Vol.1 Issue 6 July 2011
The gold rush RNI No. KERENG02297
Editor K J Jacob Copy Editor Anna Mathews Principal Correspondents Aby Abraham G K A P Jayadevan Senior Correspondent Kuruvilla Chacko Sub-Editor Asha Jacob Design and Layout Renu Arun Website Suhas K Ranju Thomas Sales and Marketing Jose Thomas Printed, published and owned by K J Jacob and published from Independent Media, XI/173 B, Mulakkampallil Buildings, Kunnumpuram-Civil Station Road,Thrikkakkara, Kochi,Kerala-682 021 Phone: 0484-2421916 and Printed at Sterling Print House Pvt.Ltd. Door No: 49/1849, Ponekkara-Cheranelloor Road, Aims Ponekkara P.O., Kochi - 682 041 Phone : +91 484 2802522, 2800406 *Editor: K J Jacob For subscription, Advertisement : sales@economic-update.in Tel: +91 99475 39023 We value your feedback. Please write to us at: letters@economic-update.in Read us at www.economic-update.in Cover design : Anoop Radhakrishnan
*Editor responsible for selection of news under the PRB Act.
W
hen gold prices beat platinum in the recent flareup, someone suggested that we change the way anniversaries are celebrated. Henceforth, it will be platinum jubilee on 50th year and golden jubilee on 75th, and not in the present order, he suggested. Jokes apart, the recent turbulence in the world economy is likely to unsettle many a belief which we have held for long. Like the invincibility of dollar as a global reserve currency. Like the ability of capitalism to evolve itself and find its ground, come what may. Like the smartness of the West to sway economic policies to its benefit. Perhaps the only belief that remains constant is the attraction of gold as a stable asset. Its new-found glory apart, gold has always remained a dead asset, triggering very little economic activity. Except for those who trade in gold, and who make and sell ornaments, it seldom created jobs. On the other hand, its custodians often have to bear a cost to ensure its safe custody. Gold loans used to be the only way for people to monetise the yellow metal. However, it was never considered a prime economic activity. Until a generation ago, not many reliable names were in the business. A gold loan was always considered a distress loan, and had a stigma attached to it. Not any more. Or so does it look like. Companies such as Muthoot Finance, Manappuram Finance and Kosamattam have changed the very image of gold loan business. They have made a decent product of what was once considered an ignominious choice. They have so successfully convinced people that one need not opt for the conventional ‘beg, borrow or steal’ option to meet a financial need as long as they have ‘gold at home’. These Kerala-based companies have now spread their wings across the country. In fact, they have become brand ambassadors of the entrepreneurial spirit of Kerala. And the financial community has approved their ventures: Manappuram Finance went public long ago while Muthoot Finance had the distinction of its recent `901 crore public issue being oversubscribed 24 times. The cover story celebrates this feat for two reasons: One, they have made a business where none existed, and become pioneers. And two, they successfully unlocked the value of gold. We love to celebrate success. Editor
Contents COVER STORY
32 Golden sunrise
nish Recession
Scam
Corruption ruc
ast Infr
e tur
Delay
Ma
nu
fac
tu
rin
g
Banking
art
Tourism IT
27 Strengthening
the soil
Coir geo-textiles provide an eco-friendly solution to the never ending problem of damaged roads and soil erosion
4
Gold was considered a dead asset, which spurred very little economic activity. Gold loans were a tiny business, confined mostly to the villages and small towns. No bank took it to be a very serious opportunity. However, in the last decade or so, Kerala-based companies branded it as a product and made big business out of it
Contents 25 The Japanese Connection Nitta Gelatin India Limited, which embodies the spirit of Indo-Japanese collaboration, will play a larger role in its parent’s global business
19 Big boost for infra Kerala budget seeks to woo investments to the State 22 Trust the home-grown Kerala has an investor-friendly image today, says KSIDC Managing Director Alkesh Sharma
16 Fish to dish The numerous water bodies in Kerala promote a new segment in tourism industry: aqua tourism
38 Rain rain, come again Rainwater harvesting is a reliable option for households and businesses to be self-reliant in water 41 A guide to rejuvenation Ayurveda suggests rejuvenation treatments are most effective in the rainy season 44 We guard V-Guard Industries implements several schemes for the benefit of disadvantaged people 46 On the dot Portfolio Management Services helps high net worth individuals benefit from stock markets 48 Slow gain, no pain Capital Protection Schemes protect the capital invested in them but forego the opportunity to make higher returns 5
CyberPark Kozhikode is the first IT infrastructure development project of the government of Kerala in the northern part of the State. The first phase of the project comprises a 10,000 sq ft Park Centre and a 1.7 lakh sq ft IT Park. The Park Centre, a pre-fabricated structure, will be ready by October this year while the main structure, which will offer built-up space for IT/ITES companies, will be ready by October 2012. The park is coming up on 28 hectares of land in Nellikkode and Pantheerankavu villages, about 25 km from Kozhikode International Airport. The CyberPark has already been notified as an IT/ITES Special Economic Zone by the Union Ministry of
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Commerce. The CyberPark is conceived as the hub of the hub-and-spoke model; the parks at Kannur and Kasargod, being developed, will function as the spokes. The park, coming up in a city which hosts a National Institute of Technology and an Indian Institute of Management, is expected to help companies tap the large pool of locally available skilled resources.
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Travelling along NH-47 toward Allapuzha from Ernakulam, I have always noticed the factory of Travancore Mats and Mattings, adjacent to the road. But now after reading your article on them, I am amazed to know that the very company produces luxury carpets which adorn exclusives retreats of world leaders. The company has just shown that success can be achieved without running around the town blaring horns. Anjali Sumesh, Thiruvananthapuram
The cover story on Cochin Port Trust was long overdue as the port anchors several important development projects in Kerala today. By completing 75 years in service as a major port, its responsibility to act as an effective medium to enable the smooth functioning of the ICTT has only increased. I am sure that the Port Trust will take effective measures to ensure that the terminal can do without the employee strikes which visit it frequently. Shibu Suresh, Kochi We are not used to hearing many encouraging stories about the Kochi port, and hence your story offered a welcome break. The map that accompanied the story was selfexplaining, and was useful to people like me who have always wondered why Kochi is called a natural harbor. If the projects mentioned in your report take off, then it will change the face of Kochi, literally. It will even boost the industrial sector of the whole State. I am sure the Port Trust authorities will pursue all the projects diligently. Rohith Krishnan, Chennai Your report reflected the very important phase though which Kochi port passes now. While it is indeed welcome to know that it has a lot of projects on hand, it must take care that it manages the change effectively. It is indeed welcome that the port is using technology to give better service to its clients. But in an increasingly globalised economy, ports must be internationally competitive. And hence Kochi port must introduce the world’s best practices in client servicing and infrastructure. Mohamed Ashraf P, Kannur 8
I am an engineer, coming from a family of planters. Your report on precision farming led me to think why such effective measures could not be implemented for rearing crops such as mushroom which currently do not thrive as much in Kerala conditions as they do outside. The report must encourage more people to look at farming from a practical point of view. Nithin Joseph, Kottayam Your story on precision farming was illuminating. Rarely do we hear stories of technology aiding farming, and the new initiative will help farmers earn better income and ensure food security of the nation. I would love to visit one such farm and understand the practice so that I too can implement it on my plot of land. R Nanda Kumar, Kochi (We got several letters and calls, asking for contact details of a precision farmer. Those interested may contact Mr T V Arun Kumar, manager, VFPCK, Palakkad district; Mob-94479 86655 for details and a farm visit—Ed.)
On my recent trip to Kerala, I picked a copy of UPDATE from a friend’s place. I was surprised to know the city has an international marina. Hailing from Dubai, we have all heard about the marina at neighbouring Salalah, but not many know of such a facility in God’s own Country. Thanks for the information and I’m sure the Marina will soon be able to overcome the teething problem of pirates and play host to bigger and better yachts. John Mathew, Dubai Your article on digital security was informative. In fact, it has cleared my doubts about their efficacy and high costs. Now I am willing to support my husband’s idea for installing a security system at home. Rani Thomas Kochi I am an avid reader of Update Kerala. One change I have noticed since the first edition is the lesser coverage given to young entrepreneurs. True, there are lots of good reports from within the State, but being a business magazine, I would like to see more stories on emerging businessmen and their ideas. I would like to know how they see the future of Kerala. K Unnikrishnan, Kozhikode
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I say!
When I open my eyes, I see only opportunities. Anybody here (in India) has a chance to grow M P Ramachandran, chairman, Jyothi Laboratories, after his successful takeover of the Henkel brand in India
About 56 per cent of Unilever’s revenue comes from outside the US and Europe now; by 2020, it will be 70-75 per cent. We have to shift our thinking from New York to New Delhi Paul Polman, Unilever CEO, after appointing Harish Manwani as its first global COO It has been accepted that the price of coconut oil alone cannot make farming profitable... We aim at exploiting its agricultural, industrial and commercial prospects as well T K Jose, chairman of Coconut Board, on ways to make coconut farming remunerative Our group founder, Jamshetji Tata, sent social scientists to Jamshedpur even before he sent the engineers to survey the area. Two British social scientists were sent to study the impact of the factory on the local tribals. This
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has been our guiding light. If you look after society, they will support you. We have looked after the tribals for over a hundred years now JJ Irani, Tata group doyen, when asked about dealing with Maoist violence We should be able to sustain the level of interest in different destinations, since many other States and even nearby countries such as Sri Lanka are offering tough competition A P Anil Kumar, Kerala Tourism Minister, on the future course of the industry It indicates that women really mean business... there are nearly 35 women in a batch of 341 students this year... Debashis Chatterjee, IIM-K director, noting that the number of women students has gone up three fold this year compared with previous years
AT A GLANCE
Crisis in Greece deepens
The debt crisis in Greece continued to cause concerns across the globe as the socialist government faced protests on its 28-billion euro austerity programme. The unions declared a two-day general strike that crippled the nation, protesting against the measures that impose taxes even on minimum wage earners. The European Union approved a second rescue package of €159bn for Greece after the austerity package was passed by the Greek parliament. Greece’s debts are equivalent to around 160 per cent of its GDP. IMF cuts US growth forecast The International Monetary Fund (IMF) has cut its estimates of US GDP growth this year to 2.5 per cent from the 2.8 per cent forecast in April. The estimate for 2012 has also been cut to 2.7 per cent from 2.9 per cent. It cited the budget showdown in the US, Euro zone debt crisis, the lack of political leadership in dealing with the crises and the signs of overheating in emerging markets as reasons for the cut. It has warned the US and European nations of dire consequences if they fail to rein in the budget
deficit. The IMF was more optimistic about the growth prospects in Europe. Fed to End Stimulus Measures The US Federal Reserve has said that it would suspend its three-year-old economic rescue campaign soon. The planned purchase of $600 billion in Treasury securities will be complete by then as scheduled. The Fed said that economic recovery was continuing at a slower pace than it had expected. It expected the pace of economic recovery to pick up in the coming quarters and unemployment rate to decline gradually. AirAsia places largest single airliner order
Malaysian low cost carrier AirAsia placed an order of 200 Airbus A320 Neo jets, the largest single airliner order in history, at the Paris Air Show held recently. AirAsia already has a standing order of 86 planes with Airbus. The $18.2 billion order eclipsed the $16 billion order for 180 A320 Neo jets placed by Indian low cost carrier IndiGo, and confirms the resurgence in the aviation business
in Asia, based on low cost travel. Wal-Mart escapes class action suit
The US Supreme Court unanimously blocked a class-action lawsuit against Wal-Mart that alleged discrimination based on sex, reversing a decision by a San Francisco court. The suit, the largest employment discrimination case in US history, was brought on behalf of 1.5 million current and former female workers at Wal-Mart and could have involved billions of dollars in damages. It claimed that women were discriminated against both in pay and promotions. The court held that the plaintiffs did not have a common grievance and hence could not be considered as a class, thereby invalidating the class-action suit. China's 3G subscribers touch 73.76mn The subscriber base for 3G services in China increased 57 per cent to 73.76 million in the first 5 months of this year. The country has set up 714,000 3G mobile phone towers till May this year. The number of mobile phone subscribers in the country increased by 51.1 million in the same period, taking the total
number to 910.1 million. Broadband internet subscribers grew 10 per cent to 138.5 million, while fixed-line subscribers fell slightly by 3.7 million to 290.7 million during the period. HSBC may slash 10,000 jobs Europe’s largest bank HSBC Holdings Plc with a 3-lakh strong global workforce may cut more than 10,000 jobs as part of its plan to slash costs by up to $3.5 billion a year. HSBC said it will also sell, shut or slim down retail operations in 39 markets, where operations are sub-scale and unprofitable and is looking to sell its US credit card arm and shrink its network of 475 US branches. HSBC's move would be the latest in a wave of cuts announced by the global financial industry, which has been hit by market volatility and lacklustre profits. Swiss bank Credit Suisse said it would cut about 2,000 jobs. Standard Chartered, Lloyds, Goldman Sachs and UBS have also announced job cuts in recent months, hit by rising costs and weak revenue growth.
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AT A GLANCE
Tatas overtake Ambanis
The market capitalisation of the companies under the Tata group has touched `4,40,000 crore, bigger than the combined market capitalisation of both the Reliance groups, at ` 3,67,000 crore. This marks a sharp contrast to the situation a year ago, when the Mukesh Ambani group alone had a bigger value than the Tata group. The share prices of the companies of both the Reliance groups have fallen during the interim, affected by a string of controversies. But Tata group companies have done well in the stock market during the period. The valuation of the Mukesh Ambani led group has gone down by ` 73,000 crore and Anil Dhirubhai Ambani Group (ADAG) has lost ` 82,000 crore in the period, while the Tata group gained ` 1,00,000 crore. The Mukesh led group is second behind the Tata group with a valuation of ` 2,85,000 crore, followed by HDFC at `2,05,000 crore, Infosys at `1,58,700 crore and ITC at `1,49,000 crore. ADAG which ranked third a year ago, is not even present in the top 10. 12
DBRS upgrades India’s credit rating International credit rating agency DBRS has upgraded India’s long term foreign and local currency debt rating outlook to ‘stable’ from ‘negative’. The agency cited fiscal consolidation, a robust policy framework and steady growth as reasons for the upgrade. The government’s focus on infrastructure, steps to increase tax efficiency like the Direct Taxes Code, and efforts to streamline subsidies and social security with the national identification card project were also mentioned. Local brands outclass global ones in India
Infosys and Tata have emerged as the top two brands in India, according to TLG’s index of emerging market ‘Thought Leaders’. Seven out of the top 10 brands in the list were local brands. The foreign firms that made it to the top ten were Google at third position, Nokia at sixth and Facebook at eighth. Maruti Suzuki, claimed fourth place, L&T fifth, SBI seventh, Unilever ninth and the Mahindra Group the 10th place. The absence of major western brands should worry global majors trying to make a mark in the Indian market. TLG launched the index in partnership with international research consul-
tancy firm GlobeScan. Light vehicle market to boom India is expected to become the third largest market for light vehicles (passenger and light commercial vehicles) in the world by 2020 behind China and the US, according to a study by JD Power and Associates. It surpassed France, Italy and the UK to become the sixth-largest in 2010. More than 2.7 million light vehicles were sold in the country in 2010, a figure that is expected to reach 11 million by 2020. The study says that this growth has been driven by policies that try to make India a hub for small car production. Nearly 80 per cent of all new passenger vehicles sold in India in 2010 were small cars compared to just 24 per cent in China. Harish Manwani is Unilever COO
Mr Harish Manwani has been appointed as the global COO of Unilever, the world’s second-largest consumer goods company. The post of COO was created by Unilever as part of broader management reorganisation, aimed
at increasing growth in emerging markets. Mr Manwani joins the list of India-born executives Indra Nooyi, CEO, Pepsico and Rakesh Kapoor, CEO, Reckitt Benckiser who occupy top positions in multinational companies. Mr Manwani joined Hindustan Unilever in 1976 as a management trainee and is currently president of Unilever for Asia, Africa and Central and Eastern Europe. India to free up retail sector
The commerce and industry ministry has proposed opening up of the retail sector in India to foreign players. An interministerial group formed to study the issue has recommended allowing foreign direct investment (FDI) up to 51 per cent in multi-brand retail. Currently 51 per cent FDI is allowed in single-brand retail and 100 per cent in wholesale cash-and-carry operations. The proposal has been pending for some time now in the face of strong opposition from political parties and the trading community. The government hopes the move will help tame inflation and cut price differences between the farm gate and the retail shops.
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AT A GLANCE
People deserting Kerala villages?
As per 2011 Provisional Population Figures, rural population in Kerala is 17,455,506, down by 25.96 per cent compared with the last census. The urban population, on the other hand, has grown by 92.72 per cent to 15,932,171. The State has now 52.3 per cent rural population in 2011 Census as against 74.04 per cent in 2001 Census. The huge growth in urban population during the past decade could be attributed squarely to the manifold increase in number of towns in the State in the period from 159 to 520. Ernakulam is the most urbanised district (68.07 per cent) and Wayanad (3.87 per cent) is the least urbanised district of the State. KSEB payments to go online High Tension and Extra High Tension (HT/EHT) customers of Kerala State Electricity Board (KSEB) will soon be able to pay their bills online. KSEB has tied up with IDBI Bank for the e-payment gateway facility for paying electricity bills through net banking, debit or 14
credit cards. KSEB gets more than 40 per cent of its revenue from these high value consumers. The facility will be extended to domestic consumers in a few months. IIM-K workshop for Kerala ministers The Indian Institute of Management, Kozhikode will conduct a one-day smart governance workshop for the ministers in Kerala. The workshop, scheduled for August 19, would aim at enhancing the governance skills of the ministers using techniques like goal-based
planning and result oriented working strategies. IIM-K director Debashis Chatterjee said they intend to work with the Chief Minister and his full team on the nuances of how to approach development. “It would be a workshop mode where we are going to get the best in the business to speak to them,” he said. SmartCity to be multi-service SEZ The government has agreed to provide four more acres of land to SmartCity, Kochi taking the total area of the project to 250 acres, the
minimum required area to be classified as a multiservice SEZ. With this, businesses in other service sectors in addition to IT can set up their offices in the park. Meanwhile the SmartCity board has been reconstituted with the State Minister for Industries and IT, Mr P K Kunjalikutty, taking over as the chairman. The company plans to set up a state-of-the-art marketing-cum-sales office at the project site at the earliest. SmartCity is in the process of finalising the new agency for preparing the master plan for the project. The master plan is expected to be ready by October. Work on the first administrative block of 3.5 lakh sq ft will start soon after and is expected to complete by October 2012.
support and special benefits for Kerala companies who plan to set up operations in HFZA. “This will enable them to expand their operations to the West Asian market,” he said. Started 11 years ago, HFZA today has over 5500 companies operating out of it. Technopark CEO Mervin Alexander said the new arrangement would provide opportunities for Technopark firms to reach global customers through the Middle East market.
Technopark, Sharjah Free Zone sign pact Technopark Thiruvananthapuram has signed an MoU with the Hamariyah Free Zone Authority (HFZA), Sharjah, to promote IT and other industries. Rashid Al Leem, director-general, Hamriyah Free Zone, said HFZA will provide total
The arrival of a six-seater Embraer Phenom-100 jet of the Joy Alukkas Group in Kochi marks a new era in the State’s aviation history as it separates commercial and business traffic. The operator has received approval from the airport authorities for landings and departures of the VT (India)-registered aircraft that can fly four passengers non-stop to up to 1,320 nautical miles. “At the initial stage, we are expecting about 50 hours of business per month. Fleet additions will be made according to demand later,” said an official of the Joy Alukkas Group.
Charter your jet, right in Kochi
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Rural Economy
Fish to dish
The numerous water bodies in Kerala promote a new segment in tourism industry: aqua tourism Kuruvilla Chacko
“T
he fish keep away from the bait,” rues Mr M Jose, a civilian engineer with the Indian Army, as he is angling in the fish farm, overlooking the legendary Vembanad lake. “Maybe it’s the rains that have kept the fish away,” he laughs, reasoning out the behaviour of his potential preys. And when he finally manages to hook the young one of a pearl spot, his family joins in the celebration, at the Palaikari fish farm in Vaikom. Fish farms, the latest in Kerala’s tourism circuit, have taken God’s own country beyond the houseboat, beach and hill resort formula; bringing out a less expensive, and more enjoyable holiday option to vacationers like Mr Jose. And for the investors, it offers a profitable avenue that can attract the huge domestic tourist segment. It all started three years ago with the Kerala State Co-operative Federation for Fisheries Development Ltd
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(Matsyafed), launching fishing villages in Maalippuram and Vaikom. The formula was simple: give a boat, and a simple hook and line, and turn every visitor to a fisherman. Not to forget some amazing seafood by the side of the waters for a very reasonable price. The formula clicked The farms, including the third one opened at Njarakkal in Ernakulam last year, have become a prominent getaway spot in Kerala in a short period of time. Set against the wide expanse of the backwaters and the sea, the farms are a nature lover’s delight. The Palaikari fish farm in Vaikom is easily the most beautiful of the three farms. Sandwiched between the Vembanad lake on one side, and the Muvattupuzha river on the other, the farm is spread over 125 acres with a row of coconut trees along its banks, lending a breathtaking view to the farm. Even the ones at Njarakkal and Maalippuram have been landscaped
to fit in with the surroundings, and are spread over 40 acres and 50 acres, respectively. The farms at Njarakkal and Maalippuram charge `150, while the one at Vaikom charges `200 as entry fee, which covers a welcome drink and sea food lunch, apart from free pedal or row boat facilities. A speed boat ride to the opposite bank earmarked for fishing, as well as a bath in the waters there, accounts for the extra `50 at the Vaikom farm. The farms work from 10 am to 6 pm; those looking to spend some quiet evenings may pay `25 and enter them from 4 pm to 6 pm. The guests may buy the caught fish at a highly subsidised rate. While 1kg of pearl spot (karimeen) costs around `350 in the open market, visitors can buy it for as low as `190. These farms have been able to bring in tourists during off season as well, as can be seen from the crowd entering here even on rainy weekdays. Njarakkal receives almost 200
A Matsyafed employee with karimeen harvested from the farm. In the background are families enjoying boat rides tourists per day during the peak season months of April and May, while Vaikom and Maalippuram are picking up in tourist arrival as well. Currently, the maximum number of guests a day is restricted to 200-250, on a firstcome-first-serve basis, to prevent damage to the ecosystem and also for efficient handling of crowd and resources. Source of the ripple The idea for setting up an aquaculture cum aqua tourism venture was on the minds of many in the fishing industry from the 1990s. But the lack of potential water bodies near tourist spots coupled with low technical expertise forced them to shelve the idea. It was dusted out after Dr Sobhana Kumar, deputy general manager (aquaculture), at Matsyafed, gave his organisation the confidence. He had already visited the fishing-based tourism projects in West Bengal, Japan and Philippines over the years. “Their tourism projects based around water bodies, with fishing as the main attraction, were very successful,” he says. “I was sure that angling would appeal to people of Kerala also.” He had yet another reason for introducing tourism around fisheries projects. “Pedal-
ling and rowing of boats create water movement, which helps replenish dissolved oxygen naturally. This helps the growth of fish.” Having identified its feasibility and potential, Dr Kumar chose the Njarakkal farm of Matsyafed to experiment his ideas. And with the necessary pre-conditions of a contained water body, and a large number of fish in a healthy environment, already in place, the process was soon initiated. Soon its increasing popularity raised experiential tourism in the State to a new high, and led to new farms opening up as well. Dr Kumar says, “The success of the farm in bringing in revenue through tourism initiatives helped set up similar farms in 2009 at Vaikom, and a third one at Maalippuram near Vypeen in 2010.” Today the farm engages in scientific rearing to ensure that tourism doesn’t affect aquaculture, the main purpose. “We have divided the pond into various plots, with most of them used as nurseries for rearing fish,” says Ms Vijayalakshmi. “The opposite bank has been opened to the public for fishing.” The farms employ semi extensive pisciculture, and use natural means to maintain the quality of water, to help breed the fish. This is made possible by resorting to low stocking density practices, wherein fish are cultivated
depending on pond size and permissible density. The waters in all three farms are brackish and are maintained at the required depth of 1.5-3.5m, with the help of sluice gates. The sluice gates also bring in fish to the farm from the neighbouring water bodies. “We trap the eggs of prawns this way,” says Dr Kumar. When the gates are opened, the water enters the farm from the nearby lagoons, bringing in the prawn seeds which are then cultivated. Fish population is also maintained by seeds supplied by Matsyafed. Mr K Somaraj, managing director of Matsyafed, says, “Based on requirements and plot area, Matsyafed provides seeds to these farms at the rate of `75000-1 lakh.” Currently the farms stock more than five species of fish, including the pearl spot, prawns, the milk fish and the carnivorous sebas fish which is cultivated in monoculture. “The crowd puller is the milk fish, though” says Dr Kumar. Swimming along the surface of the water, they jump into the air at the slightest provocation, attracting tourist attention. They are currently being brought from the Rameswaram coast of Tamil Nadu. The farms have several facilities for the tourists, the eco-friendly sheds providing a resting space being
Mr M Jose enjoys waiting for the catch
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The farm is divided into various plots, with most of them used as nurseries for rearing fish. Tourists are allowed to enter the rest
one. A canteen providing wholesome sea food, cooked on demand, is also a huge draw. “The canteen is run by the local self help group (SHG), thereby providing employment to more than 15 families in each of the farms directly,” says Dr Kumar. The Future Wave With so much interest generated for the farms within a couple of years of their launch itself, it’s easy to see why farm tourism provides a huge opportunity to the State’s tourism industry. Says Dr Kumar, “Currently, income from tourism contributes to over 40 per cent of the total revenue of these farms.” And with 186 inland societies, and a number of marine cooperative societies waiting to be tapped, the State might just have discovered its new gold mine. The entire concept can be implemented in plots of land, as small as six acres. The basic requirement is a wellconstructed bund, adequate fish, and implementation of healthy practices to ensure the fish have a low mortality rate, according to Dr Kumar. Further, the farms need clearance from the Environment Ministry, and a permit from the State government’s tourism department. The government encourages such initiatives by providing a subsidy of `40,000 per hectare. Matsyafed provides the much needed technical assistance to po18
tential investors wanting to set up similar farms doubling up as tourism ventures. “People from all parts of the State visit our farms, study the conditions and become encouraged to set up such farms even on small plots,” adds Mr Somaraj. This symbiotic relation between aquaculture and tourism will go a long way in addressing food security issues and bringing in better returns, he feels. The existing farms stand testimony to
People from all parts of the State visit our farms, study the conditions to set up such farms, says Matsyafed managing director Mr K Somaraj
that. They report almost double the profit after tourism was started. Matsyafed is planning to set up more such farms across the State, and is talking to inland fishing cooperative societies, most of which are based in Kottayam. “The success here only goes to show that local people are waiting for new, cost effective means to spend valuable time with family,” says Dr Kumar. Further plans to sustain traveller interest in the farms are also underway. Mr Somaraj says, “Very soon we will start integrated farming on the banks of these farms, wherein poultry and cattle will be reared along with organically grown vegetables and flowers, to create a viable ecosystem.” Dr Kumar considers the need to upgrade tourism facilities for the same, “We hope to introduce rafting, and to increase the number of pedal and row boats soon. Also, the space will be promoted as an ideal venue for board meetings and functions, in ecofriendly halls adjacent to the ponds.” The idea of fish farms as a tourism scheme may have hit the State late, but now that it is here, tourists sure have a lot more to look forward to.
Kerala budget
Big boost for infra ‘Emerging Kerala’ to woo investments to the State
T
he revised Kerala budget for the financial year 2011-12 has made substantial allocations for the infrastructure sector. Presenting the budget in the Assembly on July 7, Finance Minister K M Mani announced that `150 crore has been allocated for the Vizhinjam Port project. The budget also earmarked `30 crore for Kannur airport, `25 crore each for Kochi Metro and Kozhikode airport development, and `10 crore for SmartCity, Kochi. In a bid to woo investments to the State, the budget announced that the government will hold ‘Emerging Kerala’, an event on the lines of the GIM (Global Investor Meet) that the previous UDF government organised. It also proposes to set up Kerala Entrepreneurship Development Mission with a capital of `500 crore with the aim of creating 1 lakh entrepreneurs. The budget set apart `1000 crore for renovating the roads in the State. It also identified several projects that would boost the tourism sector in the State and made allocations for them. They include a tourist highway connecting Kottayam and Cherthala via Kumarakom (`5crore), ring roads in the towns of Varkala, Pala, Kottayam, Mambram and Majeri (`10 crore), the Ernakulam-Sabarimala highway (`2 crore), the hill highway project (`5 crore) and a mobility hub in Kottayam (`5 crore). The budget which
exempted cashew plantations from the land ceiling act also allowed use of up to 5 per cent of plantations for tourism activities and cultivation of other crops subject to conditions. The budget also aims to set up top class educational institutions in the State. New medical colleges will come up in Kasargod, Idukki, Pathanamthitta and Malappuram districts. The minister said the first phase of the Sabarimala Master plan would be completed in a year. `5 crore has been allotted for zero-waste project at Sabarimala. Construction of flyovers and walkways in the temple have also been announced. `5 crore has been provided for security arrangements at the Padmanabhaswamy temple,Thiruvanathapuram. Social Sector Allocations All social security pensions and workers pensions have been increased from `300 to `400, while that for journalists has been increased to `4,000. A comprehensive health insurance scheme for BPL sections has also been announced. The scheme will allow the beneficiaries to take treatment both in government and private hospitals. The government will pay the premium for the same. The budget also proposes a rehabilitation scheme, a legal aid cell and a 24-hour helpline for people returning from abroad on account of internal issues in some countries. 10,000 houses will be constructed in Phase 1 under the ‘Saphalyam’ Housing project for people in BPL category. Women and children hospitals and dialysis centres will be started in all districts and a super specialty hospital will be started in Wayanad. Agriculture `2 crore has been allotted to a new
project that envisages contract farming by Krishi Bhavans on unused lands owned by farmers. Fallow lands with the government will be brought under farming using the public-private-panchayath model. Small and marginal farmers will be given a pension of `300 per month. Farmers will be covered under insurance schemes and interest-free loans would be provided to them. Revenue Mobilisation The budget seeks to mobilise additional revenue of `600 crore through various measures. It proposes to levy a 2 per cent cess on luxury cars costing `20 lakh and more. Houses with built-up area exceeding 4000 sq ft will also have to pay a similar cess. The social security cess on Indian Made Foreign Liquor (IMFL) has been increased from 1 per cent to 6 per cent yielding `135 crore and the surcharge on IMFL has been increased from 5 to 10 per cent, to provide additional income of `192 crore. The budget predicts the revenue income for the year to be `39,427.51 crore and revenue expenditure `44,961.42, leaving a revenue deficit of `5533.91crore, 1.81 per cent of GSDP. The fiscal deficit for the year is seen at `10507crore, 3.43 per cent of GSDP.
Big boys • • • •
Vizhinjam Port (`150 crore) Kannur airport `30 crore Kochi Metro (`25 crore) Kozhikode airport development (`25 crore)
19
When my information changes, I change my opinion. What do you do, sir?
John Maynard Keynes (1883-1946) The most influential economist of the 20th century.
20
Everybody knows that technology changes business. Today, the change flows through the net. And the fact is, Kerala is the most networked State in India.
Of the 978 Panchayats in Kerala, 99% have broadband connectivity.
Information changes
Be updated
For subscription: +91 97444 17980 or subscription@economic-update.in ----------------------------------------------------------------------------------------------After all, our opinions ought to change!
21
Interview/Alkesh Sharma, IAS, MD, KSIDC
Trust the home-grown
Kerala has an investor-friendly image today, says KSIDC Managing Director Alkesh Sharma. Investors must come forward to make the most of the advantages the State offers, especially in the services sector
A
lkesh Sharma has held several positions which contributed significantly to the industrial development of the State. An IAS officer of 1990 batch, Mr Sharma was part of the team that made the world notice ‘God’s Own Country’. As KSIDC completes 50 years of operations, Mr Sharma, who took over as its managing director in 2009, looks back at the contributions of KSIDC to the industrial development of Kerala, and its future course of action. Excerpts from an interview: KSIDC was formed as part of a Central government initiative to usher in industrialisation in States. How successful has KSIDC been in its mission in the last five decades? Most Industrial Development Corporations including KSIDC came into being in the early sixties, a time when the government was the prime mover of industrial activity. However, it felt that a government agency 22
would help private entrepreneurs enter the fray, thereby speeding up industrial development. KSIDC has been active in three areas: promotion of Kerala as an investment destination, facilitation of investment and funding. We have been proactive on all the three fronts, though the focus may have changed at times as the situation warranted. We were in the forefront of identifying potential growth areas, promoting investment and facilitating
KSIDC has been the backbone of several projects which Kerala is proud of today. They include the Cochin International Airport Limited, Nitta Gelatin, CGH Earth, Geojit BNP Paribas and Lakeshore Hospital
projects. As the chief investment promotion arm of the State government, we have been actively involved in the efforts for creating a brand image for the State. I think we have been quite successful on this front also. KSIDC has been the backbone of several projects which Kerala is proud of today. They include the Cochin International Airport Limited, Nitta Gelatin, CGH Earth, Geojit BNP Paribas and Lakeshore Hospital. KSIDC helped set up many of these projects at a time when not many banks and funding agencies were willing to come forward. We are proud that their success has spawned many more similar projects. How has KSIDC contributed to the development of industrial infrastructure in the State? KSIDC has set up four Industrial Growth Centres: Kuthuparamba in Kannur district, Kinalur in Kozhikode district, Panakkad in Malappuram district and Cherthala in Alappuzha district. We have de-
Entrepreneurs doing business in Kerala should know that they should abide by the laws of the land and be fair in their dealings
veloped the basic infrastructure in all these centres. We have been quite successful in attracting investment to them. We would like the centres to grow as hubs which would promote the industrial development of the entire region around them. What does KSIDC offer a potential investor? What are the funding options available? KSIDC is the nodal agency for several initiatives of the State government including facilitation of foreign and domestic investment and single window clearance. We act as the go between the government and the investors. We offer help at all stages of projects starting with identification of business opportunities, project report preparation, market survey, technology tie-ups, turnkey project management services and project escort services. We also help expansion and diversification of existing units. We extend term loans for projects. In some cases, we have equity participation also, depending on the potential of the project for the industrial growth. Kerala bears an image of being an investor-unfriendly State. How true is it? What have been KSIDC’s efforts in correcting this image? Kerala is today an investor friendly State. Investors are confident of doing business here. Most of the IT parks in the State are overflowing. Our growth centres get solid enquiries. When we meet investors as part of roadshows, they share their enthusiasm for Kerala. What are the areas that have potential for faster growth in Kerala?
It has been universally accepted that Kerala offers great opportunities for the services sector. KSIDC has identified five areas that can make use of the strengths of the State and prosper. They are infrastructure, retail, logistics, infotainment and education and service sectors. What does Kerala offer to an entrepreneur? Kerala has all that an entrepreneur, especially in the services sector, looks for. It has one of the best industrial and social infrastructure. With three international airports and an international container transshipment terminal, its connectivity can be matched by no other State. It has a human resource pool that powers industries across the world. Above all, Kerala is one of the most peaceful States. How do you rate the entrepreneurial class of Kerala? What do you think are their strengths? What are the areas they should work more to make the most of the opportunities Kerala offers? Traditionally Kerala has been a wage-earning society. The people preferred Government or private sector jobs. However, in the 70s and 80s emerged a select group of entrepreneurs who were highly educated and had exposure to the business world outside. They have created some of the best enterprises in this part of the world. OEN, Geojit BNP Paribas, CGH Earth are some of the successful ventures created by the home-
KSIDC has been the leading organisation to promote tourism and hospitality infrastructure in the State. We have plans to promote more resorts, hotels and Ayurvedic facilities for promoting tourism sector
grown entrepreneurs. They know the culture and behavior of local people and it is a great strength while dealing with people at work. Kerala offers myriad opportunities to them in new and emerging sectors which we have outlined above. What are the areas that an entrepreneur must be careful about while doing business in Kerala? Kerala has an educated society. People are aware of their rights. There is general awareness and consciousness about the existing laws, rules and regulations. Hence, the entrepreneurs doing the business should know that they should abide by the laws of the land and be fair in their dealings. You have worked at the helm of the tourism department. How do you rate Kerala’s success in developing tourism? What more needs to be done in this sector? How does KSIDC plan to promote enterprises in the tourism sector? I had a fairly long stint in tourism— nearly six years both as Director, Tourism and MD of KTDC. Kerala has achieved tremendous success in tourism and it has today emerged as one of the leading destinations in the world. However, there are greater responsibilities to preserve the destination and to promote a tourism friendly host community. The cleanliness of our beaches, backwaters and public places, and responsible behavior of host community especially the taxi drivers, police, hotel staff and general public towards the tourists will determine the popularity of the destination and its sustainability over long term. Infrastructure development in destinations, ecofriendly development paradigm and host-guest partnership need to be the focus. KSIDC has been the leading organisation to promote tourism and hospitality infrastructure in the State. KSIDC has plans to promote more resorts, hotels and Ayurvedic facilities for promoting tourism sector. 23
24
Interview/ Norimichi Soga, president, Nitta Gelatin Inc
The Japanese Connection
Nitta Gelatin India Limited, which embodies the spirit of Indo-Japanese collaboration, will play a larger role in its parent’s global business
N
itta Gelatin India Limited (NGIL) is a joint venture between the Kerala State Industrial Development Corporation (KSIDC) and Nitta Gelatin Inc, Japan, manufacturing natural gelatin and value-added products such as collagen peptide and ossein. Incorporated in 1975, the company at present exports raw materials and interme-
diate products to various countries, including the US, Japan and Europe.
Our focus will be on moving up the value chain and NGIL will play a very significant role in it
NGIL last year successfully launched collagen peptide, its first product, under the brand Gelixer. One of the fastest growing industrial units in Kerala, the `200-crore NGIL looks to play a larger role in the global scheme of its parent. Mr Norimichi Soga, president of Nitta Gelatin Inc and a director of NGIL, is upbeat about the future of 25
India is one of the fastest growing markets with 10 per cent growth. At present we export more than 50 per cent of our products from here. We think NGIL will play a significant role in servicing these growing markets by acting as a back-up supply source the Kerala-based company. A graduate in textile science from Kyoto Institute of Technology, Mr Sogo’s grasp of the business and the respect he commands in the industry can be matched only by his humility. In Kochi to attend a meet of the board of directors of the company, Mr Soga talked about NGIL and its future plans, his experience of doing business in Kerala, his impressions of India as a business destination. Excerpts from an interview with K J Jacob: Nitta Gelatin is one of the first foreign companies to invest in Kerala. How has your experience been? Oh yes, we are one of the first Japanese companies to invest in Kerala. In fact, in India: we came here much before Suzuki’s association with Maruti began. We brought the best of technologies here, sourced the best raw material from here and worked with some of the finest people. We have had a very good association and business here. We have been able to service our clients across the world from here, meeting the ‘Nitta quality’. Where is this association growing from here? What is the future like? The market for gelatin-based products have recorded fast expansion in the last five years the world over, especially in countries such as China and South Africa. The market for pure halal products in the Islamic counties is also on the rise. India is one of the fastest growing markets with 10 26
per cent growth. At present we export more than 50 per cent of our products from here. We think NGIL will play a significant role in servicing these growing markets by acting as a backup supply source. NGIL has launched its first product last year. What has been the response? Are you planning more products? Gelixir, or collagen pep product, has been well-received in Kerala, where we launched it first. Its success prompted us to take the product to several other States also. Now we are looking at coming out with high value-added products across the spectrum, including those for the pharma sector. Some of them include products for skincare, wound healing and the like. We are finalising the products; my guess is that it will be available in a couple of years. Our focus will be on moving up the value chain and NGIL will play a very significant role in it. How do you rate the industrial atmosphere in Kerala? We have had a pretty good growth in Kerala. The State is known for its quality education and hence we can find very good talent out here. The people here are easy to communicate with. They are very honest and hardworking people. They understand technology very well; this has helped the plants here get the best of our technologies; people from here are trained at our plants across the world as part of staff exchange programmes. And KSIDC has been an exceptional partner which helped our fast growth. There are reports of local resistance to certain practices of the NGIL plant. What are you going to do about them? We, as a company, always ensure that we have the support of the people of the areas in which we operate. I know of some of the problems. The company is working on them. I am sure we will be able to sort them out. Japan has a history of coming back from disasters with renewed vigour. It
has created one of the world’s largest economies from virtually the ashes of the Second World War. How has your recovery from the damages of the recent earthquake been? The recovery is faster than we anticipated. It’s hardly six months in July, and we are practically back on track. The damage to the nuclear plant was devastating. What is its impact on your thought process? We have developed fairly sound technologies to withstand quakes. But we now realise that we need to innovate them. And we are innovating. The other most important change is that we now concentrate more on power saving. Everyone has now brought down consumption by at least 15 per cent. We are also looking towards new technologies and sources for power. Japan made big strides in the global economy with your ability to develop and innovate products. Will you be able to sustain the momentum in the future also? I guess yes. Our youngsters are very focused and can ensure leadership of Japanese companies in the global market. India is fast globalising, and is welcoming partnerships from abroad. It in fact competes with China in several sectors. How do you rate doing business with Indian companies visà-vis the Chinese? Indians are easy to work with. There is discipline, there is teamwork. There is agreement on the fundamentals of business and its objectives. When you say ‘yes’, you mean it. These are not necessarily the case with the Chinese. These are my impressions.
The recovery from the earthquake and tsunami was faster than we anticipated. It’s hardly six months in July, and we are practically back on track
Coir geo-textiles The U-shaped water body netted with the geo-textile
Strengthening the soil Coir geo-textiles provide an eco-friendly solution to the never ending problem of damaged roads and soil erosion
T
Kuruvilla Chacko
rue, vagaries of nature sometimes damage natural treasures. Like the monsoons taking away with it precious top soil or creating crater-sized holes on the roads. But nature has its own remedies, too; cost-effective, simple and eco-friendly ones, at that. Coir geo-textiles, made of coconut fibre, is one such remedy. Permeable fabrics that resemble a regular fishing net, albeit tougher and bigger, geo-textiles are usually placed at the tension surface to strengthen the soil. They are available in synthetic or biodegradable forms. The bio-degradable
ones are made of coir and jute, two natural fibres. Coir geo-textiles check soil erosion, especially along water bodies, slopes or elevated roads, by offering a second skin for soil. This temporary sheath helps the growth of suitable vegetation on the soil so that by the time it rots, the roots of the vegetation would take care of the job. Though they have been in vogue for quite some time now in Kerala, coir geo-textiles are increasingly been used in newer applications, especially as people turn more environment conscious. Its acceptability is on the rise abroad also. They are useful in places where
vegetation takes longer to establish and hence they are apt for the rainfed landscape of Kerala. Jute, the other natural fibre used to make geotextiles, however, disintegrates in 1-2 years and hence is suited for low rainfall areas. The pattern of checked gaps helps develop a natural clothing for any landscaped environment. By gripping the soil firmly, they check soil erosion, strengthen roads and protect small water bodies from run-off soil during the monsoons. These gaps in the design are not mere designs. Says Mr P V Saseendran, managing director of the Kerala Coir Corporation Ltd, one of the ma27
Geo-textiles, used as an interface between the top layer of roads and the underground water, provide a let-out for water to move to the edges, thereby preventing cracks jor manufacturers of coir geo-textiles: “The gaps act as natural sumps for water to accumulate, thereby speeding up precision growth of plants and forming a natural vegetation cover. This vegetation cover ultimately helps stabilise highway shoulders, embankments and the banks of lakes, canals and rivers against wind and water erosion.� Used either as an over-lay to protect the surface or as an inter-lay to perform functions of separation, filtration and drainage, coir geo-textiles need expertise and technical knowhow for their proper installation. The Kerala Coir Corporation is currently one of the main organisations in the State that possess the same. How to use it After making an assessment of the landscape and its environment, the terrain is leveled and cleansed of earth masses and protruding stones. Multiple steps are made in highly inclined terrains. The top and bottom portions of the geo-textile are stapled or spiked to trenches, which are dug on the slopes. The entire length of the geotextile is then laid in the direction of the water flow starting from the top to the bottom. The seeds of the required vegetation are then planted in the gaps of the geo-textile by hand or mechanical means. The buffalo grass, a local plant species, is much preferred for being rugged and easy to maintain. Once in place, these measures will 28
ensure that the blanket protects the slopes against rain water; while the vegetation cover will act as a permanent protection for the slopes once the coir geo-textile disintegrates in 3-4 years. The visual treat of well placed greenery on the surface further adds to the aesthetic appeal, said Mr Jayamohan B, coordinator (marketing), Coir Corporation. The procedure may vary slightly, but the principle is same for all applications, be it protection of highway shoulders or for strengthening roads or for checking soil erosion along river banks. Coir geo-textiles have their limi-
tations, too. They are effective only if erosion has not advanced too much to warrant the need of costlier restoration alternatives such as concrete implants and poles. For cases needing a permanent protection, coir geo-textiles may not be really effective, says an official with the Corporation. The reason is simple. Coir geotextiles being bio-degradable can be used only in applications that require temporary protection until natural vegetation cover takes over its role. Says Mr Saseendran, “Geo-textiles give maximum protection to the soil till the grass takes root and provides a permanent coverage. After the stabili-
The gaps in the geo-textile act as natural water sumps which speed up precision growth of plants to form a natural vegetation cover
sation of soil, it decomposes gradually to humus which provides nourishment to vegetation growing on the soil medium.” And it is precisely this feature that makes it most useful. A case in point is the coco log. A type of coir geo-textile, they are stuffed with fibre inside a netting of geo-textiles and used as embankments along shores. By checking inward water flow from the shore, not only does it prevent soil erosion, but it also helps in forming a natural vegetation cover behind the logs. And when the textiles decompose, the vegetation formed behind provides a natural barrier against soil erosion. Its ability to decompose within a few years is made use of in strengthening roads. Says Mr Saseendran: “Roads develop cracks due to pressure exerted by underground water as it tries to move towards the surface. Geo-textiles, used as an interface between the top layer of roads and the underground water, provide a let-out for water to move to the edges.” This helps in the growth of vegetation along the sides and checks soil erosion. Together, they help maintain the quality of the road. This method also helps prevent intermingling of the soil and the granular sub base, thereby improving drainage. Coir geo-textiles also play an important role in schemes to prevent soil erosion in the paddy fields of Kuttanad and the elevated roads along farm lands in Kollam and Allepey. Muvattupuzha Valley Irrigation Project and its road embankments, road slopes in Idukki and KSEB reservoir in Kakkayam, Kozhikode are some other projects which have used coir geo-textiles. “The maximum number of projects using geo-textiles are being executed in the district of Kollam, though other regions in the State are also opening up to this product,” says Mr Saseendran. The Coir Board recently laid coir geo-textiles in 1000 hectares of paddy fields in Edakkattuvayal panchayat in Piravom for draining the water out of the fields. And taking a cue from its superior features, the Central Coir Research
“Geo-textiles give maximum protection to the top soil till a layer of grass takes root to provide a permanent coverage. After the stabilisation of soil, it decomposes gradually to humus which provides nourishment to vegetation growing on the soil medium”, says Mr P V Saseendran, managing director of the Kerala Coir Corporation Ltd Institute recently received the approval of Indian Roads Congress to construct 450 km of roads under the National Rural Development Agency using coir geo-textiles. Add to that the request from more than 22 village blocks in Pallipuram panchayat in Allepey to implement coir geotextiles for protecting the small water bodies here and it’s clear that coir geotextiles are finally getting their due. Jojan Thomas, an official with the Coir Corporation feels that by surrounding these water bodies with coir blankets, one can prevent not only soil erosion, but also the misuse of water sources. Laying coir geo-textiles doesn’t cost a bomb: they can be spread out
at one-tenth of the cost of alternatives such as concrete implants. They cost just `150 per sq mt while the synthetic geo-textiles, apart from being non eco-friendly, costs more than double. And granite rocks which are used as reinforcements along steep slopes can cost upto `3500 per sq mt; making coir substitutes indeed light on the pocket. With more than a thousand small inland ponds and streams, numerous high range slopes and seasonally good roads, coir-geo-textiles with their promise of promoting new vegetation growth and preventing top soil from drying or washing away, is Kerala’s best hope for maintaining its natural resources the green way. 29
BUSINESS CALLED LIFE
Raju Yadav, an enterprising young man from Madhya Pradesh, is one of the many faces that Keralites have got accustomed to over the past five years. Chaat stalls named after his community have introduced to the hygiene-conscious Malayalee the taste of rural food from the Indian heartland, not so palatable to the health conscious eye. But Malayalees are today ready to compromise a little bit of hygiene for chaat. The reason is simple: samosas, pav bhaji, bhel puri, vada pavu and the eternally favourite pani puri are finger licking good; giving a tough competition to local evening snacks sold in adjacent tea shops. With working hours restricted between three in the afternoon and nine in the night, the Yadav chaat has customers who include the rich, the working executive and even school kids. His daily profits over this six hour work period crosses `300, on an average. Raju and his ilk have reaffirmed that people from a distant land can find the way to a Malayalees' heart through food!
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Kuruvilla Chacko
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When Muthoot Finance Ltd became the official sponsor of the IPL team Delhi Daredevils, and Bollywood superstars started twisting their tongues to promote Manappuram Finance, history was being made. It was perhaps for the first time that brands from Kerala started moving to the centre stage of India Inc. And they did it in style. They unlocked the value of the yellow metal and powered small enterprises. They transformed a business which commanded scant respect in society by branding a product for everyone to consume. They broke open a business model that has a huge potential. 33
Aby Abraham G K
“T
hey are all over the place,” said a friend from Bangalore, referring to the signboard of Muthoot Finance Ltd on a suburban bus station. “They have painted the city red and white.” True. One can see offices of Muthoot, Manappuram and Kosamattam littered all over the metros, including Delhi and Kolkata - all gold loan companies headquartered in Kerala. They do brisk business, a zero-risk business at that, dispensing loans to the credit-hungry people on the back of gold jewellery. It takes, on an average, less than five minutes for them to offer a loan. What a change! Of course, gold loans are not new to Indians, custodians of the largest collection of gold jewellery in the world. The World Gold Council estimates that Indians hold around 18,000 tonnes of gold, worth `40 trillion. The annual demand for gold in the country is 700 tonnes, two thirds of which are used for making jewellery. Indians have traditionally found gold a ready material to pledge and tide over short-term financial crises. Southern India has been a fertile ground for the gold loan business with people being more willing to pledge gold for cash to meet their requirements compared to their northern counterparts. Today South India accounts for 40 per cent of the gold
demand in the country and 75 per cent of the gold loan business. Kerala has been a major player in the sector. But their success lies in the transformation they have brought to the business. A sector, largely populated by the ‘man-next door’ lenders, it was never considered a business with great potential, nor taking a gold loan considered a ‘decent’ option for many. But corporatisation has changed it all. The big boys who started the game on a big scale put their own credibility as the biggest asset their customers can rely on. The biggies in the sector all have been in the business for a long time: Kosamattam has been around for 84 years, Muthoot for 72 years and Manappuram for 62 years. The move has worked. The last decade saw the industry starting to organise itself and reap the benefits that come along with it. It has clocked a compounded annual growth rate of 40 per cent during the decade to become a `50,000 crore industry today. The scheduled commercial banks (SCB) are the leaders in gold loans accounting for 58 per cent of the market. But of late, the NBFCs have stolen a march over the others in the business: the IMaCS Industry Report (2010 Update) on the gold loan industry states that the market share of NBFCs that operate in this niche segment has risen from 18.4 per cent in 2007 to 32.2 per cent in 2010, registering a growth of 72 per cent during the period. The share of the SCBs
Performance pays 32.2
2007
2010
NBFCs Banks Cooperatives
NBFCs Banks Cooperatives
67.1
34
9.7
18.4
14.5
Source: IMaCS Industry Source: IMaCS Report (2010 Update)
58.1
have fallen from 67.1 per cent to 58.1 per cent and that of co-operative banks from 14.5 per cent to 9.7 per cent during the period. The domain expertise built by NBFCs, and their superior customer service, are major reasons for this growth. “All the major banks in India are our competitors,” says Mr George Alexander Muthoot, managing director of Muthoot Finance Ltd. “For them, it is only one of their businesses. But for us, it’s our main business.” Drivers for growth The growth in gold loans business has been facilitated by a number of factors. The sector is indeed in a sweet spot, created by various economic, social and cultural factors. The biggest game changer for the industry was the increase in price of gold and the changing lifestyles of the burgeoning Indian middle class. The increase in price of gold led to a corresponding increase in the amount per gram of gold that could be loaned, while the increasing incomes provided by economic growth engendered a consumerist lifestyle and the confidence to take on credit to fund that lifestyle. The falling interest rates also made credit affordable to a large section of the population. While the banking system has traditionally kept away from the rural and semi-urban population, its liberalisation, too, did not help. The retail loans came with a lot of conditions regarding credit worthiness, repayment ability and security. The time taken for processing and the charges associated with them put off many people, especially those from the lower strata of society. Many banks also came up with gold loans but the efforts were half-hearted and mainly aimed at meeting the priority sector lending requirements of RBI. It is this vacuum that the gold loan companies try to fill. They enticed customers who found getting credit from formal channels difficult, by providing convenient, affordable, flexible and accessible loans across the country. The change in regulatory mecha-
Interview/George Alexander Muthoot
Riding on the brand
of Muthoot Finance Ltd for `901 crore was oversubscribed 24 times. Muthoot Finance is the second gold loan company from Kerala to list on the stock exchange, after Manappuram finance which went public in 1995. A topper in B Com and chartered accountancy examinations, Mr Muthoot shares his experience in convincing investors and analysts across the country to put their money in a business which not many have earlier recognised as a business to reckon with. Excerpts from an interview:
M
r George Alexander Muthoot, managing director of Muthoot Finance, is justifiably proud about a success many a corporate baron would love to have: the recent IPO nism also helped the growth of the sector. The RBI regulations which came into effect in 1998 made registration of NBFC’s compulsory. It also specified capital adequacy, auditing and prudential norms for operating the business. NBFCs were allowed to issue Non Convertible Debentures and raise funds for their business. “The changed legal status increased the confidence in the business,” said Mr I Unnikrishnan, managing director, Manappuram Finance. “Subsequently banks also became interested in lending to NBFCs.” Another factor that helped the business is the availability of technology. Earlier, companies could not expand much because they had to rely on their employees for safekeeping of the gold jewellery which was a risky affair. “Now technology is available that helps us keep the gold safe,” said Mr Unnikrishnan.
What prompted you to go public? We have been one of the oldest financial services companies in Kerala with a reliable brand name. We have always moved ahead of times and introduced changes that helped us move forward. We are a transparent company, and we thought going public will add to our good will. We need to work with a lot of regulators, including RBI. As we grow, we
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bout gold loans Gold loans—loans against gold jewellery—have small ticket sizes, ranging from `2,000 to `1 lakh and the tenure is usually 1 year. Most of the customers for gold loans are traders, farmers and salaried people who use them to tide over short term capital requirements. “About 60 per cent of our customers are small traders, who use it as a bridge loan,” says Mr Muthoot. “The perception that gold loans are desperate loans is outdated.” Some of the factors that attract customers are convenience, loan to weight ratio, credibility of the lender, safety of the pledged gold, affordability and accessibility. “Location is very important in this business. Most of our branches are in the rural and semi-urban areas,” says Mr Muthoot. They run clean, business-like offices which do not intimidate the lower class customers.
would need more capital, and we will have to approach other institutions. We found that they all would be more comfortable working with a public limited company. How did your pre-IPO meetings with analysts go? That was a great learning and teaching exercise. We had to educate many of them about the prospects. I am confident that we did a good job in convincing them about the strengths and prospects of the industry. How do you rate the response of the public? We were overwhelmed. That our IPO was oversubscribed 24 times means people trusted us with so much of money. This is the biggest satisfaction. Are you thinking about diversification of the business? I have always held the view that any business is good business as long as you run it well. Gold loans offer us enormous potential, and we are now committed to exploiting it to the maximum. The emphasis is on convenience. The office timings are also decided keeping in mind the convenience of the customers. Muthoot has around 2900 offices spread across the country, and is adding around 1000 offices a year. Manappuram runs more than 2200 branches. The gold loan companies lend only against gold in the jewellery form; coins are often discouraged. They have discovered that jewellery has an emotional value attached with it, and hence people would not let go of them. And the making charges incurred on them gives an additional security to the lender. Ensuring the quality of the pledged gold is vital in this business. Companies train their employees in various techniques for assessing the quality. The collateral is valued only on its gold weight and quality of the gold; precious stones, if any, are not 35
Bollywood actor Akshay Kumar with Manappuram Finance chairman Mr V P Nandakumar (left) and managing director Mr I Unnikrishnan at a promotional event
considered. Gold loan companies generally lend 60-90 per cent of the value of pledged gold. All these measures de-risk the business. “Gold loan is the safest of all the loans,” says Mr Muthoot. “You have the possession of the pledged gold and can easily liquidate it in case of default, unlike vehicle loans that are hypothecated or property loans that need to be attached through a court order.” The rising prices of gold give another cushion. The result, the nonperforming assets of gold loan companies are just around 0.5 per cent of their total loans. The lenders usually keep the gold for 18 months after the due date before they are auctioned off. The average ticket size of loans given by Muthoot Finance Ltd is just `20,000, and the average tenure four months. The time needed for disbursal of an average loan is just 5 minutes. The low ticket size and high turnaround makes customer service very important in this business. “Customer service is very important in this industry. We disburse around 70000 loans daily. If they don’t find our services adequate, they will go to our competitors,” says Mr Muthoot. And competitors do abound as in any other high growth business. The small nature of the loans has another consequence. It pushes up the costs of servicing the loans. The lender also incurs the cost for the safekeeping of the pledged gold and insuring it. The companies maintain strong rooms in all the branches, and insure all the pledged gold. The rates charged by the gold loan companies vary from 12 per cent 36
to 30 per cent. “The average interest rate on our loans is 20 per cent,” says Mr Muthoot. “This compares favourably with the personal loans issued by banks which have higher rates of interest and hidden charges such as processing charges and pre-payment charges.” “Gold loan is like a loan against fixed deposit,” said Mr Unnikrishnan. “So people won’t take the loan for capital to start a business, as the money will be locked for a long period of time in that case.” He said Manappuram has loan products in which the interest rates are comparable to that charged by banks. When Manappuram Finance launched an advertisement blitzkrieg featuring frontline film stars, the entire industry acknowledged it as a smart move. It helped the industry move to a higher plane. “We drafted film stars because people listen to them and they are able to influence masses,” said Mr Unnikrishnan. “The
campaign helped us build trust among the masses.”
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n the face of it, gold loans look like the banking business itself. After all, banks also accept deposits and lend money and profit from the spreads in between. But the similarity ends there. NBFCs, unlike banks, are not allowed to accept savings or current deposits from the public. Hence they have to pay a higher price for the funds they raise. And unlike banks that lend to big corporations for a longer fixed term, gold loan companies dispense shorter term retail loans, to the general public. Consequently, they are allowed to open any number of branches in the country as they choose to, unlike banks which need a license for opening branches. The availability of funds is a major determinant of the growth of the business. “The moment you divert your funds for purposes other than granting loans, you are gone,” says Mr Muthoot. The NBFCs are also subject to strict regulations from RBI. “We have to keep our Capital Adequacy Ratio (CAR) at 15 per cent. Hence we have to augment our capital in order to increase our business. The regulators also feel more comfortable in dealing with a listed entity that is open to public scrutiny,” says Mr Muthoot who launched his IPO recently. The banks and other financial institutions also find it easier to deal with a listed entity and that makes funding easier.
Muthoot Finance made a splash across the country by sponsoring IPL team Delhi Daredevils
The perception about the business has changed among the investors too. “We held road shows for investors all over the world, explaining the business and establishing the gold loan as a legitimate financial product,” says Mr Muthoot. And the result was a dream come true. The recent IPO of Muthoot Finance Ltd for `901 crore was oversubscribed 24 times. The business is not without risks, though. Rising interest rates could weigh down the growth of the sector. It would increase the cost of funds for the companies who might find it difficult to pass on the rise fully to customers. A higher interest rate means lesser the ability on the part of borrowers to service the loan and hence lesser loan off take and more defaults. Another risk that the sector faces is from regulators. The RBI recently ruled that the loans made by banks to NBFCs for providing gold loans will not be counted as priority sector loans in the future. This could reduce the availability of funds for the industry. Regulations are also on the anvil regarding securitisation of loans, a major sourcing of funds for the sector. The rising price of gold has helped the business grow by being able to lend more money on the same amount of gold. A fall in the price of gold could affect business badly as the amount that could be lent per gram of gold will reduce. There is the risk of default also. “Since our average tenure is only 4 months we are protected against default due a gradual decline in gold prices, as the new loans will be for lower amounts,” says Mr Muthoot. But a sudden drop in gold prices could pose problems for the sector. The forecasts though favour a rise in price of gold sometime into the future, given the turbulent times ahead. Future The organised gold loan business in the country has grown to a size of `50000 crore, clocking a compounded annual growth rate of 40 per cent per annum during the past decade. “The potential for growth still remains huge,” says Mr Muthoot. “Indians hold 18000 tonnes of gold.
The amount of gold held as security by Muthoot is just 120 tonnes. The remaining gold is potential business for us.” It is estimated that just 1.2 per cent of the total gold stock in India has been monetised through gold loans. The company plans to grow its business by expanding its branch network and the range of products and services. It also plans to make the product appealing to newer segments of the population. “We are promoting gold loans as a lifestyle product,” says Mr Muthoot. “The stigma associated with gold loans is disappearing and the product is gaining more and more respectability.” This should enable the industry to attract customers from the middle and high income groups also. Scaling up brings challenges of its own that have to be overcome to grow the business. Systems have to be developed to handle the increased volume in business and coordinate the branches. “Our offices are interconnected, but we do not require a core
banking system. This is because the customers anyway have to go to the branch to redeem the pledged jewellery,” says Mr Muthoot. Most frontline players rate the opportunities for growth in the industry very high. Currently there are no plans for expanding outside the country, said Mr Unnikrishnan. “India is a huge country. Many of our States are bigger than other countries. It is a market that we know well and haven’t utilised fully.” But other challenges remain. Finding the people required to man the offices, especially senior ones that can manage the growth, is a challenge. Managing the cultural differences while entering newer markets is another. The forecasts though are in favour of the sector. The IMaCS Industry Report (2010 Update) says that the Gold Loans market is significantly underpenetrated and expects it to continue growing at 35-40 per cent in the future. The story of the Malayalis with the Midas touch has just begun.
Moneylenders
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lthough the big boys dream it bigger, money lenders are still a force in the industry. “We provide round the clock service, have an intimate knowledge of the customer’s needs, and have a personal relationship with our customers. This helps us compete with NBFCs and banks,” says Mr C J Joseph, president of All Kerala Private Bankers Association (AKBPA), in which the vast majority of money lenders in Kerala are members. “Most of our customers are from the lower strata of the society, who borrow less than `10,000 to meet financial emergencies. We also have farmers and businessmen who borrow larger amounts as our customers,” says Mr Joseph. The Kerala Money Lenders Act, 1958 which regulates them allows the money lenders to charge an interest of up to 2 per cent higher than charged by the banks. The average tenure of the loan would be around 6 months. Around 5-10 per cent of the customers default on their payments and have their gold auctioned off. “We have to get a license from the State government, and are regulated by the Kerala Money Lenders Act, unlike the NBFCs which are regulated by the RBI,” says Mr Joseph. In fact, the issue of regulating NBFCs has been a contentious one with the State government holding the view that they also should come under the State Act (KMLA, 1958). The Kerala High Court has ruled in favour of the State government on the issue, but the NBFCs have obtained a stay on the order from the Supreme Court where the case is still going on.
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Green zone
Rain rain,come again Rainwater harvesting is a reliable option for households and businesses to be self-reliant in water A start can be made with rain water harvesting. Rain is considered the primary source of water in the hydrological cycle; rivers, lakes and groundwater are all secondary sources. In fact, it is rain that feeds all the secondary sources. However, most people look up to the secondary sources to meet their requirements. Rainwater harvesting means capturing rain where it falls and taking measures to keep that water clean by not allowing polluting activities to take place in the catchment. It is an eco-friendly and economical alternative that promises to meet the ever
How much water
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Kuruvilla Chacko
t’s a paradox: Kerala, with an annual rainfall of 3100 mm, is famous for its numerous water bodies and 44 rivers, but a minor variation in global climatic conditions could threaten it with a drought. Come summer and serpentine queues appear before public water supply taps; tankers charge as much as `500 for a fill. With its very high population density and the lowest per capita availability of fresh water, Kerala has every reason to mend its ways of treating one of the rare bounties of nature. 38
Rainwater harvesting is an eco-friendly and economical alternative to meet the ever expanding domestic and industrial water needs
ow much rainwater that falls on your roof can you harvest? Consider a building with a flat terrace area of 100 sq m. Assume the average annual rainfall in the area is approximately 600 mm. This means that if the terrace floor is assumed to be impermeable, and all the rain that falls on it is retained without evaporation, then, in one year, there will be rainwater on the terrace floor to a height of 600 mm. Assuming that only 60 per cent of the total rainfall is effectively harvested, you will have a collection of 36,000 litres of water. This volume is about twice the annual drinking water requirement of a 5-member family.
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The Sarovaram lake
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otel BTH Sarovaram in Kochi, which requires close to 33,000 litres of water per day, sets an example as to how a business enterprise can be eco-friendly and economical by harvesting rainwater. It setup its own water harvesting system by constructing an open tank with a capacity of 40 lakh litres. The tank can store water for 120 dry days, and makes the hotel self-sufficient in its water needs. The lake adds to its landscape; the fish in it ensures it remains algae free. Since elastic lining which prevents water from seeping into the ground was used in its construction, the project cost only one third of the total cost of a conventional RCC lining.
DAILY WATER REQUIREMENT OF A PERSON ♦ Cooking- 5 litres ♦ Drinking- 2 litres ♦ Others-8 litres ♦ Sanitary purposes-50 litres ♦ Bathing/washing-70 litres
The large picture Water harvesting can be undertaken through a variety of ways: ♦ Capturing runoff from rooftops ♦ Capturing runoff from local catchments ♦ Capturing seasonal floodwaters from local streams ♦ Conserving water through watershed management
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Rules stipulate that a residential home of 200 sq m area would need a rainwater storage tank of 5000 litres expanding domestic and industrial water needs. It can be adapted to all kinds of landscapes, whether the terrain is hilly, plain or seashore. It is an option available to water-scarce areas, especially the cities. Apart from storing rainwater, it can also be used to recharge the groundwater aquifers which can be tapped through wells or bore wells. Rainwater harvesting can meet the major chunk of Kerala’s water needs as it receives rains for a good 120-140 days a year. This long duration also allows for sufficient storage of water. Many States have made it mandatory to construct rainwater harvesting systems as part of dwellings. The Kerala Municipality Building Rules issued by the Government of Kerala on January 12, 2004, has made rainwater harvesting structures in new constructions mandatory. The rules stipulate that the minimum capacity of the rainwater storage tank shall be 25 litres/sq m for residential buildings and 50 litres/sq m for commercial buildings. Thus, a residential home of 200 sq m area would need a rainwater storage tank of 5000 litres. These rules are based on the understanding that an average person needs 135 litres of water a day (see box). Constructing a rainwater harvesting system is a relatively simple affair. Its main components are a catchment area, the pipelines, a filtration system and the storage tank. The rooftops of buildings or open spaces can double up as the catchment area. The water falling on the roof of a building is initially made to pass through a filter unit—a chamber filled with filtering media such as fibre, coarse sand and gravel layers—to remove debris and dirt. The filtered water is then stored
in underground tanks. This water can be used for all domestic purposes and can be made potable by purification. If cost and space constrain the volume of water that can be stored in tanks, the excess water from storage tanks can be diverted to bore wells or wells to recharge the groundwater aquifers. For industrial and commercial buildings which require huge quantities of water, an alternative is to dig a large catchment area in an open space, doubling it up as an artificial lake (see box). Open spaces can also be provided with a proper drainage system to transfer rain water to these aquifers. The cost of rainwater harvesting systems depends on a variety of factors. A big chunk of the expenses would be for laying the pipelines and building the storage tanks. The plumbing costs can be reduced considerably by locating rainwater outlets on the roofs, judiciously. Reusing existing structures like storage tanks and wells will also help reduce cost. All rainwater storage systems require proper protection and regular maintenance. The costs for installing the system in buildings under construction will be lesser. A proper study of the terrain on which the building is constructed as well as its soil composition and various other factors will help determine the best method for harvesting rain and reducing cost. But this initial cost is a one-time fixed investment with long term returns. A scientific use of the resources available to us will go a long way in supporting the existence of our future generations.
For industrial and commercial buildings which require a huge quantity of water, an alternative is to dig a large catchment area in an open space, doubling it up as an artificial lake
Health
Ayurveda suggests rejuvenation treatments are most effective in the rainy season
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Nasya, or nasal administration of medicine is one of the most powerful Ayurvedic tools for detoxification
A guide to rejuvenation
A P Jayadevan
ired and exhausted? Looking for rejuvenating and recharging yourself ? Take a break and head to the nearest Ayurveda centre.’ An advertisement on these lines can floor a businessman in the West, but not many in Kerala care to check out Ayurveda in its cradle for themselves. Perhaps a case of familiarity breeding contempt. Lack of information on the procedures and doubts about the benefits of the procedures could also weigh on their minds before taking a decision. Ayurveda talks about rasayana (rejuvenation) treatments that are meant to revitalise tissues that were worn out or are in the process of wearing out due to factors like diseases and ageing. It has designed exhaustive procedures that would enhance immune system, arrest ageing, give lustre to the skin, provide youthful energy, nourish blood and body tissues, and eliminate senility and other diseases. Why monsoon? Ayurveda practitioners in Kerala have found through experience that Monsoon or the varsha ritu is the best time to perform Ayurvedic treatments. And they have reasons to back their observations. It has been observed that the body is more receptive to Ayurvedic medicines in the rainy season than at any other time of the year. The Acharyas have hence suggested that preventive and curative treatments be undertaken during this sea41
son, along with special protocols for daily and seasonal regimens. “The most ideal and safe time to perform Panchakarma is the monsoon mainly because the atmospheric condition suits the patient and gives a comfortable feeling during treatments,” says Dr Krishnan Nampoothiri of Nagarjuna Ayurvedic Centre, Kalady, Ernakulam. The principle A guiding principle of Ayurveda is that the mind exerts the deepest influence on the body. A state of balanced awareness in an individual leads to presence of the right attitudes, in turn leading to the right actions, culminating in a higher state of health. Disease is seen to be the result of climatic variations, bacterial attack, nutritional deviance, and stress as well as other forms of emotional imbalance; in short, life(style) as a whole. Optimal health is achieved by cultivating mental, physical, and dietary habits that are conducive to physical and spiritual well-being. The processes primarily seek to restore the vital strength of the body by eliminating the accumulated waste/ toxins and making the tissues pure. If the accumulation of toxins is moderate, it can be eliminated in What’s the effect? ♦ Cleanses the body ♦ Improves digestion ♦ Sharpens sensory organs. ♦ Enhances immunity ♦ Improves blood circulation The six seasons according to Ayurveda Sisira or late winter (mid January—mid March) Vasantha or spring (mid March—mid May) Greeshma or summer (mid May—mid July) Varsha or rainy season (mid July—mid-September) Sarat or autumn (mid September—mid November) Hemantha or winter (mid November-mid January) 42
the natural course of the system, by milder pacification treatments. The procedures include administration of drugs with specific qualities such as immuno-modulation, antioxidant action (prevents bio-oxidation there by checking age-related disorders, auto immune disorders, degenerative disorders), and adaptogenic effects. If the accumulation of toxins is excessive, lifestyle corrections and medication may not suffice and it has to be cleared by evacuative-cleansing treatments or purificatory treatment, commonly known as Panchakarma. Ayurveda has thus laid a full roadmap for the rejuvenation of the body and mind through an elaborate process, which includes various treatments, dietary control and a strict adherence to a proper daily and seasonal routine. Panchakarma Panchakarma is the systemic cleansing of the body without damaging the tissues. Studies have indicated that Panchakarma treatment, particularly in monsoon season, can play a very important role in the treatment of nervous and chronic diseases, which are not cured by modern medicine or palliative and symptomatic treatments. Detoxification and purification treatments are the most effective treatment to recharge the body and improve the immune system which could help prevent contagious, autoimmune, metabolic and systemic diseases. Many protocols of the panchakarma act as the best antioxidant treatments. Panchakarma improves the functioning of all organs and systems of the body. All obstructions to the metabolic processes are removed and the anabolic process is strengthened. The katabolic processes at tissue level also become effective and efficient to increase the immune system. The treatment activates the hormoneproducing glands. Panchakarma enhances the functional processes of organs or system responsible for the excretion process. Excretory products such as urine, stool and sweat remove unwanted and disease producing sub-
stances or malas. Duration An elaborate full course of Panchakarma therapy takes 45 days to complete. However, these days, an abridged version lasting 15 to 21 days by eliminating certain inconsequential procedures but retaining the essential parts is also being designed. “We get several people who prefer a shorter version,” said Dr A N Anvar, chief physician, Punarnava Ayurveda Hospital, Ernakulam. “And most of them come back every year for the treatment.” The treatment programme is generally divided into four parts. ♦ Preparatory period (amapachana), in which the patient is administered internal medicines such as decoctions (kashyam), powders (choorna) and tablets (gulika) in order to improve the digestive fire. This will help burn the toxins. ♦ Poorvakarma period, or preprocess period, when treatments such as internal and external oleation (snehana) are done. ♦ Panchakarma in which the five purification treatments—Therapeutic vomiting or emesis (vamana), purgation (virechana), enema therapy (vasti), nasal administration (nasya) and detoxification of blood (rakta moksham) – are done. ♦ Paschatkarma, or post-process period, which mainly consists of administering a strict diet, modification in life style (rest, relaxation, sleep habits, control over stress, tension and anxiety etc), shirodhara and njavarakizhi. One significant aspect of this treatment is that one may abide by it for a period not less than twice that of the main processes. So if the treatment period is 21 days, one has to observe the regimen for 42 days to make the process complete and derive maximum benefit. The exact duration, type of treatment and whether all the five purification treatments are necessary are decided only after the doctor sees the patient and analyses the constitution and the dosha imbalance in the body.
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CSR/ V-Guard Industries Ltd
We guard
V-Guard Industries counts itself among Kerala’s largest private sector companies, but that has only added to its obligation to give back to society in equal measure
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Kuruvilla Chacko
he story of Mr Kochouseph Chittlilappilly, a young physics graduate from a village, turning an electrical utility brand into a multi-crore national company is of constant inspiration for entrepreneurs across Kerala. As the `700 crore VGuard Industries Ltd continues to register rapid growth, it makes equal strides on another equally challenging task: that of being a society builder. Advocating the cause of CSR activities of V-Guard Industries, Mr. Chittilapilly, chairman of the group, says, “We have embraced and inte-
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grated the philosophy of CSR into our organisation right from inception. Today, CSR has gained importance primarily because of the realisation
The Thomas Chittilappilly Trust funds the education of 900 children belonging to financially backward families in Ernakulam and Thrissur districts in Kerala and Ramanagaram taluk in Bangalore
of its profound impact on society, the environment, consumers, communities and stakeholders. The responsibility of corporates further stems from the realisation that business is an integral part of society.� Being a conscious contributor to a more efficient society, the company is promoting initiatives in education and health sectors. Mr Chandramohanan PR, senior vice-president (HR and administration), feels that education and health are two vital areas concerning the well being of society as a whole. And true to the word, VGuard has set up the Thomas Chittillappilly Trust, in addition to the
The Social Welfare Fund, which runs on the voluntary contributions of V-Guard employees, has distributed medicines worth more than `3 lakh among the poor patients in the Ernakulam General Hospital in the first three months of the financial year initiatives launched by the company’s employees themselves under the ‘social welfare fund’. Education The Trust funds the education of 900 children belonging to financially backward families from Kunnathunadu panchayat and slums in Ernakulam district, Parappur village in Thrissur district and Ramanagaram taluk in Bangalore through scholarships and other forms of assistance. “We have a system to identify deserving students and provide them assistance in the form of learning material and financial aid,” says Mr Chandramohanan. V-Guard has adopted the Government High School, Vennala, Kochi, where the company is headquartered, and provides study materials and other necessities for underprivileged children here. The company is currently constructing a new building for the 12th grade students. In addition, the company supports a sponsorship scheme, in association with Rajagiri Outreach, the service wing of Rajagiri College of Social Sciences, for children hailing from socially and economically back-
ward families. Under the scheme, the beneficiaries avail financial assistance to continue with formal schooling. A total of 650 students from the slum areas of Kochi such as Vaduthala, Kissan Colony, Udaya Colony and Mattancherry, Kunnathnadu Panchayat in Ernakulam district, Tholur Grama Panchayat in Trichur district as well as 24 students from Ettimadai, Coimbatore are being supported under this venture. V-Guard plans to include 300 more students from Kunnathunadu panchayat and 200 more students from Tholur panchayat under this programme. Also, a total of 287 financially backward students are provided with text books and other school essentials in Ramanagaram Taluk in Bangalore. Health V-Guard’s commitment to the healthcare of the poor and the needy can be gauged from the fact that Mr Chittilappilly donated one of his kidneys to a poor kidney patient recently. A first of its kind in the corporate world, Mr Chittipallay’s gesture gave tremendous momentum to the Kidney Foundation of India, a chain movement of kidney donors. But showing kindness to the hapless was not unheard of in the company: for long, the employees have been operating a Social Welfare Fund, to which they make a voluntary contribution every month. The Fund purchases medicines based on the requirements of the patients in the general and cancer wards of Ernakulam General Hospital and hands it over directly to the hospital. This ensures that the help reaches the right people. The employees also make it a point to visit the general hospital every month by taking turns. The fund has managed to distribute medicines worth more than `3 lakh in the first three
months of the financial year. The employees also hold regular medical and blood donation camps for the public. V-Guard supports an old age home at Parappur in Thrissur named ‘Shantimandiram’. With a facility to accommodate 60 inmates at a time, Shantimandiram is an institution recognised by the Board of Control for Orphanage & Other Charitable Homes, Kerala. Taking the adage ‘A healthy mind in a healthy body’ seriously, V-Guard supports counselling sessions aimed at fostering a positive outlook among different sections of society. Awareness classes in association with the Kerala chapter of the Positive Thinking Movement (PTM –K) are conducted for the same. The movement, started a year ago, introduces the benefits of positive thinking to different sections of people. It has already organised classes for autorickshaw drivers in association with the police and trade unions at the Chavara Cultural Centre in Kochi. Based on the positive response, it organises monthly classes for 40 autorickshaw drivers by trained volunteers. The movement has also entered into an agreement with schools across Kerala for organising training programmes for teachers on positive thinking. Some of its future plans include organising counselling services for individuals, families and enterprises as well. The company sure has a heart as big as its purse strings to tag along.
The responsibility of corporates stems from the realisation that business is an integral part of society, says Mr Kochouseph Chittilappilluy, chairman
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Personal Finance/PMS
On the dot If you are a high net worth individual and want experts to work for you in the stock markets, then subscribe to portfolio management services
“M
ind your own business. Leave investing to us,� screamed a hoarding of a portfolio management firm in a busy intersection in Kochi. The curt message is that people will do better to concentrate on their own businesses instead of spending time on planning and tracking their investments in the market. They can hire experts, or portfolio managers, to do the job. So what is a portfolio management service (PMS)? They are specialised investment services that target high net worth individuals. A portfolio manager manages the funds a client deposits with him. The portfolio manager may advise the client or take up the management of the portfolio of securities or funds on behalf of the client, based on a contract or arrangement with the client. He constructs a customised portfolio for the client based on his investment goals and invests the money in stocks, fixed income, debt, cash, structured products and other individual securities on behalf of the client. Types of PMS Based on the kind of service they provide to the clients, portfolio managers are broadly divided into two. A discretionary portfolio manager manages each portfolio independently in accordance with the needs of the client. He decides on the stocks to buy and executes the trades on behalf of his
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client. Most portfolio managers prefer this route. On the other hand, a non-discretionary portfolio manager manages the portfolio on the basis of the directions from the client. The client can specify the stocks to be bought in this case, and the portfolio manager buys or sells the securities based on the instructions from the client. PMS vs mutual funds One can always take an exposure to the stock market directly without going through a portfolio manager. But investing in the stock market requires one to put some time and effort in identifying the stocks to buy and to track them. A mutual fund also helps one to take an exposure to equities without the hassle of identifying in-
Portfolio managers cannot offer indicative or guaranteed returns to their clients. But the returns from PMS are expected to be greater than that of mutual funds of a similar class. Not surprisingly, PMS are growing faster than mutual funds
dividual stocks and tracking them. The advantage of a PMS is that it allows you to get the service of experts in managing your portfolio, avoiding the hassle of analysing and tracking the share market. And unlike mutual funds which pool the funds from various investors, they customise the portfolio to suit the requirements of each investor. In a PMS, each portfolio has a dedicated portfolio manager whom the investor can consult on the portfolio. So the investor can sit with the portfolio manager and decide on a portfolio that suits his risk-return profile. In mutual funds, one needs to exercise more discretion before buying them. PMS norms do not permit pooling of funds and each investor gets the individual securities in his account, whereas in mutual funds, the investor has little say in the companies in which his units have exposure to. PMS also provide real time reporting to each client, so that they can monitor the investments, unlike mutual funds that declare their portfolio once in three months only. Most portfolio managers update their customers on their exposure on a daily basis. The portfolio managers enjoy better freedom in investing the funds than mutual fund managers who are often restricted by the limitations set in the prospectus of the mutual fund. This flexibility helps them act
fast when required. They can also have more flexibility to move in and out of cash depending on their market view. The customised nature of the PMS precludes the possibility of tracking the returns of PMS as a class of investments. Unlike mutual fund schemes, ratings are not available for PMSs and information about them is not easily available. Portfolio managers also cannot offer indicative or guaranteed returns to their clients. But the returns from PMS are expected to be greater than that of mutual funds of a similar class. Not surprisingly, PMS are growing faster than mutual funds. The fee structure of the PMS varies from company to company. Companies usually charge a mix of fixed and variable charges for managing the portfolio. The fixed component of the portfolio could consist of a one-time up front fee and an annual management fee that is usually a percentage of the initial corpus value. The variable component could be a profit share, and depends on the performance of the portfolio thereby acting as an incentive to the portfolio manager to perform better. In addition to these charges, some firms also profit from the brokerages levied on the transactions in the portfolio. The SEBI has stipulated the minimum amount of funds that a person requires to start an account with a portfolio manager to be `5lakh. But most large PMS schemes have a minimum investment limit ranging from `25 lakh to `1 crore. The degree of customisation of the portfolio usually increases with the amount invested. PMS does not usually have a lockin period. Clients can withdraw their money by giving a notice of 3-5 days. They also have the flexibility of withdrawing their profits and retaining the minimum amount. But some companies have started mandating lock-in periods from 6 months and 36 months. Portfolio managers usually charge a fee on premature withdrawal of funds. Choosing a portfolio management scheme There are a lot of players offering PMS in the market today, with almost all share brokers worth their name offer-
The RBI has stipulated the minimum amount of funds that a person requires to start an account with a portfolio manager to be `5lakh. But most large PMS schemes have a minimum investment limit ranging from `25 lakh to `1 crore ing them. So how would you select the right person from among the milieu? Here are some tips. ♦ Objective of the scheme: The investor has to choose a portfolio manager whose objectives match his in terms of the style of investing. It is advisable to avoid share brokers who double up as portfolio managers as they could bank on brokerage from the transactions as their major source of income. ♦ Fund manager: The fund manager should have sufficient experience in the business. It is important that you look for fund managers who have performed decently during market downturns also.
♦ Select a portfolio that has a high minimum investment criterion. When the minimum investment is low, the number of accounts that has to be handled by the portfolio manager will be higher, resulting in poor performance. ♦ Go for PMS’ that charge a higher portion of the fees from the profits made by the scheme as it reflects his confidence in his schemes. Portfolio managers are regulated by SEBI. The regulations stipulate that the portfolio manager gives the client reports pertaining to his account every six months or as and when required by the client. The report should include details regarding the securities held in the portfolio, on the date of the report, the transactions undertaken in the portfolio, dividends, interest, bonus shares, rights shares or stock splits during the period, and expenses incurred in managing the portfolio. It should also specify the risks relating to the recommendations made by the portfolio manager. In addition to these, each portfolio is governed by the agreement signed between the portfolio manager and the client. The services provided and the charges levied by the portfolio manager are stipulated in this agreement.
PMS vs Mutual Funds Mutual Fund
PMS
Fund management
Funds are pooled
Customisation
Product for the masses
Pooling not allowed. Securities are held individually
Minimum Investment requirement Charges
Low
High
Fund management charges
Fund management charges + profit share + Brokerage
Flexibility
Restricted by the objectives of the funds
Ratings
Available
Reporting
Periodic reporting of portfolio holdings
Returns
Personalised service
Lower
More flexibility in managing money Not rated as each portfolio is customised Real time reporting of changes to the portfolio Higher
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Personal Finance/capital protection Schemes
Slow gain, no pain
Capital Protection Schemes protect the capital invested in them but forego the opportunity to make higher returns 48
S
tock markets by nature are volatile. Investors can even lose the capital they invest in the case of downturns, not to mention the returns. This stops many from investing in shares and thereby benefitting from the superior returns they provide. Capital protection schemes (CPS) which guarantee the capital invested in them provide an answer. What are CPS CPSs are essentially closed-ended debt funds which have an equity exposure. They are designed to provide better returns through an exposure to the equity markets, and to protect the principal in case of market downturns. Their closed-ended nature locks in the investor for the tenure of the fund and allows the fund manager to manage the funds without worrying about redemptions. It also enables them to invest in securities of longer term whose tenure matches that of the fund, and earn a higher interest. Scheme mechanics One might wonder how CPSs are able to guarantee the capital invested in them. After all, investments in stock markets can go down in the period. The trick is that they invest a large portion of funds in debt. Suppose the fund is for five years. They invest a portion of the funds in debt paper that matches the tenure of the fund. If you have invested `10,000 in a CPS of five years tenure, the fund may invest 60 percent of the same in debt securities depending on the
These schemes cannot match the performance of equity mutual funds in stable market conditions, but might outperform them when markets go down, as the debt investment continues to earn returns
prevailing interest rate. If the prevailing interest rate is 11 per cent for five year debt, then after the term, the `6,000 invested in debt will grow to `10,110 and goes to guarantee your capital. Only the remaining `4,000 is invested in the equity market which has the potential of earning superior returns. At the close of the scheme, the fund gives you the guaranteed capital from its investment in debt securities and returns by redeeming the investment in equity. On the face of it, this looks like a good proposition, but one must not forget that the capital guarantee
Details of CPS Minimum Investment `5,000/Term – 3 -5 years Entry Load: Nil Fund Management Charges – 2-2.5 per cent Securities Invested in : The major portion in fixed-income securities and the rest in equity and related instruments Liquidity – Units listed in the stock exchanges
is for the nominal value alone. Your investment is not protected against inflation and the return on it is not guaranteed. Had you invested the money in a fixed deposit, your capital as well as the interest on it would have been guaranteed. Conditions imposed by SEBI To protect the interest of the investors and to make sure that the CPSs are able to guarantee the capital, SEBI has come out with some guidelines regarding them. As per the guidelines, the debt component of the portfolio, that is used to guarantee the capital, should have the highest investment grade rating. Again, the portfolio of CPSs have to be rated by a SEBI-registered credit rating agency with the rating being reviewed every quarter.
CPSs can be a transition product for those investors who feel intimidated by the prospect of seeing even their capital invested in mutual funds eroded when the markets tank Returns While they provide a guarantee on the capital invested, CPSs do not provide any guarantee on the returns from it. The returns from such schemes can generally be expected to be better than fixed deposits, as they have an exposure to the equity market that gives better returns. These schemes cannot match the performance of equity mutual funds in stable market conditions, but might outperform them when markets go down, as the debt investment continues to earn returns. CPSs will suit the requirements of risk neutral investors, who mainly invest in debt securities that provide a guaranteed capital and returns. It is estimated that Indians have about `54,00,000 crore in bank fixed deposits, compared to just around `7,00,000 crore in mutual funds. CPSs can be a transition product for many of those investors who feel intimidated by the prospect of seeing even their capital invested in mutual funds eroded when the markets tank. In addition to the prospect of getting higher returns on their investment, CPSs also are more tax efficient for investors in the higher tax brackets. The dividends from CPSs, which are essentially debt funds, attract a dividend distribution tax of 12.5 per cent plus levies for individuals as against interest income from FDs which are taxed at the marginal tax rate that could be 30 per cent for investors in the higher tax brackets. On maturity, long term capital gains at 10 per cent without indexation or 20 per cent with indexation will have to be paid on the profits. 49
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