Tuesday, July 31, 2012

You can help build a cleaner India

The reverberations triggered by the Anna Hazare fast are still being felt across the country. Even though I personally find many ideas thrown up by the so called Team Anna version of the Jan Lokpal Bill utopian and bordering on the loony, I am delighted with the fact that activism of the kind witnessed last month actually forced politicians of this country to come down to earth and fear the wrath of the people. It was indeed a great celebration of democracy. Though there is one thing I would like to point out to the so called intellectuals who kept harping on maintaining the sovereignty and dignity of the Parliament. If the elected members of parliament themselves make a mockery of Parliament, why single out some activists and outspoken individuals for harsh criticism? Then again, I found it preposterous when some suggested that you and I must contest elections if we want to change the system. Surely, democracy and good governance is not just about contesting elections. Another thing I must point out is the manner in which activist and the self confessed Hanuman of Anna, Arvind Kejriwal, egged on the thousands gathered to watch Anna break his fast to take an oath that they will neither take nor accept a bribe. That was heart warming and touching and set me wondering if the thousands gathered there would actually stick to their oath once they confront the harsh realities of confronting Indian bureaucracy in all its grab and grin glory. In fact, I asked myself if I could stick to such an oath of never paying a bribe if I had to get something done in a hurry and didn't have the time.

These random thoughts made me come to a few simple conclusions that could be, as Rahul Gandhi says, game changing. You and I don't have to contest elections to do all that. But here goes my wish list of a few simple things that you and I can start doing right away to help build a better India

#1: The first thing that people like you and I can do for a start is to take a silent oath that we will not break any traffic rules. A friend was describing a vacation his family had enjoyed recently in the United States. One telling incident from that memorable holiday has to do with his 7 year old son who exclaimed in a shocked manner about how people were actually stopping their vehicles at red lights! My friend, who has a habit of often violating traffic rules, actually vowed never to do that again. I am personally appalled at how middle class and affluent parents brazenly violate all traffic rules at around 7 in the morning when they sometimes drop their kids to school. Surely, all of us can make and stick to this simple oath?

#2: Set aside some money every month for a poor child's education. There are at least a 100 million Indians like you and me who can easily set aside Rs 50 a month without hesitation. Just imagine, if we take that simple oath and stick to it, 100 million poor young Indians who could not otherwise afford the luxury of education would actually benefit from education and perhaps join the ranks of the middle class when they grow up. And don't tell me that it is difficult to find a good and honest NGO or trust that can use your money well. You can always finance the education of the children of your office peon, maid servant, driver or security guard. Believe me, the impact of this simple gesture will be more far reaching than the Anna movement.

#3: Take a pledge to henceforth treat our domestic help in a more humane way. One comment that kept cropping up during the Anna festival was the complaint about the arrogant, cruel and callous manner in which our political class and the bureaucracy treats ordinary citizens. Let's be honest with ourselves: are we any less arrogant, cruel and callous when it comes to interacting with our domestic servants, drivers and other helps? Sure, there are many of us who go out of our way to help them and treat them humanely, but there are umpteen horror stories of educated middle class Indians heaping indignities on hired helps. So let's stop being hypocritical and actually do something about treating fellow Indians in a better manner.

#4: Let us take a pledge not to give any dowry to get a daughter married off to someone who has got a plum government job where the scope of corruption is huge. Once again, we berate corruption in bureaucracy in public discourse, but make our actual feelings and intentions clear by relentlessly chasing grooms with cushy government jobs. You could say that this kind of thing happens less frequently now because many youngsters now opt for the private sector. But the fact is: we could send a huge moral signal to the marketplace for grooms that buying grooms is passé.

#5: Let us take an oath to actually go out and vote during elections of all types. I still recall the hysteria that was generated amongst the chatteratti after 26/11 convulsed India. There were countless TV debates and candle lit marches. A few months after that barely 45% of South Mumbai voted during the Lok Sabha elections. I think the political class does have a point when it argues that they don't want to listen to hypocritical lectures from people who cannot even invest a few hours of their time to vote. And let us not crib about all candidates being 'bad' and there being no real choice. It is going to take a long time for electoral reforms of the type demanded by Anna to actually happen. In the meantime, can we all go to the booths during the next election and deliberately vote wrongly if we find that no candidate is worth voting for? In Indian elections, the winning candidate often gets just about 30% of the votes polled. What if such disqualified votes also amounted to about 30%? You can bet the ruling class will sit up and take notice and the process of electoral reforms will actually be accelerated. Invalid votes can be as potent as votes. But please, let us at least get up from our cocoons and comfort zones and actually go out to vote.

#6: The sixth simple yet powerful pledge we can all take has to do with citizen participation. No democracy will work and good governance will always remain a dream unless citizens actively participate in the civic process. The simple pledge we can keep is to devote at least two hours every week to do something concrete to improve something around us in a meaningful manner. It could be looking after some trees in our neighborhood; it could be involving our kids to keep our streets clean, it could mean teaching a few poor children... the possibilities are endless.


Monday, July 30, 2012

Hicks was Right; They are Wrong!

Rising Interest rates are Massacring The Automobile industry but players are hoping that the upcoming Festive Season will reverse the sluggish trend. Well, will it?

In the end, the ISLM model won. What were they thinking? That auto demand in India will keep rising irrespective of interest rate spikes? Well, John Hicks (who propounded the ISLM theory) might have had to pawn his Nobel if that had happened. While the going was good, the automobile industry in India was on a roll. Car sales put up a scorching pace; FY2010-11 wound up with a mind-boggling growth of 26.17%. The launch of new products and growth in rural areas fuelled the boom, stoking the ambitions of automakers to make India overtake Brazil and become the sixth-largest automobile market by next year. Had it come to pass, Society of Indian Automobile Manufacturers’ (SIAM) forecasts – of India finding a place amongst the world’s top six carmakers by 2015 – might have even cut much ice with us; well, despite the rising interest rates, some industry experts claimed that even the forecasts of 12-15% growth for the current fiscal were pretty low. Quite a few were willing to wager that auto growth would surpass the 20% mark as Indian consumers did not care about interest rates. Well, our experts forgot three words – macroeconomics, macroeconomics and macroeconomics.

When numbers arrived for the first quarter of this fiscal, the cookie was already crumbling. As per SIAM, the passenger vehicle industry managed a growth of 8.77% in the first three months of this fiscal (April-June). In terms of number of cars sold, the figure stood at 601,547 units. If 8.77% looked deceptively fulsome, the news waiting around the corner for the month of July was shocking. Out of the 19 automakers in the country, 12 posted a sales decline of 10.56% during the month. Unit sales stood at 1,73,615 units as compared to 1,94,122 units sold during the same period last year. The worst hit were India’s big three automakers – Maruti Suzuki, Hyundai Motor India and Tata Motors – whose sales dropped by 26%, 11% and 38% respectively. Market leader Maruti Suzuki, which has over 42% market share in the domestic market, sold 66,504 units in July 2011 as against 90,114 units in the same period last year. Tata Motors, at the other end, once again took a big hit as unit sales for the world’s cheapest car, Tata Nano, fell precipitously to 3,260 units. The slide sent Nano’s sale into negative territory, a fall of 64% over the same period last year. It’s quite surprising then that SIAM last month claimed that the passenger car sector will still grow by 10-12% in 2011-2012.

For SIAM, even this 10-12% growth forecast admittance is a huge ego hit, as it comes after a growth forecast claim by SIAM of 18% just three months back. Clearly, rising interest costs and spikes in fuel prices have pushed the industry into a spot which seems worse than even the slowdown era. The question is, will the upcoming festive season lift the gloom that the industry is currently facing? Can the ‘spirit’ of purchasing overcome the shadow that the oversized Hicksian spanner is casting? More importantly, does the Indian consumer really have it, to provide the kind of growth that the auto sector expects?

By the look of the super-sized investments that many auto majors have chalked up for India, faith and confidence in the Indian market looks as strong as ever. New entrants like Volkswagen, Renault-Nissan have already invested Rs.38 billion and Rs.45 billion respectively in India. Another heavyweight, Ford, has recently announced an additional investment of Rs.40 billion for setting up a new plant in Gujarat. Even though India will continue to remain a small-car market in the years to come, the low penetration level in the passenger car industry is the reason why players are drooling over the Indian market. Currently, only 11 out of 1,000 Indians own a passenger car as compared to over 900 people in the US. According to JD Power and Associates, 11 million cars will be sold in India annually by 2020, making it the third-largest market for automobiles and only behind China and the US. But that much is already known.

But then, did these investments and forecasts mentioned above take into account the interest rate vagaries in India? Over the past 15 months, lending rates have risen 11 times, which has translated into a hike of 300 basis points on auto loans. “Though customer enquiries have increased, the conversion rate has slowed down due to the increase in fuel price and interest rates,” rues Arvind Saxena, Director - Marketing & Sales, Hyundai Motor India to B&E. Ajay Seth, CFO, Maruti Suzuki, tells us that “the silver lining is that incomes are still rising.” Unfortunately, the real incomes are actually falling as the inflation is rising faster than the income growth.




Saturday, July 28, 2012

This time, Polman might be right!

Having been in existence for 173 and 81 years respectively, P&G and Unilever are legends in their own rights. After years of divestitures and streamlining, P&G has a strong lead. But with a little help from Acquisitions and Emerging market presence, Unilever could end up as The Undisputed consumer goods leader.

On June 02, 2011, a news report in the Daily Mail (a British publication) sparked off rumours that P&G, the world’s largest FMCG giant was lining up $61.26 billion to acquire rival Unilever. Almost immediately, media circles were ablaze with debates, some arguing that the deal was practically impossible while others like C. K. Ranganathan, MD, CavinKare (a personal care products major in India) embracing the idea stating that it would be easier for him to fight one company instead of two!

However, far from chalking out an M&A plan, meetings in the corner offices of P&G and Unilever narrate a different story altogether. Robert McDonald, CEO, P&G, who has been working for the company for 31 years, moved on to meet his top executives at the Cincinnati headquarters. The agenda continued to be the same as it was ever since McDonald took the top job – strengthening its position in emerging markets, thereby making P&G a more operationally streamlined machine.

On the other hand, Paul Polman, CEO, Unilever, was busy making key decisions, which would determine and guide Unilever’s future strategic orientation. As a matter of fact, it was a sort of crisis situation for the Anglo-Dutch consumer goods major. Michael Polk, the head of global foods, home and personal care quit Unilever to join Newell Rubbermaid as CEO. His predecessor, Vindi Banga had also left in 2009. Polman probably could predict the future. To avoid risking another top executive, he promoted Harish Manwani, Chairman, HUL (Unilever’s Indian SBU) to COO of Unilever. More importantly, he rejigged the entire top management by dividing Unilever’s different divisions under five top executives.

Fact is, P&G would not be acquiring Unilever as long as they are in their right senses. That would mean going back to what they’ve been avoiding – complicating a company that is already too huge and complex in structure. That would further weaken control and make negative synergies in the realm of possibility.

McDonald, 57, is one hell of a strategist. And why not? Being a graduate from the US Military Academy, strategy was destined to come naturally to him. Unlike former CEO A.G. Lafley, who acquired Gillette for $57 billion in 2005 (which accounted for 10% of P&G’s $78.9 billion in 2010) [and which we think by far was the best decision taken by a CEO in P&G’s more than a century long history], McDonald prefers to stick to what he states in his annual reports – “to grow P&G’s core brands and categories with an unrelenting focus on innovation”. To be more precise, McDonald is shying away from making any further acquisitions. He instead plans to concentrate on strengthening the internal R&D pipeline and on pushing existing brands more aggressively to consumers around the world. 



Friday, July 27, 2012

Just Keep Those Costs Down

Rec has seen its Numbers Grow at a Steady clip in The Past Few Years, but will have to now Tackle Increased Competition

Being the nodal agency under the Government of India in charge of financing rural power projects in India, the challenge for Rural Electrification Corporation is always about managing the opportunity, rather than looking for it. Unsurprisingly, the company has been experiencing y-o-y growth of 15-20% on an average over the past decade.

For FY 2010-11, REC reported a growth in net profit by 28.4% to reach Rs.25.70 billion, which has catapulted it to rank 33 in the B&E Power 100 list from 38 last year. Revenue grew by 26.09% to reach Rs.81.09 billion. Strong return on equity with low cost of funding allowed REC to generate superior spreads, which is currently around 4.34% despite the zooming interest rates. REC was able to maintain this margin largely because of the fact that they had gone for international borrowing of $1.2 billion & also set domestic borrowings to the G-Sec benchmark. Cost of borrowing for last year on an incremental basis was around 7.25%; whereas overall cost of borrowing was around 7.62%. Furthermore, REC successfully brought NPAs down to 0.03% due to the escrow mechanism and managed margins of 4.3% despite high cost of funds. The major bad news this year was the resignation of CMD J. M. Phatak, who joined the company in June 2010. Phatak is accused of playing a role in the Adarsh society scam when he was Municipal Commissioner of Mumbai.

The role of REC comes only when all delays & clearances, particularly environmental clearances & securing of coal linkages issues are accounted for & finalized. Last year saw loan sanctions of Rs.664.21 billion (growth of 46.44% y-o-y) but disbursals were just Rs.245.19 billion, a growth of 16.03% y-o-y. REC is now focusing on creditworthy projects by turning their attention towards power generation projects rather than exclusively on the transmission & distribution sector When asked about the shift, H. D. Khunteta, CMD, REC told B&E, “It was a natural shift to all the parts of the power sector & the Ministry of Power has expanded the mandate for REC to include generation projects.” The power generation share in the outstanding loan book has almost doubled from 26% in 2007-08 to 48% in 2010-11 and the private sector is also playing a huge role.


Source : IIPM Editorial, 2012.

An Initiative of IIPMMalay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).

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IIPM: Indian Institute of Planning and Management

Thursday, July 26, 2012

Stratagem-IPL 4: FINANCIAL SCORECARD

In its Fourth Edition now, The IPL Continues to Grow even though Franchises Need to look for and Exploit Alternative Revenue Streams

While IPL has continued to grow on most parameters of success and popularity, lower TRPs for many of its recent matches should make the organisers sit up and take corrective action. According to TAM data, the average TV rating for 2011 IPL season hit rock-bottom at 3.84 as compared to the previous three seasons. It is expected that ad-rates for the next season could take a plunge as viewers’ interest appears to wane with every passing edition of the tournament. “IPL franchisee owners need to create alternative source of income with a view to expand their IPL mother umbrella if they want to stay profitable in the long-run. But even before that, the teams should focus on creating a loyal follower-base that will eventually support the new sources,” says brand expert Harish Bijoor.

As far as the IPL pricing structure is concern, the tournament is predicted to bring the Board of Control for Cricket in India an income of approximately $1.6 billion, over a period of five to ten years. All of these revenues are directed to a central pool, 40% of which will go to IPL itself, 54% to franchisees and 6% as prize money. The money is to be distributed in these proportions until 2017, after which the share of IPL will be 50%, franchisees 45% and prize money 5%.

A research by IIFL, a leading Indian financial services player, points out that the most profitable franchises will earn Rs 1.08 billion, spend Rs 650 million, thus making a profit of Rs 430 million while the least profitable will earn Rs 1.14 billion and spend Rs 950 million, making a profit of Rs 180 million. It is also felt that IPL continues to be a significant contributor to the bottom line of the team-owning companies. Analysts estimate that the respective IPL teams contribute 5-10% of profits for GMR, United Spirits, India Cements and Deccan Chronicle.

In owning a piece of the IPL, which is still far from realising its potential, these team-owners, like India Cements, should let their core business piggyback on the visibility provided by the tournament. As the sources of income for teams are guaranteed and stable, and avenues for expenditure limited and fixed, teams- owners can keep going without bleeding money. Until a few years from now, when, hopefully, the time will be ripe to go for a killing and mint a fortune.

Read more....

Wednesday, July 25, 2012

“Rural Markets Are Central to Our Plan”

In an Exclusive Conversation with B&E’s Mona Mehta, V. P. Nandakumar reveals The Strategies that made Manappuram Finance one of The Biggest Wealth Creators in FY2010-11

B&E: Manappuram General Finance & Leasing achieved a stunning 113.94% growth in M-cap in FY2010-11. What factors led to such a fabulous growth?
V. P. Nandakumar (VPN):
Broadly speaking, the growth in M-cap reflects the growth in our business levels. We ended FY2009-10 with an AUM (assets under management) of Rs.26 billion which went up by three times to about Rs.75 billion by the end of FY2010-11. A major factor behind this achievement has been the significant expansion of our branch network, from 1,005 branches to 2,064 branches in FY2010-11. Of course, we were helped by the fact that raising funds for this scale of expansion was never an issue for us. For instance, in November 2010, our QIP was a huge success and we could raise Rs.10 billion of additional capital. A game-changer, as far as Manappuram is concerned, has also been the way we have used top-notch regional and national celebrities as brand ambassadors in our ad campaigns. It has not only made Manappuram a household name, but has also helped in demolishing the age-old taboo against pledging family gold.

B&E: What boost in business opportunities do you foresee from rural India?
VPN:
It is a well known fact that India has the world’s largest stock of privately held gold. However, what is lesser known is that unlike other forms of wealth, about 65% of this gold is held in the rural areas. Thus, if you are in the gold loan business, you must be present in the rural areas because that is where the potential is. Not surprisingly then, about two thirds of our branch network is in the rural and semi-urban areas. The rural market is central to our plans and we intend to continue our focus on this market for expansion.

B&E: How is Manappuram looking at enhancing its customer base when it comes to general financing?
VPN:
I must clarify that despite our name, we are today predominantly a gold loan company and we intend to retain this focus. In fact, our customer service strategies revolve around this focus. First, we have worked hard to bring down the turn-around time in gold loans so that the entire process is accomplished in a matter of few minutes. Second, we have continuously been innovating in order to offer products that are relevant to the needs of our customers. Today, within the category of gold loans, our customers can choose from two dozen different products.

B&E: Has Manappuram really been able to change the age-old norm in rural India i.e. the dominance of local moneylenders and pawnbrokers?
VPN:
Actually, this has already happened to a significant extent in many southern states which include Kerala, Tamil Nadu, Karnataka and Andhra Pradesh. In these states, there has been a shift in business from local moneylenders and pawnbrokers to the gold loan NBFCs and I would say, it’s not just Manappuram, even our competitors have helped in this process. As for the rest of India, yes, there is still a lot more work that needs to be done. However, I am confident that as the gold loan companies expand their network in these regions, we would be able to break the grip of moneylenders.

Tuesday, July 24, 2012

The Dark Side Of Private Equity in The Indian Real Estate Sector

PE Investors are Amassing Unusual Stakes in Indian Real Estate companies. But given their Short Term Profit Interest, there is a Critically huge Potential threat for The Industry. A close look at these Unregulated Flip Artists in The Indian Real Estate space.

It was in 1988 that the world witnessed for the first time the true power and colours of private equity when Charles Hugel, RJR Nabisco’s Chairman agreed to a $25.08 billion leveraged buyout by Kohlberg Kravis Roberts (KKR – a leading PE firm); rejecting a rival bid of $25.63 billion by a consortium of Wall Street investment bankers. Rightly so, the media then exclaimed, “Seldom since the robber barons of 19th century has corporate behaviour been so open to question.” A little more than two decades later, the same private equity investors who were then tagged as “barbarians at the gate” and slandered by Hollywood’s Gordon Gekko (portrayed by Michael Douglas in the movie Wall Street), have managed to undergo an image makeover. Quiet surprisingly, they have been able to shed the erstwhile perception of being corporate raiders plundering for profit to a great extent. In the present context, the ilk of KKR, Blackstone, Bain, Baring, Red Fort, Sequoia et al are no longer feared. On the contrary, they are revered as deep pocketed saviours who are willing to invest in companies, which otherwise have been overburdened by the law of the land and have been misunderstood by the bourses.

Frankly, private equity has been put on an exalted status globally. A 2006 Wharton seminar on Private Equity tried to prove how private equity investment for shareholders was apparently more efficient than standard equity markets! The Economist, no less, once described private equity as the “sharp edge” of contemporary capitalism; later on, in another report they even confirmed that “in an odd twist, all the money going to private equity has helped buoy shares of public companies!” Bloomberg’s Venture Economic report showed that over a period of 10 to 20 years, private equity has outperformed the equity markets by 66% in some cases, to even more than 100% in other cases! The National Bureau of Economic Research, in a paper titled The Cash Flow, Return and Risk Characteristics of Private Equity, showed that private equity always generated “excess returns” relative to equity markets. Mercer did its own stuff in its 2007 PE study, which said, “Not only has the rate of return for PE firms overall been substantially greater than that of public corporations, but such companies – once returned to public ownership – have outperformed the market as a whole.” According to the European Venture Capital Association, while the US and UK had the “broadest and most developed private equity markets in the world (ranked at number 1 and 2),” such PE investments had led to strong innovation and economic growth!

Now, the important lesson to take away from almost all these research reports is that PE firms harbour a fanatic orientation towards maximizing the returns to their PE investors – in other words, it doesn’t matter to a PE firm whether the company in which they are investing could well be doomed if the PE investments were withdrawn; all that matters is the right stock price at which the PE firm makes a substantial return on capital employed. And if all the global reports are any evidence, PE firms and their Gekko managers are giving the full performance for the money being thrown at them by their high net worth investors.

Now again, how has India been viewed with respect to PE investments? Five years ago, the Economist Intelligence Unit’s 2005-06 worldwide survey rated India ‘second from bottom’ in terms of promoting environment for PE. Apax Partners, in their 2007 survey, Future Trends in Private Equity Investment Worldwide, confirmed the same, “India has the second worst environment for private equity!” One wonders then, for all that it is worth, how did private equity investments from the world over find their way into India in the last decade or so (According to India Private Equity Report 2010 by Bain & Company, between 2004 and 2009, private equity and venture capital firms began to acquire critical mass; so much so that PE investors invested approximately $50 billion in more than 1400 businesses), a period that resulted in one of the biggest contemporary asset bubble bursts in real estate history in 2008/9 – helped with a gracious push by the PE investors, who pulled out of the sector en masse just when it had reached its peak, and ensured a swift fall of the sector subsequently?

Given this context, it was perhaps least surprising that when the real estate sector – both industrially and in the stock markets – crashed, one again saw a sudden spring in the PE step, running back towards India, to grab hold of stocks and equity at the undervalued rates. In the immediate periods succeeding the last asset crash, PE firms started forming investment vehicles left and right to invest in the Indian real estate sector, focusing on townships as well as infrastructure that surrounds communities. PE investors returned to investing in Indian real estate through projects rather than equity (as at the project level, the exit route is easy, even with the residential sector). Currently, statistics and market reports show that the PE investment proportion is heavily skewed towards residential projects; because as an asset class, the residential sector is seen to be self liquidating, while commercial and retail have exit related issues primarily due to non-availability of REIT and REMF (real estate investment trust and real estate mutual funds) vehicles.



          

Friday, July 20, 2012

The Sarah Palin Quiz!

If you Answer even One Question correctly, You’re qualified to run in The US Presidential Elections... Er, almost...

Sarah Palin’s branding is ubiquitous – none expects her to have much general knowledge (Africa=country; a Palin copyright); yet, everybody expects her to run for the US Presidential elections. We decided to pit you against Palin in this war of geographical knowledge. If you get even one right, you’ve beaten her.

1) Puerto Rico belongs to which nation?
2) Greenland is a part of Denmark. So which continent is Greenland in?
3) Is Greenland a country, state or city?
4) Who is the head of Canada?
5) Sultan of Brunei is known for his oil dollars. Where is Brunei located – Middle East, South Asia, Eurasia?
6) Which is America’s largest border sharing neighbour in terms of geographical size?
So are you better than dame Palin? Here are the answers:

1) Believe it or not, Puerto Rico is a commonwealth of the United States, ceded after the Spanish American War in 1898.
2) Surprise surprise. Greenland belongs to the Kingdom of Denmark, but is geographically located in North America to the north east of Canada.
3) You’ll chew your head off when you hear this. Greenland is an autonomous country on its own. It’s also the world’s largest island, astoundingly with another island named Greenland ensconced within it.
4) The head of State of Canada is Her Majesty, the Queen of Britain. And we bet you never knew that!
5) Yes, the Sultan has many Rolls Royce beasts, and might smell of the Mid-East, but Brunei is in reality located in the island of Borneo in South China Sea in Southeast Asia, flanked by Indonesia and Malaysia.
6) America’s largest geographic neighbour is actually Russia, which shares its border in its north east with Alaska, America’s biggest state (which was in turn purchased from Russia in 1867).


Thursday, July 19, 2012

The Do Dooni Chaar Budget

Why and How we Must Save Farmers and Agriculture to Save India

The movie Do Duni Chaar higlighted the power of simple truths & facts. This Alternative Budget based on agriculture is dedicated to Indians who deserve a less catchy & more simple theme

Often, the most profound and transformational changes can be achieved by taking simple and easy decisions that are usually very hard to take. Those simple decisions become hard to take because we – particularly more so in India – have this inexplicable and inexcusable habit of trying our best to avoid reality; to blink and look the other way even when harsh realities stare at us unblinkingly. While brainstorming for the multiple award winning movie Do Dooni Chaar, we were very clear that the lead characters must be confronted with choices that are gut wrenching even though they appear simple. I personally think the movie touched a chord with people across India because it highlighted the power of simple truths and simple facts; and because it enabled ordinary Indians to transcend obstacles by sticking to simplicity, honesty and integrity; and most importantly because the characters had the guts to face facts and reality as they are and call a spade a spade. We could have loaded Do Dooni Chaar with liberal doses of jargon, semantics, polemics, clichés, grandstanding and dissembling. I am proud that our team didn’t succumb to such temptations.

I have spent days reliving the Do Dooni Chaar experience as I struggle to think of a theme that will become the highlight of my eleventh consecutive Alternative Budget; the sixth time in as many years that this magazine will showcase it on its cover. The three previous themes of my Alternative Budget proved to be a major hit with thousands of readers and opinion makers. All three had a touch of ‘naughty’ in them. In 2008, we had asked the Finance Minister to ‘Ban the Budget’. In 2009, we showcased India’s seeming helplessness in fighting corruption by requesting the Finance Minister to present a ‘Khao Aur Khilao Budget’. And in 2010, I do admit we decided to ride on the immense popularity of that blockbuster – and yet eye opening movie – by presenting ‘A Budget for Three Idiots’. This time around, some colleagues suggested that we ride the Cricket World Cup fever and call my 2011 Alternative Budget the ‘De Ghoomake Budget’. There is little doubt that the theme would have been catchy, and even rib tickling. Eventually, what persuaded me not to opt for the obviously popular and catchy theme is the kind of Indians this Alternative Budget is dedicated to. And the realization that those Indians deserve a less catchy and more simple, yet powerful theme. Hence the decision to call my 11th Alternative Budget the Do Dooni Chaar Budget. (Of course, some colleagues were insisting I call it the Do Dooni Paanch Budget as a tribute to Indian politicians!).

Revisiting Lal Bahadur Shastri: Jai Jawaan Jai Kisaan
Before I go any further, let me add here that this Alternative Budget is dedicated to that most unsung and unheralded of Indian politicians who personified the power of simplicity – Lal Bahadur Shastri. Yes, it is dedicated to the man who coined the term ‘Jai Jawaan, Jai Kisaan’ and made it immortal. Sadly – like most things in India – even this immortal term has been systematically degraded down into a tired cliché that people spout more out of indifferent rote than any conviction...

The simple fact is that India has degraded the Indian farmer into a comic book cliché at best and a disgustingly treated step child at worst. The simpler, and more glaring fact is that unless the Indian farmer and Indian agriculture participate in economic well being and prosperity, India doesn’t have much of a future, either as an economy or as a nation. In fact, along with education and health, the most neglected area for every single Finance Minister since 1947 has been agriculture. The disgraceful neglect of the three is the most important reason why India ranks near the bottom in virtually all indicators of human development. My alternative budgets in the last few years have repeatedly pointed out and suggested innovative ways in which India can improve its dismal record on health and education. This year, the Alternative Budget will focus on the Indian farmer and Indian agriculture.

Of course, if you go by recent media reports, I might just have picked up the wrong topic to highlight this year. After all, statistics reveal that the agriculture sector will grow at about 5.5% in the current year; one of the best performances in recent years. In fact, it is the unusually high rate of growth of the agriculture sector that will ensure that the GDP of India grows at a healthy 8.6% in the current year. Then again, the media has been filled for months with screaming headlines about high and persistently rising prices of food and vegetables. Who can forget the shock – both to the psyche and family budgets – caused by onion prices shooting up to Rs.90 a kg in recent times? If you do go to the market to buy vegetables, you must have realized that prices of every item have virtually gone through the roof. Add to this the jingoistic claims made by our policy makers that India ranks in the top 5 globally when it comes to the production of food, vegetables, milk, poultry, cotton, tea and what not.

But as many of you know, the reality is starkly different, and shocking. Let me start with data compiled by the National Crime Records Bureau (NCRB). The latest year for which data is available is 2009. In that one year, 17,638 farmers committed suicide – one almost every half hour. The state that took the lead – as always – in the numbers of farmer suicides was Maharashtra, the state to which our Union Agriculture Minister and current cricket Czar proudly belongs (See Chart). The top three states in terms of farmer suicides are Maharashtra, Andhra Pradesh and Karnataka – one ruled by Congress in alliance with the Pawar led NCP, the second ruled by Congress and the third ruled by the BJP. In less than 15 years since official NCRB records were kept (state governments never bothered to keep proper records of farmer suicides till 1997), more than 2,50,000 farmers have committed suicide. You can be sure that the figure for 2010 will be higher, and that for 2011 even higher. Worse, everybody involved in this dirty and shocking numbers game knows that state governments routinely ignore or under report cases of farmer suicides. The actual figure is bound to be much higher. There can be no more damning indictment of our economic policy making and successive union budgets than this simple, stark and shocking fact about the extent of farmer suicides.



Wednesday, July 18, 2012

3G for Dummies!

The Illogically costly 3G Auction Evidently has Strategic Implications for both Bharti and Reliance Communications. B&E does a Snapshot 'dummies guide' Competitive Analysis Primer on The Two

When you speak of rivalry in the Indian telecommunication space, it is hard to imagine a discussion not commencing with a reference to two names – Bharti Airtel and Reliance Communications. The former was the player that pioneered the market, and the latter is credited with being the one that changed the entire dynamics of pricing. Ever since then, their game of one-upmanship in the market place as well as in the lobbying arena has hogged the headlines for years. And it has flared up on a number of occasions – the GSM vs CDMA debate, lobbying with respect to spectrum prices being provided to each other, bidding for MTN, poaching of top executives, et al.

So far, the game changer in the industry had been price, a tool that first was used by RCom with success and one that became almost like an industry norm. Players have gained inch by inch using this ploy through a variety of schemes. But the way ARPUs (average revenue per user) have been on a constant decline, this strategy is now getting limited in its impact; particularly with the entry of newer players, who are taking the price barrier further down.

And for whatever it was worth, 3G was the game-changer that the incumbents were waiting for. After a long and tedious wait, the 3G auction has been completed and the winners announced. And RCom, Bharti and Aircel (unexpected third winner) have led the rest in terms of circles, winning 13 circles each. Clearly, the playing field in the Indian telecom space has been divided again, and it’s time for Bharti and RCom to take their rivalry to a new dimension. The questions that obviously spring up are – what should their strategies be and who would take the advantage in the post-3G scenario?

First, we come to the bidding outcomes, which have left only the government smiling. Spectrum is the kind of a product where price elasticity of demand is just about nonexistent. Consequently, the all India license auction ended up costing Rs.167.5 billion, which was 379% above the original base price of Rs.35 billion, and this is being cited as an over-the-top valuation by many, even considering the credentials of the Indian market. No wonder that even Bharti and Reliance backed off from bidding for pan-India licenses.


Tuesday, July 17, 2012

IN THE 21ST CENTURY, INDIA’S TRUE WORTH LIES IN ITS ENTREPRENEURS 2010- 11

Indeed, the maiden decade of this century was a decade of sweeping acquisitions by the Indian players, and Indians on the street revelled at the manner in which the Tatas, Birlas, Ambanis and Mittals (in telecom and steel) went reversing the not so good ol’ status quo; just as they revelled in India’s T20 World Cup triumph. Everyone seemed to agree that size was just about all that mattered! But India’s future cannot be about these large conglomerates and business houses alone, for there are a number of weaknesses in this kind of a structure, even though there are exceptions to the rule. We need competitive markets like telecom. We need businesses that do not shy away from competing globally. We need businesses that can innovate and create new value. We need businesses that do not return to the government for one or the other concession every now and then, or oppose every possible move that can lead to a more dynamic marketplace. In short, we need wave after wave of entrepreneurial energy sweeping across, which can generate new ideas and solutions for the problems we face, and also create unbeatable competitive advantage for the India of the future.



In this decade’s closing issue, B&E salutes India’s greatest 1st generation Wealth Creators and the companies they lead, taken from the BSE 500. The basic criterion (and the difference from normal definitions of what constitutes ‘first generation’) was that any of the founder members or first generation kin should still be in-charge of the company, the company should be listed and it should have attained a particular size in terms of annual revenue (base set at Rs.5 billion). We then calculated the final value of the remaining companies in terms of their mcap growth between January 1, 2010 and December 1, 2010 and employment growth during the financial year 2010, with equal weightage being given to both the parameters. The rationale behind giving equal weightage was that while mcap represents the company’s wealth creation for its shareholders, its employment generation represents the company’s contribution towards the supreme stakeholder, the country.

The final list of 40 top wealth creators was then prepared based on the final value calculated. Some of them, like Bharat Forge, Hero Honda, Infosys, Jet Airways and HCL Technologies, are still creating a momentous difference despite the disadvantage of the base effect. Then there are rising stars like IndusInd Bank, M&M Financial, Yes Bank, Amara Raja Batteries and Radico Khaitan that are achieving critical mass and on their way to set new benchmarks. And there are those like Spanco Ltd., Stride Arcolabs, Jayant Agro Jay Bharat Maruti and Surya Roshni, which have received tremendous encouragement from the markets this year, but would realise that they still have many miles to go. Nevertheless, they are all beacons of hope for an the industry that aspires to reach and create new global benchmarks, and one can only hope that they and their ilk keep growing.