India Business Journal December 2014

 

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NEWS ROUND-UP MISCELLANEOUS Metz meet set to boost India, Euro ties A delegation from France Moselle Department (north-eastern France), comprising Moselle Public Authority, Moselle Economic Agency and Metz City Trade Department recently visited Mumbai to promote an upcoming business summit, the EuroIndian Technology Sourcing (EITS) 2014. The three-day event, scheduled to be held in Metz, France, from December 9th to 11th is targeted at strengthening links between France and India. The business summit aims at bringing Indian and European companies engaged in materials, energy and processes sectors together, establish new contacts between them and boosting trade relations between the two countries. computed on the 2004-05 base year. Experts opine that the new series will better reflect the economy. Single investor account statement from March Starting March 2015, investors will receive a consolidated account statement for all their mutual fund investments and demat accounts. This will be a unified record of transactions done during February 2015 and their holding in the accounts. The idea to have a consolidated account statement was mooted in the recent Union Budget to create one record for all financial assets of every individual. MSME Minister Kalraj Mishra New GDP data with 201112 base year The government will release a new series of national accounts with 2011-12 as the base year for Ministry moots easy exit policy for MSMEs Tackling sick units and rising non-performing assets, an exit policy and a new definition for micro, small and medium enterprises (MSMEs) are among changes proposed in the amended MSME Act, 2006. A background note prepared by the MSME Ministry, heeding the recommendations of the Prime Minister's Task Force, has proposed replacement of the Provincial Insolvency Act, 1920, to enable time-bound revival and exit for unincorporated firms. The proposed amendments will provide legal opportunities to MSMEs facing insolvency to revive their units. The draft amendment also proposes to raise investment limits in the manufacturing sector to Rs 50 lakh for micro units, up to Rs 10 crore for small units and up to Rs 30 crore for medium enterprises. computing the economic growth rate. The Gross Domestic Product (GDP) data based on the new series will be released for three consecutive years from 201112 in January 2015. At present, the GDP is Listing norms tightened, delisting eased The SEBI has reworked rules for delisting companies from the stock market. The capital market regulator has also converted listing agreement guidelines into regulations to enhance enforcement of the rules. The timeline for delisting has been reduced from 137 to 76 days. The SEBI has also allowed the use of the stock exchange platform for delisting, APPOINTMENTS Hasmukh Adhia, a 1981batch, IAS officer and former additional chief secretary of Gujarat, was appointed as financial services secretary in the Union Finance Ministry last month. Anita Kapur, a 1978batch, IRS officer, has taken charge as the chairperson of the Central Board of Direct Taxes. Economic Affairs Secretary Rajiv Mehrishi, a 1978- 4 DECEMBER 2014 INDIA BUSINESS JOURNAL

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Verbatim... MISCELLANEOUS takeover and buyback offers. A company wanting to delist has to ensure that its promoter shareholding reaches at least 90 per cent after acquiring shares from the public or at least 25 per cent of the number of sharers tendered by public shareholders in the reverse bookbuilding process. explosives. Earlier, ANFO manufacturers were required to secure a licence for possession and use of blasting accessories - booster, safety fuse, detonating fuse and detonators under the Explosive Rules, 2008. India has its way, WTO deal clinched The World Trade Organization (WTO) adopted the first worldwide trade reform in its history last month after years of stalemate. The WTO’s General Council, the highest decision-making body, accepted India’s demand for extending the peace clause till a permanent solution is found for its food stockpiling issue. The extension is crucial for India’s over Rs 1,00,000crore food security programme. The deal is expected to streamline flow of trade around the world, adding as much as $1 trillion and 21 million jobs to the world economy. "Prices change, and while they usually go up, these days, sometimes, they do not. We are at such a moment of uncertainty." Bill Gross JANUS CAPITAL GROUP Caps likely for public, pvt coal block developers The Coal Ministry has decided to have tighter monitoring norms for mine developers in the next round of allocations and auctions. Aiming to prevent any monopoly of the sector, the government intends to cap the number of coal blocks that a public or private sector company can bid for. The ministry proposed these rules when it recently shared the draft rules for the e-auction and allocation of blocks with the stakeholders concerned. The draft rules also mandate developers to furnish a performance bank guarantee. "Reforms are not instant coffee. The new government has shown that it has a long-term vision and wants to go step by step." Philipp Rosler WORLD ECONOMIC FORUM "India is a small market for hotels. It's a big market to sell lottery tickets, but not to sell hotel rooms." Simon Cooper MARRIOTT HOTELS No licence for explosives used in mining The government has waived the licence for mine owners to manufacture ammonium nitrate fuel oil (ANFO) batch, IAS officer from the Rajasthan cadre, has been nominated as the Finance Secretary in Union Finance Ministry. Indiabulls Asset Management has appointed Ambar Maheshwari as CEO of its Alternate Investment Funds. Manufacturing puts brakes on Q2 GDP growth The economy grew by 5.3 per cent in the second quarter (Q2) ended September 2014 compared with 5.7 per cent in the previous quarter. The fall in sequential growth of the Gross Domestic Product (GDP) was primarily due to slow growth in the manufacturing sector, which expanded by only 0.1 per cent compared with 3.5 per cent in the previous quarter. As such, growth for the first half of this financial year was 5.5 per cent compared with 4.9 per cent for the corresponding period last year. Meanwhile, the government’s fiscal deficit for the AprilOctober period touched 89.6 per cent of the FY15 Budget estimate of Rs 5.31 lakh crore, on account of lower tax revenue collections. "The manufacturing sector needs to become fashionable at the shop-floor level if aspirations of young Indians are to be satisfied in the long term." Amitabh Kant SECRETARY, DIPP TIE-UPS National Skill Development Corporation and Australia's TAFE Directors have signed an MoU for technical and vocational education and training. "While the ostensible purpose of KVP is to promote savings, the argument is suspect as there are other instruments offering better returns." P Chidambaram EX-FINANCE MINISTER INDIA BUSINESS JOURNAL DECEMBER 2014 5

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NEWS ROUND-UP FINANCE New KVP to double money in 100 months The government has re-launched Kisan Vikas Patra (KVP) to raise savings in the country. The new version of KVP, which does not come with any tax benefit, is a bearer instrument without the name of the holder. Available in denominations of Rs 1,000, 5,000, 10,000 and 50,000, the amount invested in KVP will be doubled in 100 months. The instrument has no upper ceiling for investment and can be encashed after a lock-in period of 30 months. KVP is aimed at providing a trusted option of investment to the poor and keeping them off ponzi schemes. criteria" for directors. The norms make it mandatory for all NBFCs to attain a minimum net owned fund of Rs 2 crore by the end of March 2017. The revised regulatory framework for NBFCs is aimed at addressing regulatory gaps related to the fast-growing segment. Central Bank launches two new schemes Central Bank of India launched two new schemes - Cent Home Double Plus Scheme and Cent Aspire Deposit Scheme - in Mumbai last month for home loan borrowers and depositors. Cent Home Double Plus Scheme is a customer-friendly housing loan scheme with an overdraft facility. Under the scheme, the borrower may deposit any amount in excess of the home loan EMI and have the convenience of withdrawing such excess amount according to one's requirement. Cent Aspire Deposit Scheme offers customers a premium credit card without submitting any income proof, credit score or CIBIL report. Kotak 4th largest private bank with ING deal Kotak Mahindra Bank is acquiring Bengalaru-headquartered ING Vysya Bank in an all-stock deal valued at Rs 15,000 crore. ING shareholders will get 725 Kotak Bank shares for every 1,000 shares they hold. The deal will make Kotak the country's fourth-largest private bank in terms of total business after ICICI Bank, HDFC Bank and Axis Bank. The combined banking entity will have a widespread network of 1,214 branches across the country. The deal will enable Kotak, which is strong in retail business, to diversify its loan book further by gaining from ING's robust SME clientele. Rs 3,45,000 crore are restructured loans. The rating agency has based its estimates of restructured assets on an analysis of the credit metrics of the top-500 corporate borrowers. amid a rise in the number of cheque-related frauds, has told banks to take measures, including sending SMS alerts to payer or drawer when a cheque is received in clearing. The central bank has also advised banks to alert customers by a phone call and get a confirmation from the payer or the drawer in cases related to clearing of suspicious or large-value cheques. The RBI has told banks to ensure the use of 100 per cent CTS-2010compliant cheques. Restructured loans to hit Rs 4.45 l cr by FY15 The domestic banking system could see restructured loans surging by Rs 1,00,000 crore to Rs 4,45,000 crore in the remaining four months of this financial year, according to credit rating agency India Ratings. Currently, the total bad loans and restructured assets of Indian banks are estimated at about Rs 6,00,000 crore. Of this, around 45 per cent or Rs 2,55,000 crore are nonperforming assets and the remaining 65 per cent or RBI tells banks to curb cheque frauds The RBI has asked banks to put in place preventive measures to curb cheque frauds. The central bank's directive, which comes competition in the category of nationalised banks and financial institutions in region 'A' for 2013-14 for implementing the official language policy in the bank. Edelweiss Life focuses on south India Edelweiss Tokio Life Insurance, the insurance arm of Edelweiss Financial Services, is expanding its presence in south India with a target to meet insurance needs of nearly 3,00,000 individuals by 2020 from the present 15,000. The company is planning to have nearly 5,000 trained personal finance advisers, offering need-based life insurance solutions in south India in the next six years. The insurance company is targeting to end the current financial year with total premium income of over Rs 100 crore as against Rs 65 crore in 2013-14. APPOINTMENTS Atal Agarwal, the former managing director of Royal Bank of Scotland, has taken over as executive vicepresident of DCB. Tough provisioning, capital norms for NBFCs The RBI has tightened the regulatory framework for non-banking finance companies (NBFCs). Like banks, they will be subject to 90-day overdue norms for identification of bad loans, will be required to make higher provisioning for nonstandard assets and have to put in place "fit and proper AWARDS Punjab National Bank has been awarded the first prize by President Pranab Mukherjee in the Indira Gandhi Rajbhasha Shield TIE-UPS Tamil Nadu Mercantile Bank has entered into a tie-up with SBI ePay, a wholly owned subsidiary of State Bank of India, for utilising the bank's payment gateway services. 6 DECEMBER 2014 INDIA BUSINESS JOURNAL

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NEWS ROUND-UP CORPORATE Sistem Air plans Rs 400cr unit in India Sistem Air, the Italian vacuum cleaning solutions company, is planning to invest Rs 400 crore in India to set up an assembly unit. In a later phase, the company plans to convert the unit into a manufacturing facility. It will be Sistem Air's third unit outside Italy after Canada and Estonia. The company has tied up with the Gulfbased Bin Daen group for its operations in the Asian region. The Italian company is looking at locating its plant - expected to be operational in the next two years - near Adibhatla on the outskirts of Hyderabad. Biocon, CytoSorbents in marketing tie-up Biocon will have exclusive rights to distribute CytoSorbents Corporation's CytoSorb, which is used to treat severe body inflammation Systemic Inflammatory Response Syndrome. The Bengaluru-based biotech major will market this medicine in India and select emerging countries. The financial terms of the tie-up has not been disclosed. As a part of the agreement, Biocon will also play a prominent leadership role in generation of new clinical evidence, which includes a commitment to conduct and publish results from multiple investigator-initiated trials - another word for clinical trials. J&J acquires ORSL from Jagdale Johnson & Johnson (J&J) has acquired Bangalore-based Jagdale Industries' energy drink ORSL in a deal estimated at Rs 750 crore. Under the agreement, Jagdale Industries will provide transition services in the area of manufacturing, detailing and distribution of ORSL to the USbased medical devices, pharmaceutical and consumer packaged goods-maker in one of its biggest buyouts in recent years. ORSL, which clocks about Rs 100 crore in sales every year, is a fruitbased electrolyte drink that is commonly prescribed by physicians for its replenishment benefits. The deal helps J&J to strengthen its position in the country's consumer healthcare market. nearly $200-million (about Rs 1,200 crore) IT services business and has appointed Vikram Gulati, a Wipro veteran, as its head. The acquisition will mark IKYA's foray into the multi-billion dollar outsourcing market. Experts opine that despite all the competition, there is an opportunity to create another billion-dollar company in the Indian IT services industry. details about its subsidiaries in its 2007 IPO filing. residential projects left unfinished following a cash crunch since the global financial crisis of 2008. Piramal Enterprises, known for identifying new investment opportunities since it sold its formulations business to Abbott for Rs 18,000 crore, is closely watched by bankers and investors for its investment bets. Cognizant snaps up Australia's Odecee Cognizant Technology Solutions has acquired Australia's Odecee, a provider of digital solutions to clients in the Australia and New Zealand region, for an undisclosed amount. Odecee delivers enterprise mobility, web and cloud solutions to clients in financial services, insurance, healthcare, logistics and communication industries. Following the deal, about 150 digital specialists with expertise across enterprise mobile, web Toonz Retail to add 20 stores by FY15 Toonz Retail, is expanding its network, focusing on nonmetro markets. The Mumbaibased company, which specialises in retailing kidswear and toys, has plans to add 20 stores by the end of this financial year. The retailer has a network of 55 stores in 44 cities and has earmarked Rs 20 crore for its expansion. Toonz Retail will continue to consolidate its presence in south India and is focusing on expansion in northern and eastern parts of the country. APPOINTMENTS ITC has promoted Sushma Rajagopalan, the chief operating officer of ITC Infotech, as chief executive officer of its IT subsidiary. Shalabh Seth, the sales director of SabMiller India, will assume charge as its managing director from January 2015 Vivek Sood has taken over as the new CEO of Uninor, the Indian subsidiary of the Norwegian telecom company Telenor. Relief for DLF to redeem Rs 1,800-cr MF The Securities Appellate Tribunal (SAT) has allowed real estate developer DLF to redeem Rs 1,800 crore it had invested in mutual funds (MF) by December. In an interim order, the tribunal allowed DLF to redeem funds worth Rs 767 crore in November and the rest in December. The realty company, which was banned in October by capital market regulator SEBI from trading on stock exchanges for three years, had also been barred from redeeming its investments. SEBI's action was a result of DLF not disclosing Piramal lines up Rs 14,000 cr for realty Piramal Enterprises plans to invest $2 billion (nearly Rs 14,000 crore) in real estate projects over the next two years. The company is betting that a revival in the economy under the new government will boost demand for property. Piramal's planned investment could help developers complete commercial and IKYA buys MFX, enters IT services IKYA, a staffing company owned by Thomas Cook India, has agreed to buy a 49 per cent stake in MFXchange (MFX), the technology applications subsidiary of Canadian property and casualty insurer Fairfax. The company will combine MFX with its TIE-UPS K Sera Sera has joined hands with Hong Kongbased Sony Corporation to bring in the 4K resolution cinema technology. INDIA BUSINESS JOURNAL 8 DECEMBER 2014

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CORPORATE and cloud services will join Cognizant, according to a company release. Biyani's Future buys Nilgiris for Rs 300 crore The Future Group has acquired the century-old Nilgiris grocery chain for about Rs 300 crore in an allcash deal. The acquisition will give Future Group CEO Kishore Biyani much-needed access to markets in the southern states. The Future Group will own all of Nilgiris, including the 65 per cent stake of private equity (PE) firm Actis Capital and also the stake held by the Mudaliar family. For the past two years, Actis had been looking for an exit from Nilgiris Dairy Farm, a brand that was established in 1905. The UK-based PE firm had purchased a major stake in Nilgiris in 2006. plant in Korba, Chhattisgarh. The deal makes Adani Power the largest private sector power utility in the country with an installed capacity of 11,040 mw. Misconduct at Infosys arm, CEO quits Infosys last month terminated the services of Abraham Mathews, the chief financial officer (CFO) of its business process outsourcing (BPO) subsidiary, for noncompliance with the model code of conduct. The company also added that Gautam Thakkar, the chief executive officer (CEO) of Infosys BPO, had quit, taking moral responsibility for the incident. According to sources, the exit of Infosys BPO's top executives was a result of the company overcharging Apple for its outsourcing services. Infosys, however, refused to comment further, adding that the financial irregularities were not material in nature and that it had already made required disclosures. Havells' Qimat Rai Gupta passes away Electrical equipmentmaker Havells India Chairman Qimat Rai Gupta passed away last month. Mr Gupta, 77, who started Havells and transformed it into a multinational with operations across 51 countries, was known for his entrepreneurial and never-say-die spirit. Mr Gupta had recently made it to the Forbes' billionaire list for the first time and was ranked India's 48th richest man with a net worth of about Rs 14,000 crore as of September. Anil Rai Gupta has taken over as the chairman and managing director of Havells India. hydroelectric projects of Jaiprakash Power Ventures (JP Power) in Himachal Pradesh for about Rs 9,700 crore. The board of directors of JP Power has approved the transfer of 300-mw Baspa-II hydroelectric project and 1,091-mw of Karcham Wangtoo hydropower project into a separate company, Himachal Baspa Power Company, which will be acquired by JSW Energy. The acquisition will make JSW Energy the largest private sector hydropower generator in the country. Post-acquisition, the aggregate installed power generation capacity of JSW Energy will enhance to 4,531 mw. Crompton Greaves had acquired ZIV, a global company that provides smart-grid and automation solutions for industrial and utility companies, for about 150 million euros. Crompton Greaves has said that it chose Grenoble to cover the demand for Linky meters in France and also provide local support to ERDF, France's primary electricity distribution utility, which manages 95 per cent of the country's network. JSW Energy, JP Power in Rs 9,700-cr deal JSW Energy will acquire two L&T Technology Services has partnered with Europe-based telecom operator Tele2 to develop solutions around machineto-machine and internet of things. Walter of Germany and Starrag Group of Switzerland have joined hands to tap business opportunities in the Indian small and medium enterprises segment. NIIT and eBay India have tied up and unveiled ePro, an e-commerce certification programme, for online entrepreneurs to scale up their operations. Cipla has inked a pact with Serum Institute of India to market paediatric vaccines in Europe. INDIA BUSINESS JOURNAL Airtel sells over 4,800 towers in Nigeria to ATC Bharti Airtel has signed a deal to sell its over 4,800 telecom towers in Nigeria to American Tower Corporation (ATC) for around $1.05 billion (a little more than Rs 6,400 crore). With this sale, Airtel, the world’s fourthlargest carrier, attempts to lower its debt and turn around its loss-making operations in Africa. The telecom company, which sold its towers through its international subsidiary, Bharti Airtel International (Netherlands), will be the anchor tenant of the towers it has sold under a lease with a 10-year initial term, according to a company release. DECEMBER 2014 Adani powers ahead after buying Korba unit Adani Power has entered into a binding agreement with the Gautam Thapar-led Avantha Group to buy out its 600mw Korba West unit for more than Rs 4,200 crore. This is the second acquisition by the Adani Group since it bought the Rs 1,200-mw, coal-fired Udupi plant from the debt-laden Lanco Infratech for Rs 6,000 crore in August. Korba West Power owns a completed 600-mw, coal-based, power Crompton Greaves plans plant in France Crompton Greaves, which makes products ranging from electrical appliances to transformers, plans to open a facility in Grenoble, France, to produce, test and calibrate over 20 lakh ZIV smart meters annually. In 2012, 9

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NEWS ROUND-UP PUBLIC SECTOR HAL picks up 111 projects for funding Hindustan Aeronautics (HAL) has identified 111 technologies to fund and pursue its research and development (R&D) technology. The aircraft manufacturer has so far filed over 300 patents in just over two years. It has also created an R&D corpus, earmarking 10 per cent of its operational profit after tax, to promote technology development within the company. HAL has made a strategic move to bring all its 10 R&D centres under the ambit of the Committee of Institutional Network to ensure synergy among its centres spread across the country. It has committees have three outside experts and the financial Secretary, the additional Secretary and an RBI deputy governor. The final selection of candidates will be made by the appointment board chaired by the RBI governor based on the weighted average marks given by each sub-committee. CPCL saving on costs to improve margins Chennai NHPC to build India's biggest hydro-plant NHPC is gearing up to build the country's biggest hydroelectric plant, three times the size of its biggest unit. The State-owned hydro-power company recently received approvals from the Forest Advisory Committee for the 3,000-mw Dibang hydro-power project in Arunachal Pradesh. The company, which plans to execute the project in partnership with another PSU and the Arunachal Pradesh government at an investment of about Rs 16,000 crore, will be approaching the Union government for a final nod within a year. The power project is almost equal to about half of NHPC's current total capacity of 6,500 mw. also entered into MOUs for technology collaboration with IITs. decline in oil prices pushed down the cost of the superchilled fuel. The country's largest natural gas distributor plans to buy about 30 spot LNG cargoes next year, including a term deal for 12 cargoes, compared with about 25 this year. GAIL has agreed to buy 3.5 mt of LNG a year for two decades from Cheniere Energy's Sabine Pass terminal in Louisiana. It has also booked 2.3 mt a year capacity in the Cove Point LNG liquefaction terminal in Maryland. Petroleum Corporation (CPCL), a standalone refinery of Indian Oil Corporation (IOCL), is exploring options to save on costs as its margins narrow with the falling price of crude oil. As a part of its costcutting plans, the refinery is looking at expanding sales of petroleum products within Tamil Nadu to save on the Central Sales Tax (CST). The company shells out about Rs 300 crore for CST annually when its sells products outside the State. Last month, the company started shipping diesel from Chennai port to Ennore port to cater to Hindustan Petroleum's demand. APPOINTMENTS Dr G C Gopala Pillai, the former chairman of Kerala State Electronics Development Corporation (KELTRON), has been appointed as managing director of Kerala Industrial Infrastructure Development Corporation (KINFRA). AAI, Pawan Hans to be listed soon Pawan Hans Helicopter and Airports Authority of India (AAI) will soon be listed on stock exchanges, according to Civil Aviation Minister Ashok Gajapathi Raju. However, the timeframe for the listing of the two entities and percentage of the government holdings that will be shed have not been decided yet. The minister also revealed that an expert committee would be set up for Air India's revival. It will be easier to list Pawan Hans Helicopter because it is already a registered company. The Air Navigation Services of the AAI is set to be hived off from the airports authority before it is listed. AWARDS Bharat Electronics has bagged the Standing Conference of Public Enterprises (SCOPE) Meritorious Award for best practices in human resource management for 2012-13. IOCL's Ennore LNG unit gets board nod The board of Indian Oil Corporation (IOCL) recently approved the Rs 5,150-crore Ennore LNG terminal project, which will come up to the north of Chennai. Work on the 5-mt LNG terminal, the first such infrastructure on the east coast, is set to start in a couple of months and expected to be complete by 2018. IOCL, which owns a 45 per cent stake in the project, is developing it in a joint venture with Tamil Nadu Industrial Development Corporation, which holds 5 per cent stake. IOCL is also looking to rope in strategic partners for the project. INDIA BUSINESS JOURNAL Process on to name heads of PSU banks The government has formed three subcommittees to select heads of eight public sector banks. The three sub-committees will soon be holding interviews of eligible candidates. Early last month, the government had decided that each sub-committee would have two members and all candidates would have to go through all the screening panels separately. The sub- TIE-UPS State-owned power generation company SJVN has signed a project development agreement with the Nepal government for executing the 900-mw Arun-3 hydroelectric project in the neighbouring country. GAIL eyes more LNG as oil price dips GAIL India is seeking to boost import of spot LNG next year as a 10 DECEMBER 2014

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POLICY Course Correction Can a tough monetary policy stance tame inflation in India? The RBI needs to change its approach in addressing this issue. CHANDRA SHEKHAR or a long time now, the Reserve Bank of India (RBI) has maintained a tight money policy. The tough stance is aimed at containing inflation and inflationary expectations. The central bank has remained resolute in its monetary policy despite nudging from the Union Finance Ministry and intense pressure from the industry. Although the next policy review is due on December 2, nothing prevents the RBI from taking initiatives ahead of the scheduled date. The moot point at this juncture is whether the RBI has pursued the correct policy of keeping the benchmark rate, also called the repo rate, at an elevated level. Besides, it is important to ask if the current policy has helped in curbing inflation and inflationary expectations. And lastly, what should the way forward be for the central bank amid the clamour from industry for a rate cut. 12 DECEMBER 2014 F The change in interest rates in the Indian context is about boosting investor sentiments. Low rates may not automatically boost economic growth but will definitely provide the much-needed adrenaline to the economy. Interestingly, RBI Deputy Governor H R Khan and Paris-based Organisation of Economic Cooperation and Development (OECD) have cautioned the RBI against cutting the rate. They argue that the possibility of inflation going up is still there. "In India, still-high inflation expectations call for a continuation of the tight monetary policy stance," the OECD has opined in its recent economic outlook report. The think tank further adds that India should continue with fiscal consolidation and improve the quality of public expenditure by re- ducing subsidies. Mr Khan has also indicated that the RBI may not lower its guard at the next monetary policy. "Inflation still has a long way to go in terms of input cost, wage burden and crude oil prices. There are structural issues too. We need to be cautious when we celebrate early," cautioned Mr Khan. Tight-fisted It may be worthwhile to mention that the Wholesale Price Index-based inflation in October rose by 1.77 per cent, the lowest rise in the past five years. The retail inflation for October too saw a subdued rise, the lowest since January 2012. The RBI has been maintaining a tight monetary policy stance to tame inflationary expectations. For the fourth time in a row, the central bank kept key interest rates unchanged at its previous policy review in September and added that it would not cut them unless inflation moderated to anticipated levels. The tight money policy comes in the backdrop of growth declining to sub-5 per cent for the past two consecutive financial years. Economic growth fell to 4.7 per cent in 2013-14. A few years preceding the outbreak of the global financial crisis in 2008 had seen the Indian economy growing at 8 to 9 per cent, which is considered by many experts as the country's potential growth rate. In the current financial year, economic growth in the April-June 2014 quarter accelerated by 5.7 per cent. Although the data for the second quarter are yet to be announced, the growth rate for the year as a whole has been estimated at around 5.7 to 5.9 per cent. Some experts, however, feel that it could be lower than expected. USA & India RBI Governor Raghuram Rajan has been maintaining that inflation and inflationary expectations are high, and that he will consider a rate cut only after seeing the latest data on prices. INDIA BUSINESS JOURNAL

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The whole argument of the RBI chief is based on the assumption that there is an inseparable link between interest rate and inflation, and that the instrument of interest rate can be effectively used to curb inflation. Going by the assumption, the easiest way to deal with inflation will be to keep interest rates high. This approach had worked in the US in the past. The economic models developed by American universities also suggest that a high interest rate is beneficial in the medium to long run. Initially high interest rates will lower the Gross Domestic Product (GDP), but in the medium run, the GDP will inch up to a potential level without any commensurate increase in inflation. Ultimately, it will result in equilibrium where inflation and interest rates will be low and the GDP high. The RBI is apparently following this approach. In an ideal situation, the RBI will achieve its goal of high GDP, low interest rate and subdued inflation. But will that happen? There is a caveat. Unlike the US, the problem in India is food inflation. America has the problem of food surplus while India faces shortage of food. The link between inflation and interest rate is not as strong in India as in the US. Hence the economic model developed by the American universities and being pursued by the RBI may not work very effectively in India. In the Indian context, food inflation is a major problem. It is caused by supply constraints and, to some extent, increasing demand. The supply bottlenecks cannot be removed in the short run. Concerted efforts will be needed at various levels to deal with the supply problems in the medium to long run. They will include policy action, financial incentives to farmers, pumping of more money into the agriculture sector and so on. Is the tight money policy helping the farm sector? The answer is no. Farm credit needs to increase and increase substantially, not through INDIA BUSINESS JOURNAL Food inflation, caused by supply constraints, cannot be brought down by a tight monetary policy. "Inflation still has a long way to go in terms of input cost, wage burden and crude oil prices. There are structural issues too. We need to be cautious when we celebrate early." H R KHAN Deputy Governor, RBI subsidised lending but through the regular banking channel. The tight monetary policy, however, is expected to subdue demand for products, including the farm produce. Is that happening? It is not easy to answer that question as far as food items are concerned. Moreover, it will be preposterous to assume that the RBI is keeping interest rate high to reduce consumption of food by citizens. On the other hand, elevated interest rates are impacting demand for manufactured goods, especially consumer durables. Demand for automobiles is not picking up either. Similarly, demand for white goods has remained subdued and is unlikely to move up in the absence of rate cut by banks. The real estate sector, which drives demand for cement, steel and other building materials, is also going through a rough patch. More importantly, the change in interest rates in the Indian context is also about boosting investor sentiments. Low rates may not automatically boost economic growth but will definitely provide the much-needed adrenaline to the economy. What the RBI needs to do is to have a relook at the basic approach it has followed when pursuing the nation's monetary policy? Is the high interest rate helping the economy or hurting it? Will it not be better to use the instrument of interest rate to boost demand for manufactured products? These are some of the questions that the RBI needs to answer before deciding on the future course of action. DECEMBER 2014 13

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INDUSTRY REPORT Slick Strategies State-owned oil companies and their global counterparts are locked in an aggressive battle to have a larger share of the Rs 30,000-crore Indian lubricants market. IBJ BUREAU T his July, Gulf Oil Lubricants India (GOLIL) had a dream debut on the bourses. The demerged lubricants business of Gulf Oil Corporation, which listed on both the NSE and the BSE on July 31, is in the midst of a Rs 165-crore expansion plan. The Hinduja Group company is enhancing production capacity of its Silvassa facility from 75,000 to about 95,000 tonnes per annum (tpa) at an investment of Rs 40 crore. A little over Rs 1,000-crore GOLIL is also working on a new 50,000-tpa unit near Chennai at an investment of Rs 125 crore, which is expected to begin operation in two years. "Our goal is to be among the top-three lubricant companies in the country," reveals GOLIL Managing Director Ravi Chawla. The new demerged company, whose Gulf brand of lubricants serves customers across automotive, industrial and marine segments, is India's second-largest private lube company with a 7 per cent share of the domestic lubricant market. It trails Castrol 14 DECEMBER 2014 India, the country's largest private lubricants-maker, and the lubricants business of the three State-run oil companies - Indian Oil Corporation (IOCL), Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corporation (HPCL) - in market share. Meanwhile, Tide Water Oil Company India, a part of the State-owned Andrew Yule Group, has been on a global expansion spree for the past three years. This year in July, the Kolkata-headquartered lubricants Lube Industry: A Fact File Market size Rs 30,000 crore ........................................................... Total annual capacity 2 mt ........................................................... Major players IOCL, BPCL, HPCL, Castrol, Gulf Oil, Tide Water Major segments Automotive, industrial & marine ........................................................... ........................................................... Average annual growth 3% company formed a joint venture company - JX Nippon TWO Lubricants India - with Japan's JX Nippon Oil & Energy Corporation to manufacture, market and distribute the Eneos brand of lubricants in India, Nepal, Bangladesh and Bhutan. The JV will also cater to Japanese and Korean original equipment manufacturers (OEMs) in the automotive and industrial segments in India. The Japanese alliance was followed by a foray into Germany where Tide Water Oil set up a subsidiary, Veedol Deutschland, to tap markets in Germany, Austria and Switzerland. Over the past seven decades, the lubricants-maker's Veedol brand has captured about 5 per cent of the Indian market share. In October 2011, Tide Water Oil bought Veedol International from BP (formerly British Petroleum). This acquisition gave Tide Water Oil global rights to the Veedol brand, opening up the world to the lube company. Interestingly, fast-paced developments at GOLIL - a private, multinational company (MNC) - and Tide Water Oil - a public sector undertakINDIA BUSINESS JOURNAL

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ing (PSU) - capture the aggressive growth story of the Rs 30,000-crore Indian lubricants industry. The 2 million tonnes per annum (mtpa) domestic lubricants market - comprising about 60, 35 and 5 per cent of automobile, industrial and marine segments respectively - has always been a battleground between PSUs and MNCs, with scores of small, unorganised players on the sidelines. PSUs Vs MNCs Global oil majors, such as Castrol, Shell, Mobil and Caltex, were the pioneers of the Indian lubricants industry. In the pre-Independence days, these companies brought their products into the country to serve the nascent automobile industry. The global players continued to hold sway in India even after the country became independent and embraced socialism. However, in the mid-1970s, several policies resulted in the tide turning against MNCs. Many restrictions, like getting the global companies to reduce their share of the lubricants market to 6 per cent and disallowing their products to be sold in the premises of State-owned fuel stations, made it difficult for MNCs to do business in the country. As a result, Shell, Mobil, Caltex and other global giants wound up their operations in India. But Castrol stayed back despite the stifling regulations. By then, PSU oil companies had gained an upper hand. IOCL's R&D centre in Faridabad, Haryana, churned out the Servo brand for virtually every single application. With its lube refinery in Mumbai, accounting for about 40 per cent of the country's base oil (the vital raw material for lubricants) production, HPCL too called the shots in the domestic market. The company's top brands, Cruise and Milcy, and BPCL's flagship brand MAK fought with IOCL's Servo for shelf space. The dawn of economic liberalisation in 1991 and the consequent deregulation of the oil sector INDIA BUSINESS JOURNAL Castrol, the largest private lubricant player in the country, is credited with development of bazaar trade, a major channel for lube sales today. gradually put an end to State monopoly. Soon, private companies, such as Gulf Oil Corporation, and MNCs, like Shell, Total and Fuchs, entered India, keen to tap the country's huge potential. Initially, they did find it difficult to compete with the State-owned refiners, who had a vast network of fuel stations across the country for distribution of their products. They took a cue from Castrol India, the lone MNC that had stayed back in India and developed a unique distribution channel, to grow their business in the country. "Lubricant technology is driven by rising demands of OEMs and changing needs of customers for superior quality lubricants." NITIN PRASAD MD, Shell Lubricants India Working its way around the tough norms, Castrol India, the Indian subsidiary of the BP Group company, had begun selling its lubricants through dealers' stores, hardware shops and other outlets. This marketing strategy, also called the bazaar trade, had become a big hit, making Castrol India the market leader among private players - it currently enjoys about 22 per cent of the Indian market share. The new players who had entered the market adopted the bazaar trade to sell their lubes. With a wide range of products and customer-friendly marketing techniques, they were gradually able to eat into the market share of Staterun companies. Over the past two decades, the PSU companies’ collective share of the lubricants market has dropped from about 90 per cent in 1991 to a little over 50 per cent. The State-owned companies, in the meanwhile, have reinvented themselves to take on the competition. Apart from their extensive fuel station network, they too have pushed their products through bazaar trade and other innovative distribution channels. This has only intensified the struggle between PSUs and MNCs in the world’s fifth-largest lubricants market after the US, China, Russia and Japan. “We have positioned MAK as a DECEMBER 2014 15

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