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BW Businessworld

Goodwill Hunting

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By inviting each other to New Delhi and Islamabad, Indian PM Manmohan Singh and his Pakistani counterpart (in waiting) Nawaz Sharif have already made a good beginning. The gesture needs to be followed up with Sharif granting India the most favoured nation (MFN) status, while also handling political hardliners who are against better Indo-Pak relations, and allaying fears of Pakistan’s pharma and auto industries. Since India has already granted the MFN status to its neighbour, we should now convince Pakistan that a reciprocal action will result in more than doubling of the current bilateral trade estimated at $2.4 billion. 
 
While easing trade restrictions can help India access more petroleum, chemicals, cement and processed foods, Pakistan will gain access to much-needed support in the services sector, IT and healthcare. Better economic integration will also help Pakistan develop its R&D capabilities in tech-intensive sectors. The focus, right now, should be on building good trade relations, even if it means placing tariff cuts in agriculture, pharma and other items in the ‘negative trade lists’ on the back-burner. Such positive gestures by the two PMs can go a long way in strengthening Indo-Pak trade, provided the leaders translate this into time-bound action plans.  
— Joe C. Mathew
 
Calling In For The Big Bucks
Will it be a case of once bitten, twice shy? Asset managers definitely hope not. They’re reposing great faith in alternative investment funds (AIFs) as a means to earn some quick money from rich investors. Thanks to the market regulator allowing money managers to float Category-III AIFs (with minimum individual investment of Rs 1 crore), they hope to make big bucks by selling exotic investment products. These AIFs are expected to employ complex trading strategies, including the use of listed or unlisted derivatives, to maximise investor returns. But will millionaire investors take the bait, having already lost a lot of money during the 2007-08 market slump?
— Shailesh Menon
 
Mission Makeover
Even though passenger car sales have been going down in totality, the sale of newly launched variants and models have been going up vis-à-vis the older models. New models launched this year, such as Hyundai Elantra and Renault Scala sold 4,966 and 6,175 units, respectively, between January and April. In the same period, successful models such as the Volkswagen Jetta sold 3,152 units, while Honda Civic sold 1,095. Most firms are set to launch more versions in 2013 than newer models, so you will have facelifts of all the successful models from the stables of Maruti Suzuki, Tata Motors, Chevrolet, Fiat, Hyundai and Volkswagen. Most of these will be popular hatchback models that rake in volumes for automobile manufacturers. 
— Sachin Dave
 
RBI has asked the Centre to take a soft approach towards illegitimate investment firms
A Gentle Rap
The Centre’s decision to strike down illegitimate chit funds and multilevel marketing schemes has not gone down well with senior officials of the Reserve Bank of India (RBI) and some policy pundits. In a meeting between ministry officials, regulators, and policymakers, RBI officials told the finance ministry that such tough measures may lead to a run on these institutions, resulting in severe losses to small investors. It may also give scheme managers reason to scoot without repaying investors. The officials advised the ministry to adopt a ‘mild, cautious approach’ while dealing with illegitimate investment firms  so that they repay investors before being forced to shut shop. Now, that makes sense as millions of Indians have parked their hard-earned money with dubious investment firms and fly-by-night operators in search of astronomical returns.
— Shailesh Menon
 
Will It Be Plane Sailing?
Can seaplanes take the harassed commuter off the road and into the skies? The Kerala government believes so. It has put in motion an ambitious seaplane tourism service to ferry tourists from the airport to the backwater resorts. Thiruvananthapuram, Kochi, Kozhikode and Mangalore (Karnataka) will be connected to the Ashtamudi and Vembanad lakes, Kumarakom and Bekal. State tourism secretary Suman Billa says Kerala has
declared an open-sky policy for seaplanes and five operators are already on board. The state gets 800,000 international and 10 million domestic tourists a year. Maharashtra is set to follow suit with Maritime Energy Heli Air Services, India’s first seaplane operator to the Andamans, which is planning to take off from Mumbai in June and glide down on lakes near Shirdi, Aamby Valley and Lonavala. With a 7,500 km coastline and beach destinations such as Goa and Kerala, it’s surprising that seaplanes haven’t taken off in India so far.

Will the amphibian service clear the choppy waters this time around?
— Chitra Narayanan
 
Rolling Out In All The Right Places
In a metals market that’s all dented, US-based Novelis, a subsidiary of Hindalco Industries, seems to be the sole player to buck the trend. Its $1.5-billion investment for the two years
ending FY14 is delivering returns. Its profit for FY13 went up by 125 per cent. Its record investment of $775 million to expand facilities that make cans, auto parts and specialities has paid off, giving it an edge over competitors. It will deploy $700-750 million more this fiscal. The firm benefited from the fact that the markets — in North America, Europe, Asia and South America — for its key products in the auto and construction industries have been steadily expanding. Moreover, competition in the packaged beverages market is expected to help Novelis do well too. It is also reducing costs by selling its non-core foil plants in Europe and shutting down its smelter pot line in Brazil. So far, Novelis seems to be riding all the right waves.
— Nevin John

On Board, Above Board
It’s time the bar be raised for the appointment of directors to the boards of state-run banks.
‘There is inadequate understanding of risk due to the lack of expertise among directors’ — A. Sinha, RBI
BW Pic by ABP

Reserve Bank of India deputy governor Anand Sinha hit the nail on its head when he said there is inadequate understanding of risk due to the lack of expertise among directors and that it hampers effective and timely decision-making.
 
Currently, a graduate with academic or practical experience in agriculture, rural economy, banking, economics, management, finance, law, marketing, industry or IT can qualify to be on a bank’s board. This holds for part-time, non-official directors also, but in this case, external influences play a role.
 
S.K. Gupta, a CA close to former railways minister P.K. Bansal, made it to Canara Bank’s board, and allegedly influenced the clearing of loans in favour of Bansal’s kith and kin. This reflects poorly on the corporate governance in practice. Now, North Block wants the Intelligence Bureau to vet appointments. But the point to be remembered is that both integrity and calibre have to be a given in these complex times.
— Raghu Mohan
 
Living Dangerously
More than 8.6 million people in India, Indonesia and Pakistan have been
exposed to health threats because they have been living near toxic waste sites since 2010 at least, says a recent report by BlackSmith Institute. This is almost 7 per cent of those at risk across 49 low- and middle-income countries. What’s alarming, though, is that India is completely unprepared to deal with the situation.

The environment ministry recently said that the country generates around 7.9 million tonnes of hazardous waste annually, with just 17 partially operational facilities to dispose this waste. The rules require each state, and we have 28 of them, to have scientific disposal sites and thorough management of all toxic elements generated in its industries. Hopefully such reports will provide the necessary trigger for the Centre to be proactive while dealing with toxic waste.
Moyna

The Obsession With E-tail
Has the big boom in Indian e-tailing come at the cost of innovation elsewhere? In the past three years, 45 per cent of all Indian startups have been in this space. Venture capitalists (VC) and other investors poured in 30-40 per cent of their funds into this one sector — probably enticed by the promise of easy money or swayed by the dominant trend. Entrepreneurs who tried their hands in other domains like healthcare and services also ended up as e-tail firms — replicas of Amazon, Groupon, etc. Take, for instance, LifeMojo (which started as a health information provider), Naaptol (a price comparison platform) and Seventymm (which operated as a movie rental library for a long time) — all eventually converted to e-tailing  models. “The trend was led by VCs who moved most of their invested entities to product selling,” says Indian Venture Capital Association president Mahendra Swarup. In fact, it is safe to say that were it not for the ‘e-tail obsession’, the Indian startups scenario may have looked entirely different today.  
— Shrutika Verma
 
Probing The Price Parity Policy
The new pharma price-control policy, which came into effect on 15 May, is set to dent the profits of the Rs 67,000-crore Indian pharma industry by nearly Rs 1,000 crore a year. It brings all 614 formulations in the National List of Essential Medicines under price control. This means that the government has made it mandatory for the drug firms to price these medicines at an average of the prices of all brands with 1 per cent marketshare, instead of the cost of production. Even though the policy has been largely welcomed for its transparency, the NGO, All India Drug Action Network — whose public-interest litigation (PIL) to the Supreme Court triggered the introduction of the policy — has slammed it, saying only 30 per cent of all commonly used medicines fall under its purview. 
 
The last word on the policy, however, is not yet out. After all, the apex court is yet to decide on the PIL, which now alludes that the policy is open to manipulations.
RBI should come clear on whether it regards put and call options in equity investments as ECBs
— Joe C. Mathew
 
Putting Pressure On The Central Bank
With the law minister approving put and call options in equity investments, investors finally have some clarity on the Centre’s opinion on return on equity investments. Alas, for foreign investors, the uncertainty remains with the Reserve Bank of India (RBI), which has so far been refusing to accept the validity of options with guaranteed returns. RBI argues that guaranteed returns make the investment akin to debt and, thus, it needs to comply with external commercial borrowing guidelines. But since this diktat has always been on a case-to-case
basis, investors have worked around the system — leaving the door open for unscrupulous promoters to renege from their ‘commitment’ at the time of exit. It’s high time RBI took a public stand on this. 
— Abraham C. Mathews

Playing To The Gallery
After repeatedly slamming the previous BJP government for financial mismanagement and ‘populist decision-making’, Karnataka’s new chief minister K. Siddaramaiah seems to be doing the same thing. He has begun his tenure by announcing sops that will cost the state Rs 4,400 crore — a strange start from a man who has been the state finance minister for seven years before and knows this is an expense the state can ill afford. The sops include supply of 30 kg of rice at Re 1 per kg to below poverty line families and enhanced subsidy for milk producers, among other measures. While some economists feel that having obtained an absolute majority with no coalition compulsions, Siddaramaiah should have been more prudent, the new CM has defended his action saying that he
was only implementing the party manifesto. Clearly, with parliamentary elections less than a year away, the new CM is going all out to woo the voters.
— Venkatesha Babu
 
Waiting For A Power Boost
The petroleum ministry’s nod to give equal allocation of domestic gas to the four core sectors — fertiliser, LPG extraction plants, power and city gas distribution — has brought  relief to the 15,000 MW of stranded gas-based power capacity in India. Currently, fertiliser plants have the highest priority. If the decision is backed by an empowered group of ministers (EGoM), the power sector will get an additional 10 million metric standard cubic meter per day (mmscmd) of gas, along with 10 mmscmd from the new finds of ONGC and Gujarat State Petroleum Corporation. This addition is expected to bring up the plant load factor of the gas-based power plants to 50-55 per cent. This is good news since domestic gas availability had come down drastically after a fall in output from KG-D6 fields, resulting in supplies to power plants altogether stopping.
Chhavi Tyagi
 
How Much Should You Really Know?
The sting operation by Cobrapost, which showed that bank officials often give a miss to Know Your Customer (KYC) norms, may have an unintended fallout: more bureaucracy. This is 
worrisome since one of the major reasons that prevent the spread of banking in the country is a dogmatic approach towards KYC — many just don’t qualify to be bankable.
 
While errant bank officials need to be punished, one must accept that part of the problem is the high-pressure work culture at banks — causing officials to push the customer to buy their product or service. Failure to meet targets means a promotion or hike forgone. This instils a false sense of urgency to meet goals and some cold-shoulder KYC norms. 
 
The exposé highlights that it’s time authorities looked at what all needs to be done by way of KYC norms. Hopefully, systems such as Aadhaar and the National Population Register card will help settle some of the issues related to KYC.
— Raghu Mohan

A Single-click Window To All Hotel Bookings
Interglobe Technology Quotient has just brought Travelport’s booking tool Rooms and More to India. This puts global aggregators of hotel rooms on one platform, allowing travel agents to access, compare prices and inventory of over 450,000 hotel properties in one go. More are expected to come on board soon. This is good news for travellers who stand to get more choices, better prices and quicker bookings. Only question is, for how long? With airlines trying to woo buyers back to their sites and away from aggregators, will hotels do the same as well?
— Chitra Narayanan

(This story was published in BW | Businessworld Issue Dated 17-06-2013)