No Reason For Cheer

The Reserve Bank of India’s move to cut the statutory liquidity ratio (SLR) by 50 basis points to 22.5 per cent from the fortnight beginning 14 June hides a bitter reality. Currently, banks hold nearly 29 per cent by way of SLR — 6 per cent more than what they are required to hold in government securities. Banks prefer to park funds here than lend to industry — it is not just a secular lack of demand for credit but also the fear of bad loans. The gross non-performing asset (NPA) ratio at the aggregate level stood at 3.6 per cent in March 2013, up from 3.1 per cent in March 2012. So, while technically banks will have an additional Rs 39,000 crore to lend, they are not going to do so in a jiffy. Also, remember, if banks were to rush to sell government securities to generate funds in the unlikely event of a sudden spurt in credit, it will create its own set of headaches in the bond market where yields rise when prices fall. For now, be happy that SLR is at its lowest since 1964.

— Raghu Mohan

The FM’s Dilemma
inance minister Arun Jaitley has indicated that he intends to practise strict fiscal discipline even as he tries to increase economic growth. But does he have any easy choices ? An additional Rs 23,000 crore has to be spent on food subsidy thanks to the National Food Security Act which was passed in the last year of UPA II, with BJP’s help. Unless he wants to upset the apple cart, it’s hard to cut this outgo. There is some room for reducing petroleum subsidies, provided he is willing to take the flak on account of higher diesel prices. On the Plan side, he could try cutting some of the Rs 78,452 crore provided for the ministry of rural development, since everyone is questioning the efficacy of certain schemes. P. Chidambaram must be relieved not to be in Jaitley’s shoes — for the moment at least.

Hoping monsoon Doesn’t Mar Party
data from the Central Statistics Office shows that India’s GDP growth was 4.7 per cent in FY14 — a tad lower than the forecast of 4.9 per cent. Given the not-so-conducive global economic conditions, the growth would have been ‘okay’ had it been across sectors. But, that was not so. Mining and quarrying just grew 0.1 per cent, manufacturing 2.2 per cent. What contributed to the growth was a 15.9 per cent growth in agriculture and 19.9 per cent in financing, insurance, realty and business services. Electricity, gas and water supply grew 29.2 per cent. The numbers convey a clear message: a scanty monsoon, and its effect on agriculture, could impact GDP growth hard. Manufacturing needs to pick up, and services need to maintain growth in the coming months for the NDA government to get an impressive score card in its first year.

— Joe C. Mathew

What Of India’s Other Gangas?
The new water resources minister has been given a specific mandate of cleaning up the Ganga, but such preferential treatment could lead to problems. Creating a ministry of river development and Ganga rejuvenation seems to suggest that we are forgetting the hundreds of other Indian rivers that are more polluted, and makes way for biased policies. Most Indian rivers are extremely filthy — the last Central Pollution Control Board (CPCB) survey placed three of India’s most polluted rivers in Gujarat; Yamana even gained international notoriety for its pollution level. A year ago, CPCB identified 150 critically polluted river stretches, of which 34 fell in Karnataka, Tamil Nadu, Andhra Pradesh, Kerala and Orissa. Specific river projects have failed miserably — take, for instance, the two-decade-old Ganga and Yamuna action plans, on which hundreds of crores have been spent with no results. Since we’re riding on the ‘achhe din...’ wave, hopefully this government will take a more holistic and inclusive approach to addressing the pressing concerns of river development.

— Moyna

Cascade Effect
The Securities and Exchange Board of India (Sebi) recently raised the annual cash transaction limit (CTL) in mutual funds (MF) from Rs 20,000 to Rs 50,000 per investor. While this move is widely seen as an effort to increase small investor participation in MFs, it may pose bigger challenges for the MF industry. The market regulator had permitted cash transactions around two years ago in order to enable unbanked sections of the population to invest in MFs. This logic seemed flawed because it was unlikely that investors — without even a basic bank account — would invest in MFs. Nevertheless, in the current scenario, cash management is another issue since asset managers would have to put further checks in place to sift out ‘black money’ from the investments flowing in. Fund houses will also have to put in place systems to prevent unscrupulous MF agents from siphoning off funds handed to them for investment. They will have to establish banking channels in far-flung areas to facilitate timely collection of funds, and the subsequent allocation of fund units in good time. In essence, Sebi has opened the proverbial Pandora’s box by increasing the CTL. Instead, it should have ratcheted up pressure on the MF industry to widen its reach to ‘banked customers’ in smaller cities and towns.  

— Shailesh Menon

Powering Ahead On Twin Charge
The BJP government may have hit upon just the solution needed. After five years of continuous and explosive confrontation between the ministries of power and coal on the issue of fuel supply agreements and the quality of coal, ‘power man’ Piyush Goel has been given charge of these two crucial ministries. The constant clash between the two had resulted in a stalled thermal capacity worth Rs 4 lakh crore. But Goel, who is also in charge of the ministry of renewable energy, seems to be well-placed to finally establish better coordination and synchronisation of policymaking processes. If Goel manages his task well, the power sector would get a big push over the next six months. The minister’s first task would be to set up a third-party evaluator for the quality of coal to resolve the confrontation between Coal India and power producers. After this, he needs to expedite the bidding out of coal blocks to the private sector. Goel has around six months to show that he means business. In case he does not deliver, he will have no excuse to cover up his failure.

— Neeraj Thakur

National Policy Needed
Creating a road map for the Goods and Services Tax (GST) would be futile without a nationwide policy on foreign direct investment (FDI) in retail. GST is expected to ease trade and reduce the cost of operations. However, the current policy, which has left the decision to allow FDI to state governments, will help neither of the twin objectives. It requires foreign retailers such as Tesco — which plans to open cross-country hypermarkets with Trent — to create separate local entities in each state that allows FDI. That not only complicates transactions but also increases the cost of doing business.  Combine that with separate tax structures, border tolls and the whole process will prove discouraging for any investor. Instead, a simple nationwide policy will be a win-win solution that the Centre ought to adopt.  

— Vishal Krishna

Now, It’s Screen Vs Screen For World Cup
As the Fifa World Cup kicks off in Brazil, marketers’ eyes are tuned on the battle of the screens. Will the large TV screen hold off the threat posed by the tiny mobile screen? A recent Mobile Sports Report by Adobe shows that in the US, sports video streams increased 640 per cent, year over year, compared to an overall growth of 440 per cent for all types of content. Similarly, during the recent IPL 7 in India too, users watched over 1.56 million hours of cricket on their mobile handsets, as per a nexGTv report. For advertisers, this means rethinking campaign strategies to include the mobile platform. Multi Screen Media (the World Cup’s official broadcaster in India) has already launched LIV Sports, a mobile and Internet medium that will show both live as well as video-on-demand match content.

— Chitra Narayanan

Time for a Booster Dose
The new communications and IT minister, Ravi Shankar Prasad, is going full steam ahead. In what was by far one of the most positive statements made by Prasad, he promised to link India with broadband highways, quite akin to the Golden Quadrilateral project. This means speeding up the Rs 20,000-crore National Optic Fibre Network project under the 2012 National Telecom Policy that envisaged ‘broadband for all’. This is one of the key priorities of the ministry under him, which will be taken up in the new Telecom Commission’s first meeting. Other issues related to spectrum sharing, trading and auction will be discussed later this year for the 800 MHz band. Essentially, Prasad is looking to clear the deck of issues that are pending with the telecom department.  

— Anup Jayaram

Mind Your Numbers
Till last month, French economist Thomas Piketty was a rock star. Last year, his seminal work Capital in the Twenty-first Century provided a data-driven, first-of-its-kind look at wealth inequality spanning over a century. The praise was effusive. And then a Financial Times journalist found ‘errors’ in his calculations, saying the author had made ‘unexplained’ modifications to the data to support his hypothesis. Piketty and the economist community have dismissed the errors as trivial. But that reminds one of a larger debate around sanctity of economic data. In India, the sanctity of inflation numbers has always been under a cloud of suspicion. If economics has to be taken as a science, as its textbooks claim it is, its biggest heroes cannot afford to fall foul of data integrity, even if they are  minor ‘tweaks’.

— Abraham C. Mathews

Consolidating The Rules
After a decade, the ministry of corporate affairs (MCA) will return to its original structure — as part of the finance ministry. However, the firms governed by MCA — through the Companies Act 2013 — will have to wait longer to have one comprehensive piece of legislation to go by. Almost a year after the Act was passed, 40 per cent of its provisions are yet to be notified and, thus, enforced. Now, the Centre’s immediate plan of action should be to ensure speedy notification of all the necessary rules under the Act.

— Joe C. Mathew

Needs To Get Its Due
Even though the ministry of environment and forests has no teeth (it has no punitive powers and can only take legal action against violators of environmental laws), it has played a crucial role in providing a balancing point of view for the ‘adverse effects of development and infrastructure growth’ in the recent past. Ironically, these two areas have also often been the most environmentally damaging — be it due to corruption of government officials or the oversight of the private sector. But as its current minister, Prakash Javadekar, said, development and environment cannot work in isolation. It is with this view in mind that one would surmise that any minister would have his/her hands full handling the environment ministry, instead of having to share responsibility. In this case, Javadekar is in charge of the I&B ministry as well. The government would do well to realise the importance of giving exclusive charge of the environment ministry to one individual.

­— Moyna

Consolidating The Rules
After a decade, the ministry of corporate affairs (MCA) will return to its original structure — as part of the finance ministry. However, the firms governed by MCA — through the Companies Act 2013 — will have to wait longer to have one comprehensive piece of legislation to go by. Almost a year after the Act was passed, 40 per cent of its provisions are yet to be notified and, thus, enforced. Now, the Centre’s immediate plan of action should be to ensure speedy notification of all the necessary rules under the Act.

— Joe C. Mathew

Has The Tablet Story Reached Its Climax?
Ever since the introduction of the iPad in 2010, tablet sales have taken off in a big way. From a category which did not exist four years ago, this year, IDC estimates that about 254 million tablets will be sold. Ironically though, what looks like an eternal growth story has a flip side — the sale forecast of 254 million tablets is actually a step down from the initial projection of 260 million. While forecasters say that tablet sales will overtake PC sales next year, they also say that the pace of growth in tablets will be lower than anticipated. While this is partly due to the larger base, it is also due to the rise of newer categories of devices such as phablets and hybrid PCs. Does this mean that tablets have peaked? If the tablet market wants to continue to grow, it will have to innovate or it will go the netbook way, which thrived for a short time but eventually went out of fashion.

— Venkatesha Babu

Network18, A Painful Turnaround
Despite the management changeover turmoil the Network18 Group is undergoing after the exit of its chairman and founder Raghav Bahl, recent results for the flagship showed the media-entertainment company has managed a fair amount of financial clean up. The company’s revenue, which houses the business and general news channels with ETV and Viacom18 operations, grew 16 per cent to Rs 1,981 crore. Significantly, after being in the red with a net loss of Rs 26 crore last year, it finally went into the black with a profit after tax of Rs 104 crore in FY14. Operating profit nearly doubled to Rs 210 crore.

It has been a painful turnaround. The group brought down marketing and distribution expenses from Rs 562 crore to Rs 210 crore. And in the second round of retrenchment, it layoff nearly 300 staffs and slashed employee bill from Rs 255 crore to Rs 247 crore. Debt continues to be high though at Rs 530 crore, marginally lower than a year ago. There are lessons in the Network18 group’s problems – that of spreading oneself too thin and excessive hiring. The problem is: it is the employees who had to suffer the pain disproportionately.

- Gurbir

IT Stocks Likely To Bounce Back
On May 16, when NDA formed the government, most of the stocks on the Indian exchanges started an upward journey. Many assumed the IT stocks would go down and the rupee might appreciate.  Although, the IT index too has seen a 4.77% fall since May 16, which many believe was expected. However, most of the major stocks have been able to hold the ground. In fact, stocks like HCL, Tech Mahindra and Mindtree witnessed a jump where as bigger stocks like Infosys, Wipro and TCS saw a decline between May 16 and May 30. But Infosys, Wipro and TCS, too, are seen recovering since May 25.

The market was expecting that strengthening of the rupee would affect the bottom-line of all the IT stocks. But as the US economy is recovering, industry trackers say, the IT stocks are set to perform better in 2014, despite the stronger rupee. In past three years, where IT companies saw their top-lines being affected but bottom-lines getting healthier due to weak rupee, exactly opposite may be waiting for them in the next three years.

- Sachin

Mammoth Task
Even the promising new government seems to be falling into the age-old game of passing the buck – within a few days of the swearing-in ceremony; the Ministry of Coal has issued a directive to Coal India (CIL). In which, the company is asked to draw up a plan within a couple of months for improving efficiency and production. However, last year was also wasted in scouting for and then charging a private consultancy firm with the similar responsibilities. Why can we not make some move on that report? The ills plaguing CIL are well known. Numerous attempts have been made to break the stalemates and pull the public sector undertaking out of its pre-independence working methods. If CIL was capable then it would have done so long ago.

– Moyna

Now, Merger Under Sebi Lens
The Andhra Pradesh High Court has lifted its stay order on the Ranbaxy-Sun Pharma merger deal, but now the call is on the markets regulator SEBI, it is yet to probe and decide whether the insider-trading actually happened or not. A green signal by the regulator will complete the merger. From the insiders’ point of view, it is hard to believe Sun Pharma or its promoters will resort to inside trading to book some profits, while concluding its biggest-ever deal involving $4 billion, risking its reputation and the deal itself. Now, the SEBI should look into the trading issue in detail, and reach a conclusion at the earliest to clear the concerns of a combined 3.2 lakh investors of both Ranbaxy and Sun Pharma companies.

- PB Jayakumar

Not A Wonder Car
It might be a far cry from all the science fiction movies where you have already seen driverless cars but Google’s path-breaking new product may just be tweaked and used by other car makers before the first Google car ever hits a showroom. Although, it looks more like a modified Nano, the driverless car may just end up as a free publicity for many bigger carmakers, which would be rolling out similar products in the next two years. Many carmakers are already in the process of developing their own technology, where a car can maneuver through the traffic. Although, none of these technologies are perfect, the ‘inspiration’ may keep coming from the already workable Google car. And the driverless four wheelers are not just someone’s imagination anymore, but a reality. And in the next 5-7 years, it may be just a regular sight on the roads of Europe or the US. This could also mean that it could be a billion-dollar opportunity and German players like BMW and Mercedes, amongst others, have already planned to rollout their driverless cars soon. Even Jaguar and Land Rover plans to rollout driverless vehicles in the next 2-3 years. Already, the top-end carmakers offer the automated parking option in their vehicles. However, most of the players are not expected to take the Google platform, which is not good news for the search giant.

- Sachin

(This story was published in BW | Businessworld Issue Dated 30-06-2014)