Agricultural reforms: still way off

Now that september 11 and December 13 have set the trend for referring to momentous occasions by their dates, it does seem in the fitness of things to refer to the government's big push for reforms on February 5 so. The late burst-after almost 18 months of inertia on the reforms front-saw the government raise some Rs 2,795.07 crore from the divestment of a 25 per cent stake in VSNL and IBP, and from the sale of four hotels. On the same day, it also announced that HPCL and BPCL will go under the hammer in July, kicked off a voluntary retirement scheme for its employees (read babus), removed more drugs from the control of the Drug Price Control Order (DPCO), and diluted the paleolithic Essential Commodities Act to free movement of critical products, like foodgrain, across state borders. ''Here are second-generation reforms,'' screamed banner headlines in the pink brigade the following day (in spirit, if not in letter). Still, we'd like to tread carefully. Did IOC pay too high a price for IBP, and isn't allowing the former to buy the latter merely moving money from one government company to another? That question is easily answered. Investment bankers who were part of the IBP valuation exercise believe that the right price of the company is between Rs 500 crore and Rs 800 crore. Why, even the reserve price was a mere Rs 343 crore. ''Everyone involved in the valuation could not have gone wrong,'' says one investment banker who was involved in the process.

	"Universal Banks Won't Work"
	Agency's Day Out
	The Chatterati's New Clothes
	Sound Endorsement

There are other questions, though, that will prove much tougher to answer. What does the spate of reforms unveiled that fateful Tuesday mean for the budget-making process, India's sovereign rating, foreign investment (both direct and portfolio), the future of agriculture, and business and consumer confidence?

...And The Bourses Reflect That...

The great push, as some have referred to February 5 gushingly, should bring some life back to the stockmarkets. Already, the scrips of most public sector undertakings-these were undervalued to begin with-have moved up. ''This will translate into a better NAV (net asset value) for mutual funds and financial institutions that hold a large chunk of public sector unit shares,'' says S. Sriniwasan, a vice president with the investment banking arm of Kotak Mahindra. ''There will be a ripple effect on the market.''

That, some analysts claim, will bring investors back to the bourses. ''The government may have facilitated the recovery of the primary market by divesting shares of some high-quality public sector units at attractive valuations,'' explains Prithvi Haldea, the Chief Executive Officer of Prime Database. These valuations, Haldea adds, will allow investors make money, and encourage people to invest in the equity markets.

February 5 could also boost FII and FDI investment. Foreign investors have had one more demonstration, however small, of the government's commitment to the reforms process. That apart, the divestment of the government's stake in some blue chips, and the consequent open offer the successful bidders have to make, should increase the quantum of floating stock of these companies, thereby attracting foreign institutional investors that had hitherto stayed away from these scrips because of their low float.

...But The Gains Are Symbolic

The divestments, though, are likely to have little impact on the budget-making process, except for the fact that the government will now have a little more money to take care of the fiscal deficit. As far as symbolism goes, though, February 5 means lots, especially for a government that cannot go ahead with reforms in labour laws, cut food- and fertiliser subsidies, do away with SSI reservations, sharply cut interest rates, or kick-start judicial reforms. ''It (February 5) is only a reaffirmation of the commitment of the government to reforms-something that has been in serious doubt,'' says Saumitra Chaudhuri, chief economist at rating agency ICRA. But symbolism won't take the country very far. Indeed, India's sovereign rating won't go up. ''As long as the country's fiscal deficit continues to remain unsustainable, it will be difficult to upgrade India's rating,'' says Christine Lindow, lead analyst at rating agency Moody's.

What of the VRS? The decontrol of sugar? And the removal on the restrictions on inter-state movement of foodgrain-something seen by the eternally optimistic as a sign of impending agricultural reforms? Surely, those are significant reforms? Well, the VRS announced for government employees comes without a retrenchment clause. Ergo, if employees don't volunteer for it (and few will at a time when jobs are scarce and the economy floundering), there's little the government can do. The sugar industry was partially deregulated some years back, and the impact of the latest deregulating move will be limited. And although there have been no restrictions on the inter-state movement of foodgrain for the past two years and half, there's been little respite for poor farmers. Oops!

-Ashish Gupta

INTERVIEW
"Universal Banks Won't Work''

Andersen's Kingsley: Focus is back in vogue in banking

Stephen M. Kingsley, Managing Partner (Global Financial Services Industry), Andersen, speaks to BT's Ashish Gupta on future trends in banking. Excerpts:

Q. Do you think Andersen's role as both auditor and consultant was partly responsible for what happened at Enron?

A. I am not the right person to talk on that.

Fine, let's speak on banking then. Do you see a fresh phase of consolidation in the industry?

There are a lot of things happening in the banking sector. The first thing is the emergence of a super-league of banks, which have in excess of trillions of dollars in their coffers such as Citicorp, Deutsche Bank, and JP Morgan Chase. These banks are truly global in their operations. Then, there are smaller banks that are regionally focussed. In future, several banks will be forced to concentrate on a particular geographical area or on a particular segment in the marketplace like retail, insurance, or investment banking.

Do you think Indian banks are doing the wrong thing by aspiring to be universal banks?

Well, I don't think creating universal banks is a strategy for the future. In fact, we believe that the apparent economic synergy that comes from creating huge universal banks is more than offset by the complexities of managing them. The point is to specialise in areas of core competence, because you cannot be good in all the functions. If you look at where UBS Bank-one of the largest universal banks in the world-is going, it becomes quite clear. It is focussing on its core strength, retail banking, although it still retains an investment branch. That is a good example.

The customer is no longer satisfied with just what one bank has to offer. He wants a choice of products from other banks too. This will result in the advent of what is called open architecture-a situation where the customer is confronted with a range of products from all banks plus the means to decide. In future, then, the customer will be offered not only a choice of products, but also a consultant to help decide what is best for them. So in the future we can virtually have a bank that is merely a front for products of the other banks. Again, banks will be coming together to pool similar operations to drive down costs because banks are moving away from an era of high interest rate to that of an era of high competition.

What about the TELCOs? Does the entry of Orange into banking pose a threat to established banks?

If you look at telecom companies you will realise that all of them have three things-a billing machine, an infrastructure network, and a communication machine. The most important of these is the billing machine, which keeps track of the costs and sends the invoice. That is not very different from what banks do. So telecom companies can work as banks in terms of managing and transmitting money. But that is not where the profits are; they are in selling financial products. After all when you buy an insurance product, you are talking of a life-time relationship. Would people be keen to have a lifetime relationship with this kind of provider? I am not sure.

OUTDOOR
Agency's Day Out
The slowdown prompts ad agencies to venture into a business they once considered infra-dig, outdoor advertising.

Outdoor advertising is in vogueon design

With growth scarce to come by in their traditional bread-and-butter markets, advertising agencies are thinking out-of-doors (sorry, out-of-the-box) to shore up their revenues. Hoardings, visual merchandising and in-store displays are inviting a renewed interest from agencies across the board.

Recently, Madison Communications teed off its specialised outdoor media buying and planning unit, Madison Outdoor Media Services (MOMS). Ogilvy & Mather Advertising re-christened its nine-year-old outdoor division, the Rs 125-crore Ogilvy Outdoors, Ogilvy Landscapes. And last year, Lowe India's media unit, Initiative Media launched Aaren Initiative and FCB-Ulka, Prime Time-both outdoor-focussed units.

The opportunity to grow the topline apart, what makes the nearly Rs 850-crore out-of-home media market attractive for agencies is its profitability as compared to mainline television/print advertising. ''It's a specialised business, and works on higher commissions,'' says Pratap Bose, Managing Consultant-Outdoor (India), Ogilvy Landscapes.

Helping agencies find a niche in the largely un-organised domain, where advertisers have traditionally dealt directly with hoarding owners/contractors, are the skills they bring to the table, both for the advertiser and the media. ''Apart from centralised buying, which gives advertisers a huge price advantage, we provide a complete planning support in terms of tracking the media's visibility quotient (opportunity-to-see), its cost of reach, and target audience movement,'' says Abhijit Sengupta, Vice President, MOMS. ''For the outdoor trade, where receivables is a big issue, we are a credible business partner.'' An out-and-out win deal for everyone, it would seem.

-Shailesh Dobhal

Khadi: it could well be seen only on mannequins

GESTURES
The Chatterati's New Clothes
The Indian fashion fraternity's new found love of Khadi is likely to result in nothing.

You wouldn't think khadi (hand-woven fabric) would be of interest to the design-conscious, and you'd probably be right. However, nine designers-Ritu Kumar, David Abraham and Rakesh Thakore, Abu Jani and Sandeep Khosla, Raghavendra Rathore, Rajesh Pratap, Asha Sarabhai, and Manish Arora-think otherwise. ''We will create a trend and make khadi a rage,'' gushed Khosla. That they might. Designers need new fabrics to experiment with, and khadi fits the bill. Better still, the smart set does seem to think highly of the designers and the fabric could end up going where no hand-spun one has ever been.

Don't expect mass-marketers (even those operating at the premium end) to adopt khadi. Without any quality benchmarks at the supply end-most of khadi produced in the country is controlled through the archaic Khadi Village Industries Commission, KVIC-the fabric isn't the perfect thing for apparel manufacture. And the designers' optimism stems largely from the expectation that KVIC will do something.

Will KVIC institute measures to improve the quality of fabric? There are no signs of that yet. Khadi accounts for less than 0.5 per cent of the country's textile market, and less than a tenth of KVIC's sales (Rs 8,613.42-crore). What's worse, its sales have declined from Rs 745.1 crore in 1997-98 to Rs 586.59 in 2001-02. Another gesture gone waste.

-Mily Chakrabarty

SOUND ENDORSEMENT
Rasna is betting that voices can sell products.

Asha Bhonsle: joining the bandwagon

If celebrity faces sell, then why can't their voices? Pioma Industries, makers of Rasna soft drink concentrate (SDC), thinks they can and has commissioned Asha Bhonsle to sing its jingle. ''Her voice has an instant recall cutting across age groups,'' says Piruz Khambatta, CMD, Pioma. Pioma's decision may have been prompted by Coca-Cola India's ambitious plans for Sunfill, its SDC. Now, what's it about coloured sugared water and celebs?

-Abir Pal

IN HOT WATER
Amul now takes on HLL in soups.

After ice-cream, it is the turn of packaged soup. Gujarat Co-operative Milk Marketing Federation will soon launch its packaged ready-to-drink soups that will go up against hll's Knorr and Nestlé's Maggi, neither of which has been able to grow the market beyond its current size of Rs 30 crore. Unlike the offerings of its competitors, though, Amul soup will come in liquid form. ''With the younger generation becoming health conscious, these soups have a ready market,'' says B.M. Vyas, the Managing Director of GCMMF. Next step: to take the ready-to-eat Kadhi (a curry) currently being test marketed in Ahmedabad, national. That should interest ITC, which has launched its canned Kitchens of India offerings.

-Vinod Mahanta