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www.businesstoday.in

April 8, 2018 I ` 100

T H E M AYA O F B I T C O I N Investors love it. Regulators hate it. The inside story of the battle to make it viable and reliable

FROM THE EDITOR http://www.businesstoday.in

The Bitcoin Tussle

B

y and large, banking regulators and countries across the globe are in a dilemma about how to deal with Bitcoins and other cryptocurrencies. A few countries have banned Bitcoins and other cryptos – but these are extreme examples. Many have explicitly stated that Bitcoins have no legal status as currency, but allow its trading and tax gains out of it. They also allow it to be converted into the country’s currency through mutual consent between two parties, without giving an official standing to it. In a sense, it is treated like other precious commodities like gold, silver or diamonds.

Many countries recognise Bitcoins as a valid currency, though they have not given that status to other cryptocurrencies.

Meanwhile, Venezuela has banned Bitcoins while introducing its own cryptocurrency called the Petro. In India, the Reserve Bank of India (and the government) has often talked about the dangers of trading in unregulated cryptocurrencies, while a committee is reportedly looking at introducing its own cryptocoins.

Billionaires and multimillionaires around the world are equally divided about cryptocurrencies. Some are avid fans and think it is the future of money. Others think it is a Ponzi scheme or a rerun of the Tulip mania.

The mixed reaction to cryptos are understandable. Bitcoins and its progenies are based on a peer-to-peer technology that is both decentralised and not regulated by any government or regulator. Nor is it backed by any asset. The value depends on demand and supply and gyrates wildly. In the early days, a Bitcoin investor actually used several coins to pay for a pizza. Today, a single Bitcoin, even after its recent crash, is worth $9,000 (it had crossed $19,000 at the fag-end of last year), and you can probably order a year’s supply of pizzas with it. The cryptocurrencies introduced so far can be used and traded anonymously. And yet, Bitcoins and other cryptos have become so popular that it is impossible to ignore them either.

Bitcoin was the first cryptocurrency to be introduced based on a new technology called blockchain and created by an anonymous computer genius (or a group of computer nerds using a pseudonym).

What started as a curiosity has since spread like wildfire and adopted by both radical investors and technology fans. There are thousands of cryptos currently in the market and more are being introduced daily.

They are great for both currency gamblers as well as for people who value the privacy of their transactions (and hence loved by those in illegal businesses).

But the RBI will have to eventually figure out how to deal with cryptocurrencies because they are not going to go away in a hurry.

And while the fallout of the PNB scam and the problems of nonperforming assets and other issues of public sector banks are taking all its attention currently, it will also need to figure out how to tame Bitcoins.

Editor-in-Chief: Aroon Purie Group Editorial Director: Raj Chengappa I Editor: Prosenjit Datta Group Creative Editor: Nilanjan Das, Group Photo Editor: Bandeep Singh Managing Editor: Rajeev Dubey Deputy Editors: Venkatesha Babu, Anand Adhikari I SPECIAL PROJECTS AND EVENTS

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Released on March 26, 2018.

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APRIL 8, 2018 VOLUME 27 NUMBER 7

CONTENTS

28 COVER STORY

THE BUZZ >

14

24

BOUNCING BACK SOCIAL GOOD

Working towards a cause makes a lasting brand impression

Financial assets of households are growing again after taking a body blow in the post-demonetisation phase, reveals an RBI study

4 I BUSINESS TODAY I April 8 I 2018

COVER BY Nilanjan Das

THE HUB >

BUSINESSTODAY.IN >

82 INTERVIEW: ERIK SOLHEIM

“On climate action, India, China are main driving forces”

48

STAY CONNECTED WITH US ON www.facebook.com/BusinessToday@BT_India

IN THICK OF ACTION

PE players have become extremely active of late.

The exuberance is here to stay for some time

PERSPECTIVE Is Gender Diversity Loosely-used Term in Corporate India?

Though most HR professionals talk about the various initiatives they have taken to retain women, in reality it's a daunting task to retain women at the middle-management level businesstoday.in/corporateindia-women

SPECIAL REPORT

NEWS Rapid Expansion of Warehousing Space in Indian Metros

Warehousing accounts for 25 per cent of the logistics cost for most. As companies consolidate operations in large warehouses, they could achieve economies of scale businesstoday.in/warehousing-metros

90

Bio-jet Fuel Is Cleaner But Expensive for Airlines in India to Afford

The go-go years of growth might be well behind the Indian IT sector, but it still has plenty of steam left

The efforts to shift to a cleaner fuel are largely on paper in India... and the reasons are mostly financial in nature businesstoday.in/jetfuel-finance Will Lakshmi Mittal's Desperate Bid for Essar Steel Open up Doors to India?

THE BREAKOUT ZONE > SUPER LIGHT

112

In the past decade, ArcelorMittal has made vigorous attempts to scale up in India. But so far, they have only made big newspaper stories... and there has been little progress on the ground businesstoday.in/arcelor-essar.steel

118

Google’s optimised version of Android Oreo, the Go Edition, gives a new lease of life to entry-level Android smartphones

Indian Pharma Companies Correcting Mistakes in Manufacturing Standards MULTITASKING MANIA

It’s clever, sometimes, but ultimately stressful

Though many interventions are designed for new hires in mid-level management, no capability programmes have been designed for this layer businesstoday.in/pharma-inspection

COLUMN An

Feature

From time to time, you will see pages titled “An Impact Feature” or “Advertorial” in Business Today. This is no different from an advertisement and the magazine’s editorial staff is not involved in its creation in any way.

Ensure Better Prices for Farmers While Taming Food Inflation

Farm loan waivers and increased Minimum Support Price are not long term solutions to the problem of low farmer incomes. Structural changes are needed

6 I BUSINESS TODAY I April 8 I 2018

P.10

TRADE: THE WTO FACE-OFF

P.10

POWER: JAITAPUR N-PLANT STILL A LONG HAUL

AGRI: FARMER PROTEST IN MUMBAI

PNB FRAUD

THE OWNERSHIP DILEMMA THE RBI LACKS TEETH TO ACT AGAINST PSB S AND DOESN’T BOTHER TO FLAG IRREGULARITIES. THE RESULT IS A BLAME GAME.

By ANAND ADHIKARI ILLUSTRATION BY RAJ VERMA

BI Governor Urjit Patel has finally broken his silence.

It was a much-overdue response since the blame game that ensued after the PNB fraud ended up at his doorstep. Patel raised the issue of multiple regulations governing PSBs – that account for two-thirds of India’s banking – apart from the umbrella Banking Regulation Act 1949. For instance, the Banking Companies (Acquisition and Transfer of Undertaking ) Act 1970, the Banking Nationalisation Act 1980 and the State Bank of India Act 1955.

The State Bank of India alone has a quarter of the total deposits and advances in India and the RBI doesn’t have the power to remove directors, CMDs, or force mergers or liquidation. The burning question is: Has the RBI ever recommended suspension, merger or liquidation of a PSB? It

R

does, after all, have the power to nudge banks, raise alarms on the risk management side and issue directives on provisioning.

Experts insist that deteriorating asset quality and the scope to commit fraud is due to operational failure that built up over decades. PSBs have institutionalised lax credit standards over the decades, with RBI policies only helping banks to evergreen loans.

Another fundamental problem has been that government nominees on PSB boards are inactive, skipping meetings for the most part. Even Chief Economic Advisor, Arvind Subramanian has flagged the problem earlier.

The `12,968-crore question, however, is: what is the longterm solution? And, who is going to come up with it?

8 I BUSINESS TODAY I April 8 I 2018

@anandadhikari

POWER

MILES TO GO FOR JAITAPUR N-PLANT

TRADE

Battleground WTO

MAR

maceuticals, chemicals, information technology products, textiles and apparels. India’s steel and aluminium exports to the US are just a fraction of its total exports of these two commodities and that, perhaps, explained the country’s silence over Trump administration’s tarif hike. But the WTO challenge is certainly aimed at breaking the backbone of India’s export strategy. The US seems to be driving India for a hard bargain, a give-andtake dialogue. Hence, the US-India dispute settlement consultations that will follow should not remain a onesided afair. India needs to defend its position. - Joe C. Mathew

KETS

UPS DOWAND NS

.0 9

%

ASSETS UNDER MANAGEMENT (AUM) of the mutual fund industry fell by 0.9 per cent month-on-month (m-o-m) to touch `22,20,326 crore by February 2018.

This is the third decline in the last six months – September saw a decline of 0.9 per cent and December saw a steep fall of 6.2 per cent. AUMs had reached an all-time high of `22, 79,032 crore in November 2017.

AUMs of all mutual fund categories fell in February except for liquid/ money market fund – it grew 1.4 per cent. Gilt funds witnessed the sharpest decline of 12.8 per cent; other exchange-traded funds category declined 4.2 per cent and equity-linked savings schemes fell 2.4 per cent. For the other exchangetraded funds, this is the first m-o-m fall since August 2015. – Niti Kiran

10 I BUSINESS TODAY I April 8 I 2018

I L L U S T R AT I O N B Y A J AY T H A K U R I

DAYS AFTER POTUS Donald Trump imposed steep tarifs on steel and aluminium imports to the United States, the ofice of the US Trade Representative (USTR) – the body responsible for developing and coordinating US international trade policies – has challenged India’s export subsidy programmes at the World Trade Organisation (WTO). While the first move will raise a tarif barrier and, thereby, make steel and aluminium imports (including from India) less competitive, the second is aimed at attacking all the key incentives that India provides to help its exporters remain competitive in global markets. This includes sector-agnostic schemes like the Merchandise Exports from India Scheme, Special Economic Zones and Export Promotion Capital Goods Scheme, among others. Sectors likely to be directly hit include those that are the most promising – phar-

DURING FRENCH PRESIDENT Emmanuel Macron’s recent visit, India and France signed an ‘Industrial Way Forward Agreement’ to construct the world's biggest nuclear project at Jaitapur, Maharashtra.

Experts, however, say the real way forward is still miles away. The Nuclear Power Corporation of India Limited (NPCIL) will set up six European Pressurised Reactors (EPR) of 10,000 megawatt (MW) with reactors supplied by French major Électricité de France (EDF) at the 900-plus hectare coastal area in Jaitapur.

NPCIL, however, has only a capacity of 6,000 MW so far and EPR is still an unproven technology though these are third-generation reactors developed over a decade ago. Olkiluoto in Finland (1600 MW), Flamanville in France (1600 Mw), Taishan in China (2X1600 Mw) and a proposed project at Hinkley Point in UK (2 EPRs) are being built on this technology. However, none of the four sites are up and running yet. They are facing design issues, delays and cost escalation.

- P.B. Jayakumar

THE BUZZ

AADHAAR AVIATION

Authentication Woes

CONDITIONS APPLY

AIRCRAFT MANUFACTURER Airbus India has expressed its willingness to set up a manufacturing plant here, but officials hint that this would be contingent on getting a defence deal requiring Make in India. Senior officials have denied that Chennai was the chosen location for a future Airbus plant.

For now, the company is concentrating on the training facility it is building in Delhi as a greenfield project, which will be operational by mid-2019. The training facility will initially cater to 800 pilots each year and an unspecified number of service and maintenance engineers, with two A320 full flight simulators.

The firm has over 300 aircraft in service in India and another 530 scheduled for delivery. – E. Kumar Sharma

THE SUPREME COURT has clearly reiterated its position that the use of Aadhaar, the unique 12-digit identification number given to Indian residents, will remain restricted to social services and entitlements such as public distribution system and the National Rural Employment Guarantee scheme until the court issues its final verdict.

An earlier order had set March 31 as the deadline for Aadhaar linkage for other services including banking and telecom; with the latest directive, the deadline has been extended. Although this provides relief to those apprehensive about sharing their Aadhaar number and authenticating their identity using biometrics, it doesn’t mean that the requests and reminders will stop. The government needs to issue clear instructions to agencies, both governmental and private, that no requests be made but for the purposes that the apex court has already sanctioned.

– Joe C. Mathew

AGRICULTURE

FARMER UNREST

DAYS AFTER THE Maharashtra government tabled ‘another farmerfriendly’ budget, around 40,000 farmers of All India Kisan Sabha (AIKS), an affiliate of the Communist Party of India (Marxist), from Nashik, Thane and Palghar districts walked down to Mumbai, demanding unconditional farm loan waiver and

SHEKHAR GHOSH

transfer of forest farmlands in their names.

They also demanded fixed remunerative prices for agri produce and implementation of the Swaminathan Commission recommendations. Chief Minister Devendra Fadnavis settled the issue for the time being by acceding to their demands. So far, Maharashtra has written off loans worth `13,782 crore to 35.68 lakh farm-

ers. Under the flagship Chhatrapati Shivaji Maharaj Shetkari Sanman Yojana, 89 lakh farmers were to have benefitted, with the exchequer taking on `34,000-crore worth of agri debt.

But the scheme hasn’t reached even half the targeted beneficiaries; and meanwhile the government is already facing debt to the tune of `4.13 lakh crore. – Nevin John

11.1

THE BUZZ > GRAPHITI

20.9

%

THE SURGE IN CURRENCY HOLDINGS IN Q4 2016/17 FOLLOWING REMONETISATION (AS PERCENTAGE OF GDP), AFTER A LOW OF (-)21.5% IN Q3 2016/17

THE SHARE OF INSURANCE FUNDS IN HOUSEHOLD ASSETS, THE SECOND-MOST PREFERRED CONDUIT AFTER BANK DEPOSITS, IN Q2FY18

8.3

With remonetisation, the household sector’s net financial assets have largely recovered

%

Net Financial Assets as % of GDP

ESTIMATED NET FINANCIAL ASSETS OF HOUSEHOLDS AS % OF GDP IN Q2 FY18, UP FROM 5.8% IN Q1 FY18

14

CING

-4.8

%

BORROWINGS FROM BANKS TURNED NEGATIVE IN DECEMBER 2016 AS DEMONETISED CURRENCY WAS USED TO PAY BACK LOANS

14.8

12.4

Q1 FY'17

Q4 FY'17

Q2 FY'17

8.3 Q2 FY'18

Fi n g ro a n c i a in t wing l asse rev h e p o a g a i n t s o f h eal s s a t dem after ouse h t Re ser onet aking olds isa a ve B a n t i o n a b o d re ko y p f I n h a s e b l ow dia , stu dy.

BOU N

%

5.8 Q1 FY'18

-7.3 Q3 FY'17

BAC

0.6 / 1.4 %

%

SHARE OF PENSION FUNDS AND MUTUAL FUNDS, RESPECTIVELY, IN GDP IN SECOND QUARTER OF 2018

K

Gra p Res hic B y ear ch Tanm by: o Nit y Ch a i Ki ran krabo r

ty

5.9

%

AGGREGATE DEPOSITS IN Q2FY18 AS PERCENTAGE OF GDP, UP FROM - 3.4% IN THE PREVIOUS QUARTER

Deposits with banks have remained the major form of financial assets Composition of select households financial assets at the end of Q2 2017/18 (%)

13.1 8.8 44.4

9.2

`

1,37,342.5

20.9

3.5

BILLION TOTAL HOUSEHOLD GROSS FINANCIAL ASSETS IN DECEMBER 2016, DOWN FROM `141,497.1 BILLION IN SEPTEMBER 2016

● Commercial bank deposits ● Cooperative banks and credit societies ● Life insurance funds ● Currency ● Provident funds ● Mutual funds

THE BUZZ

Free Trade Cannot Be One Sided LOWER IMPORT BARRIERS WORK ONLY IF OTHERS ALSO PLAY FAIR

I

the bound rates. Apart from this, every nation can raise barriers for protecting health and environment. So far, we have not made much use of these measures, because of the overwhelming belief in the doctrine of free trade. This is reflected in the fact that policy makers have been patting their back for increasing foreign trade as a per cent of GDP, irrespective of the trade imbalance.

Generally, countries have been following the rules of the game. However, in recent past, voices against free trade have become more pronounced. First, Donald Trump made several comments against free flow of imports, especially from China. His decision to increase tariff on import of steel and aluminum has given rise to a debate whether the world will go on the path of protectionism.

Recently, at the World Economic Forum, Prime Minister Narendra Modi stated that protectionism is no less I L L U S T R AT I O N B Y A J AY T H A K U R I

n the past 27 years, the tendency has been to shed all barriers to trade, both tariff and non-tariff. As per the constitution of the World Trade Organization, or WTO, if any country raises barriers to trade, the affected country can use the dispute settlement mechanism to reverse the same.

Till recently, no country was arguing explicitly in favour of protectionism; rather, barriers erected earlier were being removed. In India, prior to the WTO, import duties of more than 400 per cent used to be imposed on many commodities, and there were more than 1,400 items on which quantitative restrictions (QRs) were imposed. As against this, today, leaving some exceptions, import duty of 0-10 per cent is imposed, and QRs have been totally removed.

Because of aggressive trade by China in the last more than 15 years, markets all over the world have been overshadowed by its products. In the process, most industries around the world started getting closed. China turned into a manufacturing hub and the trade deficit of most countries started mounting. US President Donald Trump, in his election campaign, raised the issue of closure of US industry. He promised to revive the rusting factories, create jobs and also restrict imports.

In India, it’s an open secret that due to mass dumping of Chinese products, most of our non-ancillary industries closed down. Most of our small industries are now ancillaries of large industries such as automobile, pharmaceutical, chemicals and consumer goods. As a result, the share of manufacturing in GDP either stagnated or even declined in some years. It is known to all that our domestic industry couldn’t withstand competition from cheap Chinese products. Our electronic and telecom industry couldn’t take off; and our established machinery, chemical and consumer goods industries were badly hit.

Despite this, no effort was made to safeguard industry from the Chinese onslaught by imposing tariffs or even anti-dumping duties. One reason for lack of action from policy makers was partially fear of action from the WTO if China complained. Another major reason was the overwhelming faith of policy makers and mainstream economists in India in the doctrine of free trade. Belief in free trade was so profound that there was seldom any effort by them to even use the flexibilities in WTO agreements.

In these agreements, every country has committed a bound rate of tariff for each commodity. However, due to belief in free trade, our applied tariff rates are much less than

BY ASHWANI MAHAJAN

disastrous than terrorism. But, immediately after that, when protective tariff was imposed on various commodities in the Budget, protagonists of free trade were not able to digest it.

Protectionism is not always bad. It is correct that free trade, if honestly adopted, can benefit all. The argument that if we continue to protect the inefficient domestic industry, inefficiencies will creep into the system, hindering healthy industrial development, is also valid. However, we find that countries are not honestly adopting free trade. If the government is able to safeguard and promote the domestic industry while following international trade agreements and using the flexibilities available therein, it will be a welcome step. Free trade cannot be one sided.

The writer is National Co-Convener, Swadeshi Jagran Manch

16 I BUSINESS TODAY I April 8 I 2018

THE BUZZ CALENDAR

11

19

TIDING OVER CONFLICTS

SUPPORTING PE S/VC S

WHAT: Workshop on Conflict Management & Negotiation Skills

WHAT: 10th “India Investment Conference” WHEN: April 19, New Delhi

WHEN: April 11, Gurugram WHAT TO LOOK FOR: The event aims to spread awareness of the importance of private equity (PE) and venture capital (VC) to the Indian economy. It attempts to create an ecosystem to support entrepreneurial activities and innovations. It also debates important issues related to the PE/VC industry.

WHAT TO LOOK FOR: People manage conflicts and negotiate every day at the workplace. It may be with customers, vendors, colleagues, a boss, or employees. This hands-on CII session ofers a step-by-step guide to efective negotiation. Participants will learn how to manage dificult situations with diplomacy, tact and credibility.

22-24

19-20

FOSTERING TOURISM

SHAPING HEALTH FINANCING

WHAT: THE Great Indian Travel Bazaar 2018

WHAT: Third Annual Universal Health Coverage Financing Forum

WHEN: April 22-24, Jaipur

WHEN: April 19-20, Washington DC

WHAT TO LOOK FOR: The event began in 2008 and is a popular B2B inbound tourism mart in the country. It aims to be a platform not only for the big players in the tourism sector but also for the smaller hoteliers and tour operators, who are expected to flock to Jaipur in large numbers.

Meetings between international buyers-Indian sellers would be spread over two days.

WHAT TO LOOK FOR: The Forum, hosted by the World Bank Group and USAID, will focus on mobilising and shaping health financing in developing countries to achieve equity and better access to health services. The two-day event will help governments use health system resources more eficiently.

22-26 26

SMART LESSONS WHAT: CEOs Mission on Smart Manufacturing to Germany

NURTURING INNOVATION

WHEN: April 22-26| Hannover, Frankfurt, Amberg and Munich

WHAT: Driving Entrepreneurship through Tech Innovation WHEN: April 26, New Delhi

WHAT TO LOOK FOR: Manufacturing sector globally is witnessing paradigm shifts. Several companies are implementing smart manufacturing and reaping benefits such as increased competitiveness, productivity, sustainability and reliability. To help industry understand the contours of this transformation and showcase smart manufacturing in action, CII is organising a CEOs mission to Germany.

WHAT TO LOOK FOR: The Assocham event, in collaboration with the Ministry of Information Technology and Ericsson, hopes to promote innovation through the recognition and reward of outstanding ICT innovations. The objective is to encourage individuals, academia, industry, government agencies and other entities to develop innovation in ICT to address India’s development challenges

18 I BUSINESS TODAY I April 8 I 2018

THE BUZZ

GLOBAL BUSINESS

TRUMP STOPS QUALCOMM TAKEOVER U.S. President Donald Trump stopped Singapore-based Broadcom’s $117 billion bid to acquire rival chipmaker Qualcomm, citing national security concerns. Both firms were ordered to discard the proposed merger. The move is likely to frustrate Qualcomm investors. The U.S. firm announced a $1 billion cost-cutting initiative and demotion of former CEO Paul Jacobs from the role of executive chairman.

TOYS “R” US CLOSING AFTER 70 YEARS Toys “R” Us, the American retail chain set up in 1948, is seeking bankruptcy court’s approval to shut down all its U.S. stores and liquidate inventories.

The shuttering of nearly 800 stores means more than 30,000 employees will lose their jobs. It is also closing its U.K. stores. The company filed for bankruptcy in September 2017, hoping to shed nearly $8 billion in debt but could not effect a turnaround.

11 COUNTRIES SIGN ASIAPACIFIC TRADE PACT In spite of the US pulling out last year, 11 Asia-Pacific nations signed a trade pact, formerly known as the Trans-Pacific Partnership.

The countries included Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. The treaty aims to bring down trade tariffs and non-tariff obstacles between member nations.

THERANOS, FOUNDER CHARGED WITH FRAUD The U.S. SEC charged blood-testing start-up Theranos and its CEO Elizabeth Holmes with massive fraud, claiming that the firm had raised over $700 million through fraudulent claims. Holmes, hailed as Silicon Valley’s first female billionaire, must pay $500,000 as a fine, must give up majority voting control of the firm and can’t serve as a public company officer for a decade.

20 I BUSINESS TODAY I April 8 I 2018

FINLAND BETTING ON NOKIA In a bid to boost the national influence in Nokia, Finland’s state investment arm Solidium put about $1.04 billion in the company for a 3.3 per cent stake. Nokia sold its mobile handset business to Microsoft in 2014, and then scrapped thousands of jobs.

Three Finnish pension funds have also invested in Nokia but hold less than 3 per cent stake.

ANT FINANCIAL ENTERS PAKISTAN Ant Financial, part of the Alibaba Group, and Telenor have entered a partnership in Pakistan that will see Ant invest $184.5 million for a 45 per cent stake in Telenor Microfinance Bank. The funding will help develop TMB’s mobile payment and digital financial services. In 2009, TMB came up with Easypaisa, Pakistan’s first mobile financial services platform.

THE BUZZ

India’s Record in Start-ups WHAT AILS THE START-UP ECOSYSTEM IN INDIA

S

tart-ups are newsworthy. We are proud of our

European patent offices. But their scrutiny is severe; jumping through their hoops can be expensive, so few Indian inventors make it.

Incorporation is a good first step to raising money globally; it also limits the risk. Some 10 per cent of the patentors set up a company before taking out a patent; but most do so in the decade after taking out a patent. However, incorporation is not a good first step to raising money in India. Elsewhere, there are financiers and angels who hold the patentors’ hand and guide them through capital-raising to commercialisation. The Securities and Exchange Board of India (SEBI) has killed the capital market; public issue is not the way to raising capital for inventions.

Inventors build up their ideas on the foundations of previous inventions. The extent to which they do so can be measured by references to previous scientific work in patent applications. Their number is highest in West European countries, lowest in China, Taiwan and Korea, and somewhere in the middle in India and the US. Start-up founders begin early in India – a decade after they start college education on the average – and in Brazil, Germany and Canada. They start relatively late – 14-16 years after school – in the US, UK, France and Spain. The share of student entrepreneurs – those who started within four years of entering college – is extremely high – 11 per cent – in India; it is higher only in Canada, Australia and Brazil. But the share of university teachers in India is very low. They are too used to their secure jobs to venture out, according to Stefano Breschi and his colleagues at OECD. That is all right; we have enough young people to venture out. If they are to do so, we need to abolish the patent office. Let the European patent office open a branch in India; it will give much better service. And abolish SEBI; it has been the worst enemy of Indian entrepreneurs, young and old, technologists and riskologists.

ILLUSTRATION BY AJAY THAKURI

schools of technology and management; their students get good publicity when they exhibit their innovations. And yet, it is difficult to see what start-ups and innovations have contributed to our business landscape. How does India compare with other countries as a nation of start-ups?

There is a general impression that start-ups are powerful instruments of innovation; their importance in the emergence of information technology industry is well known. Actually, technology startups are a small minority. The largest number is to be found in retail, advertising, apps, financial services, content and publishing. Amongst technology start-ups, those in information technology, data and analytics, biotechnology and healthcare are important.

The US has the largest number of companies – roughly 100,000 – started between 2001 and 2016 and still running. Britain has about 15,000. India comes third; it has almost 13,000. Canada has about 8,000; all other countries have fewer than 5,000. So India’s reputation as a home of start-ups is not entirely misplaced.

But they are poorly served by the capital market. Of the American start-ups, some 15,000 were acquired and 2,000 made public issues, roughly 17 per cent in all.

India’s proportion is about 5 per cent. It is considerably higher for all industrial countries as well as China, Brazil and Singapore. India has a lot of bright kids, but it is difficult for them to raise money.

Patenting is very industry-specific – some industries are homes of innovation – and all innovations are not appropriate for patenting. It is more common in chemicals, biotechnology and process industries. Patent intensity is highest in China, Japan, Scandinavian countries, Germany and Austria. It is the lowest in India. This tells us more about the Indian patent office than Indian inventions: it is so slow and its patents are watched by so few, that an Indian inventor is better off registering with American and

BY ASHOK V. DESAI

The writer is a senior economist and was chief consultant in the finance ministry from 1991 to 1993

22 I BUSINESS TODAY I April 8 I 2018

THE BUZZ

SOCIAL UNIVERSE

SOCIAL GOOD Working towards a cause makes a lasting brand impression.

BY SONAL KHETARPAL

Recently, Anand Mahindra’s tweet about “collectively acquiring” the iconic music shop Rhythm House for “restoring it & turning it into a performance venue”, sent Twitter fans into a frenzy. His tweet attracted around 14,068 likes and 4,002 retweets (and still counting); celebrities, such as politician Milind Deora, music composer Vishal Dadlani and chef Sanjeev Kapoor, as well as several professionals came forward to ofer free legal advice, ticket booking, advertising and other services. Gauging the buzz his tweet generated, Mahindra got his cultural outreach team to spearhead the revival initiative. The Twitter handle

BEING PART OF A SOCIAL MOVEMENT IS NO LONGER ABOUT DOING SOMETHING GOOD BUT AN INTEGRAL BRAND BUILDING EXERCISE IN ITSELF ‘Rhythm House Revival’ already has over 3,000 followers.

With his tweet, Mahindra organically and efortlessly brought together two powerful tools that are often used in silos – crowdsourcing and influencer marketing – which he then converted into a social movement, says Siddharth Deshmukh, Associate Dean, Area Leader

24 I BUSINESS TODAY I April 8 I 2018

- Digital Platform & Strategies at MICA. “It is like bringing together digital campaigning site Change.org, crowdsourcing platform Kickstarter and his celebrity status to market an idea,” he adds.

At a time when brands are striving to be relevant, being part of a social movement is no longer about doing something good, but is an integral brand building exercise in itself. Consumers do not show afinity for a brand only for its products or services, however good they may be.

“Brands have to go beyond their oferings and create afiliations that people can connect with,” says Deshmukh.

It is important that the business a brand operates in and the brand’s values complement each other to reach a wider audience and create a strong impact.

To do that, a brand must know the pulse of what consumers are thinking, so that they can take a stand. The 2018 survey by social media management firm Sprout Social found that around two-thirds of consumers think it is either “Somewhat Important” or “Very Important” for brands to take a stand on socio-political issues; only 11 per cent of those surveyed said it was “Not at All Important”. Luckily, social media allows brands to quickly judge people’s reaction to their messaging and alter it if needed.

Procter & Gamble took up a sociocultural issue with its #LikeAGirl video marketing campaign; the hashtag stood for an oft-used insult signifying weakness and flippancy. The campaign’s messaging was not about its feminine hygiene products, but was aimed at empowerment, in support of girls going through puberty and transitioning into adulthood. The response the campaign received on Facebook and Twitter was phenomenal.

Pooja Jauhari, CEO of digital marketing agency The Glitch, says that taking up social issues brings out the humane side of brands and lends a positive sentiment. “It also allows for an authentic and deeper connect with the audience, something an ad making a sales pitch cannot achieve,” she adds.

@sonalkhetarpal7

ROUGHLY 68% OF AMERICAN ADULTS NOW USE FACEBOOK; AMONG THEM, ALMOST 75% ACCESS IT ON A DAILY BASIS, SAYS A SURVEY REPORT FROM PEW RESEARCH CENTER

VERO FEVER

TROLL CHECK

Facebook and Twitter are still the dominant social media networks, but New York-based Vero is catching up and has reportedly recorded three million downloads. The photoand -video sharing platform, which is similar to Instagram, does not show any ads and charges its users an annual subscription fee to keep its head above water.

measured by how we help encourage more healthy debates, conversations, and critical thinking; conversely, abuse, spam and manipulation will detract from it,” said the company on its blog.

41% PEOPLE UNFOLLOW A COMPANY ON SOCIAL MEDIA

SAY ‘HELLO’ TO HELLO Orkut Büyükkökten, founder of social networking site Orkut, has launched a new social networking app called Hello Network in India. The app lets people discover relevant posts from friends based on shared interests and hobbies.

Users need to choose at least five hobbies or ‘personas’ to get started.

TWITTER is seeking suggestions from users to reduce the incidence of trolling and abuse on social media, and to improve the overall health of public conversations.

“Twitter’s health will be built and

WHEN IT SHARES IRRELEVANT INFORMATION, SAYS A CUSTOMER SURVEY BY SPROUT SOCIAL. THIS IS IMPORTANT BECAUSE 75% USERS MAKE PURCHASES INFLUENCED BY SOCIAL MEDIA

April 8 I 2018 I BUSINESS TODAY I 25

THE BUZZ START-UP

FLEXILOANS LOANS MADE EASY FOR SMES

(From left) Manish Lunia, Ritesh Jain, Abhishek Kothari and Deepak Jain

THE MUMBAI-BASED START-UP USES TECH AND DATA TO ASSESS CREDITWORTHINESS AND PROVIDES QUICK BUSINESS LOANS.

By Goutam Das Photograph by Sudhir Damerla

1) Founders: Manish Lunia, Ritesh Jain, Deepak Jain and Abhishek Kothari went to the Indian School of Business together in 2009. They worked on multiple projects at the ISB and then pursued different careers. Lunia worked with the Aditya Birla Group; Ritesh was with Housing. com; Deepak was with Axis Capital, and Kothari worked for Fractal Analytics. Finally, they came together to start FlexiLoans Technologies in 2016, an online financing platform that provides quick and easy loans to micro and small businesses.

2) Big idea: By 2016, the Indian banks’ NPA crisis had hit the peak, and small businesses without adequate assets were struggling to raise loans. Plus, no bank would give a business loan below `10 lakh, took 30 days to process it and there was little transparency.

The foursome decided to improve the process, and their start-up promised business loans without

KEY NUMBERS

collateral within 48 hours.

FlexiLoans has adopted a B2B model and tied up with e-commerce marketplaces such as Flipkart and ShopClues to lend to their suppliers and sellers.

FOUNDED February 2016 CUSTOMERS

3,000

TICKET SIZE ` 50,000-1 crore; average loan amount is below `10 lakh

3) Backers: The company raised a seed round of `100 crore from a group of eight investors. In January 2018, it raised `45 crore in debt funding.

LOAN TENURE 6-36 months; average tenure 15 months

4) What sets it apart: The low ticket size is helpful as the company caters to small

EMPLOYEES

FUNDING `100 crore in seed round and `45 crore in debt

110

26 I BUSINESS TODAY I April 8 I 2018

businesses. Next comes the digital advantage. Both lead generation and application processes are online. The third differentiator is technology.

The credit manager can figure out loan eligibility in five seconds from the time a bank statement is uploaded by the customer. The algorithms can break down a 500-page bank statement into several categories, analysing a seller’s sales from e-commerce sites, transactions in cheque and cash, cheque bounces, top five creditors and other aberrations.

Much of the transaction data is provided by e-commerce firms, helping FlexiLoans in decisionmaking.

R E G U L AT O R S H AT E I T , INVESTORS LOVE IT. T H E G R E AT T U S S L E TO FIND THE MIDDLE GROUND FOR C RY P T O C U R R E N C I E S . . .

By Rajeev Dubey Illustration by Nilanjan Das

COVER STORY

CRYPTOCURRENCY

THE JOURNEY Illustrations by Siddhant Jumde

HE RUMBLINGS from the Reserve Bank of India (RBI) are ominous. The banking regulator has issued four warnings against Bitcoin (BTC) and other crypto-currencies since December 2013, the last few explicitly calling it a ponzi scheme. Stock market regulator Securities and Exchange Board of India (SEBI) has made an oblique cautionary statement on the digital currency. And, after years of stony silence by the finance ministry, Arun Jaitley made a surprise declaration in Budget 2018: “…Bitcoins will not be considered lawful or legal tender in India.”

You would expect a nationwide clampdown after such overpowering sentiment from the regulators and the government.

Far from it.

Two dozen Bitcoin/crypto trading platforms (8 large ones) are flourishing where you can buy and sell Bitcoins like you buy and sell stocks on any stock exchange. While regulation is still years behind the curve, 2-3 million investors trade between `100 to 200 crore worth of crypto-currencies a day (`36,500 crore to `73,000 crore a year). That's $6-12 billion in annual trading. After all, cryptos are traded 24x7, 365 days a year. Yet, crypto trading in India is minuscule compared to the daily global trade of $4-6 billion.

At the same time, unsuspected millions are being duped by fake cryptos across the country with false promises of mind-boggling returns.

Therein lies the dilemma, the debate and

12 JAN, 2009

First Bitcoin transaction takes place

JUN 2011

Wikileaks begins accepting Bitcoins for donations

FEB 2013

Coinbase reports selling $1 million worth Bitcoins in a month at over $22 per BTC

PHOTOGRAPH BY BANDEEP SINGH

T

31 OCT, 2008

Satoshi Nakamoto (believed to be a pseudonym) releases white paper ‘Bitcoin: A Peer-to-Peer Electronic Cash System’

the lazy disposition of regulators.

Bitcoin presents one of the trickiest regulatory challenges in recent times. Investors and millennials love it. Regulators hate it. And governments remain wary of its avatar as a currency as it challenges the might of the sovereign itself. This is clearly a historic tussle between the principles of free market and the universal expectation of regulatory oversight.

There’s need for a middle ground, but that’s the toughest part. Depending on which part of the world you look at, it’s either a currency, a financial instrument or a commodity/asset class.

That’s precisely why countries and regulators around the world have failed to tame it, despite their best attempts. Regulators lob the ball at each other. They do not take that call, anyways.

Governments do.

In April, Bitcoin is making history. In April 2017, Japan started accepting Bitcoins as a legal payment method. “We are (seeing) new type of compliance and governance now,” says Kouhei

5 Feb, 2018

$7,964.42

17 Dec ,2017

$19,783.06

11 Dec, 2017

$17,548.67 28 Aug, 2017

$4,672.83

19 Jun, 2017

$2,689.72

8 Jan, 2017

$835.73

6 Jan, 2014

$881.6

2 Jan, 2012

$6.18

16 Aug, 2010

$0.06

THE SURGE AND THE FALL (in $ per Bitcoin)

“THE GOVERNMENT A N D T H E R B I H AV E M A I N TA I N E D T H E SAME STAND ON BITCOINS,(THEY) WILL NOT BE CONSIDERED LEGAL TENDER IN INDIA” JULY 2013

ARUN JAITLEY Finance Minister

Kurihara, President, Tokyo Chapter of Government Blockchain Association. In the US, states form their own laws. New York has issued Bitcoin licences. In Germany, it's a financial instrument. Meanwhile, Canada launched exchange traded funds on Bitcoins/cryptos. In Switzerland, you can pay taxes with Bitcoins. The Japanese and the South Koreans are the world’s biggest investors in crypto-currencies while the Chinese are the world’s biggest miners. In India, there are telltale signs that rattled regulators and the government remained clueless for at least five years about the gaping need and the expanse and spread of Bitcoins and crypto-

Kenya pilot links Bitcoin with M-Pesa

JUN 2013

US Drug Administration lists 11.02 Bitcoins as seized assets; Thailand declares Bitcoin illegal

currencies. They buried their heads in the sand, wished away the Bitcoin phenomenon and issued warnings to cover their flanks. The RBI declined comment on the subject. SEBI and the commodities regulator, Forward Markets Commission (FMC), did not respond to Business Today’s queries. “...the government is in consultation with SEBI and RBI. Bitcoin may not be a systemic risk in India but there has to be a law to take action,” SEBI Chairman Ajay Tyagi said at an event. The government has tasked a committee headed by the Economic Affairs Secretary to examine virtual currencies. The report is awaited. Niti Aayog Vice Chairman Rajiv Kumar says: “Banning (Bitcoin) doesn’t help because it’s beyond the government’s ambit. Trading should be looked at by Sebi because it’s the regulator. People must be smoking something if they are dealing in crypto-currencies.”

Bitcoin’s imminent death has been predicted for years. Yet, it has not just survived—but thrived. Thanks to the wild returns delivered.

Depending on the lens you look at it from, it can be a punter’s delight or an investor’s nightmare.

A BTC traded at around $1,000 at the beginning of 2017. It skyrocketed to an all-time high of $19,783.06 on December 17, 2017. Since it’s not backed by any asset or sovereign guarantee, the BTC gyrates wildly. It can soar or slide as much as 40 per cent within hours. A BTC is currently ruling at $9,624. “It’s a volatile asset.

Those who can’t take risks shouldn't get into April 8 I 2018 I BUSINESS TODAY I 31

COVER STORY

CRYPTOCURRENCY FEB 2014

Mt. Gox suspends withdrawals citing technical issues; files for bankruptcy after 7,44,000 Bitcoins stolen

DEC 2013

“BITCOIN M AY N O T B E A SYSTEMIC RISK IN INDIA BUT THERE H A S T O B E A L AW T O TA K E A C T I O N ”

People's Bank of China prohibits Chinese FIs from using Bitcoins

A J AY T YA G I Chairman, SEBI

Bitcoins,” says Saurabh Agrawal, CEO and Cofounder, Zebpay, India's largest crypto platform.

While Bitcoin remains the king of the crypto world, there are many other contenders.

This includes Ethereum (Ether), the next most popular crypto currency, Ripple, Bitcoin Cash and Litecoin. All of them take their cues from the BTC price and sync accordingly. Despite the emergence of 1,800 new cryptos since Bitcoin, its global marketcap is still nearly half of all cryptos traded. Ether accounts for 15 per cent.

A supply cap of 21 million BTC by founder Satoshi Nakamoto explains the astounding rise in prices. Some 16.9 million have already been mined. In contrast, there are 98 million Ethers already in circulation at $686.13 apiece.

TRADING UNABATED

Jamshedpur-based Abhijit Kumar is a blockchain enthusiast and crypto trader and investor.

He isn’t worried about fluctuations. He caught the trend in December 2016 and is an early investor with 2.46 BTC. “I liked and loved the technology. I believe in Bitcoin as it is run by a community, not a government. After learning the truth about SIP, mutual funds and LIC, I was sick and tired of their tactics to make money. So I switched.”

It is because of investors like Kumar that two dozen Bitcoin/crypto platforms have gained ground in the regulatory vacuum. Others are being set up. At an RBI meeting of crypto platforms, there were 40 representatives at hand.

The largest, Zebpay, began operations three years ago and it claims nearly three million users. Of these, three-four lakh are active users (those who trade at least once a month). “When price is on the rise, we see new investors. Now educated investors are also getting in. Going forward, people will invest in other cryptos as well,” says Agrawal, who now also offers Ether, Ripple, Bitcoin Cash besides Bitcoin. Zebpay says nearly `100 crore worth of trading takes place on its platform every day.

Coinsecure, which began operations in January 2015, claims to be the first real-time Bitcoin exchange in India. The company, cofounded by Benson Samuel and Mohit Kalra, was dabbling in Bitcoin mining between 2011 and 2013. Coinsecure claims daily transactions of around `25 crore per day. It has 2 lakh registered users, of which about 40,000 trade every day. “Most platforms are brokers. They buy from one and sell to another. We’re a realtime trading exchange,” says Samuel.

Unocoin, set up in December 2013, claims 1.1 million customers. It handles trading of $0.5 million to $1 million per day.

ALWAYS A CURRENCY NOV 2013

China’s Baidu allows clients of website security services to pay with Bitcoins; BTC China overtakes Japan’s Mt. Gox and Europe’s Bitstamp to become largest Bitcoin exchange by volume

Nearly a decade ago, on October 31, 2008, Satoshi Nakamoto (widely believed to be a pseudonym) released a nine-page white paper ‘Bitcoin: A Peer-to-Peer Electronic Cash System’ on bitcoins.org (the domain itself was registered on August 18, 2008). He described it as a revolutionary technology: “A purely peer-to-peer version of electronic cash would

allow online payments to be sent directly from one party to another without going through a financial institution.” The paper gave birth to the world’s first decentralised, peer-to-peer payment system That paper aimed to change the world, and it did. It had conceived Bitcoin as a currency to challenge sovereign currency regulators, to rebel against banks, as well as those who had established a vice-like grip over the world’s money transfer mechanism, imposing usurious charges for movement of money. And it succeeded.

Nakamoto outlined the following ‘properties’ in his new electronic cash system that has no trusted third party: Double-spending is prevented with a peer-to-peer network; No mint or other trusted parties; Participants can be anonymous; Proof-of-work for new coin generation also powers the network to prevent double-spending. When BTC first transacted on January 12, 2009 (programmer Hal Finney received 10 Bitcoins from Nakamoto), it was already a rage among crypto fans. By February 2011, it achieved parity with the US dollar. Capitalising on that legitimacy, it rose 30 times in just four months that year.

Bitcoins are fundamentally different from banks. While banks have a centralised ledger, Bitcoins have a decentralised ledger across all computers globally that gets updated every 10 minutes. All this is achieved using cryptography and hashing technology.

For validating new transactions, the computers are rewarded with new Bitcoins — it’s called mining and is the process of updating Bitcoin's ledger (blockchain). As users increase, mining gets tougher. The technology was rewarding 50 Bitcoins every 10 minutes around 2010. Then it became 25 every 10 mins in 2012. Today, it’s 12.5 per 10 minutes and by 2020 it will go to 6.25 BTC/10 mins.

This requires faster processors and hence more and more power. Whoever validates it the fastest earns the new BTCs. And since prices were on the rampage, mining was becoming profitable. “When I started, I could mine from laptops. That’s not possible any more.” says Mohit Kalra, CEO & Co-founder, Coinsecure. How do you trust transactions?

Most companies seek the blockchain trail from between 3-6 sources. Maximum affirmations of a trail make it the most trusted transaction in the blockchain.

A QUESTION OF LEGITIMACY

JAN 2015

Coinbase raises $75 million in Series C funding; UK’s Bitstamp announces it would go ofline to investigate a hack that stole 19,000 Bitcoins ($5million)

While Bitcoin rose relentlessly over the past five years, it was attracting millions of investors.

Yet, neither the government, nor the regulators prevented its spread nor regulated its operations. As a result, Bitcoin and crypto platforms have not just flourished but gained legitimacy from the inaction. Wide-eyed investors continued to pour in hard-earned money in the hope

“CONSUMERS NEED TO BE ALERT AND E X T R E M E LY C A U T I O U S AS TO AVOID GETTING TRAPPED IN SUCH PONZI SCHEMES”.

U R J I T PAT E L G o v e r n o r, R B I MAR 2015

21Inc announces it has raised $116 mn venture funding, the largest by any digital currencyrelated company; Barclays becomes the first UK high street bank to start accepting Bitcoins

MAR 2016

Japan’s Cabinet recognises virtual currencies, including Bitcoin, as similar to real money PHOTOGRAPH BY RACHIT GOSWAMI

COVER STORY

CRYPTOCURRENCY

“THE QUESTION OF LEGALITY CONTINUES TO EXIST. BUT WE BELIEVE IT’S A N U N R E G U L AT E D MARKET”

AUG 2017

Bitcoin splits into two derivative digital currencies, the 1MB blocksize legacy chain Bitcoin (BTC) and the 8MB blocksize Bitcoin Cash (BCH). The split is called the Bitcoin Cash hard fork.

S AU R A B H A G R AWA L C E O a n d C o - f o u n d e r, Z e b p a y

of a quick buck. “Right now, a lot of regulatory authorities are looking into it. Since 2013, every year RBI has issued a warning. This is the maximum they can do. It’s definitely not illegal,” says Coinsecure’s Samuel.

While the government is still to decide the status of Bitcoins and cryptos, it has explicitly declared it’s not legal tender. That implies Bitcoins can’t be used as currency. “Since December 24, 2013, the government and the Reserve Bank of India have maintained the same stand on Bitcoins and other forms of virtual currencies. Through multiple notifications, the two parties have notified the public time and again that Bitcoins will not be considered lawful or legal tender in India," Finance Minister Arun Jaitley said in his Budget speech. “These are things we already knew. The government has not taken a view on whether these are legal or illegal,” says Ajeet Khurana, Head, Blockchain & Cryptocurrency Committee, Internet and

NOV 2016

Swiss Railway operator SBB upgrades all automated ticket machines to facilitate Bitcoin purchase from machines

The Ministry of Finance established a panel – with officials from the RBI, SEBI, Ministry of Electronics and Information Technology and finance ministry – that called exchanges and invited regulations. The data was submitted to the ministry. “An RBI inter-disciplinary committee asked for feedback about six-seven months ago.

We gave our feedback,” says Unocoin’s CEO Vishwanath. Meanwhile, Income Tax authorities sent lakhs of notices to crypto investors to explain their source of income and declare their crypto earnings. In February, government investigative agencies interrogated almost all major Bitcoin and crypto trading platforms for traders’ KYC details. “In a few cases the cyber cell has taken data,” says Kalra.

But a few banks, particularly HDFC Bank and ICICI Bank, have begun a unilateral clampdown, asking platforms to freeze or shut their current accounts. Yet, other banks continue to allow it. "When the underlying activity is legal, not allowing legal methods to transact amounts

PHOTOGRAPH BY RACHIT GOSWAMI

Mobile Association of India (IAMAI). “The government has chosen not to ban. We see this positively. If people still want to participate, we will come out with a framework.”

Jaitley also coined a new term: crypto assets. Perhaps, an indicator of the government’s line of thinking that trading on Bitcoins/cryptos may be allowed either as an asset class (such as real estate) or as a financial instrument (like share trading). “It’s an asset class and trading class kind of commodity,” says Coinsecure’s Benson Samuel.

Meanwhile, trading platforms are grappling with allegations of a ‘Bitcoin bubble’. “It cannot entirely be a bubble either because people now know how it works,” says Samuel. Others are more guarded. “We can’t say whether it’s a bubble or not. It’s for countries to do the research.

We provide trading,” says Unocoin’s co-founder & CEO Sathvik Vishwanath.

COVER STORY

CRYPTOCURRENCY

to abuse of power," says IAMAI's Ajeet Khurana. Platforms say such disruption has hurt their business by 20-50 per cent. Fearing delinquencies, global banks such as Citigroup, JP Morgan and Lloyds Bank in the UK and US have banned purchase of cryptos on credit cards. Citi and HDFC have banned it in India too.

PIT STOP: SELF REGULATION

Crypto platforms always feared that the blurring lines between ‘unregulated’ and ‘illegal’ would invite an investigative onslaught or a regulatory clampdown. “The question of legality continues to exist. But we believe it’s an unregulated market. We believe our regulation is good,” says Zebpay’s Agrawal. RBI warnings are always for the customer, asserts Coinsecure’s

“ W E C A N ’ T S AY W H E T H E R IT’S A BUBBLE OR NOT ... IT’S FOR COUNTRIES TO DO THE RESEARCH” S AT H V I K V I S H WA N AT H C o-founder & CEO, Unocoin

DEC, 2017

Bitcoin hits historic high of $19,783.06/BTC

Kalra. “No warning has said that we can’t set up an exchange or a wallet,” says Kalra. “Bitcoin is so disruptive. It’s very difficult for any government to come out with regulations. Unofficially, bureaucrats and department officials have told us what to do,” adds Kalra.

“The RBI doesn’t recognise us. They had meetings with us a few months back. We interact with the ministry of finance. They don’t ask us to give any reports,” says Agrawal.

However, with the growing public scrutiny, crypto platforms decided to create a self-regulatory authority in 2016—Digital & Blockchain Foundation Assets Foundation of India (DABFI). “We talk to each other in the industry for governance. We follow everything that banks do in terms of KYC and transparency,” adds Benson Samuel of Coinsecure.

DABFI has morphed into IAMAI where the representatives of the crypto platforms are also joined by an RBI representative, besides those from the Niti Aayog and SEBI. All exchanges/

JAN, 2018

Investigative agencies interrogate biggest crypto platforms for KYC norms; Online payments firm Stripe to phase out support for Bitcoin payments by end-April; South Korea requires all Bitcoin traders to reveal identity, banning anonymous trading; BTC crashes $2,000

platforms submit their revenue, profits, sales and inward and outward remittances to the RBI every year.

Zebpay, for instance, engaged law firm Nishith Desai & Associates which recommended self-regulation: “Nishith Desai suggests we follow KYC norms just like the banking system.

Also, an anti-money laundering policy, audit by third parties, proof of reserves of BTC/cryptos with the exchange. It has also recommended minimum capital guidelines of Rs 50 crore for Bitcoin/crypto exchanges,” says Zebpay's Agrawal.

“All transactions are via bank accounts. No cash is used. We have a ceiling of a maximum transaction of five Bitcoins per person per day,” says Unocoin’s Vishwanath. To prove legitimacy, Coinsecure’s Kalra even points out that the platforms actually pay GST on transaction fees: “We pay income tax and GST. At 18 per cent of all fees (0.4 per cent of transaction fees from buyers and sellers). We collect customer’s KYC.” “The adoption rate is rocketing. Cryptocurrencies are also beginning to be understood by regulators. There is no chance of them being extinguished unless the internet turns off or every government in the world bans crypto (impossible),” says Michael Gord, founder & CEO of Ontario-based MLG Blockchain Consulting.

COVER STORY

CRYPTOCURRENCY

“IN TERMS OF CRYPTOCURRENCIES, G E N E R A L LY , I C A N S AY W I T H A L M O S T CERTAINTY THAT THEY WILL COME TO A BAD ENDING”

“ I T I S N O T A S TA B L E S T O R E O F VA L U E , AND IT DOESN'T CONSTITUTE LEGAL T E N D E R . I T I S A H I G H LY S P E C U L AT I V E A S S E T ” JANET YELLEN Former Chair of the Federal Reser ve

WA R R E N B U F F E T T Investor

THE BAN CLUB

Nakamoto’s remarkable invention has sharply polarised the financial world into Bitcoin/ crypto-currency lovers and haters. For every Japan that has legitimised it, there’s a China that has banned it. For every Canada that has allowed trading, there’s a South Korea that has disallowed it. Fence-sitters, such as India, that let it take root are coming into their own.

Bitcoin is still to recover from the twin blows during January and February, when, within days, South Korea banned it and India declared it ‘not legal tender’. Soon after, Facebook issued a new advertising policy banning ads for “financial products and services that are frequently associated with misleading or deceptive promotional practices, such as binary options, initial coin offerings and crypto cur-

FEB 2018

India announces crypto currencies will not be legal tender; Facebook prohibits ads that are "frequently associated with misleading or deceptive promotional practices", including "binary options, initial coin oferings, or cryptocurrency".

rency”. Now, Google has also announced that it is changing its financial services advertising policies, effective from June 1, 2018. It will not allow advertisments about crypto-currencies across any of its platforms.

Bitcoin's price fell from a historic high of $19,783 on December 17, 2017, to a low of $7,178 per BTC, before recovering to above $9,000. Average daily transactions have dropped from over 0.4 million when the price was at its peak to less than half, at around 0.2 million now. The last time it was trading such numbers, Bitcoin was priced at barely $500.

“The beauty of cryptocurrencies is that they are regulator proof. No government can prevent the rise of cryptocurrencies. They would need to literally shut down the internet to do so,” says Thomas Glucksmann, APAC Business Development, Gatecoin.

COVER STORY

THE ICO MUDDLE

CRYPTOCURRENCY

B

ITCOINS AND CRYPTOS are not the only enigma for the world’s regulators. They have another headache to deal with—Initial Coin Oferings (ICOs). Some fear this may be akin to the housing bubble of the US where tier upon tier of investing options were built on crumbling underlying assets which eventually brought the whole market crashing down.

ICOs are essentially IPOs of two kinds: One, that raises funds for a new crypto-currency on the lines of a Bitcoin or Ripple. These ofer digital tokens to investors at a fixed price that can be swapped for the new crypto-currency at a future date once it gains in popularity.

The second kind are those that use the proceeds of the

INITIAL COIN OFFERINGS H AV E R A I S E D O V E R $ 3 . 7 BILLION, WORRYING R E G U L AT O R S G L O B A L LY

ICO to start up a company.

These digital tokens promise exchange with equity during angel, venture capital or private equity funding in the future. Or, when the company goes for its own initial public ofering.

These crypto-tokens issued via the ICOs are traded on independent exchanges which makes them transferable.

In November, 2017, European Securities and Markets Authority warned about a ‘high risk of losing all capital’ on ICOs. Earlier, the Securities Exchange Commission of the US had also alerted investors against ICOs being endorsed by celebrities once Paris Hilton and boxer Floyd Mayweather flooded Twitter with their own.

While companies going for

INDIA’S BITCOIN

Banking regulators worldwide loathe cryptocurrencies because they could undermine their position as the sole issuer of sovereign currencies. Thus, Bitcoins/crypto-currencies in India will likely be defined as an ‘asset’. But that would be playing with fire. First, Bitcoin was always intended to be a currency. Second, they are already integrated into the formal system as a mode of payment and are being freely used as currencies. Hence, they ought to be defined as currencies and treated like one—with adequate restrictions. After all, the RBI is mulling its own blockchain-based currency ‘Lakshmi’. “The need of the hour is to introduce the law in the shortest possible timeframe with the implementation of artificial intelligence and machine learning algorithms,” says Prity Khastgir, CEO at Tech Corp International Strategist.

In most countries, the debate around the nature of Bitcoin starts at defining what kind of

7 FEB, 2018

Bitcoin, Ethereum, Ripple prices crash 20-50% from January highs

IPOs have to get approvals from the stock market regulators, ICOs have nothing more than a business plan to ofer. Yet, global ICO funding, especially in the US and Europe, has already crossed $3.7 billion in three years.

People’s Bank of China (PBC), has barred companies from raising funds via ICOs, calling it illegal. PBC also clarified that digital coins and trading platforms are banned from converting coins with Yuan and vice versa. On 30th January, the US SEC moved court to block ‘decentralised bank’ AriseBank after it said it raised $600 million through the world’s biggest ICO ever.

India’s markets regulator SEBI has yet to decide on allowing ICOs as a means for raising funds.

an animal it is. In India too, the prospective regulation has fallen through the cracks between the RBI, SEBI and FMC. But the biggest reason why a middle ground is needed is the fear that disallowing Bitcoins/ cryptos will move them to the dark web–a bigger regulatory headache. “Bitcoin is a Trojan horse. Attempt to extinguish it will only serve to make it stronger. Bitcoin will survive for as long as the internet survives,” says Brett Russell, author of ‘Understanding Bitcoin in 46 seconds’.

Can a regulatory clampdown migrate bitcoin trading to the dark web? “One needs to be extremely smart to be on it. The FBI and regulators have been sifting through the dark web. Those into it are not a mass number,” says Coinsecure’s Samuel. Such fear of the dark web invites all the arguments that are favoured for the sin economy: ‘If you can’t ban it, legalise it’.

For India, that’s better late, than never. @rajeevdubey

COVER STORY

BITCOINS

DON'T STIFLE I N N O VAT I O N C RY P T O C U R R E N C I E S H AV E TO BE DISTINGUISHED FROM THEIR U N D E R LY I N G T E C H N O L O GY .

HE LEGAL POSITION of cryptocurrencies in India has been a contentious area for a long time now. The debate took a new turn with the government recently clarifying that bitcoin is not legal or lawful tender. At the global level, too, the regulation criteria remains scattered with some countries banning it and some others regulating it. But much before the recent clarification by the finance minister, the Reserve Bank of India made it clear that no licence has been given to anyone for dealing with bitcoin or any virtual currency. In the absence of a guarantee by any central agency or legislative sanction, the value of cryptocurrencies was largely dependent on prevalent rules.

Under Section 31 of the RBI Act, there is specific prohibition to issue certain negotiable instruments which if issued by private entities may assume the characteristics of legal tender. However, the Act does not specifically dwell on explicitly prohibiting the use of cryptocurrencies. Moreover, the RBI Act, the Coinage Act 2011, and the Negotiable Instruments Act 1881 haven’t been amended to specifically prohibit the use of cryptocurrencies. In the absence of a specific regulation to prohibit either use of cryptocurrencies or creation of these currencies, virtual currency users and miners may characterise their transactions as e-contract transactions and be well outside the scope of regulatory controls.

Cryptocurrencies have to be distinguished from their underlying technology. Cryptocurrencies, when used as a currency, may pose a challenge to the regulatory regime and the centralised system of currency management. Blockchain technology is used to authenticate electronic transactions. While the Indian Contract Act, 1872 (“Indian Contract Act”) does not

T

"WHAT IS NEEDED NOW IS A SPECIFIC LEGISLATION TO SEPARATE THE GOOD FROM THE BAD"

R A J E S H N A R A I N G U P TA , M a n a g i n g P a r t n e r, SNG & Partners

make a specific provision for electronic contracts (but does not even prohibit them per se), the Information Technology Act, 2000 (as amended in 2008) (“IT Act”) provides for the validity of contracts formed through electronic means. Section 10A of IT Act clarifies it.

Electronic signature has also been dealt with under the IT Act, 2000. An amendment to the IT Act in 2008 introduced the term electronic signatures. To incorporate the provision for e-contracts, the Indian Evidence Act, 1872 (“Evidence Act”) was amended in 2000, with various provisions pertaining to electronic records and electronic evidence.

Further, certain presumptions have been incorporated in the Evidence Act with respect to recognition of electronic agreements under Section 85A and 85B of the Evidence Act. The use of digital signatures provides a better evidentiary value under the Evidence Act. It, however, does not restrict or prohibit execution of contracts or entering into arrangements by using authentication processes that are not specifically provided under the IT Act. In the absence of specific recognition under the IT Act for authentication of electronic transactions, fintech technologies may not get the evidentiary presumptions associated with them under the Evidence Act. However, the test of time has compelled us to place our “Trust” in these technologies. Fintech innovations are taking place at a rapid pace. We can see the Blockchain technology being applied in various areas such as storing contracts/documents, digitally signing contracts by using blockchain-generated private keys and conducting e-KYC for financial institutions. What is needed now is a specific legislation to separate the good from the bad and take steps to ensure that this innovation is not stifled.

POLICY

44

TURNING SOUR The sugar industry is being weighed down by political considerations that primarily drive the sector

POWER

RETAIL

DARKNESS AT NOON

52

Power equipment JVs struggle to get fresh orders from mainstream coal-fired plants

82

MALL MANIA 66

INTERVIEW

INDIA, CHINA MAIN DRIVING FORCES Erik Solheim, Executive Director, UN Environment Programme and Under-Secretary-General, UN, on climate action April 8 I 2018 I BUSINESS TODAY I 43

MANAGEMENT

BETTER REWARDS, FEWER RISKS The wave of discoverydriven disruption will help India Inc. stay relevant in uncertain times 106

ICY L PO B U EH H T

FAIR AND REMUNERATIVE PRICE OF SUGARCANE 255 (per quintal)

POLICY > SUGAR 139.12

2010/11 2011/12

2012/13

2013/14

2014/15

2015/16

2016/17

2017/18

PREMIUM (`) FOR EVERY 0.1% INCREASE

1.46

he domestic sugar industry with its 530 operational sugar mills that produce 25 million tonnes (MT) of sugar and in the process pays `65,000 crore as sugarcane price to 50 million Indian farmers every year, is not in the pink of health. Half of the 54 Indian sugar companies, whose financial figures (for FY 2017) reflect in the corporate database Ace Equity, have an interest coverage ratio lower than 1.5, the generally accepted safe level when it comes to a company’s ability to service interest costs. Over 20 of them have a debt to equity ratio higher than 2, which, again, reflects a not-so-healthy balance sheet.

These revelations should be of concern to the industry, the government and the sugarcane farmer today. Here’s why. The country’s sugar production is estimated to set a new record during the current sugar season (October 2017 – September 2018). The surplus stock is already pulling down sugar prices, indirectly impacting revenues of sugar mills. The arrears that sugar companies owe to farmers are also piling up – the latest count being approximately `15,000 crore. The weak financial position of sugar companies, as projected by Ace Equity, makes the situation gloomier.

1.53

1.79

2.21

2.32

2.42

2.42

MAJOR SUGARCANE PRODUCING STATES

2.68

UP

First advance estimates for 2017/18 Production Area Yield

1,59,722 2,198 72,667 Maharashtra

67,624 902 74,971

Bihar

Karnataka

14269.2

30,400

246 57,801

400 76,000

Tamil Nadu 12,348 117.6 1,05,000

Sugar Rush Ajay S. Shriram, Chairman and Senior Managing Director, DCM Shriram, an integrated player in the sugar sector, says in the last two months, his company had to write down the value of its sugar stock by almost `65 crore. “The selling price of sugar has been going down. We don’t know what it will be by March 31, when a view will be taken for the full year,” he says.

If DCM, one of the healthiest companies in the Ace Equity list, is feeling the heat, one can imagine what the industry situation in general is. Especially since most sugar mills are managed by privately-held and cooperative entities across the country.

The Indian Sugar Mills Association (ISMA), the apex body of sugar manufacturers in the country, says that sugar mills are running at peak capacity and the sugarcane price payable

Production in '000 tonnes; Area in '000 hectares; Yield in kg/hectare; Source: ISMA

to farmers is building up. “With the declined trend of ex-mill sugar prices, which is around `3,000 per quintal in the Western part and `3,200 per quintal in the Northern part of the country, mills are incurring losses of about `500 per quintal over their costs. This has led to difficulties in the payment of cane price to the farmers,” Sanjay Banerjee, ISMA’s spokesperson says. Sugar production in the current season, he adds, is about 4.5 MT more than the estimated consumption.

Rating agency ICRA corroborates the ISMA view when it

46 I BUSINESS TODAY I April 8 I 2018

notes that sugar production is likely to set a new record by touching 29.5 MT in sugar year 2018 (SY 2018) and likely to outstrip consumption by around 4-4.5 MT. Sugar mills are expected to face pressure on sugar prices and profitability in the near term, which, ICRA warns, will in turn exert pressure on sugar mills’ debt coverage metrics and adversely affect liquidity indicators, including cane payments.

Why is the sugar industry so sensitive to sugar prices?

The primary reason is that, unlike other industries, political considerations, and not economics, are what drive this sector. With 50 million sugarcane farmers, political parties always want high sugarcane prices; they also want low sugar prices to gratify the end customer; and also a viable industry. But the three scenarios can seldom coexist. “The government fixes the fair and remunerative price (FRP) of sugarcane. An assured and attractive return incentivises farmers to produce more. The sugar mills have no choice but to crush the whole produce, which, in turn, exceeds demand, thereby impacting the prices. We have a problem here,” says Tarun Sawhney, Vice Chairman and Managing Director of Triveni Engineering and Industries, yet another strong, integrated player in the sugar sector.

Incidentally, FRP, fixed by the central government, is not the price that companies may finally end up paying to the farmer. Because, the state governments fix their own price, the State Advised Price (SAP), for sugarcane, which is higher than the FRP. Shriram of DCM Group calls it SAPP – state advised political price.

Roughly five years ago, India was faced with a peculiar situation: cane prices kept rising – not FRP, but SAP – and became irrationally high without any correlation with any return to the farmer or with the sugar price. What followed was mounting arrears to the farmers for 18 to 24 months.

But despite the indefinite delay in payments, farmers continued to produce sugarcane for two reasons – the money that was fixed by the government was still highly lucrative as compared to other crops; and secondly, they knew the money would come since they were not dealing with local mandis, but organised sugar mills that couldn’t have run away without paying the arrears. Governments, Central and state, would find payment arrears too sensitive a problem, given the number of farmers involved. Although the government did intervene by announcing relief measures, it was a big wake-up call for all stakeholders.

The Solution Suggestions that propose linkage of sugarcane price to the factory price of the processed commodity are aplenty. The Rangarajan committee, constituted by the previous UPA government, had even laid out a mechanism that could streamline farmers’ compensation to provide a minimum guaranteed price within a very short time and a marketlinked bonus at a later stage. However, no state government has accepted it in its entirety.

For the short term, there are several measures being initiated by the government; some are in place, others are be-

ing planned. For instance, the Central government recently increased the import duty on sugar and brought in a monthly release quota for sugar mills to avoid panic selling by mills. It is also planning to allow exports to help sugar companies reduce their stockpile. Easier said than done, believe industry experts.

That is because the international price of a kilo of sugar is approximately `10 less than the domestic price. Someone needs to cushion the loss.

“There was an outstanding scheme introduced by the Narendra Modi government in which farmers were paid the money that mills owed them on the basis of the quantity of exports the mills made,” Sawhney says. “It wasn’t a subsidy to the industry, but the government helped us liquidate our excess stock to some extent and, in the process, helped stabilise domestic sugar prices,” he adds.

As Ace Equity data indicates, financial weakness also means that the ability of sugar companies to raise debt is limited.

Sawhney says the industry has always sought support from the Indian banking industry to survive. “When banks are withdrawing from such an important industry, which is considered even today as an essential commodity, it is time for some sort of structural intervention from a financing perspective. How do you expect the industry to support 50 million farmers if banking support is offered to a small portion of the industry?

If there is pain, it will not be at the milling level and the farmer level. It is untenable socially and politically, and it is not a desirable situation for the industry either,” he states.

One solution could be making sugar a priority lending sector, but that may misfire as banks are already saddled with NPAs. Another solution is to reduce the dependence of companies on sugar production. Depending on the demand situation, they should be in a position to convert sugarcane into ethanol. But SUGAR PRODUCTION to make it a sustainable and attracIS EXPECTED TO SET tive alternative business proposition, A NEW RECORD IN there needs to be predictability in the SY2018 BY TOUCHING country’s ethanol policies and pricing. Power generation using cogeneration technology is another option through which companies can generate revenues by selling extra electricity generated as a byproduct of sugar production to power distribution companies.

However, having a remunerative sugar price is the easiest of all measures.

“The government realises very well that the industry has gone through a very difficult time. There may be aberrations; some may feel the pinch too much, some others to a lesser extent.

Hopefully, things will not go out of control once the realisation of a decent sugar price happens,” says an optimistic Shriram.

29.5 MT

April 8 I 2018 I BUSINESS TODAY I 47

Additional reporting by Sumant Banerji and Dipak Mondal @joecmathew

PE players have become extremely active of late. he exuberance is here to stay for some time.

By B.S. SRINIVASALU REDDY illustration By AJAY THAKURI

THE HUB FINANCE

T A TIME WHEN FRESH INVESTMENTS are down to a trickle — new investment proposals in the 3rd quarter of 2017 were at the lowest levels since the September 2004 quarter — venture capital (VC) and private equity (PE) investors are going full throttle to make a point that India is a compelling investment case. In 2017, PE/VC investments touched $26.8 billion, a 37 per cent increase from the previous record in 2015, according to EY’s PE Deal Tracker. On an year-on-year basis, the rise comes to 65 per cent; annual PE investments have risen 3.5 times over the last five years, an impressive show by all means.

“The year 2017 was a watershed for India's PE/VC sector. Investments grew to a record high. Deals became larger and more complex. Growth capital deals accounted for the highest activity and investment,” says Vivek Soni, Partner and Leader for PE Advisory, EY. Four growth capital deals worth more than $1 billion each made headlines as start-ups launched during the final years of the last decade came of age and looked for money to fund their

FINANCE > PE/VC next stage of growth. Three involved Softbank —Flipkart ($2.5 billion), PayTM ($1.4 billion) and ANI Technologies or Ola Cabs ($1.1 billion, along with Tencent). Apart from this, there was a $1.39 billion investment in DLF Cyber City Developers Ltd. by GIC (a big chunk of the proceeds will be used to reduce the developer’s huge debt that is weighing on its financial performance).

Even exits rose as PE players took advantage of buoyant capital markets to book profit. The year saw exits worth $13 billion, nearly double the $6.67 billion seen in 2016.

PE funds have set an exciting pace for investments in India.

But will it sustain? Broad trends such as dried-up bank lending, economic recovery, buoyant capital markets, fast growth in emerging sectors and the ongoing deleveraging by companies signal a bigger role for them in the coming years.

THE DEAL SUMMARY PE volumes see a sharp jump in 2017

Action Packed “The action is largely driven by big-ticket consolidation across sectors as companies divest assets to reduce debt,” says Prashant Mehra, Partner at Grant Thornton India LLP (GTI). One such deal was a $956 million investment, led by KKR and Canada Pension Plan Investment Board, or CPPIB, in Bharti Infratel.

Then, this January, Brookfield decided to buy Essar’s Equinox office complex in Mumbai for $384 million. The Essar Group is reeling under heavy debt and struggling to save several of its former crown jewels from bankruptcy.

“Also, companies with strong balance sheets drove acquisitions to capture market share and increase competitiveness,” he adds. The biggest deal in January this year involved a $1.7 billion investment in HDFC by institutional investors GIC, PE firm KKR & Co, CPPIB, Ontario Municipal Employees Retirement System and Premji Invest. The month saw investments worth $3.5 billion across 51 deals.

The Triggers The roots of the current PE bull run lie in 2015 when VC investments peaked, with most of the money going into start-ups. Since then, VC funding has receded, and PE investments have picked up pace. The reason is simple. Banks typically don’t lend for growth or mergers and acquisitions (M&As).

Also, as bank lending further dried up due to rising non-performing assets, PE funds rushed in to fill the gap.

Meanwhile, technology and ecommerce companies are seeing their fortunes change after oneand-a-half years of lukewarm response from PE funds. There was an impression in 2016 that they were only ‘cash burners’ without profit visibility in the near future.

However, this perception seems to have changed recently if one is

$26.8 BILLION PE/VC investments in 2017, a 37 per cent increase from the previous record in 2015

$5.4 BILLION Total investments in August 2017, 5.4 times the same month in 2016

to go by SoftBank’s recent $2.5 billion investment in Flipkart.

“Also, there is renewed euphoria in new tech/e-commerce segments, which were struggling to raise money for some time,” says Nitish Poddar, National Leader, Private Equity, KPMG in India, attributing the heavy PE activity in August to “pipe being cleared for deals which were under negotiation for some time.”

In August, PE/VC investments, at $5.4 billion, were 5.4 times the same month in 2016, accounting for over one-fifth of the total in 2017, according to EY. Two years back, PE funds were focused on commerce, ecommerce and technology companies. “Their focus has shifted to telecom, manufacturing, real estate, pharmaceutical and other consumer and retail sectors,” says Mehra of Grant Thornton. The year 2017 was also the best for PE-backed initial public offerings, or IPOs, featuring the largest IPO exit ever with Fairfax selling its 12 per cent stake in ICICI Lombard for $558 million.

The IBC Impact Following recent cases of high-profile debt default by companies, the government has tightened regulations for borrowers.

The steps taken, including promulgation of the Insolvency and Bankruptcy Code, or IBC, are forcing companies to deleverage.

“The companies want to pay off debt. And the only way they can do so is by selling their non-core businesses. The only buyers for good quality businesses are PE players and buyout funds,” says EY’s Soni. All bank debt restructuring schemes and restructuring proposals have been brought under the IBC. “High interest rates, strong growth in chosen sectors, more and more buyouts by PEs given the strong macroeconomic fundamentals, are some of the things that are driving investments in India,” says Poddar of KPMG.

M&A

Private Equity

Volume M&A 570

2015

1,048

27,748

972

2017

2016

43,918

40,229

736

Value ($mn)

513

Private Equity

411

2015

15,759 2015 2016 2017

2016

13,933

2017

20,310

2015 2016 2017 Source: Grant Thornton

Budget Boost Union Budget 2017/18 imposed long term capital gains tax on sale of public securities. This has come as a blessing for PE funds. “The convergence in taxation of gains from investments in listed and unlisted companies significantly reduces the historical tax arbitrage between these asset classes. The PE industry would hope this raises domestic capital allocation to PE/VC asset classes,” says Subramaniam Krishnan, Tax Partner, Financial Services, EY India. On March 14, the government also extended indexation benefit for computing tax liability on sale of shares listed after January 31, though capital gains arising from such transactions will continue to be taxed at 20 per cent. This will help PE players, who usually invest in a company much before its gets listed on stock exchanges.

Mehra says the proposal to abolish the Foreign Investment Promotion Board would further liberalise FDI policy and encourage foreign investors. Also, the Budget’s focus on uplifting the rural economy is expected to help the domestic consumption story and augurs well for PE/VC funds with exposure to sectors that cater to rural consumption.

Why India?

Whenever economic growth in the US picks up, global investments fly out of emerging markets. However, India has bucked this trend, if one is to go by FDI inflows during the first nine months of 2017/18, raising confidence among domestic and international investors. The latest Department of Industrial Policy and Promotion data show FDI inflows of $48.20 billion in April-December 2017, raising hope that the inflows for the year will cross the last full year’s figure of $60.08 billion. Though India’s GDP growth slipped to 5.7 per cent in the April-June 2017 quarter, the July-September 2017 quarter numbers indi-

cated strong recovery. Industrial growth of above 7 per cent for November and December also confirms that economic recovery is on course. Though fiscal slippage is a worry, improvement in bank credit offtake to 10 per cent, after 15 months of singledigit growth, supports the recovery story.

“US growth has been relatively strong. However, certain aggressive policy decisions there have given rise to uncertainty, and some of the macro-economic indicators in the past few quarters have not been very strong. This, coupled with the struggling Chinese economy, has put focus back on India,” says Poddar of KPMG. Experts are confident that the PE investment momentum will sustain for the next two years, except EY, which has put the timeline as ‘the next one or two years’. Rising economic growth, low inflation and stable rupee are the positives, and though the fiscal deficit has risen, the situation is not alarming as of now. India is catching up on growth, and that is what PE funds are banking on. Mehra of Grant Thornton believes that IBC and PE investments will feed each other in the next few years.

Favourable policy environment, liberal monetary policy and faster FDI approvals will help growth in PE investments in the years to come, says Poddar of KPMG. Soni says in 2007 and 2008, PE deals were not happening because the promoters “did not want to sell”, but now the promoters are being forced to sell if they fail to spruce up their operations. Mehra sees start-ups, banking/insurance, e-commerce, manufacturing, pharmaceutical, healthcare and biotech as the key areas expected to see action, apart from companies that gain from government spending, such as infrastructure.

April 8 I 2018 I BUSINESS TODAY I 51

The writer is a freelancer based in Mumbai

DARKNESS AT NOON As a power-surplus India chases renewables, power equipment JVs are struggling to get fresh orders from mainstream coal-fired plants.

By P.B. JAYAKUMAR

THE HUB POWER

I

N APRIL 2013, Praful Patel, then Union Minister of Heavy Industries and Public Enterprises, came out with a ‘Vision 2022 for the Indian Electrical Equipment (EE) industry’, targeting production worth $100 billion by 2022.

The 10-year plan also estimated that the domestic demand for power generation equipment (boiler, turbine and generator, or BTG) would increase steadily to touch $25-30 billion by that time. The assumption was based on plans to add around 88.5 Gigawatt (GW) and 93 GW during the 12th and the 13th Five-year Plans, respectively, mainly to coal-fired power plants. By FY2011/12, the Indian EE industry had grown close to `1.20 lakh crore ($25 billion), and the share of the BTG sector was about 25 per cent or $6.5 billion. To tap this opportunity further, as many as five BTG joint ventures (JVs) were also set up in the last decade where Indian corporate houses, including Larsen & Toubro, Bharat Forge, JSW Energy, BGR Energy Systems and Thermax, had invested heavily.

But the priorities of the government changed soon. The emphasis on wind and solar power generation and the decision to discourage new coal-fired thermal projects have landed the BTG sector in serious trouble. By 2016/17, the Indian electrical industry, including the BTG and the transmission and distribution (T&D) segments, dipped to `1,54,000 crore, according to data from Indian Electrical and Electronics Manufacturers Association. Of this, the share of the BTG manufacturers was only 15 per cent or `23,100 crore ($3.5 billion). The JVs, too, are sitting on idle capacity due to lack of local orders. In order to survive, most of them now depend on orders from parent companies, JV partners and NTPC.

POWER > EQUIPMENT

Grand Plans Go Awry To put things into perspective, the outlook for coal-fired power plants in India was robust since the 2000s. The amendment to the Electricity Act in 2003 allowed private participation in the sector, and several large corporates set up thermal power plants. Companies such as Tata Power, Adani Power, Reliance Power, JSW, GMR and GVK started readying a chain of projects with a 5-10 year window. Besides, the government wanted to set up over a dozen or so 4,000 megawatt (MW) ultra mega power projects (UMPPs) through a publicprivate partnership. And most of those projects required supercritical technology, which was not available in the country.

Public sector firm Bharat Heavy Electricals (BHEL), India’s major power equipment maker and a specialist in subcritical technology at the time, was under constant pressure for failing to meet delivery schedules despite a swelling order book running into billions of dollars. That was the period when supercritical BTG manufacturing took off as Indian corporates and their joint-venture partners hoped to make good in a fast-surging market.

L&T-MHPS Boilers (formerly L&TMHI Boilers) started as a 51:49 JV between Larsen & Toubro and Mitsubishi Hitachi Power Systems (MHPS) of Japan in April 2007 to develop supercritical boilers and pulverisers in India. The JV came up with an installed capacity of 4,000 MW per annum at Hazira in Gujarat. L&T set up another joint venture with MHPS and Mitsubishi Electric Corp. (MELCO) for a steam turbine generator (STG) unit with equipment capacity ranging from 500-1,000 MW. The company, called L&T-MHPS Turbine Generators (formerly known as L&T-MHI Turbine Generators), has a manufacturing capacity of 5,000 MW per annum.

However, orders had steadily declined for the L&T JVs over the past three fiscals.

The approximate order book for the power business amounted to `23,000 crore in 2014/15, `20,000 crore in 2015/16 and `13,000 crore in 2016/17. At the end of the third quarter (October-December) of 2017/18, the order book was worth around 54 I BUSINESS TODAY I April 8 I 2018

INSTALLED CAPACITY

6.4 LAKH MW

43 Renewables

57 Conventional

(Source: IEEMA)

REALITY CHECK NO NEW GREENFIELD COAL-FIRED PROJECTS TILL 2022 OVER 21 GW PRIVATE SECTOR COAL-BASED CAPACITY UNDER STRESS ANOTHER 35 GW CAPACITY UNDER CONSTRUCTION IS LAGGING DUE TO VARIOUS ISSUES BTG INDUSTRY EXPECTS ONLY 7-8 GW OF COALBASED POWER PROJECTS OVER THE NEXT TWO YEARS `5,000 CRORE REQUIRED FOR AIR POLLUTION CONTROL EQUIPMENT (FLUE GAS DESULFURISATION, OR FGD, AND SELECTIVE CATALYTIC REDUCTION, OR SCR) NTPC AND OTHER STATE UTILITIES TO RETIRE 19 GW OF OLD AND INEFFICIENT COAL-BASED POWER PLANTS

POWER > EQUIPMENT

`10,500 crore. Although the boiler factory is fully utilised at present, the STG unit is running at about 70 per cent of its capacity, and its utilisation is falling.

“Our JV partner has helped us get export orders, and we will need continued support until the market revives in India,” says Shailendra Roy, CEO and Managing Director of L&T Power and Whole-time Director of L&T. According to him, over 25 per cent of boiler pressure parts capacity and roughly 50 per cent of pulveriser capacity are utilised to meet export requirements.

For STG, capacity utilisation amounts to just 60 per cent and orders mostly come through JV partners.

The situation is no different for Pune-based Thermax that set up a joint venture in 2010 with Babcock &

"OUR JV PARTNER HAS HELPED US GET EXPORT ORDERS, AND WE WILL NEED CONTINUED SUPPORT UNTIL THE MARKET REVIVES IN INDIA" SHAILENDRA ROY CEO and MD, L&T Power, Whole-time Director, L&T

Wilcox Power Generation Group from the US, for manufacturing large boilers.

Thermax Babcock & Wilcox Energy Solutions (TBWES) built a manufacturing unit in Pune for supercritical and subcritical boilers with an annual capacity of 3,000 MW and provisions for expansion up to 5,000 MW. The JV is pulling down the profits of Thermax, a `4,700 crore-plus company.

TBWES earned revenues of `306 crore in 2016/17 (as against `334 crore in the previous year) as it executed orders from Babcock & Wilcox, in the absence of orders from domestic players. During the fiscal, the company had to set aside `112 crore for impairment of its investments in TBWES and further paid `180 crore for loan repayment. As a result, Thermax clocked a net loss of `17 crore in the fourth quarter of 2016/17.

“As policies are not favourable, we are doing the necessary realignment to take the business forward,” says M.S. Unnikrishnan, Managing Director and CEO of Thermax.

Bharat Forge’s story is that of an exit. In 2009, the Pune-based company formed a JV with French multinational Alstom to manufacture supercritical equipment. After energy major GE acquired Alstom’s global power and grid businesses for €9.7 billion (around $10.6 billion) in 2014, Bharat Forge decided to exit the JV. In November 2016, it announced to divest its 49 per cent stake to Singapore-based GE Pacific for $35 million (around `230 crore). The forging major had invested about `170 crore in the joint venture.

“Our factory in Sanand will have full capacity utilisation next year as 2016 was a good year for GE Power and we bagged a few good orders from NTPC and some state-run projects,” says Andrew H. DeLeone, Managing Director of the listed entity GE Power India (formerly Alstom India Ltd).

Another joint venture with an annual capacity of 3,000 MW was set up by Japan’s Toshiba Group (75 per cent) and Sajjan Jindal’s JSW Group (25 per cent) to manufacture supercritical generators and turbines. It started commercial operations in 2011. According to sources who do not want to be named, the JV 56 I BUSINESS TODAY I April 8 I 2018

had its business up and running due to four-five bulk orders from NTPC, including five 880 MW and two 660 MW turbines and generators, among others.

Although Toshiba has plans to make the Chennai manufacturing unit a hub for its global businesses in South-east Asia, West Asia and African countries, the JV’s capacity expansion plans have been put on hold for now, sources say.

On the other hand, the BGR-Hitachi JV had witnessed major differences between the partners that led to a stalemate. In 2010, BGR Energy Systems had signed two joint-venture agreements with Hitachi of Japan and Hitachi Power Europe GmbH, a Hitachi subsidiary, to set up a boiler and a turbine manufacturing facility in Tamil Nadu. BGR Energy held 74 per cent stake in the venture. It also bagged a contract worth `12,000 crore in 2012 from NTPC to supply supercritical steam turbine generators for Lara Super Thermal Power Project (2x800 MW) and supercritical steam generators (boilers) for Solapur (2x660 MW) and Meja (2x660 MW) projects. But disputes arose when Hitachi merged its thermal power businesses with Mitsubishi Heavy Industries (MHI). BGR Energy initiated legal proceedings, but in May 2016, it settled its disputes with Hitachi and MHI, paving the way for the execution of orders. BGR has also withdrawn all pending legal proceedings.

BGR Boilers supplied supercritical steam generators, clocking an operating income of `678.46 crore while profit before tax stood at `46.68 crore. BGR Turbines supplied supercritical STG components, made an operating income of `129.79 crore and the profit before tax for the year was `44 lakh, BGR Energy said on the progress of the joint venture in its annual report for 2016/17.

What’s Causing the Slide According to a recent report by credit rating agency ICRA, stressed assets in the thermal power space have a total capacity of about 60,000 MW. Out of this, 26,000 MW thermal assets are in trouble due to the absence of long-term power purchase agreements, or PPAs; about 12,000 MW power assets are

POWER > EQUIPMENT stranded due to non-availability of domestic gas supply and 22,000 MW plants are struggling due to unviable tariffs in the PPAs and capital cost overrun. The weak financials of state-owned electricity distribution companies, or discoms, along with subdued demand from the industrial segment, has affected overall demand.

A CRISIL Research study released last year says around 21 GW of commissioned private-sector coal-based capacity was under stress due to lack of longterm PPAs or poor/zero offtake. Up to 35 GW power assets are also struggling due to lack of fuel supply agreement, coal linkage, unviable pricing and so on.

“We do not expect discoms of major states such as Maharashtra, Gujarat, Tamil Nadu and Madhya Pradesh to sign fresh long-term PPAs before 2020, based on demand projections in tariff filings,” said Prasad Koparkar, Senior Director, CRISIL Research, in the report.

In addition, several independent power producers, or IPPs, preferred lowcost Chinese suppliers over their Indian counterparts. Even BHEL managed to bag bulk orders until 2012/13, but it is now looking to diversify into defence, solar, metro and aerospace for survival.

Understandably, domestic equipment manufacturers had sought a level playing field, and by early 2016, the government barred the duty-free import of capital goods for power generation and transmission projects. In May that year, the Central Electricity Authority mandated domestic sourcing of equipment for all central- and state-governmentfunded power projects. But by that time, the government had shelved its plans of big capacity additions in the thermal power, space and liberal policies were in place to encourage renewables, especially solar power, which achieved grid parity in many of the recent auctions. Further, the National Electricity Policy does not envisage any new coal-based power plant during 2017-2022.

According to L&T’s Shailendra Roy, a sluggish economy has led to subdued power demand in manufacturing and capital goods sectors. On the other hand, owing to financial stress and poor operational efficiencies, discoms continue to be in trouble

"NOW CAPACITY ADDITION OR MODERNISATION ARE MAINLY DRIVEN

BY STATE UTILITIES; THE IPPS ARE YET TO COME BACK TO BOOST DEMAND" ANDREW H. DELEONE MD, GE Power India

and have resorted to power cuts to suppress any incremental demand.

Add to that a few more crucial factors such as stranded power projects, limited availability of funds and a change in energy priorities and the slide faced by BTG manufacturers could be easily explained.

“It is quite unfortunate. India has been going through an economic downturn since 2012, and once the momentum is back, there will be demand for power. It takes six-seven years to set up a thermal power plant, and we should anticipate it right now,” says Unnikrishnan of Thermax, noting that solar and wind power cannot be viable on a massive scale.

But the rise and rise of renewables, especially that of solar power, is a reality as costs are hitting abysmal lows – be it the price of photovoltaic systems, overall project cost or cost per kilowatt hour – and it is another painful kick in the guts.

“Also, India is a signatory of the Paris climate agreement. So, the government has set a target of 175 GW of installed renewable energy capacity by 2022.

58 I BUSINESS TODAY I April 8 I 2018

To achieve this, both central and state utilities are focussing more on renewable capacity installation,” says Roy. Andrew DeLeone of GE Power India refuses to give up hope. He thinks the demand is sure to pick up in the medium-to-long term. “Now capacity addition or modernisation of projects are mainly driven by state utilities; the IPPs are yet to come back to boost the demand.”

Survival Strategy With domestic orders dwindling, the joint ventures in question are compelled to fall back on export orders from their JV partners and explore opportunities in overseas markets, especially the developing countries. According to Roy of L&T, the best-case scenario at home seems to be the revival of 7-8 GW of coal-based power projects that could translate into business opportunities worth `32,000 crore over the next two years. The JVs are also pursuing air pollution control measures, namely, flue gas desulphurisation systems and selective catalytic reduction units, which can lead to businesses worth `5,000 crore.

Another focus area is the renewed interest in nuclear power plants (and hence, in the turbine islands, their key components) after the government approved 10 pressurised heavy-water reactors of 700 MW each. The opportunities here include developing STG islands and supplying components for related civil constructions.

There is another silver lining. Utilities in India are expected to replace old and inefficient coal power plants with new and advanced supercritical or ultrasupercritical units, and it will create some long-awaited demand. In fact, the Central Electricity Authority, NTPC and other state utilities may soon retire 19 GW of out-of-date thermal assets and replace them with next-gen facilities.

“However, a lot more needs to be done in the conventional power sector such as revamping or modernising old plants as new technologies are available to make them conform to COP21 protocol,” says Sunil Mathur, Managing Director and CEO of Siemens India. @pb_pbjayan

L L A M

A I N A M An investment splurge by private equity majors and international wealth funds has breathed fresh life into sluggish traditional retail.

By AARTI DUA Photograph by VIVAN MEHRA

he concourse at the Seawoods suburban railway station in Navi Mumbai may seem an unlikely venue for leading Indian and international brands to vend their wares. But take the escalator, and you will be instantly transported to the glitzy granite-and-glass interior of an opulent shopping mall. From Sephora and Mac to Forever 21 and H&M to Big Bazaar and Lifestyle, the storied brands are jostling for attention at the swanky Seawoods Grand Central Mall.

The Seawoods Mall opened last year after private equity major Blackstone Group acquired it from L&T Realty for `1,450 crore in 2016. And in many ways, it represents the new buzz in the country’s retail mall space. The year 2017 has seen 6.4 million sq. ft of new retail space completed, according to property consultancy firm JLL India, 66 I BUSINESS TODAY I April 8 I 2018

THE HUB RETAIL

7 5 . $1

ION BILL quity ate e retail v i r p l Tota tment in dia n s i n v e a c ro s s I n d t h e malls CY2015 a 2017 een of CY betw quarter d ir h t

April 8 I 2018 I BUSINESS TODAY I 67

RETAIL > MALLS

RISING MALL AREA Expected new mall stock between 2017 and 2019-20 (in million sq. ft)

Delhi-NCR

Mall stock of top seven cities is expected to increase from 77.33 million sq. ft in 2017 to 97.38 million sq. ft in 2020

6.78 Hyderabad

4.04

Bengaluru

3.92

Chennai

1.8 Mumbai

2.2 Pune

0.7

Kolkata

0.62

making it the highest net absorption in a year since 2011.

The sector will pick up the pace further as more than 20 million sq. ft of mall space is slated to come up in the top seven cities (Delhi-NCR, Mumbai, Pune, Bengaluru, Hyderabad, Chennai and Kolkata) by the end of 2019. Of this, 11 million sq. ft should be completed in 2018 alone. Commercial real estate services firm Cushman & Wakefield estimates around 34 new malls (13.6 million sq. ft of new mall space) will be operational in the top eight cities (including Ahmedabad) by 2020 with Hyderabad alone getting 11 new establishments (see Rising Mall Area).

“There is a definite upswing in the retail mall sector,” says Pankaj Renjhen, Managing Director, Retail Services, at JLL India. Arvind Singhal, Chairman of the retail consultancy firm Technopak, concurs. “We are beginning to see excitement building up once again in the sector.”

Big Bets Fuelling Boom The fresh impetus follows an investment splurge by global private equity (PE) players and wealth funds now that they have neared saturation in commercial real estate and need

to diversify their portfolios. Quite a few PE funds, including US-based PE major Blackstone and Singapore’s sovereign wealth fund GIC, have been on a shopping spree. Together, they have put around $724 million in retail malls across India in the first nine months of CY2017, as per JLL India data. In all, PE funds have invested $1.57 billion between CY2015 and the third quarter of CY2017 (see The New Allure).

Retail real estate in India lost its initial allure a few years ago, much like its debt-ridden American counterpart. But against the backdrop of rising consumption across metros and non-metros and a flurry of supportive regulations (more on that later), the race to expand the retail portfolios is hotting up. Blackstone, within nudging distance of market leader Phoenix Mills in terms of retail real estate assets, has already set up an Indian subsidiary called Nexus Malls to develop and operate the seven malls in its portfolio. In January 2018, it acquired an eighth with a majority stake in the Kolkata-based realtor Forum Projects’ upcoming mall in Bhubaneswar. The PE firm has reportedly entered a partnership with Forum Projects to own a number of malls in eastern India. Forum expects to deliver 1 million sq. ft of retail space every year over

68 I BUSINESS TODAY I April 8 I 2018

CITYWISE DISTRIBUTION OF MALL STOCK

(in per cent) 2019 (Estimates)

2016 DELHI-NCR

39

22 13 10 7 5

38 MUMBAI

BENGALURU

15

PUNE

9

CHENNAI KOLKATA HYDERABAD

4

19

7 5 7

Delhi-NCR and Mumbai had 61 per cent of the shopping mall stock in 2016. The proportion of mall stock is expected to rise in Bengaluru and Hyderabad by 2019-20 Source: JLL India

the next three years.

GIC, too, has acquired 33.34 per cent stake in DLF’s rental arm DLF Cyber City Developers for `8,900 crore.

The assets covered in the deal include DLF Emporio, DLF Promenade, DLF Place and DLF Mall of India in the National Capital Region (NCR). In addition, Blackstone, GIC and emerging markets investor Xander Group are said to be in the running to acquire Lodha Group’s Xperia Mall in Palava, near Thane. And the last we heard, Abu Dhabi Investment Authority and Ivanhoé Cambridge, the real estate subsidiary of Canadian PE firm CDPQ, are scouting for retail real estate assets in India.

Buoyed by the growth in trading density and rental income, greenfield expansion is also gathering pace. While India’s premier mall developers – from Phoenix Mills, DLF and Inorbit Malls to Xander Group-backed Virtuous Retail (VR) and LuLu Malls – are looking to buy and build new malls, some like Phoenix and VR have set up investment platforms with PE firms to fund the next level of growth.

Phoenix Mills created a strategic investment platform with Canada Pension Plan Investment Board (CPPIB) in

April 2017 and the latter invested `724 crore for a 30 per cent stake in Island Star Mall Developers (ISMD), a subsidiary of Phoenix Mills. CPPIB will put in another `900 crore to increase its holding to 49 per cent within three years. ISMD has since acquired a 1 million sq. ft under-construction mall in Indore and secured a 15-acre plot in Wakad, Pune, to build a second Phoenix Marketcity there. Sprawled over 1.8 million sq. ft, the mixed-use development will house a 1 million sq. ft premium mall. Separately, in February this year, Phoenix Mills and its local partner launched Palladium in Chennai, a luxury mall spanning 2.2 lakh sq. ft.

“We intend to build another 6 million sq. ft across four-five malls over the next five years,” says Shishir Shrivastava, Joint Managing Director at Phoenix Mills. The aim is to double the company’s existing capacity by acquiring and developing malls in Tier-I cities, including Pune, Ahmedabad, Hyderabad and Indore. Until the greenfield expansion materialises, he intends to add another seven lakh sq. ft to its existing malls over the next three years.

Phoenix spent `1,350 crore in the last five years to buy out minority investors in its mall SPVs (excluding the Chennai mall) before bringing in CPPIB as a strategic partner. The company says around `3,200 crore is required for its expansion plan and CPPIB will infuse over `1,600 crore as equity in the joint venture.

“CPPIB owns malls, and like us, its long-term objective is annuity income. Neither of us is investing with a short-term view of creating an asset and making an exit,” says Shrivastava.

Other institutional investors are also stepping in. For instance, Virtuous Retail South Asia (VRSA), a 77:23 joint venture between Dutch pension fund asset manager APG Asset Management N.V. and Xander’s retail arm Virtuous Retail, will soon launch a 1.8 million sq. ft mall called VR Chennai. It will be a mixed-use asset featuring a co-working centre, a boutique hotel and a rooftop club. “VR Chennai is going to redefine shopping in Chennai,” says Rohit George, Managing Director of VRSA. “We would like to have a flag in the top 10 cities over T the next five years.” e SQ. F ION mall spac 7, the L L I 1 M il Currently, VRSA owns 0 a 2 t Y re New leted in C sorption 5.5 million sq. ft of mall p c o m s t n e t a b 2 0 1 1. e space across Surat, Bengaluru, high ear since illion sq. y a 0 m slated n i Chennai and Chandigarh. han 2 is ore t ll space p M a The joint-venture acquired VR he to d t m f in o n p ft e u e e th m Surat, VR Bengaluru and VR to co cities by n s e ve 19 Chennai malls (from Virtuous of 20 Retail) for `2,000 crore and committed an additional $150 million as growth capital. Last year, APG

April 8 I 2018 I BUSINESS TODAY I 69

6.4

RETAIL > MALLS

PHOTOGRAPH BY RACHIT GOSWAMI

“WE ARE GOING TO SEE HUGE TEEN GROWTH IN CONSUMPTION FOR THE NEXT THREE-FOUR YEARS. OVERALL, THE GAP BETWEEN DEMAND (FROM RETAILERS AND CONSUMERS) AND SUPPLY (OF MALL SPACE) CONTINUES TO WIDEN” SHISHIR SHRIVASTAVA, Joint Managing Director, The Phoenix Mills

infused another `1,150 crore after the JV acquired the 2 million sq. ft North Country Mall in Chandigarh for `700 crore and rechristened it VR Punjab.

To expand its footprint, VRSA is looking at both greenfield and brownfield projects. “Our strategy is multifold. We are happy to buy land as long as it is in the right location. We will also look at half-built or fully built malls like we did in Punjab,” says George, who is scouting for opportunities in Delhi, Mumbai, Kolkata and Hyderabad.

K Raheja Group’s Inorbit Malls, which pioneered the mall culture in India, is increasing its footprint across west and southern India besides revamping and expanding its existing malls in Mumbai and Hyderabad. “We hope to add 2 million sq. ft in three-four malls through brownfield and greenfield expansion in the next three-four years,” says Rajneesh Mahajan, Chief Executive of Inorbit Malls. It will require an investment of `1,200-1,500 crore.

New Priorities Take Over Such big-ticket projects and massive floor plates may sound humungous, but the buzz in the retail mall space is all the more palpable as it comes after three years of little or no capacity addition. Back in the 2000s, too many developers had jumped in to build retail malls with little understanding of how to design, lease or operate them in sync with traffic and shopping patterns. The result was a rash of poorly designed malls with unattractive business models. Many opted for a strata-style approach, selling individual units to retailers. It pushed up the

failure rate since there was no mall operator to curate the shopping experience or manage the establishments.

Understandably, several malls shut down or got converted into office space or residential complexes. According to a JLL report released in December 2017, 8.9 million sq. ft of mall space was withdrawn across cities between CY2015 and the third quarter of CY2017. Even now, only 15-20 per cent of nearly 500 malls are high-quality establishments, says Renjhen of JLL India.

Today’s operators seem to have learnt from early mistakes.

Instead of creating metro-only clusters, developers are following the shift in retail action to Tier-II and Tier-III cities.

JLL estimates that more than half of the $1.57 billion-plus PE investments have gone to non-metro cities. And that is where players like LuLu Malls are headed.

LuLu Malls, part of Abu Dhabi-based LuLu Group, currently owns the largest mall in Kochi but is eager to tap the retail growth in Tier-II and Tier-III cities. “Our experience in Kochi has been phenomenal. Indians are brand-hungry, and we believe that Tier-II and Tier-III cities offer one of the best markets in India,” says Shibu Philips, Business Head of LuLu Malls.

Philips has lined up a `5,000 crore expansion plan to build five malls over the next five years. Two of these – a 2 million sq. ft mixed-use mall and hotel in Lucknow, which will house a 3.5 lakh sq. ft LuLu Hypermarket and a 55,000 sq. ft entertainment zone, and a 2.3 million sq. ft mall plus a hotel and a convention centre in Thiruvananthapuram – are currently under construction. In addition, it is planning to build a 2 million sq.

70 I BUSINESS TODAY I April 8 I 2018

RETAIL > MALLS

THE NEW ALLURE PE investors and wealth funds are betting big on retail mainstays

2017 PROJECT: Treasure Island (50%) and

Treasure Island Next (70%), Indore BUYER: Blackstone SELLER: Manish Kalani and partner Elante Mall, Chandigarh BUYER: Blackstone SELLER: Carnival Group North Country Mall, Mohali BUYER: Virtuous Retail South Asia SELLER: Sun Apollo-Gumberg Strategic investment platform between CPPIB and ISMD, a subsidiary of Phoenix Mills; CPPIB will initially own 30% in ISMD, which owns Phoenix Marketcity, Bengaluru

2016 PROJECT: VRSA joint venture set up, acquires VR Bengaluru, VR Surat and VR Chennai

Seawoods Grand Central, Mumbai BUYER: Blackstone SELLER: L&T Realty Viviana Mall, Mumbai (50%) BUYER:GIC SELLER: Sheth Corp.

Westend Mall, Pune BUYER : Blackstone SELLER: Suma Shilp

2015 PROJECT: Ahmedabad One BUYER: Blackstone SELLER: Alpha G Corp.

Mall of Amritsar BUYER: Blackstone SELLER: Alpha G Corp.

Elante Mall, Chandigarh BUYER: Carnival Group SELLER: L&T Koregaon Park Plaza Mall, Pune BUYER: Nitesh Estates, Goldman Sachs SELLER: Elbit Imaging

Source: JLL India

ft mall and a convention centre in Vishakhapatnam. Philips is also negotiating for land in Bengaluru and Hyderabad. Before that, LuLu will launch its new small-format 2.05 lakh sq. ft Y Mall in Triprayar Junction near Thrissur by the middle of this year, its first-ever move into a smaller centre. Four more malls of that kind will come up elsewhere in Kerala subsequently.

If that raises the spectre of ghost malls in far-flung cities and largely vacant, Philips has another viewpoint. “We feel that regional centres with 30 lakh captive population are good enough to drive retail growth. When we came to Kochi, people said you don’t need such a large space. But we felt they were underestimating the Indian consumer. We saw it in Kerala where our numbers are outstanding. That’s the reason we want to expand,” he says. For the group, the malls are “a way to expand our retail brands”, he adds.

The size is right, too, even for smaller cities, given that the group typically requires a floor plate of 2.4 lakh sq. ft to house its LuLu Hypermarket, LuLu Fashion and home furnishing-and-white goods retail formats.

Sriram Khattar, Managing Director of DLF, sounds cautious, though, saying it will be challenging to “maintain a balance between the cost of creating new malls and the affordability of consumT SQ. F ers as land for retail projects is limN O I MILL wa s ited”. So, those with land at historic e c a ies all sp of m across cit nd values will be in a better position. a raw n 2015 DLF, which recently launched withd ween CY arter of bet d qu , only ir h The Chanakya in Delhi, an ubert t h e ve n n o w a r l y E e . n 7 f 1 luxe boutique mall, is in the o CY20 er cent re highp a 0 s s process of identifying four-five t l 2 l n e 15 ma 500 stablishm DLF land parcels to build e ty

8.9

qual

i

malls. “How much we construct will depend on our market research and if we feel a retail mall can give us return on investment,” says Khattar. The expansions will be in partnership with GIC as it “adds a lot of strength to the joint venture and brings international experience to commercial and retail projects,” he adds.

In spite of the usual business risks, the landscape has changed, says Mahajan of Inorbit Malls. “For the first time in a decade, we are seeing new malls being announced. While malls did open between 2006 and 2016, most of them were announced between 2004 and 2007. But now, we see people going out to buy land and build malls.”

There is one exception. Singapore-headquartered CapitaLand, one of Asia’s largest real estate companies, recently exited its retail mall investments in India and sold its assets back to Bengaluru-based Prestige group.

Growth Drivers In CY2017, some 4.7 million sq. ft of mall space was withdrawn, according to JLL, but retail consumption has continued to grow, thanks to increasing urbanisation, the country’s young demographic and rising disposable incomes. Of late, it has been fuelled by the entry of global brands who need quality space and also the expanding footprint of domestic retailers. “Ten years ago, there was no H&M or Zara. Today, if they could get 20 locations that meet their standards, they will take them all,” says Singhal of Technopak.

Add to this less stringent foreign investment rules for single-brand retailers, longer shopping hours, a new framework for real estate investment trusts (mulled by most PEs) and slowdown of e-commerce players due to discount and tax-related regulations, and the sector becomes truly attrac-

72 I BUSINESS TODAY I April 8 I 2018

RETAIL > MALLS

PHOTOGRAPH BY RACHIT GOSWAMI

consumption for the next three-four years, and it will have an impact on our rental incomes. Overall, the gap between demand (from retailers and consumers) and supply (of mall space) continues to widen.”

VRSA’s George agrees. “Fundamentally, everyone is playing on the entire India consumption story. Most of the foreign capital that has come in is buying existing centres or cash flows. So, we are still going to have a huge gap, going forward.”

George says not many players committed permanent capital and took development risks in the past, nor they did look at the business as a master retailer would. Moreover, new developments have a gestation period of five-six years, which is why he feels it is difficult to come up with a retail development strategy within a PE fund structure, where capital is limited by nature. Also, barely a third of the existing malls in the country are quality malls, and with the PE funds’ recent buying spree, fewer still will be up for grabs. “At the end of the day, to play retail, you have to be a focussed retail operator like anywhere else in the developed world,” he adds.

Surprisingly, mall operators do not see e-commerce

“FOR THE FIRST TIME IN A DECADE, WE ARE SEEING NEW MALLS BEING ANNOUNCED. WE SEE PEOPLE GOING OUT TO BUY LAND AND BUILD MALLS” RAJNEESH MAHAJAN Chief Executive Officer, Inorbit Malls

tive. After all, it gives the highest return on investment among all real estate categories. According to George of VRSA, while commercial real estate offers a fixed escalation of 5-15 per cent every three years, a good shopping centre can give between 10 and 20 per cent growth in income (rentals plus a share of retail sales) every year.

“Retail rentals can go up every month as sales go up.

But quite a few mall developers have failed to comprehend it even though some people are playing it well,” says Susil Dungarwal, founder and chief mall mechanic at Beyond Squarefeet, a leading mall operator and advisory company.

As per his estimates, vacancies in non-premium, leased malls are down to 10-12 per cent today from 25-30 per cent two years ago.

Vacancies in premium malls continue to be negligible.

Phoenix Malls’ Shrivastava says consumption (or retail spends) increased at a compounded annual growth rate (CAGR) of 22 per cent between FY2012/13 and FY2016/17 to touch `5,800 crore in 2016/17 while rental income clocked 19 per cent CAGR in this period. “We are going to see huge teen growth in

as a big challenge. “It is not so much a question of online and offline. The bigger challenge is the availability of right infrastructure and connectivity. If that is there, the malls will grow,” says Inorbit’s Mahajan.

For mall operators long fixated on traditional business models, the bigger challenge could also be curating an ultimate shopping experience. That is why entertainment and food have become the big anchors today with malls evolving into what Shrivastava calls “destination centres for leisure experiences”.

“Organised retail will continue to do better and better in a country that is hugely under-penetrated, but organised retail must move to experiential shopping,” points out DLF’s Khattar.

According to him, demonetisation and e-commerce have certainly acted as “deflators to retail resurgence. But the sentiment is improving although relatively slowly.”

“If you give people the right opportunity to consume, they will spend,” says JLL’s Renjhen. Both mall operators and PE investors are banking on that.

74 I BUSINESS TODAY I April 8 I 2018

The writer is a freelancer based in Mumbai

BETWEEN FIVE AND 10 YEARS

PENDING CASES ACROSS TIME BANDS

OVER 10 YEARS

8.52%

BETWEEN TWO AND FIVE YEARS

28.81%

LESS THAN TWO YEARS

46.66% Source:National Judicial Data Grid

16.01%

THE HUB JUDICIAL PENDENCY

TRAVESTY OF JUSTICE The economic cost of judicial delays is colossal. But the problem is not unsolvable.

By ABRAHAM C. MATHEWS ILLUSTRATION BY RAJ VERMA

n 1963, members of a family – which shall remain unnamed – fighting over property, filed a suit in a trial court in Bombay (as it was then called). The court announced its verdict 25 years later, in 1988. The losing party then moved the Bombay High Court in appeal. As the case was being heard, the court discovered that a number of the parties to the feud had died in the intervening years.

If any party dies, the Code of Civil Procedure requires a legal representative to be made a party within 90 days. Since the appellants had failed to do so, the high court dismissed the appeal in 2015. The appeal to the Supreme Court is still pending. Now, if the Supreme Court feels that this procedural oversight can be condoned, the case could well go back to the high court for fresh hearings, 55 years after it was originally filed.

Or take the example of several cases related to bounced cheques, filed in the early 1990s, that finally found resolution in the Supreme Court only last year. Even if the defaulter pays up, as they mostly have to, and is charged 200 per cent penalty to boot, the amount is still paltry, given the inflation of the past three decades. And these are cases filed under Section 138 of the Negotiable Instruments Act, which was supposed to be a fast-track mechanism for resolution of cheque-bounce cases. It isn’t that justice is not available as much as that with the delays, it becomes almost meaningless.

Scale of the Problem Consider the numbers. There are 26.5 million cases currently pending in the country in early March 2018, according to the National Judicial Data Grid.

Over 53 per cent of them were filed over two years ago. Of this, 16 per cent April 8 I 2018 I BUSINESS TODAY I 77

LEGAL > JUDICIAL PENDENCY

UTTAR PRADESH

47,51,545

THE WORST HIT States with most pending cases MAHARASHTRA

29,71,629

GUJARAT

20,44,401 WEST BENGAL

13,75,685

CASES PENDING PER 1,000 PEOPLE

24

26

34

15

BIHAR

13,48,204

13

Source:IndiaSpend Report, December 2, 2015

were filed between five and 10 years ago, and 8.5 per cent – or 2.25 million cases – more than 10 years ago. The data journalism website Indiaspend.com has estimated that it will take courts in Gujarat 287 years to clear their backlog of cases. Is Gujarat the worst off in this regard? No – it is only the state with the largest such finite estimate. There are six states – including Maharashtra, West Bengal and Bihar – where the number of cases filed in December 2015 was higher than the number disposed off that month, which means the backlog is increasing, making complete clearance impossible to extrapolate.

The Indiaspend report also noted that a judge in Karnataka disposed off, on average, 113 cases a month, while those in Gujarat and Bihar managed barely 19 a month. But “disposed off ” may not be the correct term.

Every judgment is parsed by litigants and their lawyers (who arguably have more time).

CATEGORY-WISE PENDING CASES

CIVIL

80,75,170

C R I M I NA L

1,84,44,752 TOTA L

2,65,19,992 Source:National Judicial Data Grid

78 I BUSINESS TODAY I April 8 I 2018

Any flaw in logic, any fact that is not fully and correctly appreciated, and legal question that is incorrectly applied, becomes a ground in appeal, congesting the system further. For a litigant, the recording of a trial court judge, especially on a question of fact, can hobble him even in appeals, as appellate judges usually accept the findings of the trial courts on facts (unless there is documentary proof to show that they are so perverse).

Former Chief Justice of India T.S. Thakur famously broke down while speaking in public, in 2016, about understaffed courts and the resultant accumulation of cases. A whole year after his retirement, the situation seems to have barely improved. Data from the beginning of 2018 put the deficit of judges across the subordinate courts across India at around 6,000 – about 26.5 per cent; and at the high courts at 395, out of the allocated strength of 1,079 (36 per cent vacant). The

Average Pendency in High Courts 4.3 4.3

RAJASTHAN ALLAHABAD

4.1 3.7

KARNATAKA CALCUTTA

3.4 3.4 3.3

ORISSA DELHI GUJARAT

3.0 3.0 2.9

HP BOMBAY PATNA

All values in years as on Sept 19, 2017. Source: State of the Indian Judiciary Report, Daksh

UNDERSTAFFED

Courts in India urgently need more judges ALLOCATED STRENGTH

CURRENT

SUBORDINATE COURTS

About 22,700

About 16,700

HIGH COURTS

1,079

684

SUPREME COURT

31

25

Source:Ministry of Law & Justice; data as on February 1, 2018

high courts together have around 3.5 million cases pending – 22 per cent of them for more than five years, and another 19 per cent for over 10 years. The Supreme Court was estimated to have around 55,000 cases pending, with 30 per cent of them over five years. Indiaspend estimates that just filling up these vacancies would bring down pendency by an impressive 83 per cent.

But no concerted effort is being made to do so. The latest Union Budget provides a mere `622 crore for judicial infrastructure, while the total allocation to the judiciary, including setting up of e-courts and other Centrally-sponsored schemes, is less than `1,500 crore. The Supreme Court gets another `250 crore exclusively to itself. States also spend on financing courts – but only 0.1-0.2 per cent of their Net State Domestic Product, according to analysis of data from 2013 and 2014 by Daksh.

The vacancies in the higher judiciary are generally attributed to lack of political will. It is more nuanced at the subordinate courts. It is widely acknowledged that there is a shortage of quality candidates willing to take up judgeship – not just due to lack of financial incentive, but also lack of

transparent path of promotion to the high courts.

Who suffers for these delays? The cost is disproportionately borne by the poorest sections. The Daksh survey found that a third of all litigants in the country earns under `1 lakh a year, while another third earns between `1 lakh and `3 lakh. On average, these litigants told Daksh, it cost them over `1,000 per day to attend court proceedings, apart from earnings foregone.

In aggregate, this added up to a whopping `30,000 crore spent by the country only due to prolonged litigation, a large part of it which could have been avoided if resolution was sooner.

Commercial Litigation The Economic Survey for 2018 devotes an entire chapter to the absence of timely justice in India and its economic impact, actually quoting the first part of the famous line from the 1993 Sunny Deol-starrer Damini, “Tareekh par tareekh, tareekh par tareekh milti gayi my lord, par insaaf nahin mila” (We got one date after another, my lord, one date after another, but we never got justice). Beyond just the courts, it also looks at six of the economic tribunals dealing with “high stake commercial matters” and finds that together they have 180,000 cases pending.

Over 150,000 of them are tax disputes, and on average, have been pending for six years.

The longer a tax case remains pending, the longer the assessee’s money is stuck, while he must continue to meet fresh tax demands. The survey points out that there are 50,000 commercial cases stuck in just five high courts, with average pendency just over four years, of which 30,000 are tax cases and nearly another 10,000 are before arbitrators. Arbitration was devised as a means to reduce judicial delays, but in practice, cases take two years on average to be decided even in such instances.

Even in the Tribunals, more than half the seats are vacant.

The vitally important National Green Tribunal, for example – in these times of heightened environmental awareness – has only five functioning members against the envisaged 20, which in practice means that three of its five benches – East, South and Central – are virtually not working at all, which in turn means that both green activists opposing polluting industries in these areas as well as companies fighting stay orders based on environmental concerns, have nowhere to go.

Overall, it estimates that `52,000 crore worth of infrastructure projects are stuck due to stay orders by some court or tribunal. Its analysis of intellectual property-related cases in the Delhi High Court – which again impact business – shows they have an average pendency of 4.3 years and that 60 per cent of them are stymied by stay orders. In final disposal cases, where detailed hearings take place, the average time taken is eight years.

Adjournments Galore Matters are worsened by the courts’ generosity, both in granting adjournments and admitting fresh cases. Most times, if a lawyer requests being excused from arguing on a particular day, the court readily allows it. But because of the backlog, the next date set for hearing is often months later. In Delhi High

April 8 I 2018 I BUSINESS TODAY I 79

LEGAL > JUDICIAL PENDENCY

Court, for instance, cases that were adjourned this February have been next listed for August. This is even as several judges now sit beyond their regular working hours to finish their cases for the day.

A significant number of the cases could be frivolous, but such litigation is a given when courts do not impose costs on those bringing them, with unscrupulous litigants using delays as a tool to stonewall discharge of their obligations. In a case relating to irregular appointment, for instance, the person appointed, after being adjudged ineligible, was still able, using three appeals, to hold on to the position for 10 years. Two years after he had appealed to the Supreme Court, it allowed him, on the date of final hearing to withdraw it, without imposing any penalty whatsoever. It could well be asked why such a case was allowed to reach the Supreme Court at all.

Often the courts contribute to the mass by permitting cases that are not its remit. Public interest litigation, which was originally envisaged as a way to secure Fundamental Rights for the anonymous poor (the prime responsibility of courts, arguably) is now widely panned for having become a free-for-all with the courts’ indulgence. Similarly, one could legitimately ask whether the Supreme Court must be spending its valuable time mediating marital disputes (as noble as the endeavour is).

Unlike in many developed nations, Indian courts don’t restrict length of arguments. So, a verbose advocate can drag

what should take two hours into a matter of several days – and bill the client for each day. Tomes are filed in the name of written pleadings; mostly serving no purpose but to impress clients. The judge is then forced to read it, slowing him/her down.

Finally, governments are often guilty of precipitating litigation. The tax department routinely comes under fire for filing appeals unwarranted. And then there is the refusal of government departments to do the sensible thing. Take the case of companies whose coal block allotments were cancelled by the Supreme Court in its famous judgment of September 2014, because of irregularities it found in their allotment. The companies are still fighting court battles to prevent the government from encashing the bank guarantees furnished by them for the reason that coal production targets were not met, even though, in many cases, this was for lack of environment clearance and the licence to begin production from the government!

The tragedy is that the problem of judicial pendency – unlike many other ills the country faces – can be resolved: filling up vacancies by the government, courts being stricter with frivolous litigants and insouciant lawyers, and efficient casemanagement would take us a long way there.

The writer is a Delhi-based advocate and Chartered Accountant. The examples cited in this piece are all real instances, but by no means, isolated exceptions

“ON CLIMATE ACTION, INDIA,CHINA ARE MAIN DRIVING FORCES” India is no longer shy about making big commitments on climate change, a sea change from its defensive stance on issues earlier. Recently, it hosted the International Solar Alliance (ISA), the first global treaty-based organisation to be based out of the country. It is also the global host of the World Environment Day on June 5 this year.

Erik Solheim, Executive Director, UN Environment Programme and UnderSecretary-General, UN, talks to Raj Chengappa, Group Editorial Director, on environmental issues facing the world and the way forward.

Edited excerpts:

RAJ CHENGAPPA: On climate change, the US is the elephant in the room with President Donald Trump pulling out from the 2015 Paris Climate Change Agreement. How seriously has it damaged the cause?

ERIK SOLHEIM: So far, it hasn’t damaged the agreement at all. You may even argue to the contrary because it galvanised every other nation into immediate action. Remember Prime Minister Narendra Modi said the same day that it will be a crime against future generations if you don’t act on climate and if you don’t act now. So did China. Even Saudi Arabia believes that its future lies in renewable forms of energy. Secondly, all major US companies, be it Microsoft, Apple, Google or Walmart, understand that the future is green. Business is, in fact, rapidly going 82 I BUSINESS TODAY I April 8 I 2018

THE HUB INTERVIEW

“So far, the US hasn’t damaged the agreement at all. You may even argue to the contrary because it galvanised every other nation into immediate action.

Remember PM Modi said the same day that it will be a crime against future generations if you don’t act on climate and if you don’t act now”

PHOTOGRAPHS BY RAJWANT RAWAT

INTERVIEW> ERIK SOLHEIM

future is green. Business is, in fact, rapidly going green. So, the private sector in the US is on board, as are its individual states, whatever the US president may say.

If everyone is doing what they want to do, then why do we need the Paris Climate Change Agreement?

A: In my view, it is a kind of interplay between this global agreement and political & economic forces of the world which brings us where we need to go. The agreement gives us some confidence, gives us some instruments we need and engages the main forces in countries – the commitments made by political leaders and by businesses.

What progress have we made since the 1992 Earth Summit?

A: I would describe it like this. The train is moving in the right direction but it is moving too slowly. It has started to move from coal to solar. It is on its way but we need to speed it up. Governments can speed it up, businessmen can speed it up. This is also the year we have seen big shifts. China is closing down coal mines and India is moving rapidly towards solar energy. We want to speed up action and make it broader and faster.

President Trump has already intervened in terms of industry. He raised tariffs on import of solar technology by 30 per cent, making it much more expensive for the US and other countries to install these. What happens now?

A: More of the jobs will go to China and India. Indians will have five times more jobs in solar than coal. We have seen all over the world that those who reject such agreements are losers. I will give you an example. A decade or so ago, we all had Nokia phones and Nokia was the biggest phone company in the world. But they didn’t believe in smartphones and in a short time went from the biggest digital company in the world to the tenth biggest, because it was overtaken by Samsung, Apple and others.

Kodak has become a history museum because the company didn’t believe in digital photos. If you resist, you are the losers.

The outcome of the Paris Agreement also depended on finance and technology. Technology is the most critical aspect of it. In terms of disseminating clean technology, particularly for developing countries, are you seeing a change in attitude?

A: We believe in trade because we believe that trade gives the best and most efficient solution and is beneficial for the environment. Overall, we need to do our utmost to spread technology and make technology available at the cheapest price, extend private sector cooperation, have more companies from different parts of the world work together. Take the electrical vehicle industry.

Obviously India needs to have ambition. Tata, Mahindra, and may be others, can be the key actors in the electrical vehicle industry. So, India is not just importing Chinese and Japanese vehicles but setting up that vision, moving in that direction, getting the jobs here and tapping into the best technology.

That is how technology extends most effectively.

“This is also the year we have seen big shifts. China is closing down coal mines and India is moving rapidly towards solar energy. We want to speed up action and make it broader and faster”

Why isn’t the UNEP spending green funds to put together the best brains in the world and say, look this is the crisis we need to sort out and what is the best technology we can evolve?

A: That is a very good question. The green fund is contributed by member states and decisions are taken at a political level. It is not as effective as it should be, in my view, in linking the private sector. Big money is in the private sector. Even if we get green funds fully financed, at $10 billion, it is peanuts compared to the trillions which are in the private sector that are driving green technology. We have set up a partnership as an example with BNP Paribas, which is the biggest bank in Europe. They have offered $10 billion for investment in transformation, agriculture, ecological and other climate friendly initiatives in India and Indonesia. We are starting up in Andhra Pradesh and the idea is to turn six million farmers to natural farming.

If you look at the Paris Climate Change Agreement, the responsibility has been dissipated with regard to countries which were the cause of what

for someone else, they do it for themselves. For instance, the drop in prices of solar power is thanks to the enormous marketing in China and India.

How do you see India’s progress with regard to climate change?

A: I am a great admirer of Prime Minister Modi for a number of reasons. He has completely transformed the debate in India. He brought the International Solar Alliance together. We know it will get jobs and economic development. Modi is speaking to the people of India about clean India, clean development, clean jobs, solar industry that people understand. That is the right attitude.

Is the Solar Alliance making progress?

A: It is a very good idea. The key to make it even more successful is to focus on finance because technology is there. Prices of solar power are coming down very fast. What we need to do is basically bring in private sector finances and find the guarantees. It is not about technology but political risk. Companies are not sure if the next president will honour what the present president does. This risk must be mitigated.

You need to have appropriate financial arrangements - that is key to success.

is known as historical pollution. Don’t they have a responsibility to take more action than others?

A: I fully agree with this point. It is a historic responsibility which is mainly with Western Europe and North America because these areas developed very fast and contributed to the vast majority of greenhouse gases. These nations have accepted that in principle and have also promised to make money available to the least developed countries. Some of them have been delivering. Developed nations should give the funds they had promised. But the main driving force now is really big developing nations like China and India. They don’t do climate mitigation

“Developed nations should give the funds they had promised. But the main driving force now is really big developing nations like China and India. They don’t do climate mitigation for someone else, they do it for themselves”

April 8 I 2018 I BUSINESS TODAY I 85

The atomic clock moved after President Trump ordered refurbishing of US nuclear weapons. How far has the climate clock moved towards midnight or the disaster point in the last couple of years?

A: It is fast moving in the wrong direction when it comes to climate change. But I remain optimistic because I believe in the enormous ability to change.

We have faced so many challenges in the past and we have come out winning. You want an example – it is right here. Mahatma Gandhi faced the biggest empire of the world and came out the winner. @rajchengappa

SECTOR REPORT IT& ITeS

ILLUSTRATION BY AJAY THAKURI

Changing Times From wage arbitrage to aiding digital transformation Pg 94

Working with the government presents opportunities and challenges for IT companies Pg 98

The IT spending outlook for 2018 Pg 104

IT SPECIAL > LEAD ESSAY

ajesh Gopinathan, Chief Executive Officer and Managing Director of Tata Consultancy Services (TCS) – India’s largest software services exporter – is extremely cautious when talking about future outlook. Therefore, it was a milestone moment when he emphasised, during an analysts’ call in January, how TCS had signed its first $50 million-plus digital transformation deal.

“While a deal of this scale is still relatively rare, confined to only the most technologically progressive customers, we believe this is the shape of things to come as more and more organisations start implementing a long-term digital strategy,” he added.

The deal came on the back of its previous success – TCS won nearly $6 billion in contracts under a month – underscoring the company’s and the industry’s remarkable resilience and the ability to adapt to change.

90 I BUSINESS TODAY I April 8 I 2018

116

$

BILLION worth of software and services exported by India in FY2016/17; doubling over the last six years

D I G I TA L S H I F T

FIVE CHALLENGES FACED BY INDIAN IT

With the rise of SMAC stack enterprise, IT requirements have undergone a fundamental shift. But Indian IT gets only a small percentage of its revenue from digital tech.

N O N -TA R I F F BARRIERS

Visa restrictions and insistence on near-shore delivery compliance mean Indian IT must rework its strategy while trying to maintain growth and margins.

WORKFORCE RESKILLING

Given the recent shifts in the global marketplace, the industry must invest substantially in retraining its workforce. Not an easy task since it will involve training nearly 4 million employees.

Until recently, the $154 billion information technology (IT) industry was the showpiece of the Indian economy. As per the estimates of Electronics and Computer Software Export Promotion Council, India exported $111 billion of software and services in FY2016/17 compared to a mere $4.9 billion in 1999/2000. The sector supports about four million jobs, mostly whitecollar ones, leading to post-reform prosperity and ushering in a new breed of billionaires. So, what happens to the industry is crucial as it accounts for 8 per cent of the country’s GDP and 19 per cent of its exports, according to National Association of Software and Services Companies, or Nasscom, the IT sector lobby group.

The landscape has changed over the past couple of years. After clocking high, doubledigit export revenue growth rates for nearly two decades, the sector is facing new challenges as tech spends are dwindling globally and requirements are changing drastically. Big clients are seeking newer digital offerings and competent cloud-based models instead of low-cost outsourcing solutions that had triggered India’s growth. While companies struggle to cope with the new normal, Nasscom has projected 7-9 per cent growth in IT exports (in constant currency) in 2018/19, which means the sector is likely to witness single-digit growth for the third year in

LACK OF M&A AGGRESSION

Until recently, the sector focussed on organic growth and would not go for big mergers and acquisitions. Now it must be more aggressive and acquire companies for technology, customers, global footprint and scale.

a row. In 2017/18, the growth is expected to be 7.8 per cent in constant currency.

I

t has been a rough ride for the IT industry, buffeted by tectonic changes in the global marketplace, but experts are banking on its coping capability. B.V.R. Mohan Reddy, a former Chairman of Nasscom and now Executive Chairman of Cyient, an IT solutions provider for engineering and manufacturing industries, does not think there is any fundamental threat to the sector. “I have heard these concerns before. When Indian IT first made a global SMALL BASE mark by providWith the US and the UK still constituting ing Y2K solutions, nearly 75% of the everybody said it was market, the sector a one-off. Similarly, needs to tweak the they dismissed us mix. It has reduced its dependence after the dotcom bust but should get in 2001-02. Indian more exposure in IT’s raison d’être was Latin America, the EU, Japan, China, questioned after the Australia and economic meltdown West Asia. in 2008. But on each occasion, we have

IT SPECIAL > LEAD ESSAY

proved our critics wrong. Of course, changes are happening but I do not doubt the strength, adaptability and resilience of the Indian IT sector.”

F

or nearly two decades, Indian IT’s main calling card has been the cost advantage. The concept of ‘lift and shift’ – moving IT processes to a lower-cost destination (like India) – and getting the projects delivered at a fraction of the cost meant a win-win for all. Be it system integration or package implementation, think of all the SAP and Oracle rollouts for every key division such as finance, HR and marketing and sales, and how the top vendors exploited those opportunities to boost their revenues. Next came remote infrastructure management that enabled Indian IT services companies to capture quite a big chunk of the market. Realising the advantages of being in a low-cost destination like India, multinational IT giants like IBM, Accenture, Capgemini and others also ramped up their workforce here.

However, with technology evolving fast, mere cost-cutting is no longer a priority. Companies today are looking for partners who will help them grow their businesses, and it calls for a change in India’s traditional IT prowess. Also, the rise of SMAC (social, mobile, analytics and cloud) stack means a never-before technology convergence that is fast becoming the backbone of the new enterprise IT model. Indian IT firms can no longer throw warm bodies at scale to derive advantage.

Introduction of robotic process automation (RPA) and deployment of artificial intelligence (AI) also mean the workload of a 200-strong team will now require only a tenth of the people power. Phil Fersht, CEO of HfS Research, a US-based research and advisory firm, says RPA has gone mainstream, and AI is increasingly deployed to speed up proceedings. Therefore, most of the low-end, repetitive coding work, which still accounts for an overwhelming share of IT revenues, is getting automated.

To remain relevant, Indian companies have to address a major pain point, that of reskilling thousands of their workers, which will lead to a substantial fall in revenue per person. As the cost advantage declines and profit margins are squeezed, IT firms have responded by limiting wages, reducing headcount and cutting fresh intake. In the last quarter (October-December, 2017), IT majors TCS, Infosys and Tech Mahindra saw their net employee number go down compared to the previous quarter. Overall, the industry is likely to onboard more people, but the net addition could be significantly lower this year compared to the past couple of years when nearly two lakh people were added per annum.

R. Chandrasekhar, the outgoing President of Nasscom (he will demit his post in March 2018 after a five-year stint), also points to a new wave of non-tariff barriers and

“I HAVE HEARD THESE CONCERNS BEFORE. BUT ON EACH OCCASION, WE HAVE PROVED OUR CRITICS WRONG. OF COURSE, CHANGES ARE HAPPENING, BUT I DO NOT DOUBT THE STRENGTH, ADAPTABILITY AND RESILIENCE OF THE INDIAN IT SECTOR” B.V.R. MOHAN REDDY

Executive Chairman, Cyient, and Former Chairman, Nasscom

protectionism, including visa restrictions and insistence on stringent near-shore delivery systems. “Whether it is visa restrictions in the US or the impact of Brexit, the companies have to face the challenges. But I am confident they will be able to overcome them,” he adds.

A

nother crucial factor is the sector’s overdependence on specific markets, a small base to be precise, which is gradually improving. For instance, the US accounted for 80 per cent of the market share in 2000, but today it is around 60 per cent and that too, on a base which has grown by a factor of 20). Indian IT is yet to make big strides in markets like Japan, the world’s second-largest IT services market, and China, which is growing at a fast clip.

With its commoditised traditional business under severe margin pressure and digital still producing only a small chunk of the revenues, the Indian IT industry needs to reinvent quickly. Nasscom estimates that nearly 1.5 million people need to be retrained. The tailwind, however, is a global economy that has come back to the growth path.

Rostow Ravanan, CEO of MindTree thinks it is a race between ramping up growth in digital to more than offset the decline in traditional business. Given the past track record of successful reinvention, few would bet against the ingenuity of the sector to pull it off successfully. For now, companies, employees, investors and all other stakeholders are cautiously optimistic that Indian IT can do it. Again.

April 8 I 2018 I BUSINESS TODAY I 93

@venkateshababu

IT SPECIAL> BPO

BPO

3.0 The industry has evolved from wage arbitrage to aiding digital transformation.

By GOUTAM DAS

T

ackily, business process outsourcing (BPO) firm HGS calls it ‘Bots & Brains’. That’s their term for robotic process automation (RPA) and humans working together. Bots do the mundane, repeatable tasks; humans the more complex processes. If it were a see-saw game, you could tell the bots are winning.

An insurance customer in the United States has outsourced processes such as enrolment of customers and database management of hospitals to HGS. The enrollment process is tedious. When the insurance company signs on a new corporate client, an influx of employee data, in thousands, swarms the BPO. Employees check for missing information such as date of birth, and send the forms back to the customer for correction. Once returned, the data needs entering in different customer systems.

Enter bots. It can scan for all the missing information at one shot and send out a note automatically. Once the corrected forms are back, bots can both fetch the data and enter it into every system.

“We had 60 people do the process earlier. Now, we have half the employees. In some processes, it could even be 80 per cent reduction in people,” Ram Mohan Natarajan, Senior Vice President of Business Transformation at HGS says.

Earlier, the insurance customer paid HGS on a per person model – in the old world of outsourcing, whether BPO or IT, people equaled revenues. Now, contracts can be outcome-based.

94 I BUSINESS TODAY I April 8 I 2018

BPO REVENUES IN FY17:

$30 BILLION

EMPLOYEES:

1.4 MILLION

REVENUES IN FY18:

$33 BILLION

COUNTRY MARKETSHARE:

37% BPOs NOW HIRE:

Engineering graduates, doctors and nurses, CAs, PhDs, MBAs, graduates and below

IT SPECIAL> BPO

For every people reduction in the case of this insurance firm, the benefits are split. “There were 60 people and now, we are able to do the job with 30 – I can bill the client for 45 people. I have reduced the billing to the client by 15. My profitability goes up because I am billing for 45 while spending on 30 people,” Natarajan says.

There is a cannibalisation to the top line. However, Indian companies are willing to risk it for a higher bottomline and in the expectation that a happy customer would gift more business overtime. There are early signs this strategy is working.

While bots are clearly bad news for employment, it is helping Indian BPOs improve customer experience, reduce costs dramatically for their customers, and in a few cases, also increase sales. In short, the Indian BPO industry is helping global corporations in transformation. Some see it as Phase 3 in the industry’s evolution. The first phase was about wage arbitrage or doing things cheaper out of India. The second phase was about building strong connects with clients and delivering some value beyond the wage arbitrage. BPO 3.0 is about being a transformation partner.

“The good news is that the BPM industry realised the impact of technology two-three years ahead of the game. In every element of the value chain, they were building a technology component. Even in customer interaction services, we are the market leaders globally because we started on tools such as RPA early,” K.S. Viswanathan, Vice President of Industry Initiatives at Nasscom says. BPM is Business Process Management – the industry smartly rebranded itself as ‘outsourcing’ became a dirty word in their primary revenue markets, the U.S. and Europe.

T

he Indian BPO industry totaled revenues of $29.8 billion in 2016/17 and employed 1.4 million. In 2017/18, the industry is expected to jump 8-10 per cent.

Genpact’s BPO revenues in 2017 came in at $2.3 billion, up 9 per cent; EXL’s topline jumped 11 per cent during the year to $762 million. WNS’ year ends in March – for the year ending March 2018, it expects revenues between $720 million and $726

“WHEN YOU THINK OF ADVANCED ANALYTICS, INDIA MUST BE THE FIRST COUNTRY FOR ANY CLIENT” KESHAV MURUGESH

CEO, WNS

million, up from $578.4 million in fiscal 2017. HGS had revenues of $555 million in 2016/2017. For the third quarter of 2017/18, its revenues jumped 7.4 per cent to $152 million.

The people growth, of course, would OF THE BPO be slower for the reasons explained above.

INDUSTRY REVENUES The outcome-based pricing models genernow come from ated upto 20 per cent of the total contract analytics values in 2016 and about 15 per cent of the industry’s revenues are now from analytics.

“The analytics practice is ahead of the game. Travel and leisure, banking, airlines, and healthcare companies are leveraging the capabilities of Indian service providers from a data perspective.

All of this has led to an increase in marketshare for Indian BPM industry from 36 per cent in 2016 to 37 per cent in 2017,” Viswanathan estimates.

15%

E

verything did not look this rosy even a year back. Brexit, the US elections, and Trump as President didn’t augur well for outsourcing. Policy changes were expected resulting in uncertainty and fear.

That paradigm appears okay now.

“Brexit doesn’t have an impact on the BPM industry; all it involves is a shift of our client base from the U.K. to continental Europe. May be more capabilities need to be built up in East and Central Europe,” Vice Chairman & CEO of EXL Rohit Kapoor says.

The second issue was about the rhetoric of offshoring and tweets that President Trump would use against certain companies. The impact was high in January 2016.

“Now, when he puts out a tweet, everybody discounts it considerably.

The impact has blunted significantly,” Kapoor adds.

A third area of concern was around foreign relations. How will the U.S. and the U.K. deal with India and the Philippines?

The relationship

VIVAN MEHRA

GROWTH IN EXPORT REVENUE BPO industry continues to grow at a steady clip

D

FY 2017

FY 2016

FY 2015

FY 2014

26 24.4 23 20

in $ billion; Source: IBEF

ON A HIGH Stock prices of BPO companies soared in 2017

57.54

45.06 31.65

34.76 24.63 22.13

0 6 /0

0 6 /0

3/ 1 5

ExlService Holdings, Inc. WNS (Holdings) Ltd Genpact Ltd Figures are in $

between India and the U.S. is safe and has strengthened.

Things are sweeter now for the BPO industry because its addressable market appears to be expanding. Because Indian companies can automate the work that is outsourced, clients are asking for automating even the work they haven’t outsourced, thus far.

“The offshore piece is only 20 per cent. That’s the amount of work clients have outsourced. 80 per cent is onshore. Think about it. We were working on 20 per cent of the work. Now, we can work on 100 per cent,” Kapoor says.

“In the past, BPM companies would be given a process to manage. Like enrolment, claims, mortgage. Now, because of automation, clients are awarding end-to-end operations.

That way, the ability to give more benefits to the customer is higher, the volume and value of the work is higher, and the number of people you need is much higher.”

3/ 1 8

ata sciences is likely to be a large revenue bucket, going ahead. Companies, are therefore, on the lookout for companies that fill in gaps. EXL, for instance, recently acquired Health Integrated, Inc., a Florida-based care management company that provides end-to-end analytics- and behavioral IP-enabled care management services. The acquisition would add $20-$22 million to its topline in 2018.

Keshav Murugesh, WNS’ Chief Executive Officer says the company has been focused on a capital allocation programme where it has invested part of the cash into buying back its equity – the company feels its stock is undervalued.

The stock was trading at $46.25 on March 14 on the NYSE. A year back, it was trading at $28.

“We also used part of the cash to acquire three interesting companies that are capability-led: It adds strength to our pharma analytics side (Value Edge), to our care management in healthcare (HealthHelp), and in procurement (Denali). Wherever we had gaps, we plugged it through acquisitions,” the CEO says.

WNS is also trying to ensure the supply-side for new services through co-creating an MBA in business analytics with NIIT University.

Meanwhile, the Indian BPO industry’s employee profile has undergone a transformation. Customer interaction services, which includes voice, is just about 40 per cent of the industry’s top line now. The industry now employs engineering graduates (15 per cent of the workforce); MBAs (15 per cent); chartered accountants (8-10 per cent), medical doctors (8-10 per cent); PhDs (4-5 per cent). HGS employs 1,500 nurses for work that includes running a WhatsApp helpline for pregnant woman, outsourced by a baby care product company. “We are almost a healthcare company now,” Partha De Sarkar, CEO of HGS, says. He laughs. @Goutam20

April 8 I 2018 I BUSINESS TODAY I 97

> GOVERNMENT BUSINESS

THE PUBLIC SECTOR

Untangling the Wires The IT industry expects the government to make it easier to do business with the public sector. Its wish list.

Corporatise government entities, empower employees to take decisions and fix accountabilty.

Build internal capacity and induct people from the private sector to manage transformational projects.

Simplify the public procurement policy and make it fair for both the vendor and the customer.

Working with the government is a mixed bag of opportunities and challenges for IT companies despite the Digital India initiatives.

By SONAL KHETARPAL

To get world-class solutions, the government has to go by international standards of contracting. e had to deliver mobile phones for a certain government project. But the tender process took 9-12 months. When we placed the order, a newer version of the model was available and we bought it. My money is now held up because the government says I gave a different product.”

“We had to train government employees to use the solution deployed in their department. But they were not available. Sometimes they were on leave or in some meetings.

Consequently, milestones couldn’t be met and payments were stuck.”

IT SPECIAL> GOVERNMENT BUSINESS

PHOTOGRAPHS BY SHEKHAR GHOSH

Indian IT giants have increasingly shown a willingness to take up large government contracts. Despite the delays in the launch of the Goods and Services Tax (GST), IT services giant Infosys still signed up for the government contract – a hefty `1,380 crore project in 2015 – to build the network software. HCL Infosystems was the chosen vendor for the audacious Unique Identification Authority of India project in 2012, a `2, 200 crore contract.

“A PROBLEM OF PUBLIC PROCUREMENT IS THE EXPECTATION THAT CONTRACTORS SHOULD HAVE RESTRICTED PROFITS” PREMKUMAR SESHADRI

Chairman, CII Committee on IT&ITeS

Over the years, opportunities in the public sector have been a mixed blessing for the Indian IT industry. It's reflected in the examples above of IT system integrators who have worked with the Indian government. The sheer scale and magnitude of such projects make it worthwhile for the industry. It's not all about money – the experience of handling large government contracts raises the profile of an IT company and helps it in winning contracts elsewhere. Yet, Indian IT companies are wary of taking a sizeable exposure to the public sector given the inordinate delays in project execution and payments.

Today, there are compelling reasons for Indian IT companies to raise their limited exposure to the government. “Companies are once again moving towards the public sector business in India because they have been hit by the slowdown in the US and Brexit in the UK. Besides, government is seen as the only sector that is recession-proof,” says Srinivasan R., an independent IT consultant. The Indian government has emerged as one of the biggest spenders on IT products and services in its efforts to reach out to the masses. IT spending of the Indian government sector will reach $8.5 billion in 2018, an 8.9 per cent rise over 2017, according to projections by Gartner.

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problem for the industry is that government officials often don’t take ownership of projects. “If there is any difference from what is written in the contract it will get rejected outright.

There is a mistrust that everything is twisted,” says a senior executive of an IT firm. Most bureaucrats are worried about their decisions coming under scrutiny later and it impedes speedy decision making. “They are either scared or they expect some grease money,” adds the executive.

E-governance professional Venkat Patnaik points out that in a federal system centre-state rivalry is an issue. He cites the example of a project in Orissa which got stuck because both the centre and state bureaucrats wanted to prevent each other from taking the credit.

A former director at Oracle, who has also worked at Infosys and IBM, says that his experience with the UAE and Singapore governments was strikingly different. Key executives in these countries take personal interest and ownership of projects. “During the lifecycle of delivery they proactively give directions, unlike in India,” he says. What makes government projects complex in India is not the technical aspects but the task of building consensus among multiple stakeholders. “It is very difficult to get them to agree.”

Indeed, the results are different when officers are empowered. Patnaik says that the state governments of Tamil Nadu, Karnataka, Jharkhand and Uttarakhand are more efficient as officers there take initiative to get work done. The Delhi Metro is an instance when the government has run projects like an entrepreneur. E. LIKELY RISE IN IT Sreedharan took full responsibility spending of the and finished the project on time.

Indian While IT companies are increasgovernment sector in 2018, ingly eyeing government projects, according to they are cautious and are carefully Gartner evaluating the terms and conditions, says Sangeeta Gupta, Senior Vice

8.9%

100 I BUSINESS TODAY I April 8 I 2018

RAISING THE BAR

procurement is the expectation that contractors should have restricted or no Companies that did game changing public profits. A business should be able to make sector IT projects in India money. Why be ashamed of it?” says Premkumar Seshadri, Chairman, CII National Committee on IT & ITeS. The tender requirements can be exclusionist too. The procurement policy has a pre-specified criteria of minimum turnover, revenue, employee, size, etc. that preT R O SP S vent small and mid-size companies from PA participating. In 2016, the government had directed all PSUs, central government PASSPORT UNIQUE IDENTIFICATION ministries and departments to procure at AUTOMATION PROJECT AUTHORITY OF INDIA least 20 per cent of products and services Tata Consultancy (AADHAAR) from MSMEs. However, the changes in Services HCL Infosystems the procurement process – while notified in the model Request For Proposal (RFP) policy – have yet to be implemented, says Gupta. Nasscom has already shared feedback on the model RFPs with the government and implementation of these issues will enable the industry to actively participate in the digitisation initiatives of the government, she says.

There are several restrictive practices CRIME AND CRIMINAL TRACKING NETWORK GOODS AND SERVICES and little transparency in the procurement SYSTEM (CCTNS) TAX NETWORK process, breeding inefficiency and corrupInfosys NIIT Technologies tion, says S. Suresh Kumar, Additional CEO, Government eMarketplace, Department of Commerce. “As a result, the government is not getting the right product at President, Nasscom. The government too is keen to allay the right price," he says. the apprehensions of the industry and streamline the The government is now working towards making the entire process. procurement process seamless. It has started the Government eMarketplace (GeM) initiative, an online portal offering a complete solution for procurement by government T giants including TCS, NIIT Tech, Wipro, Hewlett agencies. The exercise is now contactless (between buyer and Packard Enterprise (HPE), TechMahindra and IBM, have seller), cashless and paperless, adds Kumar. worked with the Indian government on game changing projects but they have also raised concerns about the procurement process with industry body Nasscom. Gupta ften, government officials don’t have the technical knowof Nasscom says that technology can’t be bought under conhow and understanding of the project scope, leading to ditions such as unified codes or giving projects to the lowest problems and delays in software acceptance. This sends cost bidder once technical specifications are met because this the project cost spiraling upwards, says Srinivasan R. process doesn’t give a significant weightage to innovation.

This hurdle can be avoided by giving a proper An issue is that government contracts are drafted by brief in the first phase itself and issuing timely directives to experts who are rarely accountable for the programme and facilitate project implementation. For instance, when TCS focus on plugging all kinds of shortcomings and financial was in the initial phase of the Ministry of Corporate Affairs leakages in the agreement. Due to this, many provisions are (MCA) automation, the Companies Act itself was undergoleft ambiguous, making it difficult for the service provider. ing changes and until coders had the new laws, digitising the The vendor mostly has to fall in line in the event of a dispute processes properly was a challenge. since the only other remedy is years of negotiations, arbitraSimilarly, the Aadhaar project was launched in 2011 as a tion and litigation. “One of the biggest problems of public voluntary identification initiative but its scope was expanded

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IT SPECIAL> GOVERNMENT BUSINESS

manifold and it soon became the basic source of identification for all Indians.

As the project scope changes, so does the project cost. But a vendor is hardly ever compensated for such changes, says a senior e-governance expert who has worked on several government IT projects. In fact, if something doesn’t go well, the contractor has to comply with the government directives to avoid protracted litigation and, importantly, prevent bank guarantees from getting encashed. Almost 100 per cent of government projects are backed with bank guarantees by the contractor.

Srinivasan suggests that like in the US, where every government department has an IT arm, the Indian Government should work to have its own internal Chief Information Officer (CIO) network. The benefits of this model are evident.

For example, to execute the Aadhaar project, the government got technology experts from the private sector, including some of the best of minds from Silicon Valley. As a result, irrespective of the issues that came up, it was able to implement the world’s largest biometric ID system successfully.

Prakash Kumar, CEO of Goods and Services Tax Network, says that for certain government projects, the National Informatics Centre hires people directly from the market to work on a project. “It is a better way to execute but then you need people in the government to manage the projects.

Government departments don’t have people with IT cadre.”

Sanjeev Gupta, President & CEO, National e-Governance Division, Ministry of Electronics & IT, has a different view.

“Some years ago projects were always outsourced but now it is not correct to say that,” he says. He has worked on over 125 e-governance services projects and most were done inhouse. He cites the instance of mKisan, one of government’s mobile governance projects with 2.5 crore people registered, which was done in 3.5 months with five programmers only.

“Private players were saying they would need 2.5 years and quoted 20 times more for the project than what I spent inhouse,” says Gupta.

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he problem of payments is linked to the issues of procurement and contracting, says Seshadri. Many of the IT service providers are publicly listed companies and they shy away from government projects because payments are often not adequate and timely, impacting overall profitability and stock market performance.

An executive with a system integrator (SI) that has worked on key government digital initiatives re-

80% RECEIVABLES of Indian IT businesses can be attributed to government contracts, according to estimates

“COMPANIES ARE AGAIN MOVING TOWARDS THE PUBLIC SECTOR BUSINESS IN INDIA. IT IS SEEN AS RECESSION PROOF” SRINIVASAN R.

IT CONSULTANT

vealed several instances when products have been delivered but installation sites were not ready leading to payments getting delayed without any fault of the contractor. “The needless delay led to the entire warranty period being lost which impacts the contract margins.” A senior industry executive, who didn’t want to be named, estimates that almost 80 per cent of the receivables of Indian IT businesses can be attributed to government contracts. The problem is all activities happen in serial order when they should happen in parallel in digitisation projects, adds Patnaik.

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nother system integrator (SI) revealed to Business Today that the government was supposed to test the product they delivered over two to three months but the entire exercise took two years which increased the project cost considerably. This is because once the government makes an order, all the resources have to be maintained for the entire period even in case of delays. As a solution, it has become a standard practice for SIs to include the risk contingency cost in the tenders because they do foresee delays. However, he says, it's not the right strategy and commitments should be met by both the parties.

There should be a level playing field when penalty has to be accrued for delays, he adds (companies generally don’t get any interest on payments whatever the delay).

The government seems to be listening to the voices from the industry. For GST, Prakash Kumar, CEO of GSTN, says that they acknowledged the industry feedback on payment related issues and did several industry roundtables with Nasscom to sort them out. One major concern, he says, was that payments were made at the end of government projects. It was then that milestones were identified within the GST project and payments staggered accordingly.

All said and done, for IT companies the public sector presents an opportunity like never before with the centre and state governments keen on easing the bottlenecks and ensuring speedy execution of projects. @sonalkhetarpal7

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IT SPECIAL> GRAPHITI

A BRIGHTER TOMORROW The year 2017 was challenging for the Indian IT industry in the backdrop of an uncertain policy environment in its biggest market, the United States.

However, 2018 is expected to be better as an improving global economy could give a significant boost to IT spending.

Research by: Niti Kiran Graphic By Ajay Thakuri

45

%

IT-BPM (BUSINESS PROCESS MANAGEMENT) SECTOR ACCOUNTS FOR THE LARGEST SHARE OF INDIAN SERVICES EXPORTS

7.7

%

APPROXIMATE CONTRIBUTION OF THE IT INDUSTRY TO THE COUNTRY’S GDP

3.9 MILLION ESTIMATED NUMBER OF PEOPLE EMPLOYED IN THE IT INDUSTRY, AN ADDITION OF 1,70,000 OVER FY16

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Digital IT exports have been rising at a fast pace

11

US has traditionally been the biggest buyer of Indian IT exports

2%

16

FY2016

Rest of the world

62 %

FY2017

US

25

FIGURES IN $ BILLION

8%

17 % UK

FY2018 Estimated

Asia

11 % Continental Europe FIGURES FOR 2016/17

$ 29.8

$310

BILLION

BILLION

COMPUTER SOFTWARE & HARDWARE SECTOR’S CUMULATIVE FDI INFLOWS BETWEEN APRIL 2000 & DECEMBER 2017

ESTIMATED GLOBAL DIGITAL SPEND IN 2020, FROM $180 BILLION IN 2017

6

%

DIGITAL TRANSACTIONS AS A PERCENTAGE OF GDP

$14-16 BILLION EXPECTED REVENUE ADDITION BY THE INDUSTRY IN 2018/19

11.14

%

CAGR OF THE IT-BPM SECTOR BETWEEN 2009/10 AND 2016/17 – FROM $74 BILLION TO $155 BILLION

50

%

OF INDIAN PRODUCT COMPANIES HAVE SaaS AS THE PREFERRED MODEL Source: Nasscom & IBEF

SOURCE: NASSCOM; IBEF

THE HUB MANAGEMENT

BETTER REWARDS, FEWER RISKS FORGET JUGAAD OR RISK-AVERSION; THE WAVE OF DISCOVERY-DRIVEN DISRUPTION WILL HELP INDIA INC. STAY RELEVANT IN UNCERTAIN TIMES.

By RITA MCGRATH AND M. MUNEER Illustration by RAJ VERMA

T MAY SOUND oxymoronic but risk-mitigated innovation exists, and it has nothing to do with jugaad, the frugal innovation (in)famously popular in India.

The framework called discovery-driven disruption, or DDD, is all about driving growth in uncertain times. In this disruptive and unpredictable era, coping with uncertainty has become every business leader’s imperative. When revenues plunge and performance drops precipitously, it is easy to panic, freeze in the headlights or otherwise guarantee that the effects of the downturn will be far more serious and longer lasting than they need to be.

At its core, DDD is a planning and execution methodology that helps you create a portfolio of projects that protect and enhance current profit streams while securing footholds to future growth, all at low cost and little risk. The inherent idea is that you need a different mindset today than the tranquil yesteryears.

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Master Your Portfolio In good times, companies can afford to get sloppy about new projects and the perennially moving deadlines. In more uncertain times, it will backfire but giving up on long-term projects or those promising important future payoffs is not the solution. Instead, get control of the portfolio of activities in the company, making sure that three kinds of strategic initiatives are managed well.

These three kinds are drawn from the intersection of market uncertainty on the horizontal axis and technology or capability uncertainty on the vertical axis (see Growth Portfolio). The low-low uncertainty intersection at the bottom of the matrix represents the first kind of projects that are driving current core business. The medium-medium intersection in the middle represents the second kind of projects that are geared to develop new growth platforms, which have the potential to become future core business. The high-high intersection forms the third kind that has the potential to become future platforms. While every company’s portfolio will be different, depending on the strategy, what matters is whether you are giving enough emphasis to all three types.

Discovery-driven planning is the centrepiece of a mindset that will allow you to contain risks while pursuing opportunities. Unlike the taken-for-granted assumption in conventional management practice that good managers can predict outcomes, the discoverydriven approach begins with the recognition that with uncertain projects, you really cannot know the result a priori. Instead, the goal is to learn as much as possible for as little cost as possible, always being prepared to redirect activities as new information unfolds. With

MANAGEMENT

of initiatives will contain a mix of short-term projects designed to enhance positive cash flows and low cash drain, and high-potential projects poised for rapid growth when the upturn occurs.

GROWTH PORTFOLIO Create a portfolio of projects that protect and enhance current profit streams while securing footholds to future growth, all at low cost and little risk.

Positioning Options

Medium

Platform Launches Scouting Options Enhancement Launches

Low

High

Medium

High

Market and Organisational Uncertainty

discovery-driven projects, you invest smaller resources that you can afford to lose to generate the knowledge that is needed to commit more resources. DDD begins by specifying a performance outcome that will make your growth efforts worthwhile, whether at a corporate level or a strategic project level. You define success up front, as well as the guidelines for what next after these goals. Thereafter, the rest of the discovery-driven tools are used to approach closer and closer to that goal, containing risk and downside exposure until you have reduced uncertainty to the point that you can confidently invest in to capture targeted growth, or shut down early and inexpensively if things do not work out.

As your plan unfolds, you want to reduce the assumptionto-knowledge ratio. When it is high, there is high uncertainty, and one should prioritise learning, inexpensive and fast, at the lowest possible cost. As the ratio shrinks, focus and resource commitments to increasingly hard outcomes replace learning as the objective.

Five Steps to Discovery-driven Disruption 1. Frame the challenge. One should frame a growth challenge at the CEO level and define the growth frame for the entire enterprise.

The outcome is a set of guidelines for types of initiatives to be pursued. As a result, everybody will be clear about what kinds of opportunities are legit and aligned to strategy.

2. Create an opportunity portfolio. Next, analyse how resources are currently being allocated to projects and then consider how these allocations will need to change, given the growth frame.

Take a portfolio-view of different types of growth opportunities.

How much of profit and cash flow growth should come from the core business? How much to expand into future core business?

How much will go into low-cost and high-potential opportunities for future platforms? In today’s market, the typical portfolio

Low

Technical and Execution Uncertainty

Stepping Stones

3. Manage strategic projects. Now start with identifying a unit of business that will create the architecture of your business model. A unit of business is quite literally the unit of what you sell – what the customer pays for. You may find, as you progress on the discovery-driven plan, that the unit of business you started off with does not deliver revenues and profits in the way you want, and therefore, needs correction. You may also find that achieving your goals the way you originally thought of is unrealistic. A rethink will be necessary now to define the metrics of success in the growth project, and to compare your metrics with those of potential competitors. This reality check is necessary for business planners, who make assumptions that may seem sensible in the rarefied atmosphere of a planning office but fail to conduct a competitive reality check.

4. Connect plans to financials. Keep the plan coherent and connected to reality. Construct a reverse income statement and a reverse balance sheet. Now tie together the decisions made in the earlier steps and simulate future business, allowing you to engage in what-if speculations. Throughout these phases, the investment in the future business remains extremely small.

5. Convert assumptions to knowledge. Identification, documentation and testing of assumptions must be done at this stage. You should develop an operational specification and an assumption checklist plus the financial logic that underlies the business model. These operational activities and assumptions are intimately linked and suggest risk-minimising steps to test assumptions. Best practices should be deployed in redirecting projects as many companies vaingloriously try to execute increasingly unrealistic original plans. What you accomplish in terms of performance will remain the same, but redirection changes how you accomplish that performance.

One should also develop a disengagement plan to take on the challenge of shutting down unsuccessful projects. You need to make sure that killing an initiative is seen as a constructive process that allows the company to benefit as much as possible from the investments it has made. Also, manage the disappointed stakeholders and the politics of the termination decision.

Unlike many management frameworks that develop a theory and try to fit in examples, DDD is a proven concept that companies, big and small, have used over the years to stay relevant. It will also enable India Inc. to shed risk-aversion and embrace innovation.

Rita McGrath is an authority on innovation and professor at Columbia Business School; M. Muneer is the Co-founder and Chief Evangelist at Medici Institute

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PERSONAL TECH: A SLIMMER ANDROID OS FOR ENTRY-LEVEL SMARTPHONES

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LIFE HACKS: SAY GOODBYE TO MULTITASKING

CYBERSECURITY

MALICIOUS INTENT Criminals and terrorists are as excited as technologists about AI. ILLUSTRATION BY NILANJAN DAS

P.130

LEADERSPEAK: SHINJIRO SATO

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ech companies are high on Artificial Intelligence at the moment. The applications being researched and developed are so potentially beneficial and transformative that it is easy to sweep the downsides under the carpet. Although possible job losses from automation are discussed on an everyday basis, there are more catastrophic threats that are yet to get the spotlight. For example, AI can be used by criminals, terrorists, rogue states or anyone with malicious intent to wreak havoc at an unimaginable scale.

What the equation will be between attackers and defenders is not easy to predict, but a group of 26 security experts from a number of institutions and universities such as the Future of Humanity Institute, University of Oxford and Centre for the Study of Existential Risk studied the landscape of threats from the potential malicious use of AI and came up with a 100-page report titled ‘The Malicious Use of Artificial Intelligence, Forecasting, Prevention and Mitigation’. This can be easily found with a search and is recommended for any companies developing AI applications and solutions.

Experts see threats in three domains: first is the digital domain in which THE AI is expected to help ACCELERATED USE OF AI WILL automate cyberattacks EXPAND EXISTING resulting in unprecedented THREATS, BRING scale and efficiency. New A TWIST TO types of attacks will also be THE TYPICAL brought about, exploiting CHARACTER human vulnerabilities and OF ONGOING interfaces such as voice.

THREATS AND INTRODUCE Software vulnerabilities will ENTIRELY NOVEL also be leveraged for attacks ONES and entire banks of data poisoned.

Cyber-physical attacks will also threaten physical security. Using AI, it will be possible to launch attacks with swarms of micro-drones, for example, and to bring autonomous systems to their knees – such as getting self-driven vehicles to crash.

The third domain is political and is an expansion of a threat that already exists. It includes automating mass persuasion – what was thought to have happened with the influence of Russian activities on the US elections – and deception with fake news and fake videos. Social manipulation, which is already quite evident, privacy invasion, surveillance and big data used to not just understand but influence behaviour will also become rampant. The accelerated use of AI will expand existing threats, bring a twist to the typical character of ongoing threats and introduce entirely novel ones.

The group of experts that created this paper strongly suggests that malicious use cases of AI be considered when developing applications and policymakers work closely with technical researchers to investigate, mitigate or prevent potential catastrophes.

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PREDICTIVE AI

MINI LABS FOR YEARS, there has been a race to miniaturise medical equipment so they can easily be carted off to where they are needed most. In India, that would be far-flung locations where resources are meagre. Now, Siemens Healthineers India has tied up with a start-up, Jana Care, to release what is being touted as the first ever smartphone-based diagnostic system.

Aina, as the system is called, is a portable lab of sorts that can run blood tests right then and there.

It’s a dongle-like module that attaches to a smartphone just like one. It also takes in a strip, the type used in glucometers, and all it needs is a drop of blood. A lancet and needle – again, the type diabetics will be familiar with – is used to get that drop. Once inputted, the system is able to do an analysis and come up with HbA1c, lipid profile and haemoglobin level. This set-up shows almost the same accuracy as regular lab tests, according to Siemens. The whole idea of this miniaturisation is to make it available at point-of-care locations in the absence of full-fledged labs.

THE BREAKOUT ZONE PERSONAL TECH

SUPER LIGHT GOOGLE’S OPTIMISED VERSION OF ANDROID OREO, THE GO EDITION, GIVES A NEW LEASE OF LIFE TO ENTRY-LEVEL ANDROID SMARTPHONES.

By NIDHI SINGAL Illustration by Raj Verma

112 I BUSINESS TODAY I April 8 I 2018

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ne out of three feature phone will come with built-in mobile security and the Find users in India is expected to My Device feature. Besides, users will be able to upgrade to a data-enabled phone download almost any app from the Play Store – the by the next year, according to apps designed for the Go edition will be highlighted. a study by International Data “Currently, roughly 55 per cent of smartphone Corporation. Sensing a huge sales still come from the sub-$100 category. If this opportunity, phone companies have been on a lowreally is an optimised OS, it will help devices that budget smartphone manufacturing spree – ones that don’t have the high processing power, high battery come with lower specifications but support mobile and high memory to process applications and Internet. However, bundling a fully-loaded Android deliver a great experience,” says Anshul Gupta, operating system in these entry-level smartphones Research Director, Gartner. was a futile move. Devices slowing down and Several handsets powered by the Android Oreo the perennial shortage of storage left consumers Go edition will soon hit the market. For instance, discontented. When Google’s Android Oreo Go Lava’s Z50 will have a 4.5-inch, 2.5D Curved edition – a trimmed down/ optimised version of Corning Gorilla glass display, powered by 1.1 GHz Android’s latest version – tailored for smartphones Quad-core Mediatek Processor, paired with 1 GB of with 1 GB or less of RAM was launched, entry-level RAM and 8 GB of internal storage and supports 10 smartphones found their match.

Indian languages including Hindi.

Explaining what the Go There is a 5 MP rear and front Edition is, Sagar Kamdar, camera, too, with flash. Although Director of Product, Android Lava has not yet revealed says, “Android Oreo Go edition the price of Z50, it will be bundled WITH APP SIZE is specifically optimised to bring with a cashback offer of `2,000 HALVED AND FEWthe magic of Google and Android from Airtel. to smartphones with limited With an eye on first-time ER PRE-INSTALLED memory and processing power.” It smartphone users in India, Airtel APPS, THE ANfocuses on offering more storage and Google have partnered to DROID OREO GO and better performance without bring a range of Android Go EDITION OFFERS compromising on security. Google based 4G smartphones to the has designed a set of apps that Indian market under its ‘Mera DOUBLE THE INconsumes less memory and Pehla Smartphone’ initiative.

TERNAL STORAGE storage space, and offers the same Micromax’s Bharat Go, expected experience as Android Oreo. to be priced around `5,000 with With the app size halved and basic features such as a 4.5fewer pre-installed apps, the inch display with a resolution of user would get almost double the internal storage 854x480p, 1 GB of RAM and 8 GB of onboard (available for use) as compared to smartphones storage, is a part of this initiative. with the same internal storage running on Leading chipset makers Qualcomm and Android Nougat.

Mediatek, too, are supporting this platform. The Lava is one of the first few handset latter is working closely with Reliance Jio for an manufacturers to have adopted the Android Android Oreo Go Edition smartphone. Nokia, too, Oreo Go Edition. And this is what it discovered: has announced the launch of Nokia 1 – a compact in a smartphone running Android OS, of the 8 smartphone with a 4.5-inch display, 1.1 GHz GB internal storage, only close to 3 GB was user Mediatek processor, 1 GB of RAM and 8 GB of accessible. But with the optimised Android Oreo internal storage.

Go edition, users will get close to 5.5 GB (out of the The new platform is expected to breathe 8 GB internal storage) for downloading apps and life into the jaded low-end smartphone category. storing content. This also helps in increasing the “People were not moving from feature to RAM performance by upto 50 per cent, enabling smartphones, opting to buy another feature applications to open quickly. phone instead. If there is a quality smartphone, The Go edition comes with apps such as Google not only in terms of hardware but also in terms Go for information, YouTube Go for watching videos of the experience, feature phone users will feel with limited connectivity, the Google Assistant (voice encouraged to upgrade to smartphones,” adds assistant) and the Files Go app to get rid of unwanted Gupta of Gartner. content. The optimised version will offer the same @nidhisingal security features as on Android Oreo; the apps come

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THE BREAKOUT ZONE

REAR CAMERA captures good bokeh and low-light images

6.2-INCH SUPER AMOLED screen is protected with Corning Gorilla Glass 5

D

FINGERPRINT SCANNER is easy to access and unlocks phone instantly

PRICE

`64,990

SAMSUNG GALAXY S9+

PHOTOGRAPHER’S

DELIGHT

BY NIDHI SINGAL

114 I BUSINESS TODAY I April 8 I 2018

ON’T JUDGE a book by its cover.

This adage holds true when looking at the new Samsung Galaxy S9+ because of how similar it looks to the S8+ launched last year. Switch on the Galaxy S9+ to be greeted by a 6.2-inch super bright infinity display. The fingerprint scanner has been repositioned below the camera module making it intuitive to use. In addition to the face and iris unlocking feature, there is the Intelligent Scan, a combination of the two scanners, that can unlock the phone in low or harsh light. However, it failed to unlock the phone when I was wearing sunglasses.

The S9+ is the first S-series smartphone to have a dual camera for capturing DSLR-like depth images.

Accessible through the ‘Live Focus’ mode, the depth effect can be adjusted while capturing an image or later by choosing a picture from the gallery. But it is the addition of dual aperture – f/1.5 and f/2.4 – in the rear camera (a first in smartphones) that helps S9+ capture stunning low-light images. It works just like the human iris. In the dark, the lens automatically opens up to the widest aperture available to let in more light.

The S9+ can also capture super slowmotion videos at 960 frames per second.

Another highlight of the S9+ is Bixby Vision with modes for live translation, image search, AR-based location search, QR Code scanner and more. Using live translation, I could instantly translate Spanish to English; the image search for chapatti using the Bixby food mode threw up suggestions like phulka roti and jolada roti, along with nutritional information, recipes, videos and an option to log the entry in Samsung Health app. But for all this to work, Bixby Vision needs internet connectivity.

Samsung has introduced an additional security feature. To access the ‘secure folder’, one can add a dedicated fingerprint scan, different from what is used to unlock the phone.

The Galaxy S9+ is a combination of functionality with great performance.

And for `64,990, it is the best flagship smartphone in the market.

DYSON PURE COOL LINK TOWER AIR PURIFIER

Meet the Expert PRICE

` 39,990

IT LOOKS GOOD; and cleans indoor air with finesse. Dyson’s Pure Cool Link Tower has an unconventional design – an oval bladeless fan at the top with a circular bottom housing the filter.

Installation is simple – place the loop on top of the circular base and push it gently. The click sound confirms that the two are locked and the air purifier is ready to use. Use the compact remote to power it on/of, control fan speed, swing, turn on night mode, set timer and more; it can also be controlled using the Dyson app.

None of the air purifiers we have

tested in the past has managed to bring down the PM 2.5 level down so efficiently. In less than an hour, the level of PM 2.5 in my room was zero.

The circular mesh at the bottom sucks in impurities in the air from all directions and purifies the air using the HEPA filter, before circulating it through the loop across the room.

Although a silent operator, it gets a little noisy when pushing air at higher levels (7 and above).

Priced at `39,990, the Dyson Pure Link Tower is clearly one of the best air purifiers in the market.

THE BUTTON powers the watch, loads the menu and activates the voice assistant

MICHAEL KORS ACCESS SOFIE SMARTWATCH

BEAUTY WITH BRAIN PRICE

`25,995 THE SOFIE SMARTWATCH, from fashion brand Michael Kors stands out with its distinct glamorous look.

The elegant looking watch has a 42-mm stainless steel casing, a 1.19-inch bright display, and is water and dust resistant. There is a button on the right, which, other than powering the watch, loads the

watch menu on a single press and activates voice assistant on a long press.

Sofie is compatible with iPhones and Android smartphones. I had to instal the Android Wear app to set up the watch.

There are 30 MK watch faces that can be accessed from the app, and more can be downloaded from

the Play Store. Sofie can be used to answer/reject or even dial a call, show feeds, set an alarm, send messages, track fitness routine, use Google translator and more. Apps can be installed on the watch directly using the Google Play Store app. Sofie packs in a 300 mAh battery that lasts close to 22 hours.

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THE SMARTWATCH CAN BE USED TO ANSWER, REJECT AND DIAL CALLS

THE BREAKOUT ZONE

LIFE HACKS

MULTITASKING

MANIA

IT’S CLEVER, SOMETIMES, BUT ULTIMATELY STRESSFUL.

GADGETS, MACHINES and their software have pushed us into the habit of doing things simultaneously, rather than tackle one thing at a time. It’s become so much of a norm that employees are penalised for not being able to handle several things and appraisals inevitably list ‘ability to multitask effectively’ as a skill that is valuable and gets you climbing that career ladder faster.

Little phone screens can now be split into two to allow us to do two things in separate windows. Samsung’s Note 8 smartphone actually lets you pair apps and launch them together so that you don’t miss out on a moment of multitasking. So manic is this phenomenon that people find

KNOW YOUR WINE APPS TO UP YOUR WINE IQ

themselves feeling worrying that the day will spin out of control if many activities are not run together. And this builds stress and fatigue. A multitasking culture also robs us of any possibility of being ‘in the moment’ which helps focus and relax.

That multitasking is stressful and harmful has been detailed in many studies over the decades. Yet, workplaces choose to remain oblivious.

However, anyone wanting to cut their own stress levels should work on a strategy to get out of the manic multi-

DISENTANGLE TASKS AND USE A TIMER TO FINISH EACH TASK PROPERLY

tasking habit. All you need to do is disentangle tasks from one another and use a timer to properly finish one, before moving on to the other. The timer part is easier than ever because all you have to do is ask your nearest virtual assistant to set a timer for a certain number of minutes or hours.

FOR FINE DINERS and world travellers, it’s rather important to be in the know about wine. One of the easiest ways to up your wine IQ is to use one of the many excellent apps. Try Vivino, available on both Android and iOS, register through one of the multiple options presented, and pick up a bottle of wine.

First off, you can browse wines by categories – red, white, sparkling, etc. Tap on a category and you can look through reviews and ratings of wines with their descriptions. You can also buy them from

As you try to complete your task within the self-allotted time, you will experience interruptions. You could keep your phone mute button handy and turn off the sound if need be.

You’ll be able to see if there’s an important call; you can take that and reset your timer. Ask anyone who walks in to give you a certain amount of time and then come in. There’s no way to do it other than to do it.

Once you find you can actually accomplish things much better, the feeling of achievement and satisfaction will spur you on to the next task.

Using a timer and putting a definite beginning and end to each task will also let you build breaks, which will ultimately be beneficial.

the app. Then, if you’re out for dinner, you can use the app to see food pairings; so you know what type of wine goes with your choice of meat.

The app offers a lot of other information such as the best years, the ingredients used and vintages available. An action button will let you save the wines you want and add your own comments or reviews.

But, perhaps, the most useful of all is the wine scanner that lets you take a photograph of a bottle of wine and find out all about it.

THE BREAKOUT ZONE

HOW STEM CELL TRANSPLANT

EXECUTIVE HEALTH

GO EASY ON YOUR EYES

HELPS

STARING AT LIGHTED SCREENS FOR LONG OR EXPOSURE TO AIR POLLUTION OR TOXIC SUBSTANCES MAY CAUSE A RANGE OF EYE AILMENTS.

By E. Kumar Sharma

ILLUSTRATION BY RAJ VERMA

AN HR HEAD of a leading company, which is big in the digital space, recently told Business Today how much the eye health of its employees matters to the company.

In fact, the company has programmed its systems so that pop-ups appear on PC screens at regular intervals, alerting the staff about the 20-20-20 rule – every 20 minutes, take a 20-second break and look at things 20 ft away. It is a no-brainer that many of us are victims of what doctors call ‘computer vision syndrome’ that causes eye strain, blurred vision and the common-

est of all, dry eyes. The reason: We tend to watch lighted screens much of the time without blinking as much as we should.

Dry eye means the tear film on the surface of the eye is not able to keep it moistened and lubricated. A doctor will tell you it is a complex condition involving several components and a wide range of causal factors. But the commonest symptoms are sensation of dryness, heavy or fatigued eyes, burning sensation and blurry vision.

Riding two-wheelers without protective eye gear may also result in

itchy eyes. It can be some kind of eye allergy, triggered by air pollution.

Those working in chemical factories need to be extra careful about the dangers of toxic exposure that can lead to burns.

Also, scientists, microbiologists and pathologists, who use microscopes for long hours, end up straining their eyes.

Most eye ailments can be dealt with simple solutions such as the 20-2020 rule, eye exercises and regular eyewash. But such symptoms may indicate more serious issues and one must visit an expert if the problems persist.

April 8 I 2018 I BUSINESS TODAY I 119

EYE CARE has seen new breakthroughs, many of them achieved indigenously.

For instance, Hyderabadheadquartered L.V. Prasad Eye Institute (LVPEI) uses adult stem cells, instead of the more controversial embryonic stem cells, to help patients recover from damaged cells.

Dr Sayan Basu, a consultant cornea surgeon and scientist at LVPEI, explains that simple limbal epithelial transplantation, or SLET, is the procedure to replace damaged stem cells with healthy ones, taken from the patient.

Technically, limbal stem cell deficiency can be treated “by transplanting healthy limbal tissue to the surface of the diseased eye for in-vivo (at the site where it is required or on the eye) expansion of epithelial cells”, he says. It means instead of using the lab to grow the stem cells on a tissue, doctors are using the damaged eye itself as the surface to grow the stem cells taken from the patient’s healthy eye. Normally, when the cornea gets damaged, stem cells cannot regenerate, leading to eventual blindness.

The cost of this treatment is `16,000-86,000. Dr Basu says laser treatments are increasingly used for eye care, and robotic surgery may soon take cataract treatment to a new level.

THE BREAKOUT ZONE LUXURY

LATEST BUZZ

WHAT MADE NEWS IN THE WORLD OF LUXURY COURTESY: ROBB REPORT INDIA

Watches

TIME FLIES WATCH BRAND Breitling has always been associated with the world of aviation. The new pilot’s watch collection, Navitimer 8, keeps that tradition alive. The number in the name traces back to the Huit Aviation Department, which was set up in 1938 to produce cockpit instruments and pilot’s watches. The new watch combines the brand’s passion for aviation with its expertise in producing the finest chronometers.

With impeccable design credentials and engineering features to match, each of the five models in this collection showcases the brand’s love for detail.

Experience

NIGHT TO REMEMBER IT WAS A rare men-only event for which whisky brand Royal Salute joined hands with designer Rohit Bal to curate what came to be known as Extraordinaire, blending Indian craftsmanship with global sensibility.

The curated night in New Delhi saw collaborators celebrate their vision of royalty.

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Adil Ahmad, former creative director of Good Earth, designed two detailed, jewelled chalices perfected for Royal Salute Extraordinaire, light designers Prateek Jain and Gautam Seth created an installation modeled on a real chess board and Swiss watch brand Bovet Fleurier customised a dazzling timepiece called the 19Thirty Fleurier, that has a seven-day power reserve indicator, specially for Royal Salute.

Food

Fine Dining

Fashion

Runway Hit THE BIG trend finding its feet this season is cool, designer sneakers. Louis Vuitton’s Nicolas Ghesquière decided to mix and match jackets and gauzy, fairytale-like dresses with vintage-tofuturistic sneakers for the brand’s SS18 show. With brocade and pops of colour to other interesting fabrics that redefine athleisure, these snazzy shoes rocked the runway and are being snapped up by those who love experimenting with their looks.

Campaign

STANDING OUT WHAT YOU wear says a lot about what you believe in. Keeping that in mind, global lifestyle brand Carrera launched its 2018 campaign titled #DriveYourStory with its brand ambassador, Ranveer Singh, who feels that stories of success or failure can really inspire people. The pictures that are part of the campaign are raw and rugged, rather than glossy and perfect, and highlight the brand’s philosophy. The eyewear showcases the Italian craftsmanship that Carrera is best known for and is both urban and original.

LE CIRQUE at The Leela Palace, Delhi, has been charting a new food direction over the past year by showcasing some of the world’s top chefs. A few months ago, it had Gary Mehigan of Masterchef Australia fame conceptualising and plating a brilliant meal in collaboration with Le Cirque’s chef Adrian Mellor, and recently Michelin-starred chef Alain Passard gave Delhi diners an exquisite vegetarian fare to sample. Passard started his prep for the dinner much earlier.

He visited an organic farm in Rajasthan in November where he was suitably impressed by the quality of the produce and even sowed seeds for vegetables that would be ready for harvest in mid-February to put on his prized menu. Le Cirque will continue to host award winning chefs in its kitchen.

THE BREAKOUT ZONE

EX-LIBRIS

NEW ARRIVALS BOOKS TO LOOK OUT FOR THIS SPRING.

Edge of Chaos: Why Democracy is Failing to Deliver Economic Growth and How to Fix It

By Dambisa Moyo

Conspiracy: Peter Thiel, Hulk Hogan, Gawker, and the Anatomy of Intrigue

By Ryan Holiday

Hachette Price: `599

Hachette

Pages: 320

Price: `499 Pages: 336

A stark reminder of the new political and economic challenges facing the world, and the specific, radical solutions needed to resolve these issues and reignite global growth. As chaos erupts across the world with citizens demanding a greater say in their political and economic future, better education, healthcare and living standards, the author underlines the need for a fundamental retooling of democratic capitalism.

124 I BUSINESS TODAY I April 8 I 2018

Gawker Media’s fall, after it was sued for publishing Hulk Hogan’s sex tape, and the subsequent revelation that Peter Thiel, PayPal’s founder and billionaire investor, who was dismayed at Gawker’s unscrupulous reporting methods, had masterminded the whole thing, stunned the world. The book analyses the why and how of the case, and its repercussion on free speech and privacy.

The Space Barons: Jeff Bezos, Elon Musk and the Quest to Colonize the Cosmos

By Christian Davenport Hachette Price: `1299

I Did It My Way

By Bikram Dasgupta Rupa Publications Price: `595

Pages: 320

This is the story of a group of billionaire entrepreneurs spearheading the new space movement aiming to send humans further than NASA has gone.

This dramatic tale of risk and adventure brings together years of reporting and interviews with four entrepreneurs – Elon Musk, Jeff Bezos, Richard Branson and Paul Allen – aiming for the moon and beyond.

Unscaled: How A.I. and a New Generation of Upstarts are Creating the Economy of the Future

By Hemant Taneja Hachette Price: `599

Coffee Can Investing

By Saurabh Mukherjea, Rakshit Ranjan and Pranab Uniyal Penguin Random House Price: `499

Unmet Needs of Entrepreneurship: Why Entrepreneurs Do What They Do

By S. Parthasarathy Rupa Publications Price: `295

THE BREAKOUT ZONE

LLOYD BT GOLF

IN THE CITY OF JOY!

BY VIPUL HOON & DEBAKINANDAN NAYAK

Winning team: Ugyen Wangchuk, Umang Puri, Amitava Sinha and Hansdip Bindra with Shailendra Kumar, Lloyd, and Y.K. Gupta, Havells

P.S. Rawat, member of Runner up Team

126 I BUSINESS TODAY I April 8 I 2018

Individual winner in the handicap category (0-14) Deep Banerjee with Anshuman Roy from Volkswagen

O

Runner-up team: Capt.

Ravi Dey, Rajesh Goenka and Rupinder Singh with Deepakananda Bharali, IOCL

Hole-in-one prize: New Volkswagen Passat

n February 16, a pleasant Friday afternoon, top corporate honchos from the city of joy teed off at the Tollygunge Club for the LLOYD Business Today Pro-Am of Champions 2018.

It was the second last leg before the tournament moves to the final leg in Delhi, followed by the grand final.

The winning team comprising Hansdip Bindra (Processware ERP), Ugyen Wangchuk (Royal Bhutan Consulate), Umang Puri (K Puri News Distributors) and Amitava Sinha (SREI), with a combined score of 99 points, were crowned the Kolkata Kosmics. They will compete in the final in Delhi against the winners from other nine cities.

The team comprising P.S. Rawat, Capt. Ravi Dey, Rupinder Singh and Rajesh Goenka finished runners-up with 998 points.

In the Individual categories, Amitava Sinha was the winner with 34 points in the 15-24 handicap category, and Deep Banerjee won with 36 points in the 0- 14 handicap category.

LLOYD is the Co-title sponsor, Indian Oil - the Fuelled By sponsor, Volkswagen– the Automobile Partner, Hidesign - the Bespoke Gift Partner, Nautica – Style Partner, Ballantine’s Partner and Creatigies is the Marketing Partner of the event.

A.N. Singh Goodricke Group Ltd

April 8 I 2018 I BUSINESS TODAY I 127

PHOTOGRAPHS BY RACHIT GOSWAMI & MILIND SHELTE

THE BREAKOUT ZONE

BANKING ON THE BEST DESPITE TROUBLES, THE PRIVATE SECTOR AND FOREIGN BANKS STOLE THE SHOW. TEAM BT

O

VER THE PAST FEW MONTHS, the Indian banking industry has been in the spotlight for all the wrong reasons. Despite the problems over fraud, rising non-performing assets (NPAs) and lower credit offtake, the banking sector is on the cusp of change as digitisation becomes the norm.

The 22nd edition of the Business Today-KPMG Best Banks study had two categories – Quantitative and the Jury Awards. This year, in keeping with the changing face of banking, we introduced a new category for fintech companies. There are four categories of banks – large, medium, small and foreign – that we consider for the quantitative awards. In each of these, there are Best Banks and Fastest Growing Banks.

Leo Puri, MD, UTI Asset Management Company; Shailesh Haribhakti, Eminent Chartered Accountant and Independent Director on the board of several companies; Neeraj Swaroop, Former CEO (ASEAN), Standard Chartered Plc.; Venkatachalam Ramaswamy, Regional Managing Director,

128 I BUSINESS TODAY I April 8 I 2018

Winners of the Business Today-KPMG Best Banks Awards with S.S. Mundra, former Deputy Governor, Reserve Bank of India, and Prosenjit Datta, Editor, Business Today

India & South Asia, FIS, and T.R. Ramachandran, mitted in future.” In his welcome speech, Prosenjit Country Manager, India and South Asia, Visa, Datta, Editor, Business Today, drew attention were part of the jury. to the number of scams that rocked the Indian HDFC Bank, for the fourth consecutive banking system in the last few months, at a year, has been adjudged the Best Bank. The time when banks are already grappling with largest private sector bank, in terms of assets, rising NPAs. bagged four awards – Bank of the Year, India’s India’s largest bank, State Bank of India, Best Large Bank, India’s Fastest Growing won the Best Bank award in the Financial Large Bank and Best Bank for Innovation. To Inclusion segment, and ICICI Bank won the acknowledge the changing face of banking, BusiBest Fintech Engagement award under the ness Today awarded three fintech companies jury category. What is clearly evident is that Harshvardhan Bisht for the first time. The Best Fintech award for irrespective of the troubles facing the banking Partner, KPMG in India payment went to PayTM; for lending to Banksector, the best banks in the country continue Bazaar and for value-added services to Perfios Software. to perform exceptionally. Kotak Mahindra Bank was awarded Addressing the audience, S.S. Mundra, former Deputy Govthe Best Mid-sized Bank and RBL Bank the Best Small Bank. ernor of the Reserve Bank of India, who was the special guest Bank of America won the Best Foreign Bank as well as the Fastat the award ceremony, said, “It’s the most challenging time for est Growing Foreign Bank awards for 2017. the banking sector. However, one needs to keep their head calm, KPMG was the knowledge partner and the event was think about mistakes and see how these mistakes aren’t compowered by Teradata.

April 8 I 2018 I BUSINESS TODAY I 129

LEADERSPEAK SHINJIRO SATO PRESIDENT AND CEO, TERUMO CORPORATION, JAPAN

PHOTOGRAPH BY SHEKHAR GHOSH

Q. The biggest challenge you faced in your career A. It is the increasing globalisation of our businesses. Today, 67 per cent of our $4 billion sales revenue is generated outside Japan. So, our company is more dependent on overseas markets. Also, we have more than 22,000 employees globally and only 5,000 in Japan. It means we have to get together more cohesively to build our businesses for the future.

Q. One management lesson for young people A. I always tell our young associates, experience is very important. When you experience something, you have to learn something. Regardless of the outcome and the challenges, it always gives us an opportunity to learn something.

Q. Your best teacher in business A. We call it gemba. In Japanese, gemba means an actual site. In business, the term refers to those who offer hands-on services. Our best teachers are the people who carry out onsite operations and have onsite interactions with customers. We look at their thoughts and ideas to meet our customer demands.

Q. Two essential qualities a leader must have A. Integrity is crucial, and I consider it to be the most important quality that we need to retain in our personal and corporate relationships. The other quality is persistence – persistent efforts. You should never give up.

“INTEGRITY IS CRUCIAL, AND IT IS THE MOST IMPORTANT QUALITY TO RETAIN IN PERSONAL AND CORPORATE RELATIONSHIPS ” 130

Vol. 27, No. 7, for the fortnight March 26—April 8, 2018. Released on March 26, 2018. Total number of pages 132 (including cover)