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BW Businessworld

A Changing Realty

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A consensus between warring political parties may see the contentious Land Acquisition, Rehabilitation and Resettlement Bill through the current Parliament session. The urgency to replace the 119-year-old Act with something more equitable has overshadowed power play. However, these glimpses of sanity may still be overrun by the all-out war that has broken out on the joint parliamentary committee’s report on the 2G scam. The Bill seeks to balance farmers’ demands with the need for land for industry and infrastructure. Land for ‘public purpose’ has been defined, and acquisition by private projects requires the consent of more than 80 per cent of stakeholders.

Also, buyers will have to pay twice the market value for urban land, and four times for rural land. Finally, there seems to be some hope that the knotty issues around land acquisition can be resolved.
Simultaneously, the stiff norms on special economic zones (SEZ) are being eased. The Centre is moving towards reducing the requirement of 10 hectares of minimum land area for setting up IT/IT-enabled services SEZs. “The exit policy will ensure that SEZ developers in trouble can exit projects without the SEZs having to suffer,” says Sanjay Dutt, MD of broking house Cushman & Wakefield.
 —Gurbir Singh
Home Truths
Sometimes, when numbers don’t add up, you divide them. A case in point is the share of housing in households’ net worth, currently clubbed with commercial realty by the Central Statistics Office.

Reserve Bank of India executive director Deepak Mohanty feels it’s time a distinct component — that of households’ investment in residential property — is carved out to get a better idea of the contribution of housing to a
BW Pic by Bhivash Bannerjee
household’s net worth. It will also help  calibrate policy to spur investment — at the household and corporate levels, and home in on asset-bubble drivers, something that former RBI governor Y.V. Reddy was interested in.
— Raghu Mohan
Back To Basics?
So how should telecom operators get spectrum in the future? That’s the big question a Department of Telecommunications (DoT) panel is looking to address after two rounds of spectrum auctions in FY13 yielded less than a third of the targeted Rs 40,000 crore for the Centre. In September 2012, the Supreme Court said that auction is not the only means for selling spectrum, though there should be price discovery. The DoT panel believes it can go back to allocation of spectrum to operators.

After all, till the apex court cancelled 122 licences last year, it was the methodology followed to provide spectrum. While that is easy to say, it may open up a can of worms because there is no price discovery in allocation. But for now the mandarins at Sanchar Bhawan are poring over their
2014 is the deadline for state-run banks to trim their dud loans to 1 per cent
(BW Pic by Sanjay Sakaria)
books to see if they can go back to an old solution to an old problem. Things will be clear once the panel submits its report.
— Anup Jayaram

A Preference For Equity
You can’t have your cake and eat it too. Finance minister P. Chidambaram has asked state-run banks to declare a minimum dividend of 20 per cent for 2012-13. As owner, it is within North Block’s remit to seek a hefty dividend to plug the fiscal gap. But banks have also been extolled to lend in an adverse credit market. According to the December 2012 Financial Stability Report, gross dud loans rose to 3.6 per cent in September 2012 from 2.9 per cent in March; the net figure stood at 1.7 per cent and 1.2 per cent at the end of these periods. Another diktat is that banks trim their gross dud loans to 1 per cent by 2014. 
You have to be a Houdini to give out loans in tough times, provide for non-performing assets, and still have some left in the kitty. North Block’s move to set a threshold for dividends means it ‘effectively’ views its equity holding in state-run banks as preference shares, wherein it gets a fixed income. While you do convert preference shares into equity when dividend is not paid for a certain period, Chidambaram’s turned the logic on its head!
Italian businessman and con artist Charles Ponzi

— Raghu Mohan
Need For A Chit Fund Alternative
The collapse of the Saradha Group in West Bengal has reportedly resulted in two suicides already. And it is estimated that hundreds of thousands of the very poor in West Bengal have lost their life’s savings. It is by no means the first Ponzi scheme that has ruined millions of India’s poorest citizens — and it is unlikely to be the last. 
Politicians and financial regulators need to share blame for this. Such schemes often flourish because their promoters are close to politicians. And lax financial regulations allow these firms to carry on their business for years. 
The bigger issue is that the very poor often do not have an alternative to chit funds when it comes to investing — and many of these Ponzi schemes are run by rogue chit fund firms. The problem is that only chit funds are willing to accept the minuscule
sums of money that the very poor can invest. And they are the only ones who have a network of agents that can service this section of society. The failure of the Indian financial system is that there is still no alternative to chit funds for this section of society.
The Return Of ‘Budget’ Housing
Recent data seems to indicate that the recessionary grip on commercial real estate has now extended to the residential market. A study by Knight Frank Research shows that in the first half of FY13, the National Capital Region (NCR) saw a 31 per cent dip in new launches from the corresponding period in the previous year. The NCR market also had around 140,000 units of unsold stock, and 27 per cent under construction. However, Greater Noida recorded a 40 per cent increase in project launches over April-September 2012 indicating that developers are turning to the ‘affordable’ segment again. Another report by researcher Liases Foras highlighted that there were more launches in the budget segment. The price of new launches, the report said, was 24 per
cent lower than that of existing supply. New launches are mostly in the Rs 25-50 lakh segment. 
— Gurbir Singh

Contract Controversy
The Central Electricity Regulatory Commission (CERC) recently allowed two power projects — Tata Power’s 4,000 MW ultra mega power plant and Adani’s 4,260 MW plant — to revise tariffs and get compensated for losses. The two power producers were among those who have asked for a revision of tariffs originally agreed upon in the public-private agreement. The producers had argued that the Indonesian government had suddenly changed its rules and that had played havoc with their initial calculations. 
They have a point and they deserve some sympathy. But the bigger issue is that changing the terms of a contract within a few years of signing it sets a bad precedent. Also, it can lead to endless litigation — the bidders who lost out in these projects are sure to sue on the ground that if they knew that there was a possibility of the original tariffs being revised, they would have matched Tata Power’s and Adani’s original quotes. ­
— P.B. Jayakumar

One More Bites The Dust
IT’s yet another knock for an Indian drug firm. Wockhardt is the latest to join the list of Indian firms — Ranbaxy’s
Wockhardt joins a long list of Indian drug firms failing to meet FDA’s stringent standards
two Indian units, Sun Pharma’s US unit Caraco Pharmaceuticals, Lupin, Zydus Cadila, etc. — failing to meet the good manufacturing practice standards set by the US Food and Drug Administration (FDA). Now, FDA has dedicated inspection teams in India, the largest supplier of generics in the US market, thus raising a huge question mark on the quality standards followed by Indian pharma. The FDA’s message is clear — maintain quality, else, forget the world’s largest and most profitable generics market.  
— P.B. Jayakumar

Not A Unanimous Vote
There are many dissenting voices when it comes to giving the finance ministry charge of managing capital inflows into the country. The report by the Justice Srikrishna Committee, with a draft for the new ‘Indian Financial Code’, has been submitted with four of the seven committee members writing dissenting notes. While P.J. Nayak, the former Morgan Stanley India head, is among those opposing the chairmanship of the Financial Stability Development Board being vested with the finance ministry, veteran auditor Y.H. Malegam and former deputy governor of the Reserve Bank of India (RBI) K.J. Udeshi objected to the Centre being charged with managing capital inflows into the country, hitherto an RBI function. These members point out that India’s finances are managed better with bodies like the RBI taking financial decisions. 
So, even if ideally in a democracy the government should have the last word, history paints a different picture altogether. 
— Abraham C. Mathews

Blue Vs Red
There’s an IPL battle raging, and it’s not on the field. Cola rivals Pepsi and Coke are at war outside Delhi’s Feroz Shah Kotla stadium. Even as Coke sold its 400 ml bottle for just Rs 10 near the official IPL sponsor’s turf, Pepsi promptly responded by giving away its new launch, Atom, for free!

Patent Pain: The Right Way?
Drug multinational Novartis risked litigation in India, but retained the global price of its cancer drug Glivec. Merck sought to enjoy patent protection on its diabetics drug Januvia by taking a conciliatory route — announcing a country-specific price, and allowing Sun Pharma to sell an authorised generic. Both cases ended in court — the former’s already decided, and the latter’s being heard. While Novartis’s unwavering stance didn’t work, a judicial decision will show if Merck’s middle path is the future.
— Joe C. Mathew

Is This Disguised Protectionism?
The draft of a proposed bi-partisan Bill circulated in the US could potentially cripple the Indian IT services business. The US remains Indian IT’s largest export market, and while the H1-B visa cap is proposed to be raised from 65,000 to 110,000, other caps have been proposed with respect to the number of foreign workers firms can deploy in the US. Movement under the L1 visa, which governs intra-company transfers between countries, could become tougher. 
Industry body Nasscom is apprehensive about the proposed legislation and is trying to figure a way out. The VP of a large Indian IT firm, on condition of anonymity, says, “Legislators  would like to preserve jobs, that’s understandable. However, even some of the leading US tech firms acknowledge that there aren’t enough skilled people available. If this Bill is implemented in the current format, it will destroy our business model, increase costs for everybody, including our American clients. I hope better sense prevails.” Indian IT firms will be hoping so too.
— Venkatesha Babu
Highway Cover-up
Hoardings along NH8 are under cover. Not fearing an air raid, but in keeping with a 2000 ruling by the Punjab and Haryana High Court disallowing hoardings along highways. The ‘rediscovered’ ruling has irked contractors who claim to have official sanction. Who will blink?
Shopping for Funding
After frenetically pumping about $700 million in two years, the investor community’s enthusiasm towards the blue-eyed e-tailers seems to be flagging. The sector has not shown profitability and venture capital firms are getting anxious, says Mahendra Swarup, president of the Indian Venture Capital Association. Firms like Timtara,
Indiaplaza, 99labels and SeventyMM have been struggling to raise money in a slow economy and highly regulated space — regulations disallow any foreign funding in e-tailing. As firms struggle to raise funds, a recent white paper by industry body Internet And Mobile Association of India said, “There is a substantial investor interest in this new sector and an ‘open’ FDI (foreign direct investment) regime is likely to lead to considerable investments.”

Zero profits and regulations in the sector are keeping private equity players out of the game. But if the money-guzzling sector does not attract investments soon, it will be an end to a journey that has just begun.
— Shrutika Verma

Take A Sip, Slow Down, And Relax!
After fizzy energy drinks, what next? Slowdown sodas, of course. Melatonin, valerian root, rose hips and passion flower are the merry mixers that relax when laced with soda. And they’re being commercially marketed in the US as ‘anti-energy’ drinks. Unwind, Drank and Marley’s Mellow are some offering “relaxation in a can”. But at the recent Indian Beverage Association meeting in Delhi, food law expert Andreas Kadi flagged the disquieting trend of anti-energy drinks. “If you need relaxation, why not tea,” he asked!
— Chitra Narayanan

The King’s Dead. Long Live The King
An obit accidently published by Reuters said, “George Soros, who died XXX at age XXX, was a predatory and hugely successful financier and investor...” This faux pas puts the business magnate in the league of many other dignitaries who have been prematurely declared dead by the media, such as Steve Jobs, Mark Twain, Whitney  Houston, and Alfred Nobel, whose 1888 obits called him a merchant of death. In 1895, he instituted the Nobel Prize — a year before his death. Maybe others can use these “errors” to decide what legacy to leave behind.  
— Shruti Chakraborty

(This story was published in BW | Businessworld Issue Dated 20-05-2013)