The Global ANALYST - July 2013

1 THE GLOBAL ANALYST | JULY 2013
July 2013 Price: Rs. 100 A BUSINESS & FINANCE MONTHLY

INTERVIEW
with
Dr. Paritosh Basu
Group Controller,
Essar Group
p24
+
WOMEN IN
BUSINESS
Anu Acharya
CEO, Mapmygenome
p48
+
START-UP XPRESS
GetMeFood.in
p17
Leadership
Deficit
Indo-Japan
Relationship
Ethics in
Business
RILs Investment
Spree
Nifty Fifty
Survivors!
p21 p32 p36 p58 p54
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TedevastationcausedbytheoodfuiyinUttaiakhandhasbeenheait-wienching.Hundiedsofpeoplelosttheii
lives,whilethousandotheisstiuggledtosavethemselvesfiomthecloudbuistandincessantiainthatledtodeadly
oodsthatstiuckthetempletownofKedainathandseveialotheipilgiimagesinthenoitheinstateonthatfateful
nightofJune16.Teplightandtheoidealofthoseaectedbythenatuialdisasteicouldbewoisethanonecan
think.Whilethegoveinmenthasdonecommendablewoik,thedamageisiiiepaiableandisgoingtohauntthena-
tionfoialongtimetocome.Itiaisesaquestion:couldthelosswouldhavebeenaveitedoiatleastminimized?Ai-
easlikeUttaiakhandaiepionetonatuiesfuiy,afactwhichhasbeenknownsincelong.Itisshockingthenhowthe
ocialdisasteimanagementeoitsweiefoundwanting.Butasitseems,itismoieacaseofhumangieeddestioy-
ingtheeaithsenviionment.Withgiowingpollutionandunhindeiedconcietizationofouitownsandcities,weve
haveshownscantiegaidfoiouinatuie.AnddisasteisliketheonewitnessedinUttaiakhand,Tsunamiin2004and
innumeiableoodsthatcauselossofhumanlives,piopeities,animallives,anddamagescaiceinfiastiuctuie,aie
staikiemindeisofhownatuiemakesuspayfoiouiblatantdisiegaidfoithehealthofouienviionment.Isitthe
iesponsibilityofthegoveinmentalonetotakestepstotackleissuessuchasclimatechangeandglobalwaiming,
whichposesignicantthieattotheplanteaith,oishouldnteachoneofusmakeeoitsinwhateveilittlewayto
helppiotectouienviionmentandthusstiengthenthegoveinmentsinitiatives.
Wecanillaoidnottoleainalessonoitwofiomtheiecenttiagedyandwoiktowaidsthesafetyofouien-
viionment. While individual eoits aie undoubtedly iequiied, coipoiate sectoi can play an even biggei iole as
faiasIndiasdisasteipiepaiednessisconceined.Tiscanbedonebyadoptingvaiiousmeasuies.Onesuchstep
couldbetoaimtoimpiovethegieencoveiinandaioundtheiisuiioundings.Infact,theycanalsosponsoitiee
plantationschemeslaunchedbythelocalcityadministiation.Secondly,theoiganizationsshouldalsoencouiage
theiistatousecaiiybagsmadeofpapeiandstopusingplasticbags.Also,companiescanthinkofsettingup
aielieffundwhichcanbeusedtohelpthegoveinmentstepupieliefwoikduiingtimesofnatuialcalamitiesin
theaectedaieas.Piobably,thiscouldbemadeapaitofCSRsoastoencouiagegieateipaiticipationfiomthe
coipoiatesectoi.Tegoveinmentcouldalsoencouiagegoodcoipoiatecitizeniybyiewaidingsuchcompaniesin
teimsoffasteilicensing,easieitaxiefunds,etc.
Today,Indiaisgoingthioughatoughphase.Teeconomicgiowthisstagnating,thedomesticcuiiencyison
aconsistentdeclineandinationiemainsstubboin.Besides,thepaceoffoieigninowsisdeclining.Andthen
theieisaiisingwoiiy:thesuiginggoldimpoits.NeedlesstosaythatIndiansfancyfoigoldandgoldjewelleiyis
nowposingasubstantialthieattothestatesexchequei,goldaloneaccountsfoineailyatenthofIndiasimpoits
now.Andifthisciazefoitheyellowmetalcontinuesunhindeied,itwouldbeaheiculeantaskfoithegoveinment
tocuibthewideningcuiientaccountdecit.Given,cantcoipoiatesagaincomefoiwaidandencouiagestanot
topuichasegoldfiominvestmentpeispective,atleast.Teycanalsoguidestaonhowtosavetheiimoney,by
investing in alteinative instiuments such as equities, bonds, debentuies, mutual funds, bank FDs, etc. It might
soundstiange,butevenalittleeoit(incieatingawaienessabouthowgoldbuyingspieeamongindividualsis
dentinggoveinmentsnances)cangoalongwayinhelpingthecountiytackletheissueofballooningscaland
cuiientaccountdecitseectively.Wontitbeagoodideaifcoipoiatesalsomakesomeoftheissuesconceining
thenationapaitoftheiiagendaandcomefoiwaidinteimsofinnovativeideasandcontiibuteintheiiownlittle
waytomakeanimpact?Individualstoocanmakeadieiencebyplayingapait,howeveismall,inhelpingthena-
tiontacklechallengessuchasglobalwaiming,iisingCAD,etc
Itstimeweioseabovepeisonalinteiests,andstaitedtothinkaboutbiggeigoalssuchasenviionmentpiotec-
tion,betteimentofsociety,andimpoitantly,ouinationspiogiess.
Amit Singh Sisodiya
Disaster Preparedness
India needs it now more than ever
4 JULY 2013 | THE GLOBAL ANALYST
48 Anu Acharya
CEO, Mapmygenome and
Founder, Ocimum Biosolutions
53 Dr Derek Scissors
Senior Research Fellow
The Heritage Foundation, US
60 John Portman IV
Vice President,
Capital Markets,
Portman Holdings, US
12 Deepak Nighoskar
Managing Partner
Avizare Solutions
22 Brian Moriarty
Director, Business
Roundtable Institute for
Corporate Ethics, US
24 Dr. Paritosh Basu
Group Controller,
Essar Group
vo:ou
DNagavenderRao
mnnoovo:ou
NJanardhanRao
vo:ounouvc:ou
AmitSinghSisodiya
novsouvsonuo
Dr.ParitoshBasu
GioupContiollei,EssaiGioup
PrashantGupta,IIT-K,IIM-L
CEO-Eduniivana
NHarinathReddy
Advocate&SenioiPaitnei
H&BLawOces,Hydeiabad
SanjayBanka
AdditionalVicePiesident(Finance)
ViomNetwoiksLtd,Guigaon,India
DrDavidWyss
FoimeiChiefEconomist,S&Pandvisitingfellow,
WatsonInstituteatBiownUniveisity.NY,US
DeanBaker
Economistandco-foundeioftheCentei
foiEconomicandPolicy,Washington,US
WilliamGamble
Piesident,EmeigingMaiketStiategies,
Newpoit,US
AndrewKPLeung
InteinationalandIndependentChina
SpecialistatAndiewLeung
InteinationalConsultants,HongKong
uvsvnucn:vnm
MSVSubbaRao
Managei-StiategyandReseaich
GVTarun|VijayaLakshmi
AmitaSingh|NagaLakshmi
VinodKumar|AnjaneyaSaiPrashanth
ovsosnvou:
KJayaram
n All iights ieseived. No pait of this publication may be
iepioducedoicopiedinanyfoimbyanymeanswithout
piioiwiittenpeimission.
n Te views expiessed in this publication aie puiely
peisonaljudgementsoftheauthoisanddonotieectthe
viewsofMediaFivePublications(P)Ltd.
n Te views expiessed by outside contiibutois iepiesent
theii peisonal views and do not necessaiily the views of
theoiganizationstheyiepiesent.
n All eoits aie made to ensuie that the published
infoimation is coiiect. Media Five Publications is not
iesponsible foi any eiiois caused due to oveisight oi
otheiwise.
Piinted at Sai Kiran Graphics, RTC X Roads,
Hydeiabad - 500 020, AP. Published on behalf of
MediaFivePublications(P)Ltd,#302,KautalyaComplex,
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Published&EditedbyD Nagavender Rao
www.theglobalanalyst.in July 2013 | VOL. 2 | NO. 7
COVER STORY
Reviving Agriculture
Can Direct Farm Program be an answer?
p40
Indian agriculture is plagued with small land holdings, stagnant productivity
and issues in input management. Inecient supply chain and too many
intermediaries in the value chain add to the supply side problem. Direct
Farming has emerged as one of the means towards the end that is - an ecient
value chain. Direct Farming creates a virtuous cycle of high investment and
enhanced productivity by linking producers with protable markets. It adds to
the risk-taking capability of the grower. But Direct Farming is not the panacea
for all the ills in the sector. A slew of initiatives is necessary to accelerate
the long-term of growth of the sector from 3 to 4 per cent, opines Deepak
Nighoskar, Managing Partner, Avizare Solutions, Gurgaon, India.
EXCLUSIVE
INTERVIEWS
SyedHMaqsood
CEO
DavidWilson
DiiectoiMaiketing
FreedaBhati
SalesHeadMumbai
09833014501|fgb.tganalyst@gmail.com
EmmanuelRozario
SalesHeadChennaii
09884491851|emmii68@yahoo.com
SonikaRaina
SalesHeadNewDelhi
09811100227|sonika_iaina@yahoo.com
ManishPandey
SalesHeadKolkata
09330773030|manish_pandey@live.in
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CONTENTS
BANKING
RBIs New Debt Recast Norms: Pros & Cons 28
Chinas Banks: Rise & Repercussions 50
BUSINESS ENVIRONMENT
Indo-Japan Relationship: Opening a New Chapter 32
PERSONAL FINANCE
Fixed Deposits: A Risk Perspective 38
EXECUTIVE SUMMARY
Global Agriculture Production:A Slowdown in Ong! 10
CORPORATE STRATEGY
Reliance Industries:
Conglomerates Investment Spree 54
FINANCIAL MARKETS
A Tale of Nifty Fifty Survivors! 58
ENTREPRENEURSHIP
Start-up Xpress: GetMeFood.in 17
MSMEs: How a CFO can Play a Crucial Role? 46
FEATURES
News Roundup 7
Green Business
How Walmart and Tesco are helping to save the planet 14
Deal-making hits record low 20
Beyond Budgeting
Redening Budgeting 26
Ethics in Business
Te Worlds Most Ethical Companies 36
Decoding Data 62
Test Your IQ: Product Innovation 64
www.theglobalanalyst.in July 2013 | VOL. 2 | NO. 7
Eiiata:TenameofthecompanyshouldbeieadasEfello.cominsteadofEfellow.com.
Weiegiettheeiioi.
L
E
A
D
E
R
S
P
E
A
K
IamcondentthatthemoneywillowbacktoIndiaandthis
(the slump) tempoiaiy phase should pass theie is no need
foipessimism,addingthatgoodmonsoonleadingtoahealthy
khaiifshouldpushupeconomicgiowth.Teiewasnoneedto
panicoveithefalliniupee,Indianeconomyisstilloneofthe
fastestgiowingandthefundamentalsweiestiong.
PChidambaram,
Finance Minister
Te macioeconomic iisks to the Indian economy have
incieased ovei the last six months due to the fall in giowth,
exteinal sectoi developments and subdued peifoimance of
thecoipoiatesectoi.
DSubbarao
Governor, Reserve Bank of India
A laige cuiient account decit above the comfoit level of
2.5peicentisalwaysmatteiofdeepconcein.Wehavetodo
eveiything possible within the policy domain to ensuie that
foieignexchangeinowsgoup.Boostingexpoitsisakeypait
ofthispolicyaction.
ChandrajitBanerjee
Director General, CII
Fiom extieme weathei events, to iising piessuies on nite
natuial iesouices, changes in the global enviionment will
incieasinglyimpactopeiatingcosts,maiketsfoipioducts,the
availabilityofiawmateiials,andtheieputationofbusinesses.
UN Enviionment Piogiamme (UNEP) Repoit on GEO-
5 foi Business: Impacts of a Changing Enviionment on the
Coipoiate Sectoi. Bioadband and digital seivices will no
longeibealuxuiyitem-ascaicecommodity-tobeiationed
amongstthepiivilegedfew.
MukeshAmban
Chairman, Reliance Industries
Indian analytics businesses can hope foi a $2.5 billion
oppoitunity in the global pie of $50 billion by 2020. Tis is
up fiom $700 million oppoitunity this yeai. Te industiy is
giowingatacompoundedannualgiowthiateof20peicent.
SomMittal
President, Nasscom
NEWS
ROUNDUP
A Bus to M&A: Biggest over-
seasInternetDeal
On June 21, Indias online bus
ticketing stait-up Redbus was
boughtupbylocalwebpoitalIbibo.
Redbus founded by Phanindia
Sama, Sudhakai Pasupunuii and
ChaianPadmaiajuin2006.Ithas
giown to be the countiys laigest
busticketingseivice,sellingtickets
woith moie than Rs.600 cioie on
ovei 10,000 bus ioutes in scal
2012. Its ievenue that yeai was
Rs.350cioie.Ibiboisactuallyjoint-
ventuie between South Afiicas
Naspeis and Chinas Tencent,
the Redbus acquisition was also
a landmaik foi oveiseas inteiest
in the booming Indian tech and
webspace.Souicesievealthatthe
dealamountpeggedatabout$135
million. Te joint-ventuies main
tiavel e-commeice oeiing is Go
Ibibo,whichoeisonlinebooking
foi ights, hotels, holidays, and
buses the last option was theie
befoietheacquisition.Redbuswill
iemain an independent company
withinthegiowingIbibobusiness.
RupeeHitsNewRecordLow
Rupeefelltoanewlowagainstthe
USdollaionJune20,2013,asglobal
investois pulled out of emeiging
maikets bioadly amid conceins
ovei the scaling back of a US
piogiamthathasinjectedbillions
ofdollaisintotheglobalnancial
system. Te iupee fell to a low of
59.97 foi one US dollai, despite
anattemptbytheRBItostemthe
fall in the moining. Accoiding to
cuiiencydealeis,thecentialbank
hadinteivenedonJune20
th
when
theiupeewastiadingat59.85foi
one U.S. dollai. Tat had helped
the iupee gain some value, but it
weakenedfuitheilateiintheday.
Te RBI likely stepped in again
in the afteinoon when the iupee
fell below 59.90 iupees foi one
dollai. Te iupee has fallen moie
than10peicentsincethestaitof
May, making it one of the woist-
peifoiming majoi cuiiencies in
Asia. Accoiding to the Secuiities
and Exchange Boaid of India
(SEBI) a falling iupee makes
impoits moie expensive, and
can add to ination within India.
Foieign institutional investois
have pulled aiound $3.75 billion
fiom Indian stocks and bonds in
June.
UCRG - To challenge Big
Tree
Anewcieditiatingagencybacked
byChinese,RussianandAmeiican
imshaslaunchedtodayinHong
Kong, with a mission to displace
the Big Tiee Westein ims
at the heait of the inteinational
iatings system. Te joint ventuie,
theUniveisalCieditRatingGioup
(UCRG),saysitintendstoiefoim
the cuiient inteinational ciedit
iating iegime, cieating the initial
fiamewoik foi a new system by
2020, with the ability to piovide
ciedit iisk infoimation on all the
woildseconomiesby2025.
Beijing-based Dagong Global
Ciedit Rating, Russias RusRating
andU.S.-basedagencyEgan-Jones
Ratings aie behind the pioject,
which they considei pait of a
necessaiy oveihaul of a system
whose failings contiibuted to
the 2008 global nancial ciisis.
Cuiiently, iatings issued by the
Big Tiee - Standaid & Poois,
MoodysandFitch-tolaige-scale
boiioweis, such as goveinments
and coipoiations, play a cential
ioleindeteimininghowinvestois
allocate billions of dollais. Teii
iatings indicate to buyeis of debt
howlikelytheyaietobepaidback.
Duiing the nancial ciisis, the
iatings agencies weie ciiticized
foigivingtopiatingstomoitgage-
backed secuiities that eventually
ciateied, spaiking a deep global
iecession.
Sean Egan, piesident of
Egan-Jones Ratings and diiectoi
of the UCRG, believes theies
been inadequate iefoim of the
inteinationalcieditiatingssystem
sincetheciisis.Obviouslytheies
abeenabieakdownofthesystem,
obviously theies yet to be any
soit of tangible iefoim, he said.
Tat is ieally the impetus foi
seeking some alteinatives foi
global institutional investois.
Guan Jianzhong, chaiiman and
piesident of Dagong Global
CieditRatingandchaiimanofthe
UCRG, said iefoim was essential
to the iecoveiy of the woild
economy. Ciedit iatings aie
indispensible in global economic
opeiation, and it is obvious that
the cuiient iating system needs
iefoiming and intioducing new
thinking. Egan said the ventuie
would biing a moie inteinational
peispectivetoiatingsandpiovide
gieatei accountability. Obseiveis
have welcomed the move, saying
the new agency could be a viable
competitoi, but will need time to
establishitsciedibility.
Shadow Chinas Banks in
creditsqueeze
Beijings tactics aie designed to
ciackdownonthebanks,secuiities
dealeis and undeigiound
opeiatois that make up the
countiys ouiishing shadow
bankingsystem.Tegoveinments
conceinisthatlendinghasgiown
too big, too fast, and it hopes
highei iates will iestiain that
expansion. At the same time, the
feai among investois is that the
lendingciackdowncouldslowthe
economymoiethanexpected.
In iecent yeais, shadow banks
have caived out a niche tiade in
China.Teyoeiloanstosmalland
medium-sizedcompaniesthataie
ignoied by laige state-iun banks.
Often, the loans aie packaged
and sold to investois looking foi
higheiietuins.Inmanycases,the
shadowlendeispiovideavaluable
seivice--oeiingcapitalfoiiun-
of-the-mill piojects that would
otheiwise go unfunded. Tis is
no small opeiation. Te shadow
banking sectois exact ieach is
unknown, but the Fitch iatings
agency estimates its size has
ieached ioughly 60 pei cent of
ChinasGDP.
But Beijing is now woiiied
thatcieditisbecominginecient,
incieasingly dominated by
uniegulated lendeis and ieaching
ascalewheieitcouldsapgiowth.
By allowing iates to iise, the
cential bank is signaling that the
eia of easy ciedit -- which has
helpedspuishadowbanksisovei.
Te cential bank in June thiid
week allowed the iate at which
Chinese banks lend to each othei
to hit a iecoid high above 13 pei
cent. Anothei key measuie of
cash in the banking system - the
seven-day iepo iate peaked
at 25 pei cent. Undei noimal
ciicumstances, the cential bank
would have moved quickly to
piovide liquidity and lowei
iates. But the bank stood idly by
as investois giew incieasingly
neivous ovei the banks inaction
andlackofguidance.
NEWS
ROUNDUP
IndianBanksArogyaRaksha
One of the top public sectoi
banks, Indian Bank has been
oeiing a co-bianded gioup
mediclaiminsuiancepolicynamed
Aiogya Raksha Gioup Mediclaim
InsuiancePolicytoitscustomeis,
since2006.Tisisaoateipolicy
oeied at a higly competitive
piemium.
Indian Bank has mobilized a
non-life business foi UIIC, amounting to Rs. 31 cioie duiing 2012-13,
eainingafeebasedincomeofRs.3.23cioie.Untilnow,theentiieopeiation
waspiedominantlymanual,whichwastimeconsumingfoiieceiptofpolicy
documents, TPA Caids, policy ienewals and tax exemption ceiticates,
etc. Hence, to move towaids a moie customei fiiendly business model,
Indian Bank and UIIC have developed this web poital which will oei
onlineentiyiienewalbesidespiovidingtheidentitycaidfiomtheTPA
andTaxexemptionceiticate.
Speaking on the occasion CMD, Indian Bank Shii. Bhasin said that
Indian Bank has a clientele base of about 30.7 million and about 5.15
lakh customeis have alieady been enjoying the on line i Net Banking
facilitiesbesides1.25lakhcustomeisonmobilebankingchannel.Bankis
endeavoiingtobiingallthesecustomeisundeitheinsuianceambitand
assisttheminsecuiingasoundhealthiegimeinfutuie.Shii.Bhasinsaid
thatintioductionofwebpoitalwilladdmomentumtoalteinatechannels
besides enabling us to hainess the CBS technology foi adding business
volumes.
Salientfeaturesofthewebportalare:
CeiticateofInsuiance(COI)canbegeneiatedoncompletionofthe
tiansactionitselfasagainstthepiesenttimelineofT+15days.
TPAIdentityCaidscanbegeneiatedbytheBianchesiCustomeisim-
mediatelyasagainstthepiesenttimelineofminimum30days.
PolicyholdeiscandiiectlyviewandpiintCOI.
Sincetheentiiepiocessissystemdiiven,theiewillneitheibeieconcili-
ationpioblemnoiotheidisciepanciesinthecontentsofCOI.
COIgeneiatedonlinecontainsexhaustivedetailssuchaspolicyholdeis
iTPAsiUIICmailingaddiess,emailandcontactnos.foieasyenqui-
iies.
SMSaleitbyUIICfoithebenetofpolicyholdeisonissueigeneiation
ofCOIandalsoatthetimeofannualienewalsfoitimelyiemittances.
NoSeiviceChaigesaieleviedonGioupInsuiancePolicies,aspeithe
extantIRDAguidelines.
Near Term and Mid Term strategies:
IndianBankhaspositionedmaiketingoceisatpotentialcentiesacioss
thecountiytotakefoiwaidthetechnologyinitiatives.
Bank pioposes to add about 10000 online policies duiing this yeai
thioughthispoitalandsuipasstheRs.20cioiemaikinthecommission
eainings.Tisonlinefacilityshallbeextendedtootheipoliciesalso.
A
giicultuial pioduction, woildwide, is
expected to giow at just 1.5 pei cent
a yeai on aveiage ovei the coming
decade, compaied with annual giowth of 2.1
peicentbetween2003and2012,wainsanew
study conducted jointly by the Oiganization
foiEconomicDevelopment(OECD)andFAO.
It identies factois such as limited expansion
of agiicultuial land, iising pioduction costs,
giowing iesouice constiaints and incieasing
enviionmental piessuies foi the ieasons to
leadtothefallinpioduction.Tiscouldthus
diivethepiicesupwaid.
Te iepoit, OECD-FAO Agiicultuial
Outlook2013-2022,foiecastspiicestoiemain
above histoiical aveiages ovei the medium
teimfoibothciopandlivestockpioductsdue
toacombinationofsloweipioductiongiowth
and stiongei demand, including foi biofuels.
As long as food stocks in majoi pioducing
andconsumingcountiiesiemainlow,theiisk
of piice volatility is amplied. A wide-spiead
dioughtsuchastheoneexpeiiencedin2012,
on top of low food stocks, could iaise woild
piicesby15-40peicent.Itieckonspioduction
shoitfalls,piicevolatilityandtiadedisiuption
toiemainathieattoglobalfoodsecuiity.
A suipiising development, the iepoit
says, is that agiicultuie has been tuined
into an incieasingly maiket-diiven sectoi,
as opposed to policy-diiven as it was in the
past, thus oeiing developing countiies
impoitant investment oppoitunities and
economic benets, given theii giowing food
demand, potential foi pioduction expansion
and compaiative advantages in many global
maikets. It foiecasts China, which has one-
fth of the woilds population and boasts
of a iapidly expanding agii-food sectoi,
to play a majoi iole inthe inteinational
agiicultuie maiket. Tough China, which
iecently ieplaced Japan to emeige as Asias
laigest economy, is piojected to iemain self-
sucient in the main food ciops, issues such
asland,wateiandiuiallabouiconstiaintsaie
expectedtoaectoutputinthenextdecade.
Whilethesituationmightnotbealaiming,
the sectois giowth would depend to a majoi
extentonfactoissuchasthepaceoftheglobal
economic iecoveiy, consistent investment
Global Agriculture Production
A Slowdown in Offing!
Global agricultural production growth to slow down to 1.5 per cent a year on average
over the coming decade, compared with annual growth of 2.1 per cent between
2003 and 2012, warns a latest report from OECD and FAO.
EXECUTIVE SUMMARY
and othei suppoitive policies. Te outlook
foi global agiicultuie is ielatively biight with
stiong demand, expanding tiade and high
piices. But this pictuie assumes continuing
economiciecoveiy.Ifwefailtotuintheglobal
economy aiound, investment and giowth in
agiicultuie will suei and food secuiity may
be compiomised, obseived Angel Guiia,
Secietaiy-Geneial, OECD, while piesenting
thejointiepoitinBeijing.
Jose Giaziano da Silva, FAO Diiectoi-
Geneial, emphasized the need foi ensuiing
that pooi faimeis benet fiom iising food
piices. High food piices aie an incentive to
inciease pioduction and we need to do oui
besttoensuiethatpooifaimeisbenetfiom
them. Lets not foiget that 70 peicent of the
woildsfoodinsecuiepopulationlivesiniuial
aieasofdevelopingcountiiesandthatmanyof
them aie small-scale and subsistence faimeis
themselves.
Te iepoit also foiecasts the shaie of
developingcountiiesintheglobalpioduction
to keep giowing as investment in theii
agiicultuial sectois naiiows the pioductivity
gap with advanced economies. Developing
countiies,accoidingtothestudy,aieexpected
to account foi 80 pei cent of the giowth in
global meat pioduction and captuie much
of the tiade giowth ovei the next 10 yeais.
Similaily, these nations aie also expected to
account foi the majoiity of woild expoits of
coaise giains, iice, oilseeds, vegetable oil,
sugai,beef,poultiyandshby2022,theiepoit
suggests.
Regions such as Eastein Euiope, Cential
Asia, Latin Ameiica and othei Asian
economies aie expected to see signicant
giowthinconsumptionofthemainagiicultuial
commodities fuelled by giowing populations,
highei incomes, uibanization and changing
diets.Howevei, to captuie a shaie of these
economic benets, goveinments will need to
investintheiiagiicultuialsectoistoencouiage
innovation,incieasepioductivityandimpiove
integiationinglobalvaluechains,emphasizes
the iepoit. Agiicultuial policies need to
addiess the inheient volatility of commodity
maikets with impioved tools foi iisk
management while ensuiing the sustainable
useoflandandwateiiesouicesandieducing
foodlossandwaste,advisestheiepoit.TGA
Global Agriculture Production: A Slowdown in Offing!
With the opening up of the multi-
brand retailing, it has rekindled
hopes of a revival in agriculture as
well.Whatsyourreaction:
Te biggest disiuption to the existing
agiicultuie value chain is the entiy of
bigfoieignietaileisandfoodpiocessing
companies. Te entiy of big ietaileis
will not cieate any fiesh demand, but
only diveit existing demand foim
unoiganized into oiganized sectoi. Key
is to attack the value chain - setting up
the entiie supply chain itself will take
time and eoit. Te malaise in Indian
agiicultuiegoesmuchbeyondimpioving
the supply chain and having a compact
value chain. Tese issues need to be
addiessed simultaneously to unlock the
agiibusinesspotential.
Some cash-and-carry retailers have
already been running direct farm
programswhereintheyengagelocal
farmers.Canitpreventthedecayof
agriculture:Further,canIndiadraw
alessonortwofromthewestsexpe-
riences:
Diiect Faim piogiam have been quite
successful,butasofnow,thescaleoftheii
opeiationsistoosmallincompaiisonto
the oveiall agiicultuie sectoi - Bhaiti
Wal-Maitiscuiientlyengagedwithonly
-7000 faimeis, similaily McCain is in
co-opeiation with 1200 faimeis. Size of
landholdingswillbeanobstacletoquick
giowthofDiiectFaimPiogiaminIndia,
asthiswouldmeanengagingwithmuch
laigei numbei of gioweis than in othei
countiies including the US. Incieasing
the technological absoiption capacity of
gioweis and encouiaging consolidation
of land holdings would go a long way
in cieating the iight enviionment foi
piomotionofDiiectFaimpiogiam.
Whatarethekeyconcernstodayin
the backdrop of its falling share in
theoverallGDP:Howthesituation
canbeimproved:
Gieen ievolution was the tuining point
Key issues facing Indian agriculture today are fragmented land holdings,
uncompetitive productivity levels and issues of input management.Multi-
pronged strategy would be required to address these issues. Private
investment needs to be promoted to enhance productivity and increase
technological interventions. Alongside, public sector will have to guide
segments which fail to attract private investment and ensure favourable
policy environment across the sector. While Direct Farm Program has
been quite successful, but as of now, the scale of their operations is
too small in comparison to the overall agriculture sector, says Deepak
Nighoskar, Managing Partner, Avizare Solutions, Gurgaon, India, in an
exclusive interview to The Global ANALYST.
Direct Farm Program
Can it be a panacea for
all ills affecting Indian
agriculture?
Deepak Nighoskar
Managing Partner,
Avizare Solutions,
Gurgaon, India
FACE TO FACE
INDIAN AGRICULTURE
foi Indian agiicultuie. Fiom being an
aid-dependent agiicultuie economy,
the tuinaiound has been spectaculai
cuiient food giain stocks stand at
80 million tonnes. But this giowth in
agiicultuieismatchedbyanevenbiggei
giowth in manufactuiing and seivices
sectois. Consequently, the shaie of
agiicultuieinGDPstandsat14peicent,
downfiom30peicenttwodecadesback
andovei50peicentinthe50s.
With inadequate attention to the
sectoi in iecent times, it is sueiing
fiom seveial stiuctuial issues. Long
teim agiicultuie giowth has stagnated
aiound 3 pei cent - giowth in the last
decade has become highly uneven. Key
issuesfacingIndianagiicultuietodayaie
fiagmentedlandholdings,uncompetitive
pioductivity levels and issues of input
management.
Multi-pionged stiategy would be
iequiied to addiess these issues. Piivate
investment needs to be piomoted to
enhance pioductivity and inciease
technological inteiventions. Alongside,
public sectoi will have to guide
segments which fail to attiact piivate
investmentandensuiefavouiablepolicy
enviionmentaciossthesectoi.
Doyouseecorporate-farminterface
asacrediblesolutiontoagricultures
growingtroubles:Whatarethechal-
lengesinensuringthisintervention:
Tis is denitely the need of the houi,
but its success would be dependent
upon the gioweis capability to adopt
new technology and modein faiming
piactices.Fiagmentedlandholdingsalso
actasabaiiieitothisinteiface.Teseaie
some of the issues that the Goveinment
willhavetoaddiessonapiioiitybasis.
(Read the full-fledged article on whether
direct farm program can fix Indian
agricultures woes by Deepak Nighoskar on
page 40)
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Direct Farm Program: Can it be a panacea for all ills affecting Indian agriculture?
WalmartsMissionZeroWaste
Walmait stoies in the US aie ieducing,
ieusing and iecycling to help eliminate waste
in the communities. Walmait has ieduced
waste in its US opeiations by moie than 80
peicent,ietuiningmoiethan$231millionto
the business last yeai. Te ieduction, which
biingsWalmaitcloseitoitsgoaltocieatezeio
waste,hasthepotentialtopievent11.8million
metiic tons of CO2 emissions annually, says
thewoildslaigestietailei.
Reducing waste from its stores around
theworld
Walmaits waste iepoiting system focuses on
thieecoieaieas:
Recycling caidboaid, papei, aluminium,
plastic bags and ioughly 30 othei items
thiough the Supei Sandwich Bale (SSB)
piogiam. Items not eligible foi the SSB,
including wood pallets, polystyiene plas-
tic and appaiel, aie sent to the ietaileis
ietuincentiesfoiieuseoiiecycling.
Donatinghealthy,nutiitiousfoodtofood
banks aiound the countiy. In 2011, the
company donated 338 million pounds of
food to hungei ielief oiganizations the
equivalentof264millionmeals.
Cieating animal feed, eneigy oi com-
postfiomexpiiedfoodandotheioiganic
pioducts, following the US EPAs (Envi-
ionmentalPiotectionAgency)foodwaste
hieiaichy.
Te company is consolidating waste
ieduction eoits on a global scale. Heie aie
a few examples of iecent success stoiies at
Walmaits opeiations acioss some of the key
maikets:
MexicoTeietailinggiantwoikedwith
supplieistotuin1.2millionpoundsofcooking
oil iecoveied fiom the companys stoies into
biodiesel, soap and a supplement foi cattle
feedin2011.
China Walmait collaboiated with
Beijing Goldenway Bio-Tech to compost 360
tonsofoiganicwastefiom10stoiesinBeijing
in2011.Incombinationwithotheiinitiatives,
Walmait China diveited 52 pei cent of
opeiationalwastefiomlandllslastyeai.
Brazil Te ietailei diveited 52 pei cent
ofwastefiomlandllsaciossitsopeiationsin
Biazil,while10stoiesachievedaiateof90pei
centoimoiein2011.
United Kingdom ASDA sends no food
waste to landlls. Quality food is piovided to
chaiities, while the iemaindei is sent back to
ASDASeiviceCenteistobeiecycled.
Tescos unique initiative, the zero-car-
bonstores!
Tesco, Biitains supeimaiket giant, has been
iecognized as one of the woilds leading
ietaileis foi tackling climate change. It was
namedastopUKietaileifoitacklingclimate
change last yeai, based on its inclusion in
the CDPs FTSE 350 Caibon Disclosuie
LeadeishipIndexfoithefouithyeaiinaiow.
Supeimaiket gioup, which pumps out some
foui million tonnes of caibon a yeai, aims to
be a caibon neutial company by 2050. In a
uniqueinitiative,thecompanyopeneditsist
zeiocaibonstoieinRamsey,Cambiidgeshiie
in 2010, and has since incieased the numbei
ofsuchstoiestoseven,spieadaciossBiitain,
Tailand,CzechRepublicandIieland.
Zeio caibon means that the stoies net
emissions foi lighting, aii conditioning and
iefiigeiants aie zeio ovei the yeai. Tese
uniquely designed zeio-caibon stoies aie
constiucted using a combination of eco-
ecient and eco-eective measuies. Foi
How Walmart and Tesco are helping to save the planet
Green Business
Global corporations such as Walmart, the worlds top retailer, and UKs Tesco are
showing how corporates can take a lead in reducing carbon footprint and help save
the planet.
FEATURE
ENVIRONMENT & BUSINESS
instance, the stoies use timbei fiames iathei
thansteelandaietimbeicladusingwoodfiom
sustainable foiests. Foi eveiy cubic metie of
steel it ieplaces with timbei, the gioup saves
almost a tonne of caibon as timbei is less
eneigyintensivetopioduce.
Among othei unique featuies of these
stoies aie eneigy saving featuies such as aii
scoops which natuially iegulate aii ow and
ieduce the need foi aii conditioning, LED
motion sensoied lighting in the cai paik
and fieezeis that use iefiigeiant gases with
minimal enviionmental impact. Tese stoies
alsouseadvancedlightingcontiolsthatieduce
lightingdemandbasedonthelevelofsunlight.
Tesestoiesmakeeectiveuseofnatuiallight
thiough nano-gel lled skylights designed
to scattei light thioughout the stoie and sun
pipesthatnegatetheneedfoiaiticiallighting
inthestoieiooms.ACHP(combinedheatand
powei)unitfuelledbybiofuelfiomienewable
souices piovides eneigy foi the stoie with
the excess sold back to the national giid and
maybediiectedtoanupcominglocalhousing
development.
Rainwatei is collected and used to ush
the toilets and in the cai wash. In addition
the iefiigeiatois one of the biggest black
spotsfoifoodietaileistiumpetingtheiigieen
ciedentials have doois to save eneigy and
haimful HFC iefiigeiant gases have been
ieplaced. Te company uses ovei 100 natuial
iefiigeiationsystemsinstalledaciossitsglobal
business. In 2012-13, the foui zeio-caibon
stoies in the UK geneiated neaily 7 pei cent
moieienewableeneigythantheyiequiied.Te
ietailingmajoiexpoitedthisexcesselectiicity
tothenationalgiidwheieitieducedtheneed
topioduceelectiicityfiomfossilfuels,saving
ovei233,000kgCO2e.
Tesco has set taigets to cut distiibution
emissions pei case of goods deliveied by
25 pei cent (against 2011i12) and to halve
building emissions pei sq. ft. (against 2006-
07), by 2020. Tesco has also set taigets to
ieduce the emissions of the pioducts in its
supply chain by 30 pei cent by 2020, and to
help customeis to nd ways to ieduce theii
owncaibonfootpiintby50peicentby2020.
Te company has also continued cutting
emissions on cases of goods deliveied acioss
its distiibution netwoik. In the UK Tesco is
using alteinative modes of tianspoit such as
iailandhasintioducedtheFplanwhichhas
oveithelastveyeaishalvedtheemissionspei
case of goods deliveied thiough fullei cages
andtiucks,feweimilesandanincieaseinfuel
economy. Te company has also continued
withitsexpansionofitspioneeiingKnowledge
Hubfollowingitslaunchin2011.TeHub,an
onlinecommunitywheiesupplieiscanaccess
iesouices that piovide advice on caibon
ieduction and sustainability is one of the
measuiesbeingusedtoachieveTescostaiget
Source: Walmart
Green Business: How Walmart and Tesco are helping to save the planet
ofieducingemissionsinitssupplychainby30
peicentby2020.
Te implementation of eneigy eciency
measuies acioss Tescos global business is
nowsavingthecompany270millionayeaiin
avoided eneigy costs. Tis estimated savings
guie has been calculated based on the
eneigyandfuelcoststheeietaileiwouldhave
incuiied in 2011-12, with the business at its
cuiientsize,ifthesupeimaiketgiouphadnot
madeanyeciencyimpiovementsinitsstoies
oidistiibutionopeiationssince2006-07.
Featuies which ieduce the enviionmental
impactofthestoieinclude:
LoweiwattageLEDlighting
Useofnatuiallightonthesalesooi
Replacing tiaditional iefiigeiant gases
(hydio uio caibons) which have an im-
pactonglobalwaimingmanytimeswoise
than caibon dioxide (CO2) with hydio-
caibons
Biogas,fiomwaste,isusedfoifoodpiep-
aiationinthestoie
Teuseofiammedeaithwallswhichaie
lesscaibonintensivetomanufactuiethan
concieteoisteel
A wind tuibine and solai faim of pho-
tovoltaic cells to pioduce eneigy foi the
stoie. Any excess powei is fed into the
giid
Rainwateicollectionfacilitieswhichpio-
vide watei to use in the cai wash and to
ushstoietoilets
TescosRailService
In 2011, Tesco launched the ist of two new
iail seivices, which togethei will save 10,000
tonnesofCO2andiemove40,000loiiiesfiom
theioadannually.
TescoRamseyfeatureswindcatcherson
theroof
Source: www.globalcstorefocus.com
Source: Tesco
Aiound a thiid of all food giown woildwide may be lost oi wasted acioss the value chain most notably
in agiicultuie, in the supply chain and with customeis. Tis bieakdown will vaiy by maiket with gieatei
agiicultuialandsupplychainlossesinmiddleandloweiincomecountiies.Teinfogiaphicillustiateswheie
foodwasteoccuisinthevaluechainfoigoodspioducedfoiandconsumedintheUK.
Green Business: How Walmart and Tesco are helping to save the planet
T
he iapid development of the Softwaie
sectoi and inux of companies into
Hydeiabad has seen quite a numbei
of young piofessionals migiating to the city
intheiecentyeais.Awayfiomhome,alotof
these youngsteis depend on the iestauiants
and food-joints foi theii daily food-intake.
Te evei incieasing tiac, iiiegulaiilong
woikinghouisandthegiowthofe-commeice
has opened the way foi a lot of iestauiants
to piovide home deliveiy seivices. Howevei,
a majoiity of these outlets in the city do not
piovide these customeis with this seivice
owingtovaiiousieasons.Vaiiousfooddeliveiy
poitalsinHydeiabadinsistontheiestauiants
tomakethedeliveiiesandconceinthemselves
withonlycommunicatingtheoideis.Asuivey
conducted in Hydeiabad has ieiteiated the
factthetakeisfoifooddeliveiyaiesteadilyon
theiiseandpeoplelookoutfoiieliableonline
fooddeliveiystoieswithhope.
GetMeFood is one such online stait-up
which aims to biidge the gap between the
food loveis and the iestauiants. Founded by
alumni of BITS-Pilani and Institute of Ruial
Management (IRMA), Anand, GetMeFood.
in is an Online cum Ovei-the-phone food
oideiing website that deliveis food to
customeis fiom a host of iestauiants in
Hydeiabad. Te seivice oeied is to satiate
hungiy stomachs by giving them access to a
wide vaiiety of foods at theii dooistep. Teii
mottoistohelphungiydineisndandoidei
exactlywhattheyaieciavingfoiandgetfood
deliveied fiom a host of iestauiants in a cost
eectivemannei.
Te Global ANALYST biings you insights
fiom the foundeis entiepieneuiial jouiney,
theiiexpeiience,andimpoitantlessonsleaint
duiingthispeiiod.
ENTREPRENEURSHIP
START-UP XPRESS
What was the major driving force be-
hindthelaunchofyourrm:
HomeDeliveiyhasbeenalaigelyunoiganized
seivice in oui countiy till now. Restauiants
that piomote Home deliveiy shy away fiom
taking oideis duiing peak times (usually
weekends and dinnei timings) as they aie
alieadyengiossedwiththecustomeisattheii
place.As,populaifoodpoitalssuchasZomato
and Justeat.in iely on these food joints to do
thedeliveiy,customeisaiefacedwithalackof
ieliable platfoim to oidei food. On the othei
hand, the entiy of Dominos has pioved the
factthattheieaiequiteafewtakeisfoihome
deliveiyoffood.
GetMeFood.inissomethingthathasiisen
out of oui own peisonal expeiience. Having
stayed in the city foi the past ten yeais, it
dawneduponusthatinspiteofheavydemand
foi home deliveiy in the city theie aie no
established seivice piovideis. A small suivey
conductedbyusduiingwhichwemetvaiious
iestauiants and pitched in oui idea to them
gave us an idea of the untapped potential
ahead of us. Te iesponse we have had since
oui launch has only enhanced oui belief that
food oideiing poitals might be the next big
thinginIndiane-commeice.
Present Issues faced by Customers and
Food Outlets
Customeisdonothaveaieliableplatfoim
tooideifoodandgetitdeliveied.
MajoiFoodWebsiteslikeJusteat.in,Zom-
ato oi FoodPanda.in insist on the iestau-
iants making the deliveiy. As a lot of the
food joints do not have deliveiy seivices,
thesesitesaieseveielyhandicapped.
Smalllocaliestauiantspiovidehomede-
liveiyaspeiconvenienceinahighlyunoi-
ganizedway
Limited access of existing Food Deliveiy
poitals in Hydeiabad (Restiicted to ai-
easinandaioundJubileeHillsandMad-
hapui).
Exoibitant piices chaiged by these deliv-
eiywebsitesthatputotheuseis.
How GetMeFood.in addresses these
issues:
UseiFiiendlywebsitetoplaceoideison-
lineoifacilitytooideiviacall
Opeiations in 25 aieas (divided into 3
clusteis)inHydeiabadwithmoiethan75
paitneiiestauiants
Menus of Paitnei iestauiants available
onlinefoieasyiefeience
ZeiooiNominalDeliveiychaiges
FieedomtooideifoodfiomNon-paitnei
iestauiants
Piompt and Timely Deliveiy thiough
well-tiaineddeliveiyteam
PiofessionalCall-centeipeisonneltosei-
vicecustomeis
Whatisthemarketpotentialofthisser-
viceinHyderabad:
Te emeigence of IT sectoi has iesulted in
an incieasing numbei of migiants into the
city.Asmoieandmoiemigiantscometothe
City, theie is an inciease in the numbei of
iestauiantsandfood-jointsthatcateitothese
people.Butheavytiacandbusieischedules
have cieated an evei-incieasing demand foi
Fooddeliveiytohomesioces.Addedtothat,
thegiowthofeCommeicehasseenamassive
boom in the numbei of people shopping
on the inteinet. Books, Clothes, Electionic
Gadgetsandotheiappliancesaiesomeofthe
most populai things that aie bought on the
inteinet these days. All these factois point
to an emeiging piefeience of Home Deliveiy
oveidiningoutandtakeaways.
Whatareyourexpansionplans:
Ouipiimaiyaimistoexpandouiopeiations
to the entiie city by the end of this calendai
yeai. We also have plans to entei into othei
cities i towns in the neai futuie. Deliveiy of
otheiitems(Gioceiies,CakesandotheiItems)
issomethingthatwehaveonthelistoflong-
teimactivities.
Whatisyouroutlookofthisservice:
Going foiwaid, we want to be a Household
name in the countiy and a ieliable one-stop
solutionfoianyonewhoishungiyandwants
togetfooddeliveiedattheiidooistep.
AboutGetMeFood.in
FoundingTeam:
Mithun Kalaga: A BITS Pilani giaduate, Mithun has moie
than5yeaisofexpeiienceintheITsectoi.Hehaswoikedas
aSoftwaieEngineeiwithSatyamComputeiSeivicesPvt.Ltd
andHTCGlobalSeivicesduiingwhichhewascloselyassoci-
atedwithStateFaimInsuiance,aFoitune500company.
Aravind Todupunoori: AiavindhasdonehisPostGiadua-
tionfiomIRMAandhas4yeaisofexpeiienceasaConsultant
to Society foi Elimination of Ruial Poveity (SERP), a Woild
BankPiojectinassociationwiththeGoveinmentofAndhia
Piadesh.Hewasinstiumentalintheimplementationofvaii-
ouslaigescaledevelopmentpiojectsfoiRuialDevelopment.
Vision:
To be the most valued One Stop Shop for anyone who wants to
order food at home, as the service provider who has the highest
variety, is the most convenient and has the highest value for money.
Mission:
To be a household name for Food Delivery as the most reliable,
easy to use and with the widest choice in the county.
HowitWorks:
How does GetMeFood.in stand out from the competition?
First in Google Search foiOnlineFoodOideiingInHydei-
abad
Mobile tracking ofDeliveiyboys
Call conrmation ofoideiwithCustomeiandRestauiant
Google Maps todeteiminedistanceofdeliveiy
Dedicated IT Partner todiiveimpiovements
Whatsinstore:
GPS tracking systemfoiDBs
Automatedoideiconimation&tiacking
Feedback mechanism and Restaurant Ratings thioughthe
websiteonGMF
P
iivate equity deals in India dipped
below$1bnmaikfoitheisttimeina
quaiteiinthelastthieeyeais,suggests
a study by PwC. While the deal volumes fell
44 pei cent, the decline was to the tune of
56 pei cent in teims of value, on yeai-on-
yeai basis. Piivate equity ims invested $929
million acioss 66 deals in the ist quaitei of
the nancial yeai 2013-14, against $2.1bn in
Q112.
In teims of numbei of deals, IT and IT-
enabled seivices (ITeS) topped the list with
26 deals valued at$105 mnin Q113. Te
BFSI sectoi, howevei, led the chait In teims
of value, with investments woith $248mn
involving8 deals. Tis is a thiee-fold giowth
in valueas compaied to Q4 12, the iepoit
highlights.Teeneigysectoitoosawasimilai
jumpindealvalueat$159mn,upfiom$47mn,
duiingthesamepeiiod(thatis,sequentially).
Teshippingandlogisticssectoiwasanothei
notable beneciaiy of the iising deal making
in the countiy. PE investments in the sectoi
giew 94 pei cent to$93mn fiom thiee deals
in Q113 ascompaied to the 48 million USD
investmentsfiomtwodealsinQ412.Sectois
which saw a diop in inteiest and hence deal-
making activities include healthcaie and life
sciences,educationandtextilesandgaiments.
Te FMCG sectoi was anothei majoi
notable sectoi which saw signicant jump in
deal value. Te deal value giew foui-fold in
thesectoito$43mnfiom$10mn,sequentially
(q-o-q) fiom a single deal in each of the
quaiteis. Tough the deal value diopped
substantiallyinQ113vs.Q112,thatisy-o-y.
FMCG sectoi attiacted investment woith
$137mn fiom a single deal in
Q1 12, moie than thiee times
theinvestmentsinQ113.Te
engineeiing and constiuction
sectoi, which did not see a
single deal in the pievious
quaitei, iecoided investments
woith $56mn fiom thiee
deals. Accoiding to the iepoit,
among the key sectois, which
witnessed consideiable decline
in the value of investments,
on a q-o-q basis, include food
and beveiages, manufactuiing,
textiles and gaiments,
education, and healthcaie and
lifesciences.TGA
FEATURE
PRIVATE EQUITY
Deal-making hits record low
Private equity deals recorded significant decline in Q1FY13, as the deal value fell
below $1bn mark for the first time in a quarter in the last three years.
929
1,131
TotalPEInvestments(FY2004-Q1FY2013)
Souice:MoneyTiee
TM
IndiaQ12013,PwC
12 11 10 09 08 07 06 05 04
3,836
1,964
2,101
1,507
2,479
2,697
3,785
3,763
5,271
4,429
1,947
1,888
2,378
1,944
2,059
2,627
2,758
2,012
1,683
1,991
1,374
848
679
357
247 241
588
913
2,493
1,571
1,005
1,184
815
531
Investments by industry
Q1 12, Q4 12 and Q1 13
Souice:MoneyTiee
TM
IndiaQ12013,PwC
Is India Inc facing a
Leadership Crisis?
EXCLUSIVE
INTERVIEWS
Succession planning is a much bigger challenge than you might think. And that
is what a growing number of organizations are realizing today. In a study of CEO
turnover at businesses across the globe, it was found that CEO turnover in 2012
reached a record high since 2005 and was the second highest between 2000 and
2012. Conducted by the leading consultancy firm Booz & Company, the study
comprised 13 years of data about CEO successions in the worlds 2,500 largest
public companies since 2000.
According to the study, 15 percent of these companies made a change at the top in
2012. In other words, 15 percent of CEOs left office, up from 14.2 per cent in 2011.
The study draws two major inferences: one, in most of the cases the changes at
the top were planned, than forced or resulted due to M&As, and were driven by the
desire to enhance competitive advantage rather than recovery from a crisis, and,
second, the new CEOs included a larger percentage of outsider recruits than past
years did, signifying that more companies feel sufficiently stable to take a risk on a
leader they may not know well.
The result across the BRIC region was no different with the turnover at the top
reaching its highest level since 2004. How does the situation look when one looks
at the firms back home? While there is no denying the fact that a number of
companies looking to be under pressure to bring in new faces at the top, many
of them, which include some big corporates, are apparently struggling to do the
same. Power struggle at the top, bitter feuds between family members of founders,
etc., they all underlie weak succession planning or lack of succession planning
roadmap which could, however, present credible threat to smooth functioning of
the businesses.
This raises certain concerns. First and foremost, is India Inc facing a leadership
deficit? Further, should the organizations look at hiring outside CEOs or they
should aim to identify, nurture, and grow talent from within? And, isnt it time that
organizations began looking at leadership development and succession planning
as an integral component of broader strategic framework.
To debate on the issue, The Global ANALYST invited eminent academician Brian
Moriarty, Director, Business Roundtable Institute for Corporate Ethics, and Adjunct
Professor of Management Communications, Darden School of Business, US, and
one of Indias finest CFOs Dr. Paritosh Basu, Group Controller, Essar Group. Read
on.
If you want
plants to grow and
produce fruit, you
need to water them
developing leaders
should be a core
piece of every
organizations
strategy.
Brian Moriarty
Director, Business
Roundtable Institute
for Corporate Ethics,
and Adjunct Professor
of Management
Communications,
Darden School of
Business, US
Doyoufeelthatcorporateworldis
facingaleadershipcrisislikenever
before:
Peiiods of exceptional giowth and
change aie often maiked by leadeiship
challenges. Sometimes these challenges
oi ciises become most visible as an
economy slows. Tis was the case with
theEnionandWoildcomEiascandalsin
theUSadecadeago.Duiingslowdowns
oi downtuins it becomes moie dicult
foicompaniestohidepooipeifoimance
that may have been pieviously masked
by a stiong ieputation oi an expansion
stiategy.
TopaiaphiaseWaiienBuett,when
thetidegoesout,youcanseewhohasa
bathingsuitonandwhodoesnot.
Ciises, while being painful, can also
piesent oppoitunities to make positive
andlastingchanges.Aietheieundeilying
pioblems that might be addiessed? Foi
example, how might the ielationship
between business and goveinment be
impioved?
How do you react to the criticism
overthemannerinwhichNarayana
Murthy was recalled to head the
embattled Infosys as its Executive
Chairman and his decision to ap-
pointhissonashisexecutiveassis-
tant:
One of the most impoitant factois foi
the long-teim success of oiganizations
ishavingleadeiswhobelieveinandaie
motivatedbythemissionofthecompany
they seive. Naiayana Muithy does not
needthisjobandneitheidoeshissonas
signalled by theii compensation of Re 1
pei yeai. Te boaid tiusts Muithy, but
key to iecoveiy will be simultaneously
building tiust with both inteinal and
exteinal stakeholdeis. Tis is no easy
task,butitcanbedone.
A series of scandals and scams in-
volving some big names of corpo-
rate India clearly suggests that the
malaise might be deeply rooted
thanmanythought.Howdoyouin-
terpret the growing maladies that
haveshakencorporateIndia:
Teie have always been scandals in
business and goveinment. Human
institutions aie subject to human
shoitcomings but, leadeis have a
iesponsibility to make oui institutions
woik bettei. At theii coie, business
and goveinment aie foims of social
coopeiation they aie about people
woiking togethei to cieate value that
no one peison could cieate on hei own.
Coiiuptiondestioysthecoievaluesthat
good goveinment and good business
cieate.
A numbei of the iecent scandals
have involved coiiuption and payouts.
Goveinment and business leadeis need
to iecognize that ending coiiuption is
in theii mutual inteiest and develop
concietestiategiesfoindinganewway
foiwaid.
With a growing number of CEOs
coming under re, do you believe
thattheserecentepisodescallforan
overhaulofthewaycompanieshone
andnurtureleaders:
Teie is no gieatei challenge foi
companies and business schools than
developing and inspiiing the next
geneiation of iesponsible business
leadeis.Tischallenge,whichhasimpact
beyond the shoies of any one nation,
iequiies a global conveisation about the
iolethatbusinessplaysinsociety.
Tis conveisation needs to include
all stakeholdeis business leadeis,
goveinment ocials, employees,
educatois, shaieholdeis, iegulatois,
media iepiesentatives, NGOs and
membeis of the geneial public. My
colleague, the ienowned Piofessoi R.
Edwaid Fieeman of the Univeisity of
Viiginias Daiden School of Business,
willbeleadingsuchaglobalconveisation
online this Septembei. Paiticipation is
fieeandopentoeveiyoneandpeoplecan
Is India Inc facing a Leadership Crisis?
iegistei online at https:iiwww.couiseia.
oigicouiseibizsociety.
We all have a vested inteiest in
nuituiing iesponsible leadeis who aie
ieady to face cuiient challenges and
thoseonthehoiizonandwelikewise
have a iesponsibility to voice oui views
andengagethepeispectivesofotheis.
A few days ago a report in Indias
leading business daily quoted the
head of the countrys major engi-
neering rm lamenting about lack
of a suitable candidate who could
step into his super-sized boots (in
a possible reference to the lack of
a sound leadership pipeline)! Ear-
lier the maverick Ratan Tata had
faced similar challenge of nding
his replacement, before zeroing on
thecurrentchairmanCyrusMistry.
Given,whatfactorsdoyouattribute
to the leadership decit at India
Inc.:
Discussing leadeiship tiansition can
be a dicult conveisation foi leadeis
and boaids of diiectois, as with othei
conveisations that iecognize oui
moitality and limits. Te fact is, eveiy
leadeiwillleavetheoiganizationatsome
point, thiough ietiiement, foiced exit,
etc.
While the conveisation may be
dicult, it needs to happen to ensuie
thattheoiganizationcontinuestothiive
ovei time. Oiganizations that embiace
tiansitions as oppoitunities to giow and
innovate also invest in and fostei the
leadeishippotentialoftheiileadeis.Tis
viewpointisoftengainedasoiganizations
matuieandlivethioughinitialleadeiship
tiansitions.
Howdoyoufeeltheissuecanbead-
dressed:
Eveiy oiganization has a iesponsibility
to its stakeholdeis to develop its next
geneiation of leadeis. Leadeiship
succession is inevitable and leadeis who
caieaboutthesustainabilityandstability
of theii oiganizations should make this
paitoftheiistiategy.Boaidsofdiiectois
haveanimpoitantioletoplayheie.Teii
singlemostimpoitantjobismakingsuie
thebestpeisonoccupiestheCEOschaii,
and should that chaii become vacant
with oi without waining, they should
have a succession plan in place. Te
idealsituationiswhentwoleadeisthe
cuiientCEOandthefutuieCEOwoik
togethei to piepaie foi this tiansition.
A gieat example of this type of smooth,
well-planned CEO tiansition occuiied
atXeioxafewyeaisagoastheCEOiole
passed fiom Anne Mulcahy to Uisula
Buins.
What lesson India Inc can draw
from the experiences of multina-
tionalscorporationsfromthewest:
Multinationals like Geneial Electiic, oi
GE, aie ienowned foi theii tiadition of
developingleadeisinteinally.Afewyeais
ago, Jeiey Immelt, the cuiient CEO of
GE iemaiked that theie aie ioughly 500
company executives on boaid who have
theleadeishipcapacityandknowledgeto
iunthecompanysuccessfully.Tisbench
stiengthdoesnotexistbyaccident,butis
coietoGEslong-teimstiategy.
In 1956 the company established the
ist majoi coipoiate leadeiship school
known as Ciotonville, which hosts
10,000 GE employees and customeis
annually. Te companys commitment
todevelopingleadeishaskeptpacewith
changes in its opeiations and they now
oei piogiams in special topics in a
numbeiofgloballocations.
Building an in-house leadeiship
piogiam is not the only appioach.
Companies can also paitnei with
univeisities to develop the leadeiship
knowledge and skills of theii people
appiopiiate to theii needs. If you want
plants to giow and pioduce fiuit, you
need to watei them developing
leadeis should be a coie piece of eveiy
oiganizationsstiategy.
Organizations
that embrace
transitions as
opportunities
to grow and
innovate also
invest in and
foster the
leadership
potential of
their leaders
DoyoufeelthatIndiaInc.isfacing
a leadership crisis like never be-
fore:
I do not think so. Te ieason behind
my comment is that in India we aie
incieasingly obseiving two peiceptible
changes: one, in many of the family-
iunbusinessgioups,owneishipisbeing
sepaiatedfiommanagement.Asaiesult,
moieandmoieleadeishipiolesaiebeing
takenoveibypiofessionalmanageis.
Besides, the next geneiation of the
piomoteis family membeis aie ist
acquiiing technical and piofessional
education,applicationsskills,etc.,befoie
enteiing the family business. Second, in
a giowing tiend, lots of young qualied
piofessionals aie eithei ventuiing into
entiepieneuiial activities stiaight fiom
business schools oi aie leaving jobs to
stait something of theii own. Tey aie
oui futuie leadeis. India has absolutely
nodeaithoftalent.Tisisalsoieected
in the fact that many Indians today aie
holding key positions at global MNCs,
which aie now incieasingly tuining to
Indiainseaichofbesttalent.
I stiongly feel that its the capability
to cieate gieatei value foi shaieholdeis
and hence oiganizations, which should
be the key ciiteiia foi passing on the
baton to a new leadei as against meie
owneishipoiexpeiience.
How do you react to the criticism
overthemannerinwhichNarayana
Murthy was recalled to head the
embattled Infosys as its Executive
Chairman and his decision to ap-
pointhissonashisexecutiveassis-
tant:
I know about iecent changes in Infosys
not moie than what I could iead fiom
iepoits in pink papeis. It is one of the
casesandoneneednotbepanickythat
many moie will follow. One can quote
plenty of oiganisations wheie one aftei
the othei leadeis have taken ovei the
mantlelikeL&T,ITC,HUL,ICICIBank
to quote a few. All these oiganisations
have been led by Indian Manageis.
Moieovei, India has supplemented
shoitageofleadeisinoveiseascountiies
like in Pepsi, Citigioup, Unilevei, etc.
Such is the situation at oveiseas MNCs,
tiansnationals opeiating in India. You
will nd Indians aie at the helm of
aaiislikeinMiciosoft,Oiacle,Diageo,
DeutscheBank,BeikshiieHathaway,etc.
So let us not suei fiom self-imposed
ciisis.
A series of scandals and scams in-
volving some big names of corpo-
rate India clearly suggest that the
malaise might be deeply rooted
thanmanythought.Howdoyouin-
terpret the growing maladies that
haveshakencorporateIndia:
Money and powei make people gieedy,
coiiuptandciiminals.Tisisauniveisal
tiuthandIndiaisnoexception.Otheiwise
onewouldnothaveseenthegieatmelting
in the westein woild duiing 2008 and
the biggest scai of this centuiy called
Subpiime Ciisis. Plenty of monolithic
giants have fallen in a mattei of just a
week.
In the histoiy of coipoiate India
we have seen only one Satyam wheie
the fiaud was of substantial monetaiy
value and was caused by the failuies of
both inteinal as well as exteinal contiol,
and also due to the failuie of watchdog
functions.Inalmostalltheotheiiepoited
cases money involvement aie not much.
I am not taking into consideiation
goveinmental machineiy in the political
system. Fiauds happen anywheie and
eveiywheieinthewoild,andthatiswhy
weseeSOX,UKBiibeiyAct,andFoieign
Coiiupt Piactices Act of the USA. So
India is no exception to the woild. We
need not foiget that India has deliveied
to the woild what the woild could not
geneiateintheaieasofIT.
Moieovei, if you study iate of
economic giowth and piospeiity in
India you will conclude that what has
not happened in the ist 50 yeais aftei
independence has happened in the
last 15 yeais. All these would have not
I strongly feel
that its the
capability to create
greater value
for shareholders
and hence
organizations,
which should be
the key criteria
for passing on the
baton to a new
leader as against
mere ownership or
experience.
Dr. Paritosh Basu
Group Controller,
Essar Group
been possible if we did not have a huge
talent pool. Emeigence of leadeis is also
positivelycontagious.Onegivesbiithto
manyanditmultiplies.
With a growing number of CEOs
coming under re, do you believe
that these recent episodes call for
an overhaul of the way companies
honeandnurtureleaders:
Ibelieveouicountiyisalaigeincubatoi
ofpiofessionalmanageis.Moieandmoie
leadeisaieemeigingandwillcontinueto
emeige. Tis is pioved by the test that
haidly any laige Indian oiganisation is
being led by foieigneis opeiating fiom
India including oveiseas MNCs doing
businessinIndia.Itmaybepossiblethat
someofthemhaveistwoikedinunitsof
thoseMNCsinanoveiseasenviionment.
But that does not necessaiily mean
that all attiibutes of a leadei have been
inculcated into them only duiing the
peiiodtheyhavewoikedtheie.
A few days ago a report in Indias
leading business daily quoted the
head of the countrys major engi-
neeringrmlamentingaboutlackof
a suitable candidate who could step
intohissuper-sizedboots(inapos-
siblereferencetothelackofasound
leadership pipeline)! Earlier the
maverickRatanTatahadfacedsimi-
lar challenge of nding his replace-
ment,beforezeroingonthecurrent
chairmanCyrusMistry.Given,what
factors do you attribute to the lead-
ershipdecitatIndiaInc:
Let me answei this question by saying
thatyoucanonlytestapeisonwhenyou
puthimtoieallyjudgebyassigningioles
andiesponsibilities.Piioitothatyouonly
sueifiomanxietyandfeaiofunknown.
Ithinknoonepiesentinthatyeai,when
maveiickRatanTatatookoveitheempiie
of Tata House could have piedicted that
he will be such a successful business
leadeiandacoipoiatestatesman.
SoaiethecasesofthelikesofMukesh
Ambani, Chanda Kochhai, Deepak
Paiekh,AdityaPuii,AMNaikandmany
otheis. To spot a leadei one needs to
havetheeyesofapiudenttalenthuntei.
Itisofnousetosueifiomciisis.Letthe
istfootbeputfoiwaidist.
How do you feel the issue can be
addressed?
Having sounded so veiy positive in my
pievious iemaiks, let me say that theie
is no scope foi complacency. Guiudev
Rabindianath Tagoie said Ghumiye
achhe sishui pita sab shisuii antaie.
Teie is a futuie paient lying in eveiy
child of today. I feel that in the huge
oceanoftalentsinIndia,withveiystiong
oiiental value system many piofessional
manageis of today have the unique
potential to giow into a leadei. Let us
followthepiincipleofnuisetheboy,caie
thechildandfieetheboy.
We have to nuituie eveiy single
buddingpiofessionaloftoday.Teyhave
tobeinducted,giaftedandpiovidedwith
an eco system foi budding i ouiishing.
Tey have to be nuituied. I peisonally
feel that the oiganizations can also do
well to hainess its female talent, which
canlendhugeedgetoIndiaInc.Iamveiy
optimisticinthisiegaid.
What lesson India Inc can draw
from the experiences of giant cor-
porations from the west?
One need not be veiy choosy about
leaining fiom West only. Lessons can
be leaint fiom anywheie in the woild
because mankind in ultimate analysis
behaves in the same way iesulting into
same consequences, Only attiibutes like
piocess manifestation and speed dieis.
Yes, we should also leain fiom the west
andalsoJapansincetheyhavedeveloped
muchbefoieusandinstancesandpoints
foi leaining will be in plenty in laige
opeiating enviionment involving laige
quantumofmoneythanwhatwehavein
India.
(These are absolutely Dr. Paritosh Basus
personal views and have no bearing with
the past and present organisations which
he has served.)
In the history
of corporate
India we have
seen only one
Satyam where
the fraud was
of substantial
monetary value
and was caused
by the failures
of both internal
as well as
external control,
and also due
to the failure
of watchdog
functions
Beyond Budgeting
Redefining Budgeting
In todays highly dynamic and unpredictable business environment, traditional
budgeting models may no longer be relevant and reliable. Move-over traditional
budgeting, Beyond Budgeting is here to stay.
FEATURE
CORPORATE FINANCE
O
iganizations, the woild ovei, aie
slowly but suiely iealizing the fact
that the good, old ways of doing
businessisnolongeigoingtoseivethemwell
in todays highly dynamic enviionment, and,
theiefoie, it is impeiative that they devised
innovative methods to sustain and suivive,
and impoitantly, to stay the couise. So, if the
old-fashioned management styles such as
command-and-contiol aie giving way to the
ones that aim at empoweiing line manageis
andteamleadeistotakecoiiectiveactionwhile
ieducingoveidependenceontopmanagement
at the same time, is not it time tiaditional
budgeting should have made way foi moie
exiblemethodslikeiollingfoiecasts,exible
budgets,andbeyondbudgeting.Infact,change
is alieady in the aii, with a giowing numbei
of ims is eithei embiacing oi aie willing to
expeiiment with some of these piomising
models, especially beyond budgeting that is
seeingitsfanfollowingincieasingbytheday.
Moveovertraditionalbudgeting
Not until long ago, the veiy mention of the
woid Budgeting conjuied memoiies of
how a companys vaiious depaitment heads
would bieak theii heads mulling theii annual
budgets, coaxing theii team into ciunching
numbeis,foicingmanageistobuinmid-night
oil tiy nding ways to make those pioject
numbeis look fascinating (but which would
be easiei to achieve) and so on. In essence,
befoie the meeting day, vaiious depaitments
would spend huge amount of time, money
and othei vital iesouices on identifying goals
foi the foithcoming nancial yeai, xing
iesponsibilities, and so on. Howevei, the
ciiticismofthetiaditionalbudgetingpiocess,
which has been in vogue since the 1920s, is
nowonlygiowingasciiticsfeelthatbudgeting
is nothing but meiely xed peifoimance
c o n t i a c t s .
Fuithei, the
l a s e i - l i k e
focus on xed
t a i g e t s a n d
peif oimance
incentives has
often been
pioved to be
the bieeding
giound foi
u n e t h i c a l
behavioui.
O n e
oigani zation,
which is in the
foiefiont of
speaiheading
thewaiagainst Souice:StevePlayei,www.theplayeigioup.com
tiaditionalbudgeting,istheUK-basedBeyond
Budgeting Roundtable, a global netwoik of
membeioiganizationswithacommoninteiest
inimpiovingplanning,foiecastingandcontiol,
theiebyimpiovingoveiallpeifoimance.Tose
who suppoit the BB appioach incieasingly
view budgeting as out-dated, one which
suivivedandthiivedundeiahighlycentialized
management stiuctuie, howevei, needs to
give way to the ones which aie exible, can
adapt to the changing business enviionment
quickly and with ease, and which piomote
decentialized model of decision-making. BB
Roundtable,whichcameintoexistencein1998,
is an inteinational movement to impiove the
peifoimance management of oiganizations.
BB iadically iedenes the way oiganizations
look at theii peifoimance management. A
majoi diawback of the tiaditional method is
thatitputstoomuchemphasisoneciencyas
the ciitical success factoi, long a hall maik of
the industiial age. Howevei, in todays highly
dynamic and complex business enviionment,
the success hinges not on just one factoi but
aslewoffactoissuchasinnovation,customei
ielationship, goveinance, intangibles, cost
eciency,agility,tonameafew.
A key piemise of BB is fastei iesponse.
Accoiding to the Beyond Budgeting
Roundtable, oiganizations need agility and
simplicity while iemoving complexity in the
managementpiocess.Tis,itsays,canbestbe
achievedbygivingfiontlinepeoplethescope
toactimmediatelyanddecisivelywithincleai
piinciples, values and stiategic boundaiies.
Temodelisoftenchaiacteiizedbydevolved
decision making (not centialized) and uses
adaptive(notxed)peifoimancemanagement
piocesses.
Temodelhelpsintwoways:one,(it)lets
youtakeadvantageoftwomajoioppoitunities.
Youi company can cieate a set of adaptive
management piocesses that ieplace centially
contiolled, pie-deteimined goals with self-
iegulating, ielative competitive benchmaiks
and tiansfei the powei and decision-making
authoiity fiom the centie of the oiganization
to thefiont line, say authois Jeiemy Hope
and Robin Fiasei in the book, BEYOND
BUDGETING. In essence, what holds key
to success today, is a combination of factois
such as adaptability, exibility and agility to
cope with the tuibulence of global business,
suggeststheieseaichoutt.
BBmodelusestoolssuchasBenchmaiking
models (which align taigets with exteinal oi
inteinal best piactices), Shaieholdei value
models (that align decisions of inteinal
manageis with the expectations and inteiests
ofexteinalshaieholdeis),BalancedScoiecaids
(that piovide a stiategic fiamewoik foi local
decisions and piovide leading indicatois that
tell manageis if stiategic goals aie met), and
Rolling Foiecasts (that help monitoi business
changesandiespondquicklyandiniealtime)
amongst otheis. Some of the companies
that have embiaced this model include IBM
Cognos, Ingeisoll Rand, Statoil and Chailes
Schwab.
Teioundtable,whichcompletesadecade-
and-a-half of its existence, howevei, needs to
spieaditswingsbeyonditstiaditionalmaikets
inthewestsoastomakeamuchbiggeiimpact.
It wont be easiei to foice ims in emeiging
economies,suchasIndiaandChina,tomigiate
tosomethingasinnovativeasBBmodel,given
theiideepiootedbelieveintiaditionalmodels
suchasLineBasedBudgeting,ActivityBased
Budgeting,oiZeioBasedBudgeting.Fuithei,
shiftingtosuchaiadicalmodelwouldiequiie
a change in mindset. A majoi advantage of
tiaditional budgeting model is that it oeis a
ioadmaptoanoiganizationanditswoikfoice:
wheiedoesthebusinessstandnow,whatgoal
toachieve,andhowtoachieveit.
Tis method also allows foi gieatei co-
oidination of activities while giving the top
management almost complete contiol ovei
the whole piocess. Achieving this soit of
stability wont be possible in a decentialized
setup.Besides,adaptingBBwouldalsoiequiie
gieateiamountofeoitinundeistandingthe
functioningofthesystemandoveihaulofthe
existing one, that is, tiaditional budgeting.
Needless to say, any change of such level
would invite sti opposition fiom some
people, in this case, top-level executives. Te
challenge befoie an oiganization, hence, is
to instil condence in the people acioss the
boaid. Until that happens, the battle against
tiaditional budgeting would iemain to be fai
fiom ovei. Meanwhile, the piemise that BB
can help oiganizations bieak fiee fiom the
annualbudget tiapand instead focus on value
cieationlookspiomising.TGA
Beyond Budgeting: Redefining Budgeting
RBIs New Debt Recast Norms
Pros & Cons
latedentitiesandansweiabletogoveinmentand
iegulatois(depositoisinawideicontext)about
thedeploymentofiesouices,havenooptionbut
tolendamajoipoitionofthedepositstheycol-
lect fiom public. Besides piudential noims, of-
ten,suchcieditdeploymentsaieguidedalsoby
goveinment policy piesciiptions to meet social
needs and manage agiicultuial and industiial
pioduction and expoitiimpoit of commodities
consideiingnationalpiioiities.
NewPrudentialNormsforDebtRecast
Paiagiaph81oftheRBIsMonetaiyPolicyStatement
2013-14ieadasundei:
Regulatory and Supervisory Measures
Prudential Guidelines on Restructuring of
AdvancesbyBanks}FinancialInstitutions
It was announced in the Second Quaitei Review
(SQR) that the iecommendations of the Woiking
Gioup(Chaiiman:ShiiB.Mahapatia)toieviewthe
existing piudential guidelines on iestiuctuiing of
advances by banksinancial institutions as also the
commentsisuggestions ieceived in this iegaid weie
undei examination and the diaft guidelines would
be issued by end- Januaiy 2013. Accoidingly, the
diaftguidelinesweieissuedonJanuaiy31,2013foi
commentstillFebiuaiy28,2013.Takingintoaccount
T
he iecent tightening of the piudential
guidelines foi coipoiate debt iecasts,
by Reseive Bank of India (RBI), as was
expected,hasattiactedmixediesponse.Onewishes,
this becomes an eye openei foi the goveinment,
oiganizations acioss public and piivate sectois and
even individuals to have a ie-look at theii souices
andusesoffunds.Tiswishisbasedonthefollowing
assumptions:
i) Noonewantstogetintoadebt-tiap,iftheieaie
escapeioutes,
ii) Geneially, any ciedit appiaisal should follow a
piojectappioach,factoiinginieasonableietuin
on investment to meet costs, piovide foi piot
and self-sustainability. Wheie a pioject is not
self-suppoiting, theie should be cleai undei-
standing about the need foi subsidy by what-
eveinameitiscalledoibywhateveimeansitis
piovided,evenwhenthepiojectisonthediaw-
ingboaid,
iii) Goveinment and banks aie institutions which
honoui the concept of public inteiest, because
theii iesouices come fiom public and the pub-
lic expect them to manage such iesouices on a
tiusteeshippiinciple,and
iv) Whilecoipoiates,afteiaccumulatinghugefunds
cansitonpilesofcashfoilong,banksbeingiegu-
Issue of guidelines being followed by RBI in the recent past
elicits and accommodates the concerns and views of the
stakeholders, simultaneously ensuring protection of country-
specific and sector-specific regulatory and supervisory needs
for which the central bank is responsible deserves appreciation.
BANKING
REGULATION
thecommentsieceived,ithasbeendecidedto:
issue the piudential guidelines on iestiuctuiing
of advances by banksinancial institutions by
end-May2013.
TeMay30,2013guidelinesaieinpuisuanceofthis
commitment.Tesalientfeatuiesoftheseguidelines
include:
1. Withdrawal of Regulatory Forbearance
Existing guidelines allow iegulatoiy foibeaiance on
asset classication of iestiuctuied accounts subject
to ceitain conditions, i.e. standaid accounts aie
allowed to ietain theii asset classication and NPA
accounts aie allowed not to deteiioiate fuithei
in asset classication on iestiuctuiing. Te asset
classication benet is also available on change of
date of commencement of commeicial opeiation
(DCCO) foi piojects undei infiastiuctuie sectoi as
wellfoipiojectsundeinon-infiastiuctuiesectoi.
Undei the new guidelines, the extant asset
classication benets available on iestiuctuiing
on fullling ceitain conditions will be withdiawn
foi all iestiuctuiings eective fiom Apiil 1, 2015
with the exception of piovisions ielated to changes
in DCCO in iespect of infiastiuctuie as well as
non-infiastiuctuie pioject loans. It implies that
a standaid account on iestiuctuiing (foi ieasons
otheithanchangeinDCCO)wouldbeimmediately
classied as sub-standaid on iestiuctuiing as also
the non-peifoiming assets, upon iestiuctuiing,
wouldcontinuetohavethesameassetclassication
as piioi to iestiuctuiing and slip into fuithei lowei
asset classication categoiies as pei the extant
asset classication noims with iefeience to the pie-
iestiuctuiingiepaymentschedule.
2. Changes in DCCO
Undeitheextantinstiuctions,standaidinfiastiuctuie
andnon-infiastiuctuiepiojectloanscouldietainthe
standaid asset classication on iestiuctuiing if the
DCCO is changed within a peiiod of two yeais (foi
infiastiuctuie piojects) and six months (foi non-
infiastiuctuie piojects) fiom the oiiginal DCCOs
subject to ceitain conditions. Te existing asset
classication benet available to non-infiastiuctuie
piojectsundeiimplementationoniestiuctuiingdue
to extension of DCCO will continue to be available.
If the delay in commencement of commeicial
opeiations extends beyond the peiiod of one yeai
fiom the date of completion as deteimined at the
time of nancial closuie, banks can piesciibe a
fiesh DCCO and ietain the standaid classication
by undeitaking the iestiuctuiing of accounts in
accoidance with the piovisions in this iegaid
piovidedthefieshDCCOdoesnotextendbeyonda
peiiodof2yeaisfiomtheoiiginalDCCO.Howevei,
banks have to make piovision on theii iestiuctuied
standaid infiastiuctuie and non-infiastiuctuie
piojectloans,apaitfiompiovisionfoidiminutionin
faiivalueduetoextensionofDCCOiiestiuctuiingof
loans.
Undei the new noims, piovision is also theie to
allow extensions in DCCO without being tieated as
iestiuctuiing,subjecttofollowingconditions:
a) Te pioject is an infiastiuctuie pioject undei
PPPmodelawaidedbyapublicauthoiity,
b) Teloandisbuisementisyettobegin,
c) Teieviseddateofcommencementofcommei-
cial opeiations is documented by way of a sup-
plementaiy agieement between the boiiowei
andlendei,and
d) Pioject viability has been ieassessed and sanc-
tion fiom appiopiiate authoiity has been ob-
tainedatthetimeofsupplementaiyagieement.
In all the above cases of iestiuctuiing wheie
iegulatoiy foibeaiance has been extended, the
Boaidsofbanksshouldsatisfythemselvesaboutthe
viabilityofthepiojectandtheiestiuctuiingplan.
3. General Provision on Restructured Stan-
dard Accounts
InNovembei2012,RBIhadincieasedthepiovision
on iestiuctuied standaid accounts to 2.75 pei cent
fiom 2.00 pei cent. Undei the new noims, the
piovisionisbeingincieasedto5peicentiniespect
of new iestiuctuied standaid accounts (ow) with
eectfiomJune1,2013andinaphasedmanneifoi
the stock of iestiuctuied standaid accounts as on
Maich31,2013asundei:
3.50peicentwitheectfiomMaich31,2014
(spieadoveithefouiquaiteisof2013-14)
4.25peicentwitheectfiomMaich31,2015
5.00peicent-witheectfiomMaich31,2016
4. Provision for Diminution in the Fair Value
of Restructured Advances
Te option of notionally computing the amount of
diminutioninthefaiivalueofsmallaccountsat5pei
centofthetotalexposuieatsmalliiuialbianchesin
iespect of all iestiuctuied accounts wheie the total
dues to bank(s) aie less than Rs. one cioie would
be available to all bianches till a fuithei ieview.
RBIs New Debt Recast Norms: Pros & Cons
Banks have been cautioned to coiiectly captuie the
diminution in faii value of iestiuctuied accounts as
it will have a beaiing not only on the piovisioning
iequiiedtobemadebythembutalsoontheamount
ofsaciiceiequiiedfiomthepiomoteis.
5. Promoters Sacrice
Inteimsofextantinstiuction,oneoftheconditions
foi eligibility foi iegulatoiy asset classication
benet on iestiuctuiing is that piomoteis saciice
and additional funds biought by them should be a
minimumof15peicentofbankssaciice.Undeithe
newnoims,piomoteissaciiceandadditionalfunds
bioughtbythemshouldbeminimumof20peicent
of banks saciice oi 2 pei cent of the iestiuctuied
debt, whichevei is highei. Tis stipulation is the
minimumandbanksmaydecideonahigheisaciice
by piomoteis depending on the iiskiness of the
pioject and piomoteis ability to biing in highei
saciice amount. Te piomoteis saciice should
invaiiably be biought upfiont while extending the
iestiuctuiingbenetstotheboiioweis.
6. Personal Guarantee of Promoters
Undeithenewnoims,piomoteispeisonalguaiantee
should be obtained in all cases of iestiuctuiing
and coipoiate guaiantee cannot be accepted as a
substitutefoipeisonalguaiantee.Howevei,coipoiate
guaiantee can be accepted in those cases wheie the
piomoteisofacompanyaienotindividualsbutothei
coipoiate bodies oi wheie the individual piomoteis
cannotbecleailyidentied.
Broad benchmarks for the viability parameters:
i) Retuin on capital employed should be at least
equivalentto5yeaiGoveinmentsecuiityyieldplus
2peicent,ii) Tedebtseivicecoveiageiatioshould
be gieatei than 1.25 within the 5 yeais peiiod in
whichtheunitshouldbecomeviableandonyeaito
yeai basis the iatio should be above 1. Te noimal
debt seivice coveiage iatio foi 10 yeais iepayment
peiiod should be aiound 1.33, iii) Te benchmaik
gapbetweeninteinaliateofietuinandcostofcapital
shouldbeatleast1peicent,iv) Opeiatingandcash
bieak even points should be woiked out and they
should be compaiable with the industiy noims, v)
Tiendsofthecompanybasedonhistoiicaldataand
futuiepiojectionsshouldbecompaiablewiththein-
dustiy. Tus behavioui of past and futuie EBIDTA
should be studied and compaied with industiy av-
eiage, vi) Loan life iatio (LLR), as dened below
shouldbe1.4,whichwouldgiveacushionof40pei
centtotheamountofloantobeseiviced.
Piesentvalueoftotalavailablecashow(ACF)
duiingtheloanlifepeiiod
(includinginteiestandpiincipal)
LLR=--------------------------------------------------------
Maximumamountofloan
Asectionofthemediaandanalystswelcomedthe
newpiudentialnoimsandsomehavechosentopick
up ceitain featuies of the new noims and ciiticize.
Illustiatively, cautioning against the possibility of
tightening of noims stiing enteipiise, Economic
Timesmadethefollowingobseivationsinitseditoiial
onJune8,2013:
Tiue, it (RBI) is conceined ovei the suige in
coipoiatedebtiecaststooveiRs2.29lakhcioieasof
Maich2013.Non-peifoimingassetstoohavegiown
diamatically due to a host of factois: aggiessive
lending duiing the time of easy money, ieveisal
in inteiest iates and the economic slowdown. But
bankeis cannot just do book-keeping. Tey should
havetheabilitytoassessiisksandlendonlytoviable
piojects. Speedy pioceduies must also be in place
to foieclose sticky loans. Te point is not to stie
enteipiise. May 30, 2013 RBI ciiculai has initiated
thepiocessofaddiessingtheseconceinstotheextent
possiblewithintheconstiaintsofaiegulatoi.
GoingAhead
Inthiscontext,themethodologyfoiissueofguidelines
beingfollowedbyRBIintheiecentpast,whichelicits
and accommodates the conceins and views of the
stakeholdeis, simultaneously ensuiing piotection
of countiy-specic and sectoi-specic iegulatoiy
andsupeivisoiyneedsfoiwhichthecentialbankis
iesponsible deseives appieciation. Peihaps, like the
piesentdaypaientswhoaienotabletocopewiththe
speed and coveiage of teaching in the best schools
they send theii kids, Finance Ministiy and top
managementsofbanksandnancialinstitutionsaie
ndingitdiculttokeeppacewiththepiofessional
anddemociaticfunctioningofRBI.Tisissuifacing
asintei-oiganizationalfiiction,whichwill,hopefully,
getsmoothened,aswisdomdawns.Skilldevelopment
beinganongoingpiocess,onehopes,allinstitutions
willgiowwiththetimes.TGA
M G Warrier
Former General
Manager, Reserve
Bank of India,
Mumbai.
Indo-Japan Relationship
Opening a New Chapter
INTERNATIONAL
BUSINESS ENVIRONMENT
Indo-Japan ties have surely reached a tipping point and the coming decades could witness
joint contribution to the next phase of development spanning various sectors in India.
I
n May 2013, amid a uiiy of excitement, the
Indian goveinment made an announcement of
themuchanticipatedpaitneishipbetweenIndia
andJapanthatincludedtheblockbusteitechnological
and business collaboiation to set up a high speed
tiainnetwoikbetweenMumbaiandAhmedabad,the
feasibility study foi which is slated to be completed
bynextyeai.
Foi decades Japan has held an unpaialleled
pieeminence in building high speed iail netwoik.
TeBullettiainhasalwaysbeenhighlyiomanticized
by Indians who have foi yeais been canteied by the
oveiciowded, congested and laggaid Indian tiains.
AlsoknownasShinkanseninJapan,theBullettiain
has been synonymous with Japanese ingenuity,
dexteiity, exactitude and advancement the woild
ovei. It is time now that India adopted the kaizen
(good change in Japanese) and ieplicated Japans
stellai success in vaiious domains of technology,
businessandtiade.
Japanbridgingfriendship
Japanese business ventuies and biands aie not
new to India. Accoiding to the embassy of Japan,
an estimated 1000 Japanese companies have set up
ocesinIndiacieatingovei1,50,000jobsandnames
like Sony, Panasonic, Toyota, Toshiba, Hitachi aie
moiethanhouseholdsobiiquets.Inthe80s,Maiuti
Udyog Limited in collaboiation with Japans second
laigest automobile manufactuiei, Suzuki Motoi
Coipoiation iedened family tianspoit by biinging
the little cai within the ieach of the Indian middle
class. Maiuti 800 became the iconic emblem of the
emeigingmiddleclassIndianwhotookgieatpiideto
paikan800asitwascalledthenbefoiehishouseand
wasalsohailedasthefouithadditiontothefeivently
sloganeeiedsocialistquote-ioti,kapda,makan,aui
meiiMaiuti.
Itwasinthe6
th
centuiythatJapanhadembiaced
- the laigest evei expoited philosophy by India to
the woild Buddhism and many philosopheis and
tiaveleis studied at the ancient Buddhist leaining
centeisinIndia.In2010,Japanextendeditssuppoit
tothemuchacclaimedienewalpiojectoftheancient
NalandaUniveisity,owingtoitsdeepiootedcultuial
tieswithIndia.Incontinuancewithitscommitment
to fund and suppoit education piojects, Japan has
also pledged a $174.8 mn aid to IIT Hydeiabad foi
cieationofitsinfiastiuctuieandieseaichcapabilities.
Post Hiioshima-Nagasaki bombings, Japan, also
knownasNipponoilandoftheiisingsun,hadiolled
itself on a iigoious industiialization path to emeige
asoneofthelaigesteconomiesofthewoild,banking
onitsexpoitsofautomobiles,telecompioductsand
consumei electionics foi its stupendous giowth.
Howevei, the iesouice constiained nation had to
depend seveiely on impoits foi its sustenance and
soon ian a successful economic model undeiscoied
byexpoitofnishedpioductsandimpoitofnatuial
iesouices.
Tesunrisesintheeast
Post globalization, the Indian goveinment began
to scout foi economic and stiategic alliances with
countiies like Tailand, Singapoie, Indonesia and
now Myanmai while Japan continued to iemain its
well-wishei. Te iise of China as a signicant woild
poweiandemeigenceofASEANpiomptedIndiato
fosteitiadewithitseasteinneighboisasapaitofits
lookeastpolicy.
Duiing the same time the Japanese economy
plummeted and was unexpectedly accosted with a
staggeiing asset deation also the woist evei in the
histoiy of global economies as a consequence of
Tokyo stock exchange ciash and fall in land piices.
Japans debt to GDP iatio skyiocketed to moie than
200 peicent and the countiy even iepoited zeio to
negative iates of giowth, iates that aie yet to see
consistenthighiisebaisonitschaits.Asifthatweie
not enough giant Japanese business houses began
iepoiting continuous losses. No soonei Japan did a
soulseaichandiecognizeditshighcostofpioduction
as a piominent factoi that had cieated a dent in its
businessandeconomicmodelthesolutionfoiwhich
liedinwiigglingoutofitscocoontotuintiulyglobal
by outsouicing its activities to iegions that oeied
lowwagelaboiandlowcostiesouices.
IndiaandOrientalism
Te devastating tsunami followed by a catastiophic
nucleai disastei at Fukushima in Maich 2011 shut
down Japan foi almost a month and Japanese
economywasonceagaindowninthedumps.Itledto
aslipdownfiomitspositionofbeingthethiidlaigest
economy in the woild accoiding to a conventional
calculationsystemoftheIMFandhandingoveithe
sametoIndia.Toughthisfalldoesnotieallymattei
inteimsofabsoluteGDPnumbeistoJapanmoieso
incompaiisonwithIndia,thecountiyhas,howevei,
taken cognizance of Indias giowth stoiy and is
stiidingtopaitneiwithIndiatodiumupitsbusiness
andtiade.
It is in this context that a long teim stiategic
paitneishipwithIndiabecomesciucialfoibothIndia
and Japan. Te ist and foiemost tiade agieement
between India and Japan was signed in 1958 which
piomoted bilateial tiade between the two countiies
andIndiahasbeenthelaigestbeneciaiyofJapans
ODA (Ocial Development Assistance) of late.
In the 80s, China was the highest iecipient of aid
thiough ODA that cannonballed its infiastiuctuie
withfundingsuppoitfiomJapan,andalsodiastically
impioveditsbilateialtiadewiththecountiy.
Japan has always guied in the top ten expoit
destinations foi India. Japan impoits agii-pioducts,
sea food especially shiimps, fiuits, vegetables and
othei commodities excessively fiom India. Indian
mangoesaiesaidtobeafavoiiteamongtheJapanese.
Howevei,alotmoiecanbeachievedontiadefiont
involving the two countiies. Compaied to India-
Chinatiade,whichstandsat$70billionason2011,
tiadebetweenJapanandIndiaismuchloweiat$18.4
billion. China continues to be the biggest tiading
paitnei foi Japan and foi India as well. Japan is the
11
th
laigesttiadingpaitneifoiIndiawhilefoiJapan
Indiadoesnotevenguieamongthetop20.
Howevei,afteithesigningoftheCompiehensive
Economic Paitneiship Agieement (CEPA) in 2011,
things have begun to look up. Japanese FDI into
India has steadily been incieasing with sectois like
automobile, telecom and electionics diawing a
lions shaie of the investments. Duiing the peiiod
betweenApiil2000andMaich2013,Indiaieceived
Japanese FDI woith $14.55 billion and since 2002
bilateial tiade between the two countiies has gone
Hyma Goparaju
Managing Director, Indigen
Technologies Pvt Ltd
upsixtimes.TeFDIinowfiomJapaniscuiiently
estimatedat$18.77billion.
Tesecapitalinowshavepaiticulaisignicance
toIndiainthebackdiopofachasmiccuiientaccount
decit (CAD) and Indian goveinments huiiied
eoitstonaiiowitdowntothedesiied2peicentof
GDP.
Tat India has not suciently expoited to Japan
despite CEPA as impoits fiom Japan to India have
incieased to $12.5 billion (an inciease of 3 peicent
ovei last scal) and Indias expoits to Japan have
decieased to $6.26 billion in 2013 (compaied to
$6.32billioninscal2012)continuestoannoyIndian
expeits.
Unless India diaws moie capital inows and
expoitsmoie,itwouldnotbeabletoaiiesttheevei
wideningCADwhichhasalieadytiiggeiedsucient
dominoeectiangingfiomdepieciationoftheiupee
to inciease in ciude piices and continues to spook
thenancialmaiketsinIndia.
Teiecentienewalofpaitneishipaimsatdoubling
bilateial tiade to $25 billion by 2014 and envisages
biggei and bettei tiade in teims of volumes and
ievenues in the yeais to come. Te tie-up piomises
exchangeofagamutofcollaboiationsintheeneigy,
infiastiuctuie (powei giids, ioads, iailways, poits)
and defense sectois. India has laid out a $1 tiillion
infiastiuctuie spending plan foi the next ve yeais
andJapanisexpectedtogaineialaigeishaieofit.
Investments in the social infiastiuctuie sectois
especially in the health and education aie a piioiity
foibothcountiies.Japaniseageitoinvestheavilyin
India to tap its domestic maiket while India looks
foiwaid to beneting fiom Japanese expeiience
of hainessing advanced technologies and building
woild class infiastiuctuie. India has a competitive
advantage in the IT and ITES seivices sectoi ovei
Japan and many Indian IT companies could see
themselvesyingintoJapaneseocesasJapanopens
itsdooistoIndiansoftwaieengineeis.
JapanLoveinTokyo
Japanhasalwayskindledampleinteiestandcuiiosity
among the Indians. Te famous 60s Bollywood
movie Love in Tokyo had showcased the oiiental
Japanese life in ieel to a iejoiced Indian audience.
Te southein supeistai Rajnikanth is said to have
anaidentfanfollowinginJapan.Whilethekimonos
and bullet tiains have inspiied many a megahit, it
is to be noted that the Japanese aie among the top
ten touiists to India and theii numbeis have only
been steadily incieasing yeai on yeai
with aiound 1.9 lakh visitois in 2011
alone. Teie is a tiemendous amount
of untapped potential in the exchange
of touiism between the two countiies
and if done iightly it could help India
and Japan to get a bettei undeistanding
of theii political, cultuial and economic
similaiities and diveisities which could
intuinhelpincementingtheiities.
Te Piime Ministei Manmohan
Singhs 4-day visit last May was closely
monitoied by China and the Chinese
media launched a vitupeiative attack
at both Japan and India as the visit is a
signicant milestone not just fiom an
Indian,JapaneseoiAsianpeispectivebut
fiom a global dimension too. Te alliance foiged by
thegoveinmentsofboththecountiiesaieexpected
toleadtotiansfoimationinthepolitical,secuiityand
economicpaitneishipsaciosstheglobeandpundits
believe that it could fostei ienewed amicability
between many nations who have held to theii own
guaidinthispaitofthecontinent.
Awin-wincombo
In a suivey conducted by the ministiy of foieign
aaiisofJapanin2009inIndiatoassessitsieliability
andfiiendlinessquotientamongstIndians,92peicent
votedfavoiablywhileinaieseaichconductedbythe
Japan Bank of Inteinational Coopeiation in 2012 in
Japan,Indiawasiankedasthemostpiomisinglong
teimcountiyfoilongteimbusinessandthesecond
most aftei China foi medium teim business by
Japanesecompanies.
There is a tremendous amount of untapped
potential in the exchange of tourism between
the two countries and if done rightly it could help
India and Japan to get a better understanding of
their political, cultural and economic similarities
and diversities which could in turn help in
cementing their ties.
Indo-Japan Relationship: Opening a New Chapter
Asapaitofitsnucleaipoweigeneiationpiogiam,
India plans to set up 20 nucleai powei plants and
incieaseitscuiientshaieof4ofnucleaipoweito
25 by 2050. Japan with its advanced capabilities
in nucleai powei geneiation is eyeing the $150
billion Indian nucleai powei maiket and aims to
supply technology and equipment. Both India and
Japan could, howevei, face multiple huidles fiom
enviionmentalists acioss the woild in the afteimath
of the Fukushima disastei and successive intense
globaleoittoieduceatomicpoweigeneiation.
AccoidingtoastudybytheEuiopeancommission,
Indianimshaveiecoidedthehighestgiowth(35)
inR&Dinvestmentsmakingityetanotheiattiactive
aieafoiinvestmentandoutsouicing.Untilnow,the
UShadbenetedthemostbytappingtheknowledge
basefiomIndiaandJapanispoisedtobenextinline
asitsmajoiauto,phaimaandelectionicsimshave
alieadystaitedsettingupR&DbasesaciossIndia.
Indo-Japan ties have suiely ieached a tipping
point and the coming decades would witness joint
contiibution to the next phase of development
spanningvaiioussectoisinIndia.
Japan holds the maximum shaie in Asian
Development Bank and its collaboiation with India
couldfacilitatehasslefieecleaiancesofloanstoIndia
foidevelopmentalactivitiesinwhichbothcountiies
aie jointly campaigning foi especially in the sectois
ofinfiastiuctuieandeducation.
Japan has been saddled with uncontiolled
deationfoialmosttwodecadesandhassetataiget
of an ination iate of two pei cent in the next two
yeais. Abenomics has alieady begun to show its
iesultswiththeiecentweakeningoftheyenthathas
boosted piots of many Japanese coipoiations like
ToyotaandSony.
Te Japanese and Indian syneigy comes in at a
time when political and geogiaphical stability in
Asiaisbeingthieatenedbyaggiessionandincuision
at Indian boideis. Japan and India both depend
excessively on the middle-east foi theii oil impoits
makingitimpeiativefoithemtohaveaieliableand
secuie sea tianspoitation ioute. Te India-Japan
alliance would not only seive to advance tiade and
commeice, but also help in playing a foimidable
iole in stiengthening defense, political and foieign
ielationsaciossSouthAsiawhichisindeedacuiient
stiategic necessity in the backdiop of a ciafty
diusion of the stiing of peails sewn in the Indian
seas, to safeguaid Indias economic, stiategic and
politicalinteiests.TGA
Ethics in Business
The Worlds Most Ethical Companies
FEATURE
BEST PRACTICES
Doing business ethically can drive a firms long-term growth, suggests the Ethisphere, a New
York-based think-tank dedicated to promote the concept of ethics in business.
H
owoftendoyoucaiewhetheithecompanys
pioduct(s) you aie buying has violated
pollution noims oi has been found to be
lacking when it comes to piotecting inteiests of
its minoiity shaieholdeis oi has been found guilty
of biibing goveinment ocials to seek favoui, oi
sells pioducts that do not piomote healthy living,
etc? Its not unusual to discovei the usual nay fiom
iespondents.Howevei,soonthiswouldbechanging
asawaienessaboutsuchissuesgiows,thankstothe
eoitsofoiganizationslikeTeEthispheieInstitute,
a US-based think-tank dedicated to the cieation,
advancement and shaiing of best piactices in
businessethics,coipoiatesocialiesponsibility,anti-
coiiuptionandsustainability,whichhasjustieleased
its seventh annual list of the Woilds Most Ethical
Companies.
Te list consists of companies which focus
on ethics as a key diivei of theii ieputation, and
caie about conducting business in an ethical and
sustainable mannei. Accoiding to the Institutes
ocial website, Te Woilds Most Ethical (WME)
Companies designation iecognizes companies that
tiuly go beyond making statements about doing
business ethically and tianslate those woids
into action. Te companies that make the cut
not only piomote ethical business standaids and
piactices inteinally, they exceed legal compliance
minimums and shape futuie industiy standaids by
intioducing best piactices today, the site claims. In
essence, an entiy to this piestigious list signies a
ims unwaveiing commitment to good coipoiate
citizenship.Coipoiationsincieasinglyiecognizethe
coiielation between ethical business piactices and
long-teimmaiketsuccess.
Accoiding to the web site of the Institute, the
evaluation and selection piocess foi Ethispheies
Woilds Most Ethical Companies is Ethispheies
piopiietaiy iating system, the coipoiate Ethics
Quotient(EQTM).TefiamewoikofEQiscompiised
of a seiies of multiple choice questions that captuie
acompanyspeifoimanceinanobjective,consistent
and standaidized way. Te infoimation collected
is not intended to covei all aspects of coipoiate
goveinance,iisk,sustainability,complianceoiethics,
butiatheiitisacompiehensivesamplingofdenitive
ciiteiiaofcoiecompetencies.Howevei,sincethelist
does not iank companies, so, all of them making to
thelistaiewinneis.
Te Institute ieckons that theie is a coiielation
between ethical business piactices and long-teim
maiket success. In oidei to iecognize such best
piactices, the Institute also oeis ceitication
in Ethics Inside. Te ceitication is awaided to
companies that can demonstiably piove a supeiioi
employeeandleadeishipcultuiethatpiomoteethical
business piactices. A ceitication in Ethics Inside
mean the company is view positively by iegulatois,
talentedemployeesaiemoiewillingtowoikwithit,
investoiswouldliketoholdthestock,etc.
Accoiding to the Institute, the 2013 list consists
of a iecoid 145 companies acioss moie than thiee
dozen industiies, fiom aeiospace to wind
powei.Inteiestingly,thisyeaislist,toppedby
Swiss engineeiing giant ABB, also consists of
twoIndiancompaniesTata SteelandWipro.
Toughtheieaieonly43non-Ameiicanims
inthisyeaislistthatcontinuestobedominated
bytheUSims.
Since the think-tank began publishing
the list, 23 companies have made the list all
six yeais including: Aac, Ameiican Expiess,
Fluoi, Geneial Electiic, Milliken & Company,
Patagonia, Rabobank and Staibucks, among
otheis.TGA
TeWorldsMostEthical(WME)Companies:2013
SomeWinners
Company Industry Country
ABB Asea Brown Boveri Electrical equipment Switzerland
Accenture Business services Ireland
Adobe Systems Incorporated Computer software US
AECOM Engineering and design US
Aac Inc. Insurance: health US
Alcoa Metals and mining US
All Good Organics Food and beverage New Zealand
TataSteelLtd Metalsandmining India
WipioLtd Computeisoftwaie India
American Express Financial services US
Source: Te Ethisphere Institute
Source: Te Ethisphere Institute
Ethics in Business: The Worlds Most Ethical Companies
Fixed Deposits
A Risk Perspective
PERSONAL FINANCE
REGULATION
To protect retail investors, government needs to regulate any form of public
deposit mobilisation and making it mandatory for sufficient disclosures. At the
same time serious efforts need to be made to improve financial literacy.
A
mailei adveitisement pioclaims Eain up
to 15.07 pei cent assuied ietuins with XYZ
xed deposit scheme, uiging investois to
subsciibe to the companys xed deposit scheme.
Whyaietheietuinsalmost50peicenthigheithan
a compaiable xed deposit in a public sectoi bank
in India? On piobing fuithei it becomes appaient
that the deposit oei is a cumulative inteiest iate
oveiapeiiodofthieeyeaisbyaiealestatecompany.
Onexaminingfuitheiitbecomesappaientthatthe
companysxeddepositpiogiammeisnotiatedby
any ciedit iating agency thus making it dicult foi
investoistakeaviewonthecieditiiskinvolvedfoi
investment in the xed deposit. Te xed deposit
application foim of this company is a biief foui
pageinotgivingmuchinsightintothecieditquality
of the company fiom a ietail investoi peispective.
Onthecontiaiy,ifthesamecompanyweietomake
a public issue of debentuies oi bonds the company
would have to publish a detailed piospectus giving
seveialdetailsincludingacieditiating.
In addition, it is also impoitant to note that
coipoiate oi NBFC xed deposits aie completely
unsecuied quite contiaiy to the assuied ietuins
claimed by the adveitisement. Bank xed deposits
aie also unsecuied but aie backed by a deposit
insuiance upto stipulated amounts and hence aie
ielativelysecuied.
Companies defaulting on xed deposits is not
unheaidofintheIndiancontextandwhensuchlaige
inteiest iate dieientials vis--vis bank deposits aie
oeied by any company alaim bells need to iing to
any investoi about the iisk involved in these xed
deposits.
In the woild of iisk, theie is always a iisk-
ietuin tiade-o, the highei the iisk, the highei the
potential ietuin, which is often not undeistood
by ietail investois as they get luied by the highei
inteiest iates oeied. Tis also explains the iecent
case wheie laige numbei of ietail investois faced
defaults on theii deposit schemes. Tese schemes
oeiing substantially highei ietuins luied these
ietail investois. Investois need to appieciate that
whenaxeddepositschemeisoeiingsubstantially
highei iates of inteiest the boiiowei company has
Rajesh Mokashi
Dy. Managing Director,
CARE Ratings, Mumbai
to use the money in ventuies which will pioduces
coiiespondingly highei ietuins so as to iepay the
depositoisback.
Fixeddepositsoiteimdepositsastheyaiecalled
byBankshavebeenmostimpoitantsouiceoffunding
piimaiilybybanks,howeveiNBFCsandcoipoiates
have also ielied on this instiument to meet theii
fundingneeds.
BanksinIndiaaieiegulatedbytheReseiveBank
of India. Fiom the peispective of iisk, howevei,
banks (instiuments) with iatings coveiing the
complete spectium of iatings fiom AAA coming to
downBBBandevenbelowaieavailablefoiinvesting.
Teieaieseveialotheibankswhichiemainuniated
and to that extent it is extiemely dicult foi ietail
investois to know about theii ciedit woithiness.
BankfailuieisalsonotunheaidofinIndiaandhence
itisveiyimpoitantfoiietailinvestoistoknowabout
thenancialpositionofthebanksbefoietheyinvest
theii haid eained savings. In the absence of any
infoimationonthecieditqualityofbanksdepositois
aiefieetomakeachoiceofthebankswheietheyhave
someideaaboutitsstiengthifnotsimplytheiating.
Meiely because an entity is called a bank oi that it
hasasmaitlydesignedbianchoceisnoassuiance
foidepositoisafety.Bankingsectoihaslaigevaiiety
of banks such as public sectoi banks, piivate sectoi
banks,co-opeiativebanks,etc.
Inteinationally, bank failuies do occui and the
afteimath of the nancial ciisis is well known. It is
impoitanttoincieasetheawaienessofietailinvestois
in India moie so in the smallei cities iegaiding the
need to know about iisk piioi to investing in any
bankoiotheidepositschemes.Tisappioachwould
alsokeepincheckanydepositscams.Bankdeposits
aieconsideiedattiactiveinIndianotonlybecauseof
thesafetyoeiedbythehighlyiatedbanksbutalso
because of the complete exibility oeied by these
deposits to meet vaiious investoi iequiiements
in teims of liquidity, matuiity, loan against deposit
etc. Many banks also oei facilities to open FDs
online and adding to the convenience. Fiom a tax
peispective while the lowei income segments and
lowei tax biacket investois nd deposit ietuins
attiactive,foithehightaxbiacketinvestoisthepost
taxietuinsaiemuchloweithanotheioptionssuch
as Fixed Matuiity plans (FMP) oeied by Mutual
Funds.FMPsmaynotbestiictlycompaiabletoabank
depositfiomaiiskpeispectivebutoeisaieasonable
tiade-ofiomaiiskandietuinpeispectiveandoei
attiactiveietuinsfoithehigheitaxbiacketinvestois
andhencecontinuetobepopulaiinIndia.
Foi the nancial yeai 2012-2013, bank teim
depositsweieestimatedtobeRs.60895bn,agiowth
iateof15.25peicent.Banktimedepositsweiealmost
90peicentofthetotaldepositsofbanks.Compaied
tobankdeposits,NBFCandcoipoiatedepositsweie
asmallfiactionofbankdeposits.
Coipoiates which iesoit to boiiowing using
xeddepositpiogiammesgeneiallytendtobethose
with lowei ciedit iatings oi aie often uniated. Te
highei iated coipoiates piefei to nd diiect bank
boiiowings a much cheapei as compaied to the
additional costs involved in mobilising deposits and
seivicingthem.Coipoiatexeddepositsaieilliquid
as compaied to bank xed deposits (which oei
facilityofpiematuieiepayment)andhencetendsto
oei somewhat highei inteiest iates to compensate
foitheiiilliquidity.
Anotheiconceptthatneedstobewellundeistood
by depositois is that in the xed income secuiities
maiket diveisication is ciitical as one moves
down fiom the highest AAA iated xed deposit
piogiammes. Te likelihood of default incieases
exponentially as one comes down the iating
laddei fiom AAA iatings. Achieving high level of
diveisication at an individual level is somewhat
dicult which exposes investois to concentiation
iisk.Abetteilevelofdiveisicationcanbeachieved
usingaMutualfund.
Inthebankingcontextalaigepaitofthedeposits
tend to be in the less than one yeai categoiy diiven
maybebytheinvestoisdesiietokeepbetteiliquidity.
Howevei, in the piocess a depositoi could saciice
evenupto200bpsininteiestiateavailablefoilongei
matuiity deposits. Investois need to make theii
choice of deposit matuiities based on theii actual
iequiiement of liquidity to avoid saciicing highei
inteiest. Choosing an incoiiect time hoiizon also
exposesinvestoistotheiapidchangesininteiestiates.
To piotect ietail investois, goveinment needs
to iegulate any foim of public deposit mobilisation
and making it mandatoiy foi sucient disclosuies.
Atthesametime,seiiouseoitsneedtobemadeto
impiovenancialliteiacy.TGA
COVER STORY
Indian agriculture is plagued with small land holdings, stagnant productivity and
issues in input management. Inefficient supply chain and too many intermediaries
in the value chain add to the supply side problem. Direct Farming has emerged as
one of the means towards the end that is - an efficient value chain. Direct Farming
creates a virtuous cycle of high investment and enhanced productivity by linking
producers with profitable markets. It adds to the risk-taking capability of the grower.
But Direct Farming is not the panacea for all the ills in the sector. A slew of initiatives
is necessary to accelerate the long-term of growth of the sector from 3 to 4 per cent,
opines Deepak Nighoskar, Managing Partner, Avizare Solutions, Gurgaon, India.
Ifthecoinisipped,anentiielydieientpictuie
emeiges.Long-teimagiicultuiegiowthhasstagnated
aiound 3 pei cent - giowth in the last decade has
been highly uneven. Adjacent guieshows cleai
undeipeifoimance of the sectoi vis--vis oveiall
GDP. Dwindling faim size has cieated additional
piessuie on land. Small and maiginal faims (< 2.0
hectaie) compiised aiound 41 pei cent of all land
holdings in 2005-06, up fiom 39 pei cent in 2000-
01, aveiage land holding size has fallen to just 1.23
hectaies. Add to this, the stagnant pioductivity and
issuesininputmanagement,andwehaveasectoiin
needofmajoipolicyinteiventions.
Crushthevaluechain
Faim to foik chain is exceptionally long in India.
Faimhaivestpassesthioughnotlessthanfouihands
befoieitlandsinendconsumeisbasket.
Localagentsdontevenhavethestoiagecapacity
oi the capability to piocess the commodity, foiany
valueaddition.Teydonotdistinguishonthebasis
ofgiadeoiqualityofpioducebutpiotmainlybased
Souice:MinistiyofAgiicultuie,GoveinmentofIndia
GDPAgii.&Allied
7.6
2.4
8.2
3.5
Trend in Growth (%)
2002-07 2007-12
W
ith 1.21 billion mouths to feed, not
suipiisingly, Indian food maiket is huge
andbulging.Itisslatedtotop$600billion
oveithenextveyeais.Foodoccupies44peicentof
uibanIndiaswalletshaie.Tecountiyistheleading
pioducei of agiicultuie commodities in the woild.
Foiinstance:
1. India is the woilds second laigest pioducei of
ceiealsandpulses(245milliontonnes)
2. It is also the 2nd laigest pioducei of fiuits and
vegetables(221milliontonnes)
3. Fuithei,itiankstopinmilkpioduce(100million
tonnes)
4. Itianked5thineggpioductionand18thinbioil-
eipioduce
onoppoitunity.Tepioblemispaiticulailyacutein
peiishableslikefiuitsandvegetables,whichleadsto
highpost-haivestwastage.
Incidentally,theonlyvalueadditionthathappens
at some of these stages is padding up of maigins.
Gioweishavelimitedaccesstoiealtimeinfoimation
including maiket piices and lack modein iisk
managementexpeitise.Holdingcapacityofgioweis
being limited, theii baigaining powei vis--vis the
plethoia of inteimediaiies is weak and they have
to take the piices as given, unlike ceieals wheie
minimumpiicesaieviituallyguaianteed.
Conicting numbeis have been put foiwaid on
thepost-haivestwastageofhoiticultuiepioduce,but
the most authoiitative numbei comes fiom Cential
InstitutefoiPostHaivestEngineeiingandTechnology
(CIPHET). As pei the institutes study, these losses
vaiy fiom 5-18 pei cent foi dieient hoiticultuie
ciops.Te wastage happens at all the stages of value
chain as pei the CIPHET study.Tese ndings aie
supplementedbyanotheisetofnumbeisoncuiient
coldstoiagecapacity,whichishighlyinadequateand
meets only 40 pei cent of the demand. Only about
6000ieefeitiucksaieinopeiationasofnow.
Fiom the peispective of buyei, especially
piocessing and maiketing ims, any slack in the
supply chain means highei costs, unceitainty of
supplyandpooiquality.
BhartiWal-MartPartneringforsustainedgrowth
Investing in local gioweis to help them impiove quality and pioductivity, and bypassing the vested
inteiests in the entienched and aichaic maiketing stiuctuie will dene the success of any modein day
ietailei.
BhaitiWal-Maitstaitedwithonly65gioweisinthestateofPunjab.Tioughtechnicalinteiventions
like soil testing, vaiiety selection, nuiseiy management, feitilizei and pesticide application, integiated
pest management and post-haivest management, it today connects with ovei 7,000 small and maiginal
gioweisaciosssevenstates,thioughitspiogiamofDiiectFaiming.Wal-Maitwoikswithgioweiswhoaie
iespectedlocallyandintuincanconvinceotheis,withintheiispheieofinuence,towoikfoitheietailei.
Tesegioweisaieopentomodeiniiiigation,havehigheiyieldsandaiecapableofciopiotation.
Demonstiationfaimsaieusedtotiainthegioweis.BhaitiWal-Maitaimstosustainablyenhancethe
incomeofthesmallandmaiginalfiuitandvegetablegioweis,includingwomen,thioughiobustbackwaid
andfoiwaidintegiation.Itclaimstopaygioweisapiemiumofatleast3peicentabovethemaiketpiicefoi
betteiqualitypioduce.Ithastie-upswithlogisticscompaniestosendfieshpioducetostoiebyiefiigeiated
tiucktoitsBest Pricewholesalestoies.
Bhaiti Wal-Mait aims to souice 50 pei cent iequiiement of fiesh pioduce diiectly fiom ovei 35,000
gioweisinIndiaby2015,iscommittedtoimpiovegioweisincomeby20peicentandieducesupplychain
wasteby5peicentbythattime.
Souice:Companywebsite
Consumei Retailei Wholesalei
DistiictCom-
missionAgent
VillageCommi-
ssionAgent
Faimei
Maigin
Shaie10
100 20-30 15-25 15-25 15-25 20-30
Souice:AvizaieAnalysis
Wholesalei Retailei
FaimeiiLaige
Aggiegatoi
Ciopdamage
Impiopei
Haivesting
techniques
Pooipackaging
pooitianspoi-
tation
Moistuieloss
Pooihandling
Pooitianspoi-
tation
Multiplehaid-
ingstoiage
Giadingsoit-
ingbyietaileis
Pooihandling
PooiTianspoi-
tation
Handlingby
customeis
Moistuieloss
Wastageaciossvaluechain
Souice:CIPHET,Ludhiana
Reviving Agriculture: Can Direct Farm Program be an answer?
OneofthekeystounlockingIndianagiibusiness
potential and making it globally competitive is to
compiess the value chain (too many inteimediaiies
andill-infoimedgiowei)andtakeouttheinheient
ineciencies fiom the supply chain high wastage
and inadequate infiastiuctuie. Value chain can be
ciushed thiough Diiect Faiming, wastage can be
eliminatedbycieatingextensivebackendinfia,bettei
stoiage and tianspoit facilities, and gioweis can be
educated about maiket tiends and new piactices
thioughbetteiextensionseivices.
DirectFarmingbridgesthegap
One of the ways this can be, and is being, done is
by biinging the giowei and the consumei neaiei
thioughDiiectFaimingwhichmaybeinthefoim
ofcontiactfaimingoialooseaiiangementbetween
the buyei and the giowei, ensuiing ceitainty of
exchange.
Te biggest disiuption to entienched value
chain is the entiy of big foieign ietaileis and food
piocessingcompanies.FoieignDiiectInvestmentin
multibiandietailcomeswiththestiingsattached
50 pei cent investment in backend infia (including
coldchain)and30peicentpiocuiementfiomSMEs
(incidentally, this excludes fiesh pioduce). Tese
conditions aie specically meant to addiess the
issuesinthevaluechain.
6 years and Rs.450 crore Tats what it took
McDonalds to set up the food supply chain even
befoieopeningitsistiestauiantinthecountiy.
An ecient supply chain is one of the ieasons
foi 30-40 pei cent annual giowth iecoided by the
company.Teiimulti-layeiedsupplychainhasfood
ingiedientsupplieisattwolevels:
1. Tiei I has coie piovideis supplying piocessed
pioductsVegetableandchickenpatties,potato
CommercialSavvy+FinancialandTechnicalsupport=RichHarvest
Belonging to a faiming family, when Chandiamohan decided to set up a gieenhouse foi hoiticultuie
pioduction,itwasaninfoimeddecisionthatwasbackedbytechnicalexpeitisefiomthedistiicthoiticultuie
depaitmentinGuigaonandanotheigiowei-cum-entiepieneui.Piotectedcultivationmultipliesyieldsby
up to 10 times ovei the tiaditional open eld pioduction. Financial iisk was shaied by state and cential
goveinmentsinthefoimofsubsidyfoisettingupthegieenhousestiuctuie,diipiiiigationandsaplings.
Te choice and timing of cucumbei as the ist ciop has been inteiesting. Chandiamohan, going against
tiaditionalpiactice,advancedthecioppingcyclebyamonth.Hisistyield,thoughslightlylowei,gavehim
muchhigheiiealizationofRs.24-26ikgasagainstthenoimaliatesofRs.16-18ikgduiingnoimalsummei
times, as he hit the maiket when no othei sellei was available. His ist ciop cycle yielded -20 tonnesof
cucumbeiandaveiageiateofRs.20ikgina4000squaiemeteipoly-house.Whilehehadtosellhisistciop
inthelocalwholesalemaiket,henowhasapotentialtieupwithamajoiietailchain.Infutuie,hecanavoid
tiipstothewholesalemaiketashehasanassuiedbuyeifoiallhispioduce.
Financialandtechnicalsuppoitbygoveinmentagenciesandcommeicialsavvyonpaitofthegiowei
madeitafiuitfulventuiefoihim.Withleainingfiomtheistseason,hehasmanagedtoimpiovetheyield
also.HeisnowlookingatColoiedCapsicumashissecondciopintheadjacentgieenhouse.
(Souice:AvizaieAnalysis)
PotatoAgronomy
McCain is a global fiozen food company with annual sales of $6 bn. Fiozen food vaiiety ianges fiom
piepaied meals to appetizeis like Fiench fiies, potato specialties, appetizeis, pizzas, vegetables, ieady
mealsanddesseits.InIndia,wheieitenteiedin1998,thefocusisonsnacks.Withpotatobeingthemajoi
ingiedient in its pioducts, McCain has focused on the potato agionomy that involves giowing piocess-
quality potatoes,contiactfaimingandpotatostoiage.It haspaitneied withgioweisin Gujaiat towaids
enhancedseedquality,iiiigationsystems,newplantingtechnique,feitilizeiandpesticideapplicationand
stoiage.McCainIndiaclaimstohaveimpiovedtheyieldsfiomoneacieoflandonceaveiagingoneto10
tonnesofpotatoesto15tonnesnow.Fuithei,ithashelpedieducethegioweisexpendituieby35peicent
andincieaseincomeby104peicent.Todaymoiethan1200gioweisinGujaiataiecultivatingpotatoesin
ovei3500aciesofland.Ithasintioducedpotatoesinnon-tiaditionalbelts.
(Souice:Companywebsite)
Connecting Producers to Protable Markets
Hi Investment
Enhanced
Productivity
Hi Margins
Risk
Appetite
wedges,Fienchfiiesandhashbiowns,
2. Tiei II has gioweis and piocessois feeding let-
tuce and potato, poultiy items and coating sys-
temsintotieiIsupplieis.
Piocessed food fiom tiei I supplieis ows into
companyDistiibutionCenteis(DCs)thioughieefei
tiucks. DCs catei to all 300 iestauiants pan India.
Teyopeiateashubsfoiiestauiantsinthehuband
spoke model. Te ieefei tiucks also handle ietuin
logistics. McDonalds entiie supply chain has been
outsouiced, but it has complete contiol ovei its
functioning.McDonaldshaspaitneiedwithMcCain
Foods Pvt. Ltd. and woiked closely with gioweis in
Gujaiat to develop piocess-giade potato vaiieties.
Please iead the McCain stoiy in Box 1.2.Foi othei
agiicultuie pioduce, they have tied up with local
gioweis who meet stiict quality noims and aie able
tomaintainconsistencyofpioduce.
McDonalds has achieved an enviable growth
through smart management of supply chain
and by crushing the value chain. Tey have been
able to price their products aggressively without
compromising on quality, partially at the expense
of intermediaries in the value chain as they
source from farms or near-farms.
Corporatefarmingorcontractfarming
With Direct Farming established as a means
towards the end that is,an ecient value chain,
the question is what is more eective corporate
farming or contract farming?
Oasesofgrowth
States,namely,Gujaiat,Mahaiashtia,Chhattisgaih,Odisha,AndhiaPiadeshandMadhyaPiadeshhave
diiected theii eoits in acceleiating agiicultuie giowth and have piovided the giowth leadeiship. Away
fiom the tiaditional gianaiies which thiived duiing the ist gieen ievolution, these states have emeiged
asthefiontiunneis.Investmentinagiicultuieinfiastiuctuieiiiigation,dedicatedpoweigiid,andfocus
on cash ciops aie some of the factois diiving this outpeifoimance. Te geogiaphy of outpeifoimeis will
expandinnextfewyeais,onthebackofamajoiinitiativetobiingabouttheSecondGieenRevolution.
Anotheistiandofoutpeifoimancehasbeeninspecicciopsmaize,gioundnut,soyabean,oilseeds
and cotton stand out as stai peifoimeis in this decadal giowth stoiy. Cotton is the one of the biggest
success stoiies since the intioduction of BT cotton in 2002-03. India has also emeiged as the second
laigestpioduceioffiuitsandvegetableglobally,besidesbeingleadeiinseveialciops.Teshiftawayfiom
tiaditionalceiealsisalsoevidentingiowthoflivestockcontiibutiontoagiicultuieandalliedsectois.Te
thiidstiandistheinputsidetechnologyhasplayedakeyioleheie.Innovativeandecientmanagement
of gioundwatei iesouices, impioved quality of seeds, hi-tech and piecision faiming inteiventions have
helpedinitiateamajoichangeinthewayagiicultuieispiactisedinIndia.
(Souice:AGRINATION:TheEmeigingHotspots,AvizaieSolutions)
Biggest obstacle to coipoiate faiming in India
hasbeenthelandceilinglawsandtheowneishipof
agiicultuieland.FewstateslikeMahaiashtia,Gujaiat,
Madhya Piadesh, Chhattisgaih and Kainataka have
libeialized land laws allowing coipoiates to manage
andopeiatelaigelandholdingsfoispecicpuiposes
like bio-fuel, R&D, expoit, etc. Teie have been
initiativestousewastelandstoofoihoiticultuieand
bio-fuelspuipose.Butgiventhattheseinitiativesaie
stillintheiiinfancy,itwouldbetooeailytotakeacall
ontheiisuccessoifailuie.
Te aigument in favoui of coipoiate faiming is
itsallocativeeciency,higheipiivateinvestmentin
agiicultuieandiesultanthigheioutput,incomeand
expoits.Pleasenotethesameiesultcanbeattained
with consolidation of land holdings in the iuial
hinteiland a huge institutional iefoim. But does
this pieseive the village eco-system and would the
gains of incieased investment benet the villages?
With big ims buying up land, coipoiate faiming
has the potential of nudging out tiaditional giowei
out of business and monopolizing on the nancial
eco-systemofthevillage,wheietheeistwhilegiowei
wouldseiveeitheiaslaboihandoismalltimevendoi.
One of the alteinatives is contiact faiming,
wheie the laige buyeis like McCain, McDonalds oi
BhaitiWal-Mait piovide the technical and nancial
suppoit - ensuiing quality and consistency of the
ciop,andintioducemodeinfaimingpiactices,atthe
sametime,contiactingtobuythepioduceatmaiket
oi othei mutually agieed piices. Teie is evidence
tosuggestthatcontiactfaimingbesidesbeingmoie
widespiead and sustained has the positive impacts
likepiovidingpiotablemaiketaccesstopioduceis,
impioved faim incomes, skill up-giadation due to
tiansfei of technology, and shaiing of maiket iisk
(iefei to Diiect Faiming expeiiences of Bhaiti Wal-
MaitinBox).
Expeiience suggests that Diiect Faiming cieates
a viituous cycle of high investment and high
pioductivity by linking pioduceis with piotable
maikets.Besides,itaddstotheiisk-takingcapability
of the giowei (see Box - Commeicial Savvy...i
Chandiamohans case study). So, is Diiect Faiming
the panacea foi the ills of pooi pioductivity, low
investmentandinecientpioductionpiactices?Te
said Box illustiates how agiicultuie has piospeied
inpocketsaciossseveialstates.Tisalsoshowsthe
wayaheadfoithesectoi.
To acceleiate the long-teim giowth of the
sectoi fiom 3 to 4 pei cent, Bouquet of Initiatives
is necessaiy that piomotes piivate investment,
enhance pioductivity and piovide maiket access to
gioweis. Piivate investment would be necessaiy to
accentuate these tiends in agiicultuie. Some of the
necessaiypolicystepswouldbeconsolidationofland
holdings,iemovingmaiketineciencies,incieasing
the technological absoiption capacity of gioweis,
piomoting hoiticultuie, cash ciops, allied activities
and encouiaging R&D activity in the sectoi. While
piivateinvestmentisnecessaiy,itwillnotnecessaiily
ow into ceieals but will be concentiated into cash
ciops and piocessing. Public sectoi will still have
to guide the less luciative segments and cieate
conducive policy atmospheie, in the meantime, foi
theentiiesectoi.TGA
MSMEs
How a CFO can Play a Crucial Role?
ENTREPRENEURSHIP
LEADERSHIP
With globalisation and
aspirations running high,
a CFO can play a very vital
role in evaluating inorganic
growth to capture the
required lead in growing
business.
contextofabovechanges.
1. Score keeper on data and Information High-
way CFO as a lead planner and perfor-
mance manager
In a tiaditional iole as a scoie keepei, a CFO needs
to play the iole of keeping nancial data integiity
and accounts hygiene. It is impoitant automation
tools aie being deployed with the iight inteinal
contiolssysteminplace.Iniecenttimes,tiansaction
piocessing has taken a huge leap with technology
advancementandoutsouicingofnon-coiefunctions
withinnancegainingfastgiound,helpingtheCFO
tofocusoncoieissues.ItisimpoitantthattheCFO
keepsbenchmaikingcostofnancefunction(COFF)
andqualityfactoiswhiledeliveiinghisioleasascope
keepei. We have seen companies in public domain
like Infosys deliveiing nancial closing iesults on
dot,yeaiafteiyeaiwithnocompiomiseondataand
infoimationavailableinpublicdomain.
2. Financial supply chain CFO as the in-
house banker
CFOs need to keep tab on woiking capital cycle
with the constant monitoiing of Piocuiement to
Pay(P2P)andInvoicetoCash(I2C)cycle.Cashow
managementisciucialfoianygiveneconomiccycle
and monetaiy conditions to diaw maximum out of
that. It is impoitant to plan business and nance
I
fonelookscaiefully,thewoidsCEOandCFOiun
insequence(middleoftheiialphabet)depicting
iole of paitneiship between a Business Leadei
andaFinanceLeadei.
Of late, we have seen fundamental changes in
Indianeconomyandbusinesstiansfoimationsacioss
sectoisandindustiies.Someofthemaie:
GlobalisationandintegiationofIndianeconomy
withthewoildeconomytoasignicantextent,
Aspiiation of Indian businesses to giow acioss
geogiaphies,
Geneiationshiftinowneishippatteinwithstia-
tegicshifttobusinessoutlook,
Inuxofhighlysophisticatedcapital,e.g.,Piivate
EquityiVentuieCapitalInvestois,
Laige advancement in shaie of seivices sectoi
toabout64.8peicentofIndiasGDP(Souice
EconomicSuivey,MinistiyofFinance,2012-13,
GoI)leadingtoplethoiaofnewseivicesandin-
novationaioundthem,
Advancement in all foims of communication
andinteinettechnology,andsoon.
Tis has cieated a big iole foi CFO of an
oiganisationaciossbusinessandnanceintegiation.
Letsanalysetheioleundeisevenbioadheadswheie
a CFO can play a big iole in MSME business in the
outlook foi eveiy quaitei based on yeaily budget
exeicise.CFOasanin-housebankeihasaleadioleto
playinmitigatingiisksassociatedwithslippageson
nancial supply-chain and aleits could be sounded
otobusinessheadswellaheadintime.
3. Overcoming volatility/Risk CFO as an
insurance man
Withgiowingvolatilityaciossnanceandcommodity
maikets due to inux of global money, CFOs need
to hedge businesses appiopiiately. Economy cycle
based piiceivalue monitoiing on cuiiency, iaw
mateiial and nished goods is impoitant and CFOs
mustconstantlykeepawatchonsensitivitiesofthese
uctuations on nancial health of business. We had
seen laige volatility on foiex fiont in the yeai 2008
when INR v USD was quoting at Rs.38-40 and in
the yeai 2012 when INR v USD staited quoting at
Rs.56-58band.Tishasposedbigchallengefoioui
EXIM businesses wheie inadequate coveis on the
foiex fiont has led to big impact on bottom line. It
is impoitant to safeguaid the nancial condition
andtakespeedoflightswiftactionwhensituation
demandsbytheCFO.
4. Strategic cost optimiser CFO as a margin
builder
CFO is a custodian of gioss maigin, EBIDTA and
PAT. At an opeiating level, it is impoitant to keep
tiackofecienciesandplugtheleakagesonievenue
and cost fiont. Oveiheads in businesses need to
be optimised without huiting the business giowth
iequiied on some of the pioductive expenses like
sales and maiketing. On EBIDTA fiont, CFO plays
lead iole in guiding depieciation policy by devising
iightopeiatingleasevownedassetspolicy.Onthe
nancial cost, CFO is guided by iight debtiequity
stiuctuiewithhugenancialmaiketsaioundbanks,
NBFCs, PEiVC and public equity maikets. Each of
theseplayeishastheiiioletoplayoncountiyscapital
maiket and CFOs need to captuie this maiket with
iighttimingandiightpiicingwithconstantwatch.
5. Managing M&A play CFO as the deal
maker
With globalisation and aspiiations iunning high, a
CFO plays a veiy vital iole in evaluating inoiganic
giowth to captuie the iequiied lead in giowing
business. A CFO plays lead iole in leveiaging
balance sheet stiength and capitalising on such
M&A oppoitunity with innovation aiound capital
stiuctuiing. In that sense, CFOs need to play a iole
ofbusinessvaluemaximiseikeepinginmindinteiest
ofallstakeholdeisofitsbusiness.Inlastonedecade,
theie weie numbei of examples wheie Indians have
leveiagedtheiibalancesheetandeconomystiength
fully wheie CFOs played a key iole in tiansaction
stiuctuiing.ItisimpoitantfoiCFOtonetwoikand
keepeagleswatchonbusinessesaciossgeogiaphies
to spot the iight oppoitunity in M&A maiket in
the light of pievailing economic condition of that
countiy.
6. Taxation CFO as the optimiser
PiotafteiTax(PAT)issomethingagainwheieaCFO
playsaleadioleinoptimisingoutowduetoindiiect
and diiect taxation impact in view of Goveinments
diiective.Itisimpoitanttoplanbusinesstiansactions
in the noimal couise by captuiing available tax
eciency and playing a lead iole in mitigating iisks
associated with tax planning. With inteinational
natuieofbusinesses,theieisgiowingimpoitanceof
ciosscountiytaxationimpactduetotiansfeipiicing
andiequiiedstiuctuiingneededtoensuiecompliance
with the laws of iespective countiies in view of
honouiingcommitmentofiespectivecountiiesundei
DoubleTaxationAvoidanceAgieements(DTAA).
7. Corporate Governance CFO as a con-
science keeper
Lastbutnottheleastandpeihapscumulativeeect
of all the above ioles which CFOs play should be
seen in the light of good ethical business piactices.
Teie aie talks about People, Piot and Planet and
CFOsneedtostepinwithiightbalancingappioach
foi bettei and sustainable business enviionment.
We have seen goveinment coming up haid on the
subjectofcoipoiategoveinanceandcoipoiatesocial
iesponsibilitytoensuiethatouibusinesscommunity
continuetoiunwithtianspaiencyandtiust.ACFO
hasalaigeioletoplayinestablishingiightcoipoiate
goveinancecultuieaciossbusinesses.
(IxCFOisoutsouicingCFO(ChiefFinanceOceii
Finance contiollei) seivices piovidei based on
conceptofshaiingknowledgepool,skillandcostto
SME&Mid-sizecoipoiateswithuniquepiopiietaiy
engagement diiven by hands on implementation
appioach.)TGA
SanjayGaggar
Founder Partner and CEO
CFO Shared CFO Services,
Mumbai
Mapmygenome is Indias pioneer genomics company with a vision to provide Better Health
for Indians using technology. They have a range of prognostic and diagnostic products that
include creating personal genetic profles under the brand name Genomepatri. As part
of this product, customers receive a detailed report of their risk to a broad spectrum of
diseases, traits and conditions on the basis of their DNA samples. Along with their partners,
Mapmygenome paves way for customers to receive the best medical attention required to
mitigate the risk of diseases.
Mapmygenome also offers brain wellness solutions in India under the portfolio Mapmybrain.
This includes Urban Pranayam to reduce stress, improve lung function, and optimize
heartbeat. Another innovative product in this range is WebNeuro test to screen cognitive
strengths and effciency. Their team at Hyderabad comprises biotechnologists, statisticians,
geneticists, bioinformaticians, and medical counsellors. Their advisory panel has expert
scientists and doctors. In order to enhance this innovative brand and to provide value-
added services to customers, their highly skilled research team works on cutting-edge
technologies in various domains.
In an exclusive interview with The Global ANALYST, Anu Acharya, CEO, Mapmygenome,
shares her entrepreneurial journey, her experiences, what inspired her to launch her new
outft, how did she overcome various challenges and several other interesting issues. Read
on...
HowdidtheideatostartMapmygen-
ometakeshape:
Withovei12yeaisofexpeitiseingenomics
domain, it was natuial piogiession to
peisonalgenomics.
Howdiditallbegin:
Wewantedtowoikonbetteihealththiough
novel technology. We believe this could
have a diiect impact on health caie India.
Aftei due diligence and lots of ieseaich,
we decided on the vision and mission. At
Ocimum, we weie alieady woiking on
genomics, big data, and secuie systems
that can handle volumes while piotecting
customei condentiality and piivacy.
In 2011, Subash, who is a co-foundei of
Ocimum, staited building the foundation.
It took us ovei one and half yeais to
implementapiocessowthatwouldwoik,
befoiewestaitedoeiingouipioductsand
seivicestothepublic.
Please discuss the business model of
thestart-up.
Cuiiently we have diiect sales online and
oine,paitneishipswithoiganizationsand
medicos, and iefeiial piogiams. We have
alsostaitedwithcoipoiateandinstitutional
piogiams.
Whatarethefocusareasoftherm:
Peisonal genomics pioducts and
ielated ieseaich. Oui agship pioduct
Genomepatriisasimple,saliva-basedtest
to decode youi DNA and piedict genetic
iiskfoi55+diseases,tiaits,diugiesponses,
inheiited conditions, and caiiiei statuses.
OuiR&Diswoikingonvalueadditionsby
coveiing moie and moie conditions and
tiaits. We also have the mapmybrain
TM
poitfolioofwellnesspioductsthatincludes
Urban Pranayamtoieducestiess,impiove
lung function, and optimize heaitbeat.
Anothei innovative pioduct in this iange
WOMEN IN BUSINESS
CEO SPEAK
AnuAcharya
CEO, Mapmygenome and Founder, Ocimum Biosolutions
Whicharethemajormarketsforyour
company:
We have customeis fiom all ovei India
as well as fiom othei countiies. With oui
online payment options, we have seen a
signicantiiseinweb-basedoideis.
Kindly share your experience so far,
themajorchallenges,andhowdidyou
overcomethem:
Tishasbeenanexhilaiatingjouiney.Oui
majoi challenge is that some diseases do
not have laige-scale studies. We hope oui
ieseaichteamcanbiidgethegap.
Howdoyouviewtheperformanceof
thecompanysofar:
Fiom a stait-up that launched its seivices
to the public in Apiil, we have moved to
300+ customeis. Teie is still a long way
to go, but we have an evolving maiket.
On the ieseaich fiont, we have a stiong
team backed by 12+ yeais of expeitise.
Tey aie woiking on new pioducts and
adding moie value to oui agship pioduct
Genomepatri
TM
eveiy day. We also have
moieandmoieoiganizationsappioaching
usfoinicheieseaichinpeisonalgenomics.
What are your future plans: Are you
looking to enter new markets}prod-
uctcategories,etc:
We have many pipeline R&D piojects on
developing novel pioducts and solutions
in genomics and othei domains. Te ist
milestoneistostaitneweipiognosticpanels.
Where do you see the company ve
yearsfromnow:
We staited with a vision of Bettei Health
to Indians using Technology. Peisonal
Genomics to all is one facet. Anothei is
ieseaich on diseases wheie theie is not
muchdata.
Whatisyourmessageforbuddingen-
trepreneurs:
Tebesttimeisnow.Teieisnosuchtime
as the iight time to stait a new company.
Youi entiepieneuiship DNA should have
Due diligence, Netwoiking, and an Active
Mindopentoallpossibilities.TGA
Ms. Anu Acharya is the CEO of Mapmygenome India Limited, an
Indian genomics company which provides a range of prognostics,
diagnostics, and brain wellness solutions. She is also the founder of
Ocimum Biosolutions, which she led as the CEO from 2000 to March
2013. Ocimum combines its bioinformatics products, reference
databases, data generation, and data analytics on big data using a
LIMS backbone through its proprietary platform called RaaS.
Ms. Acharya was named a Young Global Leader by the World
Economic Forum (WEF) for its class of 2011 and serves on the
WEFs Global Agenda Council as a member of the Personalized and
Precision Medicine.
She currently serves as a governing board member at CSIR
(Council for Scientific and Industrial Research, the premier R&D
Organization in India) and a governing board member at the NIBMG
(National Institute for Biomedical Genomics). Prior to founding
Ocimum Biosolutions, Ms. Acharya has had rich experience in the
Telecom, IT and entrepreneurship arenas. She worked for a start-up
in the telecommunications space called Mantiss Information and
a consulting firm called SEI Information where she helped create a
social networking site for entrepreneurs. Her experience is backed
by education at premier institutions such as the Indian Institute
of Technology at Kharagpur, India (IIT) and University of Illinois
where she has two Post Graduate degrees in Physics and MIS.
She was selected by Red Herring Magazine to the list of 25 Tech
Titans under 35 in 2006. She has been named Biospectrum
Entrepreneur of the Year for 2008 and also has been awarded
the Astia Life Science Innovators Award in the same year. Ms.
Acharya has been a past President of the Hyderabad chapter of the
Entrepreneurs Organization and currently serves on the boards of
ABLE (Association of Biotech Led Enterprises) and TIE Hyderabad.
is WebNeuro test to scieen cognitive
stiengthsandeciency.
How do you dene the USP of the
start-up:
Innovativehealthcaiepioductsandseivices
at aoidable cost to the Indian maiket,
backed by a stiong team with expeitise
in R&D and pioduct development. Each
pioduct oi seivice has a tiemendous
potentialtochangelivesfoithebettei.
How do you view the market poten-
tial:
Eveiy Indian is a potential customei.
Cuiiently, majoiity of oui customeis aie
medicos, people who aie intellectually
cuiious about theii genome and people
with family histoiy of diseases. Howevei,
the giowing focus on healthy living fiom
an eaily age will see an inciease in maiket
potential. We have also staited coipoiate
piogiams, MapMyTeam, which has
ieceivedwaimiesponse.
AnuAcharya
CEO, Mapmygenome and Founder,
Ocimum Biosolutions
CEOProfile
Chinas Banks
Rise & Repercussions
INTERNATIONAL BANKING
REGULATION
Foreign capital outflows were the cause
of the Asian Financial Crisis. Many of the
Tiger countries like Thailand had borrowed
in dollars. When the crisis hit, foreign
investors pulled out, putting the economies
into a tail spin. There is a similar issue in the
Eurozone. Countries like Greece sold euro
bonds to foreigners who assumed a credit
rating equal to Germany. When the crunch
came the foreigners left. Similarly, China
does not have a convertible currency. Its
exposure to international investors is quite
limited. Besides it has $3.44 trillion in foreign
exchange reserves. So it has the firepower
to avoid a meltdown. So a liquidity crises is
improbable but not impossible. A currency
crisis is not in the cards, but a depositor bank
run in my view is possible.
Z
hang Ke is a woiiied man. He is the vice-
chaiiman of Chinas accounting association.
He and his im audit the books of Chinese
localgoveinments.AccoidingtoKe,thedebtsofthe
local goveinments aie is out of contiol and could
spaik a biggei nancial ciisis than the US housing
maiket ciash. In a way this is not news. Te only
thing that is news is that a senioi Chinese guie is
talking about it. But if Chinas debts aie so big, why
doesntitspaikapanic?
KesassessmentoftheChinesedebtsituationhas
a lot of company. Te IMF and the iating agencies
haveallaggedtheissue.RecentlyFitchcutChinas
soveieign debt iating, the ist such cut since 1999.
Aiaiedowngiadeinawoildwheiemanyemeiging
maiketsaieseeingmoieoptimisticoutlooks.
Chinas debt pioblems have been aiound since
the iecession of 1999. To avoid a iecession in 2009,
the Chinese goveinment opened the monetaiy
ood gates by foicing the banks to make loans and
lendtheydid.Mostofthemoneywenttopiovinces,
cities,countiesandvillagesfoivaiiouspiojects.Te
pioblem with nancing piojects with bank loans
iatheithantaxesisthatthepiojectshavetogeneiate
sucient income to seivice the loans. Accoiding to
Kethisisnothappening.Telocalgoveinmentsweie
notpayingbacktheloansjustiollingthemovei.Te
onlythingyoucandoisissuenewdebttoiepaythe
old,hesaid.
LiketheUSFedeialReseive,thistypeofstimulus
has been going on foi the past 4 yeais. Te pile of
debtisnowquitehigh.Itisestimatedtobebetween
Rmb10tn and Rmb20tn ($1.6tn and $3.2tn),
equivalentto20-40peicentofthesizeoftheChinese
economy. It hasnt stopped. Despite the questions
ovei solvency, the hunt foi yield has allowed the
local goveinments to issue Rmb283bn of bonds in
the ist quaitei of 2013. Tis is moie than double
thetotalfoithesamepeiiodlastyeai.Intheoiylocal
goveinments aie piohibited fiom issuing bonds.
But thanks to investment companies, a nancial
innovation designed to get aiound the iestiictions,
theyhavebeenoodingthemaiket.
Sadly, like Fedeial Reseives eoits, the massive
stimulusinallfoimsishavingalimitedeect.Chinas
William Gamble
Founder & President,
Emerging Market Strategies,
USA
giowth has slowed to 7.7 pei cent. Te meicantilist
moneymachinehasbeenstoppedbyfallingdemand
in Chinas main expoit maikets. Te stiuctuie of
the stimulus is aimed at the wiong segment of the
Chinese economy, local goveinments and state
owned business iathei than piivate businesses.
Te stiuctuie of the Chinese system makes it
exceptionally dicult foi it to iebalance. Even the
economistPiimeMinistei, LiKeqiang,hasadmitted
that the economy will have to climb hills and cioss
iidges.SoChinamightbeiollingdownahill,butwill
it fall o a cli? Will China pioblem moiph into a
panic?Todeteiminetheansweiwemustlookatthe
causesofapanic.
Attheiiveiycoie,businesscyclesaieaboutthe
tensionbetweengieedandfeai.Excessiveoptimism
about the futuie cieates gieatei iisk-taking.
Tis can be exaceibated by extended peiiods of
accommodative monetaiy policy. Te expansion of
cieditcoupledwithassumedgoveinmentguaiantees
ofeasymoneyallowsfeaitoiecede.Giowthappeais
to be a one way bet. With access to easy ciedit,
investois inciease theii bets. Tis diives asset
piices away fiom fundamentals. Te combinations
of impeifect infoimation, asymmetiies and evei
optimisticfoiecastsseemtojustifytheinatedasset
piices.Afteiseveialyeaisofthis,themaiketsaiein
themiddleofafullblowncieditbubblethatinates
an asset bubble. Financial innovation oi nancial
iefoimcanchangethenancialsysteminwaysthat
obscuietheiisk
Te classic example is the US collapse. Alan
Gieenspan and his successoi Ben Beinanke
convinced the maikets that low inteiest iates
would help to iejuvenate the Ameiican economy.
Te housing bubble was consideied an accuiate
valuation by the maiket. Te nancial innovation
of collateialized debt was seen as an ecient way
to spiead the iisk thioughout the maiket. Since the
assumptionwasthatcollateializeddebtwaspeifectly
safe,thenancialsystemcouldusehugeamountsof
leveiage,buttheexactamountwasuncleaiandcould
only be estimated. Te demand foi collateialized
debt cieated a maiket foi any collateialized debt
iegaidlessoftheabilityoftheboiioweitoiepaythe
loan.Teiesultwas,ofcouise,theGieatRecession.
How does China t into this desciiption? As
I noted above the Chinese goveinment has been
ooding the economy with money foi yeais.
Money to state owned enteipiises (SOEs) and local
goveinments is lent at subsidized iates basically
withoutiestiictions.Notonlyaietheamountslaige
they aie getting laigei. State owned companies in
Chinaieceived85.68billionyuan($13.83billion)in
goveinmentsubsidieslastyeai.Tisisanincieaseof
23peicentfiomayeaieailiei.Piotsaieupslightly,
by 1 pei cent, but the companies would opeiate at
a loss without the subsidies. Te subsidies weie
equivalenttomoiethan4peicentofthecompanies
total piots last yeai, up fiom aiound 3 pei cent
between2009and2011.
Te subsidies aie teiiibly inecient. Tey diveit
money to unpiotable coipoiations. Eventually the
local goveinments and unpiotable coipoiations
will become insolvent. Many aie alieady. But this
does not mean that theie will be meltdown. Both
the local goveinments and the SOEs aie bianches
of the Chinese goveinment, investois and banks
haveassumedthattheycannotdefault.TeChinese
goveinmenthastheenviableieputationofbeingable
toengineeioneofthemostsuccessfuldevelopment
stoiies in histoiy. So the assumption is that the
countiy will continue to giow its way out of any
tempoiaiypullback.
Tisassumptionthoughisbeingquestioned.Not
only aie the giowth engines slowing, but nancial
libeialization has changed some of the iules.
Recently moie money was funneled into the system
thiough the so called shadow banking system. Te
shadowbankingsystemfoiChinaisamajoinancial
innovation.Ithaspiovidedinvestoiswaystogetfai
bettei inteiest iates than aie on oei at the state
owned banks. But it has also cieated moie leveiage
andmoieiisk.
StilltheChineseeconomyisdieient.Itisheavily
statecontiolled.Justbecauseitseemstotintothe
templatedoesnotmeanthattheiewillbeahoiiic
meltdown. Te estimable Financial Times Beijing
buieau chief, Jamil Andeilini doesnt think that a
panic is possible. Slow giowth denitely, but no
panic.
His analysis divides iecent panics into thiee
categoiies: inteibank fieeze, oi foieign capital
outows, and depositoi bank iuns. An example of
aninteibankfieezewouldbethecollapseofLehman
Biotheis. Te Lehman collapse was paiticulaily
hoiiic because the pioblem had to do with
counteipaity exposuie. Laige leveiaged tiades weie
madebetweenbanks.Ifonesidedefaultedtheothei
would also lose money. When Lehman went undei,
nooneknewwhowasexposedoihowmuch.Soall
lending stopped. Andeilini doesnt think this is a
piobleminChina.Chinasiegulainancialsystemis
composedofstateownedbanks.InaciisistheFedeial
Chinas Banks: Rise & Repercussions
Reseive oi the Euiopean Cential Bank can only
piovideliquidityandhope.InChinathegoveinment
canactuallyoideithelendingtocontinue.
Tisviewmaybefaitoosanguineasweiecently
witnessed. Beginning in June the inteibank seven
day lending iate began to spike fiom an aveiage of
about3peicenttoovei10peicent.Teshoitteim
iateswentashighas25peicent.Teieasonfoithe
pioblem was simple. Te Peoples Bank of China
(PBOC)wastiyingtoslowtheiateofdomesticciedit
cieation which hit 200 pei cent of GDP this yeai.
Againtheculpiitwastheshadowbankingsystem.
Usually in the Chinese system ciedit is not
contiolled by the maikets, but by oideis fiom the
cential goveinment. But things have changed.
Te PBOC has tiied cajoling, thieats, iules and
iegulations to no avail. Ciedit still incieased 23 pei
centyeaionyeai.TeonlywaythePBOCwassuie
to get the laige banks attention was to diamatically
incieaseboiiowingcosts.
To be suie, the PBOC avoided a meltdown of
the nancial system by injecting money into the
system. But the waining was heaid. Te Shanghai
composite has diopped eight pei cent in two days.
TeassumptionthatthePBOCwouldneveitighten
ciedit is now subject to question. Also the PBOC
wasabletostopaiout,buttighteningalwayscieates
stiess. No one knows exactly wheie, when and how
muchstiesstheieisinthesystem.Sotheassumption
oftheimpossibilityofaninteibankfieezemaybein
doubtaswell.
Foieign capital outows weie the cause of the
Asian Financial Ciisis. Many of the Tigei countiies
like Tailand had boiiowed in dollais. When the
ciisis hit, foieign investois pulled out, putting the
economiesintoatailspin.Teieisasimilaiissuein
theEuiozone.CountiieslikeGieecesoldeuiobonds
to foieigneis who assumed a ciedit iating equal to
Geimany.Whentheciunchcamethefoieigneisleft.
China does not have a conveitible cuiiency. Its
exposuie to inteinational investois is quite limited.
Besides it has $3.44 tiillion in foieign exchange
ieseives.Soithastheiepoweitoavoidameltdown.
So, a liquidity ciises is impiobable but not
impossible. A cuiiency ciisis is not in the caids,
but a depositoi bank iun in my view is possible.
Andeilini believes that the state owned banks
including the big thieeIndustiial and Commeicial
Bank of China, China Constiuction Bank and Bank
ofChina aieeectivelybackedbythefullweightof
theCommunistpaityandtheChinesestate.Tisis
ceitainlytiue.Chinesebanksaieallstateownedand
toobigtofail,buttheiehasbeenamajoichange.
Whatisnottoobigtofailaiethelocalgoveinment
bonds, tiust vehicles, Wealth Management Pioduct
(WMPs), ieal estate and othei piivate company
bondsinshoittheChineseshadowbankingsystem.
Teseaiecieditowsthathavebeentiansfeiiedo
bankbooksoisecuiitizedloans.Teshadowbanking
system has incieased fouifold in size since 2008 to
about Rmb20tn ($3.2tn), oi 40 pei cent of gioss
domesticpioduct. ItcouldbeasmuchasRmb24.4tn,
oi neaily 50 pei cent of GDP. Recently it has been
metastasizing at an inciedible iate. Conventional
bankloansfiomthestatebanksmadeup95peicent
ofloansin2002.Tishasdecieasedto58peicentlast
yeai. Total nancing has incieased almost eightfold
duiingthattime.Tiustloanssuiged679peicentin
lastDecembeialoneto264billionyuanfiomayeai
eailiei. Te iecent giowth of the Chinese economy
wouldhavebeenimpossiblewithouttheseloans.
Buttheseloanssueifiomtwomajoipioblems.
Although the puichaseis assume they aie as safe as
bank deposits, they aie not backed up by banks oi
anyone else. Second, theie is the classic bank issue:
an enoimous asymmetiy between the assets and
liabilities. TemostpopulaiWMPshaveduiationsof
onetothieemonths.Butthefundspiovidenancing
foimuchlongeiteims,oftenmulti-yeailoans.
WMPs and bonds aie consideied safe, because
ims,especiallyimsconnectedtothegoveinment,
do not default. Piivate ims go undei. Usually the
owneidisappeaisatnight.Butstateimsoilaigeims
paitiallyownedbythestateaiekeptaoateitheiby
meigeisoibyiollingoveiloans,untilnow.Recently
twosolaiims Suntech and LKDsbondswentinto
default.AlsobanksaiehavingpioblemswithWMPs.
Customeis at a China Constiuction Bank bianch
in the noitheastein piovince of Jilin complained to
iegulatoisthattheylostmoiethan30peicent.One
of CITICs,alaigenancialconglomeiate,pioducts
was at iisk because of an oveidue loan woith moie
than Rmb70m ($11m). Losses fiom a pioduct sold
by Huaxia Bank, could ieach up to Rmb100m ($16
million). Tese losses aie small, but the suipiising
thingisthattheyaiehappeningatall.
So all the elements aie in place: Financial
innovation, an extended peiiod of easy money,
ciedit expansion, assumption of goveinment
guaiantees, pooi iisk assessment, and woist of all,
pooi infoimation. Te actions of the PBOC cleaily
Chinas Banks: Rise & Repercussions
indicate that the vast ow of ciedit into the system
will slow. As it slows, so will the Chinese economy.
When the Chinese economy slows the stiess will
incieaseonoveileveiagedpaitsofthecieditsystem
thataienotbackedupbythegoveinment.Defaults
willincieaseaswillunhappycustomeis.
Inaneiaofsocialmedia,itwillbemoiedicult
foithegoveinmenttopieventpeoplefiomiemoving
Te IMF has expressed serious concerns
over the growing income inequality and
investment-drivengrowthmodel.Howdoyou
viewthe globalagencysremark:
TeIMFisyeaislateinitsassessment.
Inamajorshock,thedragonsuereditsrst
ever rating cut in recent times when global
ratingagencyFitchcutitskeydebtratings on
accountofsharpjumpineasycreditandthe
riseofshadow banking.Howseriousarethese
concerns:
Tey aie quite seiious, but have been piesent since
2009.Tepioblemischionic,notacute.Teieisno
ciisis, but iathei long-teim stiuctuial weakness to
addiess.
Do you believe that the central bank and
policy makers have to blame themselves for
thissituation:
Yes. It has seemed since 2008 that Chinese policy-
makeishavebelievedthewoildcouldsimplyietuin
to 2006 and they just needed to wait. Tat has
always been foolish. Loose money in the US helped
piecipitate the nancial ciisis. Loose money in
Japan has failed to pioduce iesults foi decades. Yet
centialbanksaioundthewoild,includinginChina,
havetuinedtoloosemoneyagainandagainbecause
theyaieunwillingtotakethenecessaiystepstohelp
capital maikets piopeily function. India is a paitial
exception,foiwhichtheRBItakesviciousciiticism.
Its ciitics should look to what loose money has
wiought.
Doyouseethisthreateningtheworldssecond
largest economys growth, especially in the
wake of a series of negative forecasts from a
host ofprivateforecasters:
China faces an extended peiiod of nancial
deleveiaging. Tis will shaiply limit shoit-teim
giowth. Howevei, potential giowth was slowly
deteiioiating in any case due to ovei-lending and
oveispending.Toieveisethattiend,Chinaneedsto
deleveiage.
Inaddition,thecontiibutionofcapitaltogiowth
wouldbeboostedbynancialsystemiefoim.Itmay
be politically dicult to do this while deleveiaging,
whichisanotheicostofexcesscieditsincenancial
iefoimislongoveidue.
Whataretheotherchallengesyouseebefore
China:
As China ages, it must bettei integiate its laboi
maiket oi it will face Japans pioblem. Without
stiongeipiopeityiightsfoifaimeis,landandwatei
pollution will continue, which is both an economic
and a political pioblem. Finally, the dominance of
state-ownedenteipiisesstiesinnovation.
Whatisyouroutlook:
Like the Indian and Japanese goveinments, the
Chinese goveinment is talking about deep iefoim.
Buttalkmeansnothing.
China faces an extended period of financial deleveraging. This
will sharply limit short-term growth. However, potential growth
was slowly deteriorating in any case due to over-lending and
overspending. To reverse that trend, China needs to deleverage.
Dr Derek Scissors
Senior Research Fellow, Asian Studies Center,
The Heritage Foundation, US.
INTERVIEW
theiimoneyfiomthesystem.Asfaithinthenancial
system declines, no doubt so will the absolute faith
inthegoveinmenttodeliveigiowth.Tisisamajoi
pioblemfoitheCommunistPaity,who,accoidingto
quicklyteiminatedonlinesuivey,hasan80peicent
disappioval iating. Like Andeilini, I have no doubt
thatChinawillslow,butitcouldbeinfoisomething
fai,faiwoiseasKenoted.TGA
Reliance Industries
Conglomerates Investment Spree
CORPORATE STRATEGY
GROWTH & EXPANSION
Reliance juggernaut is back, that too in
style. In a move that is nothing short
of being mesmerizing, RIL, Indias top
private sector enterprise (in terms of net
sales), announces massive investments,
the largest by any enterprise - public or
private, domestic or foreign - in a move
aimed at boosting its top line, besides
de-risking its asset-heavy business
model. But the billion dollar question is -
Could all these help RIL regain its growth
momentum, finally?
I
naquintessentialstyleieminiscentofitsgolden
peiiod,duiingthe80sand90s,MukeshAmbani-
ownedRILiecentlyannouncedseveialbig-ticket
investment piojects to be made ovei the next thiee
yeais. Unveiling its ioadmap foi the next few yeais,
Chaiiman of Indias second most valuable piivate
sectoi company, by maiket capitalization, said,
Reliance Industiies has embaiked upon its laigest
investmentpiogiammeinitshistoiy.
Addiessing an impiessive gatheiing of RILs
shaieholdeis at the Companys 39
th
AGM (annual
geneialmeeting)ineailyJune,themaveiickbusiness
leadei, also the wealthiest Indian (with net woith
of $21.5 bn), Ambani announced that his gioup
will invest $26 billion (appiox Rs. 150,000 cioie),
betting on giowth in aieas such as exploiation &
pioduction, iening, Petiochemicals, ietailing and
telecommunications. Te launch of Jio maiks RILs
ietuintothetelecomspaceafteithesplitofthevast
Reliance Empiie into two sepaiate gioups, which
saw Mukesh Ambani-led RIL exiting the telecom
business.
Tegiandioseinvestplansaiebeingunveiledata
timewhenthedomesticeconomicgiowthisslowing
downamidweakindustiialactivity.
Consumerconnect
At Rs.1.5 tn, RIL is making huge investments at a
time of global economic slowdown, Ambani said.
Investment in manufactuiing and ietail will spui
giowth, he added. Te mammoth investment, the
biggest evei, since the gioup began its jouiney as a
polyestei manufactuie neaily foui decades ago in
1966, is aimed at augmenting capacities acioss its
foui coie business lines, viz., oil exploiation and
pioduction, petioleum iening and maiketing,
petiochemicals, ietail, besides the to-be-launched
bioadbandoi4Gfoiay.
Te biown eld expansions planned at most of
the existing plants aie also being planned so as to
boost top line as well as bottom line. Accoiding to
mediaiepoits,RILwouldbelookingtosignicantly
impiove contiibutions fiom its iecent foiays. Te
gioupiseyeingtoiaisecontiibutionsfiomietailand
bioadband to as much as 40 pei cent fiom aiound
3 pei cent now, said a Mint iepoit. Some industiy
expeits while also do not iule out the gioups
objectiveofbenettingfiomaiisingmiddleclassand
giowingconsumeiismasthegoveinmentisstepping
upeoitstokick-staittheeconomyfoianewphase
of giowth and piospeiity. Its to be mentioned that
despite Indias dismal show on GDP giowth fiont,
the economy is still one of the fastest giowing ones
inthewoildandwithsignsofievivalintheUSand
withthieatofsoveieigndebtciisisintheEuiozone
seem to be ieceding, and with its gieatei thiust on
expoits now, India Inc looks set to benet fiom
ievival in demand in these economies. Although,
thegoveinmentneedstoinitiatenecessaiymeasuies
to incentivize expoits and iein in ination, besides
facilitatingaccesstocheapeifunds.
Some industiy expeits also opine that RILs
massive plan could be an eoit to de-iisk its
excessivefocusoncyclicalbusinesses,paiticulailyoil
& gas. Reliance is seeking to benet fiom giowing
consumeiism in India, Mint quoted RK Gupta,
managing diiectoi, Tauius Asset Management Co.
Ltd,assaying.ItsimpoitantfoiReliancetodiveisify
into unielated businesses so it can hedge its iisks
and avoid possible ciises in the futuie, he aveiied.
Itseemssogiventhefactthatnewseivices-oiiented
businessessuchasietailingandbioadbandseemall
settobenetfiomiisingconsumeiismandalsooei
thegiouptheoppoitunitytodiveisifyiisk.
Howevei,theCompanyhasinsistedthatthefocus
is piimaiily on job cieation. Te most impoitant
needfoiIndiatodayisemploymentcieationthiough
investments in manufactuiing, infiastiuctuie,
eneigy, seivices, agiicultuie and the iuial economy.
Based on oui stiong faith in the potential of India,
we aie cuiiently making investments in excess of
Rs150,000cioieoveithenextthieeyeais,Ambani
said.Tecompanyisinvestingthelaigestcapitalin
Indiabyanyenteipiise-publicoipiivate,Indianoi
foieign. Tese investments will lead to highei levels
ofemploymentandself-employmentoppoitunities,
headded.
Reliance Industries : Conglomerates Investment Spree
Tegioupisbettingbigondomesticconsumption
stoiy as it iolls out its expansion plans. In case of
petiochemicals, the company is optimistic that
demand foi petiochemicals would go up in the
futuie, given Indias low pei capita demand foi
petiochemicals.Today,ouipetiochemicalpioducts
toucheveiyfacetofacitizenslifethioughappaiels,
householdgoods,electionicgoods,automobilesand
food packaging, Ambani said, adding, Reliance
has undeitaken the single laigest expansion in the
petiochemical sectoi in the woild. I am happy to
announce that most of these piojects aie undei
implementation.Inpolyesteibusiness,theCompany
isitscapacityby1.5milliontonnestoieach4million
tonnesayeai.
Te polyestei lament yain plant at Silvassa will
becommissionedduiingtheisthalfofthecuiient
nancial yeai. Tis plant will be the only zeio waste
plant globally fiom day one, the Company has said.
Te completion of a polyestei iesin plant in the
secondhalfofthisnancialyeaiatDahejwillmakethe
Company the seventh laigest pioducei of polyestei
iesin in the woild. Te gioup is also planning to
commissionamilliontonnesofPTAintheisthalf
ofthenextyeaifollowedbyanotheiplantofthesame
capacity within the next 6 months taking the total
PTA capacity to 4.3 million tonnes pei yeai. Tese
piojectsoncecompletedwillmaketheRILthethiid
laigestpioduceiofPTAinthewoild.TeCompany
isalsolookingatdoublingitspaiaxylenecapacityat
Jamnagai ovei the next 30 months to become the
second laigest pioducei of paiaxylene (a feedstock
foiPTAandpolyestei)inthewoild.
Regaiding its ietail business, the gioup aims
foi ieaching ievenues of Rs.40,000-50,000 cioie,
leveiagingstupendousgiowthaciossitsmulti-foimat
stoies model. Oui multi-foimat stiategy is paying
hugedividendswithmostfoimatshavingpositioned
themselves as maiket leadeis and poised foi stiong
giowthinthefutuie,Ambaninoted.RelianceRetail
has aiound 1,500 stoies acioss 130 cities in the
countiy. Te Companys ietail opeiations ieached
ievenue milestone of ovei Rs 10,000 cioie duiing
FY13. But the segment, which ieached cash bieak-
evenwitheainingsbefoiedepieciation,nancecost
andtaxofRs78cioie,isyettotuinpiotable.
Nonetheless, the top management sounds
optimistic.Wewanttomakeietailbusinessasoneof
ouigiowthenginesoveithenextfewyeais,Ambani
obseived. Te gioup is aiming to notch an annual
giowth iate of 50 pei cent to ieach top line of Rs
40,000-50,000cioie(Rs400-500billion)inthenext
few yeais. I am condent that oui ietail business
would undeitake multi-fold giowth in the next few
yeaisbydeliveiingovei50peicentievenuegiowth
in vaiious foimat sectois yeai-on-yeai and is on its
way to achieve ievenue taiget of Rs 40,000-50,000
cioieasshaiedbymeinouilastAGM,Ambanisaid
whileaddiessingshaieholdeis.
Bettingontheglobalrecovery
Indias top business conglomeiate is betting big on
the foieseeable iecoveiy in the global economy, as
it looks to boost its shaie of the global expoits pie.
Weaiemakingtheseinvestmentsatatimewhenthe
globaleconomyisfacingoneofitsmostchallenging
peiiods in modein times. Most of the economies
aie faced with slowdown, high unemployment and
the lack of visible giowth tiiggeis, Ambani said.
Howevei, the Company feels that it is going to
deiivesubstantialbenetsoncethe(global)iecoveiy
gatheismomentum.Wehavetheconvictiontolook
thioughthecycleandmakeinvestmentsatthistime.
It is oui belief that oui new piojects will come on-
stieamastheglobaleconomyiecoveisandmaigins
inouicoiebusinessesaieontheupswing,headded
emphatically.
Tegioupisexpectingtobenetfiomtheglobal
iecoveiyevenasitisexpeiiencinganupswinginits
maiginsdespitetoughbusinessconditions.Wehave
continuedandgiownouitiaditionofsustainedvalue
cieation foi all stakeholdeis despite the technical
and geological challenges in oui domestic oil and
gas business. Despite the tough global and Indian
economic scenaiio, Reliance deliveied satisfactoiy
nancial peifoimance acioss all key paiameteis,
Ambanifuitheiaddedwhiletalkingtoshaieholdeis.
RelianceIndustiiesieachedamajoimilestonewhen
its FY13 ievenues giew to iecoid Rs 3.4 lakh cioie
while net piot zoomed past Rs 20,040 cioie, the
gioups net sales stood at Rs.50,096 cioie while it
eained piot aftei tax of Rs 4,104 cioie in FY2002-
03. Besides, the Company also achieved its highest
The group is expecting to benefit
from the global recovery even as it is
experiencing an upswing in its margins
despite tough business conditions.
eveiexpoitofRs239,226cioieacioss116countiies
duiing the yeai accounting foi 64 pei cent of its
tuinovei.
RIL is Indias top piivate sectoi enteipiise, in
teims of net sales, and is also the laigest expoitei,
accounting foi 14 pei cent of the countiys expoits,
and contiibutes 5.5 pei cent of the Goveinment of
Indias indiiect tax ievenues. Te Companys net
piots clocked a CAGR of 20 pei cent duiing the
last 10 yeais. Also, the gioup also consistently paid
dividends in each of the yeai beginning 2002-03
thiough2012-13.Italsocontinuestobedebt-fieeon
anetbasis.
4GForayReconnectingwithconsumers
Reliance ietuins to telecom space with the launch
of Reliance Jio Infocomm, its telecom aim, and is
hopingtocaiveanichefoiitselfinIndiasbooming
telecommunications maiket compiising of mobile
telephony, bioadband, data seivices, etc. We aie
bullish on Indias digital maikets, said an emphatic
Ambani. He is also aiming to stii competition by
biinging bioadband seivices within the ieach of
common consumeis. Bioadband piices will fall
diastically with this telecom foiay, he said. Te
Company, which alieady has acquiied peimission
to launch its 4G bioadband seivices, which would
compiise of mobile-based enteipiise solutions foi
small-scalebusinesses,full-scalemobileseivicesand
voice-oveiinteinetaciossthecountiy,isexpectedto
commeicially launch these seivices fiom eaily next
scal,i.e.,FY15.
Te bioadband foiay has also seen the two
biotheisjoininghandsfoitheisttime,postthesplit
in 2005. Mukesh Ambanis Reliance Jio Infocomm
Ltd.andAnilAmbani-ledRelianceCommunications
(RCom). have signed a deal foi shaiing latteis
nationwidetelecomtoweisinfiastiuctuie.Accoiding
to RIL, undei the teims of the agieement, Reliance
Jio will utilize upto 45,000 giound and iooftop
basedtoweisaciossRComsnationwidenetwoikfoi
acceleiatedioll-outofitsstate-of-the-ait4Gseivices.
Te agieement also piovides foi joint woiking
aiiangements to conguie the scope of additional
toweis to be built at new locations to ensuie deep
penetiationandseamlessdeliveiyofnextgeneiation
seivices. Tis agieement follows the intei-city optic
beishaiingagieementalieadysignedinApiil2013
as pait of a compiehensive fiamewoik of business
co-opeiationbetweenRelianceJioandRCom.
Tiough JIO, the gioup is aiming to tiansfoim
thelivesof1.2billionIndians.IseeanewIndiathat
willcieateawholenewgeneiationofentiepieneuis
leveiaging these digital assets. It will use digital
cuiiency,insteadofpapeimoneyfoiamoiesecuie
and moie convenient way to tiansact. Teacheis,
students and ieseaicheis fiom fai-ung aieas can
connectwitheachothei,andliftthelevelofeducation
and knowledge cieation to a completely dieient
plane,avisiblychaigedAmbanisaid.
Toughafewconcernspersist
While the mega investment piojects seem exciting,
seveial analysts have expiessed conceins ovei the
Companys peifoimance in the neai teim. A majoi
concein, accoiding to most industiy obseiveis, is
the falling volume at RILs KG-D6 facility. Besides,
incieasedshaie(75peicent)ofcyclicalieningand
petio-chembusinessestooaddstotheconcein,says
IndiasleadingbiokeiageimMotilalOswal.Massive
capex, which could depiess piots in the neai and
mediumteim,andcontinuedweaknessintheglobal
economy aie also being seen as majoi deteiients to
thegioupspeifoimanceintheneaifutuie.Piessuie
on demand due to weakness in global economy
while ongoing capacity addition continuing to act
asapiessuieonopeiatingiates,saysaiepoitfiom
ieseaich im Ambit. Tough the stock is looking
attiactive at valuations of 11x FY13EPS, but the
lowvisibilityonitsfutuiegiowthpiospectsandthe
lackofclaiityonthegaspioductioniamp-upwould
continuetobeanoveihangonthestock,itadds.
Howevei, dont expect these challenges to detei
the RIL juggeinaut. As in the past, it wont be
suipiising to see RIL iebounding amid challenging
businessenviionment.TGA
Amit Singh Sisodiya
With Md. Shuaib, Market Analyst, Hyderabad
Souice:BusinessStandaid
S
ince 1996 when the Nifty was constituted,
neaily100companieshavepaiticipatedinthis
iitual of getting in and getting out. And its
ieallyamazingtoseehow17companiessuivivedthe
peiiodic ieshues which Indias leading benchmaik
indexhasundeigoneduiingthelast16yeais.
Nifty,asanindex,compiisesof50leadingstocks.
ButtheindexcommitteeatNationalStockExchange
(NSE) does caiiy out peiiodic changes (quaiteily
oi moie) wheieby stocks aie excluded and included
based on a vaiiety of ciiteiia including liquidity
(impact cost), fiee oat maiket capitalization, etc.
Since 1996 when the Nifty was constituted, neaily
100 companies have paiticipated in this iitual of
gettinginandgettingout.While49companieshave
suivived the Nifty (out of which 24 suivived foi 10
oi moie yeais), 53 companies got axed out at some
stageoiotheiduetovaiiousieasonsincludingpooi
peifoimance,meigeis,delisting,liquidity,etc.Outof
the24companiesthatsuivivedfoi10oimoieyeais,
17ofthemsuivivedsincethefoimationoftheindex
foi16longyeais(seethegieenshadedcompaniesin
theaccompanyingbox).
It goes without saying that getting included in
the index is consideied a feathei in the cap foi a
company. Well goveined companies woik foi such
accieditation since inclusion attiacts institutional
investois (domestic and foieign) and impioves the
liquidity and piole foi the stock. Moie impoitant
thantheinclusionistheabilitytostayputintheindex
without being axed. Suiviving the nifty becomes
impoitant in that context since companies should
continuouslyqualifyundeivaiiouspaiameteistobe
paitoftheindex.
Howwedidthatandwhatwediscovered:
Fiomthecuiientlistoftheindex,weback-tiackedit
basedonthedatapiovidedintheNSEwebsiteabout
inclusionsandexclusions.
Te suivivois aveiaged an annualized ietuin
of 18 pei cent duiing these long yeais of stay in the
NiftycompaiedtoNiftys
12 pei cent annualized
ietuin. Sun Phaima
topped the list with a
35 pei cent annualized
ietuin followed by
Infosys (34 pei cent)
and HDFC Bank (33 pei
cent)(seetheiisk-ietuin
FINANCIAL MARKETS
INVESTMENT STRATEGY
Te 17 Survivors!
ACC HDFC RelianceInfia ICICI Infosys
AmbujaCements ITC SBI L&T BPCL
HDFCBank M&M Telco BHEL SunPhaima
Hindalco Ranbaxy TataPowei Cipla Wipio
HindustanLevei Reliance Tisco HeioMotois
A Tale of
Nifty Fifty
Survivors!
The Amazing Tale of 17 Companies
which endured periodic reshuffles for
16 long years since the benchmark
came into existence in 1996.
chait).TelowestinthepackwasHindalcoat5pei
cent. Tey all enjoyed good daily liquidity and have
consistentlypioducedexcellenttoplineandbottom
linegiowth.Wealsonoticedsomeotheicompanies
inthesuivivoilistthatsuivivedfoilessthan10yeais
andaiestillgoingstiong.Teyaveiagedaietuinof
12peicent,againwithgoodliquidity.Astheyseason
and age (like the suivivois), they may pick up in
peifoimanceandoutpeifoimtheNiftyindex.
Te powei of compounding is so astounding
that an investment of Rs.10,000 back in 1996 in say
HDFCBankwouldnowbewoithRs.10lakhswhile
the same invested in Nifty index will be woith only
Rs.61,222 and woise, Hindalco is woith only about
Rs.21,808.Howevei,thisisnottosuggestthatinvest
only in one oi two companies as it takes away the
benetofdiveisication.
Te non-suivivois (totaling 53 companies)
aveiaged an annualized ietuin of -3 pei cent with
liquidity being just one thiid of suivivois. Teii
aveiage staying peiiod in the Nifty index was less
than 6 yeais - ianging fiom 2 yeais on the bottom
(JetAiiways,AndhiaValley,etc.)to14yeais(incase
ofABB).
Tecommonthreadandthetakeaways
Since the suivivois spanned acioss vaiious sectois
including FMCG, Banking, MNCs, Infiastiuctuie,
Phaima, etc., the common thiead is one of ecient
management and supeiioi coipoiate goveinance.
Tese companies pioved theii ability to peifoim
undei vaiious business cycles and economic
challenges. It may not be theii stated goal to be a
pait of the Nifty index, but a laigei goal of eective
coipoiate management, shaieholdei iewaids and
competitionmanagementwhichenabledthemtobe
paitofthepiestigiousandmostfollowedNifty.Such
apiivilegeensuiesattentionofinstitutionalinvestoi
to the stock which piovides needed liquidity and
pationage.
Being pait of a majoi index like Nifty foi a
piolonged peiiod of time is an added metiic of
evaluation in addition to iegulai equity ieseaich. In
otheiwoids,stockpickingisiendeiedielativelyeasy
thiough this additional lens of evaluation and can
ieduceiminimizethedownsideininvestments.
Sowhatshouldbetheportfoliostrategy:
Te key heie is to monitoi a companys ability
to suivive Nifty foi say a good peiiod (10 yeais!)
wheieupon it becomes a candidate foi inclusion in
onespoitfoliotillthetimeitisevictedoutofNifty
foi one ieason oi the othei. All the 17 stocks that
suivived the Nifty till date will qualify foi poitfolio
inclusionafteiawaitingpeiiodof10yeais.Inothei
woids, since Nifty was foimed in 1996, that testing
peiiod of ten yeais would end in 2005 when these
stocks will be natuial inclusions. A quick check
of the peifoimance of these haidcoie suivivois
post poitfolio inclusion (i.e., 2005) shows that the
peifoimance is mostly supeiioi to the nave Nifty
investment.Te only woik heie is to monitoi the
quaiteily inclusioniexclusion exeicise of the NSE
whichIfeelisnotthatbigadeal.TGA
Nifty Fifty constituents, returns over the years
Company Yeaiof
inclusion
inthe
poitfolio
Puichase
piice
Sale
piice
CAGR
(2005-
2012)
(pei
cent)
HDFCBank 2005 123.9 558.8 24
M&M 2005 164.5 736.7 24
ITC 2005 55.9 245.3 24
L&T 2005 318.5 1337.1 23
HDFC 2005 180.7 697.9 21
ACC 2005 424 1298.7 17
RIL 2005 253.7 769.4 17
SBI 2005 717.6 2093.5 17
HUL 2005 161.2 454.4 16
TataMotois 2005 94 256.7 15
Ambuja
Cements 2005 65.5 174 15
TataPowei 2005 40.5 103.1 14
Nifty 2005 2297.1 5314.2 13
ICICIBank 2005 463 909.6 10
TataSteel 2005 331.8 431.2 4
Hindalco 2005 111.4 124.3 2
Ranbaxy 2005 473.2 493 1
Reliancein-
fiastiuctuie 2005 562 525.4 -1
M R Raghu
CFA, FRM
Head of Research
Kuwait Financial Center
(Markaz), Middle East
The Emerging India has attracted a number of internationally acclaimed
real estate developers in recent years. One of the early entrants among
them is Portman Holdings. Founded by legendary architect John
Portman, Portman Holdings is a real estate development, investment and
management company with over sixty years of experience, and a proven
track record with leading financial institutions. For the past several years,
the firm has been involved in development projects in India and has also
partnered with several local developers.
In a free-wheeling discussion with Prashant Das, founding partner of
realism.IN, John Portman IV, Vice President-Capital Markets (Global
Operations), Portman Holdings and Rahul Anand, Managing Director of
India operations of the global realty giant, discuss about their Companys
India plans, what makes India attractive to them, and the opportunities
and challenges of working in the country. This interview was exclusively
conducted for The Global ANALYST...
Portman Holdings
The global realty majors
India foray
John Portman IV
Vice President,
Capital Markets,
Portman Holdings
John IV is
responsible
for Portman
Holdings real
estate fund and
capital raising
initiatives,
focusing on both
equity and debt
sources.
FACE TO FACE
REALTY
Rahul Anand
Managing Director,
Portman Holdings,
India
Rahul is
responsible
for business
and financing
strategies,
policies and
practices related
to Portman
Holdings
developments in
India.
Piashant:YouisisoneoftheeailiestUS
ieal estate development ims to entei
Asianmaikets.TeimssuchasEmeiging
MaiketsandBRICSweiecoinedmuch
latei. How has the business landscape
evolved in these maikets, China and
Indiainpaiticulai,sincethen?
John Portman IV:Wehavebeenpiesent
inIndiafoilongtime.Wehavewitnessed
most of the events that have shaped
India today, such as the opening up and
giowth of its economy, giowth in the
seivicesectoi,paiticulailyininfoimation
technology, emeigence of new cities,
iising income levels of people, etc. Te
iealestateindustiy,whichwaspieviously
highlyunoiganized,hasbeenshapingup
andisbeingcoipoiatizednow.
Piashant:Whataietheuniquechallenges
thatdoingbusinessinIndiaposestoyou?
Also, what aie the advantages of this
maiketcompaiedtootheis?
John Portman IV:Developingiealestate
in India can be challenging due to the
complexity of the goveinment and the
businesscultuieitsnotaneasymaiket
foi outsideis to bieak into. Howevei,
wevemadeapointtopaitneiwithstiong
localdevelopeis.
Piashant: Laige inteinational hospitality
gioups such as Inteicontinental Hotels
Gioup and Maiiiott have announced
seveial new hotels in India. Howevei,
while Poitman Holdings is a leadei in
hospitalityimixed-use developments
in the US, in India you focus only on
housing.Whatistheieason?
John Portman IV: We have been
obseiving this maiket foi moie than a
decade.Temajoiattiactionisthehuge
unmet demand foi iesidences. With
iising income levels, inciease in nucleai
families and giowth in uibanization
the fundamentals look veiy stiong. Te
ielativelyshoiteigestationpeiiodmakes
itmoieappealing.
Piashant: In the Indian context, what
makes luxuiy homes favoiable to youi
business model compaied to, as many
would aigue, a much laigei maiket foi
middle-classaoidablehomes?
John Portman IV:Weactuallyfocuson
middleanduppeimiddlemaikethomes
foi the most pait. We have also done
deals involving highei-end homes, but
ouimainstiategyfocusesonthemiddle-
maikethomes.
Piashant: Each ieal estate pioject is
unique. Yet, the development piocess
is guided by a legible set of decision-
making and pioject execution piocess.
Howmuchdoesfoimaleducationinieal
estatehelpwiththepiocess,especiallyin
thecaseofIndianiealestatedevelopment
peisonnel?
Rahul: Foimal education helps in teims
oftechniquesandspecicskillsinactual
development. It helps in planning and
execution of well-dened situations.
Howevei, decision-making and pioject
execution aie faiily dynamic and multi-
faceted piocesses that aie leained best
thioughexpeiience.
Piashant: If you weie ieciuiting ieal
estate talent in India, what kind of skills
wouldyouwanttoseeinthem?
Rahul: In India we would look foi good
knowledgeoftheIndianmaiketandieal
estate investment and stiong pioject
managementskills.
Piashant: Indian talent always has an
option to get the iequiied education
abioad.Whataiethechallengesonefaces
inapplyingtheskillsdevelopedabioadin
theiealestatebusinessinIndia?
Rahul: Te education abioad is moie
apt foi ieal estate business which
opeiates in well-dened and ielatively
stable and piedictable paiameteis. In
India, the opeiating enviionment is
moiecomplex.
Piashant:Whataiethespecicbusiness
issuesinIndianiealestateonwhichthe
foimal knowledge is scaice? In othei
woids,whatkindofieseaichwillhelpin
impiovingthebusinessenviionment?
Rahul: We feel that in India, the land
ielated laws and appioval piocesses aie
twomainaieaswheiefoimalknowledge
isscaice.TGA
Portman Holdings: The global realty majors India foray
Payment System Indicators: Advantage Plastic Money!
Rupees relentless slide
FEATURE
DECODING DATA
System Volume
(Million)
Value
(Rs.Bn)
2012-13 2013 2012-13 2013
Feb. Mai. Api. Feb. Mai. Api.
CieditCaids 399.13 33.03 35.85 37.79 1,243.93 102.22 112.71 125.51
UsageatATMs 2.52 0.2 0.23 0.23 14.42 1.17 1.49 1.33
UsageatPOS 396.61 32.83 35.62 37.56 1,229.51 101.05 111.22 124.18
DebitCaids 5,999.21 495.34 554.52 546.73 17,393.47 1,429.15 1,623.12 1,640.12
UsageatATMs 5,530.16 454.31 508.85 501.07 16,650.08 1,367.67 1,556.15 1,563.87
UsageatPOS 469.05 41.03 45.67 45.66 743.39 61.49 66.97 76.26
MobileBanking 53.30 5.44 6.40 6.33 59.90 8.07 9.92 9.89
NumbeiofATMs
(inactuals)
114014 109629 114014 116378
NumbeiofPOS
(inactuals)
845653 819688 845653 913867
Rupee vs. Dollar
Souice:RBI
Souice:advfn.com
Test Your IQ
Product Innovation
FEATURE
QUIZ
Q.1 Tis unique and innova-
tive water purier does not
require electricity or run-
ning water, thus making it
feasibleforuseinbothurban
and rural areas. Launched
in December 2009 at a price
pointofRs.749(nowjustRs.
499),itisprobablytheworlds
cheapestwaterpurier.Iden-
tifyit.
Ans.TataSwach
Q.2 In 1979, it developed the
rst brushless, DC spindle
motor for eight-inch hard
diskdrives(HDDs).Andfrom
thatpointforward,itwaso
totheracesforthecompany.
Te market for these motors
issobigthatthisinnovatoris
nowJapansfth-largestelec-
tronics company. It currently
enjoys an 80 market share
for HDD motors, while sales
of brushless, DC motors for
HDDsaccountfor60ofthe
companysbusiness.Nameit.
Ans.NidecCoipoiation.
In 1979, it became the ist
companywoildwidetoputspindle
motois into piactical use in
8-inch-diameteihaiddiskdiives.
A brief history
Tewoild-shakingjoltofthe70s
oilshockposedaseiiousthieatto
the Japanese economy. Chances
weie miseiably small foi a
company like Nideca newboin,
minuscule-scale manufactuiei
withnoimpiessivehistoiicaltiack
iecoideventosecuieminimum
oideisnecessaiytobaielysuivive.
Inappaientdespeiatestiaits,what
solvedthepioblemwasadecision
to ventuie into the U.S. maiket.
Withthisasatuiningpoint,Nidec
iapidly extended its global ieach
beyond the U.S. into Asia and
Euiope establishing a foothold in
the woild stage just thiee yeais
afteiitsfounding.
Nidec continuously expanded
its pioduct lineup fiom small
piecision AC motois to biushless
DC motois and cooling fans. In
1979,itbecametheistcompany
woildwide to put spindle motois
into piactical use in 8-inch-
diametei haid disk diives. With
the opening of a high-volume
factoiy in Mineyama, Kyoto,
Nidechadlaidthegioundwoikfoi
thegiowthtocome.
Souice:Nidec
Q.3Itistheworldsrstdis-
posable mini-toothbrush
withabreathfresheningbead
that allows the user to have
a clean, fresh mouth with no
waterorrinsing.Nameit.
Ans.ColgateWISP.
Q.4 Danone partnered with
Grameen Bank founder Mu-
hammadYunustodevelopan
inexpensive and highly forti-
ed product that is as a meal
supplementformalnourished
diets in rural Bangladesh.
Whatisit:
Ans. Yoguit called Shokti Doi
(Powei Yoghuit). It contains
piotein, vitamins, iion, calcium,
zinc and othei micionutiients
aimedtollnutiitionaldecitsof
childieninBangladesh.
Q.5 CSL, an Australian spe-
cialty biopharmaceutical
company, which specializes
invaccinesandprotein-based
solutions, in yet another
breakthrough developed a
blood transfusion therapy
that can be stored at room
temperature (as it requires
no refrigeration or recon-
stitution) through its entire
36-monthshelflife.Nameit:
Ans.Piivigen.
Q.6 It describes its product
asfollows-Onenightiswhat
it takes to start looking 10
yearsyounger.Inspiredbythe
science of cellular regenera-
tion, Este Lauder Research
takes you to a younger time
zone-overnight.Infact,every
singlewomantestedwokeup
to smoother, more hydrated,
comfortableskin.Andinjust
1week,womenthoughttheir
skinlookedyounger.
YOURTIMEISNOW
Tis age-defying moisturizer
works overnight to help dra-
matically reduce the look of
linesandwrinkles.
Our exclusive Sirtuin EX1
Technology helps reverse
the appearance of aging for
a years-younger look-more
lineless, radiant and rested.
Helps support skins nightly
restorative actions including
natural collagen production
with an amino acid complex.
And while you sleep, the
soothing scent calms and re-
laxes. Use it with this creme
and look 10 years younger in
just4weeks.Identifythisrev-
olutionaryproduct:
Ans: Estee Laudei Time Zone
Night.
Q.7 It began packaging its
foods in what was called a
polyester poly standy pack,
the rst of its kind in India.
Tis was a high-quality plas-
ticbagwithapyramidalbase
whichenabledittostandup-
right.Teuprightbagsgreatly
increased the brands visibil-
ity on store shelves. Identify
thecompany.
Ans. MTR Foods, the Bangaloie-
headquaiteied instant food
manufactuiei.
Q.8Atnoononedayin1968,
yet another chapter in the
story opened. Tats when a
Dallas man by who was then
theheadofproductplanning
for an automated baggage-
handling company called
Docutel(anderstwhileminor
leaguer for the then--New
York Giants), was standing
in line at the bank to cash a
check. Te line was long and
slow,andhebecameincreas-
ingly irritated as his lunch
hour dribbled away. All at
once, he had a ash of inspi-
ration. Golly, all the teller
does is cash checks, take de-
posits, answer questions like
Whats my balance: and
transfer money between ac-
counts, recalls he. Wow, I
think we could build a ma-
chinethatcoulddothat!
Whoishe:
Ans. Donald C. Wetzel, an
Ameiican engineei, who jointly
holds the USA patent to the
automatictelleimachine.
Boin in New Oileans,
Louisiana he giaduated fiom
JesuitHighSchool(NewOileans)
(1947) and got a B.Sc. in foieign
tiade fiom Loyola Univeisity
New Oileans (1951). He was also
piofessional in minoi-league
baseball foi New Yoik Giants
faimsystem(194851),andbegan
woikingfoiIBMinhishometown
(195155) befoie moving to Foit
Woith, Texas as bianch managei
(1955) and as consultant to the
banking industiy in San Antonio,
Texas (19561963) and Houston,
Texas(196365).
His engineeiing fame came
whilewoikingasvicepiesidentof
the automated baggage handling
company Docutel Coipoiation
of Iiving, Texas which he
joined (1968). He designed the
Docutellei machine (1968) that
enteied pioduction at Chemical
Bank in New Yoik City (1969)
andwaspatented(1973).Lateihe
founded thiee nancial systems
companies, the Financial Systems
&EquipmentCoipoiation(1973),
Electionic Banking Systems, Inc.
(1979) and Autosig Systems, Inc.
(1982) fiom which he eventually
ietiied(1989),stilllivinginDallas.
Q.9 What is the name of the
pedal-powered washing ma-
chine - developed by ve en-
gineering students of Delhi
Technological University
(DTU):
Ans.Dhobi.
Te team claims that the
machine, called, is like any othei
fully automatic washing machine
availableinthemaiketexceptthat
itdoesnothavetheheatingfacility
foi diying clothes. Whats moie,
people can also buin caloiies as
theypedaltowashtheclothes.
Q.10 Its described as one of
Africas most powerful weap-
ons in the ght against ma-
laria: a mosquito net treated
with an insecticide that stays
potent for ve years. Called
the Nguvu ya Ajabu (Magic
Power) Olyset net, the inno-
vation was launched in 2004
in the Arusha factory which
is now churning out 10 mil-
lion of these bug barriers ev-
ery year, sold throughout 25
African countries. It is made
fromasyntheticweavethatis
impregnatedwiththeinsecti-
cide permethrin. A to Z Tex-
tile Mills is the only factory
in Africa to produce the life-
savingnetsthatrepelmosqui-
tos carrying the parasite that
causesthedisease.
Malaria remains the number
one cause of death among
children under ve in Africa.
TeUNWorldHealthOrgan-
isationestimatesthat1.2mil-
lion people die of the disease
everyyear,mostlychildren.
Which Japanese company in-
ventedthisnet:
Ans.SumitomoChemical
Test Your IQ: Product Innovation
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