English bs 24 01 2018 by Mahesh Yadav

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WEDNESDAY, 24 JANUARY 2018 22 pages in 1 sections

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MUMBAI (CITY) ~6.00

VOLUME XXII NUMBER 117

THE MARKETS ON TUESDAY

CCh hg g# #

Sensex 36,140.0 Nifty 11,083.7 Nifty Futures* 11,107.8 Dollar ~63.8 Euro ~78.1 Brent crude ($/bbl) 69.5## Gold (10 gm)### ~30,090.0

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

342.0 117.5 24.1 ~63.9** ~78.3** 69.1** ~50.0

WORLD P6

US SLAPS STEEP TARIFFS ON IMPORTED SOLAR PANELS

COMPANIES P2

GREEN SHOOTS BEGIN TO SHOW IN CONSUMER GOODS

PM blasts protectionism

BS BANKER OF THE YEAR Who is the BusinessStandard Banker of the Year 2017? Find out tomorrow. The BusinessStandard Banking Annual, to be distributed free with Thursday's edition, will have the name, and much more.

AttheDavossummit,ModitellsforeigninvestorsthatIndiaisopentobusiness

Mumbai, 23 January

Shiv Sena to go solo in 2019 Lok Sabha polls

The Shiv Sena on Tuesday passed a resolution not to align with the Bharatiya Janata Party (BJP) and go solo in the Lok Sabha and Maharashtra Assembly polls next year. The resolution was moved by Sena MP Sanjay Raut, who said the BJP had been demoralising the party for the past three years. The resolution was passed unanimously in the party's National Executive meet.

ECONOMY P5

Does Aadhaar make a difference, SC asks

The Supreme Court on Tuesday sought to know from those challenging the constitutional validity of Aadhaar how the unique identification number of a person made any difference in a networked world. "Our personal data is anyway with the private entities. So, does interpolation of the Aadhaar number make any difference?” asked a five-judge Constitution Bench headed by Chief Justice Dipak Misra.

BACK PAGE P22

Tax managers want a calendar year tax cycle

A Deloitte survey of pre-Budget expectations of managers on personal income tax shows most of them have given a thumbs-up to aligning the tax year with the calendar year. Jurisdiction-free eassessment of tax returns, a gradual reduction in personal tax rates in line with changes to the corporation tax structure, and enhanced tax breaks for education of children are among other key demands from Finance Minister Arun Jaitley.

THE SMART INVESTOR P12

Sebi GDR crackdown runs into foreign hurdles

The Securities and Exchange Board of India’s (Sebi’s) investigation of money laundering by Indian nationals through foreign capital markets seems to have hit a hurdle. According to sources, Sebi has sought several key pieces of evidence from foreign agencies, but a majority of these requests have been pending for months.

RECKONER

Quarter ended Dec 31, 2017; Common sample of 165 companies (results available of 160) SALES Dec 31, ’16 Dec 31, ’17 NET PROFIT Dec 31, ’16 Dec 31, ’17

9.3% 13.1% 2.9% 23.3%

Bull charge pushes indices to new highs

PAVAN BURUGULA

BACK PAGE P22

> RESULTS

SENSEX BREACHES 36,000-MARK, NIFTY TOPS 11,000

2,932 billion 3,315 billion 405 billion 499 billion

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

Prime Minister Narendra Modi during the opening plenary of the World Economic Forum annual meeting in Davos on Tuesday

AGENCIES

Davos (Switzerland), 23 January

rime Minister Narendra Modi mounted a defence of globalisation at the World Economic Forum on Tuesday, urging joint action on climate change and economic cooperation, in a speech some delegates took as a swipe at US President Donald Trump's America First agenda. Modi, making the forum's first speech by an Indian head of government in more than two decades, did not mention Trump by name but he criticised the rise of protectionism in remarks delivered three days before the US President addresses the summit. “Instead of globalisation, the power of protectionism is putting its head up,” Modi said, speaking in Hindi. “Their wish is not only to save themselves from globalisation, but to change the natural flow of globalisation.” Speaking at the plenary of the WEF annual sum-

ECONOMY

‘TOGETHER WE CAN', PM’S MESSAGE TO CEOs

mit, the PM also said climate change and terrorism were grave concerns before the world. While terrorism was dangerous, he said, equally dangerous was the “artificial distinction” made between a “good terrorist” and a “bad terrorist”. He said it was painful to see some youngsters getting radicalised. Modi is leading a big government and business delegation to the summit in the Swiss ski resort of Davos, aiming to showcase India as a fast-growing economic power and a potential driver of global growth. His opening address was a moment of personal triumph for the leader and the occasion also recognised India's growth as an economic and geopolitical power. Modi's speech echoed some of the points made by Chinese President Xi Jinping at last year's Davos summit, but he failed to generate the same enthusiasm. A year ago, Xi, speaking days before Trump was inaugurated, staked out China's position as the world's economic powerhouse, promising a greater openness to globalisation.

PHOTO: REUTERS

WEARE REMOVINGRED TAPEAND LAYINGTHERED CARPET.COME TOINDIAIF YOUWANT WELLNESS ALONGWITH WEALTHAND WHOLENESS ALONGWITH HEALTH

Turn to Page 16 >

REFORMS IN INDIA MUST DRAW IN WOMEN: IMF CHIEF

Page 4 OPINION

EDIT: MESSAGE FROM DAVOS

Page11

There seems to be no stopping the bulls. The Indian markets on Tuesday reached two milestones: The benchmark Sensex surpassed the 36,000-mark — the latest 1,000-point gain coming in just four trading sessions— and the Nifty 50 index ended above 11,000 for the first time. Both the indices gained a per cent each after the International Monetary Fund (IMF) said India was set to regain the fastestgrowing major economy tag in 2018-19. The broader market, too, participated in the rally, with the BSE Midcap gaining 1.1 per cent. Foreign portfolio investors (FPIs) made their ~10-billion plus daily purchase for a fifth day in a row. On Tuesday, FPIs bought shares worth ~12.3 billion, taking their Stay put, experts monthly buying tally tell small P12 beyond ~90 billion. investors Domestic institutions also purchased shares worth ~1.7 billion, the provisional data from stock exchanges showed. The IMF in a report predicted the Indian economy to grow at 7.8 per cent and 7.4 per cent in FY20 and FY19, respectively. In contrast, the economy will clock 6.7 per cent growth in FY18. Market participants say buoyancy in the Indian equities will continue in the near term thanks to easy global liquidity. Domestically, a revival in economic growth and corporate earnings will provide impetus for the market, they say. “The economic cycle seems to have bottomed out and we are likely to see an improvement in the macroeconomic indicators. We expect earnings to dramatically improve 15-20 per cent over the next two years as corporate earnings return to normal with the bad news already priced in. This revival in earnings could also see the return of FPI interest in Indian markets and build in $8-10 billion of net inflows in 2018,” said Mahesh Nandurkar, India strategist, CLSA. Turn to Page 16 >

JANUARY RALLY

Buoyancy in Indian equities is expected to continue in the near term

SENSEX

NIFTY 50

DAILY FII, MF FLOWS

The gains in the markets and therupee have been driven byhuge FII inflows. MFinvestments have been relativelymuted

Compiled by BS Research Bureau Source:Bloomberg, Exchange, NSDL, SEBI

Govt plans rules for OTC drugs to control abuse Tatas appoint VEENA MANI

New Delhi, 23 January

The Central Drugs Standard Control Organisation (CDSCO) plans to frame regulations for non-prescription drugs, or over-the-counter (OTC) drugs. The drug safety controller plans to do this in order to make rules clearer on which drugs can be sold without a doctor’s prescription. G N Singh, Drug Controller General of India (DCGI), told Business Standard, “Currently there can be misuse of high-risk drugs as there are no separate regulations. Names of drugs that cannot be sold over the counter are not there. At present, drugs classified as Schedule X, H, H1, G and K cannot be sold without a doctor’s prescription.” The government is also planning to take this further by asking chemists to stamp prescriptions so that prescriptions are not reused. The new guidelines for over-thecounter products come in an attempt

REGULATORY PRESCRIPTION prescription to over-the-counter category

| Govt will name drugs that can be sold over the counter | Govt might ask chemists to stamp prescriptions to avoid misuse | If a drug proves to be low risk, it can be shifted from

| Move could curb anti-microbial resistance | Chemist and druggist federations demand curbs on margins on OTC products

to reduce anti-microbial resistance due to overconsumption of these drugs. The drug controller is also doing this to fall in line with international practices, which have separate rules for OTC products. The government will do this by amending the Drugs and Cosmetics Rules. A particular drug can make it to the OTC category from prescription drug if the drug controller feels it is of

low risk. Should the drug be proven high-risk at any point in time, the drug controller can make it a prescription drug. A committee set up by the drug consultative committee will consider reclassifying certain drugs which are at present in Schedules X, H, H1 , G and K. Drugs in these categories are considered high-risk and are for diseases such as cancer.

The All India Chemists and Druggists Federation (AICDF) is of the opinion that the government should cap the margins on over the counter products and ensure a minimum margin on such products. Domestic pharmaceutical companies are now focusing on the overthe-counter segment to accelerate sales growth. They are relaunching older prescription brands in the space or taking an inorganic route to beat the slowdown in sales. The industry’s domestic pharmaceutical sales growth dipped to 5.5 per cent in 2017 — the lowest rate in eight years. Relaunching older prescription drugs in the OTC space allows companies to overcome sluggish prescription growth and also extend the life of mature brands. Pegged at over $2.7 billion (~188.6 billion) as of 2016, according to the Nicholas Hall 2017 report, the Indian OTC market is expected to grow at a CAGR of 9 per cent to cross the $6.5-billion (~441.1 billion) mark by 2026.

Soon, robot flagmen could be at work near highway sites

They are expected to help cut down on both labour costs and loss of lives in road accidents

ABOUT THE ROBOT

AMRITHA PILLAY

Mumbai, 23 January

Next time you drive on a national highway, do not be surprised to see a robot flagman redirecting your vehicle off a construction patch. The road ministry is planning a largescale deployment of such robots in the near future, even as a few construction firms have already started using them. A robotic flagman is an automated human skeleton made from plastic mounted on a stand and supported by a steel frame or wheels. The government, as well as road construction companies, feels these robots will help cut down on both labour costs and loss of lives. At least two companies — Ashoka Buildcon and IL&FS Transportation Networks (ITNL) — are using robots to regulate traffic at some of their construction sites. “Deploying a stationary robot in the direction of traffic can reduce the likeliness of an injury to a human being in case the vehicle enters a work zone,” said Mukund Sapre, executive director, ITNL, and managing director, IL&FS Engineering, in a note.

It’s an automated human skeleton structure made up of plastic mounted on a stand and is supported by a steel frame or wheels. Government as well as road construction firms feel these robots will help cut down on both labour costs and loss of lives

INDIA'S KILLER HIGHWAYS

480,652

Number of road accidents in 2016; national highways account for nearly 30% of them

ITNL has been using these robots on the Ahmedabad-Mehsana, Vadodara-Halol, JetpurRajkot, and Sikar-Bikaner road projects. The road ministry in December informed Parliament it was toying with the idea of increasingly using robots at road construction and maintenance sites. “One of the

150,785

People killed in these accidents; 34.5 per cent casualties occurred on national highways

concessionaires has used robots for traffic diversion signalling during the road construction and maintenance works, leading to no accidents at construction sites. The feasibility of replication of this use of technology by other contractors is being explored,” the ministry said in response to a Lok

Sabha question on technological innovations for road traffic problems, including frequent fatal accidents. According to the ‘Road Accidents in India’ report, national highways accounted for 29.6 per cent of the road accidents and 34.5 per cent of the people killed in 2016. The year saw 480,652 road accidents, which claimed 150,785 lives. The use of such robots can not only save lives but can also help road construction companies cut down on labour costs. In the past three to four years, labour costs have been the highest contributor to the increase in construction costs of highways. Labour costs involved in road construction have increased almost 50 per cent in the past three years. Though flagmen are a small portion of the entire labour at work, this could be seen as a start of using advanced technology techniques for road construction. The cost of a single robotic flagman is pegged at ~52,500, exclusive of the goods and services tax (GST). “The use of robot flagmen is saving costs up to certain extent… Labourers, who are now hired just to work as a flagman, can be used for the physical execution of works,” Sapre said.

global HR firm on Chandra’s salary hike

N Chandrasekaran, chairman, Tata Sons

DEV CHATTERJEE

Mumbai, 23 January

Tata Sons, the holding company of the Tata Group, has appointed an international executive search firm to give an independent opinion on the salary hike of its chairman, N Chandrasekaran, who will complete his first year in office next month. The firm’s opinion will be taken into consideration by the nomination and remuneration committee (NRC) of the Tata Sons board, which will then recommend a hike for Chandrasekaran. According to Tata Sons’ annual report for the year ended March 2017, an annual increment will be effective from April 1 every year, and it will be decided by the board based on the recommendations of the NRC. The salary hike will take into account both the chairman’s and Tata Sons’ performance during the past financial year. As of now, Chandrasekaran’s annual salary is ~24 million, which can go up to ~48 million. Besides, he is also entitled to up to 200 per cent of basic salary as performancelinked remuneration. An e-mail sent to Tata Sons seeking comment did not elicit any response. Chandrasekaran took over as chairman of Tata Sons on February 21 last year, at a lower salary than what he was earning at India’s largest software exporter, TCS, as its CEO and MD. In the financial year 2016-17, Chandra earned ~300 million from TCS, which consisted mainly of commission on profits, while his basic salary was Turn to Page 16 > ~24 million.

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2 COMPANIES STOCKS IN THE NEWS

> State Bank of India Topgainersamong S&PBSESensex

* OVER PREVIOUS CLOSE

https://www.estore33.com/

https://t.me/TheHindu_Zone MUMBAI | WEDNESDAY, 24 JANUARY 2018

> Kalpataru Power Transmission Receivedneworders worthof~8.71billion

~306.25 PREVIOUS CLOSE ~318.00 CLOSE 3.84% UP*

> Havells India

~478.95 PREVIOUS CLOSE ~507.15 CLOSE 5.89% UP*

> Rane (Madras)

> Rallis India

Q3standaloneEbidta marginat15.2%from12.7% intheyear-agoquarter

Q3 net profit stood at ~142 mn against ~34 mn in the year-ago quarter

Q3 net profit down 1.6% at ~249 million; y-o-y

~552.15 PREVIOUS CLOSE ~583.25 CLOSE 5.63% UP*

~ 719.55 PREVIOUS CLOSE ~863.45 CLOSE 20.00% UP*

~ 271.15 PREVIOUS CLOSE ~251.90 CLOSE 7.10% DOWN*

IN BRIEF

Mistry,Tata can’t coexist: Ratan Tata’s counsel SharpeningtheattackonShapoorjiPallonji(SP)Group,acounselrepresentingRatanTata,chairman,Tata Trusts,saidatthehearingoftheNationalCompany LawTribunal(NCLT)onTuesdaythatcontinuationofSP GroupinTataGroupshareholdingwasunworkable. TheSPGroupcouldnotbeintheboardroomofTata SonsastherelationshipbetweenTataTrusts—whichcontrolstwothirdsofTataSons’equity— andSPGroupwas “irretrievablybroken andtoapoint,wheretheycannotco-exist.”Tata’scounselSNMukherjeearguedthatthepresenceofSPGroupnomineesontheboard ofTataSonswouldnotbeinthebestinterestofTataGroup.Thiswas theseconddaywhenthecounselsrepresentingthemajorityshareholdersoftheholdingcompanyarguedinfavourofejectingSP groupinitsentiretyfromthecompany’sboard. BSREPORTER<

Reliance Energy to set up EV charging stations in Mumbai

‘Disruption from Articial Intelligence already started’

RelianceEnergyonTuesdaysaid itplanstosetupover15electric vehiclechargingstationsacross itsdistributionlicenceareain suburbanMumbaioverthe nextthreeyears.Thefirm,whichrecentlysolditsentireMumbaipowerbusinesstoAdani Transmissionfor~188billion, planstostartmorethan15 chargingstations.“Apartfrom beingenvironment-friendly, electriccarshavelow-running costwhichisone-sixthofconventionalvehiclespoweredby petrolordiesel.Thisyear,we areinstallingsmartslowand fastchargingstationsatstrategiclocationsofRelianceEnergy,”aspokespersonsaid. PTI<

InfosysPresidentMohitJoshion TuesdaysaidIndustrydisruptionfromArtificialIntelligence (AI)wasalreadyonandorganisationsnotusingittoamplify theirworkforcewillfallbehind orfindthemselvesirrelevant. “IndustrydisruptionfromAIis nolongerimminent,itishere. Theorganisationsthatembrace AIwithaclearlydefinedstrategyanduseAItoamplifytheir workforceratherthanreplaceit willtaketheleadandthose thatdon’twillfallbehindor findthemselvesirrelevant,”he said. PTI<

Maruti, Hyundai dominate 10 best PV models in Dec MarutiSuzukiIndia’sholdon domesticpassengervehicles (PV)marketcontinuedin Decemberwithsixofitsmodels appearinginthetop10selling listanditspremiumhatchback Balenomovinguptothethird spot.RivalHyundaiMotorIndia alsomadeitspresencefeltwith threeofitsmodelsfeaturingin thetop10list.Accordingtothe datacompiledbytheSocietyof IndianAutomobileManufacturers,MarutiSuzukiIndia’s popularentrylevelAltowasthe bestsellingmodellastmonth. Itsold20,346unitsinDecember 2017asagainst17,351units ayearago,agrowthof 17.26percent. PTI<

Telcos raise app-based calling with Trai Telecomoperatorsin theirmeetingwith regulatorTelecom RegulatoryAuthorityof India(Trai)onTuesday raisedmultiplepain points,includingapp-based calling,rationalisationoftaxes andinfrastructureexpansion woes,thatareadverselyimpactingtheirbusiness.“Wehada fruitfuldiscussionwiththe industryplayers.Theywere unanimousonsomeofthe issuesthatTraishoulddealwith inthisyearlikeOTT(over-thetop)consultation,onecountry onelicence,infrastructurerelatedissues,rationalisationof taxes...Thereweresix-seven issuesthattheywantthe regulatortolookinto,”Trai ChairmanRSSharmasaid. PTI<

Green shoots begin to show in consumer goods

The results of firms such as HUL, ITC, Jyothy Labs and Bajaj Corp point to a recovery in the market. But the question is, will it sustain? Mumbai,23January

KEY FINANCIALS

December 2017 quarter results Revenue YOY (~mn) % chg HUL 85,900 11.49 *ITC (other FMCG) 28,718 11.77 Jyothy Labs 4,312 8.3 Bajaj Corp 1,973 5.9

DILASHA SETH New Delhi, 23 January

VIVEAT SUSAN PINTO he quarterly performance of a few key companies, whose numbers are just out, point to a resurgence in the domestic consumer goods market. These include bellwethers such as Hindustan Unilever (HUL) and ITC (specifically its other FMCG business) as well as smaller firms such as Jyothy Laboratories (Jyothy Labs) and Bajaj Corp. HUL reported a 11 per cent volume and revenue growth, respectively, for the December quarter, while ITC reported a nearly 12 per cent revenue growth in Q3 within its other FMCG business, which excludes cigarettes. On the bottom line front, while HUL saw a 28 per cent jump in third-quarter net profit, ITC’s earnings before interest and tax (EBIT) in its other FMCG business came in at ~470 million in Q3 versus a loss last year. Jyothy Labs, meanwhile, reported 8.3 per cent revenue growth for the third quarter, which when adjusted for goods and services tax (GST), rose nearly 16 per cent with an underlying volume growth of 11.5 per cent. Jyothy Labs’s profit growth though was higher at 59.3 per cent in Q3. Bajaj Corp, which makes Bajaj Almond Hair Oil, also saw revenue growth of nearly six per cent for the third quarter, though net profit declined marginally for the period, sector analysts said. Coming after disruptions such as demonetisation and even the GST, the recovery, though aided by a lower base (in the December 2016 quarter), does point to a few things these firms, especially, HUL and ITC, are doing right, experts said. These include aggressive price cuts (aided by the GST), greater sales and promotions, and also a bigger direct distribution push into rural areas. As Abneesh Roy, senior vice-president, institutional equities (research), Edelweiss, says, “The biggest lesson for these firms (after demonetisation and the GST) has been that they need greater control over distribution, especially in rural areas. The latter gives them (HUL and ITC) nearly 35-40 per cent of their overall sales. So the more they have control of distribution in these areas, the more they can maximise sales going forward.” This point is endorsed by Ullas Kamath, joint managing director, Jyothy Labs, who said rural demand was looking better than before. “After three to four quarters, we are seeing an uptick in rural demand, reflected in a spike in sales of Ujala fabric whitener in Q3. This brand has a strong rural presence and in the December quarter, (year-on-year) sales growth of Ujala Supreme was nearly 10 per cent,” Kamath said. Sumit Malhotra, managing director, Bajaj Corp, also believes that a revival in rural sales is likely in the future as the government looks to give income as well as consumption in the hinterlands a fillip. “I think companies are gearing up for it, improving their penetration and reach in rural areas,” he said. HUL and ITC, for instance, in recent quarters have been working to improve direct distribution reach, which stands at 3 million and 2 million outlets currently. The effort comes as the FMCG wholesale channel, whose contribution to industry sales is estimated to be 35-40 per cent, collapsed in the wake of the cash crunch as well as a shift to the GST regime in 2017.

E-commerce firms may get 6-month tax breather

Net profit YOY (~mn) % chg 13,260 27.7 NA NA 329 59.3 551 -4.6

*ITC reports earnings before interest and tax (EBIT) at segment level. It does not report net profit. EBIT for its other FMCG business was ~470 million in the Dec quarter. There was a loss a year ago. ITC’s other FMCG business excludes cigarettes Source: Company results; presentations

HUL’s MD & CEO Sanjiv Mehta said he saw trade conditions normalising and a gradual improvement in consumer demand as the FMCG market recalibrated itself after demonetisation and the GST. “Between 2013 and 2016, underlying volume growth of the (FMCG) market was 3 per cent, which in the first nine months of 2017-18 has improved to 5 per cent. This will get better in time,” he said when announcing the company’s results last week. Sachin Bobade, senior analyst at Mumbai-based Dolat Capital, said he saw both revenue and volume growth improving for FMCGs in the fourth quarter (of the current financial year) on the back of a lower base as well as better market conditions. But the big challenge, he said, remained firming crude oil prices, which could crimp margins. “Crude oil prices have been steadily rising and this will compel companies to raise prices as packaging and freight costs increase. While companies may take a judicious approach to price hikes, it would be interesting to see how they manage this overall dynamic,” he said.

The provision of tax collected at source (TCS) imposed on suppliers selling products on e-commerce websites like Flipkart and Amazon in the goods and services tax (GST) regime is likely to be deferred by six months. The recommendation by the law review committee may come as a breather for e-commerce players, which have been strongly opposing the additional levy. The TCS of 1 per cent to be chargedcollectivelybytheCentre and states was kept in abeyance till April 1, 2018, by the GST Council in October along with the reverse charge mechanism and the e-way bill. However, in light of revenue leakage concerns, the e-way bill to track movement of inter-state supply of goods will be implemented from February 1, while reverse charge mechanism on composition dealers may be implemented any time now. “The provision pertaining to TDS and TCS can be kept in abeyance for at least six more months, is the view taken by the law committee,” said an official. A final decision on deferring the TCS further will be taken by the GST Council in its next meeting. “Implementation of the TCS will have to be through the GSTNportal,whichisyettostabilise. The move will not only shift the compliance burden on companies but also burden the system,” said another official. The TCS will essentially be collected by the e-commerce players while making the transaction payment to sellers on the marketplace website. The model goods and services tax law approved by the GST Council provides for an up to 1 per cent TCS deduction by e-commerce operators. In the wake of stiff opposition by the e-commerce industry, the TCS provision in the GST law was earlier toned down to include

RELIEF IN SIGHT

| The TCS of 1% to be charged by the Centre and states was kept in abeyance till April 1 | The TCS will essentially be collected by the e-commerce players while making the transaction payment to sellers on the marketplace website | The industry had argued that the TCS would result in a lock-in of capital and also dissuade firms from selling through e-portals | A final decision on deferring the TCS further will be taken by the GST Council in its next meeting ‘up to 1 per cent TCS’ as against a 1 per cent levy under both the Central GST and the State GST, taking the total incidence at 2 per cent. For the government, the TCS will help check tax evasion by enabling collection of tax and information at source. However, it will suppress cash flow for industry, which is operating on thin margins. The TCS comes at a cost for suppliers selling on the e-commerce portals as their working capital will get be held up for a while before they can claim a refund. The industry had argued that the TCS would result in a lock-in of capital and also dissuade companies from selling through online portals. According to a statement by Flipkart last year, ~4 billion working capital would be locked up every year at the current scale. The e-commerce player said this would deter small and medium enterprises and sellers from selling on ecommerce platforms or going digital in their business.

Telecom synergy to catapult RIL’s retail story AMRITHA PILLAY

Mumbai,23January

Textiles-to-telecom conglomerate Reliance Industries (RIL) is quietly scripting a new success story, this time in its retail segment. The retail venture has been profitable for the past few years, but industry experts believe synergies with the telecom business (Reliance Jio) will help further catapult it. Industry experts point out the retail business’s profitability so far was a result of RIL’s efficient management of operations. But, with the advantage that Jio brings to RIL’s offerings in retail, the conglomerate may find itself in a sweet position to make the most of a good portfolio of retail formats and synergies arising out of the telecom business. “The retail business has quietly turned into a cash cow for RIL, at ~6 billion as earnings before interest, taxation, depreciation and amortisation well above our estimates,” analysts

with Bank of Baroda wrote in a results review note for the company’s December quarter results. Industry experts such as Arvind Singhal from Technopak Advisors see the telecom business as further strengthening RIL’s retail success story, which was already going strong on the back of operational efficiency. “Two things are working for RIL in retail: One is the RIL DNA in terms of efficiency in terms of management of operations; and second is a good portfolio of formats. They are much better-positioned than many of the other retailers because of Reliance Jio; they can now ride the wave of online and offline far more efficiently with access to Jio’s subscriber base,” said Singhal, chairman and managing director at Technopak. Jio as of December 2017 had a subscriber base of 160.1 million. This is evident in the significant rise seen in the retail segment’s revenue for the December quarter, which rose to ~187.98 billion from ~86.88 bil-

RELIANCE RETAIL’S TURNOVER MIX 33

Grocery

Dec quarter (% y-o-y) FY17 FY18

18 Consumer electronics and connectivity

fashion and lifestyle

15 14 Petro retail

Source: Company

lion in the corresponding quarter a year ago. The telecom venture, among other sub-segments, has helped the revenue build-up immensely. Analysts with Jefferies noted in their results review report that Reliance Retail's stronger-than-expected margins with top line growth were driven by digital and telecom recharges. “Core retail revenue also includes contribution from

telecom recharges; Reliance Retail is the sole distributor of recharges. Phone sales also reflected in retail revenues,” the analysts wrote in a report dated January 22. According to RIL’s results presentation for the December quarter, consumer electronics and connectivity contributed 56 per cent to its total revenue mix, compared to 34 per cent in the corresponding quarter a year ago. This is higher than the 14 per cent contribution to a turnover of ~187.98 billion seen from the fuel retail business to the overall retail segment. RIL in 2016, combined its petro retail business with the organised retail segment for reporting. As of December 31, 2017, Reliance Retail operated 3,751 stores across 750 cities with an area of over 14.5 million square feet. “Events like the FDI announcement have triggered a lot of positive energy among retail companies. If one looked at the sales of item last year, the maximum number of items sold was

consumer appliances and specifically household equipment. We expect this growth trend to definitely continue for the next few quarters,” said Anil Talreja, partner with Deloitte India. RIL to partnerWEF tosetup fourth industrial revolution centreinIndia Reliance Industries (RIL) on Tuesday said World Economic Forum would establish a new centre of its ‘fourth industrial revolution’ in Mumbai throughapartnershipwithRILandthegovernmentofIndia.”TheWorldEconomic Forum on Tuessday announced establishinganewcentreinMumbai,inpartnershipwithRIL.AnalyststrackingRIL, agree the retail segment may continue to perform well in the coming quarters. “Webelievethestronggrowthmomentum will sustain, given low penetration oforganisedretailinIndia’soverallretail pie, which was 9 per cent in FY16,” analysts said.

Domesticairtrafficdoublestoover100mnin7years India has seen double-digit passenger growth for 40 months in a row ANEESH PHADNIS

Mumbai, 23 January

Strong passenger growth in the past three years has resulted in domestic air traffic crossing the 100-million mark in 2017. The surge has been fuelled by low crude oil prices, discounts and capacity addition in the domestic market. While air traffic crossed the 50-million mark in 2010, passenger growth has doubled in the past seven years. In 2017, domestic airlines carried over 117.1 million passengers, a growth rate of 17.3 per cent over 2016. After a dip in traffic in 2012, growth in the domestic market has been on a rebound. The collapse of Kingfisher Airlines in October 2012,

rise in fares and user fees in airports resulted in an over three per cent drop in traffic in 2012 over 2011. While there was a recovery in traffic in 2013 and 2014, a combination of benign fuel prices and capacity expansion contributed to 20 per cent-plus growth in 2015 and 2016. “The high growth phase was on account of rising economy, low crude oil price, fleet expansion, and cut-throat competition. The only dampener is choked infrastructure at leading airports,” said Amber Dubey, partner and India head (aerospace and defence) at KPMG. “The single biggest growth driver has been lower air fares. Fares have reduced 30-35 per cent in the past three years,” said Sharat Dhall, chief operating officer of Yatra.

AIMING HIGH

| Domestic traffic grew 17.3% to 117.1 mn in 2017. In 2015 & 2016 traffic grew over 20% | Air traffic in India has been growing at double digit for 40 consecutive months | In December air traffic grew 17.6% | SpiceJet, GoAir and IndiGo registered passenger loads of over 90% in last December | IndiGo remains the largest domestic airline with a market share of 39.6% in 2017

com. India has witnessed a doubledigit passenger growth for 40 months in a row. It has been the fastestgrowing domestic air travel market. According to the International Air Transport Association, the price of Brent crude oil fell from $99.9 a barrel in 2014 to $53.9 a barrel in 2015, and further reduced to $44.6 a barrel in 2016. Brent crude crossed the $70-per barrel mark

this month, the first time since March 2014. Lower oil prices have helped domestic airlines to expand capacity and offer cheaper fares. "The seven years that the country took to get from the 50-million mark to the 100-million mark was largely aided by IndiGo, which grew its capacity by 4.5 times. The momentary slump in Kingfisher operations,

which operated more than 60 aircraft, in 2011 has been more than recovered, with IndiGo inducting 100-plus planes between 2011 and 2017. SpiceJet started inducting Bombardier Q400 planes, which opened up new routes, while the launch of AirAsia India and Vistara helped boost growth,” said Ameya Joshi, founder of aviation blog networkthoughts.in. “Industry-wide domestic seat capacity has grown over 55 per cent since 2015. The total daily seats on offer have risen to 0.44 million in summer schedule 2018 from 0.28 million seats in 2015,” said an executive from a private airline. “The demand has been largely induced by low fares, and airlines have been able to maintain high load factors because of discounts. Most of the discounted tickets on offer now are for seasonally weak months like February-March.”

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COMPANIES 3

MUMBAI | WEDNESDAY, 24 JANUARY 2018

Analjit Singh raising money for private ventures RANJU SARKAR

New Delhi, 23 January

he promoter of the Max Group, Analjit Singh, is raising money to fund his private ventures — boutique hotels and vineyards in South Africa, the UK, Italy, and some other real estate investments in India. Singh is raising ~20 billion from the private equity firm KKR, according to a news report on Tuesday. This is likely to be a structured debt deal, which comes with certain assured returns and an equity upside. Singh first came to South Africa in 2010 for the FIFA World Cup, and fell in love with the country. After setting up a ‘home away from home’ in the Franschhoek winelands of Cape Town, he is increasing his investments in the hospitality sector in South Africa.

Max India promoter Analjit Singh is raising ~20 billion from private equity company KKR

He has “17 land holdings and substantial hectarage under wine cultivation,” he said. He has also set up Leeu Collection, an international collection of four boutique hotels,

restaurants, a spa, a microbrewery, and home to Mullineux & Leeu Family Wines. Singh, with a net worth of $1.19 billion, is a partner in Mullineux &

Leeu Family Wines, which produces wines in the Swartland wine region, some 800 kilometres north of Cape Town. This is overseen by winemaking duo Chris and Andrea Mullineux. Singh runs a 17-key country house and winery on Leeu Estates, a 68-hectare farm in the Franschhoek valley, and secures wine from 50 vineyards in Franschhoek and Stellenbosch, Forbes Africa reported in June 2017. He also renovated Leeu House into a 12room hotel that’s “very Cape Dutch” featuring thatched roofs, gables with plaster art, shutters and stable doors. With a substantial, high-end presence in the winelands, Singh’s boutique winery targets the export markets of the United Kingdom, some parts of America, Europe and has just started making an entry

into Asia. Singh also acquired properties in Lake District of South Africa, Florence in Italy and London. With a total of “68 keys combined in all properties” around the world, he is looking to grow to 105 by the end of next year. He also wants to venture into game parks and safaris in this part of Africa, and in the education space in South Africa. Singh’s private ventures — hospitality ventures abroad and real estate holdings, which is commercial real estate and senior living facilities — have incurred a debt of $300-350 million. He may want to retire some of this debt through this deal, says analysts. Singh holds 40 per cent stake each in Max India and Max Venture and 30 per cent stake in Max Financial; KKR bought 10 per cent in Max Financial in 2016.

ONGC to take ~181-billion loan to buy HPCL stake JYOTI MUKUL

New Delhi, 23 January

Oil and Natural Gas Corporation (ONGC) will raise nearly ~181 billion in debt to meet its funding requirement for acquisition of Hindustan Petroleum Corporation. ONGC has a funding requirement ~369.15 billion for buying government’s 51.2 per cent stake in the country's second largest petroleum retailer. The biggest portion of this debt, ~106 billion, will come from Punjab National Bank in the form of a short-term rupee loan. Bank of India and Axis Bank will lend ~44.6 billion and ~30 billion, respectively, to ONGC. The loan agreement with PNB has a sub-limit of ~106 billion towards foreign currency loan for one year, said ONGC in a filing to the Bombay Stock Exchange, adding that with Bank of India it has a loan agreement of $300 million sub-limit for FCNR (foreign currency non-repatriable) and FCTL (foreign currency term loan) for one year. Since ONGC will need to raise

more money, it is likely to sell some of its equity in Indian Oil Corporation and GAIL India. ONGC holds 13.77 per cent holding worth about ~260 billion. It also holds 4.86 per cent stake in gas utility GAIL which is worth over ~38 billion. On Saturday, ONGC signed a share purchase deal with the government for buying HPCL for ~369.15 billion, paying a premium of over 10 per cent, taking a 60-

day weighted average of HPCL scrip. The company plans to use a mix of cash balance and shortterm borrowings. Market analysts, however, caution on the company offloading its entire stake in the two companies. “If ONGC sells, the market might find it difficult to absorb ~250-270 billion worth Indian Oil stock,” said an analyst. The government in August 2015 sold 10 per cent in Indian Oil through an offer for sale (OFS), fetching it ~93.69 billion which increased the float for the company. ONGC chairman Shashi Shanker told reporters on Sunday that the company will not sell its liquid “assets in distress”. “We will use our cash first and then the liquid assets, and debt will be the last option.” The company currently has about ~130 billion in cash reserve. ONGC's acquisition would help Finance Minister Arun Jaitley to get over the revenue shortfall during the current financial year and narrow the fiscal deficit. The government targets to limit its fiscal deficit to 3.2 per cent of the GDP.

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“...Google was not there in cyberspace and Amazon then was about dense forests. Tweeting was done by birds at that time and not by humans”

“Aware of the political atmosphere, new birds want to fly. Democracy is a sky (common) for all. The political arena is watching how much distance a bird can fly on the strength of its wings”

NARENDRA MODI

M K STALIN

Prime Minister, recalls 1997 at the WEF annual meeting

President, DMK

“The triple talaq Bill is a conspiracy against the Muslim community. It’s a tactic to bring out the women of the community on roads and send the men to prison” ASADUDDIN OWAISI President, AIMIM

Source: PTI

IN BRIEF

India shaking off GST roll-out woes, but oil price a risk: S&P S&P Global Ratings on Tuesday said the Indian economy is shaking off its post-GST implementation woes but risks from higher oil prices have reappeared. In its report S&P said overall economic risks in India remain low with pick up in industrial output and bank credit. International oil prices have been rising, which has also led to increased prices of petrol and diesel. A majority of India’s import bill stem from crude oil purchases. Last year, during the July-September quarter, the Indian economy expanded by 6.3 per cent as manufacturing picked up and businesses adjusted to the new tax regime. PTI<

CPI(M) on impeachment motion against CJI

TheCPI(M)onTuesdaybeganto rallyoppositionpartiesfor bringinganimpeachment motionagainstChiefJusticeof India(CJI)DipakMisrain Parliamentovertheissuesraised byfourseniorjudgesagainst him.CPI(M)generalsecretary SitaramYechury,whometNCP leaderTariqAnwarandrebel JD(U)leaderSharadYadavto discusstheissue,saidthe judiciaryhasbeenunableto addresstheissuesflaggedbythe theapexcourtjudgesanditwas timethatthelegislatureandthe executivecometogetherto resolvethecrisis. PTI<

CBI begins probe into ~4.87-billion coal import scam TheCBIhasbegunaprobeinto anallegedscamof~4.87billion relatedtoover-valuationof inferiorqualityofcoalimported fromIndonesiawhichwas passedontoNTPCandArvali PowerCorporationassuperior qualityincollusionwithofficials. Theactionoftheagencycame onthebasisofadirectorateof revenueintelligenceinvestigation,whichhadshownoverinvoicingintheimports between2011-12and2014-15, officialssaidonTuesday. PTI<

Centre’s FY19 capex may rise 16 per cent For PSUs and Centre combined, capex target is likely to cross ~4.2 trn — the highest in any fiscal

AT A GLANCE

With reforms India can achieve 10% growth: Panagariya Indiahasthepotentialto achieve10percentgrowthrate, butitneedsmajorreformsin labourlawsandland acquisition,formerNitiAayog vice-chairmanArvind Panagariyahassaid.Hesaid Indianeconomygrew7.5cent inthefirstthreeyearsofthe NarandraModigovernment, buttwomajorreforms— demonetisationandthegoods andservicestax—broughtthe growthratedownalittle. PTI<

2.53

2.80

3.09

2014-15 2015-16

2016-17 (Revised)

2017-18 (Budgeted)

Capex(in ~ trillion)

Capex: Capital expenditure MTEF: Medium-term expenditure framework Source: Indiabudget.gov.in

Petrol, diesel prices jump; Oilmin seeks excise duty cuts

PetrolpricesonTuesdayhitthe highestlevelsincetheBJP governmentcametopowerin 2014,anddieseltoucheda recordhighof~63.20alitre, promptingtheoilministryto seekacutinexciseduty.Petrol priceroseto~72.38perlitrein Delhi,highestsinceMarch2014. Rateshaverisenby~3.31perlitre sincemid-December.In Mumbai,priceshavecrossed ~80-mark—costliestinthe country.Dieselisbeingsoldat ~67.30inMumbai,wherethe localsalestaxorVATratesare higher.Sincemid-December, dieselrateshavejumped~4.86 alitre,accordingtooilfirms.PTI<

1.97

ARUP ROYCHOUDHURY

New Delhi, 23 January

inance Minister Arun Jaitley is looking at yet another year of the central government and state-owned companies carrying a bulk of infrastructure spending. The Centre’s capital expenditure (capex) for 2018-19 could be at least ~3.6 trillion, about ~510 billion or 16 per cent higher than 201718 Budget Estimates of ~3.09 trillion. For public sector undertakings (PSUs) and the Centre combined, the capex target is easily expected to cross ~4.2 trillion, Business Standard has learnt. This would be the highest for any given year, and would surpass the previous high by a wide margin. The 2018-19 Budget, to be presented by Jaitley on February 1, will be last full Budget of the current government before the 2019 general

3.41 2018-19 (projected by MTEF)/ >3.6 as per govt sources)

elections. While it isn’t expected to be outright populist, it will still be huge on public spending. Officials say a higher outlay on projects in sectors such as roads, railways, and affordable housing will help in job creation. “While the process to clean up banks’ balance sheets is well under way, it is still some way to go before the pipeline of pending projects is cleared, and lending to the private sector picks up again. The private sector is still not in a position to complement the central government and PSU capital spending. Hence, the burden is on the Centre,” said an official. The combined Centre-PSU capital spending target for 2017-18 was ~3.85 trillion. Earlier this year, the Centre had nudged state-owned companies to spend an additional ~250 billion in capex. An additional outlay of ~250 billion will take this year’s capex to ~4.1 trillion.

Business correspondents feel the heat of cost-cutting AGENTS OF CHANGE

NAMRATA ACHARYA

Kolkata, 23 January

About two years ago when Amita Ghosh was still in a full-time clerical job with a private firm on the outskirts of Kolkata, many of her acquaintances had already seen a brisk rise in their income as banking correspondents, from an average of ~5,000 to ~15,000 per month. Banking correspondents are retail agents engaged by banks for providing banking services, where bank branch or automated teller machines are not present. Most ofthembeinghighersecondaryorsecondary school passouts, otherwise engaged in lowearning or informal sector jobs. InAugust2014,whenthePradhanMantri Jan-Dhan Yojana was launched, close to 100,000 such correspondents were roped in as banks scrambled to meet targets set by the government. Not only were the banking correspondents entitled to a fixed income of ~5,000 per month, but also commission payable on transactions, and new accountopening meant a sizeable variable component. With the allure of better earnings, Saha quit her job, which paid her ~4,000 per month, to be a banking correspondent. For close to two years, Saha’s average monthly income rose to ~13,000 per month, peaking around the time of demonetisation, when she earned ~18,000 per month. Cut to January 2018, Saha’s income has plummeted to ~6,000-6,500 per month as banking correspondents bear the brunt of cost-cutting measures by public sector banks (PSBs). Notably, a few months ago, when the government proposed a reduction in perks for regular employees of PSBs, strong opposition by bank employees ensured the measure was not implemented. Now, with most PSBs facing action by the Reserve Bank of India (RBI) entailing restriction in lending and expansion, banking correspondents find their incomes going down as a part of the cost-cutting exercise. “Banks have reduced commission for banking correspondents in the last few months; some banks by as much as 50 per cent. So there is less money on the table for both service providers and banking correspondents. However, banks must understand that if they want to see financial inclusionasaprofitablebusiness,theymustinvest in it and support us in rolling out new prod-

Previous salary break-up Fixed component (p/m) ~5,000 Commission income ~5,0007,000 Total earnings ~13,000 per month (approx)

Present salary break-up ~5,000 ~2,5003,000 ~7,5008,000

ucts,” said Prakash Prabhu, CEO of Bengaluru-based Atyati Technologies, a tech platform provider for rural banking. At present, most banks outsource rural banking services to corporate agents, who, in turn, deploy banking correspondents. Apart from a fixed salary, the banking correspondents used to receive 0.75-1 per cent commission on business volume, or total withdrawal and deposits. Earlier, most banks used to offer the same commission for withdrawal and deposits, now they offer less on withdrawal.Thus,earlier,anaveragebanking correspondent, providing business of ~500,000-700,000 a month, would earn as much as ~5,000-7,000 as commission (at the rate of one per cent on business volume). In effect, he would draw a total monthly salary of ~10,000-12,000, inclusive of a fixed component of ~5,000 per month. Inaddition,opening new accounts would also attract rewards at the rate of ~1-5 per account.Moreover,withbanksarenowoffering less commission for withdrawal than deposits and much fewer bank account being opened, compared to two years back, overall commission has further come down. Thus, effectively the total monthly salary of banking correspondents has reduced to around ~7,500-8,000 (~5,000 fixed income plus monthly commission of ~2,500-3,000). Banks,ontheirpart,defendthereduction in commission, claiming they had detected several discrepancies in transactions by banking correspondents as they frequently deposited and withdrew money for the sake of earning commissions. The job profile of banking correspondents is also changing. They are now being asked to double up as loan recovery agents for banks, leaving little scope for women banking correspondents. More on www.business-standard.com

WORLD ECONOMIC FORUM 2018

FROM THE SIDELINES Rahul asks PM to explain inequality Congress President Rahul Gandhi on Tuesday asked Prime Minister Narendra Modi to tell people in Davos why one person of India’s population had 73 per cent of its wealth. Gandhi, who put out a tweet addressing the prime minister, also tagged a news report quoting an Oxfam survey that the richest one per cent cornered 73 per cent of wealth generated in India in 2017. The BJP hit back at Gandhi for his remarks targeting Modi over the uneven distribution of wealth in India, saying it was a result of the Gandhi family’s “poverty perpetuation” governance model. PTI

Foreign investors look to India: Piyush Goyal There is a huge appetite for foreign investment in India with no comparable opportunity available worldwide, Union Minister Piyush Goyal said on Tuesday, even as he saw India’s role at international platforms growing into a leader being looked up to for solving problems of a ‘fractured world’. “Going forward, India’s role in the world economy, in the social tensions and in the fight against terrorism and climate change is only going to grow,” Goyal said. He also said Prime Minister Narendra Modi’s personal popularity and personal acceptability across the world was huge and he had emerged as the leader whom all world leaders look up to. PTI

‘Together we can', PM’s message to CEOs PRESS TRUST OF INDIA Davos, 23 January

rime Minister Narendra Modi on Tuesday met a group of Indian CEOs at the World Economic Forum (WEF) annual meeting here, as India presented a collective pitch for showcasing the growth story of the country. Those present at the meeting included Rahul Bajaj, Chanda Kochhar, Uday Kotak, Naresh Goyal, N Chandrasekaran, Anand Mahindra, Sunil Mittal, Ravi Ruia, and Chandrajit Bannerjee. Government officials present included S Jaishankar, Amitabh Kant, Ramesh Abhishek, and Atul Chaturvedi. “Together we can! Prime Minister Narendra Modi with Indian CEOs present at the WEF working hand in hand towards a brighter future for the country,” the ministry of external affairs spokesperson tweeted with the hashtag IndiaMeansBusiness, the campaign being run by India in Davos this year. Modi narrated the India growth story and underlined immense growth opportunities presented by the country for global businesses. Modi became the first Indian prime minister to address the WEF here on Tuesday during which he talked about “serious” challenges and “grave concerns” facing the world, including terrorism. Bharatiya Janata Party Chief Amit Shah termed Modi’s speech at the WEF in Davos a “reason of pride” for all Indians and said the country offers opportunities to the entire world. Shah, who put out a series of tweets, said Modi has perfectly articulated India’s strengths and aspirations in the multi-conceptual world at Davos. “India offers unique opportunities to the entire world. It offers wealth with wellness, health with

From left: Klaus Schwab, executive chairman, WEF; Prime Minister Narendra Modi; Swiss President Alain Berset at the opening plenary of the WEF annual meeting in Davos, Switzerland on Tuesday PHOTO: REUTERS

wholeness of life, prosperity with peace... India welcomes one & all,” Shah tweeted. Referring to Modi’s speech at WEF’s plenary session, Shah said the prime minister had superbly invoked how Indian culture has always believed in uniting, not dividing. “Our scriptures, written thousands of years ago, speak about ‘Vasudhaiva Kutumbakam’. We are all united by our shared destinies,” he said. Citing Modi’s remarks on climate change, Shah said it is a potent global challenge. Under Modi’s leadership, India has not only set ambitious targets in this regard but is also taking unprecedented initiatives to achieve them, he added. Modi, he said, had raised his voice against terrorism at every global forum. At WEF, too, he gave a clarion call to the world, to unite to defeat the menace of terrorism.

INDIA @DAVOS | Modi narrated the India growth story and underlined immense growth opportunities presented by the country for global businesses | Those present at the meeting included Rahul Bajaj, Chanda Kochhar, Uday Kotak, Naresh Goyal, N Chandrasekaran, Anand Mahindra, Sunil Mittal, Ravi Ruia, and Chandrajit Bannerjee | Government officials present included S Jaishankar, Amitabh Kant, Ramesh Abhishek, and Atul Chaturvedi | With this, Narendra Modi became the first Indian prime minister to address the World Economic Forum

West must share growth benefits with the rest, says Rajan PRESS TRUST OF INDIA Davos, 23 January

Former Reserve Bank of India (RBI) governor Raghuram Rajan on Tuesday said the Western world must realise they cannot go a long way without the help of the emerging economies and warned that no one would be able to resolve any problem of a ‘fractured world’ if things are not set right soon. Without naming any country, he said the West must realise that their population is ageing and the demand for their products would mostly come from the emerging world. Rajan said there is a risk that by the time the West goes to the emerging world for their support, they may have to answer quite a few questions about why they did not share the benefits earlier. He warned that the approach of the Western world must change soon for the good, or else there may be a chance that we are not On the economists able to solve any of the problems of who frown upon the ‘fractured the idea of world’. About economic issues facing the narratives Western world, he listed technology, WHEN THE ECONOMIST ageing populaHEARS THE WORD tion and climate NARRATIVES AND STORIES, change. HE THINKS IT’S BELOW ME. He said some THEY BELIEVE THEY ARE governments such as Singapore BEYOND THE TRADITION have done someOF NARRATIVES” thing to address the problems arisOn cautioning ing out of income that the inequality and economists have the divisions in a much harder the society by settask today ting up housing projects where BUT THE EVEN HARDER middle class and TASK IS TO CONVINCE lower middle PEOPLE THAT BELIEVE US class families can live together. AND WE WILL SET Rajan said he’s THINGS RIGHT” not sure about the US but some countries are doing things in this area and certainly the governments can play a role here. Rajan also took on the economists who frown upon the idea of economic narratives and said it has become difficult to make people believe in them for setting things right. “When the economist hears the word narratives and stories, he thinks it’s below me. They believe they are beyond the tradition of narratives,” he said.

ReformsinIndia mustdrawin women:Lagarde PRESS TRUST OF INDIA

Davos, 23 January

The Managing Director of the International Monetary Fund (IMF), Christine Lagarde, on Tuesday said India must continue with reforms especially in the financial services sector and should urgently focus on broadbased and true inclusion of women in its economy. Addressing a press conference here as part of the all women co-chairs of the World Economic Forum (WEF) annual meet, Lagarde said IMF research had showed that raising women’s participation in the workforce to the level of men can boost Indian economy by 27 per cent. She also expressed concern over the high level of discrimination faced by women in rural India and emphasised that there is an urgent need to address this issue. Lagarde reiterated IMF’s forecast of 7.4 per cent growth for India and said it is obviously one of the fastest-growing large economies of the world. According to her, future growth would depend on how the “WE HAVE RESEARCH TO country carries forward SHOW THAT INDIA’S GDP the reform process. CAN GROW BY 27 PER Lagarde said India CENT IF THE WOMEN must continue with its reforms, especially in ARE BROUGHT TO THE financial services sector SAME LEVEL OF MEN IN and the one area that TERMS OF ECONOMIC needs special focus is AND WORKFORCE gender equality. PARTICIPATION” “I genuinely hope there will be a focus Christine Lagarde on inclusion of Indian Managing director, IMF women in the economy. We have research to show that India’s GDP can grow by 27 per cent if the women are brought to the same level of men in terms of economic and workforce participation,” she said. In its latest World Economic Outlook update released here on Monday, the IMF projected India growing at 7.4 per cent in 2018 as against China’s 6.8 per cent, making it the fastest-growing country among emerging economies. The Indian economy is estimated to expand 7.8 per cent in 2019, according to the IMF.

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ECONOMY 5 <

Banks going slow on bonds

ANUP ROY

Mumbai, 23 January

anks are going slow in purchasing bonds ahead of the Budget as there is no certainty about the borrowing programme that may come in February. The market at present expects the borrowing programmetobe~6-6.6trillionona grossbasis,higherbyabout~500 billion from last year. Normally, the rise should have been okay for the market, but there is a qualitative difference this time. There is a marked loss of appetiteforthepapersthistime. This is because there is no certainty that foreign investors would be able to buy as much as they did in the present fiscal year because they have already exhausted their limits and the incremental opening up in the space is very limited. In the current fiscal so far, foreign investors have poured in $19.19 billion in domestic debt segment, almost exhausting their limits in both government and corporate bonds. Besides, rising crude oil prices, and a possibility of rates hardening in the next fiscal year due to a hawkish central bank stance would be detrimental to bond yields. When yields rise, bond prices fall. And banks have to book mark-to-market losses on their trading portfolio if prices drop below their historical price at which they were purchased. Banks in the December quarter may have booked at least ~150 billion in mark-tomarket losses. The Reserve Bank of India (RBI) has clari-

A SNAPSHOT

| Market expects borrowing programme to be ~6-6.6 trillion on gross basis, higher by ~500 billion from last year | In current fiscal, foreign investors have poured in $19.19 billion in domestic debt segment, almost exhausting their limits in both government and corporate bonds | Rising crude prices,and fied that it won’t be interested in giving any relaxations to banks on these losses. Therefore, the appetite for investing in bonds at a time prices are expected to fall won’t be much for banks. Bankers say till the Budget numbers are clear, they wouldn’t like to take much of an exposure in bonds. Of course, public sector lenders are not free to choose in the truest sense. They do bid in bond auctions, but at prices that are unacceptable to the central bank. For example, after cancelling the auction of ~110 billion worth of bonds in endDecember, the RBI again had to cancel the auction of ~40 billion in ultra-long tenure papers. While the central bank received more than ~100 billion of bids for the bonds maturing in 2034 and 2046, it did not sell any. The remaining ~110 billion worth of bonds were sold off easily. The reason is not given, but

possibility of rates hardening in next fiscal would be detrimental to bond yields it is not hard to understand that banks had demanded much lower price (and therefore higher yields) for these semi-illiquid ultra-long papers, which was not acceptable to the RBI. “It is true that the appetite for bonds is dipping among public sector banks,” said Devendra Dash, head (asset liability management), AU Small Finance Bank. “Even if fiscal deficit is contained at 3.2 per cent (of gross domestic product or GDP), the supply will be enormous and there will be a substantial demand-supply mismatch. The banks don’t have space to absorb those because of a cut in SLR (statutory liquidity ratio, or the mandatory bond holding limit), as also the fear of rising yields is always there,” Dash said. One issue that banks are not appreciating at this current juncture is the flip-flops the central government did in its borrowing assessment.

In late November and even in the first week of December, government officials said they won’t require extra borrowing, but then announced ~500 billion worth of extra borrowing. The amount was again cut to ~200 billion by early January. Now, Prime Minister Narendra ModihashintedthattheBudget won’tbeapopulist.Thishasgiven comfort to the market, but still, they would want to see the numbers before deciding on their bond strategy, bankers say. The market, though, is confident that the government has enough avenues to manage its finances. Even as it could not garner extra dividend from the RBI, about ~350 billion was managed through the merger of Oil and Natural Gas Corporation and Hindustan Petroleum Corporation. “The incidents have demonstrated the credibility of the government and the RBI. The government managed to show broad-based sources of revenues when the transfer of surplus was almost halved from the RBI. On the other hand, the RBI, too, has demonstrated its independence by transferring much lower than the budgeted amount,” said Soumyajit Niyogi, associate director at India Ratings and Research. India Ratings expects the borrowing programme on a gross basis at ~6.6 trillion, while it said the 10-year bond yields could be at 7.50-7.60 per cent by the end of FY19. The 10-year bond yields closed at 7.25 per cent on Tuesday, slightly lower than on Monday.

Apex court posers to those challenging legal validity of Aadhaar The Supreme Court on Tuesday sought to know from those who have challenged the constitutional validity of Aadhaar how the unique identification number of a person makes any difference in a networked world when the data was already available with private entities. A five-judge Constitution

Bench headed by Chief Justice Dipak Misra asked senior advocate Shyam Divan, who is appearing for some of the petitioners, that personal data of citizens were with private entities and asked the petitioners how insertion of Aadhaar number would make any change. The apex court also observed that biometric infor-

mation, which was collected during the process of Aadhaar enrolment, was deposited in a central database and citizens were required to only give their 12-digit unique identifier number for the purpose of identification. The Bench, which also comprised Justices A K Sikri, A M Khanwilkar, D Y Chandrachud

and Ashok Bhushan, is hearing a clutch of petitions challenging the constitutional validity of the Aadhaar programme and its enabling Act of 2016. Divan said since private entities were part of the enrolment process for Aadhaar, the data collected by them could be “completely compromised”. PRESS TRUST OF INDIA

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MUMBAI | WEDNESDAY, 24 JANUARY 2018

IN BRIEF

Shutdown deal turns Democrats into rivals For Democrats, the recriminations began even before the final votes were cast to end the three-day government shutdown — hinting at divisions that could complicate their efforts in November’s congressional races. Most of the blame fell squarely on Senate Democratic leader Chuck Schumer, who was assailed by party colleagues for accepting a Republican offer on immigration that fell far short of Democratic demands. “Why do Democrats always fall into some stupid trap,” asked Representative Louise Slaughter, a New York Democrat. “We’re taking a great hit. Totally unjustified. And our people just seem to take it flat-footed.” Slaughter was one of many liberals who unloaded on Schumer’s decision to go to the brink with the shutdown only to step back without gaining any meaningful concessions in a key policy area for the party in an election BLOOMBERG< year.

Pak to go ahead with takeover of Saeed’s ‘charities’

Japan avalanche kills 1 in ski resort after volcano erupts One man was killed and at least 11 people injured, some critically, when rocks from an erupting volcano rained down on skiers at a mountain resort in central Japan on Tuesday and an avalanche soon after the eruption engulfed about a dozen skiers. Seven of those struck by rocks were members of Japan’s Ground Self Defence Force (SDF) engaged in winter training maneuvers, the Ministry of Defence said in a statement. All were rescued, with one dying later, it added. Japanese media said at least 12 people were injured, many apparently hit by REUTERS< volcanic rocks.

Japan's central bank keeps policy unchanged The Bank of Japan kept monetary settings unchanged as expected on Tuesday and its chief hosed down market speculation of a shift away from ultra-easy policy later this year as inflation remained stubbornly shy of the central bank’s target. BOJ Governor Haruhiko Kuroda said he saw no immediate need to raise interest rates or slow the bank’s regular purchases of exchangetraded funds - one of its stimulus measures - despite criticism the buying was artificially inflating Tokyo stock prices, which hit a 26year peak on Tuesday. REUTERS<

Pakistan PM Shahid Khaqan Abbasi has said his government will push ahead with plans to seize control of charities run by JuD chief Hafiz Saeed. Abbasi brushed off US President Donald Trump’s recent tweet accusing Pakistan of “lies and deception” in its commitment to fighting terrorism, as he raised the prospect of charging the US to use Pakistan’s airspace to resupply NATO troops in Afghanistan. Under pressure from the US and international institutions to crack down on terrorist financing, Pakistan last month drew up secret plans for a “takeover” of charities linked to Hafiz Saeed, who both New Delhi ad Washington blames for the 2008 attacks in Mumbai. REUTERS<

Bacardi to buy out Patron tequila in $5.1-bn deal Bacardi has agreed to buy out Patron Spirits International in a deal valuing the top high-end tequila maker at $5.1 billion, highlighting the appetite big drinks groups have for the Mexican spirit. The deal comes days after Pernod Ricard bought out Avion Tequila and months after Diageo bought George Clooney’s Casamigos tequila for up to $1 billion. Jefferies analysts put the price at about 25.5 times Patron’s estimated operating earnings and 7.5 times its sales. That is well below the estimated 20 times sales that Diageo paid for Casamigos, but Patron is a much more mature business, with estimated sales of about $675 million per year, versus only about $50 million for Casamigos. REUTERS<

Toshiba completes sale of nuclear unit Westinghouse claims Toshiba said on Tuesday it has completed the sale of its claims against bankrupt US nuclear unit Westinghouse Electric, a move that allows the Japanese conglomerate to replenish its depleted capital base and remain listed. The $2.16 billion sale, to a group of hedge funds led by the Baupost Group, will also come with tax benefits and improves Toshiba’s balance sheet by about 410 billion yen ($3.7 billion). REUTERS<

Trump slaps steep tariffs on imported solar panels

UK regulator puts hurdle in path of Murdoch’s Sky deal

BRIAN ECKHOUSE, ARI NATTER & CHRISTOPHER MARTIN

23 January

THOMAS SEAL & JOE MAYES

FACEBOOK SHOULD PAY 'TRUSTED' NEWS: MURDOCH

23 January

resident Donald Trump dealt his biggest blow to the renewable energy industry yet. On Monday, Trump approved duties of as much as 30 per cent on solar equipment made abroad, a move that threatens to handicap a $28 billion industry that relies on parts made abroad for 80 per cent of its supply. Just the mere threat of tariffs has shaken solar developers in recent months, with some hoarding panels and others stalling projects in anticipation of higher costs. The Solar Energy Industries Association projected 23,000 job losses this year in a sector that employed 260,000. The tariffs are just the latest action Trump has taken that undermine the economics of renewable energy. The administration has already decided to pull the US out of the international Paris climate agreement, sought to roll back Obama-era regulations on power plant-emissions and signed sweeping tax reforms that constrained financing for solar and wind. The import taxes, however, will prove to be the most targeted strike on the industry yet and may have larger consequences for the energy world. “We are inclined to view it as posing greater trade risk for all types of energy, particularly if other nations establish new trade barriers against US products,” Washington-based research firm ClearView Energy Partners LLC said Monday. US panel maker First Solar jumped as much as 9 per cent to $75.20 in after-hours trading in New York. The Tempe, Arizona-based manufacturer stands to gain as costs for competing, foreign panels rise. Trump approved four years of tariffs that start at 30 per cent in the first year and gradually drop to 15 per cent. The first 2.5 gigawatts of imported solar cells are exempt for each year. The duties are lower than the 35 per cent rate the US International Trade Commission recommended in October after finding that imported panels were harming American manufacturers. BLOOMBERG

PICK-UP IN IMPORTS

USimports of solar equipmentrose ahead of expected tariff increases Southeast Asia China S Korea Mexico Canada Others 2.6 0.2 8.2 52.5

June 205.3

84.3

353.1

3.2 6.9 8.4

July

106.0

236.8 August

21.1 51.5

287.9

87.1

September 291.0

0.7 362.1 7.2 4.8 459.6 53.8

11.2 16.0

58.1 121.5

551.6

October

49.5 214.6

379.9 Note: Data is for 2017

WINNERS AND LOSERS IN TRUMP'S TRADE CRACKDOWN While the obvious winners are American manufacturers that will likely become more competitive, foreign companies that have built a local presence could also gain an edge. On the losing side, overseas appliance producers will hurt, but tariff levels for some solar panel makers based outside the US may not be as steep as they had expected. Some of the winners are Whirlpool , Qingdao Haier, First Solar, SolarWorld Americas and Suniva, U.S.-China trade relations, Longi Green Energy Technology, and India. And some of the losers from this move are American workers, LG, Electrolux AB, Midea Group, JinkoSolar Holding. The biggest Chinese-owned

123.0 Source: Bloomberg New Energy Finance

producers including Trina Solar, Canadian Solar and JA Solar Holdings will all feel the effect of the tariffs in the short term at least, according to Robin Xiao, an analyst at CMB International Securities. Asian countries accounted for more than 90 percent of the $3.7 billion in U.S. solar module imports in the first 10 months of last year, according to Bloomberg New Energy Finance.Every nation will be impacted by the new levies, though they’re in-line with expectations, said Liu Yiyang, deputy secretary-general of China Photovoltaic Industry Association. While the obvious winners are American manufacturers that will likely become more competitive, foreign companies that have built a local presence could also gain an edge. On the losing side, overseas appliance producers will hurt, but tariff levels for some solar panel makers based outside US may not be as steep as they expected. BLOOMBERG

Broadcasting live from a glassbox studio at the heart of Sky’s headquarters in west London, the future of Sky News has suddenly become murky. As UK regulators said 21st Century Fox’s 11.7 billionpound ($16.3 billion) bid for Sky would give Rupert Murdoch too much influence over British media on Tuesday morning, the head of Sky News John Ryley called employees “Facebook and Google have popularised to a newsroom meeting to allay scurrilous news concerns about their future, sources through according to a person familiar algorithms that are with the matter, who asked not profitable for these to be identified as the commuplatforms but nication was private. inherently unreliable “I appreciate that today’s There has been much announcement does not end a discussion about period of uncertainty,” Ryley subscription models said in an emailed letter to but I have yet to see staff, a copy which was seen a proposal that truly by Bloomberg. “But it is the recognises the start of a process, the outcome investment in and of which we hope will be a the social value of good one for Sky News.” professional The roughly 500 employees journalism” at Sky News, the UK’s first 24hour news channel set up by Murdoch in 1989, face an uncertain fate. The Competition and Markets Authority said the channel might have to be sold or spun off to restrict Murdoch’s sway over British media, while Sky has previously threatened to close the channel entirely if it became an impediment to the Fox deal. Sky is part of Murdoch’s $52.4 billion deal to sell much of his media empire to Walt Disney. A spokesman for Sky declined to comment on the memo and meeting. Of the options available, Fox is most likely to offer a behavioural remedy such as insulating Sky News from Murdoch’s influence through an independent editorial board, a proposal it made at the time of a previous regulatory review, said Alice Enders, head of research at Enders Analysis. Communications watchdog Ofcom said that proposal mitigated concerns around Murdoch’s media influence, but the measure was rejected at the time by former Culture Secretary Karen Bradley, who said it didn’t go far enough. Fox would now have to convince new Culture Secretary Matt Hancock, who was appointed to the role earlier this month. BLOOMBERG

COUNTDOWN TO THE OSCARS BEGINS

US FALLS OUT OF TOP 10 INNOVATION RANKINGS

(Left) The Shape of Water topped the Oscar nominations list with 13 nods followed by Dunkirk. Get Out was also among the favourites

While Singapore, Sweden, Singapore and Germany soared up the innovation rankings, the US dropped out of the top 10, according to the 2018 Bloomberg Innovation Index. India doesn’t figure in the top 50 countries in the list. The index scores countries using 7 criteria, including research and development spending and concentration of high-tech public companies

BEST PICTURE Call Me By Your Name Darkest our Dunkirk Get Out Lady Bird ACTOR IN A LEADING ROLE Timothee Chalamet (Call Me By Your Name) Daniel Day-Lewis (Phantom Thread) Daniel Kaluuya (Get Out) Gary Oldman (Darkest Hour) Denzel Washington (Roman J Israel, Esq.)

Phantom Thread The Post The Shape of Water Three Billboards outside Ebbing, Missouri ACTRESS IN A LEADING ROLE Sally Hawkins (The Shape Of Water) Frances McDormand (Three Billboards outside Ebbing, Missouri) Margot Robbie (I, Tanya) Saoirse Ronan (Lady Bird) Meryl Streep (The Post)

FOLLOWING ARE THE TOP 10 COUNTRIES: Bloomberg 2018 Innovation Index Rank YoY 2018 2017 change Economy 1 1 0 S Korea 2 2 0 Sweden 3 6 +3 Singapore 4 3 -1 Germany 5 4 -1 Switzerland 6 7 +1 Japan 7 5 -2 Finland 8 8 0 Denmark 9 11 +2 France 10 10 0 Israel

Total score 89.28 84.70 83.05 82.53 82.34 81.91 81.46 81.28 80.75 80.64

R&D intensity 2 4 15 9 7 3 8 6 12 1

Fitch warns of action against China RYAN WOO Beijing, 23 January

Fitch Ratings on Tuesday warned that it would take ratings action against Chinese local governments if revisions to their fiscal data were significant, after recent reports on fake economic data deepened concerns about governance and oversight. Local and regional governments in China have long been

suspected of cooking up numbers. Blame is often put on ambitious local officials trying to brighten their career prospects by delivering stellar work reports. The agency’s comments come after the autonomous region of Inner Mongolia earlier this month said its fiscal revenue for 2016 ought to be 26 per cent less than initially stated. Fitch reacted by downgrading its internal assessment of

the creditworthiness of the northern Chinese region. It also cut the ratings on the senior unsecured bonds due 2020 issued by Inner Mongolia HighGrade Highway Construction and Development to BBB- from BBB, with a negative outlook. Local and regional governments globally do not have internationally accepted accounting policies. In China, Fitch relies on fiscal data from provincial and local administrations.

Recent falsification by provincial governments may highlight shortcomings in the auditing process, particularly in terms of central government oversight, Fitch cautioned. “We would expect recent data manipulation problems to prompt a focus on tighter supervision, including stronger and more transparent reporting requirements and stricter disciplinary measures to discourage falsification,” it said. REUTERS

Dealmakers are off to hottest start of a year since 2000 NABILA AHMED & MANUEL BAIGORRI 23 January

From pharma to finance, dealmaking in 2018 is on fire around the globe. Just three weeks into the year, the value of mergers announced totals $152.5 billion. That’s the highest since the $374 billion racked up in the same period during the technology deal frenzy in 2000, according to data compiled by Bloomberg. While clouds loom, bankers say the US corporate tax cut, robust economies and rising stock markets are giving executives confidence to sign off on billion-dollar transactions — and in some cases, to pay rich prices. “We’re in the same Goldilocks environment that contributed to the strong finish to the year for M&A,” said Susie Scher, co-head of Americas financing for Goldman Sachs Group. So far, it’s been a good year for JPMorgan, which is topping the league table of financial advisors. It’s been involved in almost $42 billion of deals. Goldman Sachs, the usual leader, is ninth. But the year has just begun, of course.

Executives and their financial advisers spent much of last year waiting to see how President Donald Trump’s tax proposals would play out. When the corporate tax legislation was finally agreed on in December, companies cheered the lower rates and reduced levy on bringing foreign earnings back to the US — potentially to make acquisitions. “Clarity on tax reform causes companies to be able to make decisions that they perhaps had on hold last year when things were less certain,” Scher said. North American companies, which fell out of favour among acquirers last year, are back on the shopping list in 2018, making up almost 60 per cent of all announced transactions so far, the data show. Dominion Energy’s acquisition of South Carolina-based Scana in a deal valued at about $14.5 billion including debt is the biggest purchase of the year so far. In the insurance industry, American International Group agreed to pay $5.56 billion to purchase British reinsurer Validus Holdings, its largest standalone acquisition in 17 years. And Celgene made one of its

IMPORTANT DEALS | Dominion Energy’s acquisition of South Carolina-based Scana in a deal valued at about $14.5 bn biggest purchase of the year | American International Group agreed to pay $5.56 bn to purchase British reinsurer Validus Holdings | Celgene made one of its biggest deals ever with the $9 bn acquisition of Juno Therapeutics | Sanofi to buy hemophilia drugmaker Bioverativ for about $11.6 bn biggest deals ever with the $9 billion acquisition of Juno Therapeutics, placing a costly bet on cutting-edge cancer treatments. That transaction showed that CEOs aren’t afraid to pay up to get what they want, even with record equity markets pushing valuations higher. Celgene is paying $87 a

share for Juno — 91 per cent above the company’s closing price on the last trading day before reports that the companies were in talks. That’s the third-highest premium for a deal worth $5 billion or more between US companies since 2008. European targets have been less attractive, accounting for $32.4 billion in

mergers so far. But after months of searching for an acquisition, Sanofi finally sealed an agreement on Monday — it’ll acquire hemophilia drugmaker Bioverativ for about $11.6 billion. “Large corporates have been active thanks to stronger economic growth, welloriented stock markets and shareholders who are receptive to transformative transactions,” said Guillaume Molinier, a managing director at Lazard, based in Paris. “The rise of activism has also been in some occasions a catalyst for M&A transactions.” The 2018 acquisitions announced so far could easily be eclipsed if one of the mostanticipated tie-ups goes ahead: Shari Redstone, vice chairman of CBS, is once again pushing for a merger with Viacom Inc. to combine the two companies her family controls. Still, CEOs across industries are closely watching the Justice Department’s effort to block AT&T’s proposed $85.4 billion takeover of Time Warner. If the lawsuit, scheduled for March 19, is successful, it could deter other executives from pursuing takeovers — especially very large, headlinegrabbing ones. BLOOMBERG

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8 TECHNOLOGY

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MUMBAI | WEDNESDAY, 24 JANUARY 2018

Tax the only certainty for cryptocurrency players money in your books...forcing users to make the money as legitimate as possible,” Sandeep Goenka, co-founder of Zebpay, said.

Investors need to pay 20 per cent advance tax on cryptocurrency earnings virtual currency was held for less than 24 months as short-term capital gains tax,” said an I-T official. Advance tax means paying tax n the midst of all the uncertainties around cryptocurren- as and when the money is earned, cy, there is some clarity on at rather than waiting for the end of least one aspect. Investors, who the fiscal year. The four instalment have made a fortune selling the vir- dates of filing advance tax are tual currency, will need to pay 20 15th of June, September, December per cent advance tax on the earn- and March. So those who earned ings to avoid any action from selling bitcoin after by the income tax (I-T) December 15, will need to department. pay the 20 per cent “Since there is no claradvance tax by March 15. ity over whether crypThe long-term capital tocurrency is a good, capgains tax of 20 per cent is ital asset or business income, the tax depart- THE OTHER levied if the currency was for more than 24 ment is not trying to disSIDE OFTHE held months and 30 per cent if tinguish. They are just COIN-III held for less than two saying, pay 20 per cent years as short-term advance tax on money earned,” said Sathvik Vishwanath, capital gains tax. The exchanges and investors founder of cryptocurrency are awaiting clarity from the govexchange Unocoin. The I-T department recently ernment on how cryptocurrencies collected information of investors are to be treated. The government from some of these exchanges and and the Reserve Bank of India (RBI) sent out thousands of notices to have, however, made it clear for those trading in bitcoin, ripple, now that it will not be treated as a ethereum, litecoin, among others. currency. In the meantime, cryptocurrenAmong other questions, investors were asked if they had shown the cy exchanges eager to be part of gains made out of selling cryp- the system have been kept guesstocurrency as income in the annu- ing. For instance, in May 2016, the al tax returns filed for the current RBI told a prominent exchange fiscal year and for the last Zebpay that "it may seek clarification from DGFT (Directorate two years. “At least 20 per cent should be General of Foreign Trade) as to paid as advance tax on cryptocur- whether bitcoins can be considered rency earnings as that is the rate as goods or services. In case, the for long-term capital gains. The company intends to trade in bitremaining (sum) can be paid at the coins as commodity, the said comtime of filing annual return if the pany may seek clarification from DILASHA SETH & SOMESH JHA

New Delhi, 23 January

WHERE CAN YOU SPEND YOUR BITCOINS? | | | |

Microsoft Wikipedia Expedia.com KFC Canada

| | | |

Bloomberg.com | Cheapair.com | Subway Pennsylvania, Save the Children | Zynga Moscow, and mobile Virgin Galactic Buenos Aires gaming Reddit

IN INDIA, THE FOLLOWING PLACES ACCEPT BITCOINS | Flight Shop | Dharwad International School, Karnataka

the Forwards Market Commission." Later, in September 2016, the DGFT told Zebpay in a written response to seek a clarification from the Department of Financial Services. Cryptocurrency exchanges, on

their part, are taking precautionary measures to ensure tax compliance. “If you keep rupee (in an electronic wallet) with Zebpay, we make sure we pay that amount back to your account every quarter. So, we ensure that you declare the

Exchanges charging GST Despite the regulatory vacuum, goods and services tax (GST) is part of the cryptocurrency universe. Exchanges are charging 18 per cent GST on the transaction fees that vary between 0.3 per cent and 2 per cent. This is in sync with I-T services, on which 18 per cent GST is charged. “We charge 18 per cent GST on our transaction fees,” said Mohit Kalra, co-founder, Coinsecure, a cryptocurrency exchange platform. Kalra said he was contacted by the GST department in Mumbai in October enquiring about how they were charging GST. “We gave them the details and the calculations of how we are charging GST. They were fine with it,” Kalra narrated. The exchanges said cryptocurrency was unique in its characteristics and the government was yet to decide under which category to put it in. “It changes its form based on its use. It becomes a commodity or asset if you use it as an investment. It becomes currency if you are buying something against it...so I sympathise with the government,” Zebpay’s Goenka said. Vaibhav Parikh, partner, Nishith Desai Associates, pointed out that the applicability of the GST would accordingly depend upon how cryptocurrencies are characterised. “If you look at GST, there is no section on bitcoins. It falls under residual and is taxed at 18 per cent. If you view it under goods, then GST under that category will be applicable.”

He, however, said it’s more likely to be treated as goods more than anything else. Mandating quarterly audit report likely The government may mandate the exchanges to file quarterly audit reports with the enforcement departments like I-T, RBI etc. “As long as exchanges are willing to provide quarterly data, there is no issue. Quarterly audits to these departments may become mandatory like in the case for banks,” said a government official. The cryptocurrency industry has in its representation to the government recently asked for self-regulation, where it could file reports with the monitoring agency, which could be the payments regulatory board under the RBI. In the absence of regulation, the banks are gradually closing accounts of crypto exchange platforms. ‘Banks cant deny accounts’ N S Nappinai, advocate with Supreme Court, argued that banks cannot deny opening of accounts and the matter can be taken to court. “Firstly, the banks can’t just generally say no to opening accounts. They will necessarily have to rely on specific RBI instructions to that effect. If the RBI has indeed instructions on opening or closing accounts, this issue can be agitated before a court of law. You can approach the court,” she pointed out. There are pending PILs before the Supreme Court already. And, according to Nappinai, courts are equally uncertain about the virtual currency universe. Series concludes

Netflix m-cap crosses $100 bn LISA RICHWINE & AISHWARYA VENUGOPAL 23 January

Netflix snagged two million more subscribers than Wall Street expected in the final three months of last year, tripling profits at the online video service that is burning money on new programming to dominate internet television around the world. The results drove Netflix to a market capitalisation of more than $100 billion for the first time. Shares jumped nine per cent to a new high over $248 in afterhours trading on Monday after rallying throughout the month and rising 53 per cent last year. After signing up more than half of all US broadband households, Netflix is building its customer base in 190 countries by spending billions on programming. Netflix picked up 6.36 million subscribers in international markets from October through December, when it released new seasons of critically acclaimed shows Stranger Things and The Crown as well as Will Smith action movie Bright. That topped Wall Street expectations of 5.1 million, according to FactSet. Along with 1.98 million customer additions in the US, the company ended the year with 117.58 million streaming subscribers around the globe, a sharp uptick even after price increases in October. REUTERS

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10 ISSUES AND INSIGHTS

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MUMBAI | WEDNESDAY, 24 JANUARY 2018

Agenda 2018 marks new turn in energy A few critical announcements about likely themes in energy and mobility this year had a familiar ring but for a surprise one on a shift away from upstream gas investments

VANDANA GOMBAR

few critical announcements around the world in December and January highlight the themes that are likely to dominate 2018 in energy and mobility. While most threads will have a familiar ring to them — record installations of solar once again, more divestment, more disclosure and more disruption — the somewhat surprising one was the announcement of a shift away from upstream gas investments. The World Bank Group announced

its intention to avoid upstream oil and gas investments after 2019. Why gas, which has the lowest emissions among fossil fuels? The Bank averred that “for those countries with oil and gas resources, commercial financing is often readily available for exploration and production”. It did, however, say that there could be a possible investment in an upstream natural gas project in “exceptional circumstances in the poorest countries”. General Electric announced that 12,000 jobs will cease to exist in its power business division. “Traditional power markets including gas and coal have softened. Volumes are down significantly in products and services, driven by overcapacity, lower utilisation, fewer outages, an increase in steam plant retirements, and overall growth in renewables,” it said in a statement. AXA, the French insurer, announced its decision to divest from coal and tar sands companies, and desist from insuring new coal plants, while quadrupling

green investments to about $14 billion. ING decided to speed up its exit from financing coal, and will no longer lend to utility clients who rely on coal for more than 5 per cent of their energy mix. Norway’s Storebrand said it was starting to clean its bond portfolios of fossil fuels. Shell and power: Royal Dutch Shell announced its plans to acquire a 44 per cent stake in a US solar developer — Silicon Ranch Corporation — continuing its expansion in the power sector. It is also buying UK’s First Utility, and NewMotion — Europe’s largest electric vehicle charging provider. In India, Shell Technology Ventures was among the investors in Husk Power Systems — a supplier of power through mini-grids — earlier this month. Climate disclosure drive: The World Bank Group also said it would disclose the greenhouse gas emissions from the projects it finances. Exxon Mobil announced that it would start disclosing “energy demand sensitivities, implica-

POWER FORECAST 2017 2018 (projection) Figures in gigawatts

107*

SOLAR

WIND

*Conservative forecast Source: Bloomberg New Energy Finance

tions for 2-degree Celsius scenarios and positioning for a lower-carbon future”. BlackRock asked about 120 of its investee companies to report on the climate risk to their businesses.

Electric vehicles hit a new global sales high of 1.1 million in 2017, and are set for another record year in 2018, with as many as 1.5 million new cars expected to hit the road, according to Bloomberg New Energy Finance. The market for electric-powered trucks and buses is also gaining traction, as is the one for selfdriving autonomous vehicles. Not many people would be unaware of Google’s Waymo (way forward in mobility)! Ford announced that it would add 40 hybrid and all-electric models to its line-up by 2022, and more than double electric car spending to $11 billion. In India, charging stations would become somewhat more visible soon in the offices of governmentowned companies that have opted to shift to electric vehicles procured by Energy Efficiency Services. Auctions: Egypt announced plans for its first solar auction, soliciting bids for a 600-megawatt plant. Pakistan decided to move to competitive bidding and plans shortly to auction 1 gigawatt of solar and wind plants. Saudi Arabia plans to issue tenders for up to $7 billion of renewables — 3.3 gigawatts of solar and 800 megawatts of wind.

> CHINESE

Automated warehousing, IT-enabled logistics and digitally transformed supply chains hold the key to a manufacturing economy push

GANESH NATARAJAN

he need for Industry 4.0 solutions to power a renaissance in manufacturing worldwide and particularly in India is well understood by all policy planners and industry CEOs in the manufacturing sector. Ubiquitous connectivity, devices connected by the billions to the Internet and new Internet of Things (IoT) applications are all providing the cyber push to make the cyberphysical future of the manufacturing world a reality. However, smart factories and heavily automated shop floors cannot by themselves provide the push to the manufacturing economy that is so necessary for a sustained economic boom to happen in the country. Automated warehousing, IT-enabled logistics and digitally transformed supply chains hold the real key to this future. Speaking at the Supply Chain and Logistics conference in Dubai, which is fast emerging as a global hub for transportation in our part of the world, it was interesting to find that while extensive automation has been implemented in the storage and movement of materials, the opportunities in cognitive logistics and supply chain planning is still at a

SMART HANDLE Companies like DHL, Walmart and Amazon are already practising anticipatory logistics where demand is being forecast and sometimes even REUTERS created by intelligent suggestions to customers enabling supply chain planners to costeffectively plan and optimise delivery solutions for each category of customer on the platform. Digitally-enabled supply chains enable instant interchange of data amongst all partners and enable the learning from every transaction to be leveraged by all participants. Companies like DHL, Walmart and Amazon are already practising anticipatory logistics where demand is being forecast and sometimes even created by intelligent suggestions to customers. They are responding to customer impatience with long delivery lead times and manufacturer eagerness to produce in intelligent anticipation of demand. Artificial intelligence (AI) has a key role to play in this anticipation process with the entire sequence of demand forecasting, manufacturing, transportation and storage planning and maintenance of transportation equipment riding on the ability to use AI well and deploy machine

‘Primitive’ assumptions don’t alter our payroll results SOUMYA KANTI GHOSH & PULAK GHOSH

It is hard to believe that at the age of 22 people are getting into their second or third job creating multiple PF accounts just laying down the contours of the qualified and non-qualified labour force coming into the job market. Third, even if we are assuming people in the age group of 18-25 for EPFO, the moot point is that the cluster is around 22. And a person graduates at 21, does his/her MA at 23 and then may change job by 24 or above. Hence, 22 implies the best possible age for the first job and it is as such hard to believe that at age 22 people are getting into their second or third job creating multiple PF accounts. One must also know that the EPFO data set refers mostly to people who are not getting high salaries. We have also not yet taken any people more than the age group of 25 in our analysis, which is significant for EPFO and amounts to more than 5 million. Hence, again this assumption does not alter our results. Next question: Why did we chose FY17 and FY18 for our analysis? The latest two years were picked up because the latest information makes sense for any policy. The earlier data was too difficult to get because automation took place two years ago and before that it is a mess with disparate databases and much duplication. There is also the argument that the authors had privileged access to this data and this is not in public domain.

Bulls on Dalal Street are supercharged with the latest 1,000-point jump in the benchmark Sensex coming in just four trading sessions. The fast-paced gains forced BSE, formerly Bombay Stock Exchange, to suspend the cake-cutting celebration it holds after the Sensex climbs a new 1,000-point milestone. Just last week, the exchange celebrated the index touching 35,000. “Now we will celebrate after the index touches 40,000,” said an official when asked if the exchange would have the celebration on Tuesday.

The case of missing spoons

experienced humans only when there are extreme and unforeseen circumstances including weather, unions and other “force majeure” situations. At the recent launch by 5F World and California-based AI and analytics firm Systech Inc. of the Center for Artificial Intelligence and Advanced Analytics, one major question that came up in the corporate discussion was naturally the potential loss of jobs in traditional manpower-intensive services sectors including logistics. The reality is that as systems get more complex and provide rewarding outcomes for all participants, the opportunities for bright human intervention in the design and implementation process will always exist and indeed grow! Nowhere will this be more evident than in the area of cognitive logistics. More and more variables will have to be analysed to make decision making more accurate and as monetary savings accrue to all participants through better planning of manufacturing, stocking and distribution and customer delight peaks, the demand for customer experience designers, customer behaviour analysts and new service imagination and design experts will soar. Are our traditional education systems ready to take existing employees and career seekers into this new world? Probably not, but new interventions in the skilling process are happening to make this a reality. The cognitive world will be a truly remarkable place and cognitive supply chains and logistics systems will be no less! The author is chairman of 5F World, Pune City Connect, and Social Venture Partners, India

Indira Canteens, the Karnataka government’s flagship initiative to offer affordable food to the urban poor, are facing a peculiar problem: missing spoons. This, despite having a system to issue coupons against every meal ordered and CCTVs to monitor the outlets. The chain of popular eateries, modelled on Tamil Nadu’s Amma Canteens, is struggling to replenish the missing spoons. For now, the government might have to grin and bear it as it prepares for the Assembly elections in a few months.

BJP celebrating Karat win?

Is the Bharatiya Janata Party (BJP) secretly celebrating the Communist Party of India (Marxist) Central Committee’s veto of a pre-poll alliance with the Congress? On Sunday, the CPI(M) ended a three-day Central Committee meeting where Sitaram Yechury’s draft political resolution on the party’s future electoral line was defeated in favour of Prakash Karat’s (pictured) by 55 to 31 votes. While the BJP avoided making an official comment, two comments posted by the party’s IT cell chief, Amit Malviya, on Twitter said it all. In his first tweet, Malviya said, “Sitaram Yechury may be the general secretary of the CPI(M) but the Karats wield all the power.” Then he posted: “The Left has left the Congress and so has the Samajwadi Party,” referring obliquely to SP President Akhilesh Yadav’s recent statement that he “wasn’t thinking of an alliance with any party” as of now.

> LETTERS

INSIGHT

We would like to thank the two articles that came in the last couple of days as a commentary on our recently released payroll report. The critics make us feel better about the deep impact and potential of our work in the employment scenario and broadly in India’s policy making as this is probably the first use of data-driven insight in policy decision, contrary to the usual speculative and impressionist policy analysis rampant in the public domain. While some of the assumptions are being coined “primitive” (including one in this paper on January 23), in our opinion the assumptions are a careful and conservative way of calculation with no effect on the end result. Let us explain in detail. First, based on discussions with experts we assumed a haircut of 50 per cent may be relevant to de-duplicate the counting in Employees’ Provident Fund Organisation (EPFO) and Employees’ State Insurance Corporation (ESIC). Hence, even if somebody wants to do more haircut he can do the same. The good thing is we estimated both with EPFO and ESIC (with 50 per cent haircut) and without any addition from ESIC. That number without any addition from ESIC makes it 6 million, a pretty big one. So the results are still valid. Interestingly, we have strictly excluded payrolls in the 22-plus age group (3.74 million, of which 1.1 million are in the 2226 age group). Contrast this with the 50 per cent cut that resulted in the 2.36million omission. Hence, we are even conservative in adjusting our ESIC database by deleting an additional 1.4 million (3.74 million net of 2.36 million). Clearly, the most conservative estimate. Second, the 25 per cent dropout from the 8.8 million graduates is based on our discussions. Again, this does not impact the result in any way as it is

learning to provide adaptive knowledge through the supply chain. Self-learning logistics processes are enabled by algorithms that recognise patterns and initiate action across the logistics chain. These actions could include volume and timing of shipments, inventory and stocking suggestions and pricing to optimise product offtake and movement across the supply chain. The ultimate solution to the ongoing demand for faster movement of people and goods worldwide is of course the “hyperloop”. But till such time that hyperloop movements become the standard, cognitive supply chains that treat a customer as a single entity across multiple channels, learn when transport or inventory disruptions could occur and ensure visibility and transparency from supplier to buyer will keep getting more sophisticated. Biased decisions will be avoided by machine management of most routine tasks, with intelligent handovers to

Calibrated celebrations

The author is editor, Global Policy, Bloomberg New Energy Finance. She can be reached at vgombar@bloomberg.net

Cognitive logistics — the new frontier nascent stage all over Asia and even in the advanced systems prevalent in the US and Europe. This may be because warehouse automation and the use of augmented reality-enabled picking systems and virtual reality-driven learning systems have become part of any state-ofthe-art storage and retrieval systems, but rapid advantages in artificial intelligence, machine learning and cognitive technologies have yet to be fully utilised in reimagining and redesigning the supply chains of the future. One of the main reasons for the lag in the adoption of cognitive transformation in supply chains and logistics has been attributed by expert Christine Taylor to the large numbers of people and firms that have to work together to make a supply chain work. The different levels of sophistication of manufacturers, brokers, transporters, retailers and customers make it difficult to have a wide sweep implementation in a supply chain the way it can and does happen in a factory or warehouse. What has changed today to inject a new wave of optimism that cognitive logistics and supply chains are indeed going to happen in the very near future? Businesses are getting comfortable with setting up and using large data lakes and warehouses and deploying predictive and prescriptive analytics solutions. Omni-channel has become the standard for most manufacturers and retailers and with multiple companies, intermediaries and consumers interacting on an intelligent supply chain platform, the opportunity to understand the behaviour of every participant on the platform and learn with every transaction is

WHISPERS

The question is, why it should matter? Going by that logic, all doctoral thesis or research papers use data that may not be in public domain. All other data, like the data used by the Centre for Monitoring Indian Economy, is not in public domain; data used in the Economic Survey is not public data; all Reserve Bank of India data is not public data or becomes public after a lag. Does it, in any way, alter the published results? Finally, how did the goods and services tax and demonetisation help in formalisation? We believe this argument is a non-starter. Even if we assume formalisation pushed up the formal employment, can we deny we were under-reporting such payroll data earlier and a formal employment with social security benefits is a godsend for such existing employees? Our main motivation of this work was to use state-of-the-art big data analytics and economics to understand the job scenario in India as it is and in real time. We did avoid the extrapolation of sampling methods. We would be happy if India starts finding insights based on real-time data rather than impression economics. Soumya Kanti Ghosh is group chief economic advisor, State Bank of India; Pulak Ghosh is professor, IIM Bangalore. Views are personal

Historical blunder The Communist Party of India (Marxist) “tactical” decision to avoid an electoral tie-up with the Congress wasn’t something expected of a pre-eminently secular party in the present political situation. It represented a setback in the collective efforts needed to be made by all Opposition parties to achieve the object of unseating the right-wing Bharatiya Janata Party (BJP) from power to save the country from virulent nationalism. Despite its assessment that the BJP epitomises “communal fascism” and tries to create an “authoritarian state”, it was unfortunate that the CPI(M) did not make “the lesser of two evils” the right choice to align with. Clearly, the decision to maintain equidistance from the BJP and the Congress was not a tactical master-stroke, but a historical blunder. The BJP and Congress cannot be said to be much of a muchness just because the latter is now practising “soft Hindutva” as “smart secularism” to beat the BJP at its own game. The CPI(M) line nixing the plan mooted by none other than general secretary Sitaram Yechury himself for an electoral alliance or understanding with the Congress will weaken Opposition unity and work to the BJP’s advantage. As Somnath Chatterjee hyperbolically puts it, “in a sense, Karat’s win is Modi’s win”. Admittedly, the CPI(M) is not strong enough to play a decisive role in national politics, but it is still capable of mobilising secular forces in the political battle against communal forces, given its unflinching commitment to secularism. The principal Left party should understand that it is a national party to give the reasoning that it is the Congress and not the BJP that it has to take on as its adversary in its few strongholds, especially Kerala. As a “progressive” and “revolutionary” party, it should also eschew religious and caste considerations while shaping party policies and forging electoral alliances. Hopefully, the party congress in Hyderabad will undo the “historical mistake” made in Kolkata and decide to toe the Yechury line to protect secularism, the talisman that keeps us all united as a nation. G David Milton Maruthancode

is scheduled to take place in Hyderabad in April. Any unsavoury situation here could always turn out to be a game changer. Kumar Gupt Panchkula

Ideological extreme

Divide within Left With reference to “Clash of the titans” (January 23), the ongoing personality clash between Sitaram Yechury (pictured) and Prakash Karat in the Communist Party of India (Marxist) does not augur well for the future of this party whose political base is fast decimating even in states where it considers itself to be comfortably placed. This snippet is right in observing that a split in the party might have been averted at its three-day Central Committee meeting where Yechury’s draft political resolution on the party’s future electoral line (tying up with the Congress) was defeated in favour of Karat’s by 55 to 31 votes. Perhaps, such a worrisome development could be unheard of in this cadre-based and highly disciplined political party. Interestingly, the former Lok Sabha Speaker Somnath Chatterjee is understood to have pointed out that Karat was responsible for the “crisis” in the party. He has also gone on to say that “in a sense, Karat’s victory is Modi’s victory” while settling some old political scores. However, the final outcome of the ongoing tussle may be known only at the party’s conclave which

> HAMBONE

With reference to “Divided we stand” (January 19), the Communist Party of India (Marxist) would do well to revisit history. So long as the Left eschewed ideological extremes it gained in stature. The Left evolved as part of the Congress around 1920 and did well till it veered in excess to the left-wing and lost ground in 1928. Later, moving back to the centre it prospered in the Congress collective. Then in 1942 it went Marxist to lose lustre thereafter. Post-1960s, it allied again with the Congress and came to represent the trademark red in Indian politics. For three decades the Left grew in clout and was highly comfortable in the much sought after left-of-centre space in a growing economy. Alienation from the Congress returned during the United Progressive Alliance-I rule over the nuclear deal with the US, and reached its nadir at Singur. The CPI (M) has always had this fatal charm for the extreme red. It’s time it realised that its comfort zone was never in the extremes, but had always been closer to the central arena and the Congress. R Narayanan Ghaziabad 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 BY MIKE FLANAGAN

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OPINION 11

Volume XXII Number 117

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Message from Davos The PM’s signals should be transformed into action

n his keynote address to the World Economic Forum’s annual meeting at Davos, Prime Minister Narendra Modi outlined three main challenges that the world was facing: Terrorism, climate change, and protectionism. As the first Indian prime minister to address Davos in two decades, Mr Modi’s speech was hotly anticipated; he arrived in Davos as part of an Indian contingent that may be the largest ever. Chinese President Xi Jinping gave the equivalent address last year and delivered a strong defence of globalisation at a time in which Donald Trump’s assumption of office as president of the United States had led to concern about the future of global openness and integration. Mr Modi, too, had a similar role to play and highlighted the Indian belief that nimbleness, and not self-centred policy, was the answer to the tensions brought about by globalisation. To make his point, he cited “new types of tariff and non-tariff barriers” and stoppage of bilateral and multilateral agreements and negotiations. On terrorism and climate change, the prime minister underlined India’s commitment to robust global responses to what are essentially global problems. He pointed out that there was no such thing as “good terrorism”, indicated that Indian values do not support the exploitation of nature for “greed”, and called the rising tide of anti-globalisation “worrisome”. The speech was a complex exercise in signalling: It signalled externally that India was on the side of globalisation, still; and it signalled internally that the government’s priorities continue to be reform and growth. These signals are welcome, and now must be transformed into action. Mr Modi was greeted with a standing ovation. This is a reflection of India’s rising global stature, but also of the high expectations of its future economic performance. The International Monetary Fund has just raised its estimate of economic growth in India to 7.4 per cent in the current year, 2018-19. Other macro indicators have also given rise to hope, whether it is the solid gains made by the equity markets, the heavy foreign inflows into Indian debt, or even the decision by an international credit rating agency to upgrade India’s sovereign rating. India may be finally emerging from the shadow of a growth slowdown largely caused by policy missteps and administrative slowness. However, it is important to note that Mr Modi was listened to respectfully precisely because of these expectations of future growth and prosperity. This increases the pressure on the forthcoming Union Budget to be prudent and forward-looking rather than populist. The prime minister, in his recent media interactions, has indicated that this is his preference, too. Less than a fortnight before the Budget, Mr Modi said it was “a myth” that people wanted sops and freebies and that Budget or no Budget, development would remain the theme for his government. But the proof of the pudding is in the eating, as the pressures to introduce populist elements to what will effectively be an election Budget would naturally be high. Mr Modi’s government must live up to the messages of his Davos speech and his other recent media appearances. Fiscal prudence, trade openness, and commitment to global targets such as climate change and the sustainable development goals must be prioritised to provide India the leading role it deserves on the world stage.

AAP must introspect The office of profit fiasco has dented the party’s reputation

t is ironic that a party which came to power on the back of a robust anticorruption platform in its maiden electoral attempt should find itself challenging a decision of the Election Commission that suggests gross irregularities in its own practices. The Aam Aadmi Party’s (AAP’s) accusations that former chief election commissioner A K Joti chose to take the decision to disqualify 20 MLAs on his last day in office as a means of currying favour with the ruling regime sound disingenuous. The disqualification of 20 AAP legislators from the Delhi Assembly for accepting offices of profit between March 2015 and September 2016 was, at the very least, based on logic. It is a valid apprehension, as some have argued that one implication of this decision, which was accepted by President Ram Nath Kovind on January 21, is that the Election Commission has demonstrated the power to change the dynamics of elected legislators. Equally, however, the actions of Arvind Kejriwal and his party certainly do not pass scrutiny. Distilled to its essentials, the AAP had little excuse for making the move to appoint 21 legislators as parliamentary secretaries, a post that emphatically did not fall outside the definition of office of profit as defined from time to time by Parliament and, indeed, the Delhi Assembly in a 1997 law. Indeed, the fact that the AAP retrospectively amended the Delhi Members of Legislative Assembly (Removal of Disqualification) Act, 1997, to exempt the post of parliamentary secretary from the definition of office of profit suggests that the party was well aware of the anomalies inherent in its position. The facts that the then President Pranab Mukherjee declined to sign the Bill into law in June 2016 and the Delhi High Court scrapped the appointments in September 2016 were clear pointers to the impropriety of the move. The party’s argument that the office of parliamentary secretary did not attract any pecuniary gain is based on an incorrect interpretation of the facts as well. For one, a 1964 Supreme Court ruling says an administrative position without financial entitlements falls within the purview of the office of profit law if it involves the power to make appointments or terminate them. No payment of salary was involved, it is true but it is difficult to describe the government-provided office space and a car for official duties as “non-pecuniary” by any stretch of the description. Given these facts, it would have been difficult for the Election Commission to have ruled any other way; to do so would have opened the floodgates to similar transgressions in other state Assemblies. Perhaps part of the AAP’s confidence that its move would be within acceptable bounds of governance stemmed from the celebrated case of Sonia Gandhi and her appointment as National Advisory Council (NAC) chairperson in 2004. Accused of holding an office of profit, she resigned her Lok Sabha seat and sought re-election. The NAC post became hers in 2006, however, when the law was amended to exempt the NAC from the purview of office of profit. To be sure, the disqualification is unlikely to impact the AAP tenure in the state government since it enjoys a comfortable majority of 66 MLAs in a 70-member House. But the controversy has damaged the reputation of Mr Kejriwal and the party he founded and, in public perception at least, made it difficult for the electorate to differentiate it from other political parties.

Trade integration with Asean an imperative To enhance the value chain integration process with Asean, Indian policymakers must show more flexibility in regional trade negotiations

ith the US withdrawal from the TransPacific Partnership (TPP) in early 2017, many had come to believe that megaregional trade deals had run their course and bilateralism would be the norm thereafter. However, its revival as Comprehensive and Progressive Agreement for TPP (CPTPP) by the year-end established continued relevance of mega-regional trade deals, particularly, in the wake of a floundering Doha Development Agenda and a multilateral trading system under threat. Revival of the TPP has also re-introduced competitive pressure on the other major regional trade formation in Asia, namely, the Regional Comprehensive Economic Partnership (RCEP). The RCEP is a regional trade partnership among the sixteen founder members of the East Asia Summit (EAS) established in 2005 with the primary objective of creating an Asian Economic Community (AEC). The EAS has since expanded to include the US and Russia as members and adopted a broader working agenda. The AMITA BATRA AEC objective, meanwhile, was sought to be achieved through the five free trade agreements (FTAs) that China, Japan, Korea, India and Australia-New Zealand established with the 10-member Asean regional grouping. In 2012, the Asean and its six FTA partners launched negotiations towards the RCEP as a means to achieve deeper economic integration. The RCEP was expected to be finalised, first in 2015 and then in 2017. But after 20 rounds, the negotiations are yet to be concluded. One reason for protracted negotiations has been India’s offer of tariff concessions lower than the

BOOK REVIEW SANJAY KUMAR SINGH With the Sensex crossing 35,000, interest in equity mutual funds is at an all-time high and investors are starting systematic investment plans (SIPs) in droves. At a time when making money in stocks appears to be a cinch, why would people turn to a book that dwells on the pitfalls of bull and bear markets, and how the best fund managers have navigated their funds through such conditions in the past? The answer lies in Benjamin Graham’s maxim that all bull markets must end badly. A lot of retail money is going into the mid- and small-

The writer is professor of Economics, School of International Studies, JNU and author of “Regional Economic Integration in South Asia”. batraamita@gmail.com 1. OECD-WTO Trade in Value Added (TiVA) Database, 2016. Figures for Asean exclude Cambodia, Laos and Myanmar

Jobs euphoria may be misplaced T

he discourse on India’s inability to create pro- current fiscal year. The authors arrive at this figure ductive formal jobs for its rapidly rising young by assuming that all employees in the age group of workforce has been injected with positivity 18-25 years are joining the workforce for the first after a recent study Towards a Payroll Reporting in time and are therefore new additions. Based on this India (Pulak Ghosh, professor, Indian Institute of assumption, they conclude that as of November Management, Bangalore, and Soumya Kanti Ghosh, 2017, 3.68 million new jobs were added to the payroll group chief economic advisor, State Bank of India) sug- and when extrapolated on a pro-rata basis, 5.52 milgested that 590,000 jobs are being created every lion jobs will be added by March 31, 2018. However, the assumption that all employees joinmonth. Combining enrolment numbers from multiple administrative datasets — the Employees’ ing the payroll are new additions in the workforce is Provident Fund Organisation (EPFO), the Employees’ flawed for several reasons. While the enrolment in the State Insurance Corporation and National Pension database could be a result of a worker moving from an System — for the time period up to November 2017, the informal to a formal job, there may well be other facstudy extrapolates that seven million jobs will be tors driving this. Let us explain this with the example of the EPFO. The EPFO Act applies to added by the end of the current fiscal all factories in classes of industry year (March 2018). The use of adminspecified in Schedule 1 of the Act istrative databases to arrive at where 20 or more persons are employment estimates and gauge the employed. This suggests that if a extent of formalisation in the absence firm which previously had 19 workof real time employment data is ers added just one more worker to its indeed a pertinent exercise. However, payroll, it would end up getting covit is also an exercise fraught with chalered by the Act. Consequently, all lenges and there is need for caution in its 20 employees will be added to interpreting results thrown up by the EPFO database. In such a scethese databases. nario, it would be incorrect to infer To begin with, there is significant RADHICKA KAPOOR that 20 new formal jobs have been overlap and duplication across varicreated. Trends from recent annual ous social security schemes. Before aggregating data across these multiple administrative reports of the EPFO suggest that the number of estabdatabases, de-duplication is imperative. This requires lishments enrolled have been rising steadily over the a common identifier for individuals in these datasets. last few years. In 2014-15, the total number of estabAs noted by a task force set up to review India’s employ- lishments registered under the EPFO was 861,000. ment data architecture, estimates such as those in the This increased to 921,000 in the following year and study by Ghosh & Ghosh arrived at by aggregating 1.02 million in 2016-17. Such robust growth in the data in the absence of a common identifier are likely to establishments registered under the Act suggests be erroneous. Therefore, it is best to look at each of the that we need to be more prudent in identifying whether additions to these databases represent new administrative data sources separately. Even whilst analysing the schemes independ- jobs or are simply enrolment of individuals employed ently, one needs to be careful as new entries into the in firms which crossed the 20-worker threshold. Another factor which may well have driven up database do not necessarily reflect new jobs. Using the unit-level EPFO data, which is not available in the enrolment in the EPFO during the time period under public domain, the study by Ghosh & Ghosh con- study is the addition of contract workers on the datacludes that 5.52 million jobs will be added in the base. The data from enterprise surveys shows that

In praise of India’s money masters cap segment where valuations have soared to precariously high levels. A similar tragedy gets re-enacted in the stock markets every few years. As they rise, a generation of first-timers comes in, typically when a large part of the rally is over and valuations are stretched. These investors have never experienced the pain of a market bust and tend to be recklessly optimistic. Pravin Palande’s book offers a timely lesson in stock market history. The initial chapters recount the two major boom and bust cycles of recent decades: Dotcom (1999-2000) and infrastructurecum-real estate (2007-08). History may not repeat itself but it does rhyme, especially in the equity markets. Young investors need to bone up on what happened during the past bull runs so as not to repeat the mistakes of the past. A book like this one deserves to be written at this juncture (the mutual fund industry now has a quarter century

other members and differentiated in terms of number of tariff lines and time schedule for its FTA and non-FTA partners, especially China. This has been resisted by other member countries. More recently, India has shown willingness to drop the offer of a differentiated schedule subject to getting concessions in services liberalisation, in particular, in mode 4. This could further slowdown the RCEP negotiations as the intra-Asean services trade liberalisation is limited except in traditional sectors like transport, tourism and, to some extent, financial services. In fact, it is in India’s interest to ensure an accelerated pace of RCEP negotiations. This is particularly so, as the CPTPP membership is a subset of the AsiaPacific Economic Cooperation or APEC and future accession of nonAPEC economies, while possible, would be subject to approval of existing members. India is not a member of the APEC and its long-standing application for membership of the APEC has not been approved so far. Also, as against the revived CPTPP which, even in its diluted version, will be negotiating “WTO-Plus” provisions, including regulatory reform, the RCEP has undertaken negotiations sequentially, with goods trade liberalisation first on the agenda. Most significantly, the RCEP is Asean-centric, ensuring thereby comfortable equations among its FTA partners in the negotiation dynamics. But Asean centrality of the RCEP also necessitates that India’s trade integration with Asean be strengthened. The existing India-Asean trade relationship has made some gains but also faces several challenges. The India-Asean trade relationship was institu-

tionalised in 2010 with the implementation of an FTA agreement. From a pre-FTA level of $45 billion in 2008-09, trade with Asean has increased to $71 billion in 2016-17.But pre and post FTA, trade with Asean accounts for an almost constant share, 10-11 per cent, of India’s total trade. Within this, the share of exports (in India’s total exports) has remained roughly constant at 10 per cent throughout, with a slight increase to 11.2 per cent in 2016-17. More importantly, the composition of India’s trade with Asean shows little increase in manufactures trade. Post FTA, maximum gains have been registered in the import share of palm oil and the export share of meat and meat products. Commodity categories like mechanical appliances, electronics and electrical equipment, that are leading sectors in Asean trade with the world, have registered a fall in import and export shares, respectively, in India’s trade with Asean post FTA. Asean trade in these categories is built through its participation in global value chains (GVCs). Asean participation in GVCs through backward linkages, as indicated by import content of exports, has remained high over the past decade, at more than 50 per cent in categories like machinery and appliances and transport equipment and subcategories like motor vehicles, and almost 60 per cent for electrical and electronic equipment. In comparison, India’s backward linkage with GVCs is comparatively lower with the import content at 20-30 per cent in 2011. India’s forward linkages with Asean, as a source of value addition in Asean exports in these industries, are insignificant. The origin of value added in Asean exports is mainly other Asean and APEC economies1. Not surprisingly therefore, India’s share in Asean total trade remains below 3 per cent. Trade enhancement with Asean, in particular, export enhancement can happen only if India enhances its value chain integration with Asean. RCEP would facilitate this integration process. If India continues to remain inflexible in the negotiation process, other countries may choose to bring in more difficult provisions in the RCEP, as has been the case in Australia’s argument for undertaking liberalisation in terms of trade value rather than number of tariff lines. India’s persistence with mode 4 services liberalisation may be countered by demands for e-commerce and investment liberalisation or stricter intellectual property provisions, areas where India is uncomfortable. India also needs to appreciate that Asean countries have the option of joining both major trade arrangements (RCEP and CPTPP) , and, as is true of Vietnam, may also be willing to accede to and undertake reforms in line with the CPTPP as these help strengthen the value chain production that is at the core of Asean trade. Given the dismal state of multilateral trading system, India thus risks losing opportunities for trade integration at both, the global and regional level. To overcome these challenges and enhance the value chain integration process with Asean, Indian policymakers must show more flexibility in regional trade negotiations and Indian industry has to be willing to face competition and shed their overly protective attitudes.

history since private players were allowed) because Indian fund managers have created a track record which they can be proud of. In a May 2015 interview, Nilesh Shah, currently the managing director of Kotak Asset Management Company, said that Indian equity fund managers had outperformed the benchmark indices by double the margin by which Warren Buffett had in the past 17 years. Indeed, many Indian fund managers, like Siva Subramanian at Franklin Templeton and Prashant Jain of HDFC Mutual Fund, to name just a couple, have created stellar long-term track records. Investors who got in early into their funds would have ended up very rich. (It’s another matter that identifying tomorrow’s winners early and sticking to them through thick and thin is easier said than done.) In the second part, the author dissects investment strategies of some of India’s best and brightest fund

managers. Most investors choose funds merely by looking at past returns. But it is equally important to know how a fund manager earns those returns. Investment styles vary widely. Some like Sankaran Naren of ICICI Prudential are top-down specialists who study the macro environment and seek to benefit from larger trends. The majority of Indian fund managers, on the other hand, are bottom-up investors who focus on a company’s business model, management and financials. Mahesh Patil of Birla Sun Life Mutual Fund prefers a diversified approach, while others, notably those at Raamdeo Agrawal’s outfit Motilal Oswal, swear by the efficacy of running concentrated portfolios. Some are value-conscious, while others are growth or momentumoriented. Investors need to understand a fund manager’s style and ensure that it is in sync with their own investment philosophy. A key insight the book offers is on why fund managers, especially the most talented ones, underperform during market rallies. It happens because fund

over half of the increase in employment in the organised sector has come through growth of contract workers. However, these workers invariably do not get captured on the EPFO database. In fact, the EPFO has recently turned up the heat on firms failing to ensure remittance of the provident fund, pension and insurance amounts on behalf of their regular contract workers and those employed through contractors. Having found slackness on the contractors’ part in depositing the amounts after claiming EPF sums from the principal employers, the EPFO has fixed the responsibility of remittance with the latter. As these contract workers get added to the EPFO database, we must be careful to not interpret these as new jobs. It also needs to be noted that the numbers coming from the EPFO database may well give an overestimate of employment as there are a large number of inoperative accounts. For instance, of the 171.4 million EPF accounts reported as of March 2016, only 22 per cent received contributions during the year 201516. This discrepancy arises as very often after switching from one establishment to another, members do not withdraw or get their balance transferred to the new PF account. To address this incongruity, the authors in their analysis only use PF accounts with non-zero contributions and those for which even a single detail is not missing. Further, they do not include people who joined under the Employees Enrolment Campaign — an amnesty scheme launched in January 2017 — to extend PF benefits to employees hitherto deprived of PF benefits (the subscriber base of the EPFO rose by 10.1 million as a consequence). While the study needs to be credited for discounting these two factors, the abovementioned caveats highlight the fragility of employment estimates generated through administrative databases. Moreover, it is imperative to make a distinction between new jobs being created and jobs simply being reported on administrative databases. Unless we are able to do so, we fear painting too optimistic a picture of India’s jobs challenge. The writer is senior fellow, Indian Council for Research on International Economic Relations

managers could be uncomfortable paying the outrageous valuations that stocks from booming sectors come to command in such times. They also sometimes stay away from the part of the market that is rallying because they are uncomfortable with its fundamentals. Many fund managers avoided tech stocks during the 1999 rally because they did not wish to invest in companies that had nothing to recommend them barring a dotcom suffix. Many also refrained from investing in realty stocks in 2007 because they were uncomfortable with their poor corporate governance standards. Not investing in the hot sectors of the day meant that their funds underperformed while the rally lasted. But when the markets fell, they were among the few left standing amid the mayhem. While the book deservedly praises the feats of Indian fund managers, the final chapter sounds a warning bell for the future of active management. Growing market efficiency and recent developments like the new classification

of funds ushered in by the Securities and Exchange Board of India or Sebi and benchmarking of funds against the total return index will make it tougher for fund managers to outperform. Investors should heed the author’s suggestion that they move to low-cost passive funds in the large-cap space, while continuing with active funds in the mid- and smallcap domain, where there is still scope to create alpha. Both new and seasoned investors will find something for themselves in this book. Sometimes, the writer gets hyperbolic about individual fund managers, but that is a minor flaw in what is otherwise a fine addition to the limited corpus available on the Indian capital markets and fund industry.

HOW FUND MANAGERS ARE MAKING YOU RICH Discover Ways to Tame the Bear and Ride the Bull Pravin Palande Rupa Publications 254 pages; ~595

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EBB AND FLOW

Mumbai, 23 January

t’s not easy being a retail investor right now. The benchmark indices have moved up significantly in the past year and the euphoria sees no signs of abating. The rally has largely been driven by the surfeit of domestic money and on expectations that earnings will pick up in the coming quarters. Retail investors are bulls by nature and their participation goes up when the markets touch new highs. While the rally may be luring many to equities, it may also be tempting some to drastically cut their exposure to the asset class. So, what should investors do? According to experts, trading and leveraged bets should be off the table now, and direct investors should look at protecting their gains and reducing equity exposure. “Investors with an active portfolio can convert 25-30 per cent into cash. That way, if their call goes wrong, they can still ride the market with the remaining 75 per cent. If the market tanks, their losses are minimised,” said Rahul Rege, business head (retail), Emkay Global Financial Services. While there have been no major earnings disappointments reported so far for the December quarter, experts believe investors will need to track the earnings numbers more closely. “Keep fixed stop-losses and move out of underperformers, and those that have disappointed on the earnings front consistently. New investors should

Mumbai, 23 January

1,000-POINT RALLY (CLOSING BASIS) Nifty

build up their portfolio slowly rather than investing a lump sum,” Even in terms of overseas flows, said Prasanth Prabhakaran, chief India is notin the top three ($ mn) executive officer, YES Securities. Taiwan 2,380 According to B Gopkumar, CEO, Reliance Securities, markets South Korea 2,285 are likely to consolidate gains Brazil 1,642 after the Budget, and actual earn- India 1,235 ings performance from compa647 nies has become crucial for this Malaysia rally to sustain over the medium term. The brokerage is positive on do — don’t react; talk to your IT, private banks, consumer, financial advisor on what to do cement and select pharma stocks. next. For seasoned investors with Investors may have to temper at least a 10-year horizon, ignore their returns expectations con- the noise... just another page sidering the sharp run up in turned,” Vikaas Sachdeva, CEO, benchmark indices in 2017 and Enam Asset Management, said on the disappointing earnings show Twitter. Rege said investors can remain so far. The benchmark BSE Sensex ended with gains of 28 per invested in stories that are likely to play out in the next few years: cent in 2017. That said, financial planners “Buy these stocks during correcare advising their clients to stick tions. However, do a risk-reward to their asset allocation, and analysis and ensure valuations are refrain from getting too greedy or reasonable.” Sadagopan, for his part, is pessimistic. “Stopping SIPs altogether advising clients to play it safe by could tantamount to market tim- shifting a certain portion of their ing. Market players have been equity allocation from mid and expecting the market to tank since small-cap funds to large-cap Traditionally, retail 2016 but that has not quite mate- funds. rialised. The most important thing investors put 70-80 per cent of is to invest regularly rather than their money in mid- and smallget the timing right,” said Suresh cap stocks. He said investors should resist Sadagopan, a financial planner. SIP or systematic investment the urge to put their money only in plan works on rupee cost averag- the top-performing schemes. ing and is in effect a long-term “Investors need to know who the investment vehicle. So when the fund manager is, the risks that he is market tanks 10-15 per cent, the taking to generate the returns and SIP amount can fetch a higher the categories that will do well in the current market environment. number of mutual fund units. “New investors who are getting Investing simply based on one-year perplexed and don’t know what to returns can be a mistake,” he said.

1K 2K 3K 4K 5K 6K 7K 8K 9K 10K 11K

Jul 03, 1990 Mar 09, 1992 Dec 14, 2004 Jan 31, 2006 Dec 04, 2006 Sep 27, 2007 Dec 11, 2007 May 12, 2014 Sep 01, 2014 Mar 14, 2017 Jul 26, 2017 Jan 23, 2018

Despitegainingoversixpercent, Indiaisnotamongthetopfive best-performingglobalmarketsin 2018.BRICpeersBrazilandChinaare amongthetop-performingmarkets, withagainof10.3percentandnine percent,respectively,indollar terms.Evendevelopedmarkets, includingJapanandGermany,have gainedmorethanIndia,gainsinthe USandotherEuropeanmarketsare inlinewiththegainsinthedomestic market.Expertssaytheongoing exuberanceinthedomesticmarket isonaccountofarisingriskappetite amongglobalinvestors. The key drivers are improving global growth, strengthening commodities prices and weakening of the dollar. Global liquidity conditions also remain supportive, thanks to the ongoing bond buying programme by the European Central Bank (ECB) and the Bank of Japan. In a note on Monday, US-based Goldman Sachs said the risk appetite currently was at its “highest level on record” and was fueling rise in risky assets, with world market capitalisation gaining over $4 trillion

but its impact was offset by good rainfall in key southern states and improvement in acreage for most crops (except wheat and oilseeds). The stress was visible with risingrawmaterialprices,especially the surge in cost of active ingredients procured from China. Consequently, earnings before interest, tax, deprecia-

year’s low base and commercialisation of new molecule for exports in the March quarter, say analysts at Antique Stock Broking. Analysts at Kotak Institutional Equities expect Rallis to deliver a 22 per cent compounded annual increase inearningsoverFY17-20driven by a robust growth in the domestic and the international formulation businesses and expected improvement in the performance of Metahelix (a company acquired by Rallis). HDFC Securities, too ,says that a strong brand image, an extensive distribution network and robust balance sheet will help Rallis gain incremental market share in India. Their target prices ranging ~290-313 indicates a potential upside of 14-23 per cent for the stock.

MindTree: On the growth track

Deal wins and strong traction in the digital segment in Q3 are main triggers RAM PRASAD SAHU

The MindTree stock has gained 21 per cent in two trading sessions, on strong December quarter (Q3) results, robust revenue visibility, and improved margin outlook. These have led analysts to revise upwards their earnings estimates for FY19 and FY20. The outperformance in Q3 comes after a muted show in the past, which was dragged down by two acquisitions and higher costs. The company had cut its revenue forecast earlier to a high single-digit from a low double-digit growth in FY18. However, after the muted performance over the past three quarters, with an aver-

age revenue growth of 2.4 per cent, the company posted a growth of four per cent in Q3. This was above analyst estimates of 2.5 per cent. A six per cent growth in realisations and large projects getting into a steady state revenue phase helped post the sequential uptick in revenues.

Analysts at Motilal Oswal Securities say continued strength in deal wins, high visibility in top accounts and a strong exit rate (expectations of continued momentum in Q4) would ensure acceleration from an estimated eight per cent revenue growth in FY18 to 12.6 per cent in FY19. In addition to revenue growth, margins, too, have outperformed on the back of better pricing, cost optimisation and no one-time costs as was the case in the September quarter. Margins came in at 15.1 per cent in Q3, up 350 basis points compared to the September quarter. Better operational performance coupled with a tax reversal also helped it post a better-than-

Source: Exchange

LAGGING BEHIND

India ranks 9th in terms of market performance thisyear YTD change in benchmark index $ terms local currency Brazil 10.3 6.9 Hong Kong 10.0 10.1 China 8.9 7.2 Japan 8.0 6.0 Taiwan 7.1 5.7 Singapore 6.9 5.6 Germany 6.7 4.7 Mexico 6.5 1.3 India 6.2 6.1 Source: Brokerage reports

this year. Foreign institutional investor (FII) inflows into the Indian markets are nearing $1.5 billion. Asian peers such as Taiwan and South Korea are attracting more FII flows than India. “While high risk appetite increases risk of disappointment, we find historically that the signal from macro data tends to trump the signal from risk appetite,” a Goldman Sachs note says. SAMIE MODAK

Investor wealth rises over ~1 trillion as stocks zoom

With recent price hikes, margins should recover A strong volume growth reported by Rallis India for the December 2017 quarter (Q3) surprised the Street, but gains were offset by a weak performance at operating level. As a result, the Rallis stock tanked by over seven per cent to close at ~252 on Tuesday. However, analysts believe, any correction is an opportunity as the outlook remains strong and recent pricing action should help margins. Analysts estimate volumes to have grown 15 per cent yearon-year (y-o-y) in the quarter, helping Rallis post a strong revenue growth of almost 19 per cent y-o-y to ~3.90 billion. The Northeast monsoon ended with a shortfall of 11 per cent,

(10,000 TO 11,000)

in points % Trading Nifty 1,063 chg days Positive ] Reliance Industries 110.5 264.3 336 HDFC 105.5 97.4 3069 HDFC Bank 89.8 49.5 284 Larsen & Toubro 82.2 33.3 212 Tata Consultancy Services 71.2 25.0 203 21.9 52 Negative [ 15.0 1589 ITC -50.9 14.4 77 Tata Motors -27.5 13.2 623 Lupin -11.8 10.3 92 Bosch -10.4 10.6 124 Dr Reddy’s Laboratories -10.2

Rising global risk appetite fuels stock price gains

Margin disappointment for Rallis tion and amortisation (Ebitda) fell 11.5 per cent y-o-y to ~375 million in Q3. Net profit at ~249 million was lower than the figure (~254 million) a year ago. With Rallis having undertaken price hikes in December and January, the impact of higher costs of Chinese raw materials should subside. Analysts say these would help maintain margins. In the domestic business, the impact of note ban and the GST-related de-stocking are behind, and the sector is benefiting from the government’s efforts towards growing farm income. The international business of Rallis is witnessing traction, helped by improving situation in key markets and strong demand for herbicides. It will also get support from the last

279 1,017 2,007 3,001 4,001 5,001 6,097 7,014 8,028 9,087 10,021 11,084

TOP 5 CONTRIBUTORS

Compiled by BS Research Bureau

THE COMPASS

UJJVAL JAUHARI

Market regulator gets little help from overseas counterparts PAVAN BURUGULA

Source: Amfi

ASHLEY COUTINHO

Sebi crackdown on GDR runs into foreign hurdles

expected net profit. Analysts say there is a scope for further improvement in margins, driven by a higher employee utilisation, change in onsite-offshore business mix and as synergies from its two acquisitions add to the company’s profitability. Digital now accounts for 44 per cent of its revenues and is increasing along with deal sizes in the segment. The company had won its largest digital deal in Q3. Given the sharp run-up in its price, the stock is trading at 20 times its FY19 estimates. Despite the ‘buy’ recommendations from brokerages, investors should await for corrections before an exposure to the stock.

Investor wealth rose by over ~1 trillion on Tuesday as the stock market boomed and the BSE Sensex surged past the 36,000-level for the first time. At the close of trade on Tuesday, the total market capitalisation of the BSE-listed firms surged over ~ 1.08 trillion to ~156.56 trillion. The 30-share index settled at 36,139.98, up 341.97 points, or 0.96 per cent. “If it was metals’ turn to keep the market juggernaut running, banks also joined the rally, amid global positivity as well as comforting earnings. The IMF’s (International Monetary Fund’s ) gross domestic product or GDP forecast also proved to be a booster,” said Anand James, chief market dtrategist, Geojit Financial Services. “The Sensex added 1,000 points in just four trading days to cross 36,000 as foreign institutional investors turned net buyers. The Nifty, too, breached the 11,000-mark. No major earnings disappointments were reported so far and we seem set for an earnings recovery after five consecutive flat years,” said B Gopkumar, executive director & CEO , Reliance Securities. PTI

The Securities and Exchange Board of India’s (Sebi’s) investigation into money laundering by Indian nationals through foreign capital markets appears to have hit a hurdle. According to sources, the Indian regulator has sought several key pieces of evidence from foreign agencies, but a majority of these requests have been pending for months, stalling further investigations. In many of the cases, foreign regulators are also reluctant to share information, especially bank account details. Legal experts say Sebi has agreements with market regulators of 30 countries and can directly approach them for marketrelated information. However, documents like bank account statements and proofs of identity cannot be obtained from market regulators, so diplomatic channels have to be followed. Even for countries where regulators have arrangement with Sebi, there is no obligation to honour its requests. All these cases involve global depository receipts (GDRs) issued by listed Indian companies for capital raising funds from foreign markets. Many of the cases involve countries like Luxemburg, Austria, Portugal and other European destinations. Typically, the regulator has to go through the channels specified in the memoranda of understanding (MoUs) signed with the respective countries. Usually, Sebi sends a request for information to the Overseas Indian Affairs (OIA) division of the Ministry of External Affairs (MEA), which gets in touch with the foreign affairs department of the country concerned and the request reaches the relevant department. “There have been several instances where Sebi is unable to get crucial information from overseas agencies. While anything like shareholding pattern or security account details is easy to obtain, statement of bank accounts and beneficiary details of such accounts are difficult to obtain, especially when the crimes are of a lower magnitude,” said a source privy to the development. The market regulator is currently examining more than 70 listed firms that have, apparently, been part of suchmoney-launderingactivities.All the issues are said to have taken place in the period between 2007 and 2011, when Sebi had no jurisdiction over GDR issuances. However, in 2014, the Supreme Court of India gave Sebi the powers to investigate GDRs. Since then, the market regulator has cracked down on several suspect deals and already frozen the accounts of 51 companies. GDRs are financial instruments used by companies in India to raise capital abroad. Typically, in such an issuance, there is a foreign bank that acts like a custodian and issues receipts to foreign investors willing

MODUS OPERANDI

| Indian entities launder money through web of shell entities abroad | The laundered money is used to subscribe to GDR issuance of an Indian listed company | A foreign bank facilitates the GDR issuance and also finances the purchase | GDRs purchased remain in a joint account held by the investor and the bank to hide the end-beneficiary | The GDRs are converted into shares at a later date | These shares are sold to select entities through off-market transactions | The acquirer further sells these shares to select domestic entities | The new acquirers rig stock prices | Later the shares are dumped to small investors at higher prices to subscribe to the offering. These receipts are not shares but have shares as their underlying security. GDRs can be converted into domestic shares by the investor who can cancel the receipt, and it is automatically converted into domestic shares of the company. “Obtaining information from a foreign agency is not an easy task. One needs to follow proper hierarchy for obtaining the information which is a time-consuming process. Even in cases where Sebi has a treaty with a foreign regulator, there is no obligation on the foreign entity to share the information. The overseas regulators often have apprehensions of how the sought information would be used,” said Sudhir Bassi, partner, Khaitan & Co. Since the 2014 judgment, Sebi has tightened both the framework and surveillance around GDRs significantly. The regulator is now also considering increasing the disclosure standard for GDR subscribers to bring them on a par with the requirements for participatory notes (pnotes). This tightening has led to a significant fall in GDR issuances. In fact, in the past two years, not even a single Indian entity has gone for a GDR issuance. “The framework around GDRs is much tighter now and less prone to misuse. Due to the tighter framework, only the companies with a serious intention to raise foreign capital would come to the market,” said Sandeep Parekh, founder, Finsec Law Advisors.

https://t.me/EStore33

https://www.estore33.com/

https://t.me/TheHindu_Zone

THE SMART INVESTOR 13

MUMBAI | WEDNESDAY, 24 JANUARY 2018

IN BRIEF

Listed firms garner ~6.22 trn via pvt placement of bonds ListedIndiancompaniesraisedastaggering~6.22 trillionthroughprivateplacementofcorporate bondsin2017,anincreaseofnearly5percentfrom theprecedingyear.Thefundshavebeenraised mainlyforexpansionofbusinessplans,repaymentof loansandtosupportworkingcapitalrequirements. AccordingtothelatestdatawithmarketsregulatorSebi,firmshave collectivelygarnered~6.22trillionthroughprivateplacementof corporatebondslastyear,higherthan~5.95trillionraisedin2016. Demonetisationledtoafallininterestrates(costofborrowing)and ensuredadequateliquidityinIndiancapitalmarkets,BajajCapital SeniorVPandHeadInvestmentAnalyticsAlokAgarwalasaid.The lowercostofborrowingandstrongdemandforcorporatepaper (frominvestorschasingyields)madeitattractiveforIndian companiestoraisedebt,hesaid. PTI

Edelweiss Q3 net profit up 52% at ~2.36 bn

PNB Housing's net profit rises 58% in Q3

Non-bankingfinance companyEdelweissFinancial Servicesregistereda52per centjumpinnetprofitat~2.36 billionforthequarterended December,against~1.55 billionayearago.Thetotal revenuewasup30percentat ~20.65billion. BS REPORTER<

Net profit of PNB Housing Finance grew 58 per cent to ~6.1 billion in the quarter ended December. The profit had risen 51.1 per cent in the second quarter. Its gross non-performing assets were 0.42 per cent as of December 31, 2017. BS REPORTER<

RBL Bank Q3 net profit up 28 per cent

IL&FS group’s Chinese unit raise $155 mn

Private sector lender RBL Bank’s net profit for the quarter ended December 2017 rose 28 per cent to ~1.65 billion, backed by rise in net interest and other income. This was against a net profit of ~1.28 billion in the corresponding period of previous financial year. BS REPORTER<

ITNL Offshore Pte. (IOPL), a subsidiary of IL&FS Transportation Networks (ITNL), has raised CNH 1 billion ($155 million) through three-year Dim Sum bond. The proceeds of bonds, guaranteed by ITNL, would be primarily used to refinance the existing bonds. BS REPORTER<

> TODAY’S

Discretionary spends spice up Jubilant Strong show in Q3 and steps on cost efficiencies have led to revision of operating profit estimates and target prices RAM PRASAD SAHU & ARNAB DUTTA Mumbai/NewDelhi,23January

ubilant FoodWorks gained 19 per cent in two trading sessions following a strong performance in the December quarter (Q3) and expectations of a better earnings growth trajectory in the coming months. The biggest trigger for the stock was the 17.8 per cent same-store sales (SSS) growth, the highest in nearly five years. This was way above the 10 per cent growth that most analysts had estimated for the quarter. Food services is seeing resurgence, with peers such as Westlife Development also expected to do well in Q3. Jubilant is gaining market share at the expense of unorganised players, analysts tracking the market said. To be sure, the company, which is the master franchisee of Domino's Pizza and Dunkin Donuts in India, saw SSS growth come in at 6.5 per cent and 5.5 per cent in the June and September 2017 quarters, respectively. In an after-GST (goods and services tax) world, unorganised players are not in a position to do business until and unless they do not get themselves registered, implying that players such as Jubilant have fewer competitors to deal with, Abneesh Roy, senior vice-president, institutional equities, research, Edelweiss, said. The latest numbers also

reflect a positive outcome of the measures it had initiated in the second half of 2017, Roy said. Apart from focusing on reducing losses from Dunkin’ Donuts business, it had also re-looked at store-level profitability of its pizza business under the Domino’s brand. While it invested money in opening up new Domino’s outlets, Jubilant also began closing down some of its non-performing stores. Pratik Pota, chief executive officer, Jubilant FoodWorks, told Business Standard that the firm was undertaking its biggest-ever overhaul of product offerings. A revamped portfolio backed by everyday offers — deviating from its earlier strategy to offer discounts on a specific day of the week — was aiding growth. “We shifted from deep discounts to offering customers assured value and low prices every day. This helped shift the consumption pattern from occasional to spontaneous,” he said. The management indicated that positive customer feedback on improved product quality aided acquisition of new customers. This led to higher frequency of consumption from existing customers pushing up SSS growth. While the company allocated ~1 billion for promotional activities in recent quarters, this would be compensated by improving productivity and efficiency in the business.

Analysts at Morgan Stanley say a recovery in urban discretionary consumption should spur demand growth, allowing Jubilant to realise the full benefit of ongoing cost control and rationalised losses from Dunkin’. The strong top line also reflected in the operating profit margins, which expanded 750 basis points (bps) over the yearago quarter to 17.2 per cent, is about 110 bps shy of its all-time high margin of 18.3 per cent. The margins were also ahead of expectation of 14 per cent on the back of higher volumes (operating leverage) and the company’s ongoing efforts at cost rationalisation that included the closure of nine loss-mak-

ing Dunkin’ Donuts stores. The company has reduced the store count for this format to half over the past couple of years. What could help the company on the profitability front is the commissioning of the Noida centre (back-end supply) this month. The centre, which has the ability to serve 600 stores, is expected to improve cost efficiencies through automation, lower freight costs and consolidation of two existing smaller centres. Given the strong performance, analysts have revised their operating profit estimates for FY19 and FY20 by 20 per cent each on account of improved visibility as well as benefits from cost efficiencies.

Keep an eye on your bank MCLR

PICKS Nifty

Current: 11,084 (fut: 11,085), Target: NA Stop-long positions at 11,000. Stop-short positions at 11,150. Big moves could go till 11,200, 10,950. A long 11,000p (19) short 10,900p (9) could gain 1`5-20 if the index reacts down to 11,100 in the next two sessions.

Bank Nifty

Current: 27,390 (fut: 27,382) Target: NA Stop-long positions at 27,275. Stop-short positions at 27,500. Big moves could go till 27,025, 27,700. Profit-booking likely in the next two sessions.

Hindalco

Current price: ~265 Target price: ~270 Keep a stop at ~262 and go long. Add to the position between ~268 and ~269. Book profits at ~270.

Tata Motors

Check if you are on the best possible loan rate, and also make part prepayment to counter the rise in interest rate SANJAY KUMAR SINGH SeveralbankssuchasAxis,IndusInd,YES andKotakMahindrahavehikedtheir marginalcostoflendingrate(MCLR)by510basispoints.Itisexpectedthatpublic sectorbanksmayalsofollowsuit.Whileit istoughtopredictwhetherthisisjusta temporaryspikeorrateswillcontinueto moveupward,homeloanborrowersneed totakenoteofthisdevelopmentand respondtoit. Interestrateswithintheeconomyhave movedup,asisevidentfromtheriseinthe 10-yearG-secyield.Fromaround6.41per centonJuly24,2017,the10-yearG-sec yieldmovedtoahighof7.40percenton December28,andiscurrentlyat7.25per cent.MostbankshadinvestmentsinGsecsthatwereinexcessoftheirSLR (statutoryliquidityratio)requirement. Theyhavetakenahitontheirbond portfoliosduetotheriseinG-secyields.To maintaintheirmargins,theyhave respondedbyraisingtheirMCLR. Banks'costoffunds hasalsogoneup. AccordingtoAjayMishra, vice-presidentand businesshead,secured loans,Paisabazaar.com, "Manybankshaverecently increasedtheirfixed depositandcertificatesof depositrates,whichhas pushedtheircostoffundsup.Ascostof fundshasamajorweightinthecalculation oftheMCLR,thelatterhasgoneup."With depositgrowthnotbeingveryrobust, banksarealsohavingtopaymoretoget fundsfortheexactdurationforwhichthey needthem. The impact onindividual customers will depend on whether their loan is benchmarked against the base rate or the MCLR. The State Bankof India,for

Coal India

Current price: ~293 Target price: ~288 Keep a stop at ~296 and go short. Add to the position between ~289 and ~290. Book profits at ~288. DEVANGSHU DATTA Target prices, projected movements in terms of next session, unless otherwise stated

instance, had cut its base rate recently and it has alsonot raised its MCLR. According to Mishra, "The recent MCLR hikes will If rate increases to (%)… Loanamount(~mn) primarily affect fresh home loan 8.40 8.45 8.60 borrowers. Existingborrowers will 3.5 18,395 36,818 92,252 continue toavail lower interest rates till 5 26,279 52,597 131,790 the next reset date of their home loans." 7.5 39,418 78,895 197,684 Currently,ifyouhaveexcessfunds available,eitherbecauseyouhave 10 52,557 105,194 263,579 receivedyourvariablesalaryorabonus, Note: Initial home loan rate is taken to be 8.35%; tenure 15 years; figures for added liability in ~ makepartprepaymentontheloan. "Thoughtheupward Borrowersshouldalsocheckiftheir movementinMCLRissmall, thealternativefixed-income lenderisofferingthemthebestrateavailable inthemarket.Mumbai-basedfinancial investmentoptionsarealso plannerArnavPandyasuggeststhatifthe notveryattractiveatthis differenceinratesissubstantial,andtheycan pointoftime,"saysVishal makeconsiderablesavings,theyshouldtry Dhawan,chieffinancial tomovetothebestrateoftheirownlenderby planner,PlanAheadWealth payingafee.Ifthatoptiondoesn'tworkout, Advisors. theyshouldtryshiftingtoanotherlender Sometimesborrowers havefundsbutmaynotwanttousethemup whowillofferthemabetterrate.IftheMCLR becausetheymayneeditinthenearfuture. continuestorise, the impact at the time of Oncetheypre-paytheloan,themoneygets reset could be considerable (see table for impact of rising rates). When interest usedup."Suchborrowersshouldconsider rates go up, banks tend to hike the loan shiftingtosmarthomeloansthatcome withanoverdraftfacility.Theycanputtheir tenure rather than the equated monthly instalment (EMI). But this also means excessfundsinthataccountandthereby that the borrower's total interest outgo bringdowntheirprincipal,whilestill increases. If you can afford to, ask your retainingtheflexibilitytowithdrawthe bank to hike your EMI rather than the moneywhenevertheywishto,"says tenure. Dhawan.

INCREASE IN LOAN LIABILITY

Fear of outright populism overdone: Analysts Markets eyeing details on fiscal math, increased focus on infra, LTCG on equity investments PUNEET WADHWA

New Delhi, 23 January

The current market rally a month before the Budget proposals are announced on February 1 is the best in over a decade, with the S&P BSE Sensex and the Nifty50 indices gaining over six per cent so far in calendar year 2018 and crossing the 36,000and 11,000-levels, respectively, for the first time ever on Tuesday. Though most analysts do not expect the proposals to be hugely populist, brokerages would keep a close watch on how the government manages the fiscal situation a year before the country goes to polls scheduled in May 2019, and changes, if any, to the existing norms of longterm capital gains tax (LTCG) on equities. While analysts peg the fiscal deficit for FY19 to be around 3.2 per cent, any change to the LTCG tax structure on equities could be a sentiment damper, analysts say. Increased allocation for infrastructure such as affordable housing,

roads, railways, and ports is also possible. Here is a quick compilation of what leading brokerages and research houses expect: CITI We expect the government to project the fiscal deficit at 3.2 per cent of the gross domestic product (GDP) in FY19 from 3.5 per cent of GDP in FY18. Markets will keenly watch for the expenditure tilt (we expect focus on agriculture, infrastructure, and housing), revenue projections (first-ever goods and services tax or GST projection, divestment strategy, tweaks in LTCG for equity investment) and finally commitment to adopt Fiscal Responsibility and Budget Management (FRBM) recommendations. We expect further details on PSU bank recapitalisation and higher allocation to rural infrastructure (housing, roads, and electricity) but fiscal consolidation to continue. Direct tax relief is unlikely for corporate houses, although there could be tweak in the lower slab for personal

All figures in %

Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18

Growth year-on-year Same store Revenue Ebidta sales margin

-3 -8 7 6 18

taxes. Any changes to long-term capital gain exemption rules for equities (for example, three-year holding period) will be a sentiment negative. NOMURA Prime Minister Narendra Modi’s recent statements suggest that fears of outright populism — spurred by the fact that this is the government’s last full Budget ahead of the 2019 general election — may be exaggerated. Outside the Budget, we expect the government to focus on measures (including via trade policy) to prevent farm prices from falling further. EDELWEISS RESEARCH Themes that are likely to benefit from the pre-election Budget are consumption, affordable housing and infrastructure. Accordingly, we recommend Dabur, Mahindra & Mahindra, UltraTech Cement, Mahindra & Mahindra Financial Services, V-Mart Retail, India Cement and Sadbhav Engineering. Changes in indirect taxes and corporate tax cut are unlikely; some relaxation in income tax slabs/tax rate is expected so as to boost urban disposable

incomes. PHILLIP CAPITAL While space is limited for any surge in government spending, trend growth pace is expected to persist with focus on roads, metros, housing, irrigation, and defence. We do not see the government going overboard in making this Budget populist; but rural focus will continue. Overall, we see fewer negatives from this Budget. HSBC We expect FY18 fiscal deficit to slip to 3.4 per cent from the budgeted 3.2 per cent, and FY19 at 3.2 per cent, higher than the FRBM’s recommended three per cent. Rising oil prices may also demand greater allocation of funds to cover for unavoidable excise cuts and a higher subsidy burden to cushion the economy. MOTILAL OSWAL Fiscal deficit projections are key. We do expect the government to focus on rural and capital expenditure spending to boost sentiment and revive growth further. However, given the hard-achieved gains on fiscal con-

solidation, flexibility to go overboard on spending is limited, in our view. IIFL Apart from a push to increase non-tax revenue in the form of dividends to meet the deficit target, we expect a large disinvestment programme in FY19. Given that the government prodigiously met the target for this year, its resolve has been amply demonstrated, and hence we can expect a high figure for coming year as well. ICRA We expect this Budget to utilise the fiscal space to enhance spending rather than reduce direct taxes. The FY19 Budget may increase the allocations for social infrastructure and social security spending, such as National Rural Employment Guarantee Scheme, food subsidy, insurance schemes and welfare pensions. Budgetary allocations for capital spending are likely to be supplemented by extra-budgetary sources of funds such as institutional finance and market borrowings of the central public sector enterprises (CPSEs).

4 9.7 -1 9.9 11 11.7 9 14.1 21 17.2

Same store sales is for Domino’s Source: company, brokerages

Roy of Edelweiss says Jubilant is expected to breakeven by March 2019. Though the stock is trading at 57 times its FY19 earnings estimates, most analysts are bullish about the longterm prospects and believe that

there could be a further 20 per cent upside from the current levels.

Why are IT stocks outperforming and regions. If the pie expands, it has to be good for Indian IT firms at some level. Apart from North America, business prospects for the It industry have improved in the Eurozone, even though many Indian firms headquartered in the UK might be compelled to shift bases due to Brexit. The Q3 results from some of the top companies are all DEVANGSHU DATTA worth looking at, from this context. Infosys saw a masThe Infotech industry faces sive jump in net profit due to headwinds but it also has the reversal of a tax provisome factors running in its sion. If that is adjusted for, favour at the moment. One net profits were flat, quarterissue is that the dollar has on-quarter. Guidance for the lost a lot of ground over the full-year was maintained, past year. Indian information with single-digit revenue technology (IT) companies growth expected. TCS saw a derive the bulk of their rev- year-on-year fall in net profenues from the US. The its and about 1 per cent weaker the dollar, the less growth in revenues. India's that income translates to, in #1 It services firm fell below rupee terms. Also, given that consensus for something the rupee has gained signifi- like 10 successive quarters. cantly versus dollar, the Both Infosys and TCS have Indian IT firms could lose stepped up the hiring of their competitiveness to overseas employees, which is referred to as "localisation" some degree. That's one problem. The in the industry jargon. Wipro saw stagnant revsecond problem is that there have been continuous fears enues and profit growth for about the loss of H1B visa Q3, while HCL Tech did quotas. That uncertainty has much better than the other IT majors with already forced 14 per cent Indian comparevenue nies to hire more The industry index growth year US citizens has certainly on year (y-owhich means outperformed the y). HCL Tech that wage bills broader market in has done sevhave inflated. the past month or The Trump so. The Nifty IT Index eral intellectual property Administration is up by about 13% partnerships is also apparent- in the past 30 days ly determined to while the Nifty is up with IBM, putting $780 milraise the barriers by about 5% lion into five against immisuch partnergration. There ships. have been attempts to prevent spous- Revenue from those deals es of H1B visa holders from currently amount to about working and also a propos- $200 million. It's unclear if al, since shot down by the this a great idea, but it is part courts, to deport people of an intended 15-year partwho have been in the nership. Growth still appears to be queue for green cards for over a certain length of sluggish. Will there be a picktime, etc. This makes the up driven by stronger global Indian model of getting growth? That's what most workers into the US less analysts are projecting but attractive since there could it's noteworthy that similar be restrictions on family, projections were made for 2017-18 and don't seem to etc. The third problem of have worked out yet. The industry index has course, is that the India IT services industry is still certainly outperformed the struggling to adapt to the broader market in the past new era of Artificial month or so. The Nifty IT Intelligence, Digital servic- Index is up by about 13 per es and the cloud. Those are cent in the past 30 days less labour-intensive tech- while the Nifty is up by nologies and Indian IT com- about 5 per cent. This could panies cannot simply lever- be a sign that investors are age their advantage in terms buying the guidance. Or it could simply be due to rotaof labour arbitrage. Balanced against this, tion of funds into a sector there is the simple fact that that has underperformed for global growth rates have a while. improved. This means that there could be larger investments in IT across industries

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16 COMMODITIES

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MUMBAI | WEDNESDAY, 24 JANUARY 2018

Gold is best hedge against risks in equities

Petcoke import ban won't derail operations: ACC

A weaker dollar, stretched valuations in stocks and declining cryptocurrencies could induce volatility in gold

JAYAJIT DASH

RAJESH BHAYANI & ABHISHEK WAGHMARE

Bhubaneswar, 23 January

The ban on use of imported petroleum coke (petcoke) in the national capital region (NCR) will not derail operations of ACC Cement, said a top company official. “Petcoke has come across as a good fuel. The sulphur content in the fuel is neutralised with limestone by cement makers. But, it (the petcoke import ban) will not act as a derailer, though it will increase the cost. All ACC plants have the flexibility to use alternative sources of fuel," said Neeraj Akhoury, managing director & chief executive officer at ACC Ltd, part of the LafargeHolcim Group. The environment ministry in a notification on last Friday had banned the use and sale of imported petroleum coke in the national capital region, in the latest effort to curb air pollution. In December, the Supreme Court had allowed the cement industry to use petroleum coke, after it was temporarily banned as pollution levels shot up in Delhi. ACC Cement, on the other hand, is upbeat on positive impacts of the goods & service tax (GST) on the domestic cement sector. With 10 variants of cement products and ready-mixed products in its portfolio, ACC Cement has 10 per cent market share by volumes in the sector. “The GST had a very little impact on the cement sector in the first two months of its implementation. We believe in the long term and the GST implementation will augur well for the sector”, Akhoury said.

> PRICE

CARD

As on January 23

International Price %Chg#

Domestic Price %Chg#

METALS ($/tonne) Aluminium 2,235.0 Copper 7,049.0 Nickel 12,720.0 Lead 2,607.0 Tin 20,770.0 Zinc 3,441.0 Gold($/ounce) 1,337.2* Silver($/ounce) 17.0*

4.8 2,508.6 4.6 1.3 7,510.2 4.3 8.3 13,280.0 12.1 5.5 2,728.1 7.5 5.2 21,636.9 0.5 8.3 3,841.3 4.9 4.3 1,467.4 4.3 -0.5 18.9 0.2

ENERGY CrudeOil($/bbl) 69.1* NaturalGas($/mmBtu) 3.3*

20.6 10.4

AGRI COMMODITIES ($/tonne) Wheat 189.2 3.1 Maize 186.1* 7.2 Sugar 353.7* -3.9 Palmoil 650.0 -4.4 Rubber 1,801.7* 7.1 CoffeeRobusta 1,783.0* -11.6 Cotton 1,830.9 19.1

67.1 19.0 3.3 11.3 263.1 202.3 510.5 958.5 1,944.2 1,732.5 1,909.1

-0.3 -5.9 -13.4 6.4 -2.0 -8.4 10.0

olatility in gold prices last year has been the lowest since 2005, indicating that bullion is now re-emerging as an asset class alternative to hedge against risks in other investment avenues such as equities. Volatility in gold prices touched 7.4 points early this month and is now at 7.6 points, the lowest since May 2005. Sudheesh Nambiath, senior precious metal analyst, SE Asia, GFMS Thomson Reuters, says, “Volatility is low across various assets, and the reversal in its trend is historically associated with uncertainty. Markets may not have yet factored in potential risks. And any risk event would result in increased volatility, which tends to support a case for higher gold prices.” The potential risks are already on the horizon. Equities have heated up with prices and indices trading at all-time highs across the globe, including in the US, India and Hong Kong. Metals, crude oil, major foreign currencies (against the US dollar) and even cryptocurrencies are scaling new highs from a year ago. Gnanasekar Thiagarajan, director, Commtrendz Research, agrees. He says, “Volatility in gold has been on the decline right from 2012. Low periods of volatility lead to fewer price swings and correspondingly lower volumes. Normally, this indicates a bearish bias and the decline is usually slow.” As far as gold is concerned, prices in general have been quite stable during the past five years and the trend will reverse when there is some trigger for the metal to start rising. Gnanasekar explains, “The year 2009 saw peak volumes in gold after which there was a decline. However, in May 2017, volumes briefly overtook the 2009 highs. Crude oil displayed a similar situation of flux with low volatility. However, larger triggers such as the Opec cuts have seen volatility increase lately. Similar triggers for gold are expected after which prices are likely to start rising. A weaker dollar, stretched valuations in stocks and declining cryptocurrencies — bitcoin prices could potentially be

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.

EDDIE VAN DER WALT & RANJEETHA PAKIAM 23 January

Source Thomson Reuters

GOLD OPTION: TOTAL VOLUMES ON MCX Oct-17 Nov-17 Dec-17 Jan-17

Wheat, chana, sugar prices to stay low: NCMSL New Delhi, 23 January

The country's wheat output could drop by 2.31 per cent to 96.1 million tonnes (mt) in the 2017-18 crop year due to areduction in acreage but it won’t stop prices from remaining sluggish, research done by private agri-commodities management and services firm NCMSL said on Tuesday. Not only wheat, the research showed that chana prices are expected to remain below the minimum support price (MSP) of ~4,400 per quintal for most of the season and the upside will be capped at ~4,600 per quintal. Sugar prices will trade in the band of ~2,780-3,250 a quintal with pressure on any upper movement. The price and crop outlook by NCMSL, India largest private warehousing and weather data provider, also showed that though cotton production in 2017-18 might suffer due to pink bollworm attacks, the price increase won’t be too sharp due to supply pressures and any upside would be capped at ~23,000 per candy (1 candy = 356 kg) while on the downside it might slide to ~18,900 a candy. Soybean rates too would consolidate around ~3,100-3,400 per quintal levels with a negative bias. The MSP of soybean is ~3,050 a quintal. In case of mustard seed, the study which is based on NCMSL’s in-house commodity research and market feedback, shows that prices are expected to stay around ~3,800 a quintal till March and then gradually move upwards to ~4,300 a quintal till October 2018. The MSP of mustard is ~4,000 per quintal for 2018-19 marketing season. In case of maize, the research showed that prices are expected to remain sideways to negative around ~1,000 per quintal and then move high-

GOLD FUTURES: TOTAL VOLUMES ON MCX

Traded Quantity Total value contract (lots) (Mngrams ) (~ bn) 11,052 11.05 32.98 9,658 9.66 28.66 4,326 4.33 12.75 4,106 4.11 12.15

Source MCX Compiled by BS Research Bureau

triggers — could induce volatility going forward.” Gold prices rose steadily between 2008 and 2012. However, after reaching a high of $1,900 an ounce, they stabilised at $1,250 levels. During the past month, gold prices have seen some uptick with risks rising. In India, more than prices, it is the volumes on the Multi Commodity Exchange that fell prey to falling volatility. Trading in MCX gold futures, in terms of both quantity and value, has fallen sharply. In fact, in 2017 the average volume was about a fourth of that in 2013. Of course, the imposition of the commodity transaction tax in July 2013 has also played a significant role in lower volumes. Low volatility reduces the price hedging requirement in general, leading to lower volumes. Even the recent launch of gold options

RISE AND FALL OF MARGINS FOR COTTON SPINNERS Quarters

Ebitdamargins (%)

Q4'16

16.8

Q2'17

16.1

Q4'17

12.4

Q2'18

10.3

Q3'18E 14.0 Q4'18E 15.0 Note: 15 listed companies considered account for 60% of organised spinning market and 20% of overall industry E: Estimated Source: CRISIL Research

Compiled by BS Research Bureau

SANJEEB MUKHERJEE & AGENCIES

Gold market mulling blockchain to secure $200 billion of supply

Traded Quantity Total Value contract (lots) (Mngrams ) (~ bn) 2013 47.5 10,578.8 30,356 2014 12.9 4,472.9 12,472 2015 11.7 4,436.6 11,693 2016 13.1 4,658.8 13,774 2017 6.9 2,577.9 7,460 2018 (Till Date) 0.1 109.7 323

on the MCX has seen falling volumes despite three settlement cycles because of low price volatility. Says Ajay Kedia, director, Kedia Commodities, “Both the realised and implied volatility in most asset classes are close to all-time lows. However lower volatility in gold has a message, as it comes despite heightened economic, political, and monetary uncertainty. It is our opinion, rather than buying volatility, it is better to be long on gold.” Kedia explains that volatility rising from low means a fall in equities and is positive for gold. In 2018, gold volatility is most likely to increase, in which case the equity markets will suffer.

DEMAND FOR YELLOW METAL 6.0

1.6

Electronics

Gold is going digital. Blockchain technology may help keep track of the roughly $200 billion of the precious metal dug from remote mines, traded by middlemen and melted down by recyclers that’s sold each year to buyers scattered around the world. The London Bullion Market Association, which oversees the world’s biggest spot gold market, will seek proposals, including the use of blockchain for tracing the origins of metal, partly to help prevent money laundering, terror funding and conflict minerals, according to Sakhila Mirza, an executive board director. “Blockchain cannot be ignored,” Mirza, also the general counsel of LBMA, had said. “Let’s understand how it can help us today, and address the risks that impact the precious metals market.” Markets in commodities from crude oil to diamonds and even tomatoes are looking at using the digital ledger technology that underpins cryptocurrencies like Bitcoin to track ownership. Tracing gold supply is key to preventing metal that funds armed conflict from entering world markets, identifying owners and maintaining security from mine to vault. The LBMA has pushed ahead with efforts to modernise a trade that until recent years relied on phone auctions to set a key benchmark price for the market. “For us, it’s a question of where the gold comes from,” Mirza said. The LBMA oversees a list of

8.8

Dentistry & others

100 (%)

Central banks

12.5

ETF investment

46.8

Jewellery

24.3

Investment bar & coin

LEADING PRODUCERS (in tonnes) China 463.7 Australia 287.3 Russia 274.4 United States 225.7 Peru 166.0 South Africa 165.6 Canada 162.1 Mexico 128.4 Indonesia 109.5 Brazil 96.8 Others 1,175.9 Source: Metals Focus, 2016

refiners approved to supply the London market. Its London Good Delivery List sets global standards for large gold and silver bars. “Everything that ends up in an LBMA good-delivery refiner needs to be tracked in the supply chain, regardless of whether it ends up as a large bar in a London vault, a kilo bar shipped to the Far East, or a coin owned by a collector,” Mirza said. BLOOMBERG

Spinners pin hopes on demand uptick to improve margins

* As on Jan 23, 1800 hrs IST, # Change Over 3 Months Conversion rate 1 USD = 63.8 & 1 Ounce = 31.1032316 grams

Source: Bloomberg

GOLD VOLATILITY INDEX

Mumbai/New Delhi, 23 January

er towards ~1,350 per quintal. The MSP of maize is ~1,425 per quintal for the 2016-17 season. On the production front, NCMSL said that although the government is hopeful of a record 100 million tonnes of wheat output this year, their estimates show that output won’t be more than 96.1 mt. Wheat output stood at 98.38 mt in the 2016-17 crop year, according to official data. The reason is around four per cent lower wheat area sown as the farmers shifted to other crops, majorly chana, it said. Even soybean production is estimated to decline sharply to 9.15 mt in the rabi season of this year, as against 13.79 mt a year ago. Rapeseed-mustard seed output is pegged lower at 7.64 mt as against 7.97 mt in the said period. "Farmers' disillusionment with the low prices last year resulted in them shifting away from rapeseed-mustard seed resulting in its production estimate being lower by 4.2 per cent," the NCMSL said. However, production of rice is likely to increase to 14.5 mt in the rabi season of this year as against 13.76 mt in the year-ago. In case of pulses, gram (chana) output is pegged higher at 9.71 mt in the rabi season of the 2017-18 crop year as against 9.33 mt in the same period last year, due to higher acreage. "Driven mainly by higher gram production, the total rabi pulses production is expected to increase slightly over last year even as the kharif pulses registered significant decline of 9.8 per cent over last year," it said. Among cash crops, NCMSL has pegged cotton output at 36.5 million bales for this year, as against 33 million bales in 2016-17.

> FROM

VINAY UMARJI

Ahmedabad, 23 January

The cotton yarn industry is pinning its hopes on a fall in raw material (cotton) prices, after having had its margins squeezed in the past couple of quarters owing to dwindling yarn exports and excess spinning capacity. According to cotton yarn spinners, margins were hit when the price of cotton went up, leading to lower demand from fabric and garment manufacturers, as well as dwindling yarn exports. Spinners are hoping that margins will improve in the last quarter of the current fiscal year on the back of an uptick in demand and

improved yarn exports. However, in the interim, the industry is also expected to see a bumper crop, which could bring down cotton prices to some extent. “Raw materials have been high whereas the forward integration value chain has seen sluggish demand. Hence, margins have been squeezed for cotton spinners,” said Jyotiprasad Chiripal, director at Chiripal Group. Chiripal said margins had fallen 7-10 per cent recently. According to CRISIL, margins fell to a 20-quarter low in the second quarter of 2017-18. “The second quarter of fiscal 2018 was the least profitable in five years for spinners, or cotton yarn

mills. Margins touched 10.3 per cent, compared with a peak of 18.8 per cent in the corresponding quarter of fiscal 2014,” CRISIL stated in its report recently. According to CRISIL, among other issues, disruptions stemming from the roll-out of the goods and services tax took a toll on margins. “As such, excess spinning capacity in the past two years (2.5 million spindles added over fiscal years 2016 and 2017) anticipation of expiring textiles policies in Maharashtra and Gujarat had affected the pricing flexibility of mills. Further, a decline in yarn exports, induced by reduced sourcing from China (accounting for 36 per cent of

India’s exports), also impacted the margins,” CRISIL said. Spinning units such as those of Chiripal Group and Balkrishna Textiles are hoping that increased arrivals might bring down cotton prices. CRISIL has pointed towards a sharp increase in cotton production, expected at 37.5 million bales, in cotton season (CS) 2017-18 which would be a shot in the arm for spinners in the last two quarters of this fiscal year. CRISIL says it could “thwart further drop in margins … Also, demand normalisation after demonetisation and goods and services tax- or GST-led disruptions would improve utilisation”.

PAGE 1

PM blasts protectionism Bull charge pushes indices to new highs

However, Xi, who is not attending this year, is not seen to have delivered on the broad promises made at Davos over the past year, but his speech was seen as a key moment in China's attempt to fill a void created by a more inward-looking United States. In his speech, Modi laid out three big challenges facing the world: climate change, terrorism and growing protectionism. “The result of this is that we are seeing new types of tariff and nontariff-based barriers being imposed. Bilateral and multilateral trade negotiations appear to have come to a halt,” he said. He said the world must come together to solve these issues and India could show it the way, referring frequently to ancient Indian thought and scriptures that call for harmony between humans and nature and refer to the world as family. Modi said climate change was a major threat to the world, yet the world had failed to come together to tackle it. He said everyone wanted carbon emissions to be cut, but the rich world was not ready to help developing economies with new technology. India, one of the world's fastestgrowing major economies and a growing contributor to pollution, has said it is keen to honour its commitment to clean up the environment despite Trump pulling out of the Paris accord on cutting carbon emissions. Modi also highlighted reforms and policies his administration had undertaken to make India more open. He said his government had abolished some 1,400 archaic laws. “We are removing

red tape and laying the red carpet,” Modi said, adding “Come to India If you want wellness along with wealth, wholeness along with health and peace with prosperity.” The PM said India was poised to become a $5-trillion economy by 2025, recalling that the last time an Indian Prime Minister attended the WEF was 21 years ago. He said, “India's GDP in 1997, when the last PM came to Davos, was a little over $400 billion. It has grown six times since.” He quoted poet Rabindranath Tagore, saying he had written of "a haven of freedom where the world is not divided by narrow walls" and called for turning that into reality, stating that "India will always be a unifying and harmonising force." Some business leaders said India still had a lot of work to do to attract more investment, including taming bureaucracy, tackling corruption and cleaning up pollution. Arun Kumar, chairman and CEO of accounting firm KPMG in India, said: “He laid out where India stands in terms of his preference for a multi-polar and multicultural world." Under his America First agenda, Trump has threatened to withdraw from the North American free-trade agreement, disavowed the global climate change accord and criticised global institutions including the United Nations and NATO. Anindya Bakrie, chief executive of media company PT Bakrie Global Ventura, part of Indonesia's Bakrie conglomerate, said Modi's remarks were a welcome contrast to US isolationism.

Banking stocks continue to be in the forefront of the rally as investors expect the lenders to benefit the most from the revival in the economy. The sectoral index for banking stocks in the BSE gained 1.6 per cent on Tuesday. Shares of SBI, India’s largest public sector lender, climbed 3.9 per cent – the highest for any Sensex constituent. Shares of ICICI Bank and Axis Bank closed three per cent and 1.3 per cent higher, respectively. Tata Steel, ONGC and Coal India were among the other top gainers, with each of them going up more than three per cent each. According to market analysts, the surging crude oil prices could be a headwind for the market over the next few months. This could shoot up the inflation and widen the fiscal deficit. Crude oil has gained 25 per cent in the past one year and is currently trading close to $70 a barrel. The level is still lower compared to its previous high of $140 per barrel in 2014, however, analysts caution that the macroeconomy could come under strain if oil price rise another $10 a barrel from the current levels. “Rising oil prices in the global markets put a lot of pressure on the Indian economy. Whenever the prices go up, the inflation shoots up and the fiscal deficit also increases. The current oil prices are looking relatively expensive, and in order to absorb the shock of ris-

ing oil prices, the government may have to do a balancing act by reducing excise duties so that it doesn’t impact the inflation,” said Deven Choksey, managing director, KR Choksey Investment Managers. Broader markets also face headwinds as stock prices in this space have risen sharply despite lackluster earnings. This has led to a surge in the valuations with the BSE mid and small-cap indices on the BSE currently commanding a price to earnings (p/e) multiple of 48 and 112 times, respectively. After beating Sensex for four consecutive years in terms of returns, the broader markets are already showing signs of underperformance. While the Sensex has rallied more than six per cent during the year so far, the BSE mid and small-cap indices have only managed to go up by 1.4 per cent and 2.2 per cent, respectively.

Tatas...

Tata insiders said the NRC would take into account how Chandra had tried to bring the Tata Group back on the track after a bitter fight between its patriarch Ratan Tata and his protégé-turned-foe Cyrus Mistry. Tata Sons and the Mistry family are fighting a legal battle in the National Company Law Tribunal (NCLT), Mumbai bench. Interestingly, the NRC had recommended a salary hike for former chairman Cyrus Mistry in 2016, but within a few months he was ousted. In the past one year, Chandra has exited from loss-making telecom business, and has evinced interest to take over Air India and stressed steel assets on sale by Indian lenders. Tata Steel has also decided to merge its loss-making steel business in Europe with ThyssenKrupp of Germany. The passenger car business of Tata Motors is set to launch a series of models to garner market share. He has almost shut down its small car Nano, which has been incurring losses since launch. Tata Sons is also on its way to raise ~50 billion from domestic markets, and another $1.5 billion as foreign loan.

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18 BRAND WORLD

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https://t.me/TheHindu_Zone MUMBAI | WEDNESDAY, 24 JANUARY 2018

Brands play a silent role in Padmaavat

Controversy and uncertainty over the movie are forcing brands to rethink their Bollywood connections URVI MALVANIA Mumbai, 23 january

s Padmaavat gears up for its much-delayed release, the buzz around the film may have created its own self-propelling marketing machine but, brands that are now a key element of film promotions, are missing in action. Quite uncharacteristically so, given that the movie produced by Viacom 18 was mounted on a massive ~1.3 billion budget and would have ideally recouped at least 18-20 per cent of its cost through brand tie-ups. And marketers fear, this could be a sign of the times to come, as politics over popular culture turns vicious and violent. The film’s latest poster, with the revised name (it was earlier called Padmavati) has no brands displayed, save Amazon Prime Video, the online streaming partner for the film. Even jewellery brand Tanishq that has a special line designed around the film called Tanishq-Padmavati and had launched an aggressive campaign with lead actor Deepika Padukone in the runup to the original release date of the film (December 1, 2017) has preferred to keep its association away from the limelight. It is not the only one, there are at least five brands that have decided to keep off

the red carpet for Padmaavat says a marketing executive in the know. Quite clearly the protests and threats that continue to pour in for the movie’s stars and all those that have played any role in its making have kept the brands away. They have all gone passive, preferring to sink their investments rather than risk a greater loss by making them public, says a brand consultant. Viacom 18 was not available for comment on whether any brands are actively associated with the film . Over the years Bollywood has served as a profitable platform for brands. A recent report by ESP, a GroupM company, indicates that annually, companies spend close to ~1 billion on co-branded marketing media spends for Hindi films. In 2017, 76 out of the 134 odd Hindi films that released had co-branded marketing tie-ups. It is a mutually beneficial relationship but, the flip side is that brands are dragged into any controversy that a film gets into. Padmaavat is a classic example. While Tanishq refused to comment on the story, it is not talking up its association with the film although it still has the co-branded line of jewellery for sale. In fact the brand has been quiet ever since the first protests broke out before the Gujarat election.

TAKING A HIT | Brand associations are a big part of Bollywood; in 2017, more than half the Hindi movies released had cobranded marketing tie-ups | Brand activations are at their peak just before a movie releases, but not for Padmaavat | Mounted at a budget of ~ 1.3 billion, the movie is produced by Viacom 18. It releases january 25 Sandeep Goyal, founder Mogae Media, says it is understandable that brands would want to distance themselves. “It is not only about bad press. A lot of these brands have retail outlets and using the film’s posters (as they would be entitled to under their contract) could attract protestors who could get violent. In that sense, Padmaavat is bad news right now.” Will the controversy impact future brand-Bollywood associations? Experts believe it will. “It’s a mess. It’s not so much about the money associated with the film. Exit clauses exist for such events and the money can be refunded. But the damage a brand suffers is different,” says a brand manager.

On the bright side, brands can cover some lost ground by playing up their associations in international markets. Goyal reveals that in markets like Dubai, Padmaavat’s posters are displaying the big brands and since the film was cleared for international distribution much before it got certification from the CBFC in India, the offshore publicity machines have been whirring for a while. Anirban Das-blah, founder KWAN, an entertainment firm that also facilitates brand associations says that the controversy is an ominous sign of the times to come. He like many others who requested anonymity believe that the government and the law and order infrastructure are to blame. “As long as the government continues to support such vandalism with its silence (over such matters), the industry will suffer,” Das-blah says. There is another way to ride the news cycle though, even if it is negative. Online ticketing portal BookMyShow (BMS) is doing that with a dash of humour. It has a promotional video asking people not to miss the film or else they could find themselves out of all conversations on social media. Brands are not the only parties caught in the crossfire. Exhibitors and distributors feel that the fear of violence could keep people away from the theatre and thereby impact all films releasing over the weekend. “The good thing is that the film has been in the news since almost eight months and so it has visibility. If there is no vandalism and if the film is decent, not even great, it has good chances. Let’s see what the weekend holds,” says Shaaminder Malik, independent distributor and trade analyst for North India.

THE BS CROSSWORD

# 2944 18 20 23

24 25 26

risky challenges (7,8) In some matches, remains to count takings (4,2) Daughter is at hand to uncover... (8) How a bag of fruit gets around to the blooming red, white and blue - and black (8) Poor merge with a scanty result (6) Doctor, nite nurse to get practical experience (6) Fixed menus that could be meatless (3,5)

16 17 19 21 22

instance (8) Gives the reason for earlier flatlands (8) Recovers from play in Las Vegas (8) It may knock a lot down (6) Jew might follow the sea, by the sound of it? (6) She has to have an impact, showing external oomph (6)

DOWN

ACROSS 8 All together, holding firm, the man is about to gain victory (8) 9 A horse which has the lot! (6) 10 Puts down some wood (6)

BS SUDOKU

11 Left one dry and frozen on this network (8) 12 Set procedure taking shape in South Pacific canoe (3,5) 13 Rigger getting a “Fed” to function (6) 14 Didactic novelist throws out

# 2408

1 Bird-shooter ? (6) 2 She appears as if taken in by the vaccination man (8) 3 Mouth, and one who makes it up after a row? (6) 4 Favourite source of water withdrawn and support for towels too (4,6,5) 5 Remained and gave personal service (6,2) 6 It's absurd you must be ! (6) 7 Bet boyfriend will be older (8) 15 "Man in Lead Collapses" for

Medium:

SOLUTION TO #2943

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 #2407

Max/min temperatures in C

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

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 30/19 31/16 11/-3 30/16 30/24

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TAKE TWO 19

MUMBAI | WEDNESDAY, 24 JANUARY 2018

The rise of ‘Best Bengal' Investments may still be thin on the ground but Mamata Banerjee is gradually winning the battle of perception among industrialists

(From left) ArcelorMittal Chairman Lakshmi N Mittal, Bengal Chief Minister Mamata Banerjee, Reliance Industries Chairman Mukesh Ambani and state Finance Minister Amit Mitra at the Global Business Summit

ISHITA AYAN DUTT New Delhi, 23 January

he recently concluded Bengal Global Business Summit got bigger this year. It started from the venue, which changed from the somewhat rickety Milan Mela exhibition centre on the Eastern Metropolitan Bypass to the recently inaugurated Biswa Bangla Convention Centre in New Town Rajarhat. The swanky 95-foot building, spread across 4,57,000 square feet, is one of the largest convention centres in the country. It was looking at this that Reliance Industries chairman and managing director, Mukesh Ambani, said: “Didi, under your leadership, West Bengal is becoming Best Bengal.” That was just the beginning. Bengal hosted a galaxy of stars from India Inc and beyond this year. The stars that shone the brightest among them were: Ambani, ArcelorMittal Chairman and Chief Executive, Lakshmi N Mittal, JSW group Chairman Sajjan Jindal and Adani Enterprises Director Pranav Adani. More than fancy numbers, what came across was that the icons of India Inc are weighing-in on a number of projects. Reliance plans to set up a next generation state-of-the-art electronics man-

ufacturing facilities and make West Bengal the hub for innovation and hi-tech technologies for consumer devices such as mobile phones, set-top boxes and other devices. That apart, the group will be investing ~50 billion in Jio and the Jio digital eco-system, retail and petro-retail in the next few years. Plus, the Jio network, which currently covers 98 per cent of Bengal’s population, will reach 100 per cent of Bengal’s population before the end of 2018. Reliance has emerged as one of the major investors in Bengal in the last two years with an investment of ~150 billion, most of which is in Jio. And Ambani has committed to making Bengal one of the leading states in the country. Jindal is considering investing ~100 billion over the next few years across cement, paints and steel sectors. Ahead of the summit, the Jindal family flew down for the inauguration of the cement plant at Salboni in West Medinipur by Chief Minister Mamata Banerjee. Though the 2.4 million tonne cement plant is a shadow of the original project of 10 million steel plant and 1,600MW power plant planned earlier, there could well be some surprises, said sources. After all, it’s not every day that 10 to 12 members from the Jindal family fly down for an inauguration. Adani, when he took to the dais on the con-

PROPOSED INVESTMENTS Manufacturing & infrastructure MSME & textiles Health, education & skill development ARD*, food processing, fisheries & agri business Hospitality & tourism IT & ITES

TOTAL

(~bn)

1,568 529.5 60.15 15.18 14.83 11.46

2,199.25

Source: Industry;* Animal resources development

cluding day of the summit, said that he would like to replicate the Mundra port in West Bengal. The group is also interested in power and food processing. Mittal did not make any investment commitment, but cancelled a trip to Rome to be in Kolkata, for the summit. He had promised Banerjee he would be there. Clearly, there is a change in the air. Banerjee has made a successful shift from her rabblerouser image to an industrialist-friendly chief

minister. The fact that Bengal has also moved up the ranks in ease of doing business has come handy. It is currently at the top of the table. In terms of numbers, the summit resulted in investment proposals to the tune of ~2.2 trillion. A total of 110 Memorandums of Understanding (MoU) were signed. In 2017, the investment proposals totalled ~2.35 trillion and Banerjee said close to 50 per cent had seeped in as investment. But the focus of the summit was jobs and the proposals are projected to create 2 million jobs across manufacturing, IT, cement, tourism, infrastructure and skill development sectors. Industry and Finance Minister Amit Mitra said around 1,00,000 jobs would be created by the leather industry. Uber has signed an MoU with the state transport department to create 1,00,000 jobs. Banerjee said at the summit that Reliance’s plans would translate into 1,00,000 jobs. Mitra is also working on completing the petrochemicals chain in Bengal that has the potential to create 5,00,000 employment opportunities. Though Haldia Petrochemicals and Mitsubishi Chemicals have been operating in Bengal for over a decade, the state has not been able to reap the full benefit of them by way of downstream units. So, Mitra is trying to motivate Purnendu Chatterjee, the majority partner in Haldia Petrochemicals, and Aloke Lohia of Indorama, a partner in Dhunseri Petrochem, to set up more downstream units that will potentially create opportunities in the job-intensive textile industry. “This whole chain in Bengal is missing. Our target of the government strategically is to complete this chain. This will generate at least 5,00,000 jobs,” says Mitra. Does that mean that Bengal is only focusing on creating blue-collar jobs? “It’s inter-connected,” explains Mitra. “When you have five lakh jobs in downstream, a proportion of that will relate to accounting and IT, those are white-collar jobs. In a changing world, there are no clerks anymore,” he goes on to amplify. Speaking of IT, Mitra says, TCS which has 38,000 employees in Kolkata, has created capacity for another 20,000 at its new campus in Rajarhat. The first phase of recruitment for the new campus is over, he points out. Cognizant Technology Solutions, which employs around 17,000 people, has taken space in Rajarhat. Mitra says they would be adding another 15,000 people there. Sometime last year, Infosys agreed to build its campus in Bengal and would be employing up to 1,000 people. The state government is now hoping that Wipro, too, would agree to set up its second campus. Despite the seeming rush in IT, a real estate developer points out that there is still a lot of vacant built-up space in the IT hub of Salt Lake and Rajarhat. Mitra rationalises, “Supply will create its own demand. Korea built three times its power necessity and the whole world criticised them. But in six years, demand outstripped supply.” Mitra is already busy creating a pull for next year’s summit. Thank you notes have gone out and the first brainstorming session has been held.

Musk gets long-term Tesla deal — with no salary or bonus BLOOMBERG 23 January

Billionaire Elon Musk set a series of aggressive growth targets at Tesla that would make the electric carmaker one of the world’s most valuable companies within the next decade, and assured shareholders he’ll stick around by tying his compensation to those goals. The unprecedented pay package proposed Tuesday ties the 46-year-old chief executive officer’s personal wealth to that of shareholders — he won’t get paid unless the stock rises. It envisions a staggering increase in market value to $650 billion that would put Tesla in the league of tech giants like Google parent Alphabet and Microsoft Corp, now more than 10 times its size. Revenue would expand to $175 billion, ahead of General Motors Co. The move assures investors that Musk will lead Tesla through its next phase of rapid growth despite his many other commitments and interests. He is also the chief executive officer of Space Exploration Technologies Corp and has embarked on several other ventures including

Tesla founder Elon Musk won’t get paid unless the stock rises

OpenAI, Neuralink and the Boring Co. Under the plan, which requires shareholder approval in March, Musk’s pay is tied strictly to stock performance and profit. He will receive no salary or bonus. A 10-year grant of stock options vests in 12 tranches that are linked to market capitalisation in $50 billion increments, starting at $100 billion. There are also milestones tied to revenue and adjusted earnings before interest, taxes, depreciation and amortisation, Tesla said in a statement. The agreement requires Musk to remain as Tesla’s CEO or serve as executive chairman and chief product officer -paving the way for the company to eventually hire another CEO who would report to Musk. The plan is aimed at ensuring that Musk “will continue to lead Tesla’s management over the long-term while also providing the flexibility to bring in another CEO who would report to Elon at some point in the future,” the company said. Tesla, based in Palo Alto, California, has more than 33,000 employees worldwide and recently launched the Model 3 sedan, a more affordable electric car that is the linchpin to the company’s efforts to reach the mass market and profitability. Tesla, which has struggled to ramp up production of the Model 3, no longer includes vehicle output targets in Musk’s proposed compensation plan.

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MUMBAI | WEDNESDAY, 24 JANUARY 2018

Managers want FM to align tax cycle to CY SUDIPTO DEY

NewDelhi,23January

Deloitte survey of preBudget expectations of managers on personal incometaxshowsthatmostgive a thumbs-up to aligning the tax year with the calendar year. Jurisdiction-free e-assessment of tax returns, a gradual reduction in personal tax rates in line with changes to the corporation tax structure and enhanced tax breaks for education of kids are among other key Budget 2018 demands of managers from Finance Minister Arun Jaitley. Indian managers are keen to align the tax year (April-March) withthecalendaryear(JanuaryDecember), despite chances of initial hardships. In a survey of around 700-odd managers, a majority of respondents (84 per cent)wanttheIndiantaxyearto be changed from the financial year to the calendar year. A little over half (52 per cent) are in favour of bringing agricultural income under the tax ambit. Interestingly, one-third of the respondents (33 per cent) did not agree to tax on agriculture income. Close to two-thirds (64 per cent)oftherespondentsgavean equivocalthumbs-uptotheconceptofjurisdiction-freee-assessment. E-assessments are seen as part of the tax department’s endeavour to expedite and simplify assessment proceedings, reduce the taxpayer’s inconvenience and stamp out corruption. However, 20 per cent of the respondents believe that this move would not be beneficial. The remaining 16 per cent are not sure if this move would be of any help. In line with the gradual reduction of corporation tax rates for domestic companies from 30 per cent to 25 per cent, most respondents are in favour of a similar reduction in the tax rates for individuals from30 per cent to 25 per cent. A majority of the survey respondents (86 per cent) are of the view that a similar reduction of tax rate should be given to individual taxpayers. The survey noted that any reduction in the tax rate would place more money in the hands of end consumers, resulting in a boost for domestic demand. Salaried employees are keen to see an increase in the limit for deduction under Section 80C towards certain payments and investments, currently capped at ~150,000. A majority of the respondents (80 per cent) desire the limit under Section 80C to be increased to ~250,000. The remaining 20 per cent want the ceiling raised to ~200,000. “Such benefits would be twofold, wherein individual taxpayers would be willing to save more and, in turn, will benefit from a lower tax outgo,” the survey noted. Thereisastrongdemand(79 per cent) among respondents

BUDGET EXPECTATION 2018: INDIA INC WANTS What managers want…

New Delhi, 23 January

At a time when the unemployment rate globally may likely fall for the first time in three years, India could witness a higher unemployment rate of 3.5 per cent in 2018, a little more than the 3.4 per cent projected earlier, the International Labour Organization (ILO) has said in its latest report. The unemployment rate in the country will stand at 3.5 per cent in 2018 and 2019 – the same level of unemployment seen in 2017 and 2016, the ILO’s World Employment and Social Outlook: Trends 2018 report said. In its 2017 report, the ILO had projected unemployment rate in India at 3.4 per cent in 2017 and 2018. The ILO said the unemployment rate at a global level would decline for the first time in three years. According to its latest report, the number of jobless in the country will increase to 18.6 million in 2018 and 18.9 million in 2019, against 18.3 million in 2017. In last year’s report, the ILO had forecast that the number of unemployed in the country is expe-

New Delhi/Mumbai, 23 January

(figures in %)

Number of respondents who want the Indian tax year to be changed from financial year to calendar year

Respondents in favour of bringing agricultural income under the tax ambit

Respondents who welcome the concept of jurisdictionfree e-assessment*

Do not believe this move will be beneficial*

Majority of the survey respondents want a reduction in tax rates for individuals from 30% to 25%

Want the basic exemption limit to be raised from ~250,000 to ~300,000

Majority of the respondents want reintroduction of the deduction for tax saving infrastructure bonds

A further deduction be introduced towards expenses incurred for education of children with a minimum limit of ~50,000 per annum per child

Of the respondents want the tax-free limit for refund for medical expenses to be increased to ~40,000

Desire the limit under Section 80C towards certain payments/ investments be increased to ~250,000

forreintroductionofthetax-saving infrastructure bonds. Out of these, 58 per cent of the respondents indicated that the deduction should be reintroduced with a limit of ~50,000, while 21 per cent of respondents were of the view that the deduction be reintroduced with a limit of ~35,000. The survey said such a deduction would provide additional avenue for individuals to make investments and save taxes. At the same time, it would provide funds to finance various infrastructure projects, the survey added. Citing the rising cost of education, a majority of the respondents (94 per cent) indicated an additional deduction should be introduced towards the expenses incurred for the education of up to two children with a minimum limit of ~50,000 per annum per child.Around 55per cent are in favour of raising the limitto~100,000perannumper child,while39percentwantthe limit to be ~50,000 per annum per child. All survey respondents are in favour of increasing the existing basic exemption limit of

ILO sees India’s jobless rate rising to 3.5% in 2018 SOMESH JHA

ARCHIS MOHAN & PTI

* Respondents on e-assessment

cted to be 18 million in 2018 and had estimated the unemployment figure for 2017 at 17.8 million. So, the number of unemployed persons in India in 2017 was 0.5 million more than ILO’s previous year estimates. The ILO said that its revised estimates are “based on improved datasets and methodologies”. This comes days after Prime Minister Narendra Modi, in a television interview, rejected the criticism of providing jobless growth, saying “lies” were being spread about employment generation and furnished data from a recent study to say seven million jobs had been created in the current financial year. The ILO has, on the contrary, projected a dip in unemployment rate globally from 5.6 per cent in 2017 to 5.5 per cent in 2018 and 2019. In its 2017 report, the ILO had projected the global unemployment rate at 5.8 per cent for 2017 and 2018. Globally, 192.3 million people will remain unemployed in 2018 – a slight dip from 192.7 million in 2017. More on business-standard.com

Shiv Sena fumes, BJP says all is well

Not sure if the move will be of any help*

80 Desire the limit under Section 80C towards certain payments/ investments be increased to ~250,000

Source: Pre-Budget expectation survey by Deloitte of 697 managers

~250,000. A majority of the respondents (55 per cent) want the basic exemption limit to be raised from ~250,000 to ~300,000, followed by 29 per cent who want the limit to go up to ~400,000. The remaining want the exemption limit to go up to ~500,000. Thetax-freelimitfor medical expenses, which currently is ~15,000 annually, was considered inadequate by all respondents. More than half the respondents (58 per cent) are in favour of increasing the limit to ~40,000 annually, while the remaining (42 per cent) want to double the limit to ~30,000. Currently,asalariedemployee is allowed tax exemption on education allowance of up to ~100 per month for up to two children. A majority of respondents (60 per cent) believe that the exemption should be increased to ~5,000 per month per child. The remaining are equallydivided,with20percent pitching for ~2,000 per month per child, while the rest (20 per cent) want it pegged at ~3,000. According to Homi Mistry, partner, Deloitte India, the ever-

increasing cost of basic necessities like housing, education, medical cost, food, etc has put the post-tax income in the hands of the common man under pressure. “To neutralise theincreaseincosts,theyexpect that additional tax benefits be given which will increase their savings and at the same time take care of their incremental costs,” said Mistry. Any free meal that is provided by the employer to the employee is taxable if the value exceeds ~50 per meal. All managers want this limit to be increased in the range of ~100 to ~200 per meal. Twooutofeveryfiverespondents (42 per cent) want it to be raised to ~200 per meal, the remainingwantitintherangeof ~100 to ~150. Incaseofself-occupiedproperties, 50 per cent of managers who own homes want that the deduction on housing loan should be increased from ~200,000 to ~500,000. Around 38 per cent want the deduction level to go up to ~350,000.

The Shiv Sena on Tuesday said it will have no truck with ally BJP in the 2019 Maharashtra Assembly and Lok Sabha polls. Top BJP leadership downplayed the threat and exuded confidence that the alliance will remain intact, indicating that the Sena’s threat had much to do with ensuring a better deal in sharing of seats. The Sena was silent on its continuance in the govern-

ments at the Centre and in the state, drawing ridicule from the Congress which dubbed the announcement as “laughable”. A top BJP leader, who didn’t want to be quoted, also pointed out that the Sena continues to be part of the Narendra Modi Cabinet at the Centre, and the coalition government in Maharashtra. “We have immense reserves of tolerance,” the top BJP leader said to the Sena’s repeated threats. The leader likened the Sena’s anger to a domestic fight where the wife

might walk out in a huff to her parent’s home, but a rapprochement is soon reached between the spouses. “We are the bigger party and will exhibit appropriate large heartedness,” the BJP leader said, adding he was hopeful the BJP and Sena alliance will remain intact for the Lok Sabha and Maharashtra Assembly poll. The leader also claimed that the BJP had offered the chief ministerial post to the Sena, despite it winning fewer seats thantheBJPintheMaharashtra

assembly in 2014, but the Sena had turned the offer down. The Sena has routinely attacked the BJP in the past few months. It criticised the Centre for demonetisation and goods and services tax (GST), on the plight of farmers and cross-border assaults by Pakistan. Shiv Sena leader Uddhav Thackeray, who was re-elected as party president on Tuesday, said it did not contest elections outside Maharashtra to ensure the Hindu votes do not get divided, but would try its luck in all Assembly polls in future.