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Bittersweet Tidings

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The sugar industry has for long battled  two problems: One, the Centre’s restriction on open-market sale of sugar and the requirement that mills sell 10 per cent of produce to the Public Distribution System at subsidised prices. And two, the perennial protests by farmers against the low price of sugar cane. 
C. Rangarajan, chairman of the Prime Minister’s Economic Advisory Council, tried to address both problems in his October 2012 report. In April, the Centre addressed the first problem by announcing complete flexibility to millers to sell sugar in the open market. In doing so, it has cleverly passed on the responsibility of handling the farmer’s issues — that of cane pricing, regulation of cane areas and the restrictions on supply of raw material to the sugar mills of his choice — to the states. After sugar economics, is it time for some sugar politics?
 — Joe C. Mathew
It’s All About Timing!
the times they are a changin’ at Mint Road. It now has flexi hours — you can walk in at 8 am and leave at 4 pm, or opt for the 11 am to 7 pm slot. The core hours of 1-4 pm are sacrosanct. At the moment this is only for the 3,065 Grade-B officers and above across the country, but the Reserve Bank of India (RBI) intends to extend this facility to all its 18,132 employees. 
RBI’s move, at first glance, may appear to fly in the face of reason: anecdotal evidence shows public servants are the nation’s ‘best’ time-keepers. But flexitime will help them use their time more ‘productively’. You now have the means to strike a work-life balance. It may not be as cool as ‘work-from-home’, but follow-on benefits include a cut in peak commute hours and fuel costs. 
Germany brought in flexitime in 1967 to tackle travel woes, and its efficiency is second to none.

Hewlett-Packard did the same in the US in 1972. A decade later, the US Congress passed the Federal Employees Flexible and Compressed Work Schedules Act — allowing employees the choice of either flexitime or a 40-hour work week. You can quibble, but bigger smiles usually lend themselves to higher productivity. It’s time other parts of the government machinery followed in RBI’s steps. 
— Raghu Mohan
Case Ends, Job Begins
The Supreme Court ruling disallowing pharma firm Novartis patent protection and, hence, no exclusive marketing rights for its anti-cancer drug Glivec in India, may have made things more difficult for the Indian patent office. While the jury is still out on whether this decision will have an adverse effect on pharma innovation, the patents office has to now make sure all patent applications pass the Section 3(d) test of the Indian Patents Act — which leaves room for genuine inventions but checks “repetitive patenting or extension of the patent term on spurious grounds”.

With many pending applications, it may prove to be a tough job, and any lapse will ensure more patent fights between the Indian generic drugs industry and innovators.
— Joe C. Mathew

3-8% negative returns have been generated by infra funds in 5 years
Missing The Mark
Infrastructure funds, which were launched in 2006-07 with tall claims of fabulous long-term performance, have failed to live up to expectations. These funds have generated 3-8 per cent negative returns over the past five years. Infrastructure-themed funds piggybacked on the India growth story during 2006-07, prompting people to invest heavily in these schemes. As per fund tracker Morningstar’s analysis, the net asset base of infra funds swelled from Rs 5,000 crore in 2006 to about Rs 20,000 crore in September 2009, driven by intermittent market rallies. However, extreme bearishness of the past three years starting 2010, coupled with rapid investor redemption and mark-to-market losses, eroded the asset base of infra funds to around Rs 7,600 crore by end-February — making it the lowest level of assets these funds have managed since mid-2007.

“Infrastructure stocks are trading at multi-year lows. Investors should stay invested for at least one more year to get a profitable exit from these funds,” says Srividhya Rajesh, equities fund manager at Sundaram Mutual Fund.  
— Shailesh Menon

Dud Discounts
Passenger car sales  for March fell by 20 per cent, the steepest decline in 12 years for India’s auto industry. The fall, across companies and models (barring sports utility vehicles, sales of which were up 20 per cent), has come despite the heavy discounts ranging from Rs 25,000 to Rs 38,000 offered by most car makers, leading one to question the utility of discounts to drive sales. “The macroeconomic situation being what it is, discounts are obviously not enough to drive sales,” says an Abdul Majeed, head, automotive practice, at PricewaterhouseCoopers India. Companies, however, argue that had discounts not been in place, things would’ve been even worse.  
— Swati Garg

A Road Map For The Infra Sector
Breaking a year-long deadlock on sales of road assets, infrastructure firm IVRCL sold three of its Tamil Nadu road projects, worth Rs 2,000 crore, in April to Tata Realty and Infrastructure for an undisclosed sum, and is also looking to exit three more. However, with the continued economic slowdown, many infra firms are looking to sell assets since finding funds for these projects has become very difficult, alongside dealing with existing debt burden. As a result, they are also hard-pressed to put up the equity component for new projects. So far, buyers and sellers had been unable to agree on the variables that determine the final sale price — traffic growth, discount rate and long-term inflation. Sources say that in the IVRCL deal, inflation has been pegged at 5 per cent (long term), traffic growth at 4-5 per cent, and the discount rate is around 16-17 per cent as IVRCL exited at a premium. Industry sources say this deal will set a precedent for similar and much-needed buyouts in the sector.   
— Anjuli Bhargava

To Pool Or Not To; Pricing Holds Key
While a proposal to pool domestic gas with imported LNG to feed stranded gas-based power stations may look appealing, the possibility of such a move sparking a price hike has raised many red flags. In the case of ‘pass-through’ contracts (where consumers take the hit), politicians won’t allow producers to hike tariffs and, in the case of ‘non-pass-through’ contracts (where producers bear the brunt), distributor firms will be unwilling to take any hit. “Pooled price is an excellent step to move towards a market-based mechanism, but it may take years for it to happen,” says Deepak Mahurkar, leader, oil and gas, PricewaterhouseCoopers India. Even power minister Jyotiraditya Scindia has said, “It will only make sense if the base is large, which is not the case with gas-based power capacity.”
 — Chhavi Tyagi

Not In National Interest
A few within the government and outside, including Union commerce minister Anand Sharma, are keen on closing the India-European Union free-trade agreement (FTA) at the earliest. But does it make sense to hurry when the European Union (EU) is yet to recover from the ongoing economic slowdown? India already has a negative trade balance of nearly a billion euros in the €80-billion trade between the two regions. 
Penny-pinching EU members could widen the trade deficit to India’s disadvantage. India’s dairy, pharmaceuticals and automobile sectors are already crying foul over the negative implications of the proposed pact, while sectors related to software services are hopeful, even though EU has not agreed to India’s demands to ease outsourcing norms in order to facilitate export of services.
Of the 17 free-trade pacts and comprehensive economic partnerships that India has signed thus far, it enjoys a positive trade balance with only small countries such as Singapore and Sri Lanka.

Another one may not be the best idea. Rather, timing the conclusion of the FTA with an EU recovery may be a better bet. 
­— Joe C. Mathew

Hello, Brother!
Proving the adage that blood is thicker than water, Mukesh and Anil Ambani have taken the first step to synergise their telecom operations. Mukesh’s Reliance Jio Infocomm (RJIL) and Anil’s Reliance Communications (RCom) signed a Rs 1,200-crore agreement for sharing the latter’s 120,000 km, nationwide optic fibre network to roll out broadband wireless services. RCom will also have reciprocal access to RJIL’s optic fibre infrastructure. More importantly, this is said to be the first in a series of business deals to utilise the existing and future infrastructure of both firms. The next deal could relate to RCom’s tower assets. While the Rs 1,200 crore will not do much to reduce RCom’s net debt of Rs 37,360 crore as of December, it will ensure it gets a steady stream of income once RJIL starts services later this year. But what is abundantly clear from this deal is that the brothers are back to fighting telecom battles together. It’s time the other operators got their act in place.
— Anup Jayaram

Blowing In The Wind
It’s a battle of the elements — wind vs sun. In spite of being at the receiving end of unprecedented support from the Centre, solar accounts for a mere 20-22 per cent of the total renewable energy sources used for power generation. Wind, on the other hand, accounts for over 70 per cent. And the credit goes to the private sector “which has taken the initiative and put in place efficient systems with or without government support”, says a senior official from the renewable energy ministry. In FY13, India added 1,282 MW of wind and 505 MW of solar energy capacity, according to the ministry, bringing the total capacity to 18,635 MW and 1,446 MW, respectively. This is despite the Centre’s withdrawal of two subsidies — generation-based incentive and accelerated depreciation — to the wind sector in 2011.
­— Moyna

Waiting For The World To Change
With infosys posting disappointing results, other IT services firms are expected to also report tepid volume and revenue growth, primarily because of the still fragile demand environment in their global client base. Analysts expect a mere 2-3 per cent growth in volumes. Traditionally, the March quarter is a lean one as Indian IT’s global clients finalise their budgets during this time. Also, news trickling in from global players like Accenture and Oracle, who recently declared their quarterly numbers, have not been very encouraging. While Accenture lowered its revenue guidance, Oracle failed to meet market expectations. Dipen Shah, head, private client group research, Kotak Securities, says, “Slower growth in discretionary spends and client-specific ramp-downs are expected to impact growth of select companies, especially mid-caps. The cross-currency volatility impact is expected to be marginally negative. Average realisations are expected to remain stable, barring a few cases of decline.” Indian IT is in for a long, slow recovery unless the global demand situation changes drastically.  
— Venkatesha Babu

Anything For A Perfect Score
100 per cent placement claims by B-schools may not be all true
There’s more to the tall annual claims of ‘100 per cent placement’ by top B-schools, including the IIMs. Students say that ever since the 2008 slowdown, those without job offers during placement season have been forced to either sign a contract saying that they have ‘voluntarily’ opted out of the placement process, or accept any job that comes their way, to make the big numbers. “The placements have been sluggish partly because of lower campus hiring by growth-challenged firms and partly because of student dissatisfaction with offers,” says Rekha Sethi, DG of the All India Management Association. Some colleges, like IIM Lucknow, have even enlisted private placement agencies to help with the placement proces
Shrutika Verma
AirAsia Prices Itself Low To Soar High
In early April, Malaysia’s low-cost airline AirAsia dropped fares on routes to South-east Asian destinations from India, creating something of a stir in the low-cost market for outbound travel. One could book tickets for destinations such as Bangkok and Kuala Lumpur from India for as little as Rs 3,500-5,000. While the move had nothing to do with the airline’s proposed Indian venture, industry sources described it as the “shape of things to come”. 
AirAsia is known for using ‘pricing’ as the big differentiator and it leaves no stone unturned in using low fares to stimulate and grab market share. 
The carrier has, in fact, not had an easy ride in India — it was forced to reduce its presence as it found charges at some airports exorbitant. But it is hoping its second landing will be smoother.

Currently, Malaysia, with a population way lower than India, has more aircraft, observes AirAsia CEO Tony Fernandes. “There’s a monstrous market opportunity in India”, he says. 
— Anjuli Bhargava
Dark Future For CIL
There is talk of either dismantling CIL or allowing other players into the coal sector
Claiming to have suffered a loss of Rs 11,000 crore due to poor coal quality, NTPC has refused to pay CIL Rs 2,000 crore for deliveries made over the past few months. NTPC is just the latest in a long line of unhappy parties, with CIL having earned the dubious distinction of being the only public sector unit unable to satisfy anyone. Its largest minority stakeholder, The Children’s Investment Fund, has accused it of not protecting stakeholders’ interests by supplying coal at low prices, while the Prime Minister’s Office has berated the coal major for its inability to ink fuel supply pacts with power producers. India’s coal monopoly, Coal India (CIL), apparently can’t keep any of its stakeholders or clients happy. Its latest run-in with NTPC over the quality of coal may expedite the Centre’s plan to dismantle CIL into multiple entities to ensure better coal production and distribution. 
Over the years, CIL has made several adjustments to satisfy all parties but without much success. One of the ways forward for the sector may be to end CIL’s monopoly, allowing other players to enter the fray.
— Chhavi Tyagi

You Pollute, You Pay
Firms flouting green norms in India are beginning to face the heat. The latest is Sterlite Industries, which was ordered to pay Rs 100 crore by the apex court to continue production at its Tuticorin copper smelter (ordered shut by the Madras High Court). Last year, the Himachal Pradesh High Court had fined Jaypee Associates Rs 100 crore for flouting green norms. The biggest example for the ‘polluter pays’ principle globally is BP — forced to set aside $20 billion to meet potential claims for damages, in addition to fines and criminal liability — after its 2010 oil spill in the Gulf of Mexico. It is hoped that the Centre, which has had a patchy record in enforcing such liability (case in point, the Bhopal gas tragedy) so far, will take action.
— Abraham C. Mathews

(This story was published in BW | Businessworld Issue Dated 06-05-2013)