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BRAND WORLD P17

NESTLÉ BUILDS A MILLENNIALTRACK AROUND ITS BRANDS

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THURSDAY, 5 SEPTEMBER 201924 pages in 1 sectionMUMBAI (CITY)~8.00VOLUME XXIV NUMBER 17

HONG KONG LEADERWITHDRAWS BILLON EXTRADITIONHongKongleaderCarrieLamonWednesdaywithdrewanextraditionbillthat triggeredmonthsofoftenviolentprotests sotheChinese-ruledcitycanmoveforwardfroma“highlyvulnerableanddangerous”placeandfindsolutions.Her televisedannouncementcameafterReuters reportsonFridayandMondayrevealingBeijingthwartedanearlierproposal fromLamtowithdrawthebillandshehadsaidprivately thatshewouldresign if shecould.“Lingeringviolence isdamagingthevery foundationsofoursociety,especially theruleof law,”Lamsaid. Itwasnotclearwhentherecordingwasmade.Thewithdrawalneedstheapprovalof theLegislativeCouncil,whichisnotexpectedtoopposeLam. REUTERS

ECONOMY & FINANCE P6

A year later, IL&FS onroad to recoveryAyearafterInfrastructureLeasing&FinancialServices(IL&FS)collapsedleadingtoacrisis inthefinancialsector,theresolutionprocesssetinplacebythenewboardhasslowlybutsteadilystartedyieldingdividendwith10roadprojectsattractinginvestorinterestandsevenwindenergyassetsbeingsold.Lastweek,theNationalCompanyLawTribunal(NCLT)gaveagoaheadtothesaleofsevenwindenergyassetsownedbytheIL&FSgrouptoJapaneseinvestorOrixCorp,whichalreadyowned49percentinthesewindenergyassets.

ECONOMY & PUBLIC AFFAIRS P4

Won’t borrow if govtgrant increased: NHAI

NationalHighwaysAuthorityof India(NHAI)ChairmanNNSinhaonWednesdaysaidthe

authoritywouldnotgoforborrowingif theUniongovernmentincreases itsallocationtotheroadsector.“Ifmorebudgetaryresourceswerereleased,whichauthoritywouldprefermobilisingfundsfromthemarket,”Sinhasaidinresponsetomediareports.

ECONOMY & PUBLIC AFFAIRS P4

Services growthslows in AugustGrowth in services activity slowed inAugust, after expanding to a 12-monthhigh in the previous month, presenting avolatile picture in the biggest sector of theeconomy. The widely tracked IHS Markitpurchasing managers' index (PMI)showed the PMI fell to 52.4 in August from53.8 in July because of a slower rate ofincrease in output. A reading below 50reflects contraction, while one over 50denotes expansion in PMI parlance.

Govt raises import tax onMalaysian refined palm oilIndiahasraisedthetaxonrefinedpalmoilfromMalaysiato50percentfrom45percentforsixmonthstocurbimportsandboostlocalrefining.Theworld'sbiggestedibleoilimportercurrentlyimposesa40percentimporttaxoncrudepalmoiland50percentonrefinedpalmoils. SinceJanuary,shipmentsofrefinedpalmoilsfromMalaysiahavebeentaxedat45percent,underanagreementwithMalaysia. REUTERS

SUBRATA PANDA & ANEESH PHADNISMumbai,4September

The resolution professional (RP) of JetAirwayshas shortlistedSouthAmerica-basedSynergyGroupandRussian fundRATreasury fromthe three expressionsof interest (EoI) thatwere submitted forthe revival of the defunct airline,sources aware of thedevelopment said.Panama-based Avantulo Group’s EoIfailed tomake the list.

The two shortlisted entities willhave to sign non-disclosure agree-ments after which they will get accessto all the data pertaining to Jet.Subsequently, they will do due dili-gence and submit their resolutionplans for the airline, sources said.

The last date for submitting resolu-tionplans to theRP isOctober 14, and totheadjudicatingauthority, theNationalCompanyLawTribunal, it's likely to beOctober 28.

Avantulo Group and RA Treasurywere the first ones to submit theirintent.While billionaireAnil Agarwal’sfamily trustVolcan Investmenthadputin an exploratory EoI, it opted out ofthe race two days later. Synergy Groupsubmitted an EoI for the airline subse-quently, raising hopes of its revival.

Recently, in the third committee ofcreditors (CoC)meeting, the lendersandtheRP,withhopesof gettingmore inter-est for Jet, extended the deadline forsubmittingEoIs tillAugust 31, but failedto get any newEoI.

Synergy Group is eyeing a 49 percent stake in Jet as the regulation cur-rently allows a foreign airline to buy amaximum of 49 per cent in a domesticairline. Turn to Page 17 >

RBI mandates externalbenchmarking of ratesMovetocoverfreshretail,MSMEloansfromOct1;home,autoloanstogetcheaper

ANUP ROYMumbai,4September

TheReserveBankof India (RBI)on Wednesday made itmandatory for banks to linkall their fresh retail loans to an

external benchmark, effective October1 — the central bank’s repo rate beingone such benchmark.

Allpublicsectorbankshavemovedtosuch a regime voluntarily, while privatebanksareyetto.Thestate-runbankshaveintroducedrepo-linkedproductsforfloat-ing-ratehomeandautoloans,buttheRBIsaid loans to micro, small and mediumenterprises (MSMEs) should also belinked to anexternal benchmark.

The three external benchmarks theRBI proposed are policy repo rate, theGovernment of India’s three-month andsix-month treasury bill yields publishedby Financial Benchmarks India Private(FBIL), or any other benchmark marketinterest ratepublishedbyFBIL.

The central bankamended itsmasterdirections on interest rate on advancestoo, reflecting the changes.

Some banks do calculate their mar-ginal cost of funds-based lending rate(MCLR) based on the three- and six-month treasury bills, but theRBI said “ithasbeenobservedthatduetovariousrea-sons, the transmission of policy ratechangestothelendingrateofbanksunderthe current MCLR framework has notbeen satisfactory”.

Banks are free to offer such externalbenchmark-linked loans to other typesofborrowers aswell, but thebanksmust

adopt a uniform external benchmarkwithin a loan category, to ensure trans-parency, standardisation, and ease ofunderstanding of loan productsby borrowers.

“Banks are free to decide the spreadover the external benchmark. However,creditriskpremiummayundergochangeonly when borrower’s credit assessmentundergoesasubstantialchange,asagreedupon in the loan contract,” the RBI said.

Other components of spread, includ-ing operating cost, could be altered oncein three years. The interest rate underexternal benchmark should be reset “atleast once in threemonths”.

Karthik Srinivasan, senior vice-presi-dent and group head - financial sector

ratings, ICRA, said it is going to be “chal-lengingtointerestmanagemargins”.Theeffectwillbeseenontheincremental loanbook since only new loanswill be linkedto external benchmark.Theoutstandingloans will still be governed by existingrules.

Transition to external benchmarkfrom the existing interest rate system—suchasMCLR,orbaserate,orprimelend-ing rate etc. — will continue till repay-ment or renewal, as the casemaybe.

Aborrowerwho is eligible toprepayafloating rate loan without pre-paymentof chargeswill alsobe eligible for switch-ing over to external benchmark withoutany fee, except “reasonable administra-tive/ legal costs”. Turn to Page 17 >

SynergyGroup,RATreasurymakethecut forJetplan

FINDING RESOLUTION| Panama-based

AvantuloGroup’sEoI failed tomake the list

| Shortlistedentitieswillhave to signnon-disclosureagreementsafterwhich theywill getaccess toJetdata

| Theywill doduediligence thenandsubmit resolutionplans

| Lastdate for submitting resolutionplans to theRP isOct 14

| RPhasreceivedclaimsof~30,558crore fromfinancial creditors,operationalcreditors,andemployees

Gangwal questionsIndiGo chairman’sindependence againSebi has sought a response fromIndiGo on a letter by the company'sco-promoter Rakesh Gangwal

regarding corporategovernance issues.InterGlobe Aviationsaid the regulatorhas soughtcomments ona letter writtenby Gangwal on

August 30.2 >

Loanscanbelinkedtorepo,3-monthand 6-monthtreasuryyield,oranyFBIL-floatedbenchmark

Interestratestoberesetatleastoncein3months

Otheraspectsofspreadssuchasoperatingcostcanbealteredonceinthreeyears

POLICY CHANGES

MCLRhasnotbeensatisfactory,saysRBI

Creditriskpremiumcanchangeonlyonsubstantialchangeincustomerprofile

RBIGovernorShaktikantaDas said lastmonththat itwas time to formalise anexternalbenchmark in lending for effectivetransmissionofpolicy rates

BanksformGM-levelteamsformergereaseNAMRATA ACHARYA & ABHIJIT LELEKolkata/Mumbai,4September

Public sector banks (PSBs) named for merger by the gov-ernment have formed teams at the level of general man-agers (GMs) to ease theprocess of integratingproducts andprocesses. Heads of the 10 PSBs on the merger list met inMumbaionWednesday todiscuss initial plans.

The government plan was announced last Friday, tomerge 10 PSBs into four. Punjab National Bank, OrientalBankofCommerce, andUnitedBankof Indiawill combinetoformthenation'ssecond-largest lender.CanaraBankandSyndicate Bankwillmerge; UnionBank of Indiawill amal-gamate with Andhra Bank and Corporation Bank; IndianBankwillmergewithAllahabadBank.

Rajkiran Rai, managing director and chief executive atUnionBankofIndia,saiditwasmoreof learningfromBankof Baroda’s experience in managing the merger of VijayaBankandDenaBankwith itself.

State Bank of India also shared its takeaway from theintegrationof fiveassociatebanks.

The meeting was anchored by the Union ministry offinance.The focusof the interactionwasmoreonprocess-es. There are various statutory and legal ones involved inamerger.

More senior-level professionals across the banks aregetting involved inmergerwork, inareas like informationtechnology (IT) and human resources, said two seniorexecutives.

Turn to Page 17 >

ACTION PLAN| Integrationof

products,processes ispriority

| Senior-levelprofessionalsacrossbanksaregetting involvedinareas like ITandhumanresources

| Advisory firmsmaybehired forassistance

| Bestpracticesofvariousbanks tobeadopted

SUBHAYAN CHAKRABORTYNew Delhi, 4 September

MajorAmericanapparelbrandssuchasRalphLauren,CalvinKlein,VanHeusen,andCartershavemadeacaseforafreetradeagreement(FTA)betweenIndiaandtheUS,arguingitwillattractinvestmentsandstreamlinetrade-relatedissues.

“AnFTAwiththeUSisamajorcomponentofbilateralbusinessrelationsthatismissingnow,”TaraJoseph,presidentoftheAmericanChamberofCommerce(AmCham)inHongKong,saidhere.

AmChamHongKong, inpartnershipwiththeConfederationof IndianIndustry (CII),hasbroughtadelegationof15 topUSapparelcompanies to India forexploringmegainvestmentopportunities. Ithasalsoaskedthegovernment toreducethecustomsdutyonsynthetic

fabric imports.TheAmericanindustrybodyisthe

latesttobatforanFTAwiththeUS.Earlierthisyear,boththeUS-IndiaBusinessCouncilandtheUS-IndiaStrategicPartnershipForum--majorbusinessadvocacygroups--reiteratedtheirsupportforabilateraltradedeal.

ThisviewhasfoundsupportamongIndianindustryaswell.“WeneedFTAswithmajorbuyingcountriesliketheUS.In

thecurrentbusinessenvironment,foravarietyofreasons,thismaybeagoodtimetosignabilateralFTA

withtheUS,"saidGautamNair,chairmanoftheCIITextilesTaskForceonSourcingandInvestments.

AccordingtoAmCham,theUS-ChinatradewarhasmadesourcingfromChinacostlyandhasopenedawindowfor investments into India,andthatbusinessesarekeentotestwhethermanufacturingcanstarthere.

Turn to Page 17 >

Americanfashionbrandspushfor India-USFTA

TRADE DEFICIT NARROWSFigures in $ billion

Source: Commerce and industry ministry

BILATERAL TRADESCENARIO

2014-15 2015-16 2016-17 2017-18 2018-198.47 9.66 9.77 9.69 10.42

SHARE OF US TRADE IN INDIA'S TOTALMERCHANDISE TRADE (%)

2 COMPANIES MUMBAI | THURSDAY, 5 SEPTEMBER 2019

> .

STOCKSIN THE NEWS

* OVER PREVIOUS CLOSE

> Indian Oil CorporationTop gainer among theS&P BSE Oil & Gas Index stocks

~120.35 CLOSE

�2.60% UP*

>Gujarat Alkalies & ChemicalsBoard meeting held on September 27 to consider stock split of shares~421.00 CLOSE

�7.25% UP*

> Tata CommunicationsPartnership with Neeco for IoT services

~426.1 CLOSE

�3.11% UP*

>VST Tillers TractorsAugust tractors sales up 57 per cent to 813 units;YoY

~1,103.95 CLOSE

�7.60% UP*

> Shilpa MedicareTop gainer among the S&P BSE 500 index stocks

~231.50 CLOSE

�9.22% UP*

IN BRIEF

NCLAT sets asideliquidation ofSterling BiotechThe NCLAT has set aside NCLTorder to liquidate SterlingBiotech, and directed that themanagement should be han-ded over to its promoters if thedues of creditors are settled.Promoters of the firm includeabsconding Nitin JayantilalSandesara and ChetankumarJayantilal Sandesara. PTI<

FPL Technology raises $4.5 mn from MatrixPartners, SequoiaFPL Technologies has raisedfunding from Matrix PartnersIndia, Sequoia India and otherangel investors. It hadlaunched OneScore app to helppeople monitor their creditscore without spam. It willlaunch a Mobile Credit Card thatgives end users complete con-trol over their card experience.

BS REPORTER<

Cox& Kings appointsmerchantbankers forpossible Meininger saleCox & Kings on Wednesday saidit had appointed merchantbankers for a possible sale of itsMeininger hotels business, as itseeks to meet its financial obli-gations. In a regulatory filing,the firm said as stated in itsearlier stock exchange filings,the firm proposes to meet itsfinancial obligations through acombination of internal accrualsand monetisation of assets. PTI<

Toyota affiliate picksstake in Vardhmansteel companyVardhman Special Steels hasannounced a $7-million dealwith Aichi Steel Corp Japan, anaffiliate of Toyota Motor. AichiSteel will buy 11.4 per cent inVardhman Special Steels andprovide technical assistance toestablish a steel firm in India.

BS REPORTER<

Oil firms likely toresume fuel supplyto AI at 6 airports Oil marketing companies (OMCs)are likely to resume fuel supplyto Air India within two days atthe six airports where it hasbeen stopped over non-payment of dues, a seniorgovernment official said onWednesday. The state-ownedOMCs stopped supplying fuel toAir India flights in Pune, Vizag,Kochi, Patna, Ranchi and Mohalisince August 22. PTI<

Teamlease launchesdigital compliancerepository for firms Teamlease Services has launc-hed a web portal to help firmsnavigate through regulatorycompliance norms they are req-uired to follow. Teamlease Se-rvices launched a web portalwww.teamleasecompliance.comthrough which firms can keeptrack of a comprehensive set ofcompliance rules and regulatoryfilings at the state, central andlocal level. BS REPORTER<

Sebi seeks IndiGo replyto Gangwal’s missive

Automobile dealers look for ways to arrest slumpSHALLY SETH MOHILE

New Delhi, 4 September

Automobile dealers and manu-facturers congregated at theSecond Auto Retail Conclave onWednesday amid poor sales,lacklustre demand, dealer shut-downs and mounting job losses.

They deliberated on revivalstrategies for auto retailingeven as improving profitabilityand margins dominated discussions.

Auto sales have been declin-ing for 13 straight months as abroader slowdown in the econ-omy has crippled demandacross the country.

Addressing the delegates,Ashish Harshraj Kale, presidentof Federation of Automobile

Dealers Association (FADA),said dealerships have beenforced to cut jobs in the recentpast. They had hired people lastyear, in anticipation of growththis year. “I am confident that bythe time my tenure as president(of FADA) ends in 2020, wewould not only have restoredthose jobs but additional jobswould be created,” said Kale.

Kale also pointed out thatautomakers need to switch toretail sales reporting against thecurrent practice of wholesale(despatches to dealers) data.This would ease the burden oneveryone and make the entirevalue chain more efficient.Automobile manufacturersmust calculate the market sharebased on retail sales as is done

globally, he said. The need for a re-think on

the retail format and make themmore contemporary to the rap-idly changing buyer profile as

well as growing digitalisationcame up during one of the pan-el discussions.

“Dealers will have to think interms of clicks and bricks as

against the traditional bricksmodel,” said Som Kapoor, part-ner at EY. Given the growinginfluence of digital in buying,dealers have to think how many

bricks (physical showrooms) willbe required per click. With nosight on when the slowdownwould end, the overall mood atthe conference was sombre.

But some like Vikram Modi,managing director, ModiMotors, remain optimistic andsee the current situation as anopportunity to grow businessinorganically.

A dealer for Jaguar LandRover, Honda and Hyundai,over the past decade, has grownin scale by buying out stresseddealerships and is looking to buyout more as some dealers shutshop. “I am confident that thecurrent slowdown is just a pass-ing phase and demand will beback by the end of October,”added Modi.

ARINDAM MAJUMDER

New Delhi, 4 September

The Securities and ExchangeBoard of India (Sebi) hassought a response from

IndiGo on a fresh letter by the com-pany's co-promoter Rakesh Gangwal(pictured) regarding corporate gov-ernance issues.

In a filing to the stock exchangeson Wednesday, InterGlobe Aviationsaid the markets regulator hassought comments on a letter writ-ten by Gangwal on August 30. “Thecompany will provide its response tothe Sebi," the filing said.

On September 3, Sebi soughtcomments from the company on aletter received by the regulator fromlegal counsel of Gangwal.

According to the filing, the letterreiterates certain issues thatGangwal had previously raised withSebi and seeks certain directionsfrom the regulator against the com-pany and the IGE Group. The issuesare related to amendment to thecompany's Articles of Association(AoA) to remove the rights of the IGEGroup, past related-party transac-tions, non-independence of the current chairman, refusal to holdthe extraordinary general meetingwhen requisitioned by Gangwal, and certain public statements made byCEO Ronojoy Dutta, according to the filing.

The fresh letter from Khaitan &Co, which is advising Gangwal in hisbitter public fight with co-promoterRahul Bhatia, questioned the inde-pendence of the board's ChairmanM Damodaran. It also sought action

against the company for irregulari-ties in executing related-party trans-actions.

However, the latest letter fromGangwal came just days after thecompany's annual general meetingheld on August 27 in which Gangwal

himself voted supporting extensionof Damodaran's nomination aschairman for five years. The resolu-tion was supported by 99 per cent ofthe company's shareholders.

Two days before the annual gen-eral meeting, Gangwal had also saidwith the company executing a newpolicy for related-party transactionsand closing loopholes while expand-ing the board size to 10 members.

Gangwal and Bhatia who togeth-er hold 75 per cent stake in the com-pany have been involved in a bitterpublic fight after Gangwal had com-plained to Sebi that Bhatia, usinghis control over the company, hasexecuted multiple related-partytransactions between IndiGo and hisgroup companies which don't conform to law.

However, an independent auditby EY done at the behest ofDamodaran found no major irregularities.

Sebi is already looking intoalleged corporate governance lapsesat InterGlobe Aviation afterGangwal, in July, wrote to the watch-dog seeking its intervention toaddress certain issues.

The allegations were rejected bythe Bhatia camp.

Gangwal, along with his affili-ates, holds around 37 per cent stakein InterGlobe Aviation, while Bhatiaand his affiliates (IGE Group) haveabout 38 per cent shareholding inthe company.

Shares of the company rose near-ly 1 per cent to close at ~1,641.20 onthe BSE.

IndiGo has the largest share ofIndia’s domestic market.

Steffen Knapp, director, Volkswagen Passenger Cars India, atthe launch of New Polo and Vento in Mumbai. Volkswagen onWednesday announced the launch of new versions of Polo andVento in India. The new version of Polo costs ~5.82-9.88 lakh,while the Vento costs ~8.76 lakh PHOTO: KAMLESH PEDNEKAR

T E NARASIMHAN

Chennai & Coimbatore, 4 September

Benny and his friend C Prasanna were working astrainees in a two-wheeler factory at Oragadam, anauto hub near Chennai. They were part of nearly700 contract workers at the factory who wererecently laid off. S Siva, a worker at a foundry inCoimbatore, lost his job, too. He now works as adriver and earns half his previous salary.

Benny, Prasanna and Siva are among 80,000-100,000 who have lost their jobs in Tamil Naduowing to the slowdown in the auto sector. However,

many stakeholders in the sectorallege that while demand hascertainly declined, some OEMs(original equipment manufacturers)are shedding contractual workers topressure the government intoreducing the Good and Services Tax(GST) on autos and auto parts.

Meanwhile, the stories of job cutsabound. Companies like Daimler,Yamaha, Nissan, Apollo Tyres,

Ashok Leyland, and firms from TVS Group have allreduced their contract workforce. They have alsocut back on the number of working days,something that Hyundai has done as well. ASoundararajan, general secretary of CITU, TamilNadu, alleges that many units in the state have laidoff around 1,000 contract workers and traineeseach. Daimler India denies this and admits toreducing temporary jobs only by around 200. “Wehave had a few non-production days. We continueto adjust our production as per market demands.We have decided to go with single-shift production

for the interim. We have had to let go of a fewcontractual workers and will look into optimisationof contracts to adjust to market realities. However,there will be no job cuts of permanent workers,” theDaimler spokesperson said.

Again, despite CITU’s claim that Apollo Tyreshas cut around 1000 contract jobs, the company’sspokesperson says, “Though the demand for ourtyres in the replacement market is still strong, theslowdown in the vehicle sales has resulted in lessdemand from the OEs. Our production is tuned tothe market demand. In the current scenario, thereis a need to rationalise production, includingrationalising the contractual manpower.”

An email sent to Yamaha India, which hasreportedly cut around 700 temporary jobs, did notelicit any response. Nissan, too, denied the tradeunion’s claim that it had shed around 1,000 temp-orary jobs at its Renault-Nissan plant in Chennai.

At TVS Group firms, Ashok Leyland, Hyundaiand Royal Enfield there have been internalcirculars announcing a drop in production. Some,like Ashok Leyland, have also come up with an

Employee Separation Scheme.The CEO of a manpower company reveals that

whereas earlier his firm was supplying around1,000 workers a day to a Chennai car manufacturer,today the figure has plummeted to around 400.

Aditya Narayan Mishra, CEO, CIEL HR Servicesadds that over the last three months, workers’earnings dropped by 12-15 per cent due to thereduction in the number of work days.

Trouble in Manchester of south IndiaEven four months ago, foundries at Arasur, on theoutskirts of Coimbatore, were buzzing withactivity. Today, the place looks like a ghost town,with major foundries having reduced productionby nearly 50-60 per cent. This has led to the loss ofaround 50,000 jobs, mostly in the micro and smallunits — even though many of the latter were notcatering to the auto sector.

So why were they affected? A Siva Shanmughakumar, president, CoimbatoreTiny and Small Foundry Owners Association and

owner of Sri Jayaram Foundries, explains theconundrum. He says that the major foundries wereproducing nearly 8000-10,000 tonnes a month forthe auto sector, while about 400 tiny and smallfoundries with a capacity of around 2,000 tonneswere catering to the pump sector. When the ordersof the big foundries declined by nearly 60 per centover the last three months, they started tappinginto the pump sector in order to survive. This dealta huge blow to the small units, which cannotcompete with the bigger ones on pricing.

A senior official from a big foundry says that sixmonths ago, his company invested around ~4 croreto buy 10 new machines to cater to OEMs in Che-nnai. Three months back, some of them cancelledtheir orders partially or fully. His firm needs to pay~8 lakh every month as EMI on the loan and salariesof nearly 300 people. To utilise capacity, thecompany is now running three machines with 60people and catering to the pump sector.

Shanmughakumar, who once had 15-20 peopleworking at his unit, has only eight workers today. "Ifthis industry doesn’t revive, we are finished,” he

says. The association claims that in Coimbatorealone, nearly 3.50 lakh people are employed,directly or indirectly, by firms which are linked tothe auto sector.

J James, president, Tamil Nadu Association ofCottage and Micro Enterprises, Coimbatore, hasruled out the possibility of these units diversifyingto other sectors such as defence and railways as thatwould require much higher investments. Withmany SMEs defaulting on their loan repayments,banks are unlikely to lend them more funds.

Slowdown exaggerated?A supplier to one of the top three car makers saysthat while there is definitely a slowdown in thesector, it is not as much as it is being made out to be.There have been no massive job cuts among thepermanent workers and nor have plants orancillary units shut down.

“OEMs are exaggerating the slowdown in orderto put pressure on the government to reduce theGST rate from 28 per cent to 18 per cent,” says theCEO of the auto component maker.

The second of a three-partseries on the auto sectorcrisis talks of how layoffs may put pressure on the Centre to reduce GST

TN’S AUTO STORY| State accounts for 35% of India’s

auto component production

| It contributed to 45% of India'smotor vehicle exports in 2017-18

| Largest tyre-manufacturing state

| State's auto and autocomponents exports were $6.76 billion in 2017-18

| Chennai has an annual installedcapacity of 1.71 million car units

| Three cars every minute, 1 truckevery 2 minutes, and 1 motorcycleevery 6 seconds are produced in and around Chennai

Biscuit effectWhen Varun Berry, MD, Britannia, said that the customerwas thinking twice before buying a ~5-pack of biscuits,many were shocked. Soon after, Parle Products said that itsParle-G biscuits were the worst hit in an overall volumedecline of around 8 per cent and that it might be forced tolay off around 10,000 people if the slowdown continues.

Workers in auto units were not surprised. Many of theseunits serve eight biscuits twice a day to their workers alongwith tea. With the slowdown and job losses, several unitshave stopped serving tea and biscuits to cut costs, with theresult that bulk purchase of these low-price biscuits havegone down drastically.

"If this is the situation in Coimbatore, a similar trendacross the country could easily mean a decline in the sales ofthese biscuits. It might not be due to the slowdown in retailper se,” says A Siva Shanmughakumar, president ofCoimbatore Tiny & Small Foundry Owners Association.

MOTOWN

CRISIS

The country's largestcarmakerMaruti SuzukiIndia on Wednesday said ithad decided to suspendproduction at its Gurugramand Manesar plants inHaryana for two days.

The company said it wouldhalt manufacturing operationsat the two manufacturing

facilities on September 7 and 9.“Both days will be observed asno production days,” it said.

Reeling under severeslowdown, the auto majorhad reduced its production by34 per cent in August, making it the seventh straightmonth of reduction.

PTI

Contract workers bear the brunt of auto slowdown

Maruti to halt production atGurugram, Manesar for 2 days

Co-promoter questioned chairman’s independence again

According to the filing, theletter reiterates certain issuesthat Gangwal had previouslyraised with Sebi and seekscertain directions from theregulator against the companyand the IGE Group

YUVRAJ MALIK

Bengaluru, 4 September

Online classifieds start-up Quikr ispreparing for an initial public offer-ing (IPO) in 2021, a top companyexecutive said, joining a list of aselect few top Indian internet start-ups that are looking to go public inthe coming years.

PolicyBazaar, Nazara Techno-logies, Delhivery, and ReNew Powerare some of the start-ups who are atdifferent stages of preparation for apublic float, according to their ownadmissions or media reports. Lastmonth, IRCTC filed its prospectswith regulators for an IPO.

“We are preparing for an IPO in2021, and work on financial due dili-gence should begin next year,” Pranay Chulet, founder and CEO ofQuikr, told Business Standard.

The Bengaluru-based firm is val-ued at $1.1 billion. “Real estate, jobs,and auto are sectors where transac-tions are increasingly moving online.We want financial investors to see usas a platform that touches all theseverticals,” Chulet said.

The proposed IPO, and other inter-net businesses, denote a coming ofage of the start-ups ecosystem. Withfocus on profitability and unit eco-nomics, several Indian tech start-upsare learnt to be readying themselvesfor a public float where investors val-ue businesses through traditionalmetrics like price-to-equity and cashflow. Chulet said the “timeline (for anIPO) could vary and the decision tolist in India or in the US would be tak-en in the course of the process”.

Over the past few years, the com-pany has consolidated and integratedseveral of its past acquisitions withitself as it works towards achievingprofitability on a full-year basis.

In FY18, Quikr’s (consolidated)

operating revenue was 321 per centhigher at ~173.5 crore, while losseswere 58 per cent lower at ~233.3 crore,when compared with the compara-ble figure in FY16. If the public offer-ing goes through as planned, it willmark a liquidation event for itsinvestors including big names likeTiger Global, Matrix Partners,Omidyar Network, Warburg Pincus,and Steadview Capital.

Some secondary share sale by ear-ly investors Matrix, which backed thefirm at the start in 2008, NorwestVenture Partners, and Omidyar hasalready happened, Chulet said.

Quikr is built on-top of severalacquisitions, including some high-ticket ones in the realty space.

In 2016, it bought Commonfloorfor an all-stock deal of $200 million,followed by RealtyCompass, a realestate listings platform. This wastopped with the acquisition of HDFCRED and HDFC Realty, the listing andbrokerage businesses of HDFC, foraround $60 million. Today, about 40per cent of Quikr’s revenue comesfrom the real estate segment.

More on business-standard.com

Quikr planningIPO in 2021: CEO

REPORT CARD (~cr)

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NCLAT asks Jet Airways IRP,Dutch court to coordinateThe National Company Law Appellate Tribunal (NCLAT) onWednesday directed the Interim Resolution Professional (IRP) ofJet Airways and the administrator of a Dutch insolvency court,which has declared the airline insolvent, to coordinate with eachother. Both the parties will file terms of their agreement withinthe next two weeks, a three-member bench headed byChairperson Justice S J Mukhopadhaya said. The appellatetribunal will next hear the matter on September 20. BS REPORTER<

MUMBAI | THURSDAY, 5 SEPTEMBER 2019 COMPANIES 3. <

ANEESH PHADNISMumbai,4September

L upin has tied up with Germany’sBoehringer Ingelheim to developanovel cancerdrug thatwill poten-

tially earn it over $700 million in mile-stone-based payments and royalties.

The drug will be developed by com-bining the targeted oncology moleculesof the twocompanies andwill be first-of-its-kind treatment for certain types oflungcancer andgastrointestinal cancers.

Under the agreement, Lupin willreceive an upfront payment of $20 mil-lionandanadditional $700millionmile-stone-basedpaymentonsuccessful com-pletionof clinical trials anddouble-digitroyalties on sales. Lupinwill also get themarketing rights for the drug in India,whileBoehringer Ingelheimwill hold therights to all othermarkets.

This is the second such drug develop-ment tie-up byLupin inninemonths.

Last December, the firm tied up withUS drugmaker AbbVie to develop novelbloodcancerdrugwithanearningpoten-tial of over $1 billion.

“With the success of our second newdrug discovery programme in oncology,wehavemadeasignificantmark inbring-

ing novel treatments to patients. We areproud of the achievements of our teamand the capabilities we have built, whichenable us to further ournewdrugdiscov-ery programme,” said Lupin’s ManagingDirector NileshGupta. He added that 10-15 per cent of the company’s R&D spendgoes to drugdiscovery programmes.

Lupin’sunder-discoverydrughas suc-cessfully cleared Phase I clinical trial.

The combined trials of the new drugwill be carried out in Europe and other

parts of theworld, saidRajKamboj, pres-identofLupin’snoveldrugdiscoveryanddevelopment portfolio.

Lupin’s partnership with BoehringerIngelheim has a strategic goal to focuson patients with cancers defined byKRASmutations. KRAS is a protein thatregulates cell growth and its mutationcan result in uncontrolled cell growthleading to cancer.KRASmutationsoccurin 1 in 7 of all humanmetastatic cancers,the companies said onWednesday.

Lupin inks $700-mn dealwith Germany’s Boehringer

Thedrugwillbedevelopedbycombining the targetedoncologymoleculesof twofirms

DEBASIS MOHAPATRABengaluru,4September

IT services companyWiproonWednesday said it had sec-ured an outsourcing contractworth $300 million (around~2,200 crore) from ICICIBankunderwhich itwouldprovideacomprehensive suiteof serv-ices to the Indian private sec-tor lender.

As a part of the contract,which has a tenure of sevenyears, Wipro entered into abusiness transfer agreementwithVara lnfotech, aMumbai-based firm, foranall cashcon-sideration of ~321 crore. VaraInfotechcurrentlyprovides ITservices to ICICI Bank, and

after the acquisition of thisbusiness, Wipro will be thenew service provider to thelender. As a part of this strate-gic engagement, Wipro willabsorb 3,800 employees ofVara lnfotech, alongwith its existingdeals, facilities andassets, on a goingconcern basis, theBengaluru-head-quartered companysaid in a filing to thestock exchanges.Wipro will providethese services to ICICI BankfromSeptember2019, itadded.

According to Wipro, VaraInfotech’s revenue from theseservices stood at ~221.5 crore

in FY19. “This transaction isexpected tobecompleteddur-ing the quarter ending Sept-ember 30, 2019 and is subjectto customary closing condi-tions,”Wipro added.

Vara Infotech isa software solutionand services com-pany which pro-videsacomprehen-sive range ofservices catering tothe Banking,Financial Servicesand Insurance

(BFSI) segment, according toits website. The companyoffers services in the areas ofbusinessprocessmanagement(BPM), infrastructure man-

agement system (IMS) andapplication.

Wipro drew around 32 percent revenue from BFSI seg-ment in the firstquarterendedJune of this fiscal year, whichrose 11.2 per cent YoY on con-stant currency basis.

“This engagementwill fur-ther strengthenourendeavourtoprovidedifferentiated tech-nologyanddigital capabilitiesto the financial services indus-try,” the company said.

This is the first major dealthat the IT firm has baggedafter its founder Azim Premjihanded over themantle to hisson Rishad Premji, who tookover as the chairmanofWiprofromJuly 31 of this year.

Wiprobags$300-mncontractfromICICIBank

The IT firm tobuy out thisbusiness fromVara Infotech for~321 crore; toabsorb 3,800employees

SURAJEET DAS GUPTANewDelhi,4September

Taxiaggregatorsarepushingthecentralgove-rnmenttoprovidethemwithanall-India“dig-italintermediary”operatorlicence,allowcar-poolservicesaspartofthedrivers’permit,andnotimposeanyrestrictionsonsurgepricing,whichhasbeenaboneofcontentionbetweenthemandriders.

Theeffortispartoftheconsultationprocessbetweenride-hailingcompaniesandtheMini-stryofRoadwaysandHighwaysaftertheamen-dedMotorVehiclesActbecamealaw.UnderthenewAct,taxiaggregators,includingUber,OlaandMeru,amongothers,havebeenreco-gnisedasdigitalintermediariesthatcanbeusedbyriderstoconnectwiththedriver.Thenewlawalsogivesthecentralgovernmentthepowertoframerulesandregulationsonrunningtheirbusiness.IntheearlierAct,theaggregatorswerenotevenacknowledged.

However,taxiaggregatorssaythattherulescanbetweakedbythestategovernmentsastransportationispartoftheconcurrentlist.

Ride-hailingservicesarealsolobbyingthegovernmentfortherecognitionofanewcategoryformotorcycle-sharedservices,wheretheownershouldnothavetotakeacommerciallicence. “Wearesuggestingthatanindividualwithamotorbikeshouldbeallowedtopickupapillionthroughourplatformandthecustomerwillbechargedonlyhisorhershareofthecostofoperatingthe vehicleforthestipulateddista-ncewithouttheintentionofmakingaprofit.Inthatcase,thebikeownershouldnothavetota-keacommerciallicence.Thiswillhelpinget-tingmoreriderswithoutincreasingthenum-beroftwo-wheelersontheroads.(IntheNCR,forinstance,two-wheelersconstitute70percentofthevehiculartraffic.)Thiswouldleadtomoreefficientuseofexistingresources,”saysaseniorexecutiveofaleadingaggregator.

Theyarealsopressingthegovernmentto

allowsharedmotorcycleservicesacrossthecountrysincethisislimitedtoonlyafewstatesnow.Forexample,Delhidoesnotallowit.

Theotheritemonthetaxiaggregators’wishlististhatthegovernmentshouldnotimposestiffregulationsonthequalitystandardsofthe-irvehicles.Theysaythatowingtothelargesizesoftheirfleet,itisnotpossibleforthemtophysi-callyverifytheconditionofeachvehicle.How-ever,theycanusetheratingsystemofriderstodeterminewhetheradrivershouldbetakenofftheroadorpenalised.TheyalsowanttoensurethattheonusofanyviolationofthenewnormsoftheMotorVehiclesActwouldlieontheownerofthevehicle,andnotontheaggregator.

However,non-governmentagenciesinsistthattheonusofsafetyshouldbesquarelyontheaggregatorsandnotonlyonthedrivers.SaysPiushTiwariofSaveLIFEFoundationandakeyplayerbehindtheamendmentstotheMotorVehiclesAct:“They(aggregators)arethegatewaythroughwhich commercialvehiclesreachriders.Ifyoulookattherecruitmentrules,thesedon’tevenmentionanythingonsafety.Soforbasicsafetyissuessuchasensu-ringworkingsafetybeltsintherearordisco-uragingdangerousriding,theonusshouldbeontheaggregatorstopayforanyfailures.”

Thenewlawrecommendsafineof~5000fordangerousdriving.Pooledservicesisano-therareawheretaxiaggregatorsarehopingtomakethegovernmentlistentothem.

Atpresent,itisagreyarea,withsomestatespermittingitandothersnot.“Wewouldliketoimpressuponthegovernmentthatpoolingiskeytoacost-effectivetransportationsystem.Italsoreducescongestion,”saysatopexecutiveataride-hailingservice. Aggregatorsalsocomp-laintheyhavethelicencetooperateinonlyafewstatessuchasKarnatakaandRajasthan.Hence,theyhaveaskedthegovernmenttoprovidethemwithanall-Indiapermit.

Asforsurgepricing,theyaretryingtoconvincethegovernmentthatthesystemisaimedatgreaterefficiencyandreliabilityratherthanatmakingprofits.Theyarguethatwithoutsurgepricingduringpeakhours,someridersmaynotbeabletogetavehicle.

NewMVActspursride-hailing firmstolobby forconcessions

| Allowcab-poolservicesacross thecountry

| Create separatecategoryofmobikeshare serviceproviders

| Removecapsonsurgeprice

| Not imposestiffregulationsonqualitystandardsofvehicles

KEYDEMANDS

Wish list includesall-Indiapermit

SAMREEN AHMADBengaluru,4September

Hospitality chain Oyo andfitness start-upCure.fit con-tinue to be among the toptwostart-ups toworkwith inIndia in 2019, according to alist of 25 such start-ups pre-pared by LinkedIn.

LinkedIn data showsthat the 25 start-ups thatfeatured on its list collec-tively created about 18,000jobs in the past year.

Over the next 12months,these start-ups together areexpectedtocreatemore than19,000 job opportunities inthe country, a companyspokesperson said.

“Growing talent acrossdifferent roles, regions andgeographies continues to beone of our top five prioritiesthis year, and I am certainthat we will continue toattract good talent withdiversity in thought,” saidAditya Ghosh, CEO, India &South Asia, Oyo Hotels &Homes.

InAugust, theGurugram-headquartered companyhad announced that it willbehiringover3,000over thenext sixmonths.

Experts, too, believe thathiringand investments con-tinue to be strong in thestart-upecosystem,despiteaslowdown.Anup Jain,man-aging partner of early stageventure capital firm OriosVenture Partners said thereisa lotofbullishness instart-up hiring. “Movement ofmanpower is happeningfrombig start-ups to smallerones and fromcorporates tothe start-up ecosystem,”added Jain.

Cure.fit,whichstoodsec-ond in the LinkedIn list interms of attracting talent,said it would continue toinvest towards learning anddrive tech-enabled innova-tive solutions.

Bengalurubasedstart-upDunzo, which was Google’sfirst direct start-up invest-ment in India, lost groundand slipped to the 13th posi-tion from last year’s thirdplace.Thethirdspotwas tak-en up by a new entrantTapChief which providesonline consultation.

Oyocontinues totop LinkedIn’sIndian start-upstoworkwith

REUTERSBengaluru/NewDelhi,4September

Amazon’s India unit plans toreplace single-useplastic in itspackaging by June 2020, thefirm said on Wednesday, thelatestmovebyane-commercegiant to weed out plastic usefromthecountry.

Last week, Walmart’s locale-commerceunit Flipkart saidit had cut down on similarkinds of plastic use by 25 percent and planned to moveentirelytorecycledplasticcon-sumption in its own supplychain by March 2021. Theannouncements come justweeksaheadofPrimeMinisterNarendra Modi’s expectedmovetoannounceplansscrap-pingtheuseofcertainvarietiesofplasticby2022.

Amazon India will roll outpaper packing material acrossthecountryby theendof2019,its vice-president of customerfulfilment, Akhil Saxena, saidon a call. Amazon has oftenbeen criticised for using toomuchplasticandthermocoltowrap its billionsofpackagesofshipments. The company saidithasbeentalkingtotheIndian

government, butWednesday’smovewas“notaknee-jerkreac-tion,”Saxenasaid.

In a speech addressing thecountryonIndependenceDaylast month, Modi had urgedpeople and government agen-cies to “take the first big step”on October 2 towards freeingIndiaof single-useplastic.

Earlier, state-run airlineAir India said it was workingonaplan to cutdownonplas-tic usage, switching to papertea cups and serving varioussnacks in cooking-paperpouches. Vistara, a joint ven-ture between Tata Sons andSingapore Airlines, replacedsmall water bottles withpaper cups on some of itsflights and said the airlineplans tomake the change onflights over all routes.

AmazonIndiaplansscrappingsingle-useplastic, joinsFlipkart

Food ministry to bansingle-use plasticbottles from Sep 15FoodandConsumerAffairsMin-istryhasdecidedtobansingle-useplasticinitsdepartmentsaswellasthepublicsectorunitsunderitsadministrationfromSeptember15.ThedecisionwastakenatameetingheldbyUnionFoodandConsumerAffairsMinisterRamVilasPaswan.Pas-wanannounced“ablanketbanonalltypesofsingle-useplasticproducts”intheministryandPSUs,includingFCIfromSeptem-ber15.Thedecisiononthiswastakeninahigh-levelmeeting,withsecretariesofboththedep-artmentsi.e.ConsumerAffairsandFood,CMDofFCI,DGBureauofIndiaStandards,MDofCWC,DirectorLegalMetrology. PTI

Unitech asked toclear ~2,734-crdues in 15 days orlose Noida landTheNoidaAuthorityhasaskedrealtorUnitechtoclearits~2,743.29croredueswithin15daysagainstthelandallocatedtoitforgrouphousingprojectsorfacecancellationoftheallotments,officialssaidonWednesday.

TherealtorwasallocatedlandfordevelopinggrouphousingsocietiesinNoida’sSector113andSector117withduesof~1,203.45croreand~1,539.84crorependingagainstthemrespectively,saidNoidaAuthority.

RealtorUnitechwasissuednoticesrespectivelyonAugust24andAugust30forclearingthetwodues,itsaid.

“OntheplotinSector113,thegrouphasalsocomeupwith17towerswithoutgettingthemapclearedbytheauthority, inviolationoftheNoidaBuildingRegulation,2010,”itadded. PTI

AVISHEK RAKSHITKolkata,4September

Canon, the global seller ofimagingandopticalproducts,says it is conducting feasibili-ty studiesacross40countries,includingIndia, tosetupman-ufacturingplants.Thespur forthis is theescalatingUS-Chinatradewar.

“We are (getting) ready tocome upwith new factories insome countries because US-China relations might affect(global)productionorbusiness.We always need to be pre-pared,” Kazutada Kobayashi,advisorydirectorandpresidentof Canon India, tells BusinessStandard.

This study is being con-ducted from its Tokyo head-quarters.Beingcheckedarethefundamentals of production,including infrastructure,labour quality, convenience

andmaterial supply.“Thetimingofestablishing

new factories cannot be ascer-tained and is very unforesee-able. Any emerging thingmayhappen or there may be anynew domain we may step in,”Kobayashi says.

He said most of the short-listed countries are inSoutheastandWestAsia,SouthAmerica andAfrica. “It will beacross the world. Otherwise,there is no meaning to hedgerisk if you concentrate on onegeography,”he says.

The US and China haveimposed additional tariffs oneach other's export. Asked ifCanon is prepared to shift itsproductionlines inthewakeofthisandfurtherdevelopments,he says, “Printers and copiersare being produced in China,ThailandandPhilippines.So, ifwefacedifficultiesinChina,wecan produce the samemodels

in the other two countries –that is how we can hedge therisk. We are still watching thesituation.” Apart from fourplantsinChina,Canonhaspro-ductionfacilitiesinover20oth-er countries.

Despite the current eco-nomic slowdown in this coun-try, Canon India is expectingits annual growth to bebetween 10.1 and 19.9 per cent.Last year's was 16 per cent. "Iam not confident to reach 20per cent growth but am confi-dent to reach 10 per cent,”Kobayashi says on the range.

He disclosed the Indianentity had seen double-digitgrowth in the first half of theyear but the festive seasonwould be key in clocking thefinal ate. “During Onam, wehadmixedbusiness.Themon-eyistherebutwhetherthecon-sumerwill spenditornot is thequestion.”

CanonchecksonproductionsitesinIndia,otherplaces

ARUP ROYCHOUDHURY

New Delhi, 4 September

Finance Minister NirmalaSitharaman and senior ministryofficials met representatives ofthe infrastructure sector onWednesday, the latest of themany sectoral meetings she hashad in the past one month.

The meeting came in thebackdrop of India’s grossdomestic product growthslumping to six-year low of 5 percent in the April-June quarter.Experts have said a capitalexpenditure boost focused oninfrastructure by the privatesector, and the government is a

way out of the slowdown as theCentre looks to create jobs.

In his Independence Dayspeech, Prime MinisterNarendra Modi had said theCentre will invest ~100 trillionon developing infrastructure.

In the meeting, representa-tives of infrastructure compa-nies such as HindustanConstruction Corp, NationalHighways Authority of India,Ircon, and others discussedissues related to financing, land,capital and environmentalclearances. There were sugges-tions on how to speed up exe-cution of projects.

“Some restrictions in financ-ing are there because firms aretaking projects at very low rate.They could not execute the proj-ects and their bank guaranteesgot encashed, so bankers havetheir own challenges,” Irconchairman SK Chaudhary said.

RAJESH BHAYANI

Mumbai, 4 September

After buying 5.6 tonnes of gold inApril, the Reserve Bank of India(RBI) has not disclosed any pur-chase for its reserves. A rise in itsprice is a possible reason.

According to data from theInternational Monetary Fund’sInternational Financial Statistics,the RBI has held 618 tonnes of goldsince April.

Indian consumers had briskbuying in the April-June quarterbut July import was down from

72 tonnes a year before to 38tonnes. Reuters quoted a govern-ment official on Wednesday thatAugust gold import is estimated at30 tonnes, a three-year low. InAugust 2018, import was 111.5 tonnes.

The price of gold is up by 25 percent in rupee terms over a quarter.In April-July, first four months, ofthis financial year, gold’s import billrose 15.5 per cent.

Somasundaram P R, manag-ing director for the India arm ofthe World Gold Council (WGC),said: “Gold already faces muted

demand because of the 25 percent increase in prices in termsof the Indian currency in recentmonths that naturally deters buy-ing. Any further curb (on import)will add to the negative sentimentunderpinning forecasts of eco-nomic growth and employment.Imports are already at a multi-year low, replaced by rising levelsof recycled or scrap gold, whichmight touch unprecedented lev-els in 2019.”

Recycled or old gold sale hasseen a sharp increase. In the Junequarter, such sale against cash was

37 tonnes and is only increasing. Atrader at the Zaveri Bazar here sayswhere the average trader was get-ting 10 kg of old gold in a day, it isnow 10 kg a day.

According to a WGC reportissued on Wednesday, centralbanks generally slowed their goldbuying in July. Alistair Hewitt, itsdirector of market intelligence said,“Net purchase of gold by centralbanks in July was a modest 13.1tonnes. This is 90 per cent less thanJune and the lowest level ofmonthly net purchase sinceAugust 2017.”

INDIVJAL DHASMANA

New Delhi, 4 September

Growth in services activityslowed in August, afterexpanding to a 12-month highin the previous month, pre-senting a volatile picture in thebiggest sector of the economy.

The widely tracked IHSMarkit purchasing managers'index (PMI) showed the PMIfell to 52.4 in August from 53.8in July because of a slower rateof increase in output. A read-ing below 50 reflects contrac-tion, while one over 50denotes expansion in PMIparlance.

The services sector contin-uing to be on the growth pathafter contracting in June was,however, a consolation. Thisway the sector has seen a fluc-tuating situation in the pastthree months.

One reason for the declinewas that new business inflowsrose at a slower pace follow-ing which job creation alsomoderated.

Earlier, data showed thePMI for manufacturing alsodeclined to a 15-month low of51.4 per cent in August.

“The weaker PMI readingsfor India’s services sectormatch the trend noted in themanufacturing industry,bringing unwelcome news of a

cooling economy halfwaythrough the second quarter offiscal year 2019-20,” saidPollyanna de Lima, PrincipalEconomist at IHS Markit.

The composite PMI outputindex, that maps both themanufacturing and the serv-ices industry, fell from 53.9 inJuly to 52.6 in August.

Growth of aggregate new

orders moderated from Julyand was modest. Private sectorjobs rose further in August, butthe pace of expansion wasslower.

“Although the two surveyscombined point to anotherround of job gains, a retreat inthe rate of employmentexpansion highlights a wait-and-see approach amongbusinesses that are longing fora meaningful and sustainedpick-up in demand growth,”Lima said.

Despite the decline, serv-ice providers remained confi-dent of a rise in business activ-ity in the coming 12 months,with optimism strengtheningto a one-year high.

Forecasts of better demandconditions, marketing initia-tives and accommodativepublic policies all boosted sen-timent in August, the surveynoted.

“An important develop-ment, however, is evident in arebound in business senti-ment. Both manufacturersand service providers believethat supportive public policiescan help shift growth momen-tum into a higher gear in thecoming 12 months,” Lima said.

On the inflation front, thesurvey noted that servicescompanies lifted their sellingprices again in August.

MEGHA MANCHANDA

New Delhi, 4 September

National Highways Authority of India(NHAI) Chairman N N Sinha onWednesday said the authority would

not go for borrowing if the Union governmentincreases its allocation to the road sector.

“If more budgetary resources were released,which authority would prefer mobilising fundsfrom the market?” Sinha saidin response to media reportson the financial stress beingfaced by the NHAI.

On the NHAI’s ~3-trillioncontingent liability, as sug-gested by some reports,Sinha said, “Either peopledon’t understand what con-tingent liability is or thenumbers have been over-reported.” He was address-ing a Confederation of Indi-an Industry event here.

The authority’s debt isexpected to touch ~2.5 tril-lion by the end of the currentfinancial year (FY20) and thepayment outgo on interest isexpected to be about ~25,000crore annually for the nexttwo decades.

The NHAI’s source of income includes tollrevenue and the government grant. From lastyear, it started monetising completed projects.Around ~8,000-9,000 crore is expected to comefrom tolling. The NHAI’s borrowing target hasbeen hiked by 21 per cent in 2019-20. The author-ity has the approval to raise ~75,000 crore duringFY20 while the Centre support is ~36,691 crore.

In FY19, the NHAI raised ~62,000 crorethrough a mix of debt from banks, toll revenue,and a road monetisation scheme. If the NHAImonetises its assets it would lead to a steadydecline in its toll collection.

Financial stress of the NHAI had become aconcern, with the Prime Minister’s Office (PMO)recently stepping in with suggestions for theauthority. The PMO asked the Ministry of RoadTransport and Highways (the NHAI’s parent min-

istry) to improve its opera-tional performance.

The PMO also suggestedthe NHAI monetise its roadassets base through the toll-operate-transfer (TOT) auc-tions or through an infra-structure investment trust(InViT). It asked the NHAI tobid out new projects underthe build-operate-transfer(BOT) model where the gov-ernment’s capital commit-ment is minimal.

Sinha said the NHAI islikely to float an InVit by theend of the year and wasawaiting the Cabinetapproval. Besides, masalabonds to the tune of ~5,000crore will be raised this year.On the BOT toll mode, Sinha

said all projects will not fit into BOT and thereare a variety of instrumentation approaches,adding that under the Bharatmala programmeitself, about 60 per cent of the projects will befunded under HAM (hybrid annuity mode),about 30 per cent on EPC (engineering, pro-curement and construction) and about 10 percent on BOT toll mode.

4 ECONOMY & PUBLIC AFFAIRS MUMBAI | THURSDAY, 5 SEPTEMBER 2019

> .

“My biggest worry about the economicslowdown is that the government mayspend the ~1.76 trillion they have takenfrom the RBI on advertisements andmessages to tell you there is no slowdown”

SHASHI THAROOR, Congress leader

“The arrest of D K Shivakumar is anotherexample of the vendetta politicsunleashed by the government, usingagencies such as the ED,CBI & a pliantmedia to selectively target individuals” RAHUL GANDHI, Congress leader

“Now, we are at a stage where there is universalaccess to electricity in India... That has led tothis growth in electrical industry sector(manufacturing of equipment)... demand hasalso grown at 6.7% in the last quarter"

R K SINGH, power minister

Surcharge reversalwon’t bring muchrelief to FPIs: Ind-Ra Foreign funds flow into India isexpected to remain underpressure over the near-to-medium term despite thegovernment rolling backsurcharge on FPIs and benignglobal monetary policy stance,said India Ratings on Wedn-esday. It expects "headwindsto foreign portfolio investmentflows into India to continueover the near-to-mediumterm despite the accom-modative global monetarypolicy stance and the Centre'sefforts to alleviate uncertaintyregarding the highersurcharge". PTI<

Ratul Puri arrestedin case related toVVIP chopper scamThe Enforcement Directorateon Wednesday arrested RatulPuri, nephew of MadhyaPradesh Chief Minister KamalNath, in a money launderingcase related to theAgustaWestland chopperscam. Puri, already in judicialcustody in a separate moneylaundering case related to analleged bank loan fraud, wasproduced before Special judgeArvind Kumar in pursuance tothe production warrant issuedagainst him. PTI<

Citing broad-basedslump, CRISIL cutsGDP forecast to 6.3%Describing the slowdown as"deeper and more broad-based than suspected",domestic rating agency CRISILon Wednesday sharplyslashed its GDP forecast forFY20 to 6.3 percent from 6.9percent earlier. Thedownward review comesdays after GDP growthslowed down to a 25-quarterlow of 5 percent in the Junequarter which significantly iseven lower than Pakistans5.4 percent growth and isdue to the slump in privateconsumption and a nearstalling of manufacturingactivities, the agency said ina note. PTI<

ICICI lowers lendingrates by 10 bpsacross maturitiesThe second-largest privatesector lender ICICI Bank hascut its lending rates by 0.10per cent across all maturities,sources said on Wednesday.The rates have been cutacross all tenors under themarginal cost of funds-based lending rate (MCLR)system, they said. With thiscut, which comes amidrepeated RBI nudges to slashrates, the total quantum ofrate reduction by the banksince April goes to 0.20percent. PTI<

CBDT signs 26advanced pricingagreements in FY20 The Central Board of DirectTaxes (CBDT) has entered into26 advance pricingagreements (APAs) in the firstfive months of the currentfinancial year. With thesigning of these APAs, thenumber of APAs entered intoby the CBDT as of now stands at297, which includes 32 BAPAs,CBDT said in a statement. Ofthese 26 APAs, one is a bilateralAPA entered into with theUnited Kingdom and theremaining 25 are unilateralAPAs, it said. The progress ofthe APA scheme strengthensthe government's resolve offostering a non-adversarialtax regime, it said. PTI<

NTPC pays ~2,473-crfinal dividend for 2018-19NTPC on Wednesday said ithas paid final dividend of~2,473.63 crore for 2018-19 toits shareholders, which isequivalent to one-fourth ofits equity share capital.According to the statement,the real time grosssettlement (RTGS) advice forthe transfer of ~1,348.23 croreto the government, being itsshare in the final dividend,was presented to PowerMinister R K Singh by NTPCCMD Gurdeep Singh in thepresence of Power Secretary S C Garg on Wednesday. PTI<

The government is likely to miss its fiscaldeficit target for the current fiscal year,despite receiving an additional dividendfrom the central bank, five governmentofficials and advisors said, as tax collectionshave sunk amid a sharp slowdown. Witheconomic growth falling to a six-year low of 5

per cent in the April-June quarter, the sources said thegovernment could toward the end of 2019 be forced to raise thefiscal deficit target to 3.5 per cent of GDP from 3.3%, amidpressure for additional stimulus measures. The officials askednot to be identified as they have not been authorised to discussthe matter with media. A finance ministry spokesman did notimmediately respond to requests for comment. Tax collectionscould fall by as much as 1 trillion rupees ($14 billion), or 4 per centof $344 billion annual target, two of the officials said, noting thatsharp shortfalls are expected both in goods and services tax (GST)and income tax collections. REUTERS<

Govtmay miss fiscal deficit targetamid pressure formore stimulus

IN BRIEF Won’t borrow ifCentre’s grant israised: NHAI chief

Services growthslows in August

~

Facing soaring price, Reserve Bank halts gold buying

SUBHOMOYBHATTACHARJEE

New Delhi, 4 September

Over the past couple of months,Singapore has held symposiums inMumbai and New Delhi toswing the mood among Indianpolicymakers and industry tosign on the Regional Compre-hensive Economic Partnership(RCEP) of 10 ASEAN countrieswith its six free-trade agreement(FTA) partners — India, China,Australia, New Zealand, Japanand South Korea.

In November, India and theother nations will have anothergo at signing the tradeagreement in Singapore, a meet whichwill be attended by Prime MinisterNarendra Modi as well. The odds of Indiasigning up are favourable because,contrary to its uncertain attitude last year,this time India has an added politicalreason to come on board. After the recentdevelopments in Jammu and Kashmir, adeeper economic engagement with keynations could give it more bargaining

chips with the international community.India did not sign on the RCEP at last

year’s meet in Singapore purely oneconomic grounds.

Economic doldrums at home are alsoputting pressure on the Modigovernment to deepen itseconomic diplomacy. Eventhough Commerce MinisterPiyush Goyal skipped theRCEP preparatory meet inBeijing in early August — In-dia was represented by Com-merce Secretary AnupWadhawan — the situationhas changed considerablysince then.

Next week, India will hostanother meeting of interlocutors to breakthe logjam. The meeting has been termedas RCEP 1.5.

Amitendu Palit, senior research fellowand research lead at the Institute of SouthAsian Studies, National University ofSingapore, said India risks being absentfrom key economic forums if it does notget into trade deals. In an increasinglyfractious world, trade blocs represent

more than pure economic interests, hesaid, adding, “India’s ambitions of being amajor power and contributingmeaningfully to global and regionalaffairs depends largely on the links itdevelops.”

Rajeev Kher, distinguished fellow,Research and Information System forDeveloping Countries, agreed. Pointing

out that countries were increasingly usingtrade policy as a geo-strategic tool, Khersaid, “India should focus on joining newcoalitions and develop a stance that ser-ves its own interests beyond only WorldTrade Organization (WTO).”

Incidentally, the finance ministry hasbegun a review of some of India’s tradeagreements, a task usually considered to

be the turf of the commerce ministry.Take the Asia Africa Growth

Corridor (AAGC), India’s agreementwith Japan to invest jointly in Africaand other continents. India has aninterest in keeping it alive even thoughJapan has not shown much enthusiasmfor it from the time it was signed in2016. The Australian government hasagain sent feelers to India to resumenegotiations on the mutual free tradeagreements, said a source in Canberra.Without deals such as the AAGC or theRCEP in its pocket, India risksremaining isolated from majoreconomic alignments.

A report by S&P Global Ratings saysthat the stand China, India and Indonesia(who have so far been RCEP outliers) takein the next few months will determine if“Factory Asia” will prosper. “The monthsahead may tell us whether policymakersin the region are moving to bolster orundermine Factory Asia, the world'slargest beneficiary of productionsharing,” notes its publication, What ToWatch On Trade.

For India, domestic industry remainsa stumbling block to international tradedeals, because the latter has no reason toback the government on signing theRCEP or any other trade agreement. Andyet sections within the governmentrecognise that domestic industry has not

exactly been able to utilise their space tomake significant strides in the Make inIndia programme.

Besides, in the absence of mutualdeals, preferential trade arrangementsalone have not succeeded in raisingIndia’s volume of exports. The commerceministry data shows that excluding USA,exports to the seven countries withwhich India has preferential tradearrangements, including Australia andthe EU, have risen by only 1.57 per cent inthe past five years.

A way out for India could be to signon to the RCEP’s chapters on goodstrade while staying away from theagreement on services. In Beijing,Wadhawan made the point to all thetrade partners about skewed traderelations in services. His said expansionof the services trade will support bothgoods trade and investment. ToThailand, his exhortation was toimprove its offer in goods and services,while he urged Singapore to supportoperationalisation of the mutuallyagreed standards on nursing.

Palit of Singapore’s Institute of SouthAsian Studies said if RCEP trade talksprove to be difficult, India shouldexplore trade arrangements with Russiaand Central Asia as these could becomeexamples of geopolitical engagementsenabled by economic efforts.

Kashmir, economic slowdown could push India to sign RCEP

ECONOMICHANDSHAKE

The final part of the series looks at how situationsat home are putting pressure on the Modi govtto deepen its economic diplomacy

FM meets infra representatives

Prime Minister Narendra Modi with China’s Premier Li Keqiang at RCEP meeting inSingapore in November last year. India did not sign on the RCEP at the meet inSingapore purely on economic grounds PHOTO: REUTERS

FM Nirmala Sitharaman

The price of gold is up by 25% in rupee terms overa quarter

SLOW OUTPUT

Apr ‘13 Aug ‘19

58

54

50

46

4250.7

52.4

Note: PMI is in points. A figure above 50 meansexpansion, while below that means contractionSource: IHS Markit

Highways construction in India isestimated to require about ~19trillion in the next five years andinnovative financingmechanisms needs to be put inplace to address any fundinggap, according to a report byconsultancy firm KPMG.India has the second-largestroad network in the world andthe Ministry of Road Transportand Highways is planning todevelop about 60,000 km ofhighways in the next five years.

MEGHA MANCHANDA

~19 trn needed forhighways in 5 yrs

6 ECONOMY & PUBLIC AFFAIRS MUMBAI | THURSDAY, 5 SEPTEMBER 2019 1>

Slowdown hits states’GST revenues harderABHISHEK WAGHMARE

New Delhi, 4 September

The slowdown in the economy,which has already resulted inpoor growth in the collection of

the goods and services tax (GST), isaffecting states disproportionatelymore than the Centre, the data shows.

But, this is no good news for theCentre. As states have been guaranteeda 14 per cent revenue growth till 2022under the GST law, the Centre has tobear the entire shortfall in revenue.

Experts said if the slowdown, andsubsequent weakness in GST mobili-sation, continued, it would curtail theCentre’s resources to a considerableextent in the current financial year. Thedata released by the government givesa clear indication of the phenomenon.

Nearly ~46,000 crore has beentransferred to states from the com-pensation cess fund in the first fourmonths of FY20 (April – July), regis-tering a growth rate of 140 per centover the previous year. In the sameperiod of FY19, the Centre transferred~19,000 crore. The government col-lects compensation cess on certainitems to fund any shortfall in thestates’ GST revenues.

This figure of ~46,000 crore in fourmonths is more than 60 per cent of thecompensation provided to states inFY19, which is reported to be nearly~80,000 crore, clearly showing a big-ger need for compensation in the firstfew months of FY20.

“This annualises to ~1.7 trillion for2019-20, which is well above the ~1.1trillion budgeted to be collected as com-pensation cess,” global brokerage CreditSuisse said in a report. “If the compen-sation need exceeds the cess collected,the extra funds would go out from gen-eral fiscal expenses,” it added.

The picture becomes sharper if welook at how Central GST (CGST) andState GST (SGST) collections havegrown or contracted in FY20. After thedistribution of Integrated GST (IGST) tothe Centre and states, the central gov-ernment’s revenue in April-August

FY20 has actually been 1 per cent low-er than that in the same period of FY19.

The contraction for the states hasbeen sharper — 7 per cent. This is part-ly evident from how IGST has been allo-cated to the Centre (CGST) and thestates (SGST of all states).

While there has been an increase of15 per cent in IGST transfers to theCentre in April-August FY20, IGSTtransfers to states have contracted 8per cent in this period. This has severe-ly reduced the GST revenue accrual tostates, compelling the Centre to fill thatshortfall using the amount collected asGST compensation cess.

IGST is collected on imports andinter-state transfers, and is distributedamong the Centre and states regularly,either by regular settlement based onthe knowledge of place of supply or byad hoc settlement on a 50:50 basis toease the cash flow to the Centre andthe states.

A senior government official, how-ever, said the increased transfer tostates from the cess account was dueto slower distribution of IGST in thisperiod. “Due to the slowdown, withrespect to states, both the SGST andthe IGST components to states aregrowing slowly. In addition, the over-all IGST transfer itself (to states andCentre) was low in July, resulting inhigher transfers as compensationcess,” he said.

This might also lead to a higheravailability in the IGST account at theend of the financial year, if revenuemobilisation increases, he added.

According to a Kotak Securitiesreport, the Centre now needs nearly~50,000 crore a month, while the statesneed ~60,000 crore a month in theremaining eight months of FY20. TheCentre and the states collected ~40,000crore in August 2019, according to thefinance ministry.

Secondary loan market could be a game changer, say expertsANUP ROY

Mumbai, 4 September

The report of the task force on sec-ondary loan market for India couldcompletely change the bankinglandscape in the country for better,if taken seriously and implementedproperly, but it also runs the risk ofbeing another report such as thoseon developing the bond market inIndia that never implemented fully.

The recommendations of thelatest report, released by theReserve Bank of India (RBI) onTuesday are “ahead of its time,” sayexperts, but are doable and the wayforward. “In India, they have notbeen able to develop a serious sec-ondary market for corporate bonds.It is difficult to develop the second-ary loan market,” said a seniorbanker requesting anonymity.

But then, according to anotherexpert in the field, “the secondaryloan market could herald a new cor-porate bond market. The loansbeing traded would be rated, andnotified on exchanges. A corporatebond market could develop follow-ing the lead,” said another expert.

Whatever the case may be, thereare steep challenges ahead andimportant ramifications for theexisting players. In India, there is awell established secondary marketfor stressed loans. There are assetreconstruction companies (ARC),and securitization deals done bythe non-banking financial compa-

nies (NBFC), even as recently theRBI allowed banks to sell theirstressed assets directly to foreigninvestors abroad.

However, there is no formal sys-tem of buying and selling the loans.The transactions are done over thecounter and on a bilateral basis.What the task force suggests is thatthere should be an online platformwhere rated loans can be traded.The task force also recommendsthat the existing laws be amended toenable mutual funds, insurancecompanies, and even foreign port-folio investors (FPI) to buy the loans.Right now the market in India islimited to banks and NBFCs tradingbetween themselves.

Foreign investors participate in

distress debt via the ARCs. “Internationally, secondary loan

market is utilised by diverse andvast number of participants includ-ing investment banks, commercialbanks, hedge funds, pension funds,loan mutual funds, insurance com-panies, PE funds and specialist loanbrokers,” the task force said in itsreport, adding that in the Indiancontext too, there is a need to boostthe secondary market by wideningthe spectrum of participants.

While scheduled commercialbanks are expected to actively par-ticipate in the proposed secondarymarket, other players includingNBFCs, ARCs, public financial insti-tutions, insurance companies, pen-sion funds, mutual funds, alternate

investment funds (AIFs) and FPIsregistered with SEBI should also bepermitted to participate in the mar-ket “to provide liquidity and ensureorderly development of the mar-ket,” the task force report said.

Interestingly, for FPIs, the reportsuggest that such investments byFPIs should be under voluntaryretention route (VRR), under whichthe FPI can voluntarily commit toretain a required minimum 75 percent of their investments in India fora period of three years.

Experts say the secondary loanmarket can corner about 60 per centof the total loans in just three years,if there is concerted effort in takingthe recommendations seriously andchanging the eco system.

A major challenge can comefrom the taxation side. Say forexample, if a loan is bought at say 80per cent of the value that the bankhad sold at, the income tax depart-ment may argue that 20 per cent isthe gain and is taxable, or if the assetis bought at a premium, the taxauthorities may raise questions,said a senior executive with an ARC.

Accounting would be anotherbig challenge. The report itself rais-es questions about simplifyingstamp duty and other taxes toenable the online trading platformto take off. The platform, mean-while, has to be developed andmonitored by the RBI.

More on business-standard.com

Year after collapse, IL&FS on road to recoverySUBRATA PANDA

Mumbai, 4 September

A year after Infrastructure Leasing& Financial Services (IL&FS) col-lapsed, leading to a crisis in thefinancial sector, the resolutionprocess set in place by the newboard has started yielding divi-dend, with 10 road projects attract-ing investor interest and sevenwind energy assets being sold.

Last week, the NationalCompany Law Tribunal (NCLT)gave the go-ahead to the sale ofseven wind energy assets ownedby the IL&FS group to Japaneseinvestor Orix Corp, which alreadyowned 49 per cent in these assets.This sale is expected to fetch thebeleaguered group ~4,800 crore asOrix decided to match the offer ofGAIL India, which had emerged asthe highest bidder for the assets.

Orix’s offer, which is for 100 percent enterprise value, means therewill be no haircut in these loans.The debt of these assets totalled~3,700 crore and Orix in its offerhas agreed to take over the entiredebt. The sale of assets to Orix willalso bring in an equity value ofapproximately ~593 crore.

The new board, led by KotakMahindra Bank ManagingDirector and Chief ExecutiveOfficer Uday Kotak, announced

that it had received binding bidsfor 10 road assets whose total debtis to the tune of ~17,700 crore,accounting for 19 per cent of theentire group’s debt. As many as 14bidders have shown interest inpurchasing these assets.

With this development, alongwith the Orix deal, “almost a quarter of IL&FS group debt isbeing addressed”, IL&FS said.

The fifth progress report sub-mitted by IL&FS to the NCLT puts the debt at ~94,673 crore.According to news reports in July, the government is expectingthe group to recover around 50 per cent of this.

For better resolution of theentities in the group, the board hassegregated them —based on theircapacity to meet their debt obliga-tions — in green, amber and redcategories.

According to the fifth progressreport, there are 55 green entitieswhich can service their debt obli-gations. Amber consists of 13 enti-ties, which can only meet opera-tional payment obligations andpayment obligations of seniorsecured financial creditors. Lastly,there are 82 entities in the red cate-gory which cannot meet any pay-ment obligations.

Of the road assets that receivedbinding bids, Jharkhand

Infrastructure ImplementationCompany is the only green assetthat has received a binding bid.Five road projects in the ambercategory have received bids, whilethe remaining four are marked asred.

The IL&FS group has 302 enti-ties, of which 169 are in India andthe rest 133 are outside India.

The collective debt of the greenentities, according to the fifthprogress report, was more than~11,000 crore. So far as amber andred entities are concerned, theyhave a debt of ~16,372 crore and~61,375 crore, respectively.

In its statement last week,IL&FS said two of the amber roadprojects, which have found bid-

ders, are in the process of beingreclassified from amber to greenon the basis of the restructuringproposals agreed with its lenders.This means that they will be ableto service their debt obligationsoon, which would further bringdown the non-performing assetsof the group, even before the saleprocess is completed.

“The new board, as part of theoverall resolution process forIL&FS group, has initiated thesale of a number of other groupassets also, which seeks toaddress a significant portion ofthe group’s debt. Sale processesfor these assets including educa-tion, waste management, tech-nology, real estate and key inter-

national assets are currentlyunderway and binding financialbids are expected in stages overthe next few months,” IL&FS said.

It has received and shortlisted11 expressions of interest (EoIs) forIL&FS Investment Managers. Forthermal assets and related busi-nesses, it has received 18 EoIs andnon-disclosure agreements havebeen signed with 17 parties. Also,five EoIs were received for the saleof 49 per cent stake of the group inChongqing Yuhe Expressway.

For IL&FS Prime Terminal FZC,the process of seeking non-bind-ing bids was re-launched and thebids received are being discussedwith lenders.

Apart from the sale of assets,the new board has also beenengaged in the sale of real estateassets of the group.

More than 30 propertiesbelonging to IL&FS have beenidentified. The board has alsoundertaken cost-cutting meas-ures. Between October 2018 andJune 2019, it reduced headcountby 43 per cent, leading to a savingof 47 per cent in the annual wagebill. It is also looking at rentalincome from real estate — it hasalready rented out space in theIL&FS Financial Centre inMumbai to IDFC Bank for ~1.17crore per month.

Deal completed

Orix Japan to buy sevenwind energy assets for ~4,800 crore

Binding bids

10 road projects with debt of~17,700 crore havereceived binding bids

Non-binding bids

Non–binding bidsreceived for IL&FSPrime Terminal FZC;discussion with lenders on

EoIs received

18 EoIs received forthermal and relatedbusiness and 17 partiesshortlisted

Chongqing YuheExpressway Company alsoreceived five EoIs for49% stake of IL&FS

Arbitration awarded

IL&FS Engineering &Gayatri Projects JV wonan arbitration claim of~914.3 crore

Sale of luxury cars

23 cars sold of ~4.92 crore

Rent

Rented out office spaceat IL&FS Financial Centreat ~1.17 crore/month

Sale of real estate

30 properties have beenidentified; process of saleinitiated and propertyconsultants appointed

ASSET-MONETISATION PROCESS

Equitas SFB misses listing deadlineHAMSINI KARTHIK

Mumbai, 4 September

Equitas Small Finance Bank(SFB), which completedthree years of operations onWednesday, has missed itslisting timeline.

While the holding com-pany — Equitas FinancialHoldings, which owns 100per cent stake in EquitasSFB — is a listed entity, theReserve Bank of India (RBI)rules mandate that the SFBbe listed separately withinthree years of launch ofbusiness. Equitas SFB, thefirst such bank, began oper-ations on September 5, 2016.

The company has beenconsidering a reorganisa-tion of its share capitalthrough a scheme ofarrangement under Section230 read with Section 52 ofthe Companies Act 2013.The bank has written to themarket regulator, theSecurities and ExchangeBoard of India (Sebi), onwhether it can pursue theproposed structure.

“We are yet to hearfrom Sebi on this matter,”said P N Vasudevan, man-aging director, EquitasSFB. “Once we get approvalfrom Sebi on the proposedstructure, we shall proceedto the National CompanyLaw Tribunal for imple-menting the scheme ofarrangement,” saidVasudevan.

However, from the timeof approval, it may takeabout six months for thecompany to implementthe plan. Meanwhile, theholding company has alsowritten to the RBI seekingadditional time to list theSFB. It is understood thatthe RBI too hasn’t revertedto Equitas.

Experts say approvalfrom Sebi may not comethrough easily as schemesof arrangement similar tothe one proposed byEquitas could give room toindirect listing of the sub-sidiary. “Schemes ofarrangement which couldtantamount to indirect

listing of subsidiaries maynot be acceptable to regu-lators without complyinglisting regulations,” said apartner of a Mumbai-based law firm.

Ujjivan FinancialServices, the holding com-

pany of Ujjivan SFB, alsohas a corporate structuresimilar to that of EquitasFinancial Holdings. Ujjivanhas decided to list its SFBarm by way of an initialpublic offering (IPO). Thecompany has filed the draftred herring prospectuswith Sebi and is expectedto list the SFB by January2020, when the bank com-pletes three years of opera-tions. It is gathered that ifEquitas does not get regu-latory approval for the pro-posed scheme of arrange-ment, Equitas SFB mayhave to be listed in a similarmanner.

Equitas SFB had an assetbase of ~12,300 crore and awell-diversified loan book,spilt into loans for small andmedium-sized businesses,agriculture, commercialvehicle and microfinancefirms. Among peers,Equitas SFB is less depend-ent on microfinance loans(25 per cent of the totalloans) and offers a largerbouquet of loans.

Bank mergers castshadow on wage talks RAGHU MOHAN

Mumbai, 4 September

The terms of the ongoing negotiations between theIndian Banks’ Association (IBA) and bank unionsover the 11th bipartite settlement may have to bereworked, following the announcement of the bigmergers of state-run banks. The IBA has formed asub-committee on performance-linked incen-tives. The matter will be discussed at its first meet-ing in New Delhi on September 11.

The sub-committee, headed by State Bank ofIndia’s (SBI’s) Deputy Managing Director PrashantKumar, was set up after the last meeting betweenthe bankers’ lobby and the United Forum of BankUnions (UFBU) in Mumbai on August 29.

“Talks on the 11th bipartite settlement are in thefinal round and now we have these mergers. Wethought if at all the mergers were to happen, itwould have been after a settlement had beendrawn up,” said a senior office-bearer of a bank offi-cers’ union. A bank official said, “While it’s unlike-ly new demands will crop up, what has to beworked out is on what parameters are staffersacross banks with different business and culturalorientations to be evaluated. This is a tricky issue.You now have the variable of performance-linkedpay in the wage talks.”

While a staffer may have been a top performerat a bank prior to the merger, it might not be thecase in the merged entity, as the standards will bedifferent. It is speculated that the middle groundmay be to evaluate performance as it stands andcraft a new human resource policy.

It was pointed out that the speed and breadthof the developments of the past few days haveplaced all concerned in unchartered territory.

Mergers in the recent past — be it State Bank ofIndia’s merger of its five associate banks with itself,or the three-way Bank of Baroda-Dena Bank-VijayaBank transaction — had come well within theindicated time frame for hammering out the set-tlement. The Centre’s decision to go ahead withfour sets of mergers — Punjab National Bank,Oriental Bank of Commerce, and United Bank ofIndia; Canara Bank and Syndicate Bank; Union

Bank of India, Andhra Bank, and CorporationBank; and Indian Bank and Allahabad Bank — hasput bank managements and senior bank unionofficer-bearers in a spot.

Bank unions — officers and workmen — hadburied their differences and sat across the table onAugust 29 to work out a fresh deal with the IBAinvolving a 20 per cent wage hike. The IBA thoughrefused to entertain UFBU’s demand for a 20 percent wage hike and stuck to its stand that it will be10 per cent at best; not even the 15 per cent which theunions had asked for in the earlier round of talks.

UFBU’s revised demand was on grounds thatthe gap between what bank employees earn whencompared to those in the government’s equivalentgrade has widened. And that even after a 20 percent pay hike, this difference will stand reducedonly at the beginning of the scale, but it will still beat about half of the same at the end of it.

The spate of bank mergers will mean that theIBA and UFBU will have to rework the terms oftheir engagement.

ONGC yet to become operator of GSPC’s KG Basin gas blockSHINE JACOB

New Delhi, 4 September

Two years after acquiring an 80 per cent inGujarat State Petroleum Corporation's(GSPC) KG Basin gas block, Oil and NaturalGas Corporation (ONGC) is yet to get com-plete legal ownership of the block.

Two senior company executives said“the production-sharing contract (PSC) ofthe block is yet to be transferred to ONGC”.The deal was completed in August 2017, forwhich ONGC paid about ~7,738 crore.

The right to operate a well, field, or oth-er oil source continues to be with GSPC,according to the website of the DirectorateGeneral of Hydrocarbons (DGH).

Different reasons are being given forthe delay. "I would not like to say the con-tract is not yet with ONGC, but certainfinancial adjustments have to be made,"said a source. Another official said ONGChad not done "proper documentation" forthe approval. There is also a lack of clarityon who will approve the change.

While a government official said therequired amendment in PSC would bedone by the petroleum ministry, an ONGCexecutive said an empowered group of sec-retaries belonging to different ministrieswould clear the change. GSPC has alreadyused the consideration received fromONGC for partial pre-payment of its termloan, according to GSPC's 2017-18 annualreport. The company still holds 10 per centparticipating interest in the block as non-operating JV partner.

J N Singh, MD, GSPC, said: "Every rightrelated to the block has been transferredand the deal has been done. If at all someissues are there, it will just be a formality."

Until the PSC is transferred, the pro-ceeds from the block are unlikely to be partof ONGC's books, according to industryexperts. An ONGC executive, however,refused to comment on this.

Moody’s has affirmed ratings for five publicsector banks (PSBs) — Canara Bank, OrientalBank of Commerce, Syndicate Bank, UnionBank and Punjab National Bank — that willundergo mergers. Moody’s also upgradedrating outlook on PNB from “stable” to“positive”. It affirmed the local and foreigncurrency deposit ratings of Canara Bank, OBC,Syndicate Bank and Union Bank at Baa3/P-3. Ithas also affirmed their Baseline CreditAssessments (BCAs) and Adjusted BCAs at ba3.The affirmations reflect Moody’s expectationthat the acquiring banks will receive sufficientcapital injections to absorb potential write-downs, if any, arising from mergers. ABHIJIT LELE

Moody’s affirmsrating for five PSBson merger decision

Cess transfer to states jumps sharply*(~ crore)

States’ GST underpressure�Apr-Aug FY19 � Apr-Aug FY20 (~ trillion)

Growth %

Reason: IGST inclined to Centre�Apr-Aug FY19 � Apr-Aug FY20 (~ trillion)Figures in arrows showgrowth in %

Apr- Jun- Aug- Oct- Dec- Feb- Apr- Jun-May Jul Sep Nov Jan Mar May Jul

Centre's GST revenue States' GST revenue

GROWTH PANGS

FY19 FY20

3,899

1.88760 871

713 6581.86

1.992.15

14,9

30

11,9

22

15,6

93

14,1

00

18,9

34

17,7

89

27,9

55

-1.4 14.5-7.6

-7.2

IGST transfer to Centre IGST transfer to states

*Arrears not considered Sources: Press Information Bureau, Ministry of Finance

CURRENT SCENARIO| Typically,corporatebond marketdevelopsbefore loanmarket

| In India,corporatebondmarket isstill under-developed

| Loanmarket couldseverelypunishinefficientloan pricing

| Banksmay haveto bookhigh MTMlosses

| ARCscould faceproblems asanybodycould buyloans

“Once we get approvalfrom Sebi on theproposed structure, weshall proceed to theNCLT for implementingthe scheme ofarrangement”P N VASUDEVANMD, Equitas SFB

HC stays proceedingsin NCLT against BSR

The Bombay High Court (HC) onWednesday granted interim relief toBSR & Associates by staying theproceedings in the National CompanyLaw Tribunal (NCLT) against BSR in thematter pertaining to banning ofauditors of IFIN. The stay has beengranted till the time further orders arepassed by the court in the matter. BSR& Associates and Deloitte Haskins &Sells were the erstwhile auditors of IFINand have been accused of colludingwith management of IFIN in presentinga rosy picture of the company despiteknowing the state of affairs. BSR hadmoved the Bombay HC last monthchallenging the NCLT order wherein thetribunal had rejected the auditor’s pleachallenging NCLT's jurisdiction to banthe auditors. SUBRATA PANDA

8 ISSUES AND INSIGHTS>

MUMBAI | THURSDAY 5 SEPTEMBER 2019

> CHINESE WHISPERS

The last few decades of advance ineconomic theory and empiricalfindings have raised questions

about the general applicability of thevery idea of equality-efficiency trade-off. In the rest of this essay, we shall enu-merate and examine some of the rele-vant issues here.

When there is information asymme-try between the two sides in a given eco-nomic transaction, the above-men-tioned trade-off may not hold. Forexample, creditors do not have enoughinformation about the viability of a pro-ject brought to them by a potential bor-rower. You may have a project that youknow is very much worthwhile fromboth private and social point of view, butthe creditor may not be aware or con-vinced of it, and you do not have suffi-cient collateral to persuade the creditorto take the risk of lending to you. A richman with an inferior project may getthat loan, not you, because of the for-mer’s larger assets, and hence , collateralvalue. Thus, inequality here promotesthe less efficient outcome. Similarly,

your low savings or collateral may notpermit you to finance or borrow forinvestment in higher education forwhich you may otherwise have the tal-ent and proficiency, whereas the less tal-ented children of your rich neighbourgo through college and university, whileyou drop out. This is a loss to society aswell as yourself.

There is, of course, a great deal ofsocially unproductive risk-taking by therich (with “collateral damage” for thepoor), say, in financial or real-estate spec-ulation. Even if we ignore this, it isimportant to keep in mind that not alldynamic innovations and productiverisk-taking are by private fortune-seek-ers. In the US, much of the basic or foun-dational research and great innovationsof recent times (like the internet, GPS,digital search engine, supercomputers,human genome project, magnetic reso-nance imaging, smart phone technology,hydraulic fractu-ring for shale gas, anda whole host of others) have been facili-tated by or been the outcome of publicinvestment funded to a large extent bytaxpayer money. Scandinavian countrieswith a high-tax redistributive economyhave not been lagging in innovations.

Even in the private sector assuringtemporary monopoly and thus, great for-tune for the innovator through thepatent system has not been the only orthe best way of encouraging innovations.Patents on a new technology often makethings costly or obstructive for futureinnovators and thus may hamper furtheradvances in technology. Open-sourceprogrammes are often more conduciveto new developments of technology.

If inequality is generated by marketpower of big firms in product and labourmarkets, then there is a direct loss ofefficiency (in output and employment)if that market power enables those firmsin their attempt to maximise profits torestrict output (and labour hiring) belowthe amounts for a competitive firm.

Historically, the case where inequal-ity and inefficiency have stubbornly per-sisted together relates to land, which isusually very unequally distributed. Intraditional (and in some non-traditional)agriculture, the empirical evidence sug-gests that economies of scale in farm pro-duction are not inherently substantial(except in some plantation crops) andthat the small farm is often the most effi-cient unit of production (if credit, insur-ance and marketing facilities are notinadequate). Yet the violent and tortuoushistory of land reform in many countriessuggests that numerous road blocks onthe way to a more efficient reallocationof land rights are put up by the powerfullanded interests for many generations.Why don’t the large landlords insteadvoluntarily lease out or sell their land tosmall farmers and grab in the bargainingprocess much of the surplus arising fromthis efficient reallocation?

There clearly has been some leasingout of land, but problems of monitoringthe tenant’s work and application ofinputs, insecurity of tenure (discourag-ing long-term land improvements bythe tenant), and the landlord’s fear thatthe tenant will acquire occupancy rightson the land have limited efficiencygains and the extent of tenancy. Theland sales market is often rather thin

(and in many developing countries thesales sometimes go the opposite way—from distressed small farmers to land-lords and money-lenders). With lowhousehold savings and collaterals, thepotentially more efficient small farmeris often incapable of affording the goingmarket price of land.

Landlords on the other hand oftenresist land reforms particularly becausethe levelling effects reduce their socialand political power and their ability tocontrol and dominate even non-landtransactions in the village. Large landholdings may give their owner specialsocial status or political power in alumpy way — for example, the status orpolitical effect from owning 1,000 acresis larger than the combined status orpolitical effect accruing to 50 new buyersowning 20 acres each. Thus the socialor political rent of land ownership forthe large landowner may not be com-pensated by the offer price of numeroussmall buyers. Under the circumstances,the former will not sell and inefficient(from the productivity point of view)land concentration persists.

Then there is the demand-sideimpact of inequality. There is a story ofa Ford company executive in conversa-tion with a union leader, pointing to thearrival of a bunch of robots in the facto-ry and asking, “can you collect uniondues from them?”, to which the unionleader replied, “can you get them to buyFord cars?”. Particularly, in times of

depressed aggregate demand and idlecapacity, inequality may hurt macroe-conomic performance by making it dif-ficult to stimulate enough mass con-sumer spending. Recent researchsuggests that a long-term rise ininequality can push the economy intoa deep recession. There is also some evi-dence that inequality has encouragedexcessive risk-taking in the financialsector, and along with householdindebtedness, may have been respon-sible for the financial crisis that origi-nated in the US in 2007-08.

Under inequality not merely theaggregate consumer demand may bedeficient, but the pattern of consumerspending may also get distorted. Certaintypes of consumer spending on statusgoods (houses, cars, and other easily vis-ible conspicuous consumption items)can, in the context of inequality andcommunity norms of emulation and theresultant “expenditure cascade”, lead toa race to the bottom among neighboursand reference groups: clearly an ineffi-cient outcome.(To be concluded on Friday)

The writer is professor of Graduate School atUniversity of California, Berkeley. His mostrecent two books are Awakening Giants, Feetof Clay: Assessing the Economic Rise ofChina and India, and Globalisation,Democracy and Corruption: An IndianPerspective; the article was first published inthe international blog 3 Quarks Daily

In the second part of the series, the author says there is evidence thatinequality has encouraged excessive risk-taking in the financial sector andmight have been partly responsible for the 2007-08 financial crisis

Department becomes ‘cell’Congress presidentSonia Gandhi(pictured) hasreorganised theparty’s dataanalyticsdepartment. Thedepartment,headed by PraveenChakravarty, had

led the Congress campaign on itsminimum income guarantee promise inthe run-up to the 2019 Lok Sabha polls,as also its membership drive. Itsforecasts of the party on its way to getover 120 seats were proved incorrect.Knives were out within the partyagainst Chakravarty, considered close toRahul Gandhi. Now, Sonia Gandhi hasdemoted the standalone department toa "cell" within a department. In a letterdated Tuesday, party general secretary K C Venugopal stated that thedepartment will now function as a“technology and data cell within theorganisation department” of the party.Chakravarty would continue to headthe cell, but will now need to takeapprovals from organisation depart-ment heads, instead of the party chief.

Rule applies to allAs she was concluding her keynoteaddress during the inaugural session of aconvention organised by the IndianMusic Industry (IMI) in the nationalcapital on Tuesday, Sumita Dawra, jointsecretary, Department for Promotion ofIndustry & Internal Trade, noted that nomusical performance in such an eventwas a bit surprising. While this evokedlaughter from the audience, someonequipped that the organisers did notschedule any because they did not havea licence for it. In a panel discussion heldearlier, the participants emphasised theneed for a better deal for musiccompanies because broadcasters wereraking in the moolah leveraging aproduct (read music) manufactured bythem. The recording companies’representatives reasoned, even if in jest,that the convention itself fell in theprivate events category. So no questionof a musical performance!

Old guard back in saddleWith Sonia Gandhi back as the Congresschief, the older guard has started to assertitself in the party. On Wednesday, seniorleaders finally settled the leadership issuein the Haryana unit of the Congress. Theparty president named Kumari Selja asthe state unit chief. She replaced youthleader Ashok Tanwar, considered close toRahul Gandhi. Former Haryana ChiefMinister Bhupinder Singh Hooda wasappointed Congress legislative partyleader, which makes him the leader ofthe Opposition. He would also be thechairman of the election managementcommittee of the party for theforthcoming Assembly polls. The Hoodacamp had threatened to quit if the partyfailed to remove Tanwar. The decision hascome about after several rounds ofconsultations between the Congresspresident, senior leader Ghulam NabiAzad and Hooda. The election schedule islikely to be announced later this month.

> LETTERS

A long way to go

This refers to “Madhya Pradesh tohave happiness index” (September 2).Today, measuring prosperity ofnations with indicators like GDP isclearly misleading. It probably fur-ther skews the distribution of wealthand accentuates income disparity. Wehave journeyed long from exploringcreation of wealth to distribution ofincome to now Nobel prize winnerProf Angus Deaton’s treatise onpoverty. As newer economic theoriesget misapplied, attempts at politicalcorrection follow. Through all this,the common man feebly tries to lever-age his only tool — democracy — thatcan reset the political paradigm tem-porarily. Strangely, it is seen thatdeeper the democratic mores, as it isin the US, the sharper has been theturn to the right wing ideology ofwealth inequality. It may take ages forthe socio-economists, much less thegovernments, to move away from atrite GDP to even grasp the conceptof creation and distribution of happi-ness.

R Narayanan Navi Mumbai

Farming woesThis refers to ‘’Agriculture’s 'liquidity’problem’’ (September 4) by RuchikaChitravanshi and Sanjeeb Mukherjee.The woes of the agriculture sectorhave been an ongoing one. The gene-sis of this can be traced to the mud-dled and short-sighted vision of ourpolicy makers and their political mas-

ters. Water is the lubrication thatkeeps the agriculture clock ticking.We have about four months of mon-soon rains which we need to utilisejudiciously. Most of this water wereceive goes waste as we have not yetdesigned effective water harvestingtechniques. There are pockets of vil-lages where water harvesting hasbeen done effectively and these vil-lages have access to water throughoutthe year to reap multiple crops. Sadly,in most of the neighbouring villages,water has not been harvested in thesame manner, leaving those droughtafflicted.

Cropping patterns also need totake into consideration soil and waterintake. We have numerous examplesof crops being sown in terrain not nat-urally suitable for these crops wherethey guzzle enormous quantities ofwater depleting the ground water lev-el. This needs to be curtailed.Presently, this is happening as thepay-out is more profitable when com-pared to other crops. If incentives arediscontinued or disincentives intro-duced, this practice can be nipped inthe bud.

A steady supply of electricity isalso said to be a problem hinderingirrigation. Solar power usage has beenmaking steady inroads into the hin-terland. Instead of depending on thestate to provide uninterrupted elec-tricity, if solar power can be generatedat the village or taluka level, it couldbe utilised at the villages.

We need to look at countries likeIsrael who have mastered the art of

judicious usage of resources to reapbumper harvests. Our policy makersshould study such success stories.What is feasible from the success ofIsrael should be made known to ourvillagers and sought to be introducedafter being customised to our reality.

K V Premraj Mumbai

Let’s get realThis refers to the editorial“Disinvestment blues” (September 4).Transferring the government’s stakein BPCL to Indian Oil may help thegovernment meet “disinvestment tar-gets” but, it is by no means a disin-vestment. Merging one public sectorundertaking with another, transfer-ring stake from one pocket to a differ-ent one is a sort of game played by allsuccessive governments — towardsmeeting disinvestment targets — yearafter year but such moves do noteither amount to “privatisation” nordo they support the oft-repeated slo-gan “government has no business tobe in business”. Such mergers mighthelp cost reductions by way of syner-gies in operations and may also createmega, global size, business entities,but, for heaven’s sake, let’s get real,call a spade a spade!

Krishan Kalra Gurugram

Letters can be mailed, faxed or e-mailed to: The Editor, Business StandardNehru House, 4 Bahadur Shah Zafar Marg New Delhi 110 002 Fax: (011) 23720201 · E-mail: letters@bsmail.inAll letters must have a postal address and telephonenumber

> HAMBONE

India’s climb on the “Ease of DoingBusiness” ranking has beendeservedly applauded. But equally

important is the ease of paying taxes.Some research shows that improvementin the ease of paying tax can helpimprove compliance especially for lowertax segments. Not withstanding thesedisputes do divert taxpayers’ attentionfrom more important productive tasks.

Broadly, any tax system must havethe following five distinctive features.First, disputes must be clearly defined,and non-serious infringements shouldbe kept out of the domain of disputes.Second, uniformity of practice in assess-ment must be ensured by facilitatingthose who draft the law to interpret it.Third, the system must ensure speedyadjudication of cases within definitetime lines. Fourth, taxpayers should beencouraged to settle disputes withoutresorting to litigations. Finally, non-intrusive mechanisms of interactionmust be created between the taxpayerand the tax department.

Translated on the ground what canthe Central Board of Indirect Taxes andCustoms do immediately? The low-hanging fruit here is that there are anumber of minor procedural caseswhich clog the dispute resolution sys-tem. These need to be listed and subjectto administrative levies which may becapped. A similar amendment hasrecently been done on the corporate lawside which can be replicated here. Thissuggestion would require the GST law to

be amended in which a list of minorpenalties may be included and juniorofficers could be allowed to decide them.

A major pain point in the GST disputeresolution mechanism is the failure tomake a conceptual distinction between“offence cases” and “assessment cases”.Offence cases are periodic in nature anddo not have any recurring implicationswhereas assessment cases relate to prin-ciples of classification, valuation and eli-gibility of input tax credit and thereforehave recurring implications. The suggest-ed course of action is that while field offi-cers could be allowed to decide onoffence cases on the basis of facts avail-able, a centralised system of bindinginstructions should be put in place forfield officers to follow in assessment mat-ters. Such a provision was earlier availablein pre GST. For this purpose, both theCentre and states can create a “technicalsecretariat” which could be empoweredto issue such binding instruction onassessment matters to ensure uniformityof practice. At the central level, this couldbe located in the TRU where the tax lawsare drafted and fittingly therefore thosewho draft the law must also interpret thelaw. The creation of a technical secretariatat the Centre and the states would facili-tate discussion between tax officers atannual or biannual conferences. Suchconferences/forums would forge thebond of fiscal friendship between the offi-cers. Taxpayers would benefit from cer-tainty in the assessment matters. Thiswill be especially beneficial to the statesin the area of service tax, for states wouldrequire some handholding (pre GST, service tax was levied and collected bythe Centre).

The other important change is to doaway with the distinction between “sup-pression” and “non-suppression” casesin the GST law and prescribe one uni-form period of three years to completeadjudications. The suppression aspectcould be addressed in the adjudicationorder on the basis of facts and a higherpenalty could be imposed. Therefore, thepenalty route may be a better way of

dealing with this distinction rather thanthrough a time period difference. Thisamendment will considerably reduce lit-igation as many taxpayers are incensedby wrong invocation of the suppressionperiod and, therefore, opt to litigaterather than pay the tax.

While the set of suggestions outlinedwould help to improve the dispute reso-lution system within the GST, there isalso a need to have another institutionalmechanism where trade and industrycan air their implementation grievancesto senior state and central officials. Manyof these issues are non-policy issues andtherefore would not warrant going to theGST Council. It is therefore suggestedthat the time is now ripe to create a newinstitution in the form of the GSTSecretariat in each State. This should bea registered body just like theEmpowered Committee of State FinanceMinisters consisting of senior Centraland State GST officials who will hear theproblems of trade and industry. Thesegrievances could feed into policymaking.This will address much of the discomfortpresently experienced by the trade asthey had the opportunity in the pre-GSTera to separately meet central and stateofficials. This body could be created aftera suitable resolution is passed by the GSTCouncil and its terms of reference decid-ed and thereafter the cabinet secretarycould write to the chief secretaries of allthe States to commence its creation.

Just as the GST Council (later avatarof the Empowered Committee of StateFinance Ministers) designed and deliv-ered the GST, the institutions of technicalsecretariat and GST Secretariat in thestates could help to provide the institu-tional support post GST.

In many ways, the measures suggest-ed above would ensure that the “rule oflaw” prevails over the “rule of thumb”and also prod the triumph of “principles”over “principals”.

The author is a retired member CBIC andnational leader, Tax and Economic PolicyGroup, EY India Views expressed are personal

GST and dispute resolution

V S KRISHNAN

PRANAB BARDHAN

INSIGHT

The moon and stars have for longinspired poets, but these are dif-ferent times. So when number-

studded stimulus packages cannot liftthe overwhelming gloom, perhaps themoon can. This Saturday, Chandrayaan-2 is set to create history by landing onthe moon, and that may be the onlypiece of good news Indians have heard

in a while. Exactly 50 years after theApollo 11 achievement, Indian lunarmission Chandrayaan-2 is going tomoon’s south polar region.

It will ‘’boldly go where no countryhas ever gone before’’, Indian SpaceResearch Organisation (Isro) proudlysplashes on its website. It explains thatthe aim is to improve the understand-ing of the moon and to make discover-ies that will benefit India and humanityas a whole. Besides all the far-reachingscientific feat that Chandrayaan-2 iscapable of, there’s something else thatit can deliver, but neither Isro nor anyscientist manning the project may talkabout it.

Chandrayaan-2 landing onSeptember 7 is likely to give confidenceto the people of this country like nothingelse has been able to do. Not the rollbackof tax surcharge on foreign portfolioinvestors (FPIs), not the bunch of mea-sures announced to ease stress in non-

banking financial companies (NBFCs)or micro, small and medium enterprises(MSMEs), not the Cabinet decisions torelax foreign investment conditions, notthe steps to soothe the sentiments of abattered automobile industry, and notany bureaucratic reshuffle in a bid toreverse the downturn. The governmenthas promised at least two more roundsof sops, including for the stressed realestate sector, but the markets are in nomood to cheer.

While a successful lunar missionmay not exactly translate into a bullmarket or stop the job losses cuttingacross companies and sectors, it’s likelyto give us a reason to celebrate and pos-sibly look for heroes as well as inspira-tion in a discipline where India has hard-ly been at the forefront. The last famousbrush was in 1984, when Rakesh Sharmaas a squadron leader in Air Force hadflown aboard Soyuz T-11 to become thefirst Indian in space. Then Prime

Minister Indira Gandhi had askedRakesh Sharma how India looked fromouter space, to which he had replied,“Saare Jahan Se Achcha”, making thatline go viral in a non-Twitter age.

Chandrayaan-2 is an unmanned mis-sion and therefore no astronaut will beable to say how India looks from Moonor repeat Neil Armstrong’s historicwords — “That's one small step for aman, one giant leap for mankind’’. Themission, led by two women scientistsMuthayya Vanitha and Ritu Karidhal,may not wipe out the slowdown bluesor the pains of what some call a quasirecession, but it can turn out to be aninspiration for generations.

The build-up around the occasionhas been somewhat subdued so far,perhaps because the government hasbeen busy trying to set the economyright and roll back some of the propos-als made in the Union Budget in July.Among few celebratory steps, a spacequiz was organised to select school chil-dren who would watch the landmarkevent live with Prime MinisterNarendra Modi from Isro’s Bengalurucentre on Saturday.

If the withdrawal of special status inJammu & Kashmir, through abrogation

of Article 370, had cheered manyIndians, Chandrayaan-2 landing on theMoon should make us truly proud. If theso-called lipstick index is a measure foreconomic slowdown, the success of theIndian lunar mission may set anotherkind of benchmark on how to containall-round pessimism.

In that context, it may be worthwhileto remember what Neil Armstrong,Edwin “Buzz” Aldrin, and MichaelCollins had said in various interviewsand statements after their flight to Moon50 years ago. On looking down on earth,Collins had famously said, “I reallybelieve that if the political leaders of theworld could see their planet from a dis-tance of, let’s say 100,000 miles, theiroutlook would be fundamentallychanged. The all-important borderwould be invisible, that noisy argumentsuddenly silenced.” Besides Armstrong’s“giant leap for mankind’’ line, his othermemorable words included, “there aregreat ideas undiscovered, break-throughs available to those who canremove one of truth’s protective layers.There are places to go beyond belief”.And, Aldrin helped the world achievethe next impossible dream, by saying“No dream is too high’’.

Waiting for some good newsWill the landing of Chandrayaan-2 lift the slowdown gloom?

NOT FOR PROFIT NIVEDITA MOOKERJI

Equality-efficiency trade-off

OPINION 9> STAY INFORMED THROUGH THE DAY @ WWW.BUSINESS-STANDARD.COM

The slide in the gross domestic product (GDP) growth in the first quarterof the current fiscal year has surprised most analysts. Aside from influ-encing sentiment in financial markets, the 5 per cent growth in theApril-June quarter has implications for both fiscal and monetary policy.

But the lag in the release of official data often results in delayed policy response.In terms of fiscal policy, the level of economic activity determines the level ofrevenue the government can expect. In case the growth is expected to slow, thegovernment can adjust its revenue projection and take a call whether the economyneeds adjustment in spending, which can help smooth the economic cycle.Similarly, it would help if the central bank can adjust the monetary policy moreproactively and doesn’t always have to depend on official data.

Since monetary policy works with a lag of two to three quarters in India,depending on official data can delay the policy adjustment and exacerbate theproblem. For instance, breaking with convention, the Monetary Policy Committeeof the Reserve Bank of India (RBI) decided to cut the policy repo rate by 35 basispoints in August. It was reasoned that 25 basis points would have been inadequateand 50 basis points excessive. It can now be argued that if the extent of the slow-down was known, a cut of 50 basis points would not have looked excessive.Slower growth will also keep inflation at lower levels. Although the RBI acknowl-edged the weakness in high-frequency indicators, it reduced the growth projectionfor the current year by only 10 basis points to 6.9 per cent. Similarly, the Budgetpresented in July did precious little to fight the slowdown — though it was moreof an acceptance than evidence problem.

At a broader level, both investors and policymakers would be better off ifthey have more timely means to track economic activity. For example, the Goodsand Services Tax collection can become a good indicator of economic activityonce the prevailing problems are addressed. Since there are genuine reasons forthe lag in the official release of GDP data, the central bank can work on an aggre-gate indicator that would give an early sense of the state of the economy. Centralbanks, globally, track lead indicators to assess the economy and make the policyforward-looking. The RBI also tracks high-frequency indicators and, as the latestAnnual Report shows, it has worked on a “Coincident Economic Indicator”.This includes the production of consumer goods, auto sales, non-oil non-goldimports and rail freight.

However, recent record suggests that the RBI needs to work on its modelsto be able to predict both growth and inflation more accurately. Althoughsome financial institutions do track high-frequency indicators for their clients,it would help the system if the central bank, which has the research capability,processes the available information and regularly puts out an aggregate indi-cator. It is important to note that this is not to undermine the official collectionand release of data, but to improve the understanding of the market. Theidea is worth trying since it will also help the central bank in making thepolicy more forward-looking.

In a concession to protesters who have repeatedly taken over the streets ofHong Kong, the territory’s Chief Executive, Carrie Lam, has finally with-drawn the controversial legislation that sparked the protests. The Bill,which permitted extradition from Hong Kong to mainland China, was

widely opposed because the city’s residents feared that it would be used totrample upon their remaining political rights, and subject them to the capriciousand authoritarian legal system of the People’s Republic. Ms Lam had earlier“suspended” the Bill, but that was not enough for protesters who wanted itwithdrawn completely — a concession that both Ms Lam and her masters inBeijing were unwilling to make. Indeed, the tone of Beijing’s official statementswas becoming increasingly strident with an official spokesman of the mainland’sHong Kong and Macau Affairs Office publicly warning Ms Lam earlier thisweek that “there is no middle ground, no hesitancy and no dithering, when itcomes to stopping the violence and controlling riots in Hong Kong.”

While the Hang Seng stock index showed some gains after the announce-ment, the fact remains that this is unlikely to defuse a crisis that has grownbeyond the immediate provocation for protests. The protesters now havefour other demands to which Beijing or Ms Lam have shown no signs ofheeding. These include an independent investigation into the suppressionof the protests by the police; a rhetorical shift, so officials stop calling theprotests “riots”; an amnesty for arrested protesters; and, most crucially,restoration of political reform in the territory. The latter has been stalled forfive years, but residents of Hong Kong clearly see their rights as constantlythreatened unless they can directly elect their leaders. Currently, the city-state’s Chief Executive is selected by an oligarchy of about 1,200 that is dom-inated by pro-Beijing business leaders. Pro-democracy politicians are usuallyconsidered ineligible. Elected pro-democracy members of the legislativecouncil have also been disqualified, creating an acute crisis of representationthat has fuelled the anger underlying the protests.

Many in relatively apolitical Hong Kong who were angry mainly at thelack of response from Ms Lam’s administration might be appeased by this with-drawal of the extradition Bill. But the great mass of younger protesters — someof the protests have seen as many as two million participants, a quarter of thecity’s population — are unlikely to be satisfied, and will continue to press forthe remaining four demands. It is not certain whether, however, their numbersand tactics can remain the same if there is a falling-off in support, thanks tothis concession. Ms Lam’s handlers are no doubt aware that, among the youngergeneration of the city’s residents, the Chinese Communist Party and its gov-ernment are far less popular than among those who lived in the city when itwas still a British colony prior to 1997. Hong Kong’s young people are fightingfor identity, liberty, autonomy and their future and are unlikely to stop at any-thing less than universal suffrage. Xi Jinping has shown himself to be a hardlinerin such matters, but Beijing should choose its battles. Even if the mainland hasgrown richer in recent decades, there is no replacement for the liberal, cos-mopolitan and finance-friendly environment that Hong Kong provides. Making“one country, two systems” a political reality is a small price to pay.

Volume XXIV Number 17

MUMBAI | THURSDAY, 5 SEPTEMBER 2019

Payments have gained currency, pun unintend-ed, with the sharp focus on consumer spend-ing and the economy. The following anecdote

from newspaper reports begins with a paymentproblem for a traffic infraction, which leads on toexistential questions on behaviour and governance.

A motorcycle rider in Uttar Pradesh was bookedfor not wearing a helmet. Events spiralled quicklyto arrive at the heart of the matter: The state of gov-ernance and our utter disregard for due process andthe law. But let’s not get ahead of the story.

The rider was an electrician oncontract with the UP StateElectricity Board. He pleaded withthe police to be let off on the ~500fine, saying he earned only ~6,000a month, and hadn’t been paid forfour months. The police said it wasthe law, and issued a ticket. Theelectrician’s superior interceded athis request, but couldn’t convincethe police to waive the fine. (Itturned out that tickets had beenissued to 70 policemen for trafficviolations.)

The electrician checked on the electricity duesowed by the police station. Finding that theyamounted to ~662,463 over several years, he dis-connected their power supply. When questioned,he said that this was as required by the law.

The power supply to the police station was soonrestored, with the customary, vague assurance thatthe bill “would be paid soon”. A positive outcome,however, was that the state electricity board thenpaid ~17 crore of arrears for the month of May to 9,627contract workers, including the electrician. Theremaining amount, they said, “would be paid soon”.

Why were wages delayed? Apparently becauseconsumers delayed payments, and the electricityboard didn’t have the money to pay. Employees werestill owed back pay for three months. Meanwhile, aformal enquiry reportedly began on the episode.

Such incidents are not unusual. In August, therewas an instance in Agra of unpaid sanitation workersresponsible for the toilets at the Taj Mahal going onstrike. In Noida near New Delhi, two major shoppingmalls, a hospital, and a school had their water andsewer lines shut off because of unpaid dues. There

were apparently 107 defaulters whoowed over ~10 lakh each, with thehighest being ~46.35 crore.

It isn’t as though citizens andthe private sector are the sole cul-prits, with only stray governmententities defaulting. A formerConfederation of Indian Industrychairperson said in an interview ontelevision recently that while harddata on government dues to the pri-vate sector are unavailable, infor-mal estimates of the dues from cen-tral and state governments,

state-owned companies such as electricity boards,and arbitration awards, ranged from ~2 trillion to~5 trillion. Her observation was that if these dueswere paid, it would provide the biggest boost forthe economy, because it would result in much-needed capital formation and economic rejuvena-tion. As to where the funding could be found, giventhe government’s finances, she replied that thesame sources (for example, bonds) could be usedthat would fund whatever waivers or incentives thecentral and state governments were promising.Those funds could be channelled for productive

use in capital formation by their rightful claimants.Stepping back for perspective, the problems

appear to stem from slack implementation of pro-tocols (defined, sequential steps), whether it is thediscipline of timely payments, or rules and regu-lations. The same malady afflicting paymentsshows in the disregard for traffic rules, and theconfusion in disallowing tyre shredders to discour-age driving the wrong way, which is even moredangerous to the public.

In some cases, the design itself is flawed. Forinstance, resources for infrastructure such as coaland spectrum need to be priced low to facilitate pro-ductivity. If auctioned at a premium, instead of abun-dant supply of good quality at reasonable prices, thesupply is constrained in quantity or quality, or pricedhigh. Other instances are of processes not thoughtthrough in terms of design (e.g, stranded power gen-eration. A requirement of Letters of Credit (LC) forpurchasing power has been around, but has not beenenforced. Will a new directive enforce this, whenbanks acting prudently can issue LCs only to distri-bution companies with strong finances?) The designshortcomings could result from fragmented andepisodic attention, disaggregated responsibilities,lack of professional capacity, or simply winging it.

These failings have existed over decades,regardless of the governments in office. Some ini-tial successes, as in mobile telephony from 2003to around 2011, or in road construction or electricitysupply, have not been consistent, nor have theybeen convergent to yield all-round, sustainablegrowth of the sort that could result from well-organised orchestration across the board. Theyhave not even been able to sustain their perfor-mance, and now comprise the troubled sectors forbanking and non-performing assets.

The root causes may be in underlying contra-dictions in our attitudes. These include feudal andpost-colonial (exploitative) notions, with the trap-pings of a Westminster system, without the requisiteculture and preparation of policies, practices andtraining. The result is either government and citi-zens facing off in an “Us vs Them”, with citizensoften being viewed in the way colonials regarded“the natives”, or episodic “schemes” that fizzle out.Our political leadership and we have to realise thatwe are in the same boat, and that there is no sub-stitute for working together with discipline for ourcommon interests.

There are no colonial masters here, only theirmindsets that we adhere to, without refashioningthem for our purposes. This is what we must changeover time from a total-solutions perspective, fromon-time payments, to law and order including traffic,to waste management,1 all infrastructure, finance,industry, farming, the arts and daily living.

shyamponappa@gmail.com1. Bhargava, Anjuli: ‘Cleansing young minds', BusinessStandard, August 26, 2019. https://www.business-standard.com / article/opinion/cleansing-young-minds-119082601265_1.html

Prime Minister Narendra Modi is wildly popu-lar with his supporters for his ability to takebold decisions. In the early days of his second

term, for instance, he continued where he left offfrom his first with a surgical strike against Article370 that altered the status of Jammu & Kashmirand divided it into two Union Territories. Odd, then,that his government is yet to demonstrate the samesense of chutzpah — or even urgency —when itcomes to addressing the problems of the economyand unemployment.

That the economy is in the dol-drums is self-evident, never mindif economists argue over whetherthe causes are cyclical or structural(even his economic advisory coun-cil cannot agree on this point). Orwhether Mr Modi’s “bold” first-termdecisions of demonetisation and anadvanced Goods and Services Taxdeadline helped create what formerPrime Minister Manmohan Singhcalled a “man-made slowdown”.

Whatever the cause, there’s beengeneral consensus across the ideo-logical spectrum that SomethingNeeds to be Done Now. Over several days in the lastweek of August, as it became clear that the Q1FY20GDP numbers would be anaemic, the governmentmanfully obliged. Those announcements rangedfrom correcting policy mis-steps, tinkering with theforeign direct investment rules, some efforts torevive the automobile sector, reorienting the publicsector banking system and disinvestment.

Will this August story provide the elixir for India’slanguishing economy?

Let’s take the August 24 tranche of announce-ments. The rollback of surcharge on foreign port-folio investors has done little to cheer the stockmarkets, which have been bleeding out ever since.To reverse the slide in automobiles, the state isstepping in as purchaser of first resort by liftingthe ban on vehicle purchases by governmentdepartments, increased depreciation rates tillMarch 2020. It has also deferred the rule for one-time registration fees to June 2020. All of these

initiatives may bump up sales fora bit, but they do not address thedynamics of the automobile mar-kets. The government stoppedbeing the dominant buyer of auto-mobiles more than two decadesago. The ordinary buyer’s propen-sity to give dealer showrooms amiss these past three years is themost potent expression of a failureof consumer confidence, which ismanifest across white goods andfast moving consumer goods.

Okay, so let’s look at August 28,which eased foreign direct invest-

ment for single brand retail, coalmining, contract manufacturing and digital media.These announcements created considerable mediaexcitement because they meant that Apple wouldbe bringing their famed and much-awaited AppleStores to India. But one Apple, assuming it entersIndia at lightning speed, cannot turn around aneconomy even if improved contract manufacturinglaws means more iPhones may be Made in India.Also, the FDI policy is only the start. As Apple con-tract manufacturer Foxconn discovered, a commit-

ment from a state leader (Maharashtra Chief MinisterDevendra Fadnavis) need not translate into a shovelin the ground.

On August 31, hours before the dismal Q1 GDPnumbers came the announcement that 10 state-owned banks would be merged into four. How, pre-cisely, can this be classified as a reform? Perhapsbecause the government plans to create large bankswith strong balance sheets. The problem is that sev-eral banks shortlisted for merger are what PercyMistry called “zombie banks,” overstaffed entitieswith almost no business. How their merger withhealthier banks will help spur credit growth is aquestion that awaits answers. Finance MinisterNirmala Sitharaman later clarified that not one sin-gle job will be lost as a result of these mergers, norany branches closed. This defies business logic ofmergers, which is to derive synergies. If no staff isto be cut or branches closed, then what’s the pointof merging?

Taken together with the circular disinvestmentroute — making one public sector entity buy thegovernment’s share in another — these so-calledeconomic reforms reflect a failure of the imagina-tion and/or an unwillingness to opt for deeper struc-tural reform of land and labour rules and the reori-enting of agricultural markets. It has been arguedthat these issues are in the hands of the states, sothe Centre has little leeway to change much. Thisis a specious argument. In fact, the political situa-tion has rarely been more propitious to align poli-cies, with more than half the states ruled by theruling party at the Centre in majority or in alliance.To put it another way, a strong government is inunique a position to go boldly where no governmenthas gone before.

From William Cosby to Anil Ambani;Arun Jaitley to Melania Trump;Nusli Wadia to M J Akbar: The world

of libel, slander and defamation has cap-tivated and depleted people, dependingon whether they are the audience witness-ing the divulgence of lurid details or areplaintiffs and defendants trying to provethe other as infestations of moral turpi-tude, pedlars of malice and embodimentsof villainy. Pre-independent India was wit-ness to one such case, which is the subjectof Raghu and Pushpa Palat’s book The

Case That Shook the Empire. The book focuses on the famous 1924

O’Dwyer vs Nair libel case in which thelieutenant governor of Punjab, MichaelO’Dwyer, sued former president of theIndian National Congress ChetturSankaran Nair for holding him responsiblefor atrocities in Punjab including theJallianwala Bagh massacre. The author isNair’s great grandson. The book is MrPalat’s first attempt at chronicling history.For an author who has written books ontax planning and investor strategies, thismust have been a challenging task. Butboth Raghu and co-author Pushpa Palatmanage to produce a book studded withanecdotes about the Jallianwala Baghmassacre and other historical events ofthe time. It is a delectable compilation oftitbits about Nair’s personal life and theevents that unfolded inside and outsidethe London courtroom where the trial last-ed for over two years.

Mr Palat depicts his great grandfatheras a typical “Nair” from Kerala —trainedin martial arts, a man of pride and occa-sional arrogance, a lawyer with an aversionto Gandhian notions of non-violence andan instinctive repugnance for the Britishsense of superiority over dark-skinnedIndians. Mr Palat relates one noteworthyexample of Nair’s disposition, whichoccurred at the residence of O’Dwyer’s —the very man who would drag him to courta few years later. O’Dwyer invited Nair fortea while the latter was visiting Lahore in1916. O’Dwyer’s dog affectionatelyapproached Nair but Nair made his dis-pleasure apparent at the “intrusion”. Thisoffended O’Dwyer’s wife who commentedon the hypocrisy of Indian culture — prop-agating the concept of kindness to all liv-ing creatures but loving dogs half as muchthe British do. His great grandfather’sreaction to Lady O’Dwyer is described byPalat as follows: “Nair rudely and rather

cruelly replied that this was because, whilethe English were nearer to dogs in theirevolution, Indians had in their 5,000 yearold history moved further away. Britishpoliteness, presumably, prevented theO’Dwyers from responding to suchuncalled for, discourteous and ill-man-nered behaviour on part of their guest.”

While much of the bookdescribes Nair and Britishpolicies preceding theJallianwalla Bagh massacreand its consequences, it isleft to two chapters at theend of the book to do justiceto its title of describing “thecase that shook the Empire”.These chapters that coverO’Dwyer’s defamation suitagainst Nair and the actualtrial are more riveting than other partswhere Mr Palat reproduces portions ofIndian history that could well be confinedto middle school textbooks. Mr Palatwrites that his great grandfather envisagedhis book, Gandhi and Anarchy, as a dis-senting dialogue between himself and

Mahatama Gandhi where he would repu-diate Gandhi’s idea of non-violencebecause “being a Nair, he could not accepta fight through non-violence.” In the bookNair implies that O’Dwyer was responsiblefor forceful military recruitments throughtorture, imposition of martial law, theGujranwala bombings and the Jallianwala

Bagh massacre. O’Dwyer decided to sue

Nair for defamation inLondon, asking for the bookto be withdrawn from cir-culation in addition to dam-ages of £1,000. A trial thatis to decide whether Nairdefamed O’Dwyer trans-forms into a vindication ofGeneral Reginald Dyer’sactions at Amritsar on the

fateful Baisakhi day of 1919. The chaptersdescribe the inherent bias of the presidingjudge, Henry McCardie, whose pre-con-ceived notions of Dyer’s righteousness ofacting to save the British Empire oftenlead him to argue in favour of O’Dwyer.In the end, Nair loses the case.

Mr Palat describes the prejudices ofthe British judiciary and the trial impec-cably, but he stumbles in his conclusionsby falling prey to the distinctively Malayalimindset of divine retribution (which wasevident after the 2018 floods when manyhighly educated Malayalis attributed thenatural disaster to the Sabarimala courtcase that they believed invoked the wrathof god). There was no connection betweenthe case and the afterlives of thoseinvolved and invoked in it; yet Mr Palatgoes on to attribute the deaths of Dyer,O’Dwyer and McCardie to the trial. Thelast parts attributing the deaths of peopleas divine revenge for the injustice metedto his great-grandfather suggest supersti-tious balderdash that would have riledNair’s intelligence had he read this partof his great-grandson’s book.

Strong government, weak reform

Of Nair, Dyer, O’Dwyer and Empire

BOOK REVIEWSAI MANISH

Lag in official data results in delayed response

Gauging economic activity

ILLUSTRATION: BINAY SINHA

A concession to Hong KongExtradition Bill withdrawal may not stop protests

Traffic rules, mindsetand on-time payments

THE CASE THAT SHOOK THE EMPIRERaghu Palat & Pushpa PalatBloomsbury, ~499, 187 pages

There's no alternative to following the rules and workingtogether with discipline for our common interests

SHYAM PONAPPA

SWOTKANIKA DATTA

The book is adelectablecompilation of titbitsabout Nair’s personallife and the eventsthat unfolded insideand outside theLondon courtroomwhere the trial lastedfor over two years

JASH KRIPLANI & SAMIE MODAKMumbai, 4 September

Equity fund managers, whomanage assets worth ~6 tril-lion, are seeking a review of

the re-categorisation norms intro-duced by the Securities andExchange Board of India (Sebi)about two years ago.

Money managers are of theview that some tweaking in themethodology prescribed for clas-sifying a stock as large-, mid- orsmall-cap will bring about moreflexibility in their investment callsand help curb unnecessary churn.

Under existing norms, the top100 companies by market value fallin the large-cap bracket, the next150 in the mid-cap group, and theremaining stocks in the small-capuniverse.

Fund houses have approachedthe markets regulator sayinginstead of restricting the large-capand mid-cap universe to a specificnumber of securities, it can belinked to a company’s contributionto the total market capitalisation.

“At some point in time, we needa re-look at how we define large,mid- and small-cap companies.Instead of fixing the number ofcompanies, you can have a marketcap-based benchmark. It wouldallow the market to expand to moreand more companies as new firmsget listed instead of a ranking sys-tem with an absolute number ofcompanies,” said a top fund man-ager, adding that they have had adiscussion with Sebi over this issue.

In October 2017, with the aim ofensuring true-to-label MF prod-ucts, Sebi decided to lay down cer-tain rules to define the universe oflarge-, mid- and small-cap stocksthat MFs can invest in.

Based on stock price changes,industry body Association ofMutual Funds in India (Amfi) ranksstocks twice in a year — in July andJanuary. Fund managers are thengiven a 30-day time period torealign their portfolios.

“The move is making it difficultto manage funds, especially in themid-cap space. Due to the broadermarket correction, several mid-capstocks have seen a price correctionand are no longer part of the mid-cap category in the updated list. So,you have to sell such stocks eventhough they are fundamentallygood; it also creates huge impactcosts when markets are weak,” saida fund manager.

Industry insiders are also of theview that a universe of just 150 mid-cap stocks to choose from is restric-tive. “At least 65 per cent of a mid-cap scheme’s exposure has to be inmid-cap stocks. The new normslimit the number of such stocks to150, which is quite a small universeto choose from,” added anotherfund manager.

According to fund managers, abetter alternative will be to justdefine a market cap-based thresh-old for the top-100 large-cap stocksand fund managers should havemore discretion on any stock thatis beyond this cut off.

Alternatively, Sebi can tag com-panies that account for 80 per centof the market cap as large-caps,says a fund manager. Market par-ticipants say the new norms havealso given rise to arbitrage oppor-tunities for other market players.

“Traders have also started track-ing what is likely to come in andgo out of the funds and take tacticalbets on the basis of this. It is notthat difficult to gauge which stocksare likely to be bought or sold byMFs as Sebi has laid down a well-defined framework for this,” saidanother fund manager.

The MF industry had a chal-lenging time last year implement-ing the re-categorisation norms,with the nature of several schemesand their underlying portfolios see-ing a churn.

Regulatory sources say they areopen to market feedback. Theywould, however, be careful whenit comes to tweaking the norms fur-ther as the exercise had provedpainful last time around.

Want flexible methodology to define large- and mid-cap stocks

Fund managers seekreview of new norms

THE COMPASS

MUMBAI | THURSDAY, 5 SEPTEMBER 2019 InvestorWWW.SMARTINVESTOR.IN FOR INFORMED DECISION MAKING <

The Smart ONGC has lost about a third of its m-cap since itsMay highs. Falling crude oil and gas prices will hitnet realisations and earnings. The key overhangis the potential stake sale by the governmentgiven the increased divestment targets. At thecurrent price, analysts find the valuation fair

QUICK TAKE: FALLING PRICES WEIGH ON ONGC

Weak volume estimates a speedbreaker for Blue DartHigher capex,costs adding to pressure on margins

SHREEPAD S AUTE

The stock of Blue DartExpress has shed 5.7 per centin the past one month,sharply underperforming theSensex, which fell 1 per centduring the same period.

The weak earnings out-look, on the back of marginheadwinds, has been weigh-ing on the stock. The trend isunlikely to improve in thenear term, which could keepthe stock under pressure.

Among factors keepingthe margin outlook gloomyfor the company are highinvestments to expand geo-graphical reach, marketshare loss mainly in the B2Cor e-commerce segments,and the overall economicslowdown.

Analysts at ICICISecurities, who expect mar-gin expansion for Blue Dartto start from FY21 onwards,have given a ‘hold’ rating onthe stock after the June 2019quarter results, amid highercompetition in the B2C seg-ment and contin-ued capex.

In fact, thebroking firm hasrevised its FY20 andFY21 earningsdownward for BlueDart by a sharp 41per cent and 28 percent, respectively.

After reaching 18,000 pincodes, the company plans toadd 1,200 pin codes acrossIndia over next few months.Besides, Blue Dart will alsoinvest in automation and in

the creation of a strong ITnetwork.

Though this will help thecompany in the long run, itwill cause the company totake a hit on profitability inthe near term. This isbecause in the initial period

of investments,employee andadministrative costswill rise withoutmaterial improve-ment in the top line.

The companyindicated that it willtake close to two

years for capital investmentsas well as expansion to con-tribute to the top line andearnings, materially.

Further pressure on mar-gin also stems from the slow-down in the economy, thus

impacting volumes and oper-ating leverage, says an ana-lyst with a domestic brokingfirm.

For instance, the BFSI(banking, financial servicesand insurance) segment thatcontributes around 10 percent to the company’s topline has been sluggish,according to KotakSecurities.

Therefore, investors arerecommended to stay awayfrom the stock, despite itsattractive valuations, untilclear signs of margin expan-sion emerge.

The stock is currentlytrading at 31 times its FY21estimated earnings, at aclose to 40 per cent discountto its long-term average 1-year forward valuations.

Increased sowing strengthens outlook for agri input firmsFirms may posthigh single-digitgrowth during Q2,against decline in June quarter

Compiled by BS Research Bureau

120

110

100

90

80Sep 4,’19Sep3,‘18

Base=100

Sensex

CoromandelInt'l

UJJVAL JAUHARI

An improvement in the intensity of rain-fall from August is likely to give respiteto makers of agricultural inputs. Thesecompanies had put up a soft perfor-mance during the June quarter becauseof a delayed monsoon.

In June, the rainfall deficit was 33 percent, but over the past two months, ithas improved to an excess of 2 per cent.As a result, the sowing deficit has fallento 2 per cent year-on-year. In end-June,this figure was 26 per cent, according toEdelweiss data.

The increased sowing is good newsfor agri-input players, and should resultin a better performance in Q2. The Junequarter was one of the weakest andmajority of domestic agrochemicalscompanies had reported a decline insales with the exception of DhanukaAgritech.

Although their global operations didwell, players such as UPL, PI Industries,and Rallis reported 3-13 per cent year-on-year decline in their domestic salesduring the June quarter. The averagesales decline in domestic sales stood at7.7 per cent for agrochemicals players

suggests analysts’ data, largely led bydeferment in crop sowing and conse-quently soft sales of agrochemicals.

While analysts at Antique StockBroking expect the agrochemicals indus-try to grow in mid-to-high single digitsduring the September quarter, their per-formance should also improve with high-er water reservoir levels. The industry,too, is confident to grow at a healthy pacein second half of FY20, on account ofupbeat outlook for rabi crop and low baseof previous year, say analysts.

Fertiliser companies are expected tobenefit as well, with the pick-up in mon-soon coming at an opportune time.August and September are importantmonths for fertiliser consumption andvolume uptick will address growth andinventory concerns, feel analysts. Thecorrection in raw material prices (phos-phoric acid, rock phosphate, ammonia,and sulphur prices; down up to 30 percent) should lift their margins too.

Among companies, CoromandelInternational getting environmentalclearance for expansion of its chemicalfertiliser manufacturing plant bodes welltoo. Not surprising then, Coromandelalong with Dhanuka Agritech remainpicks of analysts at Edelweiss.

For players with global presence, thechallenging weather conditions still per-sist in North America and Europe.However, UPL is expected to continuebenefiting from its strong growth in LatinAmerica, feel analysts.

A diversified geographical presencehad helped UPL post strong performancein Q1. Further, despite flat growth out-look globally CSM/CRAMS players (PIIndustries and SRF) remain confident ofnear-term growth.

110

100

90

80

70

60

Compiled by BS Research BureauSep 4,’19Sep3,‘18

Base=100

Sensex

Blue Dart Express

PRESS TRUST OF INDIAMumbai, 4 September

The Sensex and Nifty onWednesday recovered from themassive losses logged in previ-ous sessions after investorslapped up metal and bankingcounters, tracking positive glob-al sentiment.

Indian shares showed someresilience while overcomingvolatility, as investors brushedaside deep concerns over thecountry’s economic health andinstead looked to positive globalfactors for further cues.

After swinging 367 points ina highly volatile session, theSensex ended 161.83 points, or0.44 per cent, higher at36,724.74. It hit an intra-day highof 36,776.31 and low of 36,409.54.The rise in Sensex was drivenby metal, banking, telecom, andIT stocks, amid some positivenews coming from Hong Kong.

The broader Nifty — afteropening on a flat note in themorning — traded in the rangeof 10,858.75 and 10,746.35 duringthe session. It finally ended up46.75 points, or 0.43 per cent, at10,844.65.

Globally, market sentimentreceived a boost after HongKong’s embattled leader CarrieLam fully withdrew a contro-versial Bill that allowed extradi-tion to mainland China andsparked three months ofprotests. Of the 30 Sensex con-

stituents, 18 closed in the greenand 12 in the red.

Top gainers in the Sensexpace were Airtel, SBI, Tata Steel,Vedanta, NTPC, HDFC Bank,HCL, ONGC, ICICI Bank, andL&T — rising up to 2.97 per cent.

On the other hand, Marutiwas the biggest laggard, plung-ing 3.64 per cent after the com-pany announced a two-day sus-pension of its manufacturingoperations at its Gurugram andManesar plants.

“Investors in Asia got goodnews with positive develop-ments in Hong Kong. This helpsalleviate tensions in one of thefinancial capitals of the world.After a steep fall on Tuesday, themarkets held long-term sup-port, driven by improved globalsentiment. Banks and infrastocks were the biggest gainers,while auto and pharma werebottom performers for the day,”said Sunil Sharma, CIO ofSanctum Wealth Management.

YES Bank settles ‘selective disclosure’ case with SebiSAMIE MODAKMumbai, 4 September

YES Bank has settled a casepertaining to ‘selective dis-closure’ of assets qualitywith Sebi. The private sectorlender settled the matterunder the so-called consentmechanism, paying ~51.6lakh as settlement charges.

YES Bank’s complianceofficer Shivanand Shettigarpaid another ~14.45 lakh as

settlement charges.In February, YES Bank

had made a disclosure tostock exchanges that theRBI had not found anydivergence in the asset clas-sification and provisioningdone by the lender for FY18.

Following the disclosure,its shares skyrocketed 30 percent. However, the RBI laterpulled up the bank for mak-ing the disclosure overbreach of confidentiality

and selective revelations.The stock tanked later.

While probing the mat-ter, Sebi observed that YESBank made selective disclo-sure by “highlighting ‘NIL’divergence that had signifi-cant positive impact on theprice movement and hadnot disclosed other issuesmentioned in the RiskAssessment Report asobserved by the RBI, suchas lapses and regulatory

breaches in various areas inits functioning.”

“Shivanand Shettigar,compliance officer of YESBank, was responsible toensure that the correct pro-cedure is followed that wouldresult in the correctness,authenticity and comprehen-siveness of the information,statements and reports filedby the lender,” Sebi said in aorder. The regulator later ini-tiated adjudicating proceed-

ings against the bank andShettigar for not followingthe due procedure on dis-closing material information.

In June, YES Bank and theofficial submitted a plea toSebi for settling the caseunder the consent route,under which an allegedwrongdoer settles the matterwith Sebi without admittingor denying the guilt, by pay-ing a penalty or undergoinga market ban, or both.

Indices reboundon positive cuesfrom Hong Kong Investors whose holdings

have risen include sovereignwealth funds such as theGovernment of Singapore,Canada Pension PlanInvestment Board (CPPIB), andNorges. The overall assets ofsovereign wealth funds rose12.4 per cent in in the last yearto ~1.71 trillion.

Government of Singapore’sholdings were worth ~80,148crore at the end of June 2019,up 56 per cent over theprevious year, while that ofNorges stood at ~24,631 crore,up 38 per cent from theprevious year. CPPIB’s holdingrose 20 per cent to ~20,694crore in the past year.

The holding of EuroPacificGrowth Fund — the largeststandalone FPI fund — rose to~85,948 crore at the end ofJune 2019. The fund’s top 10global holdings include HDFC Bank (2.46 per cent) andReliance Industries (2.21 percent) as on June 30, 2019.

EuroPacific Growth Fund,which manages assets of $160billion worldwide, is an open-ended equity mutual fundthat is managed by CapitalResearch and ManagementCompany. The fund invests incompanies based mostlyacross Europe, Asia, as well asthe Pacific Basin.

ASHLEY COUTINHO

Capital Group

Government of Singapore

Vanguard

Oppenheimer

Norges

Canada Pension PlanInvestment Board

First State

Nalanda

Dodge & Cox InternationalStock Fund

Standard Life Investments

INVESTMENT VALUE OF TOP 25 FPIS

96,300106,231

53,00281,554

24,47528,38030,00527,678

17,79124,632

17,28320,69418,53717,356

15,24715,63415,71513,901

nJune 30, 2018 n June 30, 2019 (figures in ~crore)

Source: nseinfobase.com

The investment value of top foreign portfolio investors (FPIs) saw a modest rise inthe past year amid sustained volatility. The holding of the top 25 FPIs in Indianshares stood at ~4.6 trillion as on June 30, 2019, up 16 per cent over the sameperiod last year, according to data from nseinfobase.com. The data has takeninto account funds that own more than 1 per cent in Indian stocks.

TOP FPIS REMAIN BULLISH ON INDIA

13,122NA

n Fund managers seek morediscretion in mid-cap space

n Say current norms make itdifficult to hold on to some bets

n Forced to sell some stocks tocomply, bearing steep impact

costs in weak markets

nMid-cap schemes allowed tochoose only from 150 stocks

n Fund managers sayalternative would be to justdefine large-cap universe

NOT ON THESAME PAGE

SENSEX INTRA-DAY

RE-CATEGORISATION OF STOCKS

Investors areadvised to stayaway from thestock despiteattractivevaluations

“Indonesia plans tax cuts to lure investment...Corporate tax to go down to 20%. Newly-listed companies to pay only 17% tax. Dividends to be tax exempt if re-invested. India needs exactly the same.''SUNIL SINGHANIA, Founder, Abakkus Asset Manager

THE SMART INVESTOR 11>

MUMBAI | THURSDAY, 5 SEPTEMBER 2019

COMMODITIES>

SHREEPAD S AUTE

Mumbai, 4 September

The pain arising out of the fee-ble consumption sentimenthas, in recent times, spread

to discretionary segments rangingfrom gold and undergarments to sta-tionery, thereby adding to scepti-cism on their growth prospects.

However, segments in the dis-cretionary space such as decorativepaints and footwear have weath-ered the storm and are likely toremain outliers. As a consequence,they are likely to find favour withinvestors. The share price move-ment of major paint and footwearplayers, too, highlights investorenthusiasm for these segments.

The stocks of three big paint play-ers (Asian Paints, Berger Paints, andKansai Nerolac) have gained up to 11per cent, while that of footwearmajors Bata and Relaxo have risen9-12 per cent in the last threemonths. This was a sharp outperfor-mance to other major discretionaryplayers such as Titan and PageIndustries that have seen their shareprices dwindle by 12-17 per cent dur-ing the same period.

Among factors that point tohealthy growth potential in thesesegments are structural changesthat have enhanced the ability ofthese players to take away market

share from unorganised players, dif-ferent and improved business mod-els, focus on product premiumisa-tion and new launches, andunder-penetrated demographicsegments, say analysts.

In the case of paints, for

instance, a slash in the goods andservices tax (GST) rate last year from28 per cent to 18 per cent has led tomarket share gains. This has beenvisible mainly in the low-pricedproducts such as distemper, inwhich unorganised players have a

higher presence. Earlier, unorganised players used

to benefit from the tax arbitrage.Further, around 80 per cent of dec-orative paint demand comes fromrepainting existing houses. Notably,the cycle of repainting houses hascome down drastically from about7-8 years to 3-4 years now, and isfuelling demand. All this largely mit-igates the volume growth risk ema-nating from the pain real estate pro-jects are going through.

Gauging the current demand sit-uation in decorative paints, ICICISecurities’ channel check reportstates a Chennai-based dealer main-ly catering to repainting require-ments hasn’t been impacted by theslowdown in new constructions.

“The paint segment should dowell in the ensuing quarters.Historically, the segment grew 1.5-2x of gross domestic product interms of volume, which should sus-tain,” says Vishal Gutka, AVP atPhillip Capital. According toEdelweiss Securities, volumes ofAsian Paints and Berger Paints arelikely to grow by around 13 per centin FY20. Companies are alsoexpanding reach to drive volumesand improve penetration.

While Asian Paints is a leader indecorative paints, Berger Paints isthe second-largest player and earns80 per cent share of its revenues

from decorative paints.In the case of footwear, too, GST

rates were lowered for productspriced above ~500 up to ~1,000 perpair last year. This segment accountsfor a major share in the country’sfootwear market (about 50 per centin the case of Bata), indicating its sig-nificance in the overall performanceof footwear makers.

Being a leader in the economyfootwear category, Relaxo stands togain more from lower GST rates.

For Bata, focus on premiumproducts, under-penetrated womenportfolio, and distribution expan-sion in tier-3 and tier-4 towns arekey positives.

According to Amarjeet Maurya,AVP at Angel Broking, bothfootwear majors will continue post-ing good growth with improvementin business strategies, in terms ofdistribution, portfolio focus, prod-uct formation, etc.

In June quarter, too, healthy vol-ume growth led to double-digit rev-enue growth on a year-on-year basisand helped these footwear and paintcompanies post good performance.

Besides, these two industries willbenefit on the margin front, withfocus on premium products andbenign input cost (mainly for paintcompanies). Asian Paints is ana-lysts’ top pick in the paint sectorand Bata in footwear.

Paints, footwear beat slowdown blues Silver touches 6-yrhigh, trading at~50K in MumbaiRAJESH BHAYANI

Mumbai, 4 September

After six years, silver is tradingabove ~50,000 a kg in thephysical market in Mumbai.Its global prices at $19.4 anounce is a three-year high.

The global high comesamidst the uncertainties ofBrexit, a trade war and slowinggrowth, with traders increas-ing their silver bets.

At Zaveri Bazar in Mumbai,the spot market price openedat ~50,125 a kilo and closed alittle lower at ~49,950 — stillup four per cent fromTuesday’s close. Standard goldopened at ~39,091 for 10 grams,trading for the first time above~39,000. It closed at ~39,031.Including a three per centgoods and services tax, theprice is above ~40,000.

“Silver December futureson the Multi CommodityExchange also made a high of~51,425 and traded at ~50,900,the third-highest gain on aweek-on-week basis in 10years. A combination of nervesover Brexit, US-China rela-tions, etc, are making tradersto shift to safe-haven assets,”said Ajay Kedia, director,Kedia Commodities.

At this level, importers say,demand has almost dried.Viraj Didwania, director,Foresight Bullion India, said:“Domestic silver demanddepends upon customers’ per-ception of the future price.

“Even at a time like nowwhen prices have increasedsignificantly over the past fewweeks (35 per cent rise in threemonths, in rupee terms), ifcustomers start to believe thatprices are going to continue toincrease or remain at currentlevels, demand will return.However, a large percentage ofsilver demand in India isdeferrable and customers (atpresent) are willing to wait afew months to purchase, untilthey believe they are getting afair price.”

India’s annual import of sil-ver is 5,000 to 7,000 tonnes.

Internationally, the gold to

silver price ratio had beenbearish on silver because ofindustrial slowdown.

As a result silver was under-performing gold’s price andthe ratio went up to a 25-yearhigh of around 93 a monthbefore. Since then, the ratiohas been correcting.

Kedia states: “The long-termaverage for the silver-gold ratiois around 55:1. Silver has justbegun to show signs of bullishlife and has been slowly playingcatch-up with gold. Yesterday,the ratio breached the 78:1 leveland has been trending lower assilver has been making higherhighs.” Currently, the ratio isaround 79.5.

How long this rally in silverwill continue is an issue.Didwania says: “Given therecent increase in the price ofsilver, plus the increase relativeto gold, I believe the bulk of theincrease in silver is done andfrom here, there are chances ofsilver staying stable or goingdown in price.”

SUNDAR SETHURAMAN

Mumbai, 4 September

Ajay Tyagi, chairman of theSecurities and Exchange Board ofIndia (Sebi), said a unified platformfor government and private securi-ties could go a long way in develop-ing the corporate bond market in thecountry. For economic growth tra-jectory to move to the next level, allmeans of financing corporate invest-ments need to fire up, said Tyagi.

Funds raised from corporatebonds have grown over the years,from ~3.7 trillion in FY13 to ~6.5 tril-lion in FY19. Tyagi said credit dis-bursed by banks, however, declinedfrom ~13 trillion in FY13 to ~11 trillionin FY19. Further, corporate bondissuances have remained flat duringthe last three years — at an averageof ~6.4 trillion.

“The plateauing of corporate

bond issuances and declining bankcredit disbursements by banks areinextricably linked to the decline incorporate private investments,resulting in sluggish growth seen invarious sectors of the economy,”said Tyagi.

The Sebi chairman was speakingat industry body AssociatedChambers of Commerce andIndustry of India’s national confer-ence on the corporate bond market.

Tyagi said the unified platformfor government securities (G-Secs)and corporate bonds will ensuretrading, clearing and settlementtakes place on one platform, backedup by an ecosystem that providesfor seamless transfer of governmentand private bonds. The mechanismwill also help in better price discov-ery, he said.

The Sebi chief said that the frag-mented yield curve is a fundamental

problem in the Indian bond market.“Naturally, it is important for us

to have a robust, continuous G-secyield curve. Unfortunately, we do nothave the benefit of such a bench-mark yield curve,” he said. He saidthat primary issuances and tradingare majorly concentrated in 10-, three-, and five-year buckets.

The longer end of the yield curveis predominantly dominated by debtpapers of public sector undertakings,financial institutions, and selecthousing finance companies, whilethe shorter end is dominated by non-banking financial companies.

The Sebi chairman said the cor-porate bond market has to play anincreasingly significant role in sup-porting India’s growth story, con-sidering the asset quality problemsof banks.

To enhance robust price discov-ery, the capital markets regulator

has suggested an electronic plat-form that enables multilateralnegotiations to take place.

“Negotiations that currentlytake place offline and bilaterally

would have to be done on an elec-tronic platform, with straight-through processing of clearing andsettlement to complete the trade,”said Tyagi.

Need to unify G-sec, corporate bond markets, says Tyagi

Market share gains and focus on product premiumisation are helping these segments

55,000

50,000

45,000

40,000

35,000Apr 1,’19 Sep 4,’19

37,320

49,950

GAINING SHEEN(~ per kg)

Source: IBJA Compiled by BS Research Bureau

“The plateauing ofcorporate bondissuances anddeclining bank creditdisbursements bybanks are inextricablylinked to the decline incorporate privateinvestments, resultingin sluggish growthseen in various sectors of theeconomy”

AJAY TYAGI, Chairman, Sebi

STRONG MOMENTUMConsolidated figures (in %)

Revenue growth Net profit growth

FY19 FY20E FY19 FY20E

Asian Paints 15.0 13.8 5.5 21.5

Berger Paints 17.3 14.2 9.1 29.8

Kansai Nerolac Paints 16.4 -1.7 -11.4 21.2

Bata India 11.3 12.8 49.1 11.4

Relaxo Footwears* 17.1 15.8 9.1 26.8E: estimates; * Standalone Sources: Companies, Capitaline and Bloomberg

Rain revival dragsdown prices of agri commoditiesDILIP KUMAR JHA

Mumbai, 4 September

Revival in rains has pulled down theprices of agri commodities in the lastthree days.

This is mainly on expectations of arecovery in kharif output andfavourable climatic conditions for rabiharvest in 2020.

The benchmark Agri Index(NKrishi, which was earlier known asDhaanya) of the National Commodityand Derivatives Exchange declined byover 1 per cent on Wednesday. This wasbecause of incessant rains across thecountry over the last two days.

The index has posted around 2.5 percent decline in the first three days ofSeptember, posing arisk of further declinein agri commoditiesprices.

Decline in thebenchmark agri indexindicates a broad sell-out in agri commodi-ties where traders andstockists see a recov-ery in kharif outputthis season againsttheir previous expec-tations of a decline.

The three-weekdelay in the southwestmonsoon followed bya spatial distribution(flood in some areas and drought inothers) had posed a threat of a declinein kharif output this season whichpushed up prices.

Now, recovery in the rains from thelevel of 30 per cent deficient of the longperiod average (LPA) in June to over 1per cent surplus in August has raisedhopes of a recover in kharif output.

The September rains have renewedhopes for addition in the undergroundwater table and reservoirs resulting inadequate soil moisture for higher rabiharvests.

“Sharp revival of southwest mon-soon in August has proved beneficialfor a number of kharif crops. Althoughcrop damages have been reported in afew areas due to excess rains, it is

miniscule. So, the recovery in rainsraised hopes for an improvement inkhraif output. Also, for rabi crops,including chana and mustard seed,good rains in September (as forecastby weather agencies), would providebetter soil moisture for sowing,” saidNaveen Mathur, director (commoditiesand currencies) Anand Rathi Sharesand Stockbrokers.

Meanwhile, sowing of soybean andcotton is reported to be higher than lastyear. This would counter balance yieldlosses due to excess rains. Kharif pulses(moong) acreage is lower this seasondue to delayed rains, but harvesting ofearly crop has already started. Thus,supply stress is exerting downside pres-sure on the prices.

Harvesting of mostkharif crops wouldcommence by the endof this month and sen-timent is negative forsoybean, cotton andmoong, among oth-ers, said Mathur.

D K Joshi, chiefeconomist at Crisil,however, believes thatimpact of the recoveryin rains on kharif out-put would depend onthe area of showersand the crop condi-tion there. “But, therain in August and

September would certainly help rabisowing,” Joshi added.

India witnessed record foodgrainoutput with an overall growth of 15 percent in the last three years. With thisrecord output, the government hasbuilt huge buffer stocks, which pose athreat for any price escalation.

“All the major kharif crops areexpected to remain under pressureduring next few weeks as new croparrivals will create supply pressure inthe market. In addition, no sign of atrade deal between the US and Chinawill continue to keep global stocks (soy-bean and cotton) higher this year,” saidRavindra V Rao, vice-president (head— commodity research), KotakSecurities.

Dairy farmers feel pinch as dry buffalo prices tankSANJEEB MUKHERJEE

New Delhi, 4 September

It has been testing times for dairy farm-ers, particularly in North India. Justwhen liquid milk prices were showing

signs of stabilising after remaining sub-dued for the past few years, dry buffalorate, or the sale price of a buffalo that hasstopped giving milk and is ready forslaughter, has dropped sharply.

According to trade sources, dry buffaloprices in North India are hovering around~140 a kg, down 20 per cent from ~170-180a kg a year ago. The weight of a buffalobought for slaughter ranges between 100 kg and 450 kg.

Cattle suppliers have also reduced theirpurchases from dairy owners as they areincurring losses.

This has led to a piling up of inventoryof non-milching buffaloes in dairy farmsacross the northern parts of the country.

“In these testing times, when fodderprices and labour costs are rising, whowouldn’t want a good price for an animalthat does not have any economic significance for the farmer,” said SatpalSingh, a dairy farmer from Jewar in Uttar Pradesh.

He said the drop in the sale price ofbuffaloes couldn’t have come at a worsetime, as after many years milk procure-ment prices were showing signs of stabilising. The procurement price ofmilk having 65 per cent fat in Singh’sregion was quoting around ~42 a kilo-gram while last year the rate was around~39-40.

Meanwhile, dairy owners said a bigreason for the fall in dry buffalo prices is asharp fall in India’s bovine meat exports.Unlike the cow, buffalo meat does nothave any religious connotations and itsslaughter and export is permitted underthe law. Home to one of the world’s largestbuffaloes, India’s exports of the animal’smeat have grown steadily and the commodity is now the second largest itemof India’s total farm exports, after basmati rice.

But it has steadily been losing groundin the past few years. From a high of $4.57billion in 2014-15, buffalo meat exports in

the financial year 2018-19 dropped toaround $3.31 billion, down almost 27.6 percent in a spell of five years.

According to industry experts,Vietnam traditionally has been the largestmarket for Indian buffalo meat exports,accounting for over 50 per cent of the totalshipments from India.

Much of this was purchased for sale toChina, which officially does not allow buf-falo meat exports from India due to itsstringent food safety norms.

However, industry sources said eversince China prohibited the movement ofbuffalo meat from India through Vietnam,trade has virtually come to a standstill.

Data sourced from the commerce min-istry shows that between 2017-18 and 2018-19, buffalo meat exports to Vietnamdropped by a staggering 28 per cent. Thiswas after a 11 per cent increase in meatexports to the same destination between2016-17 and 2017-18.

“In the 2019-20 financial year, the firstfive months’ trends show that unlessChina removes restrictions on the move-ment of buffalo meat from Vietnam,India’s total meat exports could fall anoth-er 15 per cent,” said Fauzan Alavi, directorof Allanasons Private, India’s biggest buf-falo meat exporters.

Alavi said if the Centre makes sincereefforts to convince China to allow directbuffalo meat exports without re-routingthrough Vietnam, there could be big boostto the trade as China is a huge market.

“We are perhaps among the very fewindustries that transfer more than 80 percent of the price of finished productsdirectly to farmers and any drop in ratesimpacts the dairy industry,” Alavi said.

He said raw material prices (dry buffalorates for slaughter) will immediately pickup as soon as Vietnam starts importing ina big way from India for the Chinese mar-ket. Since packaged meat is a highly per-ishable commodity, no exporter can storeshipments for long. Industry players haveeven approached the commerce ministryto find out ways through which it can con-vince China to start importing from India.

On Tuesday, Union animal husbandryminister Giriraj Singh said Prime MinisterNarendra Modi will launch a ~13,000 crorenationwide programme for vaccinatingcattle for foot and mouth disease onSeptember 12.

Foot and mouth disease is one of themain reasons for several countries reject-ing Indian bovine meat consignments.

Meanwhile, some exporters have alsostarted scouting for newer destinations tocompensate for the loss, but the volumeis still small.

More on business-standard.com

One of the major reasons for the fall is a sharp drop in bovine meat exports

> PRICE CARD

As on Sep 4 International Domestic ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------

Price %Chg# Price %Chg#

METALS ($/tonne)

Aluminium 1,746.0 -0.3 1,972.4 -4.5

Copper 5,675.0 -2.2 6,155.1 -6.9

Nickel 15,755.0 33.5 18,465.4 47.0

Zinc 2,261.0 -14.2 2,574.0 -14.3

Gold ($/ounce) 1,530.2* 15.4 1,698.2 16.7

Silver ($/ounce) 18.0* 21.5 21.7 32.4

ENERGY

Crude Oil ($/bbl) 58.7* -5.8 57.1 -6.4

Natural Gas ($/mmBtu) 2.2* -8.7 2.4 -1.4

AGRI COMMODITIES ($/tonne)

Wheat 163.3 -16.2 284.7 -0.2

Sugar 310.5* -7.8 493.9 3.6

Palm oil 552.5 7.8 867.3 4.6

Rubber 1,485.5* -26.0 1,958.5 -5.8

Cotton 1,261.9 -17.0 1,598.9 -14.3

* As on Sep 04, 19 1800 hrs IST, # Change Over 3 MonthsConversion rate 1 USD = 71.5 & 1 Ounce = 31.1032316 grams.Notes

1) International metals, Indian basket crude, Malaysia Palm oil, Wheat LIFFE andCoffee Karnataka robusta pertains to previous days price.

2) International metal are LME Spot prices and domestic metal are Mumbai localspot prices except for Steel.

3) International Crude oil is Brent crude and Domestic Crude oil is Indian basket.4) International Natural gas is Nymex near month future & domestic natural gas

is MCX near month futures.5) International Wheat, White sugar & Coffee Robusta are LIFF E future prices of

near month contract.6) International Maize is MATIF near month future, Rubber is Tokyo-TOCOM near

month future and Palm oil is Malaysia FOB spot price.7) Domestic Wheat & Maize are NCDEX future prices of near month contract, Palm

oil & Rubber are NCDEX spot prices.8) Domestic Coffee is Karnataka robusta and Sugar is M30 Mumbai local spot

price.9) International cotton is Cotton no.2-NYBOT near month future & domestic

cotton is MCX Future prices near month futures.Source: Bloomberg Compiled by BS Research Bureau

BUFFALO MEAT EXPORTSREMAIN VOLATILE

EXPORTS TO VIETNAM

Amount ( Annual ( $ bn) change %)

2014-15 4.57 10.50

2015-16 3.9 -14.63

2016-17 3.72 -4.5

2017-18 3.78 1.5

2018-19 3.31 -12.4

2019-20* 0.96 NA*April-July Source: Commerce Department

Amount ( Annual ( $ mn) change %)

2014-15 2.07 NA

2015-16 1.92 -7.46

2016-17 1.93 0.47

2017-18 2.14 10.73

2018-19 1.53 -28.19

Source: Commerce Department

The September rains haverenewed hopes foraddition in the groundwater table and reservoirs

MUMBAI | THURSDAY, 5 SEPTEMBER 2019 BRAND WORLD 17. <

RBI mandates...“The final rate charged to this category ofborrowers, after switchover to externalbenchmark, shall be same as the ratecharged for a new loan of the same catego-ry, type, tenor and amount, at the time oforigination of the loan,” the RBI said.

The other existing borrowers will havethe option to move to such a benchmark atmutually acceptable terms, and theswitchover will not be treated as a foreclo-sure of existing facility.

“There shall be no lending below thebenchmark rate for a particular maturityfor all loans linked to that benchmark,” thecentral bank said.

The RBI had first raised the issue oflinking external benchmark to lendingrates in its statement on developmentaland regulatory policies on December 5,2018. The initial plan was to make externalbenchmarking mandatory for banks, butthe lenders said by doing so their marginswould be compressed at a time when theyhave to set aside high provisions for theirbad debts.

However, soon after its August 7 mon-etary policy meeting, where the RBIreduced policy rate by 35 basis points, sev-eral banks said they would link their lend-ing rates to the repo rate and pass on the 35-basis-point cut to their new customers.

State Bank of India, though, had linkedsome of its retail loans to repo rate in May.

Encouraged by the banks’ voluntaryact, RBI Governor Shaktikanta Das said onAugust 19 that it was time to formalise an

external benchmark for lending to ensureeffective transmission of policy rates, andfor giving growth a push.

“Today, the economy requires a certainamount of push, not just from the mone-tary policy but also from its transmission.I think the time has come to formalise thislinking of the lending rates on new loans toexternal benchmarks like the repo rate,”Das had said.

Synergy Group...It will also discuss co-investment optionswith its lenders and infrastructure com-panies, the group’s advisor had said.Synergy Group owns a majority stake inAvianca Airlines, South America’s second-largest airline.

The RP has so far received claims of~30,558 crore from financial creditors, oper-ational creditors, and employees. In therevised claims data put out by the RP, of thetotal claims of ~30,558 crore, ~12,555 crorehave been accepted while ~11,995 croreworth of claims have been rejected. Theremaining claims of ~6,055 crore are underverification. In terms of the number ofclaims, Jet has received 18,596, of which13,911 have been admitted.

Jet was admitted under the insolvencyprocess on June 20 after bankers failed tofind any takers for the grounded airlinedespite months of negotiations. Jetstopped flying on April 17, leaving over14,000 employees in the lurch.

Shares of Jet went up almost 5 per centduring the day and closed at~39.60.

Banks...“We do not want the feeling oflarge banks taking over controlof small banks to dominate theprocess. Best practices of vari-ous banks will be adopted to getbusiness benefit for an organi-sation, post merger. The priorityis minimal disruption to busi-ness and customers,” saidbankers.

Banks are also weighing theoption of hiring experts for helpin specialised areas. "Some of usmay rope in advisory and con-sultancy outfits to assist. Theareas could be IT system inte-gration or cultural and humanresource management issues,"an official said.

While there are similar prod-ucts offered by the banks to bemerged, there are some over-lapping and some unique prod-ucts. The merger exercise wouldneed to cautiously merge theproducts, keeping in mind tech-nological support, said the headof a PSB who attended the meet-ing.

Documentation in this

regard would be an important component,he said.

As a next step, the banks to be merged,it was suggested, should form joint com-mittees on various verticals, under an apexcommittee to oversee the process. Forexample, different committees with rep-resentatives from all the banks to bemerged to work on different areas like riskmanagement, products, technology or pol-icy. Anchored by an apex committee for themerger, which is to have representativesfrom all the banks in question.

Also, while branch rationalisationwould be on the cards, no voluntary retire-ment schemes. For, PSBs were alreadygoing very slow on recruitment over recentyears, according to the chief of one of these.

American brands...During the ongoing three-day visit, thecompanies are testing the Indian marketand having talks with Indian firms forgreater sourcing operations, as well as thegovernment, for investments of “hundredsof millions of dollars”, Joseph said.

In a meeting with Textiles MinisterSmriti Irani, the delegation suggested thatproblems in doing business and lack ofskilled manpower remained key issues. Italso flagged the long time taken in movinggoods into production areas.

“India has a lot of cotton and naturalfibres, but many US manufacturers workwith synthetic fibres and the high cost ofbringing them in creates a difficulty formanufacturers," Joseph said. The delega-tion has also discussed sustainable manu-facturing practices with a focus on lowwater consumption, with governmentfunctionaries, including NITI Aayog CEOAmitabh Kant.

FTA debateAfter repeated overtures from the DonaldTrump administration, India has told theUS that it was unwilling to discuss a fullFTA. Officials and trade experts say it isagainst India's interest to sign an FTA withthe US, given that import tariffs for themajority of goods are relatively high in Indiaand the country would need to adjust to amuch greater degree to lower duties to USlevels, which are among the lowest global-ly.

Instead, New Delhi has pushed for a'trade package' that will aim to providemutual trade concessions across informa-tion and communication technology (ICT)goods, aviation, and oil purchases. Thepackage has been in the works for the pastyear and a half, with trade officials havingmet as many as seven times to hammerout a deal that provides an amicable solu-tion to grouses from both sides.

As part of the deal, India had considereddismantling its existing price cap regimefor coronary stents with a trade marginpolicy. It had also discussed the possibilityof allowing lower duties on import of cer-tain ICT goods such as high-end mobilephones and smartwatches from the US.

T E NARASIMHANChennai, 4 September

Last month Nestlérelaunched itsmalt-based drink

Milo, just months afterit signed up as the offi-cial energy drink for thepopular Indian PremierLeague franchiseChennai Super Kings. Afew months earlier, thecompany introducedthree organic variants ofits popular brands,including one for infants.To add to the talk of well-ness and conscious snack-ing, the company has beenworking in a taste-plus-healthtagline in its advertising forbrands across its portfolio.

Nestlé that has spent over ahundred years in the countryand has spent much of the lastdecade fighting a bruising bat-tle over its flagship brand Maggisays its branding strategy isreflecting the millennial pushcoming from within its rankand file. While the focus onhealthier, premium and organ-ic variantsmay not translateinto big sales numbers, expertssay that the move will helpbuild a halo around the brandthat will stand it in good steadin the years ahead.

Suresh Narayanan, chair-man and managing director,Nestlé India speaking during ameeting for the brand refreshfor Milo said, millennial con-sumers are conscious of whatthey eat, about the environ-ment and fitness and are readyto pay for quality and nutrition.And Nestlé, despite its age, is amillennial company becausehe added, it has 70 per cent mil-lennial employees on its rolls.

Health and nutrition comeat a price, but that is where the

millennial audience lies.According to the company, itspremium products grew nearly21 per cent during the first half.For its new version of Milo too,the company has opted for apremium track. It is beinglaunched with a 400 gram tinpriced at ~450, which is muchhigher than 500 gram jars ofHorlicks, Bournvita andComplan priced at ~35, ~216and ~245 respectively.

"Organic products end upbeing expensive and unafford-able to the middle class. Youcould have organic products,but that is more as an imageleader, where the move can helpbuild a halo around the brand,"said Ambi Parameswaran,brand strategist and founder ofBrand-Building.com.

The company says that itsmove towards a healthier fixfor its brands goes hand-in-hand with its thrust on digitalmarketing and communica-tion. In the last three years,its digital communication hasgrown 45 per cent year onyear, while it has moved awayfrom traditional media. Manybrands are connecting to theconsumer first on digital now

(Maggi, KitKat) according toNarayanan.

Going digital has meantfrequent communication andbuilding a larger social causearound the brand. HenceKitKat’s new campaign hasbeen tailored around the grow-ing penchant for travel withinthis demographic. 'My TravelBreaks' talks about travel expe-riences in the country insteadof relying on the usual foreigndestinations, Narayanan said.“We are hopeful it would helpdevelopment of infrastructureof tourism in those places. We will tie up with local enti-ties so that there would be apositive rub off for employ-ment in these smaller loca-tions," he added.

The advertising is beinglocalised too, data is beingused to define regions morenarrowly and audiences arebeing mapped more accurate-ly. The country has beencarved up into 15 clusters onthe basis of close to 150 differ-ent parameters, set by Nestléand its partners. The earliermodel took a pan-Indianapproach to its advertising.

The cluster plan begins

with the consumer, Narayanansaid. What kind of products,brands, SKUs do consumers inthe locality like, where do theylike to purchase, what kind ofmedia they use and how manytimes do they see it – all ofthese parameters inform thebranding strategy for the com-pany. This helps the companyto know when, where and howmuch to spend and organisepromotions and activationsrelevant to the geography. Thisclustering approach wasimplemented in two of itssmaller markets, AndhraPradesh and Karnataka andhas helped the company topick up market share. "This isreally being at the temple ofanalytics, using multiple vec-tors for understanding con-sumer behaviors, and usingthis to plan and target ourbrands," he said.

The company has alreadylaunched 61 new products,despite only 70 per cent beingthe success rate. But new prod-ucts contribute around 3 percent of company's sales andfailures help get to know thelocal conditions better, thecompany said.

Nestlé builds a millennialtrackaround its brands

Nestlé says it has taken the digital-first route for many ofits brands, such as KitKat and Milo

A fresh launch for Milo, healthy noodles, and conscious digital-focusedadvertising is driving the Swiss multinational’s plan for India

FROM PAGE 1

SOLUTION TO #2834 VVeerryy HHaarrdd:: ����������

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> BS SUDOKU # 2835

COOL INVESTMENT IDEAS 18>

Post its outperformance inFY17 and for some part ofFY18, the Nifty Midcap 100

index has lagged leadingindices such as the Nifty 50 overthe past year and a half. For theyear-to-date, it has shed over15 per cent, which is more thandouble that of the leadingindex. After trading at a 14 percent premium to the Nifty a yearago, the Nifty Midcap 100 is nowtrading at a steep 20 per centdiscount to the index of 50large companies. In fact, thecombined market cap of themid-cap index at ~14 trillion isnow at a six-year low.

Though the correction inIndian markets has been dueto its slowing economy, weakcorporate earnings growthand global trade-war worries,investors are increasinglygetting risk averse preferringlarger companies to ride outthe volatility. While it may

take time for the markets torecover, the sharp correctionoffers opportunity forinvestors to buy quality namesin the mid cap space at lowervaluations. Moreover, overlonger periods mid-caps areknown to deliver higheraverage stock returns thantheir larger peers.

Given the size of the

companies, experts, however,advise that investors becautious about stocks whichare lower down the marketcapitalisation order. This isbecause cost of funds tend tomove up during uncertain orvolatile times. Companieswhich have excess debt andweak cash flows will strugglein this environment and the

highly leveraged ones shouldbe avoided. Companiesmentioned here are those thathave lower levels of leverage,are expected to grow at ahealthy rate over the next fewyears and are available atreasonable valuations.Moreover, they are expectedto deliver a return of at least15 per cent over the next year.

| Pfizer India with domestic focus isbetter placed compared to otherIndian peers having exposure to thevolatile US markets

| Out of Pfizer’s portfolio of about 150products, 22 are among the top 500in the Indian pharma market

| Pfizer’s top brands such as Corex,Gelusil, Prevnar, Dolonex, Magnex,Ativan and Xeljanz continue toshow good traction with doubledigit growth in June 2019 quarter

| Neksium and Meronem, the brandsacquired from AstraZeneca, havestrengthened it’s position in anti-infective and gastro-intestinaltherapies

| Analysts expect revenue and profitto grow by 12 per cent and 14 percent annually over FY19-21

PFIZERVARUN BEVERAGESCROMPTON GREAVES CONSUMER

| Aurobindo continues to impresswith revenue and profit growthin key markets of US and Europe

| A well-diversified product basketand lower dependence on anysingle product insulates it fromvolatility in sales due to pricingpressure

| A strong product pipeline, newdrug launches and acquisitionsdone in the recent past will drive

growth. This keeps analystspositive on its US and Europeangrowth prospects

| Margins of its Europe business areset to improve as Aurobindo shiftsproduction of more products to itslow-cost Indian plants

| Despite regulatory overhangs,analysts see sales and profitgrowing 29 per cent and 22 percent in FY20 and FY21, respectively

AUROBINDO PHARMA

| Allaying fears of margin decline orcompetition from foreign/privateplayers, Bharat Electronics hasheld its own in the last five years,making it a preferred defencesector pick

| Near monopoly in specialisedsegments such as long-rangemissiles, costal surveillance andcommunication systems ispositive

| With order book of over ~50,000crore and order inflow expectedto pick up in September quarter aselection-related inertia fades,analysts predict FY20 revenuegrowth at 15–18 per cent

| Rise in employee costs, importedcomponents may weigh on netprofit, but should reverse by FY21

| Operating margin is pegged at 16–18 per cent, the best in industry

BHARAT ELECTRONICS

| India’s largest container trainoperator enjoys around 75 per centmarket share in container traffic

| With continued gains in pricing,the company reported satisfactorynumbers for June 2019 quarterdespite a challenging demandenvironment

| Though near-term volumes mayremain under pressure, analystsbelieve, DFC (Dedicated FreightCorridor), which should drive uprail share, and the launch of otherlogistics services are strong long-term earnings growth levers

| Operating leverage and expectedrise in share of double-stack trainsshould gradually drive up thecompany’s operating margins

CONTAINER CORPORATION

| India’s largest gas distributor is ina sweet spot due to risingdemand, better gas availabilityand lower natural gas prices

| It not only benefits fromgeographical expansions, but isalso gaining from rising piped andcompressed natural gas customers

| The company’s efforts onconnecting new industrialconsumers to boost sales volumecontinue, especially from risingdemand at Morbi (Gujarat) afterban on coal-based gasifiers

| Margin improvement and strongrevenue visibility keeps analystspositive on its growth prospects.

| Strong free cash-flow and healthyreturn ratios also provide comfort

GUJARAT GAS

Market cap and share price are as on Aug 30, 2019; PE & EPS growth (FY20E) are estimates; Return on networth (RoNW) is for FY19; Upside (%) is potentional price return in next 12 months. Source: Capitaline, Bloomberg; Compiled by BS Research Bureau

31.0 12.3Upside (%) P/E (FY20E)

FY20E EPS growth (%) 20.6

RoNW FY19 (%) 17.0

Market cap (~ Crore) 35,197

Current price (~) 600.7

1-year return (%) -12.7

20.4 14.3Upside (%) P/E (FY20E)

FY20E EPS growth (%) -6.8

RoNW FY19 (%) 20.5

Market cap (~ Crore) 25,060

Current price (~) 102.9

1-year return (%) -10.1

19.1 17.4Upside (%) P/E (FY20E)

FY20E EPS growth (%) 62.7

RoNW FY19 (%) 19.0

Market cap (~ Crore) 12,222

Current price (~) 177.6

1-year return (%) 15.6

14.5 25.0Upside (%) P/E (FY20E)

FY20E EPS growth (%) 0.6

RoNW FY19 (%) 11.9

Market cap (~ Crore) 30,973

Current price (~) 508.4

1-year return (%) 0.5

16.8 31.2Upside (%) P/E (FY20E)

FY20E EPS growth (%) 20.0

RoNW FY19 (%) 36.6

Market cap (~ Crore) 14,510

Current price (~) 231.4

1-year return (%) -6.7

14.6 43.4Upside (%) P/E (FY20E)

FY20E EPS growth (%) 32.3

RoNW FY19 (%) 14.7

Market cap (~ Crore) 17,566

Current price (~) 641.2

1-year return (%) 18.8

18.5 27.9Upside (%) P/E (FY20E)

FY20E EPS growth (%) 11.9

RoNW FY19 (%) 14.2

Market cap (~ Crore) 13,361

Current price (~) 2,920.7

1-year return (%) -17.3

| Acquisition of south and west sub-territories from PepsiCo helpedachieve strong volume growth inJune 2019 quarter when overallconsumption was under pressure

| Manufacturing of juices(Tropicana) should add to themargin and indicates potentialupsides in earnings

| Though sugar prices are rising,juice production coupled withoperating leverage are expected toprovide support to profitability

| The above factors should keepoperating performance healthy inthe near term, say analysts

| The overall performance wouldalso get support from internationaloperations in countries such asMorocco, Zimbabwe and Sri Lanka

| At 31 times FY20 earnings estimates,the stock commands a premium forits brand name, professionalmanagement and private equitypromoters Advent and Temasek,factors which are appreciated intimes such as now

| While its expertise remains in fans,it has seen success in new venturessuch as air coolers and geysers

| Innovation in air purificationproducts along with brandbuilding is also helping the firm

| With premium products salesrising, analysts expect margins torise to 14 per cent in FY20

| The company is also regainingground in the lighting segment,but margins may take a while tostabilise given its marketing efforts

RAM PRASAD SAHU, UJJVAL JAUHARI,

HAMSINI KARTHI & SHREEPAD S AUTE

(as of Aug 30) Price in ~ 1-yr chg (%)GAINERSAdani Power 58.4 69.5Muthoot Finance 607.3 48.4PI Industries 1,141.4 47.3Bata India 1,541.9 41.8SRF 2,774.6 36.0LOSERSDewan Housing Fin 47.7 -92.8Reliance Capital 34.9 -92.5Reliance Infra 38.9 -91.6Reliance Power 3.3 -91.1HEG 949.2 -77.4Compiled by BS Research Bureau

Source: Exchange

NIFTY MIDCAP 100: TOP 5 GAINERS & LOSERS

BOTTOMING OUT

Best mid-caps afterthe correction

MUMBAI | THURSDAY, 5 SEPTEMBER 2019

Gilt funds with 10-year constant duration are currentlyshowing a high one-year category average return of 18.65 percent. These high-duration funds gain heavily from declining

interest rates. The 10-year government bondyield has declined from8.06 per cent to 6.53 percent over the past year.However, they can berisky. An increase ininterest rates can resultin negative returns fromthem. Investors shouldinvest in them wheninterest rates are

moving upward and are closer to their historic peak.Alternatively, investors should invest in them via the SIP routeand hold them across a complete rate cycles to average outreturns.

TIPPINGPOINT

Kesharben Kanjibhai Chamof Porbandar owned a shipnamed M SV Chamstar,which was insured withNational Insurance, under apolicy valid from February12, 1996 to February 11, 1997.On April 10, 1996, whilereturning from Dubai toMumbai, the vessel acciden-tally hit a rock and sank atKhasab in Oman. When theaccident occurred, there wasno cargo in the vessel.However, 19 crew membersand the tindelwere on board.To save them-selves, theyboarded alifeboat. Theywere found bythe Oman Navyand arrested.After being incustody for fourdays, their release wasarranged, and they wererepatriated to India.

When the insurer wasintimated about the loss, ithired Salvage Association asthe surveyor, which report-ed that though it appearedprobable, it was not possibleto conclusively determinewhether Chamstar hadsunk. So the insurerappointed ICICInternational MaritimeBureau to carry out furtherinvestigations, and theirreport gave a similar find-ing. The opinion of G P Davewas also sought, who alsogave a similar opinion.

The insurer finallysought the opinion of W KWebster & Company, whichreported that the only wayto give a conclusive reportwould be by sending downdivers to locate the wreckand verify the damage. Asfor whether the vessel hadbeen deliberately sunk,Webster opined that thiswas unlikely as it would putthe lives of the entire crew

at risk. It also ruled out aclandestine sale of the ship.It pointed out that docu-ments pertaining to statuto-ry compliances had sunk.Webster concluded thatthough it was probable thevessel had sunk, this couldnot be stated with certainty.

In view of the claimbeing considered on thebasis of probability insteadof certainty, the insurerrepudiated the claim.Kesharben, through her sonand constituted attorneyPremjibhai Cham, filed acomplaint before theNational Commission seek-ing reimbursement worth~1.2 crore. The insurer justi-fied the repudiation as theloss was not conclusivelyestablished.

The NationalCommission observed thatall the surveyors and inves-tigators had accepted thatthere were 19 crew membersand the tindel on board atthe time of the accident. Theunanimous opinion was

that the claimought to be paidon the basis of theprobability thatthe incident wasgenuine. The let-ter of the AssistantOfficerCommanding,Coast GuardPolice Division of

Oman confirmed the inci-dent. The Commission not-ed that the Government ofIndia's Inquiry Officer hadsubmitted a MarineCasualty Report acceptingthe vessel had sunk. On itsbasis, the vessel had beenderegistered by theGovernment of India,Ministry of SurfaceTransport, and MercantileMarine Department.

By its order of August 30,2019, delivered by Justice VK Jain, the NationalCommission concluded thatthe claim was payable andordered National Insuranceto pay ~1.2 crore. Since theclaim was not settled withinnine months as required byInsurance Regulatory andDevelopment Authority ofIndia regulations, theCommission also awarded 9per cent interest fromJanuary 1, 2003 onwards,with three months to com-ply with the order.

The writer is a consumeractivist

Insurer mustsettle claim onprobability

All the surveyorshad given theopinion that theclaim ought tobe paid on thebasis of theprobability theincident wasgenuine

Bet on dollar-denominated assetsOffset the impact of weakening rupee by investing in international funds SANJAY KUMAR SINGH

The rupee has weakenedaround 3.9 per cent againstthe US dollar over the pastmonth. Investors need totweak their portfolios toprotect themselves againstthe impact of thisphenomenon.

A key reason for therupee’s depreciation isforeign institutionalinvestors (FIIs) pullingmoney out of emergingmarket (EM) stock and bondmarkets. FIIs have pulled~33,348 crore out of Indianequities over the past threemonths. “This has happeneddue to heightened riskperception in globalmarkets, arising from theUS-China trade war,” saysAbheek Barua, chiefeconomist, HDFC Bank. TheChinese yuan has movedfrom 6.5 to 7.2 against the USdollar. Many EM currencieshave moved in line as theChinese currency isperceived as an anchor forthem. “Negative news on thedomestic front —GDP, autosales, etc.—has also led tocapital outflows from Indianmarkets,” adds Barua.

A depreciating rupeeaffects household budgets inseveral ways. Householdswith children studyingabroad could be forced toshell out more. All importeditems, like electronic goods,

cars (made from importedcomponents), etc. becomemore expensive. “At present,demand is weak, socompanies will absorb costs.But as soon as economicgrowth picks up, they couldpass them on to customers,”says Barua.

The cost of overseastravel could rise, dependingon the destination country.“Costs will rise for countrieswhere the currency is the USdollar, or it is pegged to theUS dollar,” says VishalDhawan, chief financialplanner, Plan Ahead WealthAdvisors. A weakening rupeealso makes foreign investorsmore worried about earningpositive returns. They pullout more money, creating avicious cycle in the markets.

A weaker rupeealso makes crude oil,which Indiaimports, moreexpensive. Thisaffects fuel bills ofhouseholds andexerts upwardpressure oninflation astransportation costsrise. “At present,however, the global economyis slowing down, so the priceof crude is also softening,cushioning the impact of therupee’s fall,” says Dhawan.

Investors can take a fewsteps to counter the impactof a depreciating rupee. One,

they can invest in dollar-denominated internationalfunds, like US-focusedfunds. “Indian investorsshould build exposure tointernational funds to

counter the impactof both short- andlong-termdepreciation of therupee against thedollar,” saysDhawan. Those whoare starting out maytake up to 10 per centexposure, whileseasoned investorscan take up to 20 per

cent exposure (of their equityportfolio). Investors shouldalso take a 10-15 per centexposure to gold as it has theability to act as an effectivecurrency hedge.

If the rupee continues todepreciate, interest rates

could move up eventually.“Rupee depreciationcombined with capitaloutflows could create asituation wherein a pickup ineconomic activity could leadto hardening of rates,” saysBarua. Investors need to becautious in their debtportfolios. “Investors withshort-term money shouldstick to liquid and low-duration funds. Those with atwo-three-year horizonshould go for short-durationfunds, while those with ahorizon of more than threeyears should opt for dynamicbond funds,” says MahendraJajoo, head of fixed income,Mirae Asset GlobalInvestments.

Direct stock investorsshould go by the thumb rulethat exporters gain fromrupee’s depreciation whileimporters take a hit. IT,pharma and chemicals areIndia’s leading export-oriented sectors. “Manyexporters may not gain ifcurrencies of countries theycompete against have alsodepreciated. Manyimporters may also not getaffected if they have pricingpower. Investors shouldanalyse the currency impact on a case-by-casebasis,” says Jatin Khemani,founder and CEO, StalwartAdvisors, a Sebi-registeredindependent equity research firm.

YOURMONEY

If I have a one-year investment horizon,should I opt for arbitrage or short-durationdebt funds? I understand that short-termfunds, too, have default risks. What are therisks associated with arbitrage funds?Fundamentally, the returns for short-duration and arbitrage funds should be inthe same range. Arbitrage spreads are linkedto short-term interest rates in the economy.Arbitrage funds are, however, relatively low-risk products. These schemes capitalise on

profitable arbitrage opportunities (pricedifferential in a stock) between cash andfutures markets. The risk that an investormay face is in the form of lower interest ratesin the economy or higher trading volumes.Such events may result in lower returns. Thedifference between the price of a stock in thecash and futures markets is also a factor ofthe interest rates in the economy. Hence, ifthe interest rates are low, the spreads tend tobe narrow. In the case of a market scenariowhere trading increases, the spreadsbetween the cash and the futures marketmay come down. Further, arbitrage fundsoffer better tax-adjusted returns as theyqualify for equity taxation.

What is the difference between trailing androlling returns? Between the two, which is abetter indicator of performance?Trailing returns show point-to-point returnsfor a fund for a specific period, such as one-year, three-year or five-year. On the otherhand, rolling returns present the averagereturn of a fund for a specified periodcalculated on different frequencies, such as

daily, weekly, monthly. Take an examplewhere you want to calcuate three-yearaverage rolling return for a fund on amonthly frequency. Point-to-point (threeyear) returns at the end of every month willneed to be taken. An average of all the point-to-point returns will give you the three-yearaverage rolling return of a fund. Trailingreturns tend to reflect recent marketconditions and can present a distortedpicture of a fund's performance. Rollingreturns help gauge the consistency in fundreturns as it takes into account performanceacross periods.

There are expectations that the US economywill see a slowdown. Does it make sense forme to stop further investments ininternational fund focused on the US?Instead, I can use the same money toincrease my systematic investment plan(SIP) in a domestic fund.We are witnessing a slowdown across theglobe, and the US economy is not immune tothis phenomenon. Further, geographicaldiversification should be looked at based on

your overall portfolio as any change inallocation may lead to a change in the riskprofile of the portfolio. Please consult yourfinancial advisor to understand better thesuitability of the change in allocation foryour overall portfolio.

Why is the performance of conservativehybrid funds always in line with debt fundsthough they also invest 10-25 per cent inequity? For a senior looking for less riskyinvestments, what is the alternative youwould suggest?

The performance of a fund varies basedon the performance of the underlying assetclasses. While at times the performance of adebt-oriented fund and that of aconservative hybrid fund could appearsimilar, that could be due to the lower or flatreturns from equities. You can look at debt-oriented products investing in high creditquality instruments as an alternative.

The writer is MD & CEO, SBI Mutual Fund. Theviews expressed are the expert’s own. Send yourqueries to yourmoney@bsmail.in

Avg price (~/sq ft) Avg unit size (sq ft)

MUMBAIPowai 18,903 1,208 Mulund(W) 14,985 1,453 Andheri(E) 16,692 1,314 Borivali(E) 14,859 1,615 Ghatkopar(E) 14,670 1,493 Andheri(W) 18,977 1,163 Goregaon(W) 15,816 1,413 Chembur 17,646 1,271 BANGALORE Hennur Road 6,975 2,890 Jayanagar 12,017 1,891 Kanakpura Road 7,600 2,753 Koramangala 11,125 2,013 Bannerghatta Road 8,158 2,903 Bellandur 7,571 2,868 Rajajinagar 10,000 2,081 Outer Ring Road-SE 6,900 3,080 CHENNAI Kotturpuram 15,500 1,433 Saligramam 9,600 2,294 Anna Nagar 11,500 2,062 Egattur (OMR) 6,504 3,479 Thiruvidandhai 6,500 3,700 Vadapalani 11,150 1,925 Guindy 11,535 1,977 Muttukadu 5,637 3,938 HYDERABAD Kondapur 7,155 3,012 Nanakramaguda 5,940 3,508 Kokapet 6,420 3,459 Manikonda 6,230 3,481 Banjara Hills 8,682 2,479 Hitech City 8,600 2,614 Pragathi Nagar 8,500 2,570 Gandhi Nagar 7,665 2,728 PUNEKharadi 7,660 2,861 Baner 8,384 2,591 Bibwewadi 7,834 2,739 Koregaon Park 11,285 1,911 Bavdhan 7,916 2,888 Aundh 10,003 2,390 Wakad 8,823 2,410 Hadapsar 7,875 2,849

Note· Ticket price range considered for the above data points is between ~2-~2.5 crore·All the data points discussed in the above table refer to Primary Market only·Above residential data set comprises of Residential Apartments only·Above residential data is representative of organized real estate developersonly·The top performing micromarkets based on sales during last year (July-2018 toJune-2019) is represented on the above table·Data points are updated till June 2019 Source: PropEquity

BUDGET: ~2 CRORE - ~2.5 CRORE

REALTYCHECK

Business Standardbrings you a snapshot of averagecurrent rates and unit sizes in localities that offerproperty in the price range of ~2 crore-~2.5 crore. Ifyou are looking at buying real estate, an idea aboutprevailing rates would come in handy

Should you bet on constant duration funds?

DON'T GO BY RECENTRETURNS

CONSUMER PROTECTIONJEHANGIR B GAI

RUPEE ONDOWNWARD COURSE

Rupee vs dollar (%)

1 week -0.49

1 month -3.49

6 month -1.68

1 year -0.76

5 year -16.29

10 year -32.21Numbers above show absolute change.Compounded annual change over 5 years is -3.49% and over 10 years is -3.81%Compiled by BS Research Bureau

n Category average return(%)

1-year 3-year 5-year 10-yearSource: Valueresearchonline.com

18.7 9.2 10.9 9.0

SARBAJEET K SEN

Twenty seven-year-old YashSrivastava, an IT profession-al with a passion for photog-raphy, took a loan of ~1 lakh

from a non-banking financial com-pany (NBFC) at 15 per cent interest tofund the purchase of a high-endDSLR camera and accessories. Sincehis salary was only ~30,000 then, hefound himself in a financial tight spotfor months thereafter. Srivastavaregrets his rather impulsive decisionto fund, what was essentially alifestyle expese, with a high-cost loan.

BUY NOW, PAY LATERCULTUREMany millennials appear to havemade “Spend more and bring homehappiness” their life’s mantra. Onlinesales, announced at regular intervals,come with new products and newoffers. They whet the shopaholic’surge to purchase more, even if fundsare drying up. Moreover, a loan isalways available to sew the deal.Often, these personal or consumerdurable loans carry high interest cost.“Many expenditures stem out oflifestyle-related aspirations. Desiresrange from buying footwear online,going on a weekend trip, to buying ahigh-end mobile phone, among oth-ers,” says Gaurav Jalan, founder andCEO, mPokket, a digital lending plat-form that offers short-term personalloans to college students.

HIGH COST OF DEBTBut loans can take a heavy toll on aperson’s finances. Take an example.Suppose that an individual buys agadget costing ~80,000 with a two-year loan at 16 per cent interest. TheEMI is ~3,917. The extra interest theperson pays over the loan tenure is~14,009. Thus, he pays almost 18 percent extra. Processing fees, rangingfrom 1-3 per cent, add further to hisburden. Not many people account forthis extra monetary outgo.

Banks are often not too keen tolend money to youngsters who endup borrowing from NBFCs and onlinefintech platforms at higher rates.

“Today, availing a personal loan hasbecome easy due to technology. Theinterest rate is made to look attractiveby being stated as a monthly charge,like 1-1.5 per cent per month. It is easyto be entrapped by such debt. Sellersoffer interest-free EMIs when theyconduct a sale, which lure many buy-ers,” says Anil Rego, founder and CEO,Right Horizons.

URGE TO UPGRADEThe desire to upgrade makes mattersworse for the inveterate shopper. The

mobile phone needs to be upgradedevery two years; the laptop, everythree years; and the car, every fiveyears. Each new purchase at periodicintervals funded by a loan makes itdifficult to save and invest.

Frequent spending pushes up thecredit card bill and makes many optfor EMI options. Too many such loanspush the borrower into a debt trap.“While there is nothing wrong withwanting to splurge and borrowingmoney to do so, the frequency of suchexpenditures should be limited to

avoid creating financial liabilities thatbecome difficult to manage,” saysJalan. Here are a few simple tricksthat can help you avert piling up debt:Make a shopping list: This maysound like routine advice but is effec-tive. Once you have made your list,avoid buying anything that is not onit. Preparing a shopping list forces youto buy only what you need. All those‘deals’ that come your way on shop-ping portals or malls get automatical-ly eliminated if you follow thisapproach.

Restrict payment options: Keeponly one or two credit cards with lowlimits on your person. Carry mini-mum cash with you. You may evendo away with credit cards altogetherand use debit cards only. That wayyou will only spend what you have.Automate savings and invest-ments: Make saving and investmenta priority. The bank with the salaryaccount could be instructed to trans-fer at the start of the month somemoney into another account, or intoan investment such as bank recurringdeposits or systematic investmentplans of mutual funds. Such automat-ic transfers will ensure that a lowerdisposable income is available opti-cally. “Ideally, one should first savebetween 20-40 per cent of the take-home salary, invest it, and then withthe balance amount prepare a budgetfor recurring and one-time expenses,and stick to it for the rest of themonth. Spending on gadgets andautomobiles needs to be thoughtthrough carefully before the moneyis spent,” says Rego.Limit your total EMI outgo: Main -taining a ceiling on the sum total ofyour EMIs will also help you stay sol-vent. “The basic rule of thumb to fol-low is that all your EMIs togethershould not exceed 50 per cent of yournet take-home salary,” says ArunRamamurthy, co-founder, CreditSudhaar, which helps customersrepair their credit profiles. Nowadays,many lenders are willing to lend upto 60 per cent of take-home salary,based on the expectation that the per-son will receive an increment nextyear. Say no to all such offers. Refinance high-cost loans: Due toeasy availability, many borrowers signup for personal loans that are unse-cured in nature and hence carry rela-tively higher rates of interest thansecured loans. When repaying, list allyour loans in descending order ofinterest cost. Try to refinance high-er-cost loans with loans taken againstassets, such as gold, shares, bonds,home (top-up) and loan against prop-erty, all of which carry lower rates.This will reduce the loan burden.Since many of these are longer-tenureloans, the EMI will also come down.The money freed up can be investedto meet financial goals.

Don’t fund lifestyle needs with debt Limit the sum total of all your EMIs to 50 per cent of take-home salary

Have you ever borrowed to finance alifestyle expenditure?I am passionate photographer. I keepupgrading my camera and relatedaccessories. I bought a high-end DSLR andits secondary lens in December 2018. I tooka loan of ~1 lakh for these purchases.

What were the terms of the loan?The loan, taken from an NBFC, had an

interest rate of 15 per cent per annum. Inever missed an EMI, but paying back was achallenge. Other critical expenses becamedifficult to manage at times.

What lessons have you learnt?With the benefit of hindsight, the purchasecould have been postponed. I should havedone proper planning and also had somecontingency funds as back-up.

“Avoid borrowing to fund impulse buys”Yash Srivastava, a Delhi-based IT professional and avid photographer, recounts hisclose brush with a debt trap

READER’SCORNER

MUTUAL FUNDS

ASHWANIBHATIA

PERSONAL FINANCE 19>

MUMBAI | THURSDAY, 5 SEPTEMBER 2019

20 PRIVATE EQUITY>

MUMBAI | THURSDAY, 5 SEPTEMBER 2019

A SNAPSHOT OF PE ACTIVITY & DEALS

902

721

The year so far... Month-wise PE activitynDeal volume nDeal value ($mn)

n Deal value ($mn)

Sector-wise allocationsDiversified financials attracted the mostinvestments, accounting for 22.11% ofthe deal value. Software & services wasthe second (20.85%), followed by otherindustry groups such energy, real estate,and utilitiesSectors Percentage (%)

Diversified Financials 22.1Software & Services 20.9Energy 7.2Utilities 7.2Real Estate 6.6Transportation 5.1Retailing 4.8Insurance 3.9Banks 3.8Others 18.5

20280.6

25299.8

Jan -Aug2019

Jan -Aug2018

Jan -Aug2018

Jan -Aug2019

Others include consumer services, healthcareequipment & services,media, materials, commercial & professional services, capital goodspharmaceuticals, biotechnology & lifesciences, food, beverage &tobacco, household & personal products, consumer durables & more

Key deals last week

There were 11 deals worth $381.71million and 2 exits in the last six daysended September 04, 2019

68

Investor & target Stake (%) Value ($ mn)

100

42NA

NA

14

NA 5

300

75 105 109 91 86 86 84Dealvolume

3,409

5,618

2,3921,403

3,054

Feb '19 Mar '19 Apr '19 May '19 Jun '19 Jul '19 Aug '19

3,7194,628

Top five PE deals this yearIn the largest deal this year, Brookfield invested $3.67 billion in TowerInfrastructure Trust. This was followed by Brookfield's $1.82-billion investment inPipeline Infrastructure Ltd and GIC's and others $1.15-billion bet on GMR Airports

Investor Investee Stake (%) Deal value ($mn)

Brookfield Asset Management Tower Infrastructure Trust

Brookfield Asset Management Pipeline Infrastructure

GIC, SSG Capital Management HK GMR Airports

Baring Asia Private Equity Fund VII NIIT Technologies

GIC, Abu Dhabi Investment Council Greenko Energy Holdings

3,6663.9

28.4

22

NA

1,824

824

1,153

Snapshot of PE activity & deal appears on the first Thursday of every month Source: VCCEdge

Liquidity events/exits this yearThe year has seen 95 exits. In the largest exit, Coffee Day Group sold 16.57% stakein MindTree for $389.34 million. Bain Capital and GIC sold stakes in Genpact for$360.1 million & $324 million

M&A2.96

Buyback 0.81

Exit type Deal volume Deal value ($mn)

Open Market 25 1673.03Initial Public Offering 2 684.1M&A 46 72.75Buyback 6 19.8Secondary Sale 16 5.76

NA

14

878

1 TRIL Urban Transport

Secondary Sale0.23

Initial Public Offering 27.86

1 Includes Lightspeed, DST, Altimeter, Hillhouse, Footpath 2 Includes Accel, TAL Education, Westbridge, others3 Includes Tiger, Insight Venture, Steadview4 Includes India Quotient-III, IndiaMART, InterMESH

GGV Capital1 Hiveloop Technology

Tiger Global Mgmt 2 Vedantu Innovations

Accel India Mgmt 3 Chargebee Inc.

Tiger Global Mgmt 4 Flipkart

Axilor Technology India Simply Vyapar Apps

%

Open Market68.14

‘We will see disruption in the CPGsector over the next 20 years’

You have been a pioneer in investingin the consumer space. How has thespace evolved in India since youbegan doing so, both from a marketperspective and that of an investor?We started in 2012 and raised Fund-Iin 2013. We were the first VC (venturecapital) fund to have ‘consumer’ inour name. It is the core of our DNA.We had a thesis based on the megatrends and themes we were seeingglobally and felt we would seeunprecedented opportunities fornew brands, insurgent and chal-lenger brands, to create new cate-gories and disrupt existing ones.

So much has changed but Iexpected more to change. From aninvestor’s perspective, we have moreVCs dedicated to this space, includ-ing Kanwal at Fireside and Nikhil atSixth Sense. We have also seen thefirst wave of insurgent brands suc-ceed in the market, including Veeba,Epigamia, The Moms Co, SuzetteKitchen Garden, Sleep Owl andEazydiner. This is giving confidenceto other entrepreneurs to launchinsurgent brands.

Over the next 20 years, we expectto see more fragmentation in brandsand large incumbents lose marketshare to the newer, more relevant,brands. This is only the startof a long-term shift in the con-sumer packaged goods (CPG)landscape. We saw disruptionin the (information) technolo-gy sector over the past 20years and we will see disruption inthe CPG sector over the next 20 years.

How have the first two funds done interms of exits and returns? We do not disclose detailed perfor-mance data. What I can say is thatour $12.5-million first fund hasreleased exits totalling more than $60million and distributed more than$45 million. And, the fund still haslarge positions in some very success-ful companies. So, I hope my LPs arehappy. The average life of Fund-II isonly two years and it is too early tosay how they will eventually do. But,we have great brands in that portfo-lio, too — Raw Pressery, Epigamia,

The Moms Co, Sleepy Owl, Arata andGoa Brewing, to name a few.

Do you take some learnings fromthese to the third fund?We continuously look to refine ourprocesses and strategy but, at amacro level, we want to do more ofthe same.

How have your investee brandsgrown since you invested? What havethey done well in?

Keep in mind that most ofthese companies are still veryyoung in terms of a CPGbrand’s life. It takes 10 years tobuild a brand and you see thevalue over an ever longer time.

So, how do we measure success whenyou ask, What have they done well?We look at performance versus bud-get, market acceptance, strong posi-tioning, market leadership and ifthey raised new rounds of capital tocontinue growing.

Too many great companies. Someexamples:nVeeba: fastest growing condimentsbrand and just entered the HFD seg-ment with V-Nourish. Very strongdistribution. Very strong brandrecall.nEpigamia: already India’s #1 Greekyogurt brand. Considered by con-sumers a market innovator. Danonequit the category in 2019, stating itwas difficult for them. And, yet, via

Danone Ventures, took a stake in Epi -gamia, validating the firm’s playbookand success in new product develop-ment (NPD). Category creator.nSleepy Owl: India’s first and #1ready-to-drink (RTD) cold brew cof-fee brand. Category creator.nSuzette Kitchen Garden: Marketinnovator and fastest growinghealthy eating QSR brand. Loved byconsumers.nThe Mom’s Co (TMC): Along withFireside’s Mama Earth, TMC isregarded as an innovator in baby andchild personal care. Category creator.nRaw: India’s #1 fresh cold pressjuice brand. Very strong distribution.Category creator.

Do you tend to exit early? If an exitmeets a return threshold, do you takeit or wait to create more value? Exit decisions are made case by case.We invest with a view to hold for 10years. That is how long it takes tobuild a brand. We are long-term part-ners. Having said that, we assess exitoptions and opportunities continu-ously, to assess the return scenarios.So far, we have had three exits. Red m -art — acquired by Alibaba’s Lazada;OYO — sold our stake in a secondary;Zipdial — acquired by Twitter.

India is facing a slowdown. How hasit hurt your investee brands? Whatare they doing to beat it?

India is slowing down. We see this inthe most recent Gross DomesticProduct figures. I am also seeing thatin the numbers of late-stage privateand public companies, where theyhave significant market share. So far,at most of our early-stage companies,and remember these are doing rev-enues of ~8-25 lakh a month, we havenot yet seen a material slowdown.Our larger companies are also notseeing a material slowdown. Why?Probably because we are still openingnew markets and expanding point ofsale distribution. However, we arebraced for a slowdown.

I often find DSG & Saama Capital orDSG & Sequoia co-investing. Or, aSequoia or Verlinvest coming in as anew investor into the companies youinvest. Is this by design or acoincidence? This is not design or method. Sequoiaand Saama have different strategies,different fund sizes and differentcore DNA. Both are top-tier firms.DSGCP is focused only on consumerbrands. Saama has a broader man-date covering technology and con-sumer but very similar ticket size.Sequoia have an even broader man-date and geography spread.

What we do have in common is ourbelief in the future of insurgentbrands. And, we were among the firstto look at this sector. We exchangednotes, ended up often meeting thesame company and are workingtogether to build a CPG venture eco-system. Verlinvest is a later-stage growthinvestor and a LP in DSGCP. They area natural first port of call for compa-nies that have successfully navigatedthe venture stage and need capital fortheir growth stage. Verlinvest havecome in as investor in Sula, which Idid pre-DSGCP, Veeba and Epigamia.With Saama, we have come in togeth-er at Goa Brewing and The Moms Co;they have come in after us at Eazy -diner and Veeba and we came in afterthem at Chai Point. Same with Seq -uoia; they invested after us at OYO,we invested after them at Raw Pre s s e -ry and we invested together in Vybes.

Last week, DSG Consumer Partners closed its third fund at $65 million. It's first $12.5-million fund has released exits of more than $60 million and distributed more than $45 million. Founder and Managing Director DEEPAK I SHAHDADPURI tells Ranju Sarkar how the success of ‘insurgent’ brands such as Veeba, Epigamia, Sleepy Owl and Eazydiner is encouraging other entrepreneurs to launch more of these. Edited excerpts:

Mark Twain said “abanker is a fellowwho lends youhis umbrellawhen the sun is

shining, but wants it back theminute it begins to rain”. But a lothas changed since thehumourist’s days – it’s bankerswho are now getting drenchedand none of them are singing.And the discount in the reputa-tions involved is sought to bepart-arrested with the help offorensic firms.

Banks, private equity (PE)firms, and non-banking financialcompanies (NBFCs) are all set touse forensics in a big way. TheReserve Bank of India’s (RBI’s)June 7, 2019, circular, which placesthe onus squarely on banks to getgoing on resolution of bad loans,the proposed amendments to theInsolvency and Bankruptcy Code(IBC), and specific sections of it onthe protection of value will all playa role leading to the enhanced useof forensics. The other factor is that the central bank is workingout a new set of norms to identifyand set right red-flagged accounts (RFAs) .

The SherlocksJagvinder Brar, co-head-forensicinvestigation at KPMG (India) willtell you his firm employs over a1,000, who are specifically intothis. And, this summer saw over70 firms queue up to be on theIndian Banks’ Association’sempanelled list of forensic audi-tors. These included the likes ofAlvarez & Marsal (A&M), Kroll,Ernst and Young, BDO India, PwC,BMR Advisors, KPMG andDeloitte; that is, too, many home-bred firms which never or rarelymake it to the headlines.Obviously, there is money to bemade when you help out thosewho are out in the rain. It is alsoin some ways as shrouded as whatit seeks to uncover – you will notbe let in on these firms’ billingswhich can run up to

be a tidy amount.Says Tarun Bhatia, managing

director (business intelligenceand investigations practice) atKroll (one of the world’s leadingforensic firms): “It would not becorrect to look at the professionalfees charged for due diligencefrom a basis points perspective. Adue diligence helps in loweringnon-performing assets (NPAs) andconserve capital rather than useit for provisioning. Thus, the actu-al saving is far more significantthan the initial cost.”

The current annual fee-pool isestimated to range between ~600and ~1,000 crore (it depends onhow the business is sliced anddiced). It is nearly half of what theinvestment banking (i-banking)firms in the country carve out everyyear among themselves. And justlike in i-banking, it is hard to get

good deck-hands.“There is a severe shortage of

detective minds who are welltrained, experienced and have aknowledge of finance, law, andabove all, a solid presence of mind”,says Brar. Unwittingly, it is anotherway of putting across that it is theabsence of mind by those who doleout money which has landedBhatia’s and Brar’s brotherhood ina sweet spot – bigger the mess, big-ger is the buck to be made.

RBI’s Annual Report for FY19says the number frauds went upby 15 per cent to 6,801 cases andthe amount involved by 73.8 percent to ~71,542.93 crore (99.2 percent of this was accounted for bystate-run banks). The average lagbetween the date of occurrenceand its detection was 22 months;the average lag for large frauds —₹1 billion and above — amounting

to ₹522 billion reported in thisperiod was 55 months. Simply put,the current amount due to fraudsis more than the just announced~70,000 crore recapitalisationplan for state-run banks.

The central bank’s FinancialStability Report (FSR) of June 2019mentions that as on end-December 2018, you had 204 bor-rowers who had been reported asfraudulent by one or more banks,but these were not classified assuch by others with an exposureto the same borrower. You havenon-uniformity in the processesto identify RFAs based on earlywarning signals; many banks wereunable to confirm RFA taggedaccounts as frauds or otherwisewithin the prescribed period of sixmonths.

The central bank refers to thedata from its Central Repository

of Information on LargeCredits’ (CRILC) FY19, which

shows the RFAs reported bybanks exceeded the stipulated

period in 176 cases – or well overtwo-thirds of the instances. Thetime lag between the date ofoccurrence of a fraud and itsdetection is also significant – thegenesis of 90.6 per cent of whatwas reported in FY19 lay betweenFY01 and FY18. And the reasonscited included delays in comple-tion or inconclusive findings offorensic audits.

It’s not elementary thoughSays KV Karthik, partner-DeloitteIndia: “The imminent pressure torespond to instances of potentialregulatory non-compliance, sus-pected fraud, malpractice andmisconduct alone should not bethe driver for parties to appoint aforensic auditor”. It’s his way ofsaying there is no point shuttingthe barn door after the equine hasbeen bolted. “Forensic audits arebeneficial if undertaken proac-

tively to curb frauds andstrengthen internal controls,which in turn can lead to betterfraud risk management”, he adds.

What few will admit to is thatthere is still reluctance on thepart of banks (largely state-run)to use these firms. While theyincreasingly use them for duediligence on third parties (to geta sense of vendors, customers,employees and competitors ofcompanies), “they are still faraway from doing what is actuallyrequired when taking on largefinancial exposure. The due dili-gence remains less than thor-ough and prone to many weak-nesses which the unscrupulousborrowers are able to exploit, asmany have done in the past”,points out Brar. What’s more, asBrar adds: “It is generallyobserved that foreign investorsand PE firms perform a moredeep, detailed, and thoroughdiligence than state-run banks”.And cost alone is not at playhere; it is also a misplaced sense

of urgency.Dhruv Phophalia, managing

director at A&M, concedes that“these services (forensics) comeat a cost and play an importantrole in helping banks to identifyrisks and preserve capital.” Butthen, “in some instances, banksexpect results quickly which maynot be possible when you arehandling large credits and signif-icant situations”.

You have to be brave at somelevel too. “Banks have been work-ing with Kroll in identifyingunencumbered assets of borrow-ers in India while NBFCs haveused our services at the pre-lend-ing stage seeking a detailed rep-utation and investigative due dili-gence on the borrower”, saysBhatia. What he will not tell youis that there is a fear that if theforensic audit throws up some-thing, it could lead to a sea of red faces.

After all, even within a consor-tium, banks had not shared creditinformation; or even the forensicaudit report at times. It may notstrike you, but Mint Road’sFebruary 12, 2018, circular (nowreplaced with June 7 circular) wasin great part due to the footsieplayed by banks on dud loansthough the words “consortium”or “multiple banking” found nomention in it. Some banks treatedan account as an NPAs in a quar-ter while others didn’t – evenwithin the consortia. And this isdespite CRILC being in place andthe extant norms on RFAs.

That said, for forensic firms,the days ahead will be good. Inthe main, due to the IBC’s provi-sions on fraudulent or wrongfultrading (Section 66), avoidancetransactions (Sections 43 to 51),and the protection of businessduring the insolvency period,resolution professionals (RPs)would be expected to unearthtransactions of questionablenature and report these to theadjudicating authority for claw-back. “Currently, forensic profes-sionals are called upon by the RPsto help identify these transac-tions. However, for an effectivescrutiny, forensic professionalsneed timely access to all relevantdata, which in our experience canbe challenging at times”, saysKarthik.

What can be safely concludedis that not many bankers will getan umbrella soon; that makes thebusiness of forensics audits allthe more exciting.

What has been the bank’s strategyto reduce losses?In FY19, the bank didn’t get capitalinfusion from the government. Wemoved cautiously in a planned andsustained manner. That way, wewere able to manage our capitalvery well. We also reduced theexposure to high-risk weightedassets. On the liabilities side, weshed bulk deposits of nearly ~8,000crore in the last one year andreduced our interest payout. Wecontrolled operational expensestoo. We also raised about ~100 crorecapital from our employeesthrough the employee share pur-chase scheme.

What has been the feedback fromthe recent consultative meetingsat the branch level?This is not the first time the bankis conducting such an exercise. Wehad introduced a similar exerciseat the zonal level this year. Hence,we had already poised ourselvesfor this kind of discussions.There are some stress sectors, andat the same time, those where weneed to look for growth also. Wecannot take our hands off the agri-culture, and micro, medium andsmall-scale sectors which comewith their own challenges. Butdespite these, ways to expand theportfolio in a sustainable mannerwas discussed.

How do you propose to addressthe issue of non-performingassets (NPAs) in agriculture?Punjab is an important area ofoperation for the bank. I am find-ing stress in agriculture, and it issignificant. We are studying itclosely and want to address this in

a proper manner, as it cannot beaddressed just by recovery meas-ures. That is why we have initiateda study with the Punjab AgricultureUniversity to look into the rootcause of this stress. Hopefully, wewill get some very useful inputs inthe next six to eight months.

What is your view on repo-linkedinterest rates; and slowtransmission of rates in general?We are thinking of the product andwill take a call on this shortly. Fora bank of our size, we have donereasonably well on this front (inter-

est rates). We have reduced themarginal cost of funds-based lend-ing rate by around 35 basis pointsand are aligning ourselves withwhatever is possible. We may haveto move completely to externally-linked deposit rates in future tomake this (transmission) faster.Although, at the moment, there arechallenges on that front too.

Given the slowdown in theeconomy, do you expect freshslippages in NPAs in this quarter?The slippages were happeningmajorly in the non-banking finan-

cial companies’ (NBFC) sector, andbanks have already taken a hit. Inthis quarter, one or two accountswould need restructuring. It maynot be as intense as in the previousquarters, but some restructuring islikely to happen. May be in thisquarter, we will see some stress,particularly among NBFCs.

What is your mix of the corporateand retail loan portfolios, and areyou looking to rebalance it?The corporate portfolio is about 58per cent, while retail makes up therest. We are trying to slowly rebal-ance the portfolio. As of now, I donot have any indication in the econ-omy that credit growth is imminent.All of us – the government, bankingand industry bodies — are deliber-ating on it. Internally, we have notset any credit growth target, but itwill be based on the availability ofcapital. We are looking at very mod-erate capital growth. The ability ofcompanies to survive the cyclicalslowdown is important. We have amix of 58:42 (in corporate and retaillending) and trying to grow in well-rated companies, adding morenumbers.

And your capital raising plans?Hopefully, we will get some capitalfrom the government. We had twoto three rounds of discussions withthe government on this issue. Wealso plan to raise ~500 crore by wayof a qualified institutional place-ment during this financial year.

What is the bank’s strategy on thedigitisation front?We are doing heavy investment inIT revamp. By next June, the entireprocess will be completed. It willchange our systems and processes,and add much more efficiency toit. Also, we are adding more peoplein the IT vertical.

Is the bank a candidate formerger?I believe this is a strong bank witha very strong regional presence.This year, we completed 112 yearssince our establishment. We havestrong presence in Punjab,Haryana, Uttar Pradesh, and Delhi.We are effectively addressing issuesrelated to losses.

PRIVATE BANKS ON TOP

Source: RBI; data taken is of 6 large public sector banks (PSBs), 13 medium-sized PSBs, 4 new private banks and 8 oldprivate banks.

‘Stress in the agriculturesector is significant’

S HARISANKARManaging director and chief executiveofficer, Punjab & Sind Bank

Until a few months back, Punjab & Sind Bank was seen as a possible merger candidate with one of the larger state-run banks. It has reduced losses significantly to ~30 crore in Q2FY20 from ~398 crore in Q2FY19 and gone about its business without capitalinfusion from the government. S HARISANKAR, the bank’s managing director and chief executive officer (MD & CEO), spoke to NAMRATA ACHARYA on its positioning and some of the imminent challenges it faces. Edited excerpts:

Catch me if you can

“WE HAVE NOT SET ANY CREDIT GROWTH TARGET. THE ABILITY OFCOMPANIES TO SURVIVE THE CYCLICAL SLOWDOWN IS IMPORTANT. WEHAVE A MIX OF 58:42 (IN CORPORATE AND RETAIL LENDING) AND TRYINGTO GROW IN WELL-RATED COMPANIES, ADDING MORE NUMBERS”

Return on assets is calculated as net profit/average assets. Return on equity is calculated as net profit/averageshareholders' fund

Net interest margin is calculated as net interest income/average assets. Cost to income ratio is calculated asoperating costs/revenues; Revenue is calculated as sum of net interest income and other income

THE LEADERS AND LAGGARDSReturn on assets

2

1

0

-1

-2FY15 FY16 FY17 FY18 FY19

1.8

1.10.8

0.4

-0.3

0.7

-0.2

-1.8

0.60.3

Private-New Private-Old IndustryLarge PSBs Medium-sized PSBs

Return on equity

20

0

-20

-40FY15 FY16 FY17 FY18 FY19

5-4-4

-31

Private-New Private-Old IndustryLarge PSBs Medium-sized PSBs

1017

5

11109

Revenue is calculated as sum of net interest income and other income

Cost to income ratio Private-New Private-Old IndustryLarge PSBs Medium-sized PSBs

Net interest margin

55

50

45

40FY15 FY16 FY17 FY18 FY19

4

3

2

0FY15 FY16 FY17 FY18 FY19

47

504953

Private-New Private-Old IndustryLarge PSBs Medium-sized PSBs

4143

48

55

5154

Total revenue/total employeesPrivate-New Private-Old IndustryLarge PSBs Medium-sized PSBs

Employee cost/total employeesPrivate-New Private-Old IndustryLarge PSBs Medium-sized PSBs

555045

403530

250

FY15 FY16 FY17 FY18 FY19

27

34

44

2.2 2.2

2.5 2.42.62.6

2.8 2.9

3.53.6

30 35

3733

4342

55 14

12

10

8

6FY15 FY16 FY17 FY18 FY19

7.87.98.6

8.9

10.1

12.9

11.0

10.6

6.5

The business of forensic audits is expected to boom as the RBI is set to revise norms to arrestfrauds even as financial players increasingly depend on these services, reports Raghu Mohan

n Share in total fraud n Share in overall bank credit

(In %) 120

100

80

60

40

20

0

STATE-RUN BANKS’ SHARE IN FRAUDS AND CREDIT

Jun-18 Sep-18 Dec-18 Mar-19

85.1

63.7

89.2

63.387.5

62.8

96.0

60.9

3.2

56.6 30.9

9.00.3

n Bills n Term loans - other n Term loans - housing loan n Cash credit n Others

Privatebanks

(In %)

1.5

18.9

19.6

0.7

59.4State-run

banks(In %)

Source: Financial Stability Report, RBI, June 2019

CASH CREDIT IS THE FOUNT OF FRAUDS FOR STATE-RUN BANKS; IT IS TERM LOANS FOR PRIVATE BANKS

WILL ANTI-FRAUD COSTSGO UP AFTER TWO YEARS?

AVERAGE TIME TAKEN TOUNCOVER FRAUDS

12 to 24months

6 to 12months

Less than 6months

Yes No Can’t say

7%

54%

25%

21%

21%

71%

In (%) In (%)

In (%)In (%)

(~ lakhs) (~ lakhs)

The gap in the overall performance betweenpublic sector and new-age private bankswidened further in FY19. Return on assets andreturn on equity for the large state-run banksstood at 0.3 per cent and four per cent, respectively,while the same for medium-sized among themwere both at negative 1.8 per cent and 31 per centrespectively. In comparison, for new-age privatebanks, the figures were at 1.1 per cent and 10 per cent.

A similar narrative was seen in the case of the cost toincome ratio and net-interest margin, too, whereinstate-run banks trailed their new-age rivals.Productivity of employees is another worrying factor —the cost per employee is the highest in large public sectorbanks and it is growing faster than the revenue peremployee; the new private banks have contained costper employee.

Source: Deloitte’s Indian Banks’Fraud Survey

21 MONEY MANAGER>

MUMBAI | THURSDAY, 5 SEPTEMBER 2019

22 MUMBAI | THURSDAY, 5 SEPTEMBER 2019 1>

Delhi slips 6 notches in world’smost liveable cities rankingThe national capital hasdroppedbysixplacestorank118th on a list of the world’smost liveable cities due toincrease in cases of pettycrimes and poor air quality,an annual survey by theEconomist Intelligence Unit(EIU)showedonWednesday.

While New Delhi regis-tered the biggest decline inAsia, Mumbai also fell two

places since last year to rank119th on the list topped byVienna (Austria) for the sec-ondyear.TheEIUalsoflagged“an escalation in abusesagainst journalists in recentyears”inIndia,citingadeclinein the country's ranking inReporters Without Borders'Press Freedom Index whereIndia now sits in the bottomquartileofcountries. PTI

India, Pakistan agree onvisa-free travel to KartarpurIndia and Pakistan onWednesday agreed on visa-free travel by Indian pil-grims to Gurdwara DarbarSahib in Pakistan using theKartarpur corridor, offi-cials said.

However, during themeeting between the twosides at Attari in Punjab'sAmritsar district, Pakistaninsisted on charging a serv-ice fee for allowingpilgrimstovisit thegurdwara,whichwas not agreeable to theIndian side.

Pakistanhas also shownits unwillingness to allowthe presence of Indian con-sularorprotocolofficialsonthe gurdwara premises.

Pakistan side was urgedto reconsider its position,officials said.

SCLDas,JointSecretary

with the Ministry of HomeAffairs, said themeeting fellshort of finalising the draftagreement on the plannedcorridor.

Pakistan delegationleader Mohammad Faisallater said, “Two or threepoints of the draft agree-ment are left to be agreeduponas therehasbeencon-sensus on the remainingones.”Officials said the twosides agreed on visa-freetravel of Indian pilgrims toGurdwara Darbar Sahib inPakistan without anyrestrictions.

Persons of Indian originholding OCI (OverseasCitizenship of India) cardtoo can visit the gurdwarausing the Kartarpur corri-dor, official sources said.

PTI

Amidst rising debt whichhas crossed ~25,600 crore,andfallingsales,MacrotechDevelopers, formerlyLodha Group, has givenpink slips to around 400employees.

However, a spokesper-son for the largest realtyplayer in India attributedthe lay-offs toperformancereviews.

The retrenchments atthe company promoted byMumbai BJP chief Mangal

Prabhat Lodha come at atime when the economicgrowth has dipped to a six-year low of 5 per cent,which has ledmany to fearif the spectre of job lossesacross sectors awaits next.

The Lodha group com-panywasdowngradedwitha negative outlook by twoglobal ratings agencies lastmonth, Moody's Investorsand Service and FitchRatingsonconcernson liq-uidity and falling sales. PTI

WORLD TOURISM INDEX

Fromasub-regionalperspective,Indiahasbetterairinfrastructure(33rd)andgroundandportinfrastructure(28th),internationalopenness(51st)andnatural(14th)andculturalresources(8th).

Indiahasbeenranked34thonworldtravelandtourismcompetitivenessindex,drivenbyrichnaturalandculturalresourcesandstrongpricecompetitiveness,aWorldEconomicForumreportsaidonWednesday.India'srankingimprovedfrom40thto34th,thegreatestimprovementover2017amongthetop25%ofallcountriesrankedinthereport

INDIA MOVES UP 6 PLACES TO 34TH

Lodha Group lays off 400 people

TOP TRAVEL DESTINATIONS IN ASIA AND AUSTRALIASCOREDIFF.FROMBENCHMARKAVG.

DIFFERENCEFROM2017

Global Economy Score Rank Growth Regional Globalrank (%) (%) (%)

4 Japan 5.40 0 2.10 29.10 39.60

7 Australia 5.10 0 0.80 23.60 33.60

13 China 4.90 2 3.20 17.20 26.70

14 HongKong 4.80 -3 -1.10 15.70 25.10

16 SKorea 4.80 3 4.70 14.90 24.30

17 Singapore 4.80 -4 -2.00 14.40 23.70

18 NewZealand 4.70 -2 1.40 14.10 23.40

29 Malaysia 4.50 -3 0.40 8.50 17.30

31 Thailand 4.50 3 2.60 8.10 16.90

34 India 4.40 6 5.70 6.30 14.90Source: World Economic Forum, 2019 Compiled by BS Research Bureau

Peoplehelpmoveacar stuckona floodedstreet inMumbaionWednesday PHOTO: KAMLESH PEDNEKAR

MAXIMUM CITY COMES TO A STANDSTILL Rains hit Mumbai airport operationsANEESH PHADNISMumbai,4September

Operationsat theMumbaiairportwerehitonWednesdayasheavyrainfall andfluctuating visibility caused delays.

Flights of IndiGo, thelargest domestic airline, wereimpacted the most as water-logging in various parts of thecity and suspension of subur-ban rail network resulted inpilots, crew and ground staffnot reporting towork on time.

Passengers took to social mediaafter they were made to wait insidearriving aircraft for up to two hours astherewerenogroundpersonnel tohan-dle the plane.

Mahindra & Mahindra ManagingDirectorPawanGoenka toowasamong

the passengers impacted by delays ashis Air India flightwas late.

“Flight to Delhi from Mumbaidelayed by 2 hours as the crew couldnot reach the airport in time due torain,” Goenka said in a tweet.

In a statement, IndiGosaid, “Due to the unprece-dented non-stop rains inMumbai, there are close to30 flights on ground. As aresult of flooding and waterlogging on roads and the

subsequent traffic jams, many of ourground support staff, crew and cap-tains have not been able to reach theairport on time.”

“As a result, the departure flightshave also been held up. We are doingeverything possible to restore nor-malcy.”

People stuck inarriving planesas airport stafffail to reachwork on time

India’s biggest arms supplier ready for moreAJAI SHUKLANew Delhi, 4 September

Ontheeveofhis two-dayvis-it to Vladivostok for a sum-mitmeetingwithPresidentVladimir Putin, Prime

Minister Narendra Modi proposedcombining Russia’s high technologywith India’s low production cost tobuildweaponrymore cheaply. This isalreadyhappening,withMakeInIndiacontractsworthover $12billion.

Kamov-226ThelicoptersIn 2015, on Putin’s personal request,Modi agreed to buy 200 Kamov-226Tutility helicopters for the Indian AirForce (IAF) and the Army. The$2-billion deal involves building 140Kamovs in Hindustan Aeronautics(HAL),after its jointventure (JV)part-ner,RussianHelicopters, supplies thefirst 60, fully built.

With this in hand, RussianHelicopters is fielding a navalisedKamov-226TintheIndianNavy’s ten-der for 111 naval utility helicopters.With the production facilities amor-tisedoverthefirst200Kamovs, theJVcouldofferthenavyacompellingpriceof around$1billion.

KalashnikovAK-203India andRussiahave agreed tobuild750,000 Kalashnikov rifles for theArmy. In March, Modi inaugurated aJV inKorwa, nearAmethi, whichwillbuild theAK-203 rifles, at a likely costofabout$1billion.TheJVincludestheOrdnanceFactoryBoard,Kalashnikov,and Russia’s state-owned export

agency,Rosoboronexport (ROE).

Krivak-IIIfrigatesInOctober2018, theCabinetapprovedthepurchaseoffourRussianKrivak-IIIclass frigates.Thefirst twofrigatesarelyingpartiallybuilt inYantarShipyard,Russia and India will pay about $1.5billion tocomplete them.Meanwhile,a contract isbeingnegotiated tobuildthe remaining two Krivaks in GoaShipyard. India already operates sixKrivak-class frigates.

BrahMosmissilesLast December, the Ministry ofDefence (MoD) announced that theIndo-RussianBrahMoswouldarmthefournewKrivak-III frigates.

Each warship’s BrahMos system,including the “vertical launch sys-tem” andmissiles on board,will cost~1,250 crore ($175million).

BrahMosmissilesarealsoonorderfor the four Visakhapatnam-classdestroyers and the seven Project 17Afrigates under production. The costwill amount to $2.6 billion.

Igla-SLastNovember, theMoDannouncedithadchosenRussia’s Igla-Smissileasthe “very short range air defence sys-tem” for the Army, Navy and IAF.Russia’s export agency ROE bid$1.5billionfor5,175 Igla-Smissilesand800 launchers, beating out Sweden’sSaab andFrench firm,MBDA.

Sukhoi-30MKIWithHALNashikclose tocompletingitscontracttobuild222Sukhoi-30MKI

fighters, negotiations are under wayto build another 18 aircraft. At HAL’sdelivery price of $65million for each,that will cost the IAF $1.15 billion.Delivery couldbe completedby 2022,increasing the IAF’s Sukhoi fleet to 14squadrons.FirmagreementsbetweenMoscow and New Delhi underlie theMake In India productionmentionedabove.However,evenlargerpossibili-ties lie in three more procurementsbeingprocessed.These include:

Project75-IsubmarinesRosoboronexport is pursuing a navytender, worth some ~50,000 crore ($7billion) for sixnewsubmarinesunderProject 75-I. The Navy’s 30-year sub-marine plan calls for building 12 ves-sels with foreign technology, and the

next 12 indigenously. After buildingsixScorpenesubmarines,Project 75-Iwill be the last chance to obtain for-eign technology.

Russia has promised liberal tech-nologytransfer tobuild itsAmur-classsubmarines in India. It is competingfor the contract with ThyssenkruppMarineSystemsfromGermany,NavalGroup from France and KockumsfromSweden.

MediumfightersAfter the2004tender for 126mediumfighterswasabortedwiththepurchaseof36RafalefightersfromDassault, theIAFinitiatedafreshacquisitionfor114mediumfighters.TwoRussianfightersare competing — the MiG-35 andSukhoi-35. Meanwhile, last year the

navy initiated the procurement of 57multi-rolecarrierbornefighters for itstwo indigenous aircraft carriers. TheMiG-35 is competing for this, too.

These are the biggest on-goingIndianprocurements, togetherworthanestimated$18-25billion.

However, an obstacle to India’sdefence contracts with Moscow isan American law — CounteringAmerica’s Adversaries ThroughSanctionsAct (CAATSA). This bindsWashington to impose sanctionsagainst countries that engage in “sig-nificant transactions”withRussian,Iranian and North Korean entities.While US President Donald Trumpcan grant New Delhi a waiver fromCAATSA, there is no certainty thathe would.

$12billionofMakeInIndiaprojectsinhand,Moscoweyeing$25billionmore IInnddiiaa,,RRuussssiiaaiinnkkeedd

1155aaggrreeeemmeennttssaannddddeecciiddeeddttooeexxppaannddbbiillaatteerraallttrraaddeettoo$$3300bbnnbbyy22002255

ThenationsagreedtoopenamaritimeroutebetweentheportsofChennaiandVladivostokandaMemorandumofIntentwassigned

ModisaidRussiawouldhelptrainIndianastronautsforthemannedspacemission

IndianfirmsH-EnergyandPetronetLNGsignedagreementstobuyLNGfromRussiangasproducerNovatekonlong-termcontracts

ThenationssignedonaroadmapforcooperationinthehydrocarbonsectorwithMoscowagreeingtolookatsupplyingcokingcoalfromitsFarEastandthenationsexpandingenergypartnershipinhydroandthermalpower

Thenationswillholdaforumontigerconservationin2020

OTHER DEALSStatus Weaponssystem Quantity Cost

($bn)

Firm Kamov226Thelicopters 200+111 3

AK-203Kalashnikovassaultrifles 750,000 1

Krivak-III frigates 4 3

BrahMosmissilesforwarships 15ships 2.6

Igla-SVSHORADS 800 1.5

Sukhoi-30MKIfighters 18 1.15

Total 12.3

Upfor Project75-Isubmarines 6 7grabs

MediumfightersforIAFandnavy 114+57 18-25

Total 25-32

DEFENCE PACT WITH RUSSIA

PrimeMinisterNarendraModi withRussianPresidentVladimirPutin(extremeleft)at the ‘Zvezda’ShipbuildingPlantduringhis two-dayvisitatVladivostokonWednesday PHOTO: PTI

PRESSTRUSTOF INDIANewDelhi, 4 September

Jaish-e-Mohammed chiefMasood Azhar, Lashkar-e-Taiba founder HafizMuhammad Saeed, MumbaiterrorattackaccusedZaki-ur-Rehman-Lakhvi and fugitivegangster Dawood IbrahimwereonWednesdaydeclaredindividual terrorists by thegovernmentunderanewanti-terror law.

The decisions have beentaken nearly a month afterParliamentapprovedacrucialamendment toTheUnlawfulActivities (Prevention)AmendmentAct, 1967.

They are the first to bedeclared terroristsunder thenew anti-law, a home min-istry official said.

According to the UAPA,earlier only a group could bedeclaredasterroristorganisa-tion.TheamendmentsmadeintheActallowsgovernmentto declare even an individualas terrorist.

These fourare involved interrorist attacks in India andhavebeendesignatedasglob-al terrorists under UnitedNations. "Earlier when terroristorganisationswerebanned,the individuals associatedwith them simply changednamesandcontinuedtocarryoutterroristactivities,"anoffi-cial staterment said.

Azhar, Saeed,Dawooddeclaredterrorists