English bs 23 01 2018 by Mahesh Yadav

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TUESDAY, 23 JANUARY 2018 20 pages in 1 section

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MUMBAI (CITY) ~6.00

VOLUME XXII NUMBER 116

THE MARKETS ON MONDAY

CCh hg # g#

Sensex 35,798.0 Nifty 10,966.2 Nifty futures* 10,992.5 Dollar ~63.9 Euro ~78.3 Brent crude ($/bbl) 68.6## Gold (10 gm)### ~30,040.0

*(Jan.) Premium on Nifty Spot; **Previous close; # Over previous close; ## At 9 pm IST; ### Market rate exclusive of VAT; Source: IBJA

286.4 71.5 26.3 ~63.9** ~78.3** 68.7** ~15.0

WORLD P6

SANOFI AGREES TO BUY US FIRM FOR $11.6 BN

Consumer Sentiments Index

(Base: September - December 2015 = 100)

NEW OPPORTUNITIES

ASHLEY COUTINHO

Mumbai, 22 January

(%)

Forensic departments of large audit firms and independent investigation agencies have been inundated with requests for forensic work following the push to clean up the bad debt mess under the Insolvency and Bankruptcy Code (IBC). According to some estimates, the forensic business linked to the IBC has more than doubled in the past few months, and experts believe it will only increase. The work primarily includes doing background checks on promoters, asset searches, verification of creditors, and forensic monitoring of cash flows. For big accounting firms, this is the icing on the cake as they are already working on bankruptcy cases as insolvency professionals. Checks on promoters Background checks on promoters have surged after the recent amendment to the Insolvency and

Source: BSE-CMIE

PAYROLLS DATABASE AHOY!

10 >

INDIA TO GROW FASTER THAN CHINA IN 2018: IMF Indiaisprojectedtogrowat7.4percentin 2018asagainstChina’s6.8percent,the InternationalMonetaryFund(IMF)saidon Monday,makingitthefastest-growing country.InitslatestWorldEconomicOutlook update,theIMFhasprojecteda7.8percent growthrateforIndiain2019. 4>

THE SMART INVESTOR P12

Nifty nears 11k after heavyweights rally

Stocksendedatrecordhighsforthefourth sessionwiththebenchmarkNiftynearing the11,000-markamidhugeinflowsfrom overseasinvestorsandsharpgainsinindex heavyweightssuchasRIL,TCS,andONGC. TheBSESensexsurged286.43points,or 0.81percent,tocloseat35,798.01.

THE SMART INVESTOR P13

Axis Bank breaks the jinx, net up 25 per cent

Afteraprolongedperiodofnegativestock reactiontoitsquarterlyresults,AxisBank brokethejinxwithitsQ3performance.The stockwasamongthetopgainerson Monday,rising3.5percent.Netprofitrose 25percentyear-on-yearto~7.26billion.

Stocks rise as US Senate votes to end shutdown

StocksandTreasuriesgained,whilethedollar erasedlosses,aftertheUSSenateapproveda Billtofundthegovernment.Allmajorequity gaugesroseafterlawmakersvotedtoenda partialgovernmentshutdown. 6>

> RESULTS

RECKONER

Quarter ended Dec 31, 2017; Common sample of 145 companies (results available of 150) SALES Dec 31, ‘16 Dec 31, ‘17 NET PROFIT Dec 31, ‘16 Dec 31, ‘17

9.4% 12.9%

3,129 billion

7.1% 23%

477 billion

2,772 billion

388 billion

Companies which have reported zero sales are excluded Data compiled by BS Research Bureau; Source: Capitaline

| Audit firms, investigation agencies inundated with forensic work related to IBC | Business linked to IBC has more than doubled in the past few months | Double bonanza for big accounting firms as they also work as insolvency professionals ILLUSTRATION: AJAY MOHANTY

Bankruptcy Code (IBC). This stems from concerns that promoters or their allies might try to buy back the companies at a discounted value through proxy investors. This is especially true when the bidders are overseas entities or come from a seemingly unrelated industry.

Cryptocurrency exchanges face the red flag In some cases, RoC is seeking an undertaking

SOMESH JHA & DILASHA SETH New Delhi, 22 January

he banking system is not the only one keeping a safe distance from the existing cryptocurrency business players. Opening virtual currency exchanges has become equally tough, especially when words like bit, crypto, coin, virtual are part of a company name. The Registrar of Companies (RoC), under the Ministry of Corporate Affairs, has stopped registering cryptocurrency exchanges under the Companies Act, 2013. In some cases, the RoC is asking for an undertaking from software development- or information technology-related companies that it will not deal with cryptocurrencies such as bitcoins, it is learnt. “I tried to register my company in December, but the RoC didn’t accept my request. The company’s name had the term ‘bitcoin’ and the RoC said it wouldn’t support it,’’ an executive THE OTHER with an upcoming crypto- SIDE OFTHE currency exchange said. COIN-II Cryptocurrency exchanges are a platform for buying and selling virtual currencies. Around ~100 billion worth of transaction is taking place on average per month on these exchanges in the country, industry estimates suggest. A co-founder of a new exchange platform on the outskirts of Delhi narrated how he struggled with the registration process. Name proposals such as Cryptocoin, Bitmoney and Bankyourcoin were rejected by the RoC. “The registration was finally approved after we applied as a software company without any of the controversial words,” he said, requesting Turn to Page 16 > anonymity.

OPINION

EDIT: THE THREAT OF CRYPTOS

P11

WHAT ARE THESE EXCHANGES? These are online platforms where one can exchange a cryptocurrency for another currency, including fiat currency such as rupee or dollar. After creating an account, a unique digital wallet is given to investors to store cryptocurrency. In India, major exchanges are Coinsecure, Zebpay, Unocoin, Koinex, Coindelta, BuyUcoin, and Bitxoxo

REGULATORY SUGGESTIONS BY INDUSTRY | Allow a self-regulatory authority on the lines of Payment Council of India | Fix minimum capital requirement for setting up exchanges | Provide insurance cover for exchanges | Approve tiered KYC approach, to be tightened with increase in trade volume | Mandate all exchanges to have anti-money laundering software for rupee transactions | Allow companies to file suspicious transaction records with Financial Intelligence Unit

Mumbai-Delhi air route is world’s third busiest now SURAJEET DAS GUPTA

New Delhi, 22 January

BUSIEST ROUTES IN 2017 Route Jeju-Seoul Gimpo Melbourne-Sydney Mumbai-Delhi Fukuoka-Tokyo Haneda Rio de Janeiro-Sao Paulo Congonhas Sapporo-Tokyo Haneda Los Angeles-San Francisco

Source: Oag.com

No. of flights 64,991 54,519 47,462 42,835 39,325 38,389 34,897

FLIPKART’S JABONG EYES LOYALISTS VIA VIP SLOTS

Forensic audit biz soars as firms head for bankruptcy

THE BSE-CMIE TRACKER

Unemployment rate

COMPANIES P2

It is the third-busiest air route in the world, with as many as 47,500 departures and landings last year. Yetdespitereachingthis position,theMumbai-Delhi routecouldfaceserious challengesinsustainingor improvingitthisyear.The reason?Hardlyanyadditional capacityisnowavailableat Mumbaiairporttodeploymore flightsonthisroute. Butwiththedemand growingby10-12percent annually,andwithno possibilityofaddingmore flights,flyerswillsoonfacea hikeinairfaresthisyear. AccordingtoOAG,anair travelintelligencefirmbasedin

theUK,theMumbai-Delhiair routewasthethird-busiestin theworldlastyear,withan averageof130flightsbetween thetwocitieseveryday.In2016, Indiawasnumbersixinthe peckingorderofthebusiest routes,andthiscalculationwas basedonthecapacitydeployed ontherouteoneway.In2017 onlytheJeju-SeoulGimpo route(withover64,991flights) andMelbourne-Sydney(54,519 departuresandarrivals)were busierthanMumbai-Delhi. Airlinessaytheroutemakes upabout10percentoftheir capacityandrevenues,making itbyfarthebiggestmarket. Turn to Page 16 >

BACKPAGE

DOMESTIC AIR TRAFFIC CROSSED 100 MN IN 2017

P20

| Connected parties’ definition under the amended IBC put onus on IRPs, committee of creditors (CoC) to do due diligence | Assets are often held through proxy owners and cannot be linked back to promoters | Preferential and undervalued transactions under scanner

“We are being asked to do checks on the background and linkages of bidders in the majority of cases,” said Reshmi Khurana, managing director and head of South Asia, Kroll. “A thorough assessment of the background of bidders, their intent, source of funds, and past track record has become

critical for the banks while selecting the buyer.” The connected parties’ definition under the amended IBC is quite exhaustive, and the onus is now on insolvency professionals and the committee of creditors to abide by the requirements and carry out the necessary diligence, experts say. “Several Indian companies work through a maze of subsidiaries and associate companies that have complex cross-holding structures and multiple directorships. Also, several companies often do not disclose who the related parties are, even in annual reports. This makes it difficult to ascertain who the related parties are,” said Vikram Babbar, partner, fraud investigation & dispute services, EY India. According to experts, there have been instances in the past when background checks have helped identify siphoning off large funds through dummy or shell companies and the infusion of promoters’ equity by round-tripping of borrowers’ or bankers’ funds. Turn to Page 16 >

AN INDIAN PM IN DAVOS AFTER 20 YEARS Officials greet Prime Minister Narendra Modi on his arrival at the Zurich International Airport to participate in the World Economic Forum (WEF) in Davos on Monday. Modi will be meeting Swiss President Alain Berset in Davos and will later host a dinner for global CEOs. He will deliver the opening plenary address at the five-day WEF Summit on Tuesday. He is also scheduled to have a bilateral meeting with Swedish Prime Minister Stefan Lofven. The theme for this year’s summit is ‘Creating a shared future in a fractured world’. PHOTO: PTI

RELATED REPORTS ON PAGE 4

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2 COMPANIES STOCKS

https://t.me/TheHindu_Zone MUMBAI | TUESDAY, 23 JANUARY 2018

> TCS

> ONGC

IN THE NEWS

Topgaineramongthe S&PBSESensexstocks

Tobuygovernment 51.11percentstakein HPCLfor~370billion

* OVER PREVIOUS CLOSE

~2,954.75 PREVIOUS CLOSE ~3,113.15 CLOSE 5.36% UP*

~193.60 PREVIOUS CLOSE ~199.95 CLOSE 3.28% UP*

> Reliance Industries > Axis Bank Q3netprofitup26percent at~94billion;Y-o-Y

Q3FY18grossNPAstood at5.28percentagainst 5.90percentinQ2FY18

> Hindustan Oil Exploration Q3netprofitjumped three-foldat ~129million;Y-o-Y

~590.25 PREVIOUS CLOSE ~611.05 CLOSE 3.52% UP*

~929.35 PREVIOUS CLOSE ~971.20 CLOSE 4.50% UP*

~132.15 PREVIOUS CLOSE ~143.50 CLOSE 8.59% UP*

IN BRIEF

Pressure on Airtel, other telcos could partly ease: Fitch India’slargesttelecomoperatorBhartiAirtel’s weakearningsmayhavemarkedalowpoint for thecountry’stelcos,butabitofpressure couldliftthisyearasRelianceJiotriggered marketcompetitionstartstoease,according toFitchRatings.Thestatementcomesafter Airtellastweekpostedover39percentfallinconsolidatednet profittoabout~3.06billionforthethirdquarterendedDecember. Fitchtermedthecurrentlowindustrytariffsas“unsustainable”, andsaiditexpectsthemtorisein2018,asJioswitchesgearfrom gainingcustomerstomakingreasonablereturnsonitsinvestments inthesector.“BhartiAirtel’sratingheadroomwillnarrowdueto lowercashgenerationandhighcapexrequirementsinthe financialyearendingMarch2018(FY18),”FitchRatingssaid. PTI<

Canadian pension fund picks up 6.3% in ReNew Power

CanadaPensionPlan InvestmentBoard(CPPIB)and ReNewPowerVentures(ReNew Power)onMondayannounced thatCPPIBwasacquiringa6.3 percentstakeinReNewPower fromtheAsianDevelopment Bankfor$144million. BS REPORTER<

AirAsia India appoints engineering head BudgetcarrierAirAsiaIndiahas saidithasappointedMalaysian nationalSunmuga Kanaratnamasitsheadof engineering.Kanaratnam joinedthecompanylast Decemberandreplaces incumbentNanthaKumar, whohasmovedbackto Malaysiatotakeupanother positionwiththeAirAsiagroup, areleasesaid. BS REPORTER<

Siemens Gamesa wins 326-Mw wind power orders

SiemensGamesaRenewable Energyhaswonordersfor326 Mwofwindpowercapacity, andexpectsthiswillhelp improveitsoperationsinIndia. Thecompanysaid,as perthe deal,it willhandletheentire infrastructureneededto operatetheprojectstogether withthesupply,erectionand commissioningof135unitsof G114-2.0Mwwindturbinesand 28unitsofitsG97-2.0Mwfor independentpowerproducers andindustrialcustomers inIndia. BS REPORTER<

Tencent-backed Practo sees losses triple to ~1.9 bn

Tencent-backeddoctorand clinicsearchenginePractohas seenitslossestripleto~1.91 billioninthefinancialyear 2016-17,asexpensessurged duetoriseinemployee compensation.Accordingto documentsfiledwiththe RegistrarofCompanies, sourcedthroughTofler,the companyreportedarevenueof ~2.1billioninthesameperiod, agrowthof28percentoverthe ~1.6-billionrevenuePracto reportedinFY16. BS REPORTER<

Philips India appoints Sudeep Agrawal as CFO PhilipsIndiahassaidithas appointedSudeepAgrawalas chieffinancialofficer-Indian subcontinent,effectiveJanuary 15.Inhisnewrole,Agrawalwill headthefinanceteaminthe Indiansubcontinentandwill alsoberesponsibletolead talentdevelopmentforfinance functionswithinPhilipsIndia, thecompanysaid. PTI<

Religare Enterprises executive chairman steps down ReligareEnterpriseshassaidits executivechairmanSLakshminarayananhasresigned.His resignationcomeswithinalittle overtwomonthsofappointmentatthecompany'sboardas executivechairman.Lakshminarayanan,aformerHome Secretary,hadjoinedas executivechairmanin Novemberlastyear. PTI<

Rural India takes a shine to scooters, again In first 9 months of FY18, scooter sales grew by 18.5%; number may jump further as more women join workforce SOHINI DAS

Ahmedabad, 22 January

The next leg of “scooterisation” of the Indian two-wheeler market will come from rural and semi-urban pockets, with scooters evolving as the preferred vehicle of commute for residents of these areas. Scooters have been outpacing the overall two-wheeler industry growth rate for sometime, and now major players say that growth in the rural areas has picked up too. The industry leader, Honda Motorcycle and Scooter India (HMSI), now sells three scooters for every seven motorcycles in rural and semi-urban pockets as against one scooter for every nine motorbikes around five years ago. Inthefirstninemonthsofthisfiscal, scooter sales grew by 18.5 per cent, whereas overall two-wheeler sales grew 11.5 per cent. Data reveal that in traditional agrarian states the growth of scooters has come at the cost of motorcycle sales. Scooters are increasingly eating into the share of entry level commuterbikes(100-110cc)beitinurbanor rural areas — evident in the narrowing gap between contributions each of these segments make to the overall two-wheeler industry. During April-December 2017, scoot-

erscontributed33.7percentoftheoverall two-wheeler sales, while 100-110 cc bikes contributed 36.5 per cent — a gap of mere 2.8 per cent. Industry insiders say this gap was much bigger at 28-30 per cent around seven years ago. HMSI (the market leader in scooters with a 57.2 per cent share as on December) was quick to spot the trend and, thus, the opportunity. It not only launched an affordable model based on the Activa for the rural market in mid-2017 (the Cliq), but took care that 70percentofthesub-dealernetworkin FY18 came up in rural and semi-urban markets.Theruralmarketsaregrowing at 15 per cent for HMSI, up from single digit growth rates about five years ago. Urban markets, however, are still clipping a faster growth rate at 25 per cent. The 110 cc Cliq (priced at ~42,000) is believed to have sold over 12,000 models, so far, and has tyres that provide extra grip and better control over patchy roads, making it suitable to the rural commuting needs. Y S Guleria, senior vice-president, sales and marketing, HMSI, said: “With more women joining the workforce in semi-urban and rural areas (such as teaching and nursing), the need for mobilityhasgoneuptoo.Manyofthese families cannot afford two vehicles for

SPEEDING UP

State-wisecategorycontribution

(figures in %)

Automatic scooter

--------------------------------------------------------------------------------

Gujarat Madhya Pradesh Punjab Rajasthan Uttar Pradesh

FY13 31 14 25 12 9

FY17 42 23 41 21 16

% chg 11 9 16 9 7

commuteandthescooterthusemerges as a preferred choice.” Earlier,thepricedifferencebetween an automatic scooter (~48,000 and above) and a 100-110 cc bike (~44,000 and above) was deterring this potential customer, Guleria said. HMSI spottedthisneedgapanddecidedtolaunch the Cliq at ~42,300 (in Rajasthan where the company makes it too. The scooter costs ~44,000 in Gujarat). “The Cliq is based on the popular Activa platform and we have economies of scale, hence, we could be

Jabong plans to acquire CUSTOMER LOCK-IN new customers through the ‘Big Brand Sale’, offering discounts from 51% to 80% Jabong’s VIP customers Early access to sale Exclusive product line-up

New Delhi, 22 January

oftBank Group-backed e-commerce major Flipkart seems to be testing waters again with its own version of loyalty programme — this time, via its fashion arms Myntra and Jabong. This is the platform’s latest move to take on Amazon’s premium membership service Prime. While keeping plans under wraps, Ananth Narayanan, chief executive Myntra and Jabong, said that they have plans for launching a loyalty programme for both the fashion platforms. “We do have plans for loyalty programmes and memberships for Myntra and Jabong. The slots may be one feature of it. There would be many other things that are actually being thought about in the loyalty programme. We are planning to launch something, but it is going to be reasonably special in the fashion space,” said Narayanan. On Monday, Jabong.com announced it would launch ‘Big Brand Sale’ from January 25. The fashion major is offering 380,000 styles from 3,000 international and Indian brands at a discounted range of between 51 per cent and 80 per cent across product categories. Jabong is targeting 80 per cent sales growth in the new avatar of its sale and is expecting to clock in seven times revenue over average daily sales. As part of the sale, the company is launching exclusive slots for its ‘VIP’ customers. “In a first for the platform, Jabong would be opening a pre-sale win-

FY13 68 83 73 85 87

FY17 57 74 58 77 79

% chg -11 -9 -15 -8 -8

Source: Industry

cost competitive. Now, coming in the same price bracket, the Cliq is at least a vehicle of consideration for potential buyers,” he reasoned. Roy Kurian, Yamaha Motor India’s senior vice-president, sales and marketing, said: “The reason for someone considering a scooter is usually always gender need. With more women joining the workforce in tier-III towns and rural areas, the scooter is poised for growth.” Kurian felt that the inflection point is likely to come after 2020 — when the BS-VI emission norms would

Prime play: Jabong eyes loyalists via VIP slots KARAN CHOUDHURY

Motorcycle

--------------------------------------------------------------------------------

Amazon Prime

Next-day delivery Preference during sales Entertainment

Paytm Loyalty Points

Loyalty points to get benefits at brick and mortar stores Aims at rewarding its user base and driving business growth for merchant partners

dow on January 24, from 7 pm to 10.30 pm, with special offers for its VIP customers, and next-day delivery in select metros like Delhi-NCR. Other customers can win slots for the VIP sale period by participating in in-app games,” said Gunjan Soni, head of Jabong. Narayanan said they were planning to bring in a large number of new customers via the Big Brand Sale. “The reason we do this is because it also helps us in customer

acquisitions. This would be a large new customer acquisition event for Jabong. We are expecting around 100,000 new customers to get added during the sale,” he added. A few years ago, Flipkart had tried its hands with a loyalty programme, Flipkart First, but was not able to get much traction. Flipkart’s biggest rival, Amazon India, with its mix of fashion, grocery and inapp entertainment play for its Prime, has been able to gain as many as 100 million paid members in India, according to industry insiders. According to the company, in its most recent Great Indian Sale, Prime membership purchases stood at 4.5 times over a normal day. “Amazon.in added Prime members from over 300 cities, including Srinagar in north, Erode in south, Bhuj in west and Hooghly in East,” the company said. Financial services platform Paytm also recently introduced ‘Paytm Loyalty Points’, which customers can earn doing multiple activities within its ecosystem. To start with, all cash backs that customers receive on the platform would be accumulated as loyalty points. “These points can then be redeemed across online platforms as well as over five million merchant outlets that accept Paytm. The company, which will also introduce more features in this offering in the coming year, aims to reward its vast user base and encourage them to transact digitally,” the company said. According to Soni, VIP customers would mostly be regular customers. “There are certain criteria on basis of which we will choose people who can participate for the VIP slots, such as past transaction history. Customers can also win a pass if they play a few contests with us. It is also based around the amount of wish list people make. There are some interesting activities we are doing on social media,” Soni said.

set in and disrupt the 100-110 cc bikes market dynamics. “The scooter will stand to gain from this as it will be a more price competitive and convenient (gearless) option. The 100 cc scooters will gain the most as they offer better mileage,” he said. According to analysts, following the HMSI’s footsteps, more scooter models targetedattheruralcustomerwillcome up. “As volumes go up, the pricing would get more competitive. As road network improves, the scooters stand in good stead,” said Subrata Ray, senior group vice-president of ICRA. In its analysis of the two-wheeler market, ICRA has said that an increasing road network augurs well for demand of personalised transportation. The rural road network comprised 61 per cent of the total road network in the country (in 2015) and as per recent estimates, major district roads and rural road network stands at 4.91 million km as of FY17. Scooters now make up a major share of sales for major two-wheeler players(38percentforTVSMotorIndia and 84 per cent for Suzuki Motorcycle India). Both these companies have also seen a spurt in scooter sales volumes this fiscal — 56.5 per cent for Suzuki and 35 per cent for TVS.

Tata Sons should buy out Shapoorji group’s stake: Tata Trusts SHALLY SETH MOHILE Mumbai, 22 January

The Tata Trusts’ counsel on Monday said it would be in the interests of Tata Sons to buy out the Shapoorji Pallonji (SP) Group’s stake in the holding company. Sudipta Sarkar, Tata Trusts’ counsel, alleged the SP Group have been exercising their rights in a disruptive manner, not in the best interest of the company. Therefore, it would be in the “best interest of Tata Sons” to consider buying out the former’s shareholding. Tata Trusts controls two-third in Tata Sons. He requested the court to keeptheinterestofTataSonsin mind and public interest by highlighting the public charitable role of Tata Trusts (total disbursement over ~150 billion in charity). The court, he said, should consider an exit option to a “disgruntled shareholder”, especially when no case of oppression wad made out. SP Group was keen to sell up to 7 per cent of their shareholding in Tata Sons in 2002 by following the transfer procedure as prescribed in the Articles of Association of the holding company, Sarkar said at the National Company Law Tribunal (NCLT) hearing on Monday. He alleged the SP Group had suppressed this fact and, in hindsight, were challenging the very process under which they wanted to sell the shares. To substantiate his point, Sarkar presented a copy of a letter dated April 30, 2002, with the subject ‘sale of shares’, addressed to Ishaat Hussain,

then Tata Sons’ finance director. It pegs the value of investment by SP Group firms. The Mistry family’s investment entities, Cyrus Investments and Sterling Investments, have been at loggerheads with Tata Sons since Cyrus Mistry’s ouster as the holding company’s chairman in October 2016. The family firms control a combined 18.4 per cent in Tata Sons and have been opposing the latter’s proposed plan to convert itself into a private company. Legal experts said the argument of Tata Trusts’ counsel lacked legal merit in the current context. “The earlier attempt to sell the share cannot by itself be relevant to the present controversy. It appears that more than anything else, the argument is rhetorical in nature,” said Ramesh K Vaidyanathan, managing partner at Advaya Legal. At the hearing on January 10, the counsel for Mistry had pleaded that Article 75 of Tata Sons’ articles of association, which gave the powers to Tata Trusts to get Mistry removed and his investment firms transfer their entire shareholding, be scrapped. Sarkar argued there was no question of NCLT entertaining a case of mismanagement and oppression — it was always open for the minority shareholder to sell the shareholding for a value. The Tata Trusts’ counsel emphasised the SP Group was “merely an investor”,withoutspecialrights and any representation or proportionate representation, and were fully aware that the articles were private in nature.

Domestic pharma brand launches lowest since 2013 Only 3,932 pharmaceutical brand roll-outs in 2017, most in dermatology SOHINI DAS

Ahmedabad, 22 January

The last year witnessed the lowest number of brand launches in domestic pharmaceutical industry since 2013, with the growth rate of this sector slowing down to 5.5 per cent from 10.6 per cent in 2016. Around 3,932 pharma brands were launched in the Indian pharma market — the dermatology segment leading with 386 brand launches — as firms focussed on the over-the-counter (OTC) segment. While 2016 had 4,516 brand launches in the domestic market, 2013 had seen 3,751 brand introductions. The domestic pharma industry growth rate was the lowest in eight years as the business was impacted by roll out of the goods and services tax (GST) regime and also delayed product approvals by the National Pharma Pricing

Authority (NPPA). D G Shah, secretary general of the Indian Pharmaceutical Alliance (IPA), which represents large Indian drug makers, said: “New initiatives contribute around two-third of the growth rate of the market. This year the new initiatives were low as the NPPA approvals were not coming in and there were around 200 applications pending with them.” As per data from market research firm AIOCD AWACS, the leading therapy segments in terms of brand launches were dermatology, anti-infectives, cardiology, gastroenterology and others. Vaccines (18.2 per cent), dermatology (12.3 per cent), antidiabetics (14 per cent) and sex stimulants (10.4 per cent) were some of the fastest growing categories in 2017. Anti-diabetics has been a leading therapy for around five years, consistently

clocking double-digit growth rates and peaking in 2015 at 23.8 per cent. As drug firms enhance their focus on OTC medicines, categories like dermatology, vitamins, pain, and analgesics, have been featuring in key therapy areas that are witnessing the most number of drug launches. As per Nicholas Hall 2017 report, the Indian OTC market is expected to grow at a CAGR (compound annual growth rate) of nine per cent to cross the $6.5-billion (~441.1 billion) mark by 2026. Only recently, India’s second-largest pharma major Lupin forayed into the OTC segment when it re-launched its 34-year-old legacy brand Softovac (constipation and irregular bowel habits medication) as an OTC product. In November, Ahmedabadbased Torrent Pharma acquired Unichem Lab’s India business,

which has popular OTC brands like Unienzyme. Nandini Piramal-led consumer products division of Piramal Enterprises, too, acquired Digeplex, a gastrointestinal brand from Shreya Lifesciences recently. Piramal’s consumer arm acquired four OTC brandsfromPfizerlastyear. Analysts said a renewed focus on the OTC segment stems from the sluggish prescription growth. Segments that have slipped into negative territory in terms of growth (value) in 2017 are anti-malarials (-21.9 per cent) and anti-infectives (-2.6 per cent). Cardiology therapy growth rate too slowed down in 2017 (6.7 per cent) — it was clocking double-digit growth rates for the past few years. Growth in the respiratory segment also has been slowing — from a 13.6 per cent growth rate in 2015 to 3.2 per cent in 2017.

UNDER-SEDATION

Brand launches in domestic pharma industry 2015 2016 INDIAN PHARMA MARKET 4,446 4,516 Dermatology 372 461 Anti-infectives 467 481 Cardiac 414 380 Gastrointestinal 438 415 Vitamins/minerals/nutrients 575 474 Pain/analgesics 423 NA Anti-diabetic 187 260 2014 saw 6,095 brand launches Source: AIOCD AWACS PharmaTrac

2017 3,932 386 363 340 329 275 207 177

2013 saw 3,751 brand launches

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COMPANIES 3

MUMBAI | TUESDAY, 23 JANUARY 2018

Mallya extradition trial’s next hearing date uncertain PRESS TRUST OF INDIA London, 22 January

The next submissions hearing in the extradition trial of Vijay Mallya over alleged fraud and money laundering amounting to ~90 billion remains uncertain as the lawyers are yet to agree on a mutually convenient date. Chief Magistrate Emma Arbuthnot was listed to hear the case at Westminster Magistrates’ CourtonMonday,withthe62-year-oldembattled liquor baron exempt from attending. However, the case was not discussed in the court as the lawyers are yet to agree on a mutually convenient date.Thenexthearingdateisexpectedwithinthe next few weeks, to be determined internally between the legal counsels and announced at a later date. The case had been left undecided over the issue of admissibility of evidence presented by the Indian authorities at a hearing earlier this month. Judge Arbuthnot is set to rule on the issue Vijay Mallya once Mallya’s defence team completes its argument claiming “absence of a strong prima facie case” and the Crown Prosecution Service (CPS), arguing on behalf of the Indian government, responds in favour of the evidence. Meanwhile, Mallya’s bail on an extraditionwarranthasbeenextendeduntilApril 2. The next hearing is expected to also lead to a time-frame for closing arguments and verdict in the case, which seeks to establish that there are no bars to Mallya being extradited to India to stand trial on the charges of fraud and money laundering. A senior official had confirmed that the Indian government has now presented all clarifications sought by the judge during a hearing in the case in December, including regular medical assistance that will be made available to the businessman at Arthur Road Jail in Mumbai where he is to be held. At the last hearing on January 11, Mallya’s barristerClareMontgomeryarguedthatevidence that was claimed as a “blueprint of dishonesty” by the CPS was in fact privileged conversation between Mallya and his lawyer about “legal advice in clear contemplation of litigation” and hence should be inadmissible. On a separate category of evidence presented by the Indian government, Montgomery questioned the reliability of investigating officers in the case. She pointed to over 150 pages of “near identical material” purporting to be statement of witnesses taken under Section 161 of the Indian CrPC.

Contempt notice: NCLT seeks reply from McDonald’s Matter listed for hearing on February 7

SAGA CONTINUES

PRESS TRUST OF INDIA

New Delhi, 22 January

A two-member Bench of the NCLT listed the matter for hearing on February 7, 2018

he National Company Law Tribunal (NCLT) on Monday directed the US-based McDonald’s Corp to submit a reply to the show-cause notice issued by it over a contempt plea filed by the fast food chain’s estranged jointventure partner Vikram Bakshi. A two-member Bench of the NCLT headed by its President Justice M M kumar listed the matter for hearing on February 7, 2018. The tribunal has restarted the proceedings in the contempt plea against McDonald’s Corp and its Indian subsidiary McDonald’s India Pvt Ltd (MIPL) after a go ahead by the Delhi High Court. The high court in November had put a stay on the NCLT notice after McDonald’s challenged the order. Earlier this month, the high court dismissed the McDonald’s plea challenging the NCLT notice on a contempt plea filed by Bakshi.

Bakshi has been at loggerheads with the fast-food chain over the management of CPRL Bakshi had moved the NCLT following termination of the licence by McDonald’s India Pvt Ltd Bakshi had moved the contempt plea in September 2017 alleging that the fast-food major’s decision to terminate his franchise licence with regard to 169 outlets run by their 5050 joint venture Connaught Plaza Restaurant Ltd (CPRL) violated the NCLT order of July 13, 2017. The NCLT by its order had reinstatedhimastheManagingDirector of CPRL and refrained the US-based food giant from interfering in its functioning.

Ficci appoints Dilip Chenoy as director general SUBHAYAN CHAKRABORTY New Delhi, 22 January

Industry body Federation of Indian Chambers of Commerce and Industry (Ficci) on Monday said it had appointed Dilip Chenoy as its director general. "Chenoy had been the managing director and CEO of the National Skill Development Corporation (NSDC), director general of Society of Indian Automobile Manufactures (Siam) as well as deputy director general of Confederation of Indian Industry (CII)," FICCI said. Chenoy had resigned from NSDC in late 2015. In his new capacity, Chenoy would be looking after the day-to-day administrative affairs of the body while secretary-general Sanjaya Baru would continue to be at the helm spearheading overall operations, a person in the know said. The position was lying vacant for the past two years ever since Arvind Prasad, a former bureaucrat retired, he added.

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“One must understand, Aadhaar is the biggest tool of empowerment for the poor and others. There is no evidence of any breach of iris or fingerprint data, encrypted in Aadhaar”

“The holding of simultaneous Lok Sabha and Assembly elections may not be possible before 2024, and a Constitutional amendment is required to conduct such an exercise”

“The PM’s intention that the ‘Look East’ policy should now be the ‘Act East’ policy is taking shape. And, by the very presence of 10 leaders from Asean during the R-Day celebrations, India will definitely showcase its ‘Act East’ policy”

MOHANDAS PAI

T S KRISHNAMURTHY

NIRMALA SITHARAMAN

IT veteran and tech investor

Former chief election commissioner

Defence minister

Source: PTI

IN BRIEF

Budget: Govt may hike agri-credit target to ~11 trn The farm credit target is likely to be raised by a whopping ~1 trillion to a record ~11 trillion in the Budget to improve credit flow in the agriculture sector, according to sources. In the current fiscal year, the government has kept a credit target of ~10 trillion. Of which, ~6.25 trillion has already been disbursed in the first six months till September 2017, the government data showed. “The government’s priority is agriculture. There is a possibility that the credit disbursal target for the sector will further be increased to ~11 trillion for the next fiscal,” sources said. PTI<

Rising G-sec bond yields credit negative for PSBs

Therecentspikein governmentbondyieldsare creditnegativeforpublic sectorbanksasitwouldaffect thelendersoverall profitability,areportsaid.As of12January,the10-year benchmarkbondyielded7.28 percent,morethan30basis pointshigherthantwo monthsearlier.Thereportby Moody’ssaidinthelastfew quarters,alargeproportionof PSBs’operatingprofitwas derivedfromtheprofitable saleofinvestments,which alsocushionednecessaryhigh loanlossprovisioning. PTI<

NPAs to rise to ~9.5 trn by end of March: Report

India’sbankingsectorwillbe saddledwithgrossnonperformingassets(GNPAs) worthastaggering~9.5trillion byMarch-end,upfrom~8 trillionintheyear-agoperiod, areportsaid.Thehighlevelof stressedassetsinthebanking systemhoweverprovide enormousopportunityfor assetreconstruction companies(ARCs),whichare importantstakeholdersinthe NPAresolutionprocess,said theAssocham-CRISILstudy.It saidgrowthofARCsisexpected tocomedownsignificantly duetocapitalconstraints. PTI<

Increase tax exemption limit to ~300,000: SBI report

3 states reluctant to join district development plan

Withriseinpersonaldisposableincomepost7thPayCommission,theincometaxexemptionlimitneedstoberaisedby~50,000to~300,000,a SBIreportsaid.Themovewill benefitaround7.5million people,itsaid.TheSBI’s Ecowrapreportsaidifthe exemptionlimitofinterest paymentsunderhousingloan isincreasedto~250,000for existinghomeloanbuyers,it willcostthegovernmentjust about~75billion. PTI<

Threeopposition-ruledstates arereluctanttobeapartofthe Centre’splantospeedup developmentin115backward districts,apparentlypeeved overtheUniongovernment’s movetoappointitsofficersto overseethework,sources said.Fourteenofthesedistricts fallinKerala,Bengaland Odisha.TheLeftisin powerinKeralawhilethe TrinamoolCongressandthe BJDareatthehelminBengal andOdisha,respectively. PTI<

India’s GDP growth ahead of China’s: IMF INDIVJAL DHASMANA

New Delhi, 22 January

he International Monetary Fund (IMF) and the World Bank have projected India’s growth to be higher than 6.5 per cent for the current financial year (2017-18), calculated by the Advance Estimates. Both the multilateral agencies pegged growth at 6.7 per cent. As such, both the IMF and the World Bank pegged India’s growth being higher than China’s, which would make it the fastest-growing large economy in the world in 2018-19. The IMF forecast China’s growth to come down to 6.6 per cent in 2018, from 6.8 per cent in 2017. The World Bank had projected China’s growth at 6.4 per cent in 2018, com-

pared to 6.8 per cent in 2017. The Central Statistics Office earlier this month came out with the Advance Estimates, which showed India’s gross domestic product (GDP) growth would fall to 6.5 per cent in 2017-18, the lowest in the Narendra Modi government’s first four years in office. GDP growth for 2016-17 stood at 7.1 per cent. Some economists also say that actual GDP growth will turn out to be higher than what was projected by the Advance Estimates. Aditi Nayar, principal economist with Icra, said, “We expect GDP growth to print at 6.7 per cent for FY18.” In its World Economic Outlook Update, the IMF retained India’s growth projections at 7.4 per cent for the next financial year (2018-19), a tad

WILL GDP GROWTH BE A TAD HIGHER IN FY18 THAN ESTIMATED BY CSO? Economic INTERNATIONAL growth for MONETARY FUND 2017-18 (in %) ADVANCE ESTIMATES WORLD BANK

6.7

6.5

6.7

Sources: Respective agencies, Central Statistics Office

higher than the World Bank’s. The Bank had projected India to grow 7.3 per cent for the next financial year. The IMF scaled up global economic growth by 0.2 percentage point each to 3.9 per cent each in 2018 and 2019 due to increased global growth momentum and the expected

impact of the recently approved US tax policy changes. For 2017, it estimated the global growth to strengthen to 3.7 per cent, a 0.1 percentage point higher than in 2016. “The pickup in growth has been broad-based,” it said. The Outlook said emerging and developing Asia will grow

at around 6.5 per cent over 2018–19, broadly the same pace as in 2017. The region continues to account for over half of the world’s growth. “Growth is expected to moderate gradually in China... pick up in India, and remain broadly stable in the Asean-5 region.”

‘India has best growth prospects among 7 big economies’ Indiahasthebestgrowth prospectsamongsevenlarge economiesoftheworld, includingChinaandSouthKorea, astudydonebyagloballogistics majorshowed.Thisisdueto “strongandsustainedincreases inbothairandoceanfreightin andoutofthecountry”,DHLand consultancyfirmAccenturesaid in‘GlobalTradeBarometer’ studyreleasedonMonday. “India’smajorindustries havedisplayedlevelsofresilience thatwillbuoybusiness confidence,”DHLGlobal ForwardingIndia’sManaging DirectorGeorgeLaswonsaid. PTI

‘GST roll-out was a bit rushed’ Some flaws in the goods and services tax (GST) are now being rectified, MANPREET SINGH BADAL, finance minister of Punjab, tells Dilasha Seth, adding his state underestimated the extent its revenue would be hit. Edited excerpts:

MANPREET SINGH BADAL Punjab finance minister

Moststatesarefacingarevenue shortfalldueto theGST.Isitinline withinitialexpectations?

Besidesoneortwo,moststatesareseeking compensation.Punjabhasrequestedthe(GST) Councilifthe(Uniongovernment’s)chief economicadvisorcoulddoastudy.Howdoes Punjabcomeoutofthissituation?Wewereled tobelieveweareahugeconsumingstateandit wouldbeawin-winsituation.Wewerenot awareofwhatthelossescouldbe.Thereare someflawsintheGST.Myownfeelingisthe roll-outwasabitrushed.TheCongress(his currentparty)model,whichitpresentedin 2011,wasfarmorerealistic. YourtakeontherecommendationbyInfosys chairmanNandanNilekanioninvoice matching?

Itseemedquiteworkable,betterthanwhatwe havetoday.Thestateswilldiscussitwith stakeholdersandgetbackonwhetherthisis workable,throughavideoconference.The onusofmatchingofreturnsshouldnotbewith thegovernment,butonbuyerandseller;we shouldnotbeactingaspolicemanonthat.If someonewantsinputtaxcredit,thereturns shouldmatch. HowisPunjabdealingwithrevenuelossesafter theGST?

Weusedtotaxourfoodgrainandthathasbeen subsumedundertheGST.So,40percentofour taxbaseisoff.Weareworriedaboutfiveyears hence,whentheCentrewillnolongergive compensationfortheshortfall.Wearethinking onwhetherwecanrecoverorremodelour economyfromfoodgraintoafood industrialisationeconomy. Wasthereaspecificrecommendationyou

madeinthepre-Budgetconsultationwiththe (Union)financeminister?

MoststateswouldliketheFRBM(thelaw ondeficitlimits)toberelaxedfromthreeper centofGDP(grossdomesticproduct) to3.5percent.TheCongresshasalsopressed thatpetroleumandrealestatebebroughtunder theGST.Thechairmanagreedthatinthenext meeting,itwouldformpartoftheagenda.Ifyou sticktotheprincipleofonenation,onetax,this partoftheeconomycannotbeleftout. Thee-waybillisproposedtobeimplemented fromFebruary1.Howpreparedareyou?

Thebillwillindeedbeimplemented fromFebruary1.Weaskedforrelaxation initiallyofthepenaltyclauses,sothatbusiness isnotaffected.Thepenaltiesshouldnotbeso harshastoaffecttradeandbringnegativity.So, forthefirstmonthofimplementation,there shouldbenopenalty.Oncetheprocess smoothens,actioncanbedecided.

WORLD ECONOMIC FORUM 2018

FROM THE SIDELINES 1.4 mn jobs vulnerable to disruption in US

As many as 1.4 million jobs in the United States will be vulnerable to disruption from technology and other factors by 2026, a World Economic Forum report said on Monday. The report Towards a Reskilling Revolution: A Future of Jobs for All, is based on an analysis of nearly 1,000 job types across the US economy, encompassing 96 per cent of employment in that country. “...1.4 million US jobs alone expected to be disrupted by technology and other factors between now and 2026, of which 57 per cent belong to women,” the World Economic Forum said in a release.

PTI

India’s richest 1% corner 73% of wealth The richest 1 per cent in India cornered 73 per cent of the wealth generated in the country last year, a new survey showed on Monday, presenting a worrying picture of rising income inequality. Besides, 670 million Indians, comprising the population’s poorest segment, saw their wealth rise by just 1 per cent, said the survey released by the international rights group Oxfam. The situation appears even more grim globally, where 82 per cent of the wealth generated last year worldwide went to the one per cent, while 3.7 billion people that account for the poorest half of population saw no increase in their wealth. PTI

From billboards to platters, India everywhere PRESS TRUST OF INDIA Davos, 22 January

hai and pakodas are in high demand and so are vada pao and dosas in this snow-covered Swiss resort town associated with the names of writers such as Arthur Conan Doyle and Thomas Mann. Davos was once known for health tourism, always frequented by skiing enthusiasts, and is now home to the annual week-long pow-wow of global elite in sub-zero temperatures. It teems with huge billboards atop buildings and even on buses, promoting India and Indian companies, while the narrow roads made even narrower by heavy snowfall are full of lounges set up by the private and public sector from the country where Indian delicacies are flying off the counters. The choices to sit and munch over are plenty — there is the Indian government’s official India Lounge, while Andhra Pradesh and Maharashtra governments too have set up their own lounges. Then, there are plenty of Indian companies with their own setups alongside those of the global ones. The event has also brought thousands of army, police and other security personnel from across Switzerland and some neighbouring countries as well to secure the summit being attended by over 70 heads of states and governments. But it has a much older history of its own, being a place of eminence for medical tourism as also winter sports. Arthur Conan Doyle, creator of the famous detective character Sherlock Holmes, moved to this town along with his ailing wife that reportedly helped her live longer. Once famous for being a summer health resort, Davos has gradually emerged as a major winter sport hub on the Alps, but its biggest claim to fame for the past four decades has been the World Economic Forum’s annual meeting every January, beginning 1971.

PIONEERING WOMEN AT THE HELM Sevenchairwomen of theWEFin Davos, Switzerlandwill be the faces of successfulwomen around theworld. Beloware some of them

1 SHARAN BURROW, Generalsecretary oftheInternationalTradeUnionConfederation Was named one of the most influential women in Brussels by Politico in 2016. Was the first woman to be elected general secretary of the ITUC in 2010 and re-elected in 2014

DATES WITH DAVOS

| Davos’ annual affair with WEF began in 1971, when the forum was known as European Management Forum | Its history as a modern and popular holiday destination travels back 150 years, when the first winter guests arrived here in 1865 | Davos was home to painter Ernst Ludwig Kirchner, who spent his last 20 years in this town, and his last days in a sanatorium | The sanatorium inspired Noble laureate Thomas Mann’s classic novel The Magic Mountain The Geneva-based WEF is hosting its 48th annual meeting here beginning on Monday, where more than 3,000 leaders from across the world are expected to participate in a high-profile talk fest for five days. To cover this global elite jamboree, there are nearly 2,000 journalists and support staff as well. The only drawback for tourists is that they cannot stay within the town, which has less than 10 medium-sized hotels and about 40 small ones, including in nearby areas like Klosters and Dorf. Besides,theso-calledWAGs(wivesand girlfriends)ofthoseattendingtheWEFmeet arealsoaroundinlargenumbersonskicircuits and at various tourist destinations of the town that comprises two big parallel roads and numerous connecting alleys. Davos’ history as a modern and popular holiday destination dates back to 150 years, when the first winter guests arrived here in 1865. Till then, it was just a summer mountain health resort with a strong reputation for treatment of tuberculosis patients. One day in February 1865, Doctor Friedrich Unger and Hugo Richter from Germany arrived here and began a course of treatment on a bed made from a hay sled covered with boards.

IN KING’S STYLE: Bollywood actor Shah Rukh Khan at Davos, Switzerland, to receive the World Economic Forum’s Crystal Award on Monday PHOTO: PTI/SHAH RUKH KHAN (@IAMSRK) TWITTER

India ranks 62 on Inclusive Development Index PRESS TRUST OF INDIA Davos, 22 January

India was ranked at the 62nd place among emerging economies on the Inclusive Development Index, much below China’s 26th position and Pakistan’s 47th. Norway remains the world’s most inclusive advanced economy, while Lithuania again tops the list of emerging economies, the World Economic Forum (WEF) said. The index takes into account the “living standards, environmental sustainability and protection of future generations from further indebtedness”, the WEF said. India was ranked 60th among 79 developing economies last year, as against China’s 15th and Pakistan’s 52nd position. The 2018 index, which measures progress of 103 economies on three individual pillars — growth and development, inclusion, and inter-generational equity — has been divided into two parts. The first part covers 29 advanced economies and the second 74 emerging economies. The index has also classified the countries into five sub-categories in terms of the five-year trend of their overall inclusive development growth score — receding, slowly receding, stable, slowly advancing, and advancing. Despite its low overall score, India is among the ten emerging

BRICS | Russia | China | Brazil | India | South Africa economies with ‘advancing’ trend. Only two advanced economies have shown ‘advancing’ trend. Among advanced economies, Norway is followed by Ireland, Luxembourg, Switzerland and Denmark in the top five. The top-five most inclusive emerging economies are Lithuania, Hungary, Azerbaijan, Latvia and Poland. Performance is mixed among BRICS economies, with the Russian Federation ranking 19th, followed by China (26), Brazil (37), India (62) and South Africa (69).

2 FABIOLA GIANOTTI, Directorgeneralof theEuropeanOrganizationforNuclear Research(CERN) She is the first woman to hold this post. From 2009 to 2013, the globally renowned particle physicist, led one of two teams of physicists that discovered Higgs boson, the ‘God particle’ 3 CHRISTINE LAGARDE, MDoftheIMF In 2005, Lagarde was appointed France’s trade minister, and in 2007 she became minister of finance, the first woman to hold the position in any of the Group of 8 countries. She became the first woman to lead IMF in 2011

4 GINNI ROMETTY, Chairwoman,

presidentandchiefexecutiveofIBM Rometty became the firm’s first female chief executive in 2012. She joined IBM in 1981 as a systems engineer, after having worked at General Motors

5 CHETNA GALA SINHA, Founderand

presidentoftheMannDeshiMahilaBankand MannDeshiFoundation In 1997, she founded India’s first rural cooperative bank owned by women: Mann Deshi Mahila Bank, which provides women access to financial services, business loans and training

6 ERNA SOLBERG, PMofNorway

Nicknamed Norway’s Angela Merkel, Erna Solberg was elected in 2013 and again in 2017, becoming the first Conservative PM to win a second term since 1985. In 2016, she was appointed a leader of the UN’s Sustainable Development Goals Advocacy Group Source: NYT

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6 WORLD

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MUMBAI | TUESDAY, 23 JANUARY 2018

IN BRIEF

UBS to buy back $2.1 bn of stock as bank tweaks targets UBS Group Chief Executive Officer Sergio Ermotti is responding to investor demands for higher returns with the bank’s first share buyback since the financial crisis. The world’s largest wealth manager will repurchase as much as 2 billion Swiss francs ($2.1 billion) of stock over three years, committed to growing its dividend and expects to return excess capital to shareholders as it boosts capital. The bank is also combining its two wealth management businesses into one, appointing Martin Blessing and Tom Naratil as co-heads. Now in his seventh year as CEO, Ermotti has accelerated a push into wealth management, boosting capital levels and profitability and stoking investor demand for higher returns and an update to targets that the bank had already met or which had become obsolete. BLOOMBERG<

Bombing at market in southern Thailand kills 3, injures 18

Toshiba considering IPO for memory chip unit

A motorcycle bomb exploded at a market today in southern Thailand, killing three people and injuring 18, police said. The attacker parked the bike rigged with explosives nearby and bought goods at the market to blend in with the crowd, police Lt Eakapong Rattanachai said. The bomb exploded when the attacker left the market area, causing the casualties, Eakapong said. The explosion happened in Yala province, one of Thailand's three southernmost provinces where Muslim militants have waged a yearslong insurgency. The three provinces are the only ones with Muslim majorities in the predominantly Buddhist AP< country.

Toshiba is considering an IPO of its prized memory chip business if an agreed $18 billion sale to a Bain Capital-led consortium fails to gain antitrust approval by the end of March, the Financial Timesreported on Monday. The IPO is one of various contingency plans being looked at by Toshiba’s top executives, the FT said, citing people familiar with the plans. It added that some analysts and Toshiba shareholders favor it over the existing deal. Toshiba agreed last September to sell Toshiba Memory, the world’s secondbiggest producer of NAND chips, to a consortium led by Bain to cover billions of dollars in liabilities arising from now bankrupt US nuclear power unit Westinghouse REUTERS< Electric.

Abe avoids timeline for amending the constitution

Icahn, Deason to jointly push Xerox to explore selling itself

Japanese Prime Minister Shinzo Abe opened a new session of parliament on Monday with familiar promises for economic reform and stronger defense, but steered clear of setting a timeline for his goal of revising the post-war, pacifist constitution. The push by the conservative Japanese leader to fulfill his long-held ambition coincides with rising concerns about North Korea’s nuclear and missile programmes and China’s military assertiveness. REUTERS<

Investor Carl Icahn and Darwin Deason, the biggest- and thirdlargest shareholders of Xerox Corp, jointly plan to push the printer and photocopier maker to explore options, including a sale of thefirm,theWallStreetJournal reported.IcahnandDeason,who togetherown15.7percentofthe photocopierpioneer,haveearlier separatelycalledonthecompany tobreakofforrenegotiateajoint venturewithFujifilmHoldings, sayingitwasunfavorabletoXerox. REUTERS<

China’s Pou Sheng gets $1.4-bn offer to go private Pou Sheng International said it had got a proposal from its Taiwanese parent Pou Chen to be taken private in a deal valuing the firm at $1.4 billion, sending shares in the Chinese sportswear retailer up 31 per cent. Pou Sheng shareholder Yue Yuen Industrial has agreed to sell its 62.41 per cent stake for HK$6.8 billion, or at a cancellation price of HK$2.03 per share, the Hong Kong-listed firm said in a stock exchange REUTERS< filing on Sunday.

Vietnam jails former politburo official for 13 years A court in Vietnam Monday sentenced a former politburo official, Dinh La Thang, to 13 years in prison and another highprofile energy official to life imprisonment for embezzlement and violating state rules, in a corruption crackdown,state mediasaid.Hewasthemost seniorVietnamesepoliticiantried indecades.Hecaused“deliberate violationofstateregulationson economicmanagementthat causedseriousconsequences,” REUTERS< reportssaid.

Sanofi agrees to buy US firm for $11.6 bn

US Senators reach deal to reopen government

SUDIP KAR-GUPTA

AGENCIES

Paris, 22 January

Washington, 22 January

US senators voted to move forward on legislation that would reopen the federal government until February 8, ending a three-day standoff between Democrats and President Donald Trump’s Republicans over immigration and border security. Senate Democratic leader Chuck Schumer said he had come to an arrangement with Senate Republican Leader Mitch McConnell to keep the government open for the next three weeks and a plan to address the issue of the Dreamers, more than 700,000 immigrants brought to the US illegally as children. All major equity gauges rose after lawmakers voted to end a partial government shutdown that has lasted three days. The dollar reversed losses to trade little changed and 10-year treasuries edged higher. The S&P 500 Index gained following a third straight weekly advance as investors awaited about 80 earnings reports this week, including from Netflix and P&G. Funding legislation cleared a procedural hurdle in the Senate and was expected to pass a full Senate vote promptly, allowing government to re-open. Democrats had insisted that any short-term spending legislation to keep the government running include protections for young undocumented immigrants known as “Dreamers.”

rench healthcare group Sanofi has agreed to buy US haemophilia specialist Bioverativ for $11.6 billion, its biggest deal for seven years, which it said would strengthen its presence in treatments for rare diseases. Sanofi shares fell 3.4 per cent by 0920 GMT, making the stock the worst performer on France’s benchmark CAC-40 index and several analysts deemed the deal expensive. The move comes at a time of renewed interest by large drugmakers The deal comes at a time of renewed interest by large drugmakers in smaller in smaller biotech firms and predic- biotech firms tions by some experts that 2018 will see a substantial pick-up in mergers “With Bioverativ, we welcome a leader in the growing haemophilia and acquisitions. Sanofi has agreed to buy all of the market,” Sanofi Chief Executive Olivier outstanding shares of Bioverativ for Brandicourt said. Noble Group said it remains in The market dealing with treat$105 per share in cash, marking a premium of 64 per cent to Bioverativ’s ments for haemophilia is an importalks with “potential strategic closing price on January 19. Bioverativ, tant one that is evolving rapidly as parties” after people familiar with a maker of haemophilia drugs, was sep- new drugs change the landscape. the matter said a Chinese arated from Biogen early last year. Sanofi said the sector had around conglomerate had made an The agreed transaction marks $10 billion in annual sales, dealing approach to shareholders of the Sanofi’s successful return to deal-mak- with 181,000 people affected commodities trader, which is ing after its failure to land major worldwide. separately attempting to It added that haemophilia repretakeovers in recent years. It is its restructure $3.5 billion in debt. biggest acquisition since the 2011 sented the largest market for rare Cedar Holdings Group has takeover of US biotech company diseases and was set to grow by more expressed interest in buying Genzyme for around $20 billion. than 7 per cent per year through to control of Noble Group, the Sanofi lost out on buying 2022. Sanofi expects the acquisition people said. Noble Group’s California-based cancer specialist to be immediately accretive to its shares soared as much as 37 per Medivation to Pfizer in 2016, and also business earnings per share in the cent, prompting a query from missed acquiring Swiss biotech com- full 2018 financial year and up to 5 per Singapore Exchange, where its REUTERS pany Actelion, which was bought by cent accretive for the following year. stock is listed. Johnson & Johnson last year. REUTERS

China’s Cedar shows interest in Noble buy

REUTERS

HERE’S WHAT HAPPENED EARLIER | Two Republican holdouts, Senators Jeff Flake and Lindsey Graham said they would accept a deal offered by McConnell to keep the government open through Feb 8 | The White House blasted Republican Senator Lindsey Graham, who has been leading a bipartisan effort to end the stalemate | Senate Majority Leader Mitch McConnell and Democratic leader Chuck Schumer met after a bipartisan group of more than 20 Senate moderates spent the day trying to work out a funding deal | President Donald Trump said on Twitter that if the shutdown stalemate continues, Republicans should consider the so-called “nuclear option” in the Senate BLOOMBERG

Microsoft curbs sales to many Russian firms

RUN! RUN! IT’S A MISSILE COMING...

ANASTASIA LYRCHIKOVA Moscow, 22 January

Participants run during an anti-missile evacuation drill at the Tokyo Dome City amusement PHOTO: REUTERS park in Tokyo, Japan on January 22

FB to open training hubs in Europe JULIA FIORETTI Brussels, 22 January

Facebook said on Monday it will open three new centers in Europe to train people in digital skills and committed to training one million people over the next two years, part of the social media giant’s drive to show its con-

tribution to the bloc. The US company— which has faced regulatory pressure in Europe over issues ranging from privacy to antitrust — said it would open three “community skills hubs” in Spain, Poland and Italy as well as investing ^10 million ($12.2 million) in France through its artificial

intelligence research facility. “People are worried that the digital revolution is leaving people behind and we want to make sure that we’re investing in digital skills to get people the skills they need to fully participate in the digital economy,” Sheryl Sandberg, Facebook’s chief operating officer said. REUTERS

Two of Microsoft’s official distributors in Russia have imposed restrictions on sales of Microsoft software to more than 200 Russian companies following new US sanctions, according to notifications circulated by the distributors. While much of the focus around US sanctions has been on ways they are being skirted, the moves by the Russian distributors show how tougher restrictions that came into force on November 28 are starting to bite. The new measures cut the duration of loans that can be offered to Russian financial firms subject to sanctions to 14 days from 30 days and to 60 days from 90 days for Russian energy companies on a US sanctions list. Previously, the restrictions had mainly affected Western banks lending to Russian firms but with such short financing periods, swathes of companies supplying goods and services to Russian clients fear they could fall foul of the rules too. Some Western firms have been advised by lawyers that the US Treasury Department could, in theory, take the view this constituted financ-

The measures cut the duration of loans that can be offered to Russian financial firms subject to sanctions to 14 days from 30 days

ing in violation of the sanctions, according to several people involved in the discussions. One of the two Microsoft distributors, a Russian company called Merlion, said in its notification to partners that all sanctioned buyers of Microsoft licenses must pay within tight deadlines, or even pay upfront in some cases. The second distributor, RRC, said in its notification, seen by Reuters, that “serious restrictions are being introduced” on Microsoft orders from firms subject to US sanctions. Both Merlion and RRC cited rules stemming from

the new package of US sanctions — signed into law on August 2 for Russia’s involvement in Ukraine and cyber attacks — as the reason for the additional restrictions. Neither Merlion nor RRC responded to Reuters questions. Microsoft said in a statement to Reuters: “Microsoft has a strong commitment to complying with legal requirements and has robust processes around the world to help ensure that our partners are in compliance as well.” In response to Reuters questions, a spokesman for the US Treasury Department, which oversees the enforcement of sanctions, referred to its published guidance. REUTERS

How Snapchat is helping one doctor transform medical training JASON GALE 22 January

Shafi Ahmed dons a pair of digital sunglasses and explains how the tiny lenses built into its black plastic frame, which can capture high-resolution images, are transforming how doctors get trained in operating rooms. The British colorectal surgeon used Snap’s high-tech spectacles a year ago to walk rookie physicians and millions of curious viewers through a hernia operation using the Snapchat photo-sharing app. In 2018, he plans to beam his avatar into operating rooms with so-called immersive technology, which spans everything from military training to adult entertainment, and promises to support the next generation of doctors with real-time supervision and tutelage. “Doctors do not need to feel out of their depth, and this technology will allow them to get help whenever required,” says Ahmed, whose early adoption of digital technology and social media has seen him recognized as the planet’s most-watched surgeon, with more than 2 million views and 50 million Twitter posts for the Snapchat surgery alone. “We all need support and help when faced with a tricky situation.” Ahmed’s well-publicised, public approach rankles some members of a very conservative profession. Yet he says it represents one of the best ways to meet the World Health Organization’s call to “scale up transformative, high-quality education” and plug a predicted global shortfall of 15 million health workers by

Shafi Ahmed with his Snap Spectacles PHOTO: REUTERS

2030. A report by the Lancet Commission on Global Surgery estimated in 2015 that 5 billion people lack access to safe, affordable surgical and anesthesia care, leading to about 17 million deaths annually. Saving lives will require a doubling of the surgical workforce, or an extra 2.2 million surgeons, anesthetists and obstetricians over 15 years, the report said. “It’s not just that we have a shortage of health professionals, we also, as a consequence, have a shortage of teachers,” said Josip Car, an associate professor of health services outcomes research at Singapore’s Nanyang Technological University’s Lee Kong Chian School of Medicine. Car is working in collaboration with the WHO on the world’s largest systematic review of evidence on the effectiveness of digital learning. It’s a field, he says, that is attracting “great interest,”

THE EASIEST AND HARDEST PLACES TO FIND A DOCTOR

GROWING HEALTH-WORKER SHORTAGE

Densityofphysicians per 1,000 people

2013 2030 (Figures in mn)

The world is projected to lack 15 mn health workers by 2030 East Asia & Pacific

Cuba

7.519

Monaco

6.645

San Marino

6.362

Greece

6.255

Austria

5.064

Yemen

0.311

Afghanistan

0.304

North America

Bhutan

0.258

South Asia

Djibouti

0.29

Somalia

0.029

Note: Includes only countries for which 2014 data are available Source: WHO Global Health Observatory data repository

but which requires careful evaluation. “The evidence appears to suggest that, on the whole, these technologies are likely to be equivalent to traditional modes of education,” Car said in a telephone interview. “If this turns out to be so, that’s very good news because many of them allow scalability and flexibility of learning.” Already, technological innovations are increasing the automation of diagnoses and personalised treatments, and medical schools are incorporating them into their teaching. For example, California’s Stanford Medicine is com-

-4.3 -8.3 -1.4 -1.2 -0.39

Europe and Central Asia Latin America

-2.6 0.054

West Asia & North America

Sub-Saharan Africa

-1.1 -0.055 0.044 -1.1 -3.2 0.72 0.77

Source: Jenny X. Liu, Yevgeniy Goryakin, et al "Global Health Workforce Labor Market Projections for 2030," in Human Resources for Health, February 3, 2017

bining imaging from MRIs, CT scans and angiograms with a new software system to create a three-dimensional model that physicians and patients can see and manipulate. “Medical education is ripe for disruption,” said Marc M Triola, associate dean for educational informatics at NYU Langone Health in New York. “Cuttingedge technologies such as virtual and augmented reality may quickly become standard-of-care and mainstream.” Ahmed used Microsoft’s HoloLens headsets to virtually bring together sur-

geons from the BMI London Independent Hospital and Tata Memorial Hospital in Mumbai to operate together on a bowel-cancer patient in October. Each colleague was able to view tumor scans that appeared as 3D holograms, and could “see” each other as graphic avatars, standing and speaking as if together in the operating room at the Royal London Hospital. “My story is about connecting people globally,” Ahmed, 48, said in his office at the London Independent Hospital. An associate dean of Barts and the London

School of Medicine and Dentistry, the Bangladesh-born surgeon performed the world’s first virtual reality operation recorded and streamed live in 360degree, or immersive, video in 2016. It was viewed live by 55,000 people in 142 countries and downloaded 200,000 times on YouTube, he said. Ahmed cofounded Medical Realities Ltd., which began last April offering a free virtual reality interactive learning module for surgical trainees. While virtual reality isn’t new in health-care, its affordability is: Medical headsets have traditionally cost from $30,000 to $300,000, according to a World Economic Forum report on emerging technologies. Facebook’s Oculus Go wireless headset, meant to be the company’s most accessible VR device, will cost $199 when it’s released in early 2018. That’s helping to stoke a market for virtual reality hardware and software that’s poised to expand 54 percent annually over the next five years, reaching almost $27 billion by 2022, Sarasota, Florida-based Zion Market Research said in a report in October. The global digital health market, which includes everything from fitness apps and wearable devices to consultations over the Internet, will reach $537 billion by 2025 from $196 billion in 2017, Transparency Market Research said in September. Philips Healthcare, McKesson, Allscripts Healthcare Solutions, Cerner, and Agfa-Gevaert N.V. are among companies benefitting from the growth, the Albany, New York-based firm said. BLOOMBERG

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ECONOMY & PUBLIC AFFAIRS 7

MUMBAI | TUESDAY, 23 JANUARY 2018

Fiscal deficit to be close to target

New Delhi, 22 January

hen Finance Minister Arun Jaitley presents the 2018-19 Union Budget on February 1, he may announce a fiscal deficit number for 2017-18 quite close to the target of 3.2 per cent of gross domestic product (GDP) in spite of additional borrowing, higherthan-anticipated spending on flagship schemes, and projected shortfall in the goods and services tax (GST) and spectrum sales. Accounting for the first Advance Estimates for 2017-18, an additional planned borrowing of ~200 billion, the fiscal deficit could come in at 3.35 per cent of GDP. But even that can be negated and the fiscal deficit be brought down to meet the Budget Estimates, if ~200 billion is not withdrawn from the National Small Savings Scheme, analysts say. To ensure there is no substantial deviation from the fiscal target, the finance ministry is working on three fronts: Asking back unspent allocations from other departments or cutting the gross budgetary support (GBS); carrying forward certain spending items, including subsidy payments; and equally distributing integrated GST proceedings between the Centre and states. In what could be the first time for the rail ministry, the finance ministry may cut its GBS by ~150 billion. There have also been tens of billions of rupees per year in unspent capital allocations returned by the defence ministry in the past. Last year, it returned around ~70 billion.

New model makes port contracts more attractive

SUBHOMOY BHATTACHARJEE

The recently approved Model Concessionaire Agreement (MCA) for port projects is expected to open a string of opportunities for private companies in the maritime sector. The new model allows flexible working contracts and exit norms. The MCA will be applicable for projects conceived under the shipping ministry’s ambitious ~8-trillion Sagarmala programme. Under the latter, the government plans to construct new ports and 142 cargo terminals at major ones. According to an official, the decision (approved by the Union Cabinet earlier this month) would make port projects more investor-friendly and the investment climate in the sector more attractive. The exit policy for port projects has been proposed on similar lines to the highways sector. The amendments in the

FISCAL MATH

New Delhi, 22 January

Fiscal deficit(as % of GDP) 2013-14 4.5 2014-15 4.0 2015-16 3.9 2016-17 3.5 2017-18 3.2* 2018-19 3.0**

The disinvestment department has been told to bring a sum of ~1 trillion to the Budget table for FY18. Fresh from the success of crossing the annual disinvestment target for the first time, the finance ministry feels the department should be able to reach the sum by March 2018. “We have been told to make use of the buoyant market conditions to reach the magic figure,” said a source. Over the weekend, state-owned Oil and Natural Gas Corporation has bought out the entire 51 per cent government stake in downstream Hindustan Petroleum Corporation for ~369.15 billion. With this sale, the total earnings from disinvestment in the financial year FY18 will reach ~912.53 billion. The Budget Estimates for sell-off for the year had stood at ~750 billion, which the department under Disinvestment Secretary Neeraj Kumar Gupta has handsomely exceeded. The impressive numbers will come in handy for Finance Minister Arun Jaitley to hew close to the budgeted fiscal deficit number of 3.2 per cent of gross domestic product for FY18. The ministry has been under pressure to meet its fiscal math since the collections from the goods and services tax, introduced in July this financial year, has so far consistently fallen short of target. A Business Standard report on Monday noted that the Centre would need to raise another ~4.2 trillion through indirect taxes to meet its target of ~9.26 trillion for the financial year in four months. The disinvestment department, also part of the finance ministry, has to line up some quick sales in these months to raise an additional ~88 billion in the revised Budget Estimates to touch the ~1-trillion mark. It is understood that the department would like to do parcels of small sell-offs than any large ones. Their current performance is already far ahead of their achievement in the previous financial year. In FY17, the Centre had raised ~462.47 billion after revising down its Budget Estimates of ~565 billion.

* after initial apprehensions, final number could come close **projected, may not be adhered to Source: Indiabudget.gov.in

ARUP ROYCHOUDHURY

Disinvestment dept asked to bring ~1 trn before March

“Departments either return unspent funds or are not given the amount allocated if these are not required. But this year, they have been asked to be more thorough with their accounts,” said an official. In the year of a nationwide GST roll-out and the uncertainty that would introduce in revenue projections, “every rupee counts,” the person said. Meanwhile, to ease the flow of funds for both the Centre and states, the GST Council, last week, decided to distribute the integrated GST of ~350 billion equally between them. This prompted Finance Secretary Hasmukh Adhia to say that even the indirect tax collection target would be met for the current fiscal year (FY18). There are concerns, not yet fully put to rest, that the shortfall from the GST this year could be as high as ~400-500 billion. The total subsidy bill for the year is budgeted at ~2.4 trillion. Officials said that for subsidy and other items, some payments could be rolled over till after March 31. Earlier this month, the government announced that it would borrow an additional ~200 billion from the bond markets in 2017-18, as opposed to ~500 billion announced last month, primarily because the Reserve Bank of India would pay a higher than-anticipated surplus to the Centre, and the dividend target from state-owned companies would also be met. When the additional borrowing of ~500 billion was announced in late December, analysts expected the fiscal deficit to cross 3.5 per cent of GDP, against the target 3.2 per cent.

MEGHA MANCHANDA New Delhi, 22 January

THE FEATURES

| The Model Concessionaire Agreement allows flexible working contracts and exit norms | It will be applicable for projects conceived under the Sagarmala programme | The exit policy for port projects has been proposed on similar lines to the highways sector MCA envisage constitution of a Society for Affordable Redressal of Disputes-Ports, similar to the provision for highways. Developers have been allowed to exit from a project by way of divesting their entire equity after completion of two years from the commercial operation date. According to a former shipping secretary, renegotiation of the contracts would go a long way in addressing the issues affecting their implementation.

“Market linking of tariffs (rates) is another positive that has emerged from this fresh guideline,” the former secretary said. The concessionaire would now pay a royalty on “per mt of cargo/TEU handled” (or the ship’s cargo carrying capacity), which would be indexed to the variations in the wholesale price index. This will replace the procedure of charging royalty, a percentage of the gross revenue quoted during bidding. The revenue is calculated on the basis of an upfront normative rate ceiling prescribed by the Tariff Authority for Major Ports (TAMP). In December 2016, the Union Cabinet approved the shipping ministry’s proposal to replace the Major Port Trusts Act, 1963, by a Major Port Authorities Bill. The aim was to allow major ports full autonomy in decision-making and modernising their institutional structure. More on business-standard.com

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8 TECHNOLOGY

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MUMBAI | TUESDAY, 23 JANUARY 2018

Amazon’s automated grocery store of the future opens How to enter through the new system?

JEFFREY DASTIN Seattle, 22 January

mazon.com will open its checkout-free grocery store to the public on Monday after more than a year of testing, the company said, moving forward on an experiment that could dramatically alter brick-and-mortar retail. The Seattle store, known as Amazon Go, relies on cameras and sensors to track what shoppers remove from the shelves, and what they put back. Cash registers and checkout lines become superfluous customers are billed after leaving the store using credit cards on file. For grocers, the store’s opening heralds another potential disruption at the hands of the world’s largest online retailer, which bought highend supermarket chain Whole Foods Market last year for $13.7 billion. Long lines can deter shoppers, so a company that figures out how to eradicate wait times will have an advantage. Amazon did not discuss if or when it will add more Go locations, and reiterated it has no plans to add the technology to the larger and more complex Whole Foods stores. The convenience-style store opened to Amazon employees on December 5, 2016 in a test phase. At the time, Amazon said it expected members of the public could begin using the store in early 2017. But there have been challenges, according to a person familiar with the matter. These included correctly identifying shoppers with similar body types, the person said. When

A shopper scans a smartphone app associated with his Amazon account and credit card information to enter the Amazon Go store in Seattle, Washington on January 18 PHOTO: REUTERS

children were brought into the store during the trial, they caused havoc by moving items to incorrect places, the person added. Gianna Puerini, vice president of Amazon Go, said in an interview that the store worked very well throughout the test phase, thanks to four years of prior legwork. “This technology didn’t exist,” Puerini said, walking through the Seattle store. “It was really advancing the state of the art of computer vision and machine learning.” “If you look at these products, you can see they’re super similar,” she said of two near-identical Starbucks drinks next to each other on a shelf. One had light cream and the other had regular, and Amazon’s technology learned to tell them apart. The 1800-square-foot (167-square-

meter) store is located in an Amazon office building. To start shopping, customers must scan an Amazon Go smartphone app and pass through a gated turnstile. Ready-to-eat lunch items greet shoppers when they enter. Deeper into the store, shoppers can find a small selection of grocery items, including meats and meal kits. An Amazon employee checks IDs in the store’s wine and beer section. Sleek black cameras monitoring from above and weight sensors in the shelves help Amazon determine exactly what people take. If someone passes back through the gates with an item, his or her associated account is charged. If a shopper puts an item back on the shelf, Amazon removes it from his or her virtual cart. REUTERS

To enter the Amazon Go store, customers download a smartphone app and scan a QR code to open a glass turnstile. Those shopping in a group scan the account holder’s phone once for each person entering and sensors will associate them with that account. From there, machines take over, watching the items plucked from shelves and adding them to a shopping cart. Shoppers are billed once they leave and if there are any mistakes or the customer isn’t happy with an item, you push a “refund” button to have that item removed from the bill. Shoppers don’t have to return an unwanted item to the store to get a refund. The system is designed around the honour system with an understanding that those looking to trick the system and steal things are in the minority. “The system is very accurate,” Kumar said. The 1,800-square-foot store is in the ground floor of Amazon’s new Seattle headquarters complex. On a recent lunchtime tour, about 10 chefs were in a kitchen making salads and sandwiches, and several other employees replenished the shelves. One employee monitored the small beer and wine section to manually check IDs. There are typical convenience store staples like peanut butter, milk, eggs and bread. Freshly made items get prominent shelf space, as do veggie chips and other products from the Whole Foods “365 Everyday Value” brand. BLOOMBERG

FX traders do $100-mn deals on mobile phones LANANH NGUYEN 22 January

For the modern foreignexchange trader, it’s now possible to find a date, hail a cab and trade $100 million — all through their mobile phone. The world’s biggest financial market is embracing the iPhone era as investors find new ways to work when they’re not on the trading floor. In a JPMorgan Chase survey of more than 400 institutional FX, rates and commodities traders, 61 per cent said they’re “extremely” or “somewhat” likely to use a mobile trading app this year, up from 31 per cent in 2017. However, half of the respondents, most of whom were FX traders, said company policy preventing trading on mobile was the main obstacle. “We’ve seen quite a shift in terms of institutions allowing people to use mobile devices” in the last year, said Scott Wacker, global head of e-commerce sales and marketing at JPMorgan in London. “This form of communication is completely transforming how people do things.” Financial companies are becoming more comfortable with employees using mobile apps as security features improve, including facial recognition and fingerprint readers, he said. The biggest trade on the bank’s mobile FX trading app exceeded $400 million, and it’s not uncommon to see $100

BETTER RECEPTION

Institutional traders are more likelyto use a mobile trading app this year Somewhat likely Unlikely in % Extremely likely 2017

2018 0

24 30

39 60

90 100

Source: JP Morg

million deals go through the app, whose biggest users are hedge funds and other financial institutions. The adoption follows a surge of online, or electronic, trading in the $5.1-trillion-a-day currency market as companies look to cut costs and keep better audit trails for their transactions. Traders conduct about 74 per cent of their notional volumes electronically on average, up from 68 per cent in 2017, according to the survey. “As products become more

electronic, you see more volumes come through, and the transparency increases,” Wacker said. “It creates quite a bit of efficiency, so it allows institutions to drive down their execution costs.” New MiFID II rules this year also loom large, with 73 per cent of traders in the Europe, Middle East and Africa region saying it would have a daily effect on their jobs. That compares with 47 per cent in the Americas and 45 per cent in Asia Pacific. BLOOMBERG

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10 ISSUES AND INSIGHTS

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MUMBAI | TUESDAY, 23 JANUARY 2018

Quit coddling AI employees Aren’t their interests better served in a financially happier environment?

OUT OF THE BLUE ANJULI BHARGAVA

y all accounts, the Air India sale is just a matter of time. The government is actively discussing and finalising the modalities of flogging off the national carrier. More than one person has told me that the sale is to happen in 2018 and if it doesn’t happen in 2018, it probably won’t happen at all. So at least it sounds like there’s some finality to the process.

As the rumblings of the proposed sell-off become louder, the naysayers are waking up. Employee unions appear to have begun their protests. A parliamentary committee has woken up and realised that the country’s national pride is at stake and has asked the government to look for an alternative to the disinvestment of our national carrier which is “our favourite milking cow”, as I see it. What is intriguing is the news that the government is considering absorbing Air India employees in other public sector units. It is also considering offering a voluntary retirement scheme for employees. The aviation secretary has gone on record to state that “various options are under consideration to protect the interests of the employees”. I have a few questions and some objections to this. Why is the government considering absorbing Air India employees in other public sector units? And which employees precisely? Is it

planning to sell the airline without all of its 29,000-odd employees — including pilots, crew, ground staff, managers, directors, administration, peons etc? I don’t know many bidders who would buy Air India without its commanders and crew so I presume this means a select bunch. Is the government asking employees who are unsure they can survive in a private sector environment to raise their hands? Is the government saying that since you are unused to working, we’ll move you to other enterprises where you don’t need to work? Has the government taken some kind of lifetime guarantee to pamper this set for life? And what does protecting the interests of employees mean exactly? Do employees gain by continuing to work for the remainder of their working lives in a loss-making company that shows no hope for revival? In an environment full of cynicism and negativity? In an

environment where they are always locked in some kind of battle — usually over arrears. Aren’t the interests of all employees better served in a financially healthier and happier environment? In a company that makes money for a change? Where hard work is rewarded in the usual manner — with promotions, increments, incentives and an occasional recognition of someone’s contribution. Over the years, almost anyone within the airline with any understanding of the sector I have spoken to — be it directors, pilots, crew and even secretarial staff — claimed to be keen on seeing the airline being sold. Their argument is that the crisis they face today is not of their making but a culmination of poor management and several bad decisions — none of which can be blamed on them directly. They argue that first both the governmentowned airlines (Air India and Indian Airlines) did not buy new aircraft for years on end and when they did they bought many more than they were equipped to manage. If pilots and crew to fly the machines were not available, neither

were there enough new routes to ply them on. The result: an expensive resource on the ground or not fully utilised for months at a stretch. Instead of a steady, balanced growth, the airlines got no new planes for years and then a surfeit of them. Its growth plan was devised and executed without keeping the airline’s interests in mind. To top it all, the merger took the cake and the icing with it. Two very different creatures were suddenly expected to think and act as one. It was unrealistic to expect this and it never happened. Even today, the “us and them” divide is as alive as it was in 2006. It never became “we”. Despite the fact that change is a scary prospect, almost all the employees I speak seem to agree that sale is the only way to go. Are employees really the biggest losers if the national carrier is privatised? As the naysayers become louder, we – the public — will need to keep an eye and ear out to see where the real opposition is coming from. I for one won’t be surprised if many of those who are leading the sale are the ones most opposed to it. The enemy may well lie within.

> CHINESE

WHISPERS

Like father, like son

Inspired by Congress MP Shashi Tharoor’s (pictured) command over English, a website ran a vocabulary quiz. The quiz asked readers the meanings of 12 lessoften used words that have been used by the Kerala-based politician in his tweets. Tharoor’s journalist son Ishaan took the quiz and managed to get all the answers correct. “I got 12 out of 12. Any other result would, for me, be a bit embarrassing,” he declared in a tweet.

The Post to the rescue

Economy looks set for a rebound Budget hopes, strong FPI inflows have kept the markets buzzing. Things may turn if the Budget disappoints

FRONT RUNNING DEVANGSHU DATTA

he Indian economy seems set for a rebound in growth prospects but there are worries on the fiscal consolidation front and inflation could be a concern going forward. As the Republic Day settlement beckons, it would be all eyes on the Budget which is less than a fortnight away. There are many conflicting rumours about possible tax changes in the GST and the Budget. Corporate results indicate that the economic rebound continued and broadened through Q3 (OctoberDecember 2017). Market leaders like HDFC Bank, Reliance Industries and Hindustan Unilever all beat consensus expectations. Infosys saw profits jumping, due to an one-off accounting adjustment but it also maintained its 2018 forecast. HUL registered 28 per cent growth in net profit (NP) for the quarter. HDFC Bank announced year-on-year growth of 20 per cent and market capitalisation crossed the ~5 trillion mark. But NPAs rose 57 per cent with the RBI logging over ~20 billion in reporting divergences. Provisioning was lower. Infosys registered 37.5 per cent growth in NP but about ~14.30

billion ($225 million) came from the reversal of tax provisions. Without that, profits would have been more or less flat but Infy maintained its guidance. TCS more or less met market expectations as well. RIL registered an awesome 25 per cent growth in NP. Gross refining margins continued to rise boosting the main refining and petrochem segments, and the telecom subsidiary Reliance Jio Infocomm registered ~5.04 billion in maiden net profits. Inflation numbers showed some divergence between the Wholesale Price Index and the Consumer Price Index (CPI). The WPI moderated at 3.58 per cent year-on-year in December versus 3.93 per cent YoY in November. The CPI rose to 5.21 per cent in December versus 4.88 per cent in November. Since the CPI is the RBI’s benchmark, the February Monetary Policy Review is very unlikely to see a cut in policy rates. The lower WPI does suggest that manufacturers still lack purchasing power. There is a chance that lower wholesale food prices will translate into lower inflation in the retail food basket going forward and that could mean lower CPI in January-February. The other problem area for inflation is fuels. Crude prices are up to uncomfortable levels. The Indian crude basket hit $62 plus per barrel in December and it's likely to be a bit higher in January. January 2017 prices were at $54/ barrel. OPEC estimates suggest that global crude inventories are being rapidly depleted and that could mean higher prices through 2018. Higher crude prices not only put pressure on the Trade Balance; these also put a question mark on the cen-

INCHING UP Indexbreakoutto a newall time high

tral government’s ability to maintain the current excise duties and (state) sales tax imposts on retail fuels. High pump prices could feed inflation and cause political dissatisfaction as well. The Budget could see some sort of change in the treatment of long term capital gains (LTCG) from equity and equity mutual funds. It could also see some changes, or even the outright elimination of, Dividend Distribution Tax and the Securities Transaction Tax, if there is a tax imposed on LTCG. Apart from that, there’s talk of a pos-

Government must end confusion regarding the number of people it employs by releasing data from its own records

arlier this month, on January 2, I wrote in this column that the government could be employing about 23 million people. This was an estimate based on some simple projections of the number of people employed in state governments, quasi governments and local government bodies. Last week, Dr Pulak Ghosh of IIM, Bangalore, and Dr Soumya Kanti Ghosh, group economist at the State Bank of India (Ghosh and Ghosh), released results of their work that, among many other things, said that a conservative estimate of employment in government is 17 million. Ghosh and Ghosh make their estimate using one set of assumptions and I have made the estimate using another set of assumptions. None of us need to do our respective statistical gymnastics and leave an unexplained gap of 6 million. The government can end this confusion by releasing data that it has in its own records. To get an estimate of this greatest employer in the country, the government, there is no need for any expert committee or any survey with challenges of having a sampling frame or setting up a high-tech execution machinery. It can be done almost immediately with an executive order without any ado. The Task Force on Improving Employment Data was remiss in not mentioning this low-hanging fruit. All its

sible cut in corporate tax rates. Given that the GST is still unstable, indirect tax collections will see a shortfall and the fiscal deficit will rise by some amount beyond the February 2017 Budget target of 3.2 per cent of GDP. The government will exceed its borrowing target in 2017-18 but only by ~200 billion instead of the ~500 billion that was initially feared. The market will watch the 2018-19 Budget targets for the fiscal deficit like a hawk. That number is as critical as the growth assumptions.

During a round of febrile arguments in the court of Chief Justice Dipak Misra (pictured) in the Supreme Court, senior counsel Indira Jaising insisted on Monday that there should be no gag order on the publication of documents related to the mysterious death of judge B H Loya. The Chief Justice was upset when she repeated her plea in high decibels. Jaising defused the situation when she deftly apologised and said that it must be the effect of her watching the movie The Post late Sunday night. The mention of the Steven Spielberg movie that centres on a gag order on The New York Times, related to news about US involvement in Vietnam, brought smiles all around, including on the face of the three judges.

Clash of the titans The Sitaram Yechury versus Prakash Karat battle in the Communist Party of India (Marxist) has fuelled speculation that a split in the party might just have been averted. On Sunday, the CPI (M) ended a three-day Central Committee meeting where Yechury's draft political resolution on the party's future electoral line was defeated in favour of Karat's by 55 to 31 votes. While the fate of the current battle will be decided at the party conclave in Hyderabad in April, some within the party are convinced the battle is more a personality clash and that the Karat camp would rush to adopt the line Yechury has espoused but only after they manage to evict Yechury from the post of party chief.

> LETTERS

Payrolls database ahoy!

MAHESH VYAS

Equations Change % 3.18 1.67 -2.80 3.66 -0.74

* = Dec 01-31 net equity buys/ sales NB FPIs bought net debt of ~5.31 bn (Nov 1-30) & ~23.50 bn (Dec 1-31)

CONSUMER LIFE

suggestions will take years to execute. But making the government to release data on its employment takes little time and effort. If the government provides jobs to about 20 million people, any change in this number would be large enough to help us understand changes in the organised labour markets. Factory employment is of the order of 13 million; unregistered manufacturing establishments hire another 13 million. Ergo, government employment is almost as large as the people hired in the entire organised and unorganised manufacturing sector in the country. It would be a great step forward if the government immediately starts releasing monthly data on its own employment. The main story presented by Ghosh and Ghosh is that about 7 million new jobs were created in 2017-18. Their estimate is based on crunching data sourced from Employees’ Provident Fund Organisation (EPFO), Employee State Insurance Scheme (ESIC) and National Pension Scheme (NPS). Ghosh and Ghosh seem to have had privileged access to this rich database as this data is not available publicly. All this data is primarily available with the government. There is no need of a sampling frame or a complex execution machinery in deploying this database. Apparently, Ghosh and Ghosh have overcome several known problems in using data from the EPFO, ESIC and NPS. The problems are duplication of accounts within a database and across databases; weeding out of inactive accounts and differentiating between new jobs and change in job when we see an addition of an account. Ghosh and Ghosh make several assumptions in crunching the massive database. Their assumptions seem primitive but, this is

Value Current (Jan 19, ’18) 10,894.7 27.44 1.04 3.68 63.85 57.69 7.4802

-------------------------------------------------------------------------------------------------------------------------------------------------------------

Previous (Jan 5, ’18) Nifty value 10,558.85 Index PE 26.99 Index dividend yield 1.07 Index book value 3.55 USD INR (RBI Ref rate) 63.38 FPI net equity buys/ sales ( Jan 1-08 (~ bn) *-58.83 DII net equity buys/ sales ( Jan 1-08) (~ bn) *81.43

Bond-market watchers are worriedly tracking the yield curve for government bonds. The differential between short-tenure treasuries and the 10-year bond have narrowed considerably and the yields have also risen. This is a consequence of higher government borrowing which will crowd out private debt raising to some extent. But a flat yield curve is also often an early warning signal of an economic downturn though that's hard to believe. The entire global economy is likely to do well in 2018. China's GDP data for the last quarter shows the highest growth acceleration since 2010. That gels with higher growth across the EU, Japan and USA. The rising tide should also drive the Indian economy. It will inevitably mean tighter monetary conditions however, as the US Federal Reserve unwids its balance sheet and hikes rates while the European Central Bank and the Bank of Japan start to cut back on QE programmes. In fact, yields are rising across most major world currencies. The USD has also lost an enormous amount of ground in the last year. This is one of those rare periods when domestic and foreign institutions as well as retail are all net bullish. As of now, good corporate results, high hopes from the Budget and strong foreign portfolio investment inflows have kept the market buzzing, with a sequence of successive record highs. The Nifty has climbed more than 4 per cent since the New Year. It’s very likely to cross 11,000 by Budget-day. Valuations are also at historically high levels. If the Budget disappoints, be braced for an equally sharp correction.

a beginning. A lot more can be done by the government with expert help from the Ghosh duo to deploy this awesome database to tell us what is happening to the formal jobs sector as reflected in payrolls. Progress made by the authors should be consolidated and built upon further. Household surveys such as the ones done by NSSO or CMIE provide a comprehensive estimate of employment and unemployment, but they do not provide us an estimate of the jobs that people want. People want sarkari jobs above any other form of earning. And, they would like to get a “permanent” job in the organised sector that offers sufficient social security. Such jobs are reflected in the databases of EPFO, ESIC and NPS. The importance of measuring these cannot be overstated. One limitation of the estimates put out by Ghosh and Ghosh is that there is no base-line estimate to judge the growth in employment. The estimate of 7 million formal jobs being added during 2017-18 is an impressively large number. But how do we compare this to the stock of such jobs? According to the BSE-CMIE initiative, total employment during 2017 was of the order of 405 million. An addition of 7 million implies a growth of 1.7 per cent. That’s not much but, if organised employment is about 40 million (20 million in government and 20 million in the formal non-government sectors according to the QES) then 7 million implies a 17.4 per cent growth. That's a very big growth in meaningful jobs. Is this growth incredible or incredulous? Ghosh and Ghosh have whetted our appetite. The government needs to pick up the baton from here, as the authors suggest. The author is managing director and CEO, Centre for Monitoring Indian Economy P Ltd

Say no to indiscipline With reference to “It’s Tughluqshahi, politics of vendetta: Yashwant, Shatrughan back AAP” (January 22), one really feels sorry for both Yashwant Sinha (pictured) and Shatrughan Sinha whose frequent anti-party outbursts prove they must be feeling like fish out of water after being sidelined by the Bharatiya Janata Party’s top brass. They never miss an opportunity to keep themselves politically alive by rushing to either the national media or the social media to vent their anger against their own party’s government. Such open-ended togetherness of these two reminds me of an old proverb, “Birds of a feather flock together”. The moot question is, what could be the actual reason for the BJP leadership to bear with (read: tolerate) such highly disgruntled elements, more so when they are turning out to be political NPAs for the party? Maybe the BJP leadership wants to prove that the party is a firm believer in freedom of speech and everyone is entitled to raise their voices of protests, unlike other Opposition parties where ‘Yes Boss’ is the watch word. S Kumar New Delhi

Contradiction in terms The disqualification of 20 Aam Aadmi Party legislators on the ground of their holding “an office of profit” as parliamentary secretaries should be fiercely debated both politically and legally. One of the basic questions that arises is, when their very appointment as such secretary had been quashed by the Delhi High Court in 2016 on the ground that these were made without the approval of the Lieutenant Governor, can these legislators then still be deemed “parliamentary secretaries” at all? It is pertinent to point out what the High Court in effect had held was that the Delhi Chief Minister within the constitutional scheme had no jurisdiction to make such appointments without the prior approval of the Lieutenant Governor.

dates who would like to work 24x7 as legislators, they should themselves impose self-regulation in this respect. M G Warrier Mumbai

Climate change is real

The said ruling went unchallenged and as such has attained finality. Once the court struck down the appointments on the ground of lack of jurisdiction, according to the settled law, such appointments became void in the eyes of law. Therefore, to hold that these legislatures held an office of profit inviting their disqualification is a contradiction in terms. The issue needs to settled by the court. S K Choudhury Bengaluru

Out of office This refers to “Office of profit case: Prez Kovind approves disqualification of 20 AAP MLAs” (January 21). The debate on this issue is likely to remain alive at least till the coming Lok Sabha elections. In national interest, the political leadership should come to a consensus on making the job of legislators “full time”. As political parties may not have any shortage of candi-

> HAMBONE

This is with reference to “Climate costs” (January 20). Many of us are living in denial and global warming is a reality. Warm climate has a cascading effect on our lives. An important aspect which has a direct impact on our lives is the dipping oxygen in the atmosphere. The causes are familiar: global warming and pollution. Falling oxygen levels caused by global warming could be a greater threat to the survival of life on planet Earth than flood, according to researchers from the University of Leicester. A warmer ocean affects another important food source — fish. Research indicates that plant yields will be lower with rising temperatures. Scientists say that over half of common plants and one third of the animals could be depleted during this century due to climate change. Our leaders must accept climate change is for real. H N Ramakrishna Bengaluru Letters can be mailed, faxed or e-mailed to: The Editor, Business Standard Nehru House, 4 Bahadur Shah Zafar Marg New Delhi 110 002 Fax: (011) 23720201 · E-mail: letters@bsmail.in All letters must have a postal address and telephone number

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OPINION 11

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Volume XXII Number 116

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ILLUSTRATION BY AJAY MOHANTY

A question of credibility World Bank’s Doing Business methodology under the scanner

he World Bank’s chief economist, Paul Romer, kicked up a storm a couple of weeks ago when, in an interview to The Wall Street Journal, he claimed that the bank’s flagship ranking, mapping the ease of doing business across the world, was unfairly manipulated. Since the time they were launched in 2003, the Doing Business rankings were typically treated with great respect, with several national governments making it one of their top priorities to move up the ladder. The rankings map the state of business regulation in a country on a host of parameters such as the ease of starting a business or enforcing contracts or securing construction permits. However, the methodology has not remained the same. And that has now come under a cloud because the bank’s own chief economist spoke against it. In fact, he stated that “he could not defend ‘the integrity’ of the process that led to the methodology changes”. The immediate case in point was Chile, which saw its ranking sway massively over the years. Although Mr Romer later claimed that he was misquoted, the apprehension that Chile’s rankings were manipulated, based on which political faction ruled the country, has taken root. And the question over the credibility of the rankings is not limited to Chile alone. In fact, two researchers from the Centre for Global Development (CGDev) have shown how changes in the methodology may have negatively portrayed Chile when it was ruled by the socialist president, Michelle Bachelet, and, in the same way, shown to have improved when the country was under her conservative successor Sebastián Piñera. The ranking during Ms Bachelet’s first term fell sharply from 25 (2006) to 49 (2010) only to recover smartly to 34 (2014) under Mr Piñera’s rule. However, since then, Chile has again been under Ms Bachelet’s socialist rule and the rankings have steadily plummeted to 55 as of last year. It is entirely possible that certain regimes make it easier to do business than others, but the researchers have gone back to the earlier versions of the methodology to show that the range of variation is much narrower — hitting a low of 39 under Ms Bachelet in 2010 to a high of 30 under Mr Piñera in 2012. The question that is doing the rounds is, did the bank unfairly penalise Chile when it was under a socialist regime? Subjecting other countries to similar comparisons led to a mixed set of results. And even though one can justifiably question CGDev’s fixed methodology itself, the proverbial cat is already out of the bag. There are countries that see huge variations and questions are being raised. For instance, India’s Doing Business rank has risen from 142 to 100 between 2014 and 2018, but CGDev’s method pegs India at 147 — worse than what it was before 2014. Even though the World Bank has clarified that it stands by India’s ranking, this has not prevented many to question the authenticity of the country's achievements. The question, however, is not limited to India, even though many have strongly questioned the validity of using the World Bank’s Doing Business rankings, which are limited to Delhi and Mumbai, as a marker for the ease of doing business across the country. The bank should restore the credibility of its rankings.

The threat of cryptos Unregulated, the new asset class can disrupt the financial economy

he income tax department is making a serious effort to unearth the dimensions of cryptocurrency trading in India and tax evasion that may be associated with it. This appears to be part of a concerted effort by the authorities to establish some regulatory control. After a series of surveys of nine major Indian cryptocurrency exchanges, the tax department has established that around $3.5 billion has been traded on these exchanges in the past 17 months. It has sent out notices to hundreds of thousands of individuals who may have been involved in these trades. Although the Reserve Bank of India has issued advisories warning against trading cryptocurrencies, and the finance ministry has described them as “Ponzi schemes”, the regulatory position on these instruments is still unclear. Not all cryptocurrencies are Ponzi schemes or frauds. The Securities and Exchange Board of India (Sebi) is reluctant to play a supervisory role, and the exchanges remain unregulated and unsupervised. Indeed, the tax department may be hampered in the assessment of tax implications because it is not clear how to classify cryptocurrencies and, thus, to judge what rate of capital gains tax should apply to profits made from such trades. Indian regulators are not the only ones in a bind. Cryptocurrencies have gained so much traction in the past year that many governments have been forced to review these instruments. This asset class and its impact on the global financial economy are likely to be on the agenda for discussion at the next G-20 meeting in March. For instance, Japan has already bitten the bullet and recognised “cryptos” as currencies, if certain definitions are met. The Japanese authorities have laid down know-your-customer (KYC) and net-worth norms for exchanges dealing in cryptos. Australia is in the process of drafting similar regulation. South Korea has outlined a structure for cross-border transfers. China has taken the opposite approach and banned such trading. However, such an outright ban is hard to enforce, even in China. In practical terms, it is nearly impossible to prevent trading of these instruments. It is possible to make such trades with little or no trace left in the formal banking system. The issues are even more serious for nations such as India and China, which do not have open capital accounts. It is possible to exchange rupees for dollars and bypass currency controls by using bitcoin or some other cryptocurrency as a via media. Trades can also be layered in such a fashion that anonymity is maintained. Hence, tax officials and regulators face a tough task in attempting to enforce any kind of control. The tax department has taken a positive step by gathering information on trades and sending out notices. But this must be backed up by concerted action from other regulators in order to be meaningful. This class of assets needs to be reviewed at the highest levels with inputs from multiple regulators. Decisions need to be taken in laying down definitions of what qualifies as a cryptocurrency, the applicable tax rates to trading profits, regulation of exchanges, and usage in commercial transactions, including cross-border transactions. If this asset class continues to be ignored or if its regulation is mishandled, it has the potential to seriously disrupt the financial economy.

Forced formalisation is not healthy The large informal sector is a consequence — not a cause — of the low level of development

or decades, one of the central aims of econom- the informal sector or drift to it essentially because ic policy in India has been to create conditions they cannot find jobs in the formal sector. In other for workers to move from low- to high-income words, the informal sector is a “sink” where people employment. This has usually implied a shift from the work because they have to earn whatever is possible. informal sector where productivity is low, to the for- This sink of an informal sector is a reflection of a low mal sector where productivity is high. This process of level of development and not its cause. Estimates of the size of the informal sector in India vary depending “formalisation” has been excruciatingly slow. The pace is now quickening. on the definition one uses. The general view is that it contributes Demonetisation, which led to financialisation of savings and then to to up to 45-50 per cent of gross the government-ordained acceleradomestic product (GDP) and provides work to over 75 per cent tion of digitalisation, was one driving of the labour force, if one force. So, too, the introduction of the includes non-plantation agrigoods and services tax (GST). culture as part of the informal Formalisation was not the original sector. objective of either; it has turned out to The informal and formal secbe an ex-post official rationalisation tors function side by side, and, for both. The “forced” formalisation hence, the longstanding characthat has been set in motion is, howterisation of such economies, ever, not good for working people. C RAMMANOHAR REDDY The appreciation in government including the Indian, as a dual economy. and international agencies of this The links between the inforkind of formalisation is based on a surprisingly inadequate understanding of the informal and formal sectors — in terms of the flow of goods and services — are now deeper than before, but overmal sector. So, first a primer: Informal, unorganised, tiny or whatever you call it, all they remain shallow. The products and services of this part of the economy has been defined in different the informal sector are often (not always) purchased ways. At its core, the informal sector contains small by consumers who themselves may be low-income establishments with up to 5-10 workers (family, self- earning members of the informal sector. The informal sector does not pay income tax of any employed, or with hired workers) producing products often of low price and quality. Productivity is kind because the self-employed and hired labourers usually low, and so too are incomes and wages. The earn incomes well below the threshold. Most of the informal sector enterprises are to be found in manu- products and services they produce are also exempt facturing (from handloom to metal-fabrication) and from indirect taxes. Functioning as they do on the services (small retail, eateries, repair establishments, margin, the enterprises (if one can call them that) do and the like). It is in essence a very heterogeneous sec- not pay minimum wages either. (The self-employed tor in terms of what it makes, how it functions, and themselves can on occasion find themselves earning less than the minimum wage.) On the whole, therewhere it sells its products. The self-employed and the wage workers stay in fore, the informal sector does not enjoy any kind of

BOOK REVIEW KISHAN S RANA This book carries forward the story of Nelson Mandela’s 1994 autobiography, (made into a film documentary in 2013), covering mainly his five years as President (1994-99), in an offbeat format. When he died in 2013, he left behind 10 chapters, repeatedly chewed over in longhand, yet none finalised. Mandela’s unremitting struggle against apartheid, leadership qualities, sunny personality and unimpeachable charisma, had captivated South Africans and the world. I picked up the book with near-reverence Mandela’s initial 10 chapters have been

The writer is a former editor of The Economic and Political Weekly, and the author of Demonetisation and Black Money

Energy wishlist and watchlist 2018 E

nergy sector investments are long term, capital intensive, and carry significant risks borne out of uncertainty. Below is a watchlist of key uncertainties, which would impact India’s energy transitions. Question 1: How high will oil prices rise? Brent crude was $45 per barrel in summer 2017. It is now just above $70 a barrel (November 2014 levels). A year ago, many commentators did not expect the deal between the Organization of the Petroleum Exporting Countries and Russia, to cut production and raise prices, to hold. In fact, the deal has now been extended well into 2018. For India, volatility in global oil prices is undesirable. After prices fell from 2014, India progressively increased duties to raise tax rev- ARUNABHA GHOSH enues. Now, if consumers were shielded from rising prices, then duties should fall, along with tax recoveries. This is a critical uncertainty for Budget planners. Rising prices have also prodded US shale oil producers to raise production. US shale output, already above 6 million barrels per day (mbpd) is likely to grow by 1.35 mbpd in 2018. US crude production is expected to exceed Saudi Arabia’s, and reach 11 mbpd by 2019. A surge in shale output could offset the price rise. Last week, India launched its first auction in eight years for oil and gas exploration. The 55 blocks, covering nearly 60,000 square kilometres, would increase area under exploration by 50 per cent. Yet, volatility in prices would impact long-term investment. Other factors matter too: How fast electric vehicles substitute the internal combustion engine, and how rapidly oil demand for freight, aviation, and petrochemicals grows, especially in Asia. If these factors cancel each other out, a “long plateau” in oil demand is likely. If prices settle around $60, then India’s response would have to be devised around the margins. Its budgetary planning and upstream investments have to bal-

ance short-term volatility, but not lose track of long-term global trends in flattening demand and rising supply. Question 2: How low will renewable energy prices fall? In 2017, tariffs for solar and wind fell to record lows. A project in Saudi Arabia invited a bid of just 1.78 cents/kilowatt-hour (¢/kWh). The price of onshore wind fell to 1.86 ¢/kWh in Mexico. In India, solar and wind tariffs reached 3.8 and 4.1 cents per unit, respectively. Will prices keep falling? Predictions vary depending on which factors one examines. China is expected to account for 50 per cent or more of global solar installations in 2018. Many developers are installing capacity even before securing government quotas. Consequently, manufacturers will keep supplying panels, which will continue to dampen prices globally. In India, the domestic manufacturers and project developers continue to tussle around imposition of safeguard duties, which would raise prices. Delays in auctions, delays in signing power-purchase agreements (PPAs), and curtailment and offtake payment risk are other reasons why tariffs might not fall in the near future. Such risks raise questions about the tight margins at which very low tariffs have been bid. Tariffs could fall in India too, if regulatory risks were mitigated and contracting terms improved. Question 3: What will happen to stressed thermal power assets? About 60 gigawatts capacity is stressed, thanks to absence of long-term PPAs, non-availability of domestic gas, and unviable tariffs as fuel costs have increased. Non-performing assets in electricity generation account for 5.9 per cent of total outstanding bank advances. Will power procurement now favour the stressed plants, or will owners be able to offload these assets? As renewables outpace thermal power in capacity addition, existing assets face an even more uncertain future.

INFLEXION POINTS

Remembering Mandela’s legacy reorganised, blended with selections from his diary and other notes, and supplemented with material from principal aides, with co-author Mandla Langa finalising the text with his own writing. The reader assumes that the lead voice in this chorus is Mandela’s. But one does not know which paragraphs are the “Mandela text” and which ones are contributions by others. The narrative is in the third person, a kind of eagle’s view of events, seemingly objective. The book starts with his release from prison on 6 February 1990, and traces the subsequent convoluted negotiation with the apartheid era’s last president F W de Klerk, éminence griseP W Botha, and diehards of the old regime, plus Mangosuthu Buthelezi and his Zulu-dominated Inkatha Freedom Party, as also Mandela’s own African National Congress (ANC) stalwarts, who often proved to be a handful. It stresses that at different stages the outcome was far from pre-ordained. A new South Africa emerged when a demo-

advantage whether on account of non-payment of taxes or non-adherence to labour and other regulations. Yet it seems as if official policy now sees the informal sector as one largely made up of tax evaders and arbitrage operators. Yes, there are enterprises which operate under the tax and regulatory scanner in order to get the better of the formal sector. There are manufacturing enterprises which are split up into smaller “name plate” firms to work under the threshold of labour regulations. There are the larger service establishments in, say, retail, which again operate mainly through cash operations to evade payment of taxes. Then there are the civil contractors who neither pay minimum wages nor pay income tax. No one has an idea of the size of this “illegal” informal sector. But given that the larger informal sector functions as a sink for the labour force, it is difficult to see these “evading” enterprises as accounting for a very large share of aggregate output. It is these enterprises which are now sought to be formalised through the push to digital payment and by integrating them into the GST chain. They will first try and function as part of the formal sector. If they cannot succeed they will fold up. Going by press reports, it appears that the latter process is already happening. Large firms producing consumer goods seem to expanding their markets at the expense of the informal firms which are being driven out of business. As a consequence, yes, tax revenue should be going up. But as far as employment is concerned, in the first round of adjustment, workers in these informal sector firms will lose their jobs, and the number of jobs lost here will not be compensated by those created in the high-productivity formal sector. It is not as if the rest of the informal sector, which has many more enterprises and many more workers will remain untouched by forced formalisation. They too will be affected negatively in different ways by this process. The push to digitalisation of transactions will have a negative impact on household enterprises which are not ready for this switch and which are also not familiar with this mode of payment. So, too, the introduction of the GST. As many media reports have pointed out, GST exemption is not an unmixed blessing for small enterprises. The firms in the formal sector do not want to deal with those outside the GST because they cannot claim any tax credit. This then has another negative impact on the small enterprises in the informal sector. The ongoing forced formalisation is based on the belief that the informal sector is the cause of a low level of development, when it is actually a consequence. There is no disagreement on the need for labour to shift from low productivity to high productivity jobs. However, the growth of the formal sector should not happen with a closure by government fiat of the informal. Tax evasion and regulatory arbitrage must end, but not by simultaneously shutting down a much larger number of household enterprises, which are not flouting any laws and where people are struggling to earn a livelihood.

cratic and representative Government of National Unity took office on 9 May 1994, jointly with Mr de Klerk and his National Party and Mr Buthelezi; Mr de Klerk quit government and his office of second deputy president two years later. The chapters are thematic, each examining the evolution of transformation and national unity, covering the presidency and the Constitution, traditional leadership and democracy, transformation of the state, and social and economic challenges. For a book written over a decade after Mandela demitted office, there are few evocations of hindsight, or exploration into what might have been done. The Epilogue is bland, with no comment on post-1999 events. South Africa liberated itself from an oppressive, quasi-colonial domestic regime, but it had to live with the instruments of that regime and its protagonists, crafting the kind of internal transformation that no other state had undergone. Mandela’s genius was in creating, through his own intuitive

understanding, the methods for this purpose. No template was available. An apartheid-enforcing police force had to be refashioned to serve all citizens. The armed forces, against which the ANC liberators had fought, were to become the instrument of a democratic state. A special challenge was refashioning the intelligence agencies that had been the pre-1991 regime’s oppressive spearhead. All this had to be achieved in real time, commencing with the four-year interregnum, before his Government of National Unity took office on 6 May 1994, often using albeit temporarily, those very leading personnel that had been the ANC’s opponents in the pre-1990 armed struggle. This entailed for Mandela pragmatic comprehension of the complexity of national governance, primarily self-taught through observation and consultation. The book narrates how Mandela patiently engaged openly with former enemies, while struggling to convince sceptics, as much within the ANC as among the old regime. This was democratic consultation, tempered with decisiveness. He was ruthless at times, soft in personal accommodation, but undeviat-

Question 4: Where do electric vehicles fit in India’s transport and mobility policy? The government has made numerous announcements about a shift to EVs and is procuring fleet vehicles to reduce prices rapidly. But far less attention is given to shifting mobility patterns and reducing demand for vehicles. If there were a rapid switchover to EVs, where would biofuels fit? A draft policy suggests blending 20 per cent ethanol in petrol and 5 per cent biodiesel in diesel by 2030, the same year when bulk of new vehicles are supposed to be electric.What plans does India have to manufacture EV batteries? Is there a strategy to source or recycle critical minerals (lithium, cobalt, graphite, nickel) necessary for batteries? A more comprehensive transport and mobility strategy is needed to send consistent signals to markets and technology innovators. Question 5: Will India find value in distributed electricity? There has been a big push for electrification with nearly all villages connected to a transmission line. The government now plans to give every household an electricity connection. But there is still limited recognition of the value of distributed energy. This is not just for villages where it is unviable to extend the grid. Even dense urban areas have a case for combining distributed power generation, district cooling and heating, and charging EVs. Losing electrons in transmission makes little sense if generation, consumption and end-use energy efficiency could converge in households, commercial and official buildings, and community infrastructure. Changing the narrative of electricity generation and distribution requires two main interventions: Assessing behavioural incentives for power consumers; and developing alternative business models to bring utilities and decentralised energy entrepreneurs together. We might have many favourite elements in our energy wishlists. But making predictions is fraught with danger. We can only keep asking hard questions. The writer is CEO, Council on Energy, Environment and Water (http://ceew.in), and co-author of Energizing India: Towards a Resilient and Equitable Energy System(SAGE, 2017) Twitter: @GhoshArunabha; @CEEWIndia

ing in implementing his decisions. This is narrated in rich detail, with names, events, and case histories. His close associate Sathyandranath Ragunanan “Mac” Maharaj is quoted: “Mandela’s greatest achievements stem from engaging with others by proceeding from <i>their<p> assumptions and carefully marshaling arguments to move them to his conclusions… he never stops trying to understand the other side, be it an enemy, an adversary, an opponent, or his own colleague.” A chapter titled Reconciliation narrates the process that led to the 1995 establishment of the Truth and Reconciliation Commission (TRC) headed by Desmond Tutu, endowed with amnesty-grant powers, culminating its shocking, even traumatic revelations in a seven-volume 1997 report. The TRC has become a global model, despite its flaws, of how as long-tortured people, finally masters in a shared house, can deal and live with past oppressors for the sake of a shared polity. One wishes more detail was offered. At the time of Mandela’s death on 5 December 2013, aged 95, the book was four years in the making. It comes, 23 years into

“self-liberation”, at a time when South Africa confronts those very domestic challenges of governance that “Madiba” had foretold at his final 1997 ANC Congress as president, a speech cited at length in the book. An editorial in The Economist of 23 December 2017, assessing President Jacob Zuma’s regime said: “…corruption thrives, state resources have been looted, and democratic institutions have been undermined.” Will such a publication make a difference? Here is the vision of one of the greatest leaders of our times, offering through patient examples vital lessons in governance, the management of antagonistic pluralities and domestic divisions, to build a holistic, participatory polity. Which country or people can treat this as redundant? The reviewer is a former diplomat, teacher and author. kishanrana@gmail.com

DARE NOT LINGER The Presidential Years Nelson Mandela and Mandla Langa Macmillan 359 + xix pages; ~999

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Shares of ICICI Prudential Life rose 2.1 per cent after analysts upgraded the stock, led by an improvement in the company’s profitability in the December quarter. The insurer is expected to see higher margins driven by new products and better operating performance

CANE PAYMENT ARREARS AT ALL-TIME HIGH

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THE COMPASS

Muted volumes hurt Asian Paints in Q3 Demand conditions continue to be a cause of concern

performance. The international business, which accounts for about 13 per cent of overall revenues, also saw some headwinds, given currency devaluation in Ethiopia and Egypt. Given higher competition, slowing growth and GST-related disruption, the company has not been able to take price hikes despite the rise in commodity costs. The last price hike was taken in May last year. Commodity costs, both based on crude oil derivatives as well as other chemicals such as titanium dioxide, have been inching up and the outlook continues to be negative for Asian Paints. However, the company, aided by cost-control efforts and investments in renewal energy, brought down power, fuel and other costs. This helped cut other expenses as a proportion of sales by 100 basis points to 14.9 per cent. Operating profit growth and margins at 17.7 per cent and 20.9 per cent, respectively, were better than expectations. While the firm’s management is non-committal about the demand outlook, the Street will look at any signs of volume growth in the March quarter. Lacklustre volume growth could then lead to downward revisions in volume and revenue estimates.

Havells: Steady quarter, but a few monitorables Improvement in Lloyds’ business, cables, other segments crucial UJJVAL JAUHARI Havells, the electrical equipment major, reported a steady and in-line performance for the quarter ended December 2017 (Q3). Although revenue for its standalone business at ~19.66 billion came lower than ~19.96 billion as indicated by Bloomberg consensus estimates, earnings before interest, tax depreciation and amortisation (Ebitda or operating profit) at ~2.62 billion was a tad ahead of analysts’ estimates of ~ 2.60 billion. Net profit at ~1.94 billion, helped by one-time gain of ~210 million, was higher than expectations of ~1.69 billion. However, even after excluding one-off gains, profits were ahead of estimates. Revenue growth of 31 per cent was driven by the addition of Lloyd’s business to Havells portfolio. But, even without it Havells’ revenue grew 11 per cent on a yearon-year (y-o-y) basis in Q3. The bigger positive is the expansion in margins to 15.2 per cent, better than 12.7 per cent in the year-ago quarter. Even after including the lower-margin Llyods’ business, operating profit margin stood at 13.3 per cent. Similarly, most business segments did well. Lighting and fixtures and consumer durables (contribute 17 per cent and 25 per cent to topline, respectively) maintained their growth rates, posting an increase of 21 per cent and 33 per cent, respectively in revenues. Switchgears (about a fifth of revenue), which has been a laggard in the past few quarters, rebounded, posting 11 per cent growth. The cable segment, which contributes over a third to revenue, still is a laggard, given the three per cent growth in Q3. Havells attributed this to delay in orders due to volatility in commodity prices and

Record line-up of QIPs as FY18 nears end Over 40 firms may raise up to ~500 bn in two months if markets hold

AMOUNT RAISED VIA QIPs, IPOs

Total mop-up in FY18 could be higher than combined fund raise in last five years

ASHLEY COUTINHO

Mumbai,22January

IPOs

RAM PRASAD SAHU Asian Paints has reported muted December quarter numbers, led by a single-digit volume growth of its domestic decorative paints segment, which accounts for over 80 per cent of its consolidated revenues. While standalone revenue growthcameinat11.9percent overtheyear-agoquarter,consolidated revenue growth was at 10.9 per cent. Analysts had estimated consolidated revenue growth to be around 20 per cent on the back of 15 per cent volume growth in the domestic decorative business. The firm’s management has indicated that while there has been some recovery after note ban and the implementation of the goods and services tax (GST), demand for the paints sector continue to be subdued. Demand, according to the firm, is yet to reach preGST levels. Over the last five quarters, the company has hit doubledigit growth only once. For most other quarters, growth in the domestic decorative paints has been mid-single digits. Factors such as higher exposure to the South Indian market, which has slowed down due to extended monsoons, coupled with most festivals falling in the September quarter, are responsible for the company’s muted show. Analysts say the company has been trailing behind its competitors for the past five quarters,withslowingvolume growth. Rival Kansai Nerolac has reported 15-20 per cent growth, indicating that Asian Paints may be losing share. This trend could continue as recovery hopes in the second half of FY18 now depend largely on the March quarter

ndia Inc is making a beeline for qualified institutional placements (QIPs) to shore up capital, retire debt and build reserves for possible acquisitions of stressed assets. If the market does not play a spoilsport, around 40 companies might raise between ~400 billion and ~500 billion through this mode before the financial year comes to a close. Last year, listed companies had raised ~600 billion through QIPs. “Last year saw significant IPO (initial public offering) activity. This year may be dominated by follow-on offerings, including QIPs,” said Utpal Oza, head of investment banking at Nomura India. “Attractive valuations mean that companies can mop up a higher amount with lower stake dilution, utilising funds to deleverage and reduce debt on their books.” Financials and infrastructure companies will dominate fundraising. Banks need capital as they start taking haircuts on their bad loans in the next few months. Infrastructure companies will need money to fund their growing order book, following the government’s thrust towards building roads, ports and railways. Among these, HDFC Bank, Bank

FY14 9.2

(Total in bracket)

94.0 (103.2)

Figures in ~bn

FY15 27.7 284.29 (312.0) FY16 145.0 193.6 (338.6) 136.7 (419.0)

282.3

FY17

641.4

FY18* *till 18 January, 2018

of Baroda, Indian Bank, Canara Bank, and Corporation Bank plan to raise about ~240-270 billion in the coming weeks via QIPs. In 2016, market volatility had hit QIP plans of several staterun banks. However, the sustained upmove in the market in the past year and the government’s announcement of a ~2.1-trillion package to recapitalise public sector lenders has boosted sentiment considerably. In June last year, State Bank of India, the country’s largest lender, had raised ~150 billion through this route. A number of companies opting for QIPs this year may do so to bid for stressed assets. HDFC’s board has recently approved fundraising worth ~130 bil-

lion through a combination of a preferential allotment and QIP. The funds would be utilised to evaluate opportunities in the acquisition and resolution of stressed assets in the real estate sector, the company said. Last year, Kotak Mahindra Bank had raised ~58 billion, in part, for acquisition of stressed assets. “As the NCLT (National Company Law Tribunal) process gains momentum, some companies may be building a war chest to bid for stressed assets,” Oza said. Companies wanting to achieve the minimum 25 per cent public shareholding requirement may use the QIP route, following the Securities and Exchange Board of

520.6 (1,161.9)

Source: PRIME Database

India’s (Sebi’s) revised guidelines a few weeks ago. Real estate companies may also look to hit the markets to leverage the improved stock prices, whereas pharma companies could hit the market to shore up capital for potential acquisitions, according to experts. Besides QIPs, the pipeline for IPOs is expected to remain robust as private equities continue their exits. IPOs worth ~130 billion are sitting with regulatory approvals, while another eight companies have filed their draft prospectus with the market regulator in the past two months to mop up ~100 billion. Large issuances may include Bandhan Bank (about ~25 billion), ICICI Securities (~30 billion), Acme Solar

Nifty nears 11k-mark after heavyweights rally FPI investment crosses $1 billion in 2018, helping Sensex climb 5.1% PRESS TRUST OF INDIA Mumbai, 22 January

Stocks ended at record highs for the fourth session with the benchmark Nifty of the National Stock Exchange nearing the 11,000-mark amid huge inflows from foreign investors and sharp gains in index heavyweights such as Reliance Industries (RIL), Tata Consultancy Services (TCS) and Oil and Natural Gas Corporation (ONGC). The BSE benchmark Sensex surged 286.43 points, or 0.8 per cent, to close at 35,798.01, while the Nifty ended at 10,966.20, all-time closing high for both indices.

Foreign investors bought shares worth ~15.7 billion as domestic investors pulled out ~4.6 billion, according to provisional data by the bourses. So far this month, foreign portfolio investors (FPIs) have invested $1.2 billion in domestic stocks, helping Sensex climb 5.1 per cent. Stocks have been on a record-setting spree following better-than-expected earnings by leading companies and a recent cut in goods and services tax (GST) rates for certain products and services. The 30-share Sensex, after opening on a strong footing, continued its upward march to hit an all-time high of 35,827.70. It shed some ground on profitbooking before finally ending higher at 35,798.01, smashing its previous record close of 35,511.58 reached on Friday. The gauge had gained 740.53 points in the previous three sessions.

SENSEX

Compiled by BS Research Bureau

The NSE Nifty also hit a record intra-day high of 10,975.10, before finishing at 10,966.20, up 71.50 points, or 0.7 per cent. It bettered its previous closing high of 10,894.70 reached in Friday’s trade. “The market continued its upward trajectory by supporting the premium valuation with better quarter earnings. The global market was negative but foreign institutional investors’ (FIIs) continued preference for

NSEco-location:EY,ISBaudits failtocuticewithSebipanel SHRIMI CHOUDHARY Mumbai,22January

transition to the goods and services tax (GST). It expects the segment to pick-up postGST rate rationalisation. Lowering of GST rates for all cables to 18 per cent should hopefully benefit the segment. Rising share of the more-profitable domestic cables is aiding margins, and will be watched by the Street in the ensuing quarters. Llyods’ business grew 16 per cent y-o-y. While the second and third quarters are seasonally soft for the air conditioning business, the segment has suffered, given the high inventory in the channel and measures to liquidate inventory. All these weighed on its margins. Havells said the profitability of Lloyds’ business was impacted due to transition towards energy efficiency norms. As it enters the seasonally strong quarters, all eyes will be on how growth and margins pan out. Following the results, Havells scrip closed about a per cent higher, at ~552.15 on Monday. The benign reaction can be attributed to the 13 per cent gains in the past three months, and rich valuations of 37 times FY19 estimated earnings. Himashu Nayyer at Systematix Shares says Havells has reported a decent performance. However, the stock is trading at rich valuations and continued earnings growth momentum remains key to maintaining these valuations.

QIPs

Holdings (~22 billion) and Reliance General Insurance (~16 billion). Apollo Micro Systems, Newgen Software Technologies and Amber Enterprises India have already tapped the market this month. “IPOs will remain a regular feature as long as the sentiment in the secondary market remains bullish,” said Pranav Haldea, managing director at Prime Database, a primary market tracker. The benchmark BSE Sensex is up around five per cent this year. Three of four companies listed in 2017 are trading in green, a fact that may increase the demand for such offerings. The excess supply notwithstanding, the demand for offerings is likely to remain strong. “Despite concerns on rich valuations, the market seems to be thinking differently. There’s a large amount of institutional money chasing these stocks and unless the market corrects 10-15 per cent, the IPO and QIP offerings will be easily absorbed,” said Dara Kalyaniwala, senior vice-president (investment banking), Prabhudas Lilladher. Mutual funds, for instance, are flush with funds on the back of monthly equity inflows to the tune of ~50-60 billion from systematic investment plans. Last year, foreign portfolio investors shopped for equities worth ~528 billion, while domestic institutions bought shares worth ~882 billion.

The Securities and Exchange Board of India’s (Sebi’s) technical advisory committee (TAC) is not satisfied with the forensic report findings submitted by the National Stock Exchange (NSE) on co-location, said a regulatory official. According to him, Sebi’s expert panel is of the view that the report findings are not matching with the evidences gathered by them. The panel has submitted their views to the market watchdog and has called for an independent probe. In November 2017, the NSE had submitted two separate audit reports to Sebi, prepared by EY and the Indian School of Business (ISB), Hyderabad, relating to the colocation matter. The NSE entrusted EY to carry out a forensic audit into cash markets, currency derivatives, and interest rate futures platforms. ISB’s audit was to determine whether certain brokers made any undue profits by getting preferential access to the exchange’s platform. Sources say the audit report has not found any individual involvement or human fault in the case. The report ruled out collusion between the exchange and brokers. The audit also did not ascertain the said ill-gotten gains made by brokers or any sort of undue advantages made through the co-location server. However, the report did find faults in the co-location architecture and said the unfair access was due to the

COMMITTEE FOR INDEPENDENT PROBE MARCH 2016: TAC submits its report, notes NSE has violated norms of fair access, allowing some brokers to benefit OCTOBER 2016: NSE appoints Deloitte to examine the allegation, as directed by Sebi DECEMBER 2016: Deloitte submits its report, finds fault in the co-location architecture MARCH 2017: NSE appoints EY to audit its cash, currency and derivatives segment; ISB is appointed to determine whether certain NSE brokers made any abnormal profits AUGUST 2017: Sebi appoints EY, Deloitte to jointly probe brokers' role in the matter NOVEMBER 2017: NSE submits EY, ISB reports to Sebi

lack of written policies on colocation. It further said the architecture was prone to manipulation but had not been exploited in the currency platform. Sources said EY had suggested the bourse to enhance the system to bring them on a par with global standards. The report also cited international case studies on how to protect the market integrity and ensure equal participation Based on the suggestions,

the top bourse is looking to appoint a chief technology officer who will look into its technology and enhancement. “We are working on several recommendations to ensure transparency and to avoid technical glitches,” said an exchange official. Last year in July, the NSE had filed an application with Sebi to settle the case through a consent mechanism. “Sebi has not responded to the proposal as yet. It has taken the cognisance of the expert panel suggestion and is awaiting its own audit report and probe finding, which has been going on simultaneously,” said the source cited above. Earlier, the NSE had appointed Deloitte, which had named a few brokers who had profiteered with this facility. But the audit firm was not able to find any proof against any entities that allegedly made any monetary gains. This has prompted the regulator to do a separate auditing and ordered a joint forensic audit to establish collusion between the brokers and officials in the co-location controversy. Meanwhile, Sebi had served show-cause notices to the NSE and 14 of its current and former key management personnel for alleged irregularities at the co-location facility. The case relates to some brokers allegedly getting preferential access to the NSE servers through co-location facility, early login and access to the ‘dark fibre’, which can allow them a split-second faster access to data feed of the exchange. Even a splitsecond faster access can yield huge gains for a trader.

NIFTY 50

Source:Bloomberg Chartmakers

the domestic market on expectation of a good Budget uplifted the sentiment,” said Vinod Nair, head of research, Geojit Financial Services. TCS, rose the most among the Sensex components, surging 5.4 per cent to close at a new high of ~3,113.15, followed by RIL at 4.5 per cent to ~971.20. Market value of the Tata group flagship company neared ~6 trillion on Monday. Currently, only RIL is in the

~6-trillion market capitalisation club. RIL shares gained 4.5 per cent on Monday, making a 138-point contribution to the Sensex rally, after brokerages upgraded the stock after its earnings beat market expectations. ONGC spurted 3.3 per cent after it got a go-ahead to acquire the government’s entire 51.11 per cent stake in HPCL for ~369.15 billion. Axis Bank rose 3.52 per cent as it reported a 25 per cent growth in its third quarter net profit and a decline in provisions for bad loans. Other prominent gainers Yes Bank, Bajaj Auto, L&T, Kotak Bank, Adani Ports, Tata Motors, Sun Pharmaceutical Industries, HDFC Bank, Infosys, Hero MotoCorp, and Dr Reddy’s Laboratories rose by up to 3.5 per cent.However, shares of Wipro dropped 2.3 per cent after the third-largest IT services firm reported an 8.4 per

cent fall in its December quarter consolidated net profit. Bharti Airtel, Asian Paint, HDFC Ltd, SBI, Hind Unilever and ICICI Bank, too, ended lower on profit-booking. The BSE IT index rose the most by gaining two per cent, followed by realty 1.95 per cent, capital goods 1.8 per cent, teck 1.4 per cent, consumer durables 0.8 per cent, healthcare 0.7 per cent, infrastructure 0.6 per cent, oil & gas 0.5 per cent, bankex 0.5 per cent, power 0.3 per cent and auto 0.2 per cent. The broader markets, too, remained bullish, with the BSE small-cap index rising 0.78 per cent, while the mid-cap index ended up 0.63 per cent. In the Asian region, Hong Kong’s Hang Seng rose 0.43 per cent, Shanghai Composite up 0.39 per cent, while Japan’s Nikkei edged up 0.03 per cent. (With inputs from bureau)

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THE SMART INVESTOR 13

MUMBAI | TUESDAY, 23 JANUARY 2018

ILLUSTRATION: AJAY MOHANTY

Axis Bank breaks the jinx, net up 25%

Core operating performance and asset quality improvement surprise the Street HAMSINI KARTHIK & NIKHAT HETAVKAR

HAVELLS Q3 PROFIT AT ~1.94 BN

Mumbai, 22 January

HITS AND MISSES FOR EQUITY MFS In December, mutual funds (MFs) deployed considerably larger amountin 10 stocks amid a gush of liquidity. It has been a mixed bag for fund managers as some of these stocks have done exceedinglywellwhile some have unperformed the market.The stocks that gained the most among top picks includeTCS and L&T. However, fund managers could not be such good sellerswhen itcomes to top fewsellcalls. For instance, Infosys — the most liquidated counter — jumped 11%,while Indian Hotels galloped about 28%.Sell calls on Gail (India) andTVS Motor rewarded fund managers handsomelyas both thecounters fell 7.5-8%. It isworth to note that fund managers do not generallybuyor sell stocks, with a short-termview.The gains or losses in share prices during the immediate following month should not be the barometer to judge fund managers’ investmentexpertise. Chandan Kishore Kant

How MFs' top investment bets in December did so far in January Mostbought

Chg*inshare price(%) PNB 2.50 InterglobeAviation -0.20 UnionBank -2.60 SunPharmaceutical 1.00 ShreeCement 2.00 Vedanta -1.00 Larsen&Toubro 11.30 RelianceIndustries 5.40 MothersonSumiSystems 1.30 TCS 15.30

Mostsold

Chg*inshare price(%) Infosys 10.70 MarutiSuzuki -4.40 IndianHotels 27.80 IndusIndBank 2.00 AxisBank 8.70 Wipro 2.40 GAILIndia -8.00 TVSMotor -7.40 CastrolIndia -2.60 ShriramTransportFin -0.50

* Change in share price till Janaury 22, 2018 Sources: Edelweiss Fund Insight Report & BSE

> TODAY’S

PICKS Nifty

Current: 10,964 (fut: 10,966), Target: NA Stop-long positions at 10,875. Stop-short positions at 11,025. Big moves could go till 11,100, 10,825. A long 11,000c (34), short 11,100c (8) could gain 15-20 if the index crosses 11,025.

Bank Nifty

Current: 26,988 (fut: 27,041) Target: NA Stop-long positions at 26,900. Stop-short positions at 27,150. Big moves could go till 27,350, 26,700. Trend is bullish but less than the Nifty.

fter a prolonged period of negative stock reaction to its quarterly results, Axis Bank broke the jinx with its December quarter (Q3) performance. The stock was among the top gainers on Monday, rising 3.5 per cent, thanks to the Q3 numbers. Which, most analysts say, bettered their expectations on core operations and asset quality. Net profit rose 25 per cent year-on-year to ~7.26 billion, led by robust growth in net interest income, which grew nine per cent to ~47.3 bn. Yet, this wasn’t enough to aid the net interest margin (NIM), which came at 3.38 per cent as against 3.43 per cent a year before and 3.45 per cent in the September 2017 quarter. NIM is the difference between yield on advances and cost of funds. Even as cost of funds bottomed out at 5.08 per cent in Q3, more accounts (43 per cent of the loan book) falling into the MCLR (marginal cost of fund-based lending rate) regime and an increase in better-rated corporate accounts (which tend to give less pricing bandwidth for the bank), led to compressed NIMs in Q3. However, this is within the 20 basis point (bps) year-on-year decline the bank had said it was expecting, earlier this financial year. Jairam Sridharan, chief financial officer, says NIM could see a slight uptick as more (corporate clients) migrate from the bond market to banking channels for working capital needs. The quarter was also helped significantly by 21 per cent year-on-year growth in the loan book, the bulk from the retail (small borrower) segment. The star highlight in Q3 was sharp relief on asset quality. After at least six quarters of increase in the pool of bad

Bangkok/ Singapore/ Hong Kong, 22 January

Current price: ~569 Target price: ~580 Keep a stop at ~565 and go long. Add to the position between ~575 and ~576. Book profits at ~580.

Indiabulls Housing Finance Current price: ~1,355 Target price: ~1,380 Keep a stop at ~1,345 and go long. Add to the position between ~1,370 and ~1,375. Book profits at ~1,380.

HPCL

Current price: ~402 Target price: ~394 Keep a stop at ~406 and go short. Add to the position between ~395 and ~397. Book profits at ~394. DEVANGSHU DATTA Target prices, projected movements in terms of next session, unless otherwise stated

RALLIS Q3 NET AT ~249.4 MN loans, gross non-performing assets (NPAs) fell to ~250 bn, as against ~274 bn in Q2. Consequently, the gross NPA ratio fell to 5.3 per cent from 5.9 per cent in the earlier quarter; the net NPA ratio was 2.6 per cent; down from 3.1 per cent in Q2. The gross NPA number is a tad higher by six bps over the year-ago period but, as Sridharan says, “New stress is not getting formed.” Three factors suggest the bank is perhaps at the cusp of ending its bad loans' spell. First, accretion of bad loans or slippage reduced by half sequentially to ~44.3 bn. “The worst in terms of fresh slippage is behind us. We are entering the last stage of recognition and the early stages of resolution,” Sridharan said. Recoveries were at a record high of ~40.1 bn, reiterating Sridharan’s confidence. Substantial cash recovery from an account in the information technology sector and a loan upgrade in the steel sector helped Axis demonstrate strong recovery in Q3. Provisioning for bad loans dipped to ~281 bn, from ~379

NPA STRESS EASING ~ million

NII Other income Operating profit Provisions & contingencies Net profit Gross NPA Gross NPA (%) Net NPA Net NPA (%) Provision coverage ratio(%) Net interest margin(%)

Q3FY18

% change Y-O-Y

Bps: basis points; Compiled by BS Research Bureau

bn a year before. The provision coverage ratio, consequently, improved to 66 per cent. “Axis Bank’s watch list has substantially declined to 12 per cent and is now only 1.3 per cent of the loan book (as compared to 6.7 per cent in March 2016). This indicates the bank is approaching the end of recognition of stressed loans and gives comfort to credit cost outlook for the next four to six quarters,” says Asutosh Mishra of Reliance Securities.

Q-o-Q

47,315 9.2 4.2 25,931 -23.7 0.3 38,538 -16.9 2.0 28,110 -25.9 -10.5 7,264 25.3 68.0 250,005 22.2 -8.8 5.3 6 bps -62 bps 117,695 41.9 -16.2 2.6 38 bps -56 bps 66.0 200 bps 600 bps 3.4 -5 bps -7 bps Source Capitaline

The bank remains cautious on ~16.1 bn of loans with weak credit rating (BB or lower). Likewise, with 25 per cent of the watch list (or assets which could turn bad) from the power sector, Sridharan notes all the stress isn’t fully visible yet and he expects trouble, if any, from that sector. What is comforting is the capital adequacy ratio, which improved to 17.5 per cent in Q3, thanks to ~11.6 bn of fund raising (including ~8.7 bn of equity capital), boosting the balance sheet.

Agriculture solutions firm Rallis India on Monday posted a marginal drop in consolidated net profit at ~249.4 million for the December quarter. The Tata Group firm had clocked a net profit of ~253.4 million in the same quarter last financial year. Net income jumped to ~3.94 billion during the October- December period of the current fiscal from ~3.52 billion in the year-ago quarter, the company said in a BSE filing. Expenses rose to ~3.66 billion from ~3.20 billion earlier. “Our broad based portfolio of solutions and robust farmer relationship have been instrumental in driving our revenue growth during the quarter,” Rallis India CEO and Managing Director V Shankar said. Despite market challenges and pricing pressure, the quality of operations stood ground driven by 'Rallis Samrudh Krishi' and the digital initiatives, he said. PTI

DHFL Q3 NET UP 25% Dewan Housing Finance Corporation (DHFL) reported a 25 per cent increase in its net profit for the third quarter ended December 2017 (Q3) at ~3.06 billion compared with ~2.47 billion in the corresponding three months a year ago. Sequentially, the figure rose by only four per cent. The company’s total income from operations was up 11.5 per cent to ~26.34 billion in the reporting quarter from ~23.62 billion in the year-ago period. On a sequential basis, total income increased 1.1 per cent from ~26.14 billion in Q2. The assets under management (AUM) grew 29.4 per cent to ~1,012 billion in Q3 FY18 from ~782.96 billion a year ago. Kapil Wadhawan, chairman and managing director of DHFL, said, “The quarter has been truly significant and a milestone one for DHFL in taking AUM over the ~1-lakh-crore (~1-trillion) mark.” BS REPORTER

Emerging-market scorecard supports Bull market has entered final lap, Mexico and Turkey over India YUMI TESO, MASAKI KONDO & HANNAH DORMIDO

Tech Mahindra

Consumer electrical goods maker Havells India’s December-quarter standalone net profit stood at ~1.94 billion. The company had reported a net profit of ~1.53 billion during the October-December quarter of the previous financial year. Total income during the quarter under review stood at ~19.94 billion against ~16.51 billion in the year-ago period. The company said the results are not comparable with the previous period as it had acquired the consumer durables business of LEEL Electricals in May last year. Revenue from switchgear division was ~3.44 billion during the quarter, against ~3.31 billion in the third quarter of 2016-17. PTI

Mexico and Turkey are showing themselves to be the most attractive emerging markets in 2018 based on a range of metrics including growth, yields, current-account position and asset valuations analyzed by Bloomberg. By contrast, Asian economies were among the five least attractive. Mexico and Turkey scored higher as their real effective exchange rates are competitive compared with the average of the past 10 years, according to the analysis. For India and China, their valuations are relatively expensive in historical terms. Their economic growth is unlikely to be as fast as it has been in the past 10 years, economist estimates show. "If you are on the hunt for something to buy now, Turkey and Mexico stand out because they are relatively cheap," said Takeshi Yokouchi, a senior fund manager in Tokyo at Daiwa SB

Investments, which oversees the equivalent of $50 billion in assets. "When political risks ease up, that's when you want to make an entry given their solid fundamentals and high yield." Turkey's five-year government bond yield is about 13 per cent, while Mexico's is 7.5 per cent. Both exceed India's equivalent rate of around 7.3 per cent, which is the highest among Asian nations covered by the analysis, while China yields about 3.9 per cent. The study covers 20 of the 24 markets making up MSCI Inc's Emerging-Market Index. Greece, Egypt, Qatar and Pakistan are excluded owing to its use of the euro for Greece and because of data limitations for the other three countries. The result for each is shown as a Z-score, which measures the relationship of the individual value to the 10year average. "Asian countries do look relatively expensive as they have been bought amid strong fundamentals in the region," Yokouchi said. "They may not have potentials like Turkey or Mexico to rally big,

says Ambit Capital

QUICK LOOK Ranking Country

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

GDP

Mexico 0.08 Turkey -0.26 Czech 0.6 Poland 0.37 Malaysia 0.25 Korea -0.12 Hungary 0.84 Colombia -0.58 Peru -0.39 U.A.E. 0.06 Chile -0.12 Taiwan -0.07 S.Africa -0.14 Brazil 0.27 Russia 0.18 Thailand 0.26 Philippines 0.51 Indonesia -0.32 China -1.43 India -0.41

Current Asset account valuation REER Rating

-0.39 0.15 0.97 0.96 -0.95 0.39 0.47 0.16 0.68 -0.84 0.05 0.74 0.52 0.84 -1.03 0.82 -1.59 -0.45 -0.85 0.64

but Asian currencies and assets are also likely to stay steady from here." The Turkish lira is the worst-performing currency against the dollar in the past six months, among the coun-

0.72 0.48 -0.73 -0.89 -0.6 0.14 -1.46 -0.87 -1.04 0.18 -1.68 0.06 -0.93 -1.33 -0.5 -1.95 -0.71 -1.28 -0.86 -1.15

1.53 2.57 -0.35 0.46 1.43 -1.18 0.79 1.64 0.35 -1.01 0.25 -2.28 0.97 0.75 0.84 -1.38 -0.13 0.24 -0.86 -1.67

0.25 -0.91 1.41 0.25 0.54 1.41 -0.62 -0.33 0.25 1.41 1.12 1.12 -0.91 -1.49 -0.62 0.25 -0.33 -0.62 0.83 -0.62

Total score

2.19 2.02 1.91 1.15 0.67 0.65 0.02 0.02 -0.15 -0.20 -0.38 -0.43 -0.50 -0.98 -1.13 -1.99 -2.24 -2.43 -3.17 -3.21

tries included in the analysis, due to lingering political tension with the US. The Mexican peso ranked the second worst amid ongoing Nafta negotiations. BLOOMBERG

Check your Aadhaar authentication history online

SAMIE MODAK

Mumbai, 22 January

The Indian market has been adding to last year’s stellar gains but the frenzy may not last long, said Ambit Capital in a report titled Here comes the final frenzy. The domestic brokerage has spotted three tell-tale signs that signal an end to the rally — the pause in the rally seen at the fag-end of 2016; further spike in financial stocks, the torch-bearers of the recent rally and a sharp shoot-up in market valuations above historical levels. “The current Indian bull market is all set for a final frenzy given: Post the “pause” in the closing months of 2016, the market has rallied strongly for a year and history shows that bull markets last for two years post the pause; (b) in the final stages of a bull run, the ‘champion’ sector in the rally rockets up, and the financial sector P/E (price to earnings) multiple up four times in the last four years) is rising in such a fashion; and (c) in the

closing stages of a bull run, the market P/E shoots up – the Sensex’s trailing P/E has risen from 17 times to 24 times in the past 12 months,” said Aditi Singh, analyst at Ambit Capital, in a note on Monday. The benchmark Sensex gained 28 per cent in 2017. So far this month, it has risen another five per cent. The banking stocks — major contributors to last year’s gains — have, too, rallied sharply this month, as investors have piled on to them on hopes of higher foreign direct investment (FDI). Singh says it is typically of a bull market that investors start betting on a champion sector which creates a bubble. “Investors bet on all economic activity converging into them (champion sectors). Typically, these sectors show a steep rise in valuations along with an increase in market capitalisation share. After the peak of the rally, these ‘champion sectors’ tend to underperform or perform in line with the market,” the note added.

KNOW YOUR TRANSACTIONS

It can help you track if anyone misuses your unique identity TINESH BHASIN Toimprove the security of Aadhaar, the Unique Identification Authority of India (UIDAI) recentlystarted offering a service that lets a user check the historyof Aadhaar authentication. The account holder can check if anyanyone tried to authenticate his Aadhaar using biometric, one-time password (OTP) or demographic details. The service letsyou keep a track of authorised and unauthorised verifications on your account. “Think of this service like debit and credit entrieson your bank passbook that helps to keep a tab on the money in your bank. If yousee an unauthorised authentication on your Aadhaar account, you can raise a red flag,” says Prashant Mali, an advocate and international cyber law and cybersecurity expert. Take the example of recent misuse of Aadhaar by a payments bank, which is a subsidiary of a telecom company. When customers linked their Aadhaar with

their mobile number, allegedly retailers also used the details to open payments bank accounts without “informed consent” of the telecom customers. While the service helps users toknow the history of authentication, it’snot userfriendly. The service doesn’t mention who triedto authenticate records. Instead of the name, it gives a code of the institution/service provider that triedto authenticate your account. To access the record, you need togoto the ‘Aadhaar Authentication History’ under ‘Aadhaar Services’ section on the UIDAI website.You can check either biometric, OTP or demographic authentications individually orselect‘All’ tosee them on one page. The service allows you to check upto 50 transactionsover the last six months. In the record, you can see the date and time of transactionsand also whether

they were authorisedor not. Also, there are no details of the institutionthat attempted to verify the details. Instead of the name, it gives an alphanumeric 'response code'. So, how do you know if the authorised transactions were initiated with your consent? One way is togotoyour inbox and check if there were corresponding emails from UIDAI for Aadhaar authentication if your email isregistered with them. You can use the ‘response code’ from the historyto match it with the one mentionedin the email from UIDAI. While the OTP and biometric authentications are limited and easy to check, some users may see a lot of failed entries for demographic authentication. “Don’t be alarmed with the number of failed entries. It is possible that if someone has linked Aadhaar with bank or wallet, their servers can try to authenticate you for

YOUR MONEY

KYC (know your customer),” says Mali. An individual should be concerned only with authentications that ‘passed’. If there are successful transactions that you don't recognise, contact UIDAI by calling 1947 or byforwarding the details to help@uidai.gov.in. “When it comesto Aadhaar, there are limited grievance redressal mechanisms.You can only doit by phone or by sending an email to UIDAI. There’s noother way or next level authorityin caseyour grievance is unresolved,” said Gopal Krishna, convener of Citizens Forum for Civil Liberties, which campaigns against surveillance technologies. Toprevent misuse of Aadhaar, the best way is to lockyour biometrics. While an individual can do it online on the UIDAI website, it’s much easier to do it on the Aadhaar app. You can unlock biometric verification wheneveryou need to.

Step 1: Log on to www.uidai.gov.in

Step 2: Clickon‘Aadhaar Authentication History’under‘Aadhaar Services’section Step 4: Key in your requirements. You can check biometric, OTP or demographic authentications individually or ‘All’ to see them in one page

Step 3: Type in 12-digit Aadhaar number and the security code; you will get to a page where you can select the transactions you need to view

Step 5: You can choose max 50 transactions done over past six months

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16 COMMODITIES

https://t.me/TheHindu_Zone

MUMBAI | TUESDAY, 23 JANUARY 2018

> PRICE

CARD

As on January 22

International Price %Chg#

METALS ($/tonne) Aluminium 2,256.0 Copper 7,079.0 Nickel 12,595.0 Lead 2,608.0 Tin 20,685.0 Zinc 3,463.0 Gold($/ounce) 1,332.4* Silver($/ounce) 17.0* ENERGY CrudeOil($/bbl) 68.4* NaturalGas($/mmBtu) 3.2*

Domestic Price %Chg#

4.5 2,505.1 4.4 1.0 7,546.6 3.8 4.5 13,277.0 12.1 4.2 2,724.3 10.7 3.8 21,637.7 1.2 7.9 3,835.9 6.6 4.1 1,462.9 3.4 0.0 18.9 -0.51 17.5 10.3

AGRI COMMODITIES ($/tonne) Wheat 190.2 3.3 Maize 186.8* 9.1 Sugar 354.3* -3.9 Palmoil 637.5 -5.6 Rubber 1,828.3* 11.2 CoffeeRobusta 1,776.0* -12.1 Cotton 1,845.3 25.1

67.4 20.7 3.2 12.1 264.4 203.2 512.9 954.4 1,988.4 1,730.1 1,923.9

0.2 -5.7 -13.1 7.0 -0.5 -8.5 14.1

* As on Jan 22, 1800 hrs IST, # Change Over 3 Months Conversion rate 1 USD = 63.9 & 1 Ounce = 31.1032316 grams. Notes: 1) International metals, Indian basket crude, Malaysia Palm oil, Wheat LIFFE and Coffee Karnataka robusta pertains to previous days price. 2) International metal are LME Spot prices and domestic metal are Mumbai local spot prices except for Steel. 3) International Crude oil is Brent crude and Domestic Crude oil is Indian basket. 4) International Natural gas is Nymex near month future & domestic natural gas is MCX near month futures. 5) International Wheat, White sugar & Coffee Robusta are LIFF E future prices of near month contract. 6) International Maize is MATIF near month future, Rubber is Tokyo-TOCOM near month future and Palm oil is Malaysia FOB spot price. 7) Domestic Wheat & Maize are NCDEX future prices of near month contract, Palm oil & Rubber are NCDEX spot prices. 8) Domestic Coffee is Karnataka robusta and Sugar is M30 Mumbai local spot price. 9) International cotton is Cotton no.2-NYBOT near month future & domestic cotton is MCX Future prices near month futures. Source: Bloomberg

Compiled by BS Research Bureau

SUGAR PRICE

JAYAJIT DASH

Bhubaneswar, 22 January

( ex mills in ~/quintal)

Jan 20, 2018

3,250

Oct 03, 2017

Iron ore output may fall 15%, after 2 years of growth

3,700

ombined sugarcane payment arrears to farmers in the country reached an all-time high at the end of last month, of ~95.76 billion. The earlier high was ~78.4 billion at end-December 2012. Of the arrears, ~39.4 billionwas to farmers in Uttar Pradesh. The comparative all-India figure at the end of 2016-17 (end-March) was ~95.26 billion. The arrears could swell, as prices of sugar are falling, squeezing mills’ cash. The reason is the sharp upward revision in sugar production estimates, by 30 per cent for the current season to 26.1 million tonnes. According to the Indian Sugar Mills Association (Isma), as on last Monday, production had alreay reached 13.5 mt, though the sugar year began only on October 1. Sugar was ~41.5 a kg at the wholesale market in this city last February. It is now ~32.76 a kg; the ex-mill price is ~29 a kg. From October 1, when the current season began, the wholesale price in Mumbai has fallen by 14.8 per cent. Isma wrote to the Union food ministry: “We expect the current season’s offtake could be 25 mt, keeping 1-1.1 mt extra with mills, which is putting

2,950

Mumbai, 22 January

pressure on prices.” It has asked for permission to export one mt, for which the current 20 per cent duty should be immediately withdrawn; global prices are much lower than India’s. It also wants a 100 per cent import duty on sugar; Pakistan’s price is much lower and it is expected to notify a ~11 a kg subsidy in the near future to incentivise export. Last week, the National Federation of Cooperative Sugar Factories (NFCSF) proposed the government create a buffer stock of two mt. The way sugar prices are falling, “the government has also advised the mills that they not be in a hurry to sell their sugar below cost, which in turn will adversely impact cane price payments to farmers”, said a leading industry official, who met food ministry officials last week. According to Dilip Walse Patil, president of NFCSF, “Mills are incurring ~6-7 a kg loss, as ex-mill prices are far lower than their cost of production.” Isma, which represents private mills, says their members’ average cost of production is ~35-36 a kg. DCM Shriram, which declared its results on Saturday, said its sugar business was in a tough situation, with a pre-tax loss of ~200 a quintal.

3,550

RAJESH BHAYANI

2,950

Oil slipped on Monday under pressure from rising Libyan output and concerns that a rally that had sent prices to their highest since December 2014 had run out of steam. But losses were limited by comments from top exporter Saudi Arabia that Organization of the Petroleum Exporting Countries (Opec) and other producers would continue to cooperate on their oil cuts beyond 2018 and prices also found some support from strong economic growth that underpinned demand. Brent crude slipped 7 cents to $68.54 a barrel at 1215 GMT, reversing course after earlier modest gains. Brent had hit $70.37 on Jan. 15, the highest since December 2014. US crude slipped 3 cents to $63.34, having also hit its highest since December 2014 last week. PVM analyst Tamas Varga said resumption of output from Libya’s As-Sarah was “serving as a brake on the rally”. “The downside might be limited but last week’s highs are unlikely to be penetrated unless there is a significant bullish change on the supply front,” he said in a report. Production at As-Sarah resumed on Sunday and was expected to add 55,000 barrels per day (bpd) by Monday. Brent is particularly sensitive to changes in output from Libya, as most Libyan crude is priced against Brent. Saudi Arabia said on Sunday the Opec and its allies had agreed to continue cooperating on production after their deal on supply cuts expires at the end of 2018. The deal began in January 2017. Saudi Energy Minister Khalid al-Falih said rebalancing the market might not take place until 2019, suggesting it would take longer than Opec has previously indicated. REUTERS

3,525

London, 22 January

3,190

JULIA PAYNE & ALEX LAWLER

Cane payment arrears at all-time high

3,720

Oil edges lower as Libyan output undermines 2018 rally

Maharastra

Karnataka

-14.2%

-16.3%

-16.9%

-12.2%

Change

Incentivise banks to promote gold monetisation: IGPC VINAY UMARJI

WGC probes standard for gold kilobars

Ahmedabad, 22 January

With the government’s gold monetisation policy yet to trigger increased circulation of bullion in the economy, a research paper at the India Gold Policy Centre (IGPC) suggests the policy's effectiveness depends on incentivising banks and understanding consumer sentiments. The scheme launched in November 2015 to mobilise idle gold in the country has met with a poor response with a few tonnes in fresh mobilisation. Part of 14 such papers introduced at the recent Conference on Gold and Gold Markets, 2018, by IGPC at the Indian Institute of Management, Ahmedabad (IIM-A), the research paper was co-authored by Priya Narayanan, Balagopal Gopalakrishnan, Arvind Sahay of IIM-A. The paper quotes a nation-wide survey-based study of 1,171 households as well as an interview-based study of the senior management of six banks, five gold refiners and one industry consultant. Titled ‘Gold Monetisation in India as a Transformative Policy: A Mixed Method Analysis’, the paper also uses an

PRATIMA DESAI

London, 22 January

The World Gold Council (WGC) is studying the creation of a global standard for gold kilobars so they can be deployed as collateral in futures markets and potentially encourage demand, sources close to the matter said. Kilobars — 1 kilogram gold bars — dominate Asian trade but a lack of transparency about their origin and the absence of a global standard hinders their use on exchanges elsewhere.Clearing houses, some of which allow bullion to be used as collateral on futures markets, might accept such bars if they all met a set of internationally recognised criteria. London Metal Exchange clearing arm LME Clear cannot accept the kilobars used in Asia because they differ from London Good Delivery standard bars, typically around 400 ounces, as specified by the London Bullion Market Association (LBMA). REUTERS econometric analysis of gold consumption and its potential determinants. The study was conducted using household data from all 640 districts of the National Sample Survey for 2011-12. Based on the results of the studies and analysis, the paper suggests that the effectiveness of the gold monetisation policy depends on a “deeper understanding of consumers’ interactions with and sentiments towards gold”.

“The effectiveness of the policy also depends on recognising the challenges faced and incentives required by banks, refiners and other stakeholders in implementing this policy. This research is an attempt at developing such an understanding,” it states. Among the three methods in the paper, the survey across 10 states constituting roughly threequarters of annual national gold consumption was conducted to

understand the consumer associations with and attributions related to gold. The study showed that family functions and festivals were triggers for gold purchases, indicating the ingrained habit and planned accumulation. “There is also high liquidity and safety associated with gold, which is also not considered as having any substitute, along with a clear reluctance to sell gold received as a gift. Rural consumers are more reluctant to part with gold as compared to urban consumers but are also ready to pledge gold as collateral, suggesting requirement related liquidity use of gold,” the paper states. Further, discussions with different stakeholders in the interview-based study showed that banks would promote products based on this policy if they had more control on the process and if there was clear separation of risks or effective mitigation of risks relating to the operationalisation of the policy. Finally, the analysis showed that the propensity to consume gold was positively correlated with the proportion of females in the household and with the number of daughters in the household.

Iron ore production in the country is projected to fall 15 per cent in 2017-18, after rising since 2014-15. Closure of seven working mines in Odisha and less production in Goa will weigh on total output. The shunting out of operations of seven operating leases in Odisha from January 1 will have an impact as their combined annual capacity is 20 million tonnes. These were closed as the leaseholders failed to pay the Supreme Court (SC)-mandated compensation for overproduction by the December 31 deadline. The production loss would be reflected in the March quarter. Odisha is the country's largest producer, contributing 102 mt to the pan-India output of 191 mt in FY17. “The (country's) output impacted could be 15-20 per cent,” said the Federation of Indian Mineral Industries (Fimi) in an e-mail response to Business Standard’s query. Last month, the SC had raised the annual cap on iron ore mining in Karnataka to 30 million tonnes but Fimi says this will mean only a marginal rise in production from that state. The previous yearly fall in the country's iron ore production was in 2014-15, when it fell 15 per cent to 129 mt, from 152 mt in 2013-14. Data from the Union mines ministry shows the country’s output was 108 mt at the end of October, the first seven months of the financial

SNAPSHOT

Iron ore production of India and Odisha (in mn tonne) India

Odisha

2013-14 152 78 2014-15 129 47 2015-16 155 81 2016-17 191 102

Source: Union mines ministry

year. Odisha had till endDecember produced 78 mt, almost the same rate as the previous year. It has an environmentally-approved limit of 120 mt for its working mines. The total environmental cap is 180 mt. During 2016-17, the domestic demand was 112.5 mt. In 2017-18, this is estimated by Fimi to rose by seven or eight per cent. Export was 30.5 mt in FY17; in the first five months of FY18, this was 10.1 mt. This year's total is likely to be much less than last year. “The fall in export will be due to likely lesser shipment from Goa and continuation of export duty of 30 per cent on ore with iron grade above 58 per cent. There is a huge stock of ore at mine-heads, mainly of fines of this grade, in Odisha and Jharkhand,” says Fimi.

Bamboo cultivation can boost farmer income: Gadkari PRESS TRUST OF INDIA

Yavatmal, 22 January

Union minister Nitin Gadkari has said the government is working towards encouraging petrol, diesel and gas production from biomass and called for encouraging bamboo cultivation to boost farmer income. He said since bamboo is now listed under the category of a grass and the forest department’s permission is not required to grow and cut it for commercial purposes, bioethanol could be produced from it. “We need to encourage bamboo cultivation in this region in order to ensure financial stability of farmers,” the transport minister said. Yavatmal is located in

Vidarbha, a region known for farmer suicides. He was speaking on Sunday at the inauguration of four lanes of the NH930,stretchingbetweenWarora and Wani, and the rail overbridge here. He said infrastructure projects worth thousands of crores have been sanctioned for the development of Yavatmal district in Maharashtra. Nearly ~35 billion has already been sanctioned for the construction of highways between Wardha to Yavatmal, Yavatmal to Mahagaon and Mahagaon to Waranga, he said. The work for four lanes on NH-930, involving a cost of ~9.04 billion, is being implemented under the EPC (Engineering Procurement Construction) mode, he said.

> FROM PAGE 1

Forensic audit biz soars as firms head for bankruptcy Forensic experts have also identified fake customers and vendors who undertake financial transactions to inflate financial statements. “Both bankers and IRPs (insolvency resolution professionals) want to understand transactions with related or connected entities that may be used for asset stripping, diversion or siphoning,” said Suveer Khanna, partner - special situations Group, KPMG India. Added Rajesh Jhunjhunwala, an ex-bankerturned-insolvency professional: “We are reaching out to tech companies that survey social media and firms that verify details such as address proof, pan card details and credit profile.” The process of conducting background checks on promoters can take three to six weeks depending

on the depth of information required. Forensic experts typically approach insolvency professionals for information after first scouring through public data. This is followed up with field checks on specific entities involving site visits and interactions with key vendors and suppliers. Common directorships, past legal cases and beneficial owners also help in identifying linkages with promoters. “We don’t need to find a direct link. Often, lack of sufficient information on the bidder’s background, source of funding, and track record is enough to deter banks from considering them,” said Kroll’s Khurana. Asset searches In the event of default, it is not uncommon for promoters to claim bankruptcy when banks try to

enforce the promoters’ personal guarantees. Undeclared assets can be attached by banks; even assets with an indirect link can be used to put pressure on companies to repay. So, it has become critical for banks to identify hidden unencumbered assets of distressed companies and their promoters. “The idea is to identify the potential application of funds which may have been diverted from any entity. Typically, a significant part of such funds will be invested in land, real estate or other physical assets,” said Samir Paranjpe, partner, Grant Thornton India. Identifying hidden assets can be challenging as assets are often held through proxy owners, which cannot be linked back to the promoters. The proxies may include current and former employees,

close confidants of the promoters and even their minor children or older parents. “The globalisation of business and the ever-expanding world of offshore finance means that it can be relatively easy to set up complex corporate structures to hide the true ownership of assets,” observed Khurana. According to Khanna, information sharing across countries can be a challenge, which is why forensic experts rely on global databases, to the extent information is publically available. Sweetheart deals Transactions specifically related to the IBC sections 43, 44, 45, 46 and 66 are being looked at by forensic experts. These sections deal with identifying preferential and undervalued transactions, and those deliberately entered into to defraud

creditors. These sections also deal with identifying undisclosed relationship/s between the entities and the company. For instance, preferential transactions as per section 43 of the code would cover transactions where there is a transfer of property or an interest in respect of an existing debt or liability. An undervalued transaction as per section 45(2) of the Code is one where a corporate debtor makes a gift or transfers one or more assets for insignificant consideration, provided that such a transaction has not taken place in the ordinary course of business of the corporate debtor. Bankers, IRPs and potential buyers are also concerned about internal frauds perpetrated by employees, promoters and third parties such as vendors and customers.

Cryptocurrency exchanges face the red flag However, the exchange is struggling to find a payment gateway partner as many of them such as Razorpay and PayU Money declined working with him. Older exchanges had it easy The scenario was quite different when existing crypto-currency exchanges such as Coinsecure, Unocoin, Zebpay had registered in 2014-15. Zebpay registered with the RoC as ‘Zeb IT Service Private Ltd’ in the category of ‘other computer related activities’ such as maintenance of websites of other firms, etc. According to the

RoC website, Unocoin’s principal business activity was publishing, consultancy and supply of software, computer games software, among others. Among others, Coinsecure got itself registered with RoC as Secure Bitcoin Traders Private Ltd in July 2014 and Mumbai-based Koinex as ‘Discidium Internet Labs Private Ltd’ in July 2017. Things changed after the income tax survey on crypto-currency agencies, followed by the Finance Ministry warning to investors that virtual currency were like ‘ponzi scheme’.

“This is a recent trend that we have come across. In some cases, RoC is of the view that if you are doing cryptocurrency business, we will not allow you to open a company or a corporate account,’’ Vaibhav Parikh, partner, Nishith Desai Advocates said at a panel discussion recently. ‘’We have heard the RoC will take an undertaking that you will not be involved in cryptocurrency business before you open a company.” Parikh said there were cases where the RoC had asked a few upcoming cryptocurrency exchanges to seek the Reserve

Mumbai-Delhi air route is world’s third busiest now And, at an average passenger load factor on this route of 80-90 per cent, this is a lucrative route, on which the demand is growing. It also reflects the skew that these two markets have in the aviation business in the country as it constitutes more than 35 per cent of the domestic traffic. Over 10,000 passengers depart every day from Mumbai for Delhi and vice versa and 70 per cent of them are corporate travellers, and this makes the situation even worse as they travel only during the peak hours (6am-8am and 5pm to 7pm). That is why IndiGo and Jet Airways, each of which has 17 departures from Mumbai, top the list, followed by Air India (11), Vistara (10), GoAir (7), and SpiceJet (4). Yet the writing is on the wall. While most airlines are pushing for more capacity on the route, none is available. Says a senior executive of a leading airline: “If slots are available, we can achieve a growth rate of 10-12 per cent on this route every year. But as slots are not available, the only possibility is to deploy bigger planes. But everyone does not have that flexibility, especially the LCCs. What you will see is fare increases”. Last year, for instance, only Vistara and IndiGo were given additional slots on the route. According to estimates of the Centre for Asia Pacific Aviation, the airport, which has a maximum capacity of 50-52 million per annum, is handling 46-50 departures an hour, which pretty close to the global best of around 55. Currently the airport handles over 45 million passengers a year. The agency says that the airport would reach its full capacity either by FY18 and surely by 2019, which makes the development of the new airport in Navi Mumbai so important.

Bank of India’s nod to set up shop. “However, RBI has, in turn, told these players that registration of firms is beyond its ambit,” Parikh said, adding the government has to prove the business is illicit before it can deny a firm’s registration. The RBI has issued three warning notes so far to investors cautioning them about investing in cryptocurrency–one in 2013 and the other two in 2017.

in business of bitcoin/cryptocurrency, according to Parikh. They can only deny registration when the business activity is illegal or documents are not in order, he pointed out. Injeti Srinivas, Secretary, Ministry of Corporate Affairs, did not respond to a text message seeking his response on Monday. Meanwhile, a three-month old cryptocurrency exchange in the NCR, with a user base of 10,000-12,000, is disguising itself as a software company to ensure continued support of banks. It has an average transaction volume of ~1 million a day, requiring dependency of a bank account.

Legal recourse possible The RoC legally cannot deny registration of such firms on the ground that they are

Record keeping To be on the right side of the law, Sragy.com, a young exchange platform

founded by five college friends, is keeping track of all records of its users. “We are following a thorough KYC process and are keeping track of all users, their withdrawals and transactions. It is all locked in the back-end programme, in case the government asks for it,” said Yateesh Bhardwaj, co founder of Sragy.com. The industry is swarming with new players but most of them are holding their breath, awaiting the government stand on the cryptocurrency market, in the form of a regulation. “Legality is the only challenge for now. … Cryptocurrency itself cannot be a Ponzi scheme although it may be used for illicit activities. …. For now, I am holding on for some time,” Jaipurbased Ashish Agarwal, founder of upcoming exchange Bitsachs, said.

https://t.me/EStore33

18 BRAND WORLD

https://www.estore33.com/

https://t.me/TheHindu_Zone MUMBAI | TUESDAY, 23 JANUARY 2018

The jingle for the Dairy Milk Silk range of chocolates is being reinterpreted by regular consumers and popular singers as part of an ongoing digital campaign

Mondelez strings a new tune for an old brand With a new digital campaign and sonic identity the chocolate maker refreshes the Cadbury Silk range, looks to bite a bigger chunk of the premium market

T E NARASIMHAN Chennai, 22 january

ith a new look and sound, Mondelez India is looking to create a new experience around its premium set of chocolate brands under the Dairy Milk Silk label. Its first brand refresh in a decade, the company hopes, will not just keep old fans in the family but bring in the new, calorie conscious consumer as well. But the challenge really lies in expanding the premium chocolate segment which, in India, is still limited to select urban pockets. Mondelez believes that it has travelled the distance with its Dairy Milk Silk Bubbly, a variant of the brand that has crossed around ~2 billion in sales in one year. It has seen a similar surge with Dairy Milk Silk Oreo too; the two labels powering much of the sales under the Dairy Milk Silk range that had 13.2 per cent of market share in 2017 according to a Nielsen report. The company says that even its core brand has benefited from the Silk effect, the market share of the mother brand (Cadbury Dairy Milk) is up to 42 per cent, making it the category leader. The brand refresh process kicked off in September last year. Mondelez asked consumers to sing the popular ‘Kiss me, close your eyes’ jingle in their own way and used two popular singers (Shirley Sethia and

Armaan Malik) to set the tone by rendering their versions on YouTube. As the initiative caught speed, the brand found itself being re-visioned in numerous new tunes. “This is how you can keep a great brand alive, without changing much. The (marketing) remains fresh yet consistent,” says Prashant Peres, director-marketing (Chocolates), Mondelez India. It is not just a new sound effect that the brand refresh is aiming for, the company says it has also tweaked the tactile experience, making the product “curvier, smoother and silky” without changing the taste. Across the world, sonic branding and experience management is becoming a critical part of branding strategies. In a blog, Bradley Vines, directorneuroscience Europe with Nielsen says that music has become a powerful tool as it acts as an influencer for brands, much like what celebrities do. It helps create familiar associations with the brand for consumers. Rajeev Raja, founder of Brand Musiq, believes that sounds and jingles help define the brand’s identity and are similar to crafting visual representations. “The Cadbury Dairy Milk Silk is a nice track and it clearly captures the mood that the brand needs to communicate. But the opportunities are more,” he says. For Mondelez, it is impor-

tant to tune in to new ways of he adds. The communication connecting with the consumer will thus continue to focus on to prise open the premium cat- joy and happiness when it egory. The Silk range was comes to advertising, while on launched in India in 2009, a one-on-one interactions with time when the country’s pre- the consumer, the company mium chocolate consumption will talk about ingredients. The Indian market presents was in negligible numbers and the market was just about open- a unique proposition say indusing up. While Mondelez had a try analysts. Average per capita global portfolio of premium consumption of chocolate is chocolates, it decided to posi- just 250 gram as compared to tion and brand the ‘Silk’ prod- about 10 kg in the United Kingdom, thereby offering up ucts differently. The base product was tremendous potential. But at the same time pitched as a softer, there is a thin but smoother and “This (brand creamier offering refresh) is how you growing segment of consumers who from the Dairy can keep a great are in step with Milk stable. And brand alive, their global counthe brand was without changing terparts on health extended to differ- much. The and diet concerns. ent variants, all (marketing) A large chunk of leveraging the remains fresh yet this segment overstrong recall and consistent” laps with premium association for PRASHANT PERES chocolate conCadbury Dairy Director-Marketing Milk. Ten years lat- (Chocolates), Mondelez sumers making it particularly chaler, ‘Silk’ is in for India lenging for compaanother makeover. But given the rising concerns nies to frame an appropriate over sugar among the young, and appealing brand identity does the brand need more than for such a product. The chocolate category is a sonic rethink? Peres says that while the around ~85 billion (Nielsen), snacking segment is going growing at double digits for the through an overhaul, choco- last three to five years, in value lates are a different story. terms. It is expected to keep up “People consume chocolates as the pace for the next few years an indulgence, it is not a part of and Mondelez India, with over the daily diet. Even from a 65 per cent of the total chocohealth angle, a chocolate has late market, says it wants to much to boast about, with develop all segments. “Silk will cocoa, which is a good antioxi- continue to live in the premidant, milk and milk proteins,” um segment,” Peres added.

THE BS CROSSWORD

# 2943 15 Unauthorised stoppage of spitfires by a three-wheeler (4,3,6) 17 If the fool is in cream it may be the death of him, and others too (8) 19 Cite a dud, turn in one (6) 21 Some people are sent when I do elegant variations (10) 22 A natural material, would you say? (4) 23 Desert because of having a blemish (6) 24 Like an arch editor of medical journal (8)

13 An uncharitable fellow wanting to find himself? (46) 15 Became increasingly enfeebled during so wayward a weekend (8) 16 Coaches in Gateshead, coaching (8) 18 Distorted snatch of monotonous songs (6) 20 Not much money for law and order (6) 22 Query the reason for including a vitamin as part of the Muffet diet (4)

DOWN

ACROSS 7 Revised offer Pat made for contract (5,3) 9 Crop-gatherer — grim, possibly (6) 10 At first signs of unrest, gungho lout, youth, may be

BS SUDOKU

threatening (4) 11 Well planned journey about to begin.... (3,3,2,2) 12 A service the abstainer takes comfort in (3-3) 14 Although airy, is 'e the genuine article? (8)

# 2407

1 Confusion in story is no good, briefly (6) 2 Raise tax (4) 3 A visionary Italian capitalist with a nasty twitch (8) 4 Part of a barrel to break in to, we hear (6) 5 He knows a lot for a teacher, mark you ! (10) 6 Acting family, left-wing and serious (8) 8 Provided what was necessary — as an impresario did (6,3,4)

Easy:

SOLUTION TO #2942

WEATHER

TODAY’S FORECAST O

Solution tomorrow

HOW TO PLAY Fill in the grid so that every row, every column and every 3x3 box contains the digits 1 to 9

SOLUTION TO #2406

Max/min temperatures in C

NATIONAL Ahmedabad . . . . . . . . . . . . . . . . .Sunny Aizawl . . . . . . . . . . . . . . . . . . . . . . . .Sunny Bengaluru . . . . . . . . . . . . . . . . . . .Sunny Bhopal . . . . . . . . . . . . . . . . . . . . . . .Sunny Bhubaneswar . . . . . . . Partly cloudy Chandigarh . . . . . . . . . . . . . . . . . . . .Rain Chennai . . . . . . . . . . . . . . . . . . . . . .Sunny Delhi . . . . . . . . . . . . . . . . . . . . . . . . . . . .Rain Guwahati . . . . . . . . . . . . . . . . . . . .Sunny Hyderabad . . . . . . . . . . . . . . . . . . .Sunny Imphal . . . . . . . . . . . . . . . . . . . . . . .Sunny Indore . . . . . . . . . . . . . . . . . . . . . . . .Sunny Kochi . . . . . . . . . . . . . . . . .Partly cloudy Kolkata . . . . . . . . . . . . . . . . . . . . . . .Sunny Lucknow . . . . . . . . . . . . .Partly cloudy Mangalore . . . . . . . . . . . . . . .Thundery Mumbai . . . . . . . . . . . . . . . . . .Thundery Pune . . . . . . . . . . . . . . . . . . . . . .Thundery Srinagar . . . . . . . . . . . . . . . . . . . . . . . .Rain Surat . . . . . . . . . . . . . . . . . . . . . .Thundery Thiru’puram . . . . . . . . . . . . . . . .Thundery

27/12 21/6 29/15 28/11 29/16 16/8 29/21 19/7 26/15 30/14 23/8 28/11 32/22 27/13 32/27 29/24 31/25 29/21 29/12 30/26 31/25

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TAKE TWO 19

MUMBAI | TUESDAY, 23 JANUARY 2018

Carnation struggles to burst into bloom Former Maruti managing director Jagdish Khattar’s first entrepreneurial venture is under corporate insolvency proceedings. A look at what went wrong

JAGDISH KHATTAR CMD, Carnation Auto

THE MAIN MODEL (WORKSHOP) BUSINESS FAILED. WE CAME AT A TIME WHEN REAL ESTATE PRICES WERE VERY HIGH. THE SAME LOCATIONS ARE TODAY AVAILABLE AT 50 PER CENT RENT”

BUMPY RIDE

AJAY MODI New Delhi, 22 January

agdish Khattar retired from the position of managing director at the country’s largest carmaker, Maruti Suzuki, in October 2007. At 65, few would venture into setting up a new business. However, a year later Khattar launched an entrepreneurial venture, Carnation Auto, a multi-brand automobile service network also dealing in used car business. Almost a decade later, Khattar’s venture struggles to find a profitable road. Carnation was started as a company-owned and companyoperated network. Upon reaching 24 such outlets, spanning Amritsar in Punjab to Cochin in Kerala, the company realised that it was not the best approach. Car makers were not very keen to make spare parts available in the open market, outside their own workshops. This was another challenge for Carnation. Khattar wanted to have a play

between company authorised workshops and local garages by offering car owners a choice between the two, especially in cost. “The main model (workshop) business failed. We came at a time when real estate prices were very high. The same locations are today available at 50 per cent rent. We got into them at a peak, with the clause for an annual increase. Our monthly rent alone was ~10 million. We hired manpower from regular workshops at higher salaries as it was a multi-brand model and wider skills were needed. Even though our cost was high, we were substantially affordable compared to workshops of car manufacturers,” said Khattar. The company had set up a showcase facility in Gurgaon with a capacity of 60 bays, paying a rent of ~1.5 million a month. The capacity utilisation never reached its potential and this also had to be shut down. Realising the high risk and low

reward associated with this model, Carnation opted to go for the franchisee route in 2015. The companyowned outlets were closed after settling all dues and liabilities. The investors — Premji Invest and Gajaa Investment — supported the company in this transition. Carnation also missed the online bus as far as the used car business was concerned. Entities like CarDekho, Cartrade and a host of other online players went live even as Carnation was searching for the right business model. Khattar says work was initiated as early as 2009 to set up an online platform for car sales. “The tech company we had roped in failed to execute this project in three years. It pulled down valuation and by then start-ups had got ready,” he said. An exercise to rebuild the business started with a more focussed franchisee route. Instead of going for a national approach, Carnation decided to restrict its presence pri-

Carnation Auto’s financials Net Total PBIDT sales debt FY10 248.6 291.0 -329.0 FY11 815.9 1,198.9 -387.5 FY12 1,204.9 1201.1 -411.9 FY13 1,280.1 1197.5 -460.1 FY14 791.4 1,239.4 -292.2 FY15 448.6 1,342.1 -213.1 FY16 96.4 1.4 -29.7

(~mn) PAT -389.8 -520.5 -648.5 -753.7 -473.0 -357.6 -128.8

Compiled by BS Research Bureau Source Capitaline

marily to north India and Maharashtra. The company opted for this cluster-based approach to have better control over the costs associated with these franchisees. The company now has 170 franchisees, primarily workshops and a used-car network. Carnation gets a fixed monthly royalty from the franchisees irrespective of the business that the franchisee owner generates. It helps the franchisees with its brand, processes, network, etc. Khattar believes the model is highly scale-able. Since inception Carnation has serviced over a million cars. The current franchisee network does a monthly billing of ~50-60 million. Meanwhile, the outstanding to banks continued to spiral and

reached a stage where Carnation found it impossible to service the interest obligations. Carnation owes more than ~1.15 billion to Punjab National Bank (PNB) including unpaid interest burden towards a loan it raised in 2013. Khattar said the two key investors continue to back the company and if one excludes the financial obligations, the business remains operationally profitable. PNB, however, decided to file a corporate insolvency resolution process against Carnation last year. The bank had called for expression of interests (EoIs) for a resolution mechanism currently being overseen by an insolvency resolution professional. It is learnt that a few EoIs have been submitted to the IRP last week and the process will move towards resolution. The investors are to submit a new business plan, pump in more funds and also settle the issue with banks to continue the business. The resolution is expected to be complete by March. Although the details of the resolution plan that may get finally approved are not available in the public domain, it is clear that Khattar will cease to be the promoter of Carnation even though he is eager to see the company stand up and move ahead. At 75, however, he is not keen to retire. “I have been a member of five golf courses for the past 30 years. I am left with one now. But in thirty years, I have never been to a golf course even once. I will start playing the day I retire”. He says Carnation has been a learning experience. “You expand, you have big ideas and then you falter and start again. I asked for it and I have gone through it. At my age there is a lot of learning,” he adds. The nine-year Carnation journey, where Khattar invested his personal wealth, time and effort, is in contrast to his eight-year stint as managing director of Maruti during which the company firmly established itself as the market leader. But Khattar says he gave his best to Carnation, though factors outside his control pulled him down. “We are taught to do the best for any assignment that comes our way at IAS”. It will be interesting to see if Khattar gets a new assignment at Carnation.

Facebook says it can’t guarantee social media is good for democracy REUTERS 22 January

Facebook Inc warned on Monday that it could offer no assurance that social media was on balance good for democracy, but the company said it was trying what it could to stop alleged meddling in elections by Russia or anyone else. The sharing of false or misleading headlines on social media has become a global issue, after accusations that Russia tried to influence votes in the United States, Britain and France. Moscow denies the allegations. Facebook, the largest social network with more than 2 billion users, addressed social media’s role in democracy in blog posts from a Harvard University professor, Cass Sunstein, and from an employee working on the subject. “I wish I could guarantee that the positives are destined to outweigh the negatives, but I can‘t,” Samidh

The sharing of false or misleading headlines on social media has become a global issue

Chakrabarti, a Facebook product manager, wrote in his post. Facebook, he added, has a “moral duty to understand how these technologies are being used and what can be done to make communities like Facebook as representative, civil and trustworthy as possible.” Contrite Facebook executives were already fanning out across Europe this week to address the company’s slow response to abuses on its platform, such as hate speech and foreign influence campaigns. US lawmakers have held hearings on the role of social media in elections, and this month Facebook widened an investigation into the run-up to Britain’s 2016 referendum on EU membership. Chakrabarti expressed Facebook’s regrets about the 2016 US elections, when according to the company Russian agents created 80,000 posts that reached around 126 million people over two years. The company should have done better, he wrote, and he said Facebook was making up for lost time by disabling suspect accounts, making election ads visible beyond the targeted audience and requiring those running election ads to confirm their identities.

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MUMBAI | TUESDAY, 23 JANUARY 2018

Hotels see a double-digit tariff growth after 9 years AJAY MODI

New Delhi, 22 January

double-digit tariff growth, the first after a nine-year gap, is welcoming branded hotels in 2018. Hotels have been able to negotiate a tariff increase of up to 15 per cent in their contracts with corporate clients for the calendar year 2018. Corporate clients form more than half of the business for most branded hotels, especially in cities. “Hotels have successfully negotiated better rates for 2018 withthecorporateclients.Based on the negotiation, most hotels are budgeting for an increase of 10-15 per cent in tariffs this year. The last year was a story of occupancy growth and 2018 is going to be about rates. In the last few years, the rate increase had not been to our expectation and there were periods of no increase at all,” said Raj Rana, chief executive officer (South Asia) at Carlson Rezidor, which operates89hotelsinthecountry under brands such as Radisson and Park Plaza. Increaseinnewsuppliesthat came up in most markets had pulleddownoccupancylevelsat hotels, making them struggle to pass on a tariff increase. A gradual stabilisation of new supplies led to better occupancy rates. Occupancies have expand-

BOOKING A GOOD FUTURE A gradual stabilisation of new supplies led to better occupancy rates Occupancies have expanded for four consecutive years and hit a nine-yr high of 65% in FY17 Occupancies continue to rise further in FY18 ed for four consecutive years and hit a nine-year high of 65 per cent in FY17. Occupancies continue to rise further in FY18 and the industry is said to have entered a new phase of strong uptrend that may last for a few years. Rana said hotels are shifting from a “pure head in bed approach” to an earning optimisation strategy as supplies have seen an orderly absorption

Rising spending powercoupledwiththe proliferationoflow-costcarriershasenabled increaseddomestictravel Industry is said to have entered a new phase of strong uptrend that may last for a few years

in the market. Hospitality consulting firm Hotelivate expects tariffs will go up by double digits across most markets this year. “Occupancy growth has improved as demand outpaced supply in most Indian markets. The uptrendisstrongatthemoment and tariff hikes are natural now. We expect a double-digit improvement in tariff in 2018,” said Achin Khanna, managing

partner (strategic advisory) at Hotelivate. Scrips of top listed hotel companies have already started reacting. The share price of Indian Hotels Company, which runs hotels under the Taj brand, hit a 10-year high of ~152.65 on the BSE onJanuary18.Thescrip of EIH, which runs the Oberoi chain of hotels, hit a new high of ~232 on January 16. Vivek Bhalla, regional vice-

Pleas on Loya’s death serious, but don’t cast aspersions: SC The Supreme Court on Monday dubbed the issues raised in the pleas relating to the death of judge B H Loya as “serious”, but castigated a senior lawyer for taking the name of Bharatiya Janata Party (BJP) President Amit Shah in the case. The apex court, which decided to look into “all documents with utmost seriousness” connected with the death of Loya, who was trying the Sohrabuddin Sheikh fake

encounter case, also took umbrage at senior advocate Indira Jaising, who during the hearing inferred a possible future order the court might gag the media in the case. A Bench headed by Chief Justice of India (CJI) Dipak Misra, hearing two public interest suits on Loya’s death in 2014, transferred to itself the two other petitions pending at Nagpur and Mumbai Benches of the Bombay High Court.

The Bench, also comprising judges A M Khanwilkar and D Y Chandrachud, restrained all high courts from entertaining any petition relating to Loya’s death. Loya allegedly died of cardiac arrest in Nagpur on December 1, 2014, when he had gone to attend the wedding of a colleague's daughter. The Bench asked the parties to catalogue all documents relating to Loya’s death not filed

so far and submit these for its perusal on February 2, the next date of hearing. “We must look into all documents with utmost seriousness,” it said. The Bench got irked when senior advocate Dushyant Dave, appearing for a Mumbai lawyers’ body which had filed a suit in the high court there, took the name of Amit Shah during the hearing, alleging that everything had been done to protect him (Shah). PTI

president (South West Asia) at IHG, said the company expects a tariff growth this year. “The rate growth for contracted accounts will be in line with market expectations. We anticipate a stronger growth than previous years,” he said. The company, which operates 30 hotelsinIndiaunderbrandslike Intercontinental and Holiday Inn, said it saw occupancies of 80-90percentintierIcitiesduring 2017, showing a strong yearon-year growth. Rising spending power coupled with the proliferation of low-cost carriers has enabled increased domestic travel. “Though a large portion of domestic demand originates from commercial activity, an increasing number of Indians arealsotravellingforleisurepurposes giving domestic consumption a boost,” said Bhalla. Vikramjit Singh, president, Lemon Tree Hotels, said supply has grown lower than demand in the recent years. Citing the Horwath HTL report, he said that while supply grew at 8.4 per cent between FY14 and FY17, demand has grown at 13.7 per cent. In the same period, average industry occupancy moved up to 65 per cent from 58 per cent. “This demand-supply equation, skewed towards high demand, is expected to continue,” he said.

DOMESTIC AIR TRAFFIC CROSSED 100 MN IN 2017

Padmaavat: Karni Sena open to film screening ahead of release PRESS TRUST OF INDIA

Jaipur/Bhopal/Mumbai/New Delhi, 22 January

Domestic air traffic surged 17.4 per cent to cross the 100-million mark in 2017, a first for Indian skies. Low fares, addition of new flights and economic growth have induced air travel in the country that has recorded double-digit passenger growth for 40 consecutive months. Last month, airlines flew 11.2 million passengers, 17.8 per cent more than the same period in 2016. The load factor in 2017 was 86.1 per cent as against 83.9 per cent in 2016.

PASSENGERS FLOWN

60.1

2013

66.4

2014

(million)

80.7

99.4

2015

Data covers passengers flown on scheduled flights Source: Directorate General of Civil Aviation

116.7

2016

2017

COMPILED BY ANEESH PHADNIS

Protests against Sanjay Leela Bhansali’s Padmaavat rocked states, such as Rajasthan, Uttar Pradesh and Madhya Pradesh, even as the protesting Karni Sena indicated willingness to watch the film ahead of its scheduled release on Thursday. The Supreme Court also agreed to hear on Tuesday the pleas of the Rajasthan and Madhya Pradesh governments, seeking recall of its January 18 orders allowing screening of the flick. “List the applications for hearing tomorrow (on Tuesday),” a Bench of Chief Justice Dipak Misra and judges A M Khanwilkar and D Y Chandrachud said when counsel for both states mentioned the interim applications seeking modification of the order that allowed screening. Harish Salve, appearing for movie producer Viacom 18, opposed urgent hearing on the pleas, saying it was “unfortunate” the way things were happening despite the apex court order. Two bodies — Shree Rashtriya Rajput Karni Sena and Akhil Bharatiya Kshatriya Mahasabha — also moved the apex court, seeking their impleadment as parties opposing its release.