Tuesday, July 31, 2012

COMPANIES THAT HAVE DROPPED OUT OF SENSEX

ACC, Ballarpur Industries, Bombay Dyeing, CEAT, GE Shipping, Century Textiles, Cummins India, Grasim Industries, GSK Pharma, Nestle Steel, Mukund Iron & Steel, Hindustan Motors, Indian Hotels, Indian Organic Chemicals, Indian Rayon Industries, Voltas, Zenith, Philips Electricals Company, Premier Auto, Siemens, Gujarat State Fertilisers & Chemicals

The second enduring myth revolving around the Sensex and the sense it makes of India Inc is the relentless rise of the services sector accompanied by the relentless decline of the manufacturing sector. It is virtually impossible to pick a book, a newspaper or a magazine and not read that China is the shop floor of the world while India is the back office. So breathless and senseless has been this coverage that you and I have been fooled into believing that manufacturing is dead in India and the smartest business families of the future are smugly ensconced in the services sector. Take a reality check and have another look at the 30 companies that constitute the Sensex. You will find Reliance, Tatar Steel, Jindal Steel & Power, Hero Honda, Bajaj Auto, Sterlite Industries....the list of manufacturing companies just goes on and on. Of course, the new icons of the services sector like Bharti, Infosys, Wipro and TCS have muscled their way into the Sensex. But please don’t be so naive as to write off the manufacturing sector. In fact, I would bet that more manufacturing entities muscle their way into the Sensex in the future.

The third myth that emerges when you are trying to make sense out of the Sensex is the one about the growing role of the private sector at the cost of the so called public sector. You and I can just dismiss this as a lot of nonsense! The fact is, the trend of public sector companies entering the primary markets is still a relatively new one. But boy, when they do, don’t they do it with a bang? Remember the Coal India listing? This inefficient and lumbering public sector company actually displaced Reliance as the most valuable company in the Indian stock markets a while back. The fact is, if this or some other government in the future decides to list public sector companies aggressively, they will actually end up dominating the Sensex. Size does matter and Indian public sector companies, like their counterparts in China and elsewhere, are usually 800 pound gorillas!

Now that we have busted the three enduring myths about changes in the power matrix of India Inc. as viewed through the Sensex, can we also raise another stark question about the so called dynamism and competitive strength of Indian companies? More than two decades after reforms, the Sensex is yet to play host to a world beating and truly world class Indian company like Google, Microsoft, Apple, GE, IBM, Intel....When that improbable event happens, I will lead cheerleaders to celebrate the emergence of India Inc. from crony Capitalism to Capitalism. Till then, it is two cheers to the animal spirits of India Inc.


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Monday, July 30, 2012

Food security Bill – Hope and Despair!

Though The Food Security Bill has been finally approved by a Group of Ministers to be presented before The Parliament, what might finally take shape as The National Food Security Act is being questioned. Will the entire idea of food security for all fructify?

Do you remember the pre-election days in 2009, when there was a lot of talk around ensuring the ‘food for all’ concept doing the rounds? After delays in the process of finalisation of a Food Security Bill for around two years, the government has now finally approved a draft of the proposed legislation to be put before the Parliament for discussion and subsequent approval. But will the expected bold measures effectively address problems causing hunger and starvation deaths? Also, will the bill in actuality ensure food for the most vulnerable classes of the Indian society?

The purpose of the bill, at the time when it was being conceptualised, was backed by the idea of protecting the human right to live in dignity, free of hunger, food insecurity and starvation deaths. The National Advisory Council (NAC), which had taken up the task of preparing a detailed framework on the National Food Security Act (NFSA) and had even come up with some radical measures earlier, now looks willing to compromise on some key fundamental issues. Says John Dreze, Economist and former member of the NAC, “The NAC has proposed a framework for the NFSA. But its potential could be wasted by a flawed approach to the Public Distribution System (PDS).” Dreze has been instrumental in drafting the NAC’s food security bill and the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA). Dreze had quit the NAC soon after the Food Security Bill was formally adopted on June 22, 2011. He left the council formally on grounds that his work had ended with the adoption of the bill and that he saw no reason for his tenure (or that of the NAC members) to be renewed this year.

Yet, Dreze has been critical of the government draft of the Food Security Bill. Dreze fears that en route to meeting the basic requirements for a universalised system of public distribution, the draft may end up depriving people of existing rights on various counts – despite an opportunity created through huge buffer stocks. To that effect, there are a few reasons that could prove to be bottlenecks in the effective implementation of this critical policy. One issue lies with the government’s approach to minimise its own obligations by restricting the number of eligible households and the entitlement. At the Chief Ministers’ Conference in February 2010, the government’s agenda paper gave the total number of APL (above poverty line) and BPL (below poverty line) households across India, covered by the Targeted Public Distribution System (PDS) as 18.03 crore households, which effectively worked out to about 90% of the population based on the projections used by the Central government. However, the worrying factor is that the Bill sets a cap of 75% households in rural India and merely 50% in urban India. What this translates into is that many families holding APL cards would be excluded from the PDS. In this approach, the PDS rests on a three-way division of the population – priority, general and excluded households. Priority households, covering at least 46% of the rural population at the all-India level, are to get 35 kg of grain a month at Antyodaya prices (Rs.3 a kg for rice, Rs.2 for wheat and Re.1 for millets).

General households will get 20 kg at not more than half of the Minimum Support Price. And excluded households, which account for 10% of the rural population, will get nothing. Moreover, the coverage of ‘priority groups’ under the PDS is also restricted to households below the Planning Commission’s strange poverty line of Rs.30 per day.

Then there were also discussions on whether the benefits should be provided through a cash transfer system or subsidies. The Bill now allows the government to introduce a scheme of cash transfers in lieu of entitlements. The PDS in India has been defunct for long now and it is nothing new. However, an independent survey carried out by a group of student volunteers and research scholars, including Dreze, found that the PDS was in the process of recovery. “The issue is that the BPL list is totally defective. In many states, entire communities have been left out. There are massive inclusion errors which have reduced the effectiveness of the PDS as a tool for food security,” a communiqué sent to the PM by this group read, adding, “We support the case for a near universal PDS, whereby all households are entitled to food subsidies unless they meet well defined exclusion criteria.”

This has led to many respondents in the said survey opting for subsidies against the government’s cash transfer proposal. Fear of misuse of cash, traders raising prices if PDS were closed, and bitter experiences of the banking system in the context of NREGA wage payments have also prompted families to support the PDS.

At the heart of the debate is the difference between the Centre and the states, as is the case with most welfare schemes of the government. The Planning Commission’s poverty estimators are just one part of it. More importantly, the Bill ignores the State government’s estimation of BPL families. As opposed to 6.52 crore families recognised by the Central government as being poor, state governments, based on their own estimation, have extended BPL coverage to 11.03 crore households, comprising 56% of the population. The Bill, however, puts a cap on BPL households at 46% in the rural areas and just 28% in the urban areas. The government’s move to free itself of accountability may also become a major area of concern. “Full powers have been given to the Central government, including powers to modify or withdraw most entitlements, and to specify the sharing of costs with the state governments,” a critique of the government draft states. While the entitlements of the priority groups have been moved to a schedule (so that they can be modified at will), the general category, which is only entitled to 3 kg per person per month, is also at risk of losing these entitlements if the Centre wishes. Most of the transparency provisions in the NAC draft have also been excluded from the Bill.



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Saturday, July 28, 2012

Stratagem-TELECOM: NEXT GEN TECHNOLOGY

Operators in India are still fixing the loose ends in their 3G networks but 4G technologies are already knocking on their doors.

The spurt in mobile-based applications, games, video and other data-heavy content means that adopting technologies that offer higher data throughput rates, reduce latency to improve user experience and better utilise scarce spectrum is the way forward. And 4G allows more data to be transferred over the same bandwidth used by 3G technology and at higher speeds without substantial costs to the existing infrastructure. Operators can introduce new exciting services such as HD (high definition) video blogging, HD video on demand, media mobility, and online gaming, besides bringing a significantly improved business proposition with 2.5 times higher capacity, lower cost per byte and media mobility.

India has been a late entrant to the 3G game but the auction of broadband wireless access spectrum last year is expected to be the catalyst for the launch of 4G services, which are believed to be round the corner. Moreover, the infrastructure required for upgrading to 4G is easy if the 3G system is already in place. Indian operators hope that the transition to 4G technology can be done smoothly by using core infrastructure of the 2G or 3G networks. The new infrastructure would require minimal funds for Indian telecom operators who have almost set up the 3G infrastructure. “We have a single RAN box where you can upgrade 3G to 4G or LTE to Wimax. Everything is in one box. They will need minimal funds to upgrade to 4G,” says a top official with Chinese telecom equipment provider Huawei.

However, developing the full eco-system for 4G will take time. One reason is that in India, voice still dominates the traffic unlike in Europe and the US where data is much in use. Industry observers say that the shift from voice to data will take time and could take a couple of years for the right 4G eco-system to develop. The mass market for data is a basic requirement for 4G technologies like LTE to be profitable. Further, operators are still confused over the choice of technology for 4G services and remain unsure whether to adopt LTE or WiMax.

Also, once 4G services are launched, consumers will have to switch to 4G enabled handsets, which are rather expensive. Even though smartphone penetration is set to explode in India, currently less than 10% of all users have smartphones or good 3G devices. And in the semi-urban and rural parts of the country, the success of 4G services will hinge on the price levels that device manufacturers are able to offer in the near future. In a country like India, where average revenue per user hovers around Rs.200 (and where 95% of consumers are pre-paid users), telecom companies need to push their ARPUs to around Rs.500 just in order to break even for 3G technology. Under the circumstances, any sizable adoption of high-end 4G handsets in an ultra low-cost handset market like India looks far fetched.

Globally, operators are proclaiming 4G as a revolution in communication technology. But at a time when when even 3G services in India have yet to be streamlined and are still years away from mass adoption, predicting the outcome of 4G services seems fatuous. And with players having stretched nearly to their limit by 3G spectrum and returns not coming any time too soon, India may well be forced to stay a laggard on the 4G front.


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Friday, July 27, 2012

“ECBS & Fccbs are more Beneficial to us”

H. D. Khunteta, CMD, Rec, talks to Karan Arora on Moving to Transmission Financing & Foreign funding Instruments

B&E: REC in recent times has shifted the focus to fund power projects including generation. How important is this shift?
HDK: While traditionally funding for development of country’s transmission and distribution system with focus on rural electrification projects and with minuscule portfolio of mini-micro generation projects up to 25MW, the break came in 2002. Given the constraints in funds requirement for the sector, the Ministry of Power expanded the mandate of REC to include generation projects as well and that too without any cap on size and location.

B&E: What has been your loan book growth this time around despite higher cost of funds? And what are the challenges that you perceive to your margins?
HDK: MoU for 2011-12 loan disbursement expected to increase in loan book growth is 23%. Like in earlier years, the company expects to maintain the margins with a better mix of funds. Higher interest rates, uncertainty about fuel supply to the funded projects and competition generated by the commercial banks are challenges that we face.

B&E: Given the constraints on bank lending to the infrastructure sector, rural infrastructure funding holds a great potential. What are the company’s growth plans for the coming years?
HDK: Considering the huge fund requirement in the power sector, REC has a target to maintain its growth at 15-20% in years to come. The growth of demand each year as articulated in the 11th Plan documents lower growth in disbursement of funding by REC. The disbursements are commensurate with the ever growing sanctions of projects and its implementation pace & are expected to grow at the same levels.


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Thursday, July 26, 2012

Why 2014 Can Deliver Shocks

Back in September 2006, when we launched The Sunday Indian, our first cover story was on the likelihood-some would say inevitability-of Rahul Gandhi becoming the Prime Minister of India. Back then, we wondered how a Gandhi would handle the fact of being the first Gandhi to not be the unquestioned leader of the Cabinet and the nation. The only message that is loud and clear from assembly elections and bye elections held over the last one year is: there is just no way the Congress will improve upon its 2009 tally of 206 Lok Sabha seats in 2014. The rest of the MPs required to cross the magic mark of 272 will be supplied by Mamta Bannerjee, Sharad Pawar and perhaps even Jayalalitha, apart from assorted smaller allies. How then would Rahul Gandhi function as Prime Minister?

Let's look at the best case scenario for Congress, where it has a chance of significantly improving its tally. Out of the 112 odd seats in Jharkhand, Orissa, Chattisgarh, Bihar and Karnataka, the Congress won just 16 seats. Let us assume that the Rahul Gandhi magic works in these states. Even then, the most hopelessly die hard supporter of the Congress would not bet on the party’s tally from these states going up by more than double. (Do you seriously expect the Congress to sweep Bihar, Karnataka and Orissa that give 87 MPs?) That gives the Congress 16 more seats. In effect, the Congress tally would go up to 230 if you are wildly optimistic.

But electoral politics is different from wild optimism. In U.P, the Congress already has 22 seats and cannot significantly improve; in Delhi, it has 7 out of 7 seats; in Haryana, it has 9 out of 10 seats, in Uttarakhand, it has 5 out of 5 seats, in Rajasthan, it has 20 out of 25 seats; in Madhya Pradesh, it already has 12 out of 29 seats and has 11 out of 26 seats in Gujarat. Worse, it has 33 out of 42 seats in Andhra. After the Jagan Mohan Reddy show, how many of you would bet on Congress retaining the tally? It then boils down to West Bengal and Tamil Nadu, where the UPA already swept the elections in 2009.

The most intriguing question then is: would Rahul Gandhi be amenable to being the Prime Minister of India and yet be at the mercy of temperamental allies? It is OK for a Manmohan Singh to be the Prime Minister in such a situation because he never was a leader anyway. But what happens to the fabled aura and charisma of the Gandhi family when Indian voters see Rahul Gandhi the way he will look after coalition politics inevitably takes its toll? Can the Gandhi family take that kind of risk?

My advice to CEOs of India Inc, start investing in another Manmohan Singh right now. There is little doubt that he or she will be India’s next Prime Minister with Rahul Gandhi playing the now familiar role of being the real power behind the throne.


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Wednesday, July 25, 2012

The Management is giving in to The Practice of Myopic Management

Under Pressure to Fulfill short term goals, The Management is giving in to The Practice of Myopic Management. But The Need of the hour is to stay away from such Practices and Concentrate on Long Term Strategic Issues

This outcome was also supported by Rust et al (2004) in an analysis of the airline industry. The customer equity valuation for American Airlines was calculated at $7.3billion, whereas the market capitalisation at the time was $9.7billion.

The difference could be explained due to the exclusion of international customers and nonflight sources of income in the customer equity calculation.

Ambler (2003), utilising 2001 data to compare market capitalisation and Interbrand Brand Valuations of the top 10 brands, found that the brand represented between 18% and 68 % of the market value of the firm. A simple weighted average of the data gives a brand valuation as 23% of the market value, which compares favourably to the 25% typically used by Brand Finance. Thus brand equity is a less inclusive indicator of the value of the organisation compared to customer equity, where the latter provides an approximation to the market value. The reasoning for this is supported by Keller and Lehmann (2005), who conclude that “under one set of assumptions, the value of a customer to the firm (i.e. customer equity) can be shown to be the sum of the profit from selling equivalent generic products and the additional value from selling branded goods (i.e. brand equity).”

Conclusions on brand equity and customer equity
Based on the above discussions, there are certain similarities and differences between the two concepts.

Clearly both are drivers of shareholder value, although their focuses are different. While Brand Equity metrics are relatively well established, Customer Equity metrics are still gaining acceptance.

The key differences are particularly in the focus of these two concepts: brand equity is a more product-focused driver of shareholder value, while customer equity is a more customer-focused driver of shareholder value.

In summary, it is unclear exactly how Brand Equity and Customer Equity are different, are subsets, or influence each other . Leone et al (2006) have proposed a preliminary model for relating brand equity to customer equity, but further research is advocated to test how brand equity and customer equity are related, and how investments in these are related to shareholder value.

In conclusion, it would appear that the brand equity proponents have a “head start”, with more organisations providing commercial brand valuations (e.g. Interbrand, Brand Finance, Equitrend, BrandMetrics, BrandEconomics, etc), and with further progress with the accounting fraternity in recognition of the brand’s intangible asset on financial statements.

Nevertheless, the customer equity proponents’ ranks are swelling, as more scholars advocate a customer focus to manage the organisation’s marketing programmes.


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Tuesday, July 24, 2012

Denied leave? Shoot your Senior

Compulsory leaves can go a long way in Soothing Frayed nerves of Soldiers and in Ensuring that Innovative Techniques to get leaves are Avoided

This is one way of getting yourself heard that is thankfully not being used in civil society yet. Earlier this month, a CRPF jawan Shamshad Ali posted at BJP headquarters in New Delhi fired in the air, emptying the magazine of his INSAS semi-automatic rifle as he was quite frustrated on his leave requests being denied. In November 2010, an IRB jawan Shamshair fired at his senior in the Chamba district as his leave request was denied. In December 2006, a BSF jawan, Gurmel Singh, fired many rounds from his gun because he was denied leave. In October 2009, an Army jawan, Gupteshwar, shot dead his senior after his leave was denied. In July 2007, a jawan Mohan Chand Munda, shot dead his senior after his leave was denied. And many more...

The fact is that unless the top Army brasses address this issue by the scruff of its neck, this unrepentant bias towards the jawans will continue unpardonably.

It goes without any argument that our defence personnel and their families work under huge stress. A 24x7 work profile in emergency situations further makes their life unbelievably tough. Yes, there are recreation facilities in army and other paramilitary forces, but these are confined largely to top level officials. And for the lowest in the food chain – the jawans – the only thing they look forward to throughout their tenure is moments that they can spend with their loved ones. Army personnel do get 60 day annual leaves and 30 day casual leaves.

But it’s too easy for a senior to deny these leaves; and they do too, in some cases just for upping their narcissistic ego. Can this be resolved? Yes, quite easily. Make certain number of leaves compulsory for jawans to be taken on an annual basis – at least a month, to start with.


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Friday, July 20, 2012

Change is The Call, can Society do it?

With The Government having failed to check cases of Sexual Harassment in Public Offices, ensuring The Impact of a new law Addressing The Menace of Sexual Harassment will be a Tough Challenge.

Despite the Supreme Court’s landmark Vishaka judgement of 1997, which gave a voice to India’s fight for securing protection and justice for women employees (after it became the first instance that recognised sexual harassment against women as a violation of their fundamental rights), cases of sexual harassment against women – more commonly known as ‘eve teasing’ – continue to flourish across sectors and organisations. Recent studies have revealed that sexual harassment touches lives of nearly 40-60% of working women in the country. But what actually poses as the biggest concern for victims and employees is that it is not always considered as a problem at the first place.

However, the government, possibly recognising the existence of sexual harassment as an evil in society at large, has approved the Protection of Women against Sexual Harassment at Workplace Bill, 2010. The bill, prepared by the Girija Vyas headed National Commission for Women (NCW) after consultations with several women and civil rights groups, is currently under the scrutiny of the Parliament’s Standing Committee on Women and also happens to be a part of the 31 pending bills that the government hopes to introduce in the Parliament for approval during the ongoing three-month Budget session.

Before we delve deep into the pros and cons of the draft legislation, here are some key features that the government is banking on. The bill, according to the government, seeks to ensure a safe environment for women at work places, both in public and private sectors – whether organised or unorganised. It also includes setting up of an internal complaints committee in every organisation. Considering that a large number of establishments (41.2 million out of 41.83 million as per Economic Census, 2005) in India are with less than 10 workers and setting up of an Internal Complaints Committee (ICC) may not be feasible for them, the Bill provides for setting up Local Complaints Committees (LCC) to be constituted by the designated District Officer at the district or sub-district levels, depending upon the need. This twin mechanism, says the NCW, is to ensure that women in any workplace, irrespective of its size or nature, have access to a redressal mechanism. Employers who fail to comply with the provisions of the proposed Bill will be punished with a fine which may extend up to Rs.50,000. Taking into account the possibility that the woman may be subjected to threat and aggression during the course of enquiry, she is entitled to the option of seeking interim relief in the form of transfer either of her own or the respondent or seek leave from work. The Complaint Committees are required to complete the enquiry within 90 days and a time-frame of 60 days has been given to the employer/District Officer for implementation of the recommendations by the Committee.

When it comes to understanding the intricacies involved in dealing with matters of such nature, the Vishaka vs Rajasthan case in 1997 proved as an eye-opener for the Indian judiciary and the country at large. The draft bill has also been drafted in line with the SC guidelines which were formed in the absence of any specific law against sexual harassment. These guidelines defined parameters that amount to sexual harassment, provided for preventive and remedial steps to make the workplace safe for women, framed guidelines to be followed in this context and went on to define the complaint mechanism and provisions for effective disciplinary action against those found guilty. In fact, it was only after this case that sexual harassment came to be categorised as a human rights violation. Vishaka guidelines apply to both organised and unorganised work sectors and to all women, whether working part time, on contract basis or in voluntary capacity. The guidelines are a broad framework which put a lot of emphasis on appropriate preventive measures that could be adopted. However, over thirteen years have passed since then and while the SC verdict in this particular case has been instrumental in bringing guilty to justice, there has been little improvement in the scenario in terms of making working women actually feel safe, which leads us to question : How effective the new policy will be?

According to the latest data provided by the National Crime Records Bureau (NCRB), the national capital alone accounted for about 25% of all rape cases, 1.1% higher as compared to 2008. In terms of crime against women in the country, there was a rise of 4.1% with a total of 203,804 cases registered in 2009 as compared to 195,856 cases reported in 2008. But what is notable is that records such as these only indicate the number of cases registered and do not have provisions to account for cases which never got reported. So, while the figures might lead you to believe that such incidences are declining, the other side of the story could also imply the hesitation among victims to go ahead and report unapproved advances by their superiors or counterparts. Also, there is no in-depth analysis to ascertain the causes behind the rise or decline in these numbers. Crimes against women include rape, kidnapping and abduction, dowry death, torture, molestation, sexual harassment, immoral traffic and indecent representation of women. The number of sexual harassment cases reported under section 509 IPC has decreased by 9.9% over the previous year (12,214). Andhra Pradesh has reported 32.0% of cases (3,520) followed by Uttar Pradesh 22.9% (2,524). Andhra Pradesh has reported the highest crime rate of 4.2% as compared to the national average of 0.9%.


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Thursday, July 19, 2012

Stay Poor, stay Dangerous

Stockpiling Nuclear Weapons is not The Solution to Pakistan’s Problems

The nation founded by Mohammad Ali Jinnah is hardly doing any justice to his vision, for it is busy stockpiling more nuclear weapons than what India has in a rat race of South Asian nations. David Albright, President of the Institute for Science and International Security, has predicted that Pakistan’s nuclear warheads have crossed the 100 mark, compared to India’s stockpile, estimated to be between 60 to 90. Pakistan had 30 to 60 weapons in its arsenal in 2007.

Pakistan is among a few countries rapidly increasing their nuclear warheads despite economic vulnerabilities and social stigmas. Why is Pakistan doing this? There are diverse reasons for that. Firstly, insecurity – it constantly wants to be in the limelight for being among the most important players in world diplomacy; and nukes apparently play up the importance level (aka Russia). Secondly, having more nukes means being perceived as more unstable; the result – US gets involved more and greases the palms of Pakistani military and political personnel more handsomely to control them! Thirdly, to be perceived as the leader of the Muslim world. This is the below the line objective of the Pakistani establishment as currently, Saudi Arabia is miles ahead in this regard.


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