met BT's to discuss Accenture's plans and the evolution of the sector in India. Excerpts:

How important is India as an outsourcing destination for Accenture?

India is extremely critical to Accenture's growth, since it is our largest presence outside the US. We already have 27,000 people here and we're committed to growing that number to 35,000 by August as we expect India to anchor our growth globally.

How are you tackling the shortage of skilled human resources?

There is a critical gap in this market for good talent. Globally, Accenture spent $700 million (Rs 3,150 crore then) last year on training and development. We've tied up with the Massachusetts Institute of Technology (MIT) to offer two courses to employees and around 4,000 of our employees in India will be eligible for this programme.

How much of a threat are Indian IT companies to you?

We have a size and scale advantage over our Indian rivals and we continue to bag the biggest deals in the industry. We don't see Indian companies such as Infosys and Wipro winning the really large multi-billion dollar deals that we consistently bag on the global scale.

What's on the Idiot Box Down South?

Tamil Nadu, Andhra Pradesh, Karnataka and Kerala, serious soap territories, are now turning to comedy and other genres. There are over 200 TV serials running across television channels in these states every day and they account for 44 per cent of the viewing time. But the scenario is slowly beginning to change: "I think comedy as a genre has picked up and there is also a buzz around current affairs and news-based programmes," says Prasanth Kumar, National Trading Director, GroupM, the media investment arm of advertising conglomerate WPP.

This does not mean that these new emerging genres are anywhere close to edging soaps out, but the market is certainly developing a taste for them. This new agenda is being pushed by the success of shows such as Amrutham on Gemini tv in Andhra Pradesh that has averaged a TVR of 4.64 per cent in the first quarter of this year. Various talent hunts, such as Idea Star Singer of Asianet, that runs across channels, have also found big advertiser support from the national brands. "National advertisers contribute 25-30 per cent of the total ad kitty, and depending on the category, FMCG brands tend to spend even more," says Kumar.

In Tamil Nadu, market leader Sun TV has regularly sought to introduce these new formats with success, "but now, we notice that star Vijay has taken to reformatting shows that have worked in the Hindi-speaking markets," says R. Venkat, Associate Vice President, Initiative, an arm of the Lintas Media Group. For instance, it has Hutch Kalaka Povathu Yaru (based on Great Indian Laughter Challenge) and Airtel Super Singer -Junior (based on Sa Re Ga Ma format). "All these are picking up eyeballs," he says, adding that an average rating of about 3 is considered "decent" in this market.

According to L.V. Krishnan, CEO, tam Media Research, it's not as if the market has suddenly woken up to these formats. "But we see comedy shows and contests widely spread across channels. It's interesting to note that even news bulletins are generating very high viewership. This is something unique considering that none of the Hindi general entertainment channels has this slot," he notes.

Significantly, while the ad rates for these shows range between Rs 15,000-20,000 per 10 seconds (for a leading channel) and Rs 3,000-5,000 per 10 seconds (for other channels), the overall rates have remained stable over time. This, according to a media analyst, is precisely why advertisers seem to be rushing in droves towards the new genres as they offer considerable viewership at cheaper rates, making them very effective.

The overall southern media market is valued at Rs 3,500 crore and television accounts for a little more than a third of this (at Rs 1,300 crore). Of this, Tamil Nadu generates ad revenues of about Rs 500 crore, followed by Andhra Pradesh (Rs 450 crore), Karnataka (Rs 200 crore) and Kerala (Rs 150 crore).

The CEO Bloggers
This phenomenon hasn't caught on in India in a big way yet, but some CEOs are
showing the way.

Sanjeev Bikhchandani, 43
Co-founder & CEO, Info Edge
Bikhchandani, whose company owns portals like, and, recently started blogging. There aren't any fancy gimmicks at his blog, just fairly honest opinions on life as a dotcom CEO in India.

Ajit Balakrishnan, 59
Founder, CEO & Chairman,
Balakrishnan's blog is a great advertisement for Rediff's
blogging tool, and is fairly comprehensive, with posts from his
friends as well. It could do with a bigger default font
size, though.

Basab Pradhan, 41
Co-founder, CEO & Chairman, Gridstone Research
Pradhan talks about technology developments in India and across the world. This blog makes for an interesting reading for geeks and non-geeks alike.

Nandan Nilekani, 51
President, MD & CEO, Infosys Technologies
Nilekani is listed as one of the bloggers at Infosys' "Think Flat" blog, but his posts are few and far between. However, other contributors keep the blog fairly interesting.

Gunning for the Defence Pie

India's defence budget for the current financial year is Rs 96,000 crore. Of this, 30-40 per cent will be spent on procuring military hardware-think: submarines, warships, rockets, heavy artillery, guns, mines, ammunition, etc. In the past, most of this money went either to various government-owned armament factories or large foreign arms companies. But now, large Indian corporate groups, like the Tatas, Godrejs, Mahindra & Mahindra (M&M), Kirloskar and L&T, among others, are moving aggressively to grab a slice of this pie. "Indian private sector companies already account for almost 30 per cent of the annual spend on defence hardware," says a Defence Ministry official. And this will only rise.

Government regulations now stipulate that foreign contractors who win orders for the supply of defence equipment worth more than Rs 300 crore must compulsorily outsource 30 per cent of the contract value to companies based in India.

The government plans to import sophisticated weapon systems worth about Rs 1,26,000 crore over the next five-to-six years to modernise the country's armed forces; this will result in additional orders worth about Rs 38,000 crore coming to these companies.

The following firms are supplying, or have bid for, "lethal supplies" to the military.

Tata Group: Pinaka missile launchers, Bofors upgrade and heavy military vehicles

L&T: Light armoured multi-role vehicles, weapon simulators, mobile surveillance platforms, sea mines, bridge laying vehicles and Pinaka missile launchers

M&M: Sonar systems, electronic warfare systems, field guns, armoured vehicles, torpedoes, mines, ammunition, pressurised heavy water reactors

Kirloskar: Tanks, armoured vehicles and aircraft components

Astra Microwave: Missile components, transmitters and V-sat sets

Some Indian players, in fact, are already on their way to gathering critical mass in this sector. The Tata Group expects to end 2007-08 with defence sector revenues of Rs 1,100 crore, and plans to double this next year to more than Rs 2,000 crore. The group recently placed a bid for the Rs 1,640-crore contract to modernise the ageing 155-mm Bofors howitzers and Tata Power's Strategic Electronic Division has bagged a Rs 200-crore order to manufacture 40 214-mm Pinaka multi-barrel rocket launchers developed by the Defence Research and Development Organisation (DRDO).

Incidentally, L&T's Heavy Engineering Division has also bagged a similar order. The company is also in the race to manufacture and upgrade Nag and Trishul missiles and torpedos for the armed forces.

The potential is massive, and the sector can become yet another Next Big Thing for India Inc., but it is plagued with several fundamental problems. "Many private Indian companies now have the expertise and the capability to manufacture heavy weapon systems for the defence forces, but they need adequate funding and greater market access," says Atul Kirloskar, CMD, Kirloskar Oil Engines and Head of CII's Defence Committee.

The government, which treated the private sector like a pariah for decades, is now making amends. It has decided to grant Raksha Udyog Ratna (RUR) status to companies that meet certain criteria; this will put them at par with public sector defence units with regard to preferential orders and access to technology. "This will also help them bag 'offset orders'" (the 30 per cent order that foreign contractors have to place with Indian companies), "make them eligible to receive technology from overseas sources and even form joint venture with large foreign arms companies," says the Defence Ministry official. The government has shortlisted 12 companies for the grant of the RUR status. Incidentally, about 400 private companies now supply the armed forces with high and low technology weapon systems.

Now, Kick the Butt the E-way

What is it? It is a battery-powered device that looks like a cigarette, gives out smoke like a cigarette and yet, isn't a cigarette. It is an alternative to the nicotine patches and gums for those smokers who are trying to kick the habit.

What does it do? With every puff on this tobacco-less cigarette, the smoker inhales a stream of nicotine from a cartridge, but without the harmful stuff like tar and other carcinogenic substances that real cigarettes generate. A smoker can get up to 350 puffs-equivalent to roughly 30 cigarettes-from one cartridge. At $208 (Rs 8,528), it is an expensive substitute. Each additional cartridge costs $1.56 (Rs 64).

What is its USP? According to Golden Dragon, the Chinese company that makes it, these "e-cigarettes" work better than nicotine patches.

How can you get one? It is currently available in China, Israel, Turkey and some European countries ( As of now, they cannot be ordered online from India, but you can buy one on your trip abroad.

SMS your Friends, for Free

What is it? It's a free group SMS service launched by Webaroo, aptly called GupShup. Messages sent by the group creator (either through a mobile phone or through the internet) are forwarded by Webaroo, at no charge, to all members of the group. "This is a free, effective and non-intrusive way of creating mobile communities and at the same time giving a focussed audience to advertisers," says Beerud Sheth, CTO & Co-founder, Webaroo.

How does it work? By using Webaroo's short number code, one can start a group or alternatively, join an existing group, or invite others to the same group. The users will receive messages on their phone. Users can also run a poll, rating and quiz within their group. Groups and messages are archived online at

What's the revenue model? Webaroo hopes to make money by attaching paid ads to the messages.



Status: 5.27 per cent as on May 12, 2007.

Impact: The inflation rate has now fallen to an eight-month low on the back of falling prices of primary articles and is expected to fall further as a result of RBI's fiscal measures. But it will take a few months before this results in an easing of interest rates.


Status: Rs 3,50,467 crore as on April 30, 2007.

Impact: The assets under management (AUM) of the mutual fund industry is growing on a sustained basis. The rise in the equity market as well as rising interest rates augured well for the MF industry that has seen inflows rising in the growth as well as income funds.

A bird's eye view of what's hot and what's not on the government's policy radar.


The way forward: Ploughing the right grounds

If implemented in spirit, this has the power to make rural India a stakeholder in the emerging corporate farming sector.

This move is also expected to give a fillip to the government's 'pro-aam aadmi' image and deal with the issue of dwindling landholdings in rural India. The government is planning to allow farmers to set up land share companies. The model is similar to cooperatives and when set up, they will work with agri-retail giants that are setting up back-end supply chain linkages.

The government is planning to cap the stake of corporate partners in such companies at 25 per cent. Their role: to infuse capital for the development of logistics and infrastructure. Moreover, irrespective of the shareholding pattern, boards will follow a "one member, one vote" model as in the cooperatives; yet, the entity will work on a commercial basis. While farmers will get equity stake in proportionate to their landholding within the pool, their rights over the land will be protected in case of liquidation. While such a proposal will have ready takers among the Left, the jury is still out on how well India Inc will take them.


» Defence Ministry says it will release spectrum after two years
Telecom Ministry had hoped to get it by July this year
Defence Ministry's bill for captive fibre optic network: Rs 4,000 cr


Even before it & communications minister a. raja can settle down in his new assignment, he is busy grappling with the vexed problem of getting the Defence Ministry to release precious spectrum that will ease the clogged cellphone networks. His likely option: escalate the issue to the Prime Minister, who, like in several cases, could well set up a Group of Ministers to deliberate on the issue.

The Defence Ministry has now sought a two-year timeframe to release spectrum for civilian use. Its reason: that's the time it will take for the armed forces to lay its own fibre optic networks. The move comes after the Defence Ministry put forth a bill of around Rs 4,000 crore for the network. Raja's job becomes tougher since his predecessor was confident of delivering additional spectrum by July this year.


The Rs 3.5-lakh crore mutual fund (MF) sector may soon get a share of the Rs 2-lakh crore stash lying with Public Sector Undertakings (PSUs), which is currently parked in bank deposits. The Union Cabinet is considering a proposal to allow public sector companies like Steel Authority of India, Hindustan Petroleum Corporation, Bharat Petroleum Corporation (BPCL), ONGC and GAIL (India) which have cash reserves and surpluses in the range of Rs 6,000-52,000 crore, to park the same in mutual funds instead of term deposits as is the case now.

It is likely that the proposal might go through with restrictions-the Finance Ministry might place limits on the scope of exposure of surplus funds. Indeed, if the proposal is finally accepted, it will surely rev up the bourses. The Left, on the other hand, keen on diverting the money into social sector reforms, may once again play party pooper.


Bajaj Auto’s Rahul: Looking beyond family feuds

Family feuds have been keeping Rahul Bajaj busy. Even as the ongoing saga of his acrimonious split with brother Shishir and nephew Kushagra drags on, the Bajaj patriarch oversaw the demerger of group flagship Bajaj Auto into three companies-Bajaj Auto, Bajaj Holdings and Investment and Bajaj Finserve. The company's automotive business will remain with Bajaj Auto; Bajaj Holding and Investment will become a holding company (it would hold a 100 per cent stake in Bajaj Auto and Bajaj Finserve), and the undivided Bajaj Auto's other businesses-insurance, wind-farm project and consumer finance-will be housed in Bajaj Finserve.

Rahul Bajaj clarified at a press conference in Mumbai that there will be no change in the management structure and that his elder son, Rajiv will continue as MD & CEO of Bajaj Auto while Sanjiv, his younger son, will remain Executive Director. "The ownership remains the same and there is no separation. Work gets divided and that's how it should be," he added. Prior to the demerger, there had been rumours of tension between Rajiv and Sanjiv-and, the grapevine said the demerger would give each of them a separate company to manage-but Bajaj was quick to dismiss such talk as speculation. "There is no question of that," he said.

The attention will now turn back on his feud with his brother, Shishir. He, however, declined to field questions on the issue at the press conference. Resolving the issue, managing his empire, playing elder statesman of India Inc. and carrying out his responsibilities as an MP (he was elected to the Rajya Sabha in 2006) will keep him even busier now.


13: India's rank on Forbes Tax Misery and Reform Index for 2007. UAE, Qatar and Hong Kong residents feel the least misery over taxes, while France, Belgium and China, in that order, are economies with the highest tax misery. A total of 50 countries are ranked on the index

$1 trillion (Rs 41 lakh crore): The investment required across sectors between 2007 and 2012 for India to sustain an annual growth rate of 9 per cent

12: The number of female Executive Directors in FTSE 100 companies

800,000: The number of books and manuscripts Google will digitise for the Mysore University in Karnataka. The university library has around 100,000 manuscripts that are written both on paper and palm leaves. These include an original version of Arthashastra written in the 4th century BC by Kautilya

2 per cent: India's projected share of global trade by 2009, up from 1.5 per cent in 2006

186 million: The number of Indians without voter IDs. The figure represents about a quarter of all eligible voters

11.2 per cent: Average annual growth rate of the organised sector from 2000-01 to 2004-05

Rs 3.96 crore: Prime Minister Manmohan Singh's total moveable and immovable assets

15 million: Target set by the Ministry of Tourism for foreign tourist arrivals by 2010

2 per cent: The approximate share of military spending in India's GDP

Rs 72,542 crore: The total investment in the (Indian) textile industry between 2003 and 2007

Rs 25,000 crore: The amount of money Indian companies raised through public issues in 2006-07.

Rs 8.87 crore: The total income tax exemptions granted to Sachin Tendulkar between 1998-99 and 2004-05


RANKED: At the #10 spot, India's largest mobile operator Bharti Airtel in the exclusive list of global telecom operators with more than 40 million customers in a single country. Airtel took 11 years to reach the 20-million customer mark, and just another 13 months to add the next 20 million customers.

REGISTERED: By India Inc., a 27 per cent growth in IT spending to Rs 7,123 crore in 2006-07, according to Dataquest-IDC MegaSpenders 2007 survey. The average IT investment by an Indian company was Rs 34 crore in 2006-07 and this is expected to grow 26 per cent to Rs 43 crore this financial year.

RANKED: By C.B. Richard Ellis, Mumbai's Nariman Point (at #5) and New Delhi's Connaught Place (#7) among the 10 most expensive business districts in the world. Office space at Nariman Point costs Rs 5,613 per sq. ft per annum; the figure for Connaught Place is Rs 4,712. The two most expensive office markets were in London: West End (at Rs 9,781) and City of London (Rs 6,720).

PERMITTED: By RBI, the delivery of cash and drafts by banks to the homes of individual customers. The facility was earlier reserved for corporate clients. The banks will bear all risks involved in reaching cash to the customer's doorstep.

APPROVED: By SEBI, real estate developer Omaxe's initial public offer of 17.8 million equity shares that is expected to mobilise Rs 1,400 crore. The green signal comes at a time when DLF, the Big Daddy of the Indian real estate world, is coming out with a mega-IPO.

SIGNED: By The Carlyle Group, a deal with HDFC to buy shares in the latter's subsidiary. HDFC will raise Rs 2,638.25 crore through a preferential issue to The Carlyle Group, giving it a 5.6 per cent stake in the company. It will also make another Rs 475-crore preferential allotment to Citigroup to enable it to maintain its stake in the company at 12.3 per cent.



Who exactly is this 36-year-old? He's rod Baber and he holds the Guinness record for climbing the highest peaks in all 47 European countries in a span of 835 days, knocking off four-and-a-half years from the previous record. And now, he also holds the record for making mobile phone calls from the highest point on earth-yes, we're talking of the summit of the 8,848 m Mount Everest-on May 21. Baber, who spoke to BT from his base camp, said he barely got a signal on the peak, since the closest tower was a China Mobile tower 22 km away in Tibet. Incidentally, the batteries of his Moto Z8 phone had to be taped to his body to ensure they didn't die out in the -30 degree temperature. But this is a one-off effort and mountaineers are expected to continue to favour satellite phones for their communications needs. Who did Baber call? He called Motorola's office-the company sponsored the trip. He also made a second call to his family and sent an SMS message to an unnamed recipient.


Tracking two-wheelers: Sluggish ride

These are trying times for the two- wheeler industry. For the past few months, Hero Honda, Bajaj Auto and TVS Motors have struggled to record sales growth. While Hero Honda has managed low single-digit growth rates of 2 per cent and 5 per cent, respectively, in March and April, Bajaj Auto has seen sales fall 9 per cent and 13 per cent, respectively, in these months. TVS Motors, too, has seen its market shrink in April; its sales were down almost 16 per cent during the month. Says Anil Dua, VP (Marketing & Sales), Hero Honda Motors: "Inflation and rising interest rates are forcing people to defer their purchase plans."

These companies are now trying out different strategies to buck the trend. Hero Honda, which has launched eight new motorcycles in the entry level, premium and deluxe categories over the last year, is banking heavily on them. Says Dua: "Our strategy is to bring in new products and support them with clutter-breaking campaigns." Rival Bajaj Auto has already slashed the price of its entry-level motorcycle, Platina, by Rs 3,000 in an effort to increase its volumes in the 100 cc segment, which it plans to exit over the next few years.

Analysts say this may just be the beginning. Says Umesh Karne, Analyst, Emkay Share & Stock Brokers: "In the short-to-medium-term, the downturn in the industry could result in a major price war."