Moody’s Confidence on the Indian Bank rises

By Shivam Saklani

Global credit rating agency “Moody’s Investor Service” recently changed its reviews about 3 Indian banks namely, “Bank of India”, “Union Bank”, “Oriental Bank of Commerce”.

Moody’s changed its rating from “negative” to “stable” for these banks. Moody has also affirmed the standalone credit profiles or baselines credit assessments at “ba3”.

The government’s 2.1 lakh crore recapitalization (about which an article has also been published, a couple of weeks ago is being seen as a major role player for this change.

The revision in ratings reflect Moody’s view that the government’s capital infusion plan alleviates some of the downside risks to their BCA or Baseline Credit Assessment, which is a part of bank rating methodology and ratings.

Meanwhile, the ratings agency has affirmed the Baa3/P-3 local and foreign currency bank deposit rating of the 3 Indian PSB. Furthermore Moody believes that the   additional capital will help banks take accelerated provisioning for their problem assets, which will in turn improve their capacity to haircut on those assets, in a resolution process. It also expects that some banks, now will be able to raise capital from equity markets which will support capitalization profiles.

UPI crosses 70 million transactions in October

By Aashi Sehrawat

Unified Payments Interface (UPI) is an instant real-time payment system developed by National Payments Corporation of India facilitating inter-bank transactions. The interface is regulated by the Reserve Bank of India and works by instantly transferring funds between two bank accounts on a mobile platform.

UPI has shown a more than 100% growth for the month of October against September of this year. As per the data shared by NPCI on its website, it showed 76.9 million transactions against 30.9 million as compare to last month. If considered in terms of amount transferred through UPI, it has experienced a gain of 32.5%, that is from Rs. 5325 crore (last year) to Rs. 7057 crore. 

UPI has emerged as the major game changer in the digital payments space after demonetisation has shown rapid growth with the entry of brands like Google, Truecaller into the UPI based payments space. 

Various updates relating to the UPI are as follows: 

San Francisco basedtaxi hailing firm, Uber integrated with payment option Unified Payments Interface (UPI) in August’17

Airtel now has UPI as its payment system available for its customers.   Airtel Payments Bank UPI can facilitate instant fund transfers between two bank accounts on the mobile platform without asking for the beneficiary’s account details. 

Even the government launched its own application BHIM (Bharat Interface for Money) to work on the UPI platform. Also in partnership with NPCI, around 57 banks have gone live on UPI developing their own UPI apps. 

Since the beginning of the financial year, UPI transaction volume rose 380% to 77 million in October from 3.8 million in April this year, mainly driven by BHIM and Flipkart’s payment arm PhonePe. Also with the addition of Google’s Tez payment application there has been a significant jump in P2P payments on the UPI platform. 

Modification in GSTN for simplification of the system

By Aarushi Singh

Goods and Service Tax Network (GSTN) is a unique IT initiative which has established a uniform interface for the tax payer and a common IT infrastructure shared between the Centre and the State government.

But the feedback for this system has not been positive since the system was modulated to make the process of tax collection easy and efficient instead it is being criticized for its complexities. Therefore, the government has considered a proposal to improve the way tax payers file for GST returns Amendment in the existing system is expected according to the varying requirements of the taxpayer which will simplify the whole process.

Ajay Bhushan Pandey, recently appointed chairman of the GSTN said instead of having a standard format for everyone we will modify the system in such a way that users can be asked a few questions on signing in and then the best suited form can be displayed for his purpose. Therefore the user will only see relevant portions which are of his interest.

The ultimate aim of this system is that small tax payers can file returns without assistance from outside.

The Pepsi Co. fiasco

By Shivam Saklani

What would a good top level manager of a firm, which sells sin goods, do, if suddenly, the society around him starts turning more health conscious?

These crucial situations expect a firm decisional role from the manager.

“Pepsi Co. India”, a fully owned subsidiary of New York based Pepsi Co INC. faced, or more appropriately, is still facing a similar kind of a problem. The society is indeed growing more health conscious, although the revenues from carbonated soft drinks are increasing but their growth rate is in lower single digits.

Henry Mintzberg , defined 4 decisional roles which are generally practiced by a manager. One of which is, “Resource Allocator”, the management of the PepsiCo India, assumed this role, wherein the company focused on the changing trends in the society, and decided that the company would now focus more on Hydration and juice and wellness subsidiaries, as the growth of the hydration segment, is in double digits while juices segments witness a growth of lower double digits.

Major chunk of the resources would now be diverted to the “Aquafina” & “Tropicana”, adding several products in their arsenal, Pepsi has already launched “Aquafina Vitamin” in kiwi and raspberry flavor.

A qualitative decision making technique, “Experimentation” has been exemplarily displayed by the firm, as Mr. Vipul Prakash, senior vice president, PepsiCo India, said, ”Pepsi would also try to reduce calories in its drinks. A target of keeping only 100 calories in every 355ml is expected to be achieved by 2025. Pepsi has launched 7up, with reduced sugar (up to 30%) in Gujarat. The pilot project has been a success and similar projects are being tried on Mirinda and Mountain Dew”. Pepsi, in some years would also be expected to venture into dairy business.

The decisions taken by PepsiCo, although classical and simultaneously, brave, aren’t purely objective, as they are gambling on the future market behavior with the current data. The move of altering the sugar content would (in my expectations) change the taste of the products which would definitely affect the revenue as well as the stock prices of the firm. It would still be very interesting to see how this decision of the beverage giant turns up. 

Government plans stricter consumer protection laws to empower the consumers

By Ridhima Malhotra

PM Narendra Modi on Thursday said that the government is working on a new consumer protection act to empower consumers and enforce stricter guidelines on misleading advertisements. The new consumer protection act will ensure that the grievances are addressed in a time-bound and cost effective manner.

Speaking at the inauguration of a two day international conference for consumer protection, PM Modi spoke at length about the GST Law and said that it would be beneficial for the consumers. He stated that GST would help the prices to come down because of tough competition amongst the manufacturers. He also focused on the importance of protecting the consumer interests.

This new law will replace the Consumer Protection Act 1986, and will instead incorporate the revised 2015 UN guidelines on consumer protection. The law comes at a time when the government is initiating overhauls in several sectors. The Government had recently enacted a new Real Estate (Regulation and Development) Act to protect home buyers interest. The RERA legislation would protect buyers from builder’s monopoly.

The law comes as a welcome move at a time when many believe that the existing consumer law is riddled with loopholes. With the dwindling consumer confidence, the revised law certainly attains significance. Experts have also suggested that the new consumer protection act will safeguard the customer’s rights and will help them save money by initiating favourable measures. What remains to be seen is if it will succeed at the implementation level.

Government to inject ₹2.11 trillion in India’s State-run Banks

By Shweta Arya

India’s banks received a significant boost with the Union government deciding to inject approximately ₹2.11 lakh crore worth of capital into the banking sector. Capital injection is an investment of capital into a company or institution, generally in the form of cash, equity or debt. The word "injection" denotes that the company or institution into which capital is being invested may be in financial distress. This step will help in putting Indian banks on the path to recovery from a buildup of bad loans.

When banks lend money, their loans count as an asset, since they will receive interest from the borrower and expect to have the original amount paid back in full. A loan becomes a non-performing asset, i.e. a bad loan, when the borrower defaults on the repayment for more than nine months. When a bank writes off NPAs, its capital is likely to be eroded and limits its ability to lend further. This has made it hard for banks to offer more credit or attract investment, even as the economy struggles to get back on track.

Soured debt is now the highest since 2000, hampering credit expansion that’s needed to spur our economy.

By capital injection, the government is trying to partially improve the balance sheets of public sector banks. This will also help banks write off some of the ₹10-lakh crore bad loans currently on their books. The government is hoping to do this primarily through recapitalization bonds, which will also make it easier to divest their shares. Further, there is an assumption that the recapitalization will help the banks improve their business, leading to higher profits. Estimates suggest that the public banks would require about ₹2.3 lakh crore of capital if they are to fulfil the requirements.

While banking analysts agree that putting more capital into stressed banks is a positive thing, nobody is sure exactly how much good it will do until a fine print of the whole process is available.

Multiple Investors: Need of the hour for OLA

By Shivam Saklani

A big day indeed, for Bhavish Aggarwal, but even a bigger conundrum, when he was offered $1 billion for his ride hailing company, OLA, by Japan’s Soft bank. This offer was made by Softbank, at the time when it was mired in a fierce battle for supremacy with world’s most valuable startup, Uber.

The offer, although lucrative, was still not accepted in its original form by Aggarwal, the reason being, that down round, however painful, is still acceptable, but not the tacit loss of control. Finally, OLA accepted $250 million from Softbank and chose to seek out newer investors.

Seasoned Entrepreneurs appreciated the move; they asserted that, every startup should have at least 2 strategic investors, where each one has the potential to balance the influence of the other on the firm. For OLA, Aggarwal’s decision, proved to be prescient, as slowly, the investment trickled in, as the company won more market share by launching premium subscription service like ‘Select’ and entertainment offerings like ‘OLA Play’ besides localizing more, by adding autos to their network too!!

According to Masayoshi Son, CEO of Softbank, It is now very easy for Indian startups to attract investment, as the markets of most other countries are saturating, and more and more companies want to start business, in some form or the other in India. In this scenario, the local player has the advantage of knowing local culture and adapting to it. Global players, on the other hand, cannot change their technology platform or their supply chain according to each market, their benefit of economies of scale itself becomes their weakness. Still most investors and founders view strategic capital as a double edged sword, thus the speculation regarding the investing and accepting arises.

Flipkart planning to buy stake in Future Group's fashion arm

By Aashi Sehrawat

India's largest online retailer, Flipkart, is looking to buy 8-10 per cent stake in Future Lifestyle Fashions Ltd. (FLF), one of the country's leading offline fashion and lifestyle retailers with total retail space of 5.4 million sq. ft. across 400 stores in 90 cities. Future Lifestyle owns and markets 41 domestic and global fashion brands including Lee Cooper, Scullers, Indigo Nation, John Miller and Jealous 21.

Leaders from both sides, majorly Kishore Biyani from FLF - the listed fashion arm of the Future Group, have met in Mumbai, though nothing has been finalised yet; follow-up meetings will be held soon as the Diwali is now over.

Last month, Amazon, Flipkart's biggest rival, bought a 5 per cent equity in retail major, Shoppers Stop for Rs. 179.25 crore, being its first investment in offline retailer. Flipkart followed the same path to expand its base into smaller towns.

If the deal proves to be successful, it could be a big boost for Flipkart-owned fashion subsidiary Myntra, which is itself aiming to become profitable at an EBITDA level by March next year. Also, they could use the Central and Brand Factory footprint to create exclusive experience centres and other shop-in-shop formats.

On the other hand, Kishore Biyani can seek preferred access for Future's fashion brands through the Flipkart network. Previously, Biyani had teamed up with Amazon in October 2014 to sell Future Group's portfolio of brands on Amazon's platform in India, but that partnership did not make much profits.

Apart from this alliance, Flipkart has two more steps planned to beat its rival, Amazon and reach to greater heights in the marketplace. These are:

• Flipkart had initially launched the loyalty programme called Flipkart First which fizzled out due to lack of focus from the company and low interest from consumers. So it is now planning to relaunch this programme to compete with Amazon Prime.
• Flipkart is also in talks with internet start-ups like BookMyShow and MakeMyTrip for free and faster deliveries and discounts as well.

Missing focus on R&D of Indian telcos

By Aarushi Singh

As competition in the telecom sector is elevating the need for more focus on R&D is required. Many telcos are trying to build strategies and investing huge amount on this sector. As the existing companies and the new comers need to prove themselves.

Recent announcement of Bharti Airtel acquiring consumer mobile business of Tata Teleservices ltd. and Tata Teleservices Maharashtra was not surprising as acquisition and mergers become necessary to survive in a competitive market. Over the last 10-15 years, the telecom sector has experienced advancements like VOIP (voice on internet protocol), broadband, smart phones, 3G and 4G technologies. These advancements have made India the world’s second largest telecom market and have third highest number of internet users in the world.

According to experts all factors necessary to fuel research and development are present in India which includes demanding customers, profits aplenty, financing options, intense competition and rapidly growing market. But the barriers for entry created in this technical market could collapse as happened in the case of Reliance Jio an year ago. Low prices helped Reliance to create its customer base and become the biggest competitor for other companies.

Therefore surviving of the telcos is totally dependent on the innovation and opportunities which they take up in the future and how they deal with the changing market scenarios.

Opportunities in the Indian Industrial Sector & the Make in India push

By Shivam Saklani

India’s economic growth rate, though slow, by our domestic standards, is still one of the fastest growing economies in the South Asia.

Despite India’s potential to grow, India still remains one of the most complex challenges for foreign multinationals when they think of investment. “It is difficult to make money in India”. This phrase has been popular amongst most of the foreign executives as it is a challenge in itself to understand the Indian markets, India also provides far less incentives as compared to its competitors, such as China.

With a relatively slow economy, and an increasingly challenging intellectual property protection environment, many foreign nationals have increased their focus on India. Competing in China is becoming increasingly difficult for foreign multinationals, since the markets in China are shrinking at a very fast pace. This can be explained by the following example:

In 2014, China had 83 cars per1,000 citizens, this caused less number of automobile buyers in 2015 and even less in 2016, but if we consider India, in 2014, there were 18 cars per 1,000 citizens, thus number of buyers in 2015 increased, they increased even more in 2016.

Besides obvious market opportunities over the past decades, India has developed into an advanced engineering and technology hub, with well-trained English speaking workforce and its strategic geographical location i.e. in the Asia-Africa-Middle East Triangle.

These opportunities are being exploited by many foreign multinationals e.g. British construction equipment maker JC Bamford Excavators Ltd. entered India, as early as 1979. Today it dominates construction market with 75% market share; India has progressed considerably in automobiles sector also. Automobiles giants like Volkswagen and Hyundai exports vehicles made in India to more than 35 markets around the world, including Africa, South East Asia, Latin America etc.

Ford exports cars made in India to Europe and plans to export them to US too. Harley Davidson began assembling its iconic bikes in India in 2011 and saw its demand increase in local market by 500% in 5 years. The firm also ships made in India bikes to other Asian nations. Yamaha also exports made in India bikes to its home country.

All the companies which entered Indian markets weren’t able to succeed as much as the aforesaid companies, some of them also made a very early exit.

One of the most important factor of the early exit was , that many of these firms entered the Indian market after thoroughly competing in the Chinese markets , and when they entered the Indian markets, they generalized the Asian markets, thinking that economies with large populations react to the market stimulus in a similar fashion.

Second important factor would be the different income segments which Indian society has. Unlike China, India’s high income segment is extremely small; the issue is that everybody competes for the same small segment at the top, which isn’t expanding! Customers in this section are brand-aware and willing to experiment. While these customers are willing to spend, their interests depends on a brand’s image, its advanced features, customization options and some level of local touch in the products. Some of the multinationals which successfully rule this segment include Louis Vuitton, Harley Davidson, Mercedes Benz, BMW, Audi, Apple etc.

Apart from a few firms which successfully survived the Indian market, while catering only to high income segment, there are many multinationals who failed in the aforesaid attempt.

Chris Clark, an entrepreneur rightly described India when he said, “What most executives don’t understand about India is that it is a bottom to middle income market with relatively small income segments”. This comment appropriately describes Indian market, as 68% of India’s population falls within lower income segment. The middle income segment in India needs to be tapped from the lower income segment approach to achieve critical sales. This segment is also of great importance since it includes nearly 75 million households.

To master these market segments, it is important for the firms to collaborate with Indian conglomerates for a deep market penetration. Although India has come out of its image of “License Raj”,as now most of the license requirements have been relaxed by the government due to Make in India and FDI initiatives taken by the government, but same initiatives requires firms to achieve certain levels of local employment (usually 30%). Collaboration with Indian firms can help foreign multinationals in this regard.

A foreign multinational which entered the Indian market in 1984, displayed exemplary skill of firmly collaborating with Indian firm. The firm which entered Indian market was Honda Motor Company and the firm with which it collaborated was Hero Cycles Ltd.

The joint venture started with Honda setting up production facilities in India to manufacture two-wheelers with both local R&D and technical know-how in the partnership. Hero took care of establishing a broad national distribution and service network. Hero-Honda, thus, went on to become the most popular brand not only in the Indian market but also in other Asian and African markets.

Another example is that of Suzuki Motor Corp. which entered Indian market in 1982, through a joint venture with Maruti Udyog Ltd.a public sector company, but when Suzuki planned to enter Indian market, most of its components suppliers in Japan refused to follow the company into the then small and uncertain Indian market. In order to solve the problem, Suzuki facilitated number of technology and equity partnerships between Japanese suppliers and Indian component makers. Soon the local suppliers were able not only to supply components but also helped it to make its iconic product Maruti Suzuki 800, which suited the local customer need.

A new approach which foreign multinationals use is to introduce their latest products in India and then to release it elsewhere. This, not only provides the firm, time to study its customers, but also establishes its prominent image in the public’s perception. E.g. Walt Disney released the movie “Jungle book” first in India  and then in other different countries. Same policy was followed by Renault-Nissan in their Kwid Project Launch.

Thus India has prominently established itself as a stable and viable market, ready for magnanimous FDI, with the people, government and market simultaneously.This would be an appropriate time to invest in India, but the investing firm must do their homework well, as the Indian market can prove to be a cut-throat competition, where second chances are seldom provided.

China's top E-commerce firm, Alibaba, plans to invest $15 billion on Global R&D Program

By Ridhima Malhotra

Research and Development plays a critical role in the innovation process. It’s essentially an investment in technology and future capabilities which is transformed into new products, processes, and services. Big tech Giants like Google, Amazon, Apple, Alphabet, Intel and Microsoft spent billions on research and development.Alibaba is likely to continue with arrangement and is set to dramatically increase its R&D spending from $6.4 billion every year to $15 billion in the coming three years.

The Alibaba 'Damo' academy would launch eight research labs in China, Israel, the United States, Russia and Singapore. The labs will conduct research in areas such as data intelligence, Internet of Things, financial technology, quantum computing and human-machine interaction.

Alibaba in the recent years has experienced a fast expansion, carrying it into direct competition with US e-retailer Amazon. The Chief Technology Officer Jeff Zhang said that the plan to invest 15 billion in R&D would help the Chinese giant to develop next generation technology and will increase the growth of the company and its partners.

Amazon drives the tech world in R&D spending, with its spending amounting to around $16.1 billion. Close on the heels is Alphabet($13.9 billion), Intel ($12.7 billion), Microsoft ($12.3 billion) and Apple ($10 billion). All things considered, China's pioneer in e-commerce business is stepping forward to contend on a worldwide level with these western organizations.

RBI implements stricter KYC norms for E-wallet security

By Shweta Arya

KYC policies are critical for protecting the safety of banks and the integrity of banking system in the country. Know your customer (KYC) is the process of a business, identifying and verifying the identity of its clients.

The Reserve Bank of India has allowed "interoperability", i.e.,the ability of computer systems or software to exchange and make use of information and introduced stricter Know Your Customer (KYC) norms to prevent fraud, enhance competition and encourage innovation, for all e-wallets.

Products achieve interoperability with other products using either or both of two approaches:

• By adhering to published Interface standards.
• By making use of a "broker" of services that can convert one product's interface into another product's interface without any interruptions.

For the customers, the whole process brings ease as one can now move money between wallets of different companies and banks seamlessly through Unified Payments Interface (UPI) provided they complete full KYC formalities, like they do for bank accounts. Non-verified wallets cannot have a balance of more than ₹10,000, and this amount can only be used for the purchase of goods and services and not for transfer to other wallets or bank accounts. However, full KYC wallets will have a limit of ₹1 lakh and the option to transfer to other wallets will be available.

For the industry, currently using minimum KYC norms, such as a simple mobile number verification, complying with the RBI's proposed KYC requirements could cost around ₹120 – ₹200 per customer, depending on the location and the documents. For a company like MobiKwik, that has about 65 million users, a cost of around ₹7801,300 crore is forecasted. Even for digital wallet companies with fewer customers, the costs would be significant. Another worrying factor is that the zero balance accounts of customers of all such wallets would have to be closed, affecting the user base of the payment apps.

All the existing wallet users should convert to the full KYC format by this year end. The RBI has set the compliance deadline as December 31, 2017, for the new set of rules. To cut down the costs, the most likely method to perform the large-scale KYC process is touted to be Aadhar-based through mobile number identification. The step by the Reserve Bank of India (RBI)  is aimed to define a more safer and monitored path for e-wallets in the more digitally equipped future of Indian bank payments.

Following IMF, World Bank lowers India’s growth forecast over demonetisation

By Aashi Sehrawat

A day after International Monetary Fund (IMF) lowered India’s growth forecast, the World Bank on Wednesday said India’s GDP may get slowed down from 8.6 per cent in 2015 to 7.0 per cent in 2017. The reasons according to them are the disruptions caused by demonetisation and the GST.

Although the report blamed the GST as a factor in lowering the growth projection for this year, the IMF said that it "is among several key structural reforms under implementation that are expected to help push growth above 8 percent in the medium term".

IMF’s Financial Counsellor Tobias Adrian conducted a study and it showed that Indian banking sector was vulnerable due to large segments having low profitability and having large problem loans. Also, according to a Finance Ministry data, Gross non-performing assets (NPA) of the public sector banks rose to Rs 6.41 lakh crore at the end of March 2017 as against Rs 5.02 lakh crore a year ago.

World Bank said that sound policies around balancing public spending with private investment could accelerate growth to 7.3 per cent by 2018.

Recommendations given by IMF were:

1.  The very first recommendation was for simplifying and easing labour market regulations and land acquisition procedures, which would help India improve the business climate.

2.   To facilitate more women to join the labour force, as gender gaps not only hold back potential output but also limit women’s opportunities, thereby decreasing country’s growth rate.

However, India is likely to regain the tag of the fastest growth emerging economies in 2018.

For the year 2022, the IMF has projected a growth rate of 8.2 per cent, as against its growth projection of 6.7 in 2017 and 7.4 in 2018.

Recommendations by SEBI Panel on Corporate Governance

By Aarushi Singh

With a view of improving corporate governance standards of listed companies in India the panel under the chairmanship of Uday Kotak on Thursday last week submitted its report to SEBI suggesting changes for bringing transparency at companies’ boards. The report gains significance in the backdrop of recent board battles at some of the biggest Indian corporate companies including Tata Group and Infosys.

Some key suggestions of the panel are:

• It is the right time to split Chairman, MD-CEO role of listed companies.
• It should be mandatory for the top 500 companies by market capitalization to undertake D&O insurance for its independent directors.
• More transparency on appointment of independent directors.
• No person to be appointed as alternate director for an independent director of a listed company.
• A formal induction should be mandatory for every new Independent director appointed to the board.
• An audit committee must review use of loans /adv/ investment by holding company in arm over Rs 100 crore.

Apart from these suggestions the panel also pointed on the earlier Companies Act of 2013 which mandated a certain class of companies to have at least one woman Director on board. But, nearly 40% of the companies listed on NSE still have to appoint a woman independent director, if the Uday Kotak led SEBI panel on corporate governance were to be implemented.

According to experts it is a common misconception that there is a dearth of independent women talent for boards. They view this recommendation as a positive step in ensuring independence in gender diversity. Earlier SEBI chairman Ajay Tyagi said that independence of director is a serious issue and we need to examine this along with other government regulators.

Interestingly, the ministry of corporate affairs has opposed some of the recommendations made by the committee on the grounds that they concern matters already covered by the Companies Act.

Richard Thaler wins Noble Prize in Economics

By Shivam Saklani

The US academic Richard Thaler won the Noble Prize on 09-10-2017, for his pioneering work in the field of Economics, for his "Nudge Theory", which explores, how human psychology shapes economic decisions.

Prof. Thaler, currently the Professor of Behavioral Science and Economics at University of Chicago was the 79^th recipient of the award, officially known as "Sveriges Riksbank Prize", the award was announced by Royal Swedish Academy of Sciences in Stockholm on this Monday morning. He will receive a prize of $1.1 million.

Economists, till now have been assuming that individuals behave rationally, also called as cold-headed logic, making decisions on the information available to them. Prof. Thaler’s work has helped in finding a reason as to why people behave in ways that aren’t fully rational. The theory states, that, given two options, humans are likely to pick the wrong one, even if it makes them less well-off. Suppose a student is given 2 options, one, to attend the class, another, to miss the class. Now, the decision of most of the students would be the second option, here we observe, that the habit and the interests of the students, who chose second option, overtook the cold headed logic of attending the class, which would have left the students more well off. Nudge theory takes account of these situations, as it based on the simple premise that people often choose, "Easiest over the Wisest!" Brexit can also be a great example of how behavioral economics can be useful, Prof Thaler states that, with a narrow margin, the decision to leave EU was influenced by gut choices, as opposed to rational decision making.

After the prize was announced, taking a light jest, as to how he plans to spend this money, the 72 year old said, "As irrationally, as possible!!"

Fiscal problems, Monetary solutions: Can it work?

By Dr. Gagan Deep Sharma

India as a political economy, has been on a roller-coaster ride over the last three years or so. A lot of hype (of reforms push) got created around the time the new government assumed office in India. Macroeconomy as well as stock markets obliged in the first two years or so by producing optimistic numbers. 

Demonitization approached India like a real path-breaker for the political economy of India. The expected outcomes from demonitization (flowing out of the govt's discourses) kept on changing - from unearthing black money to curtailing terrorism to controlling corruption. Eventually, it could be worked out that the most evident intent was to convert the informal economy into a formal economy. Whether this was successful still remains a question but nevertheless, it threw Indian economy a challenge of sorts that has not been addressed in a desired way.

The next big thing - GST - was waiting in the wings and didn't have to wait too long before arriving. With slabs touching as high as 28% and procedural bottlenecks rolling the roost, GST (in its current shape) gave another blow to the economy (particularly the informal economy). General prices in the country have risen sharply since the introduction of GST (in July 2017). Applying GST on oil commodities could have helped ease the pressure from general price level but could have hit the exchequer's revenues badly; causing the government to keep oil commodities out of the purview of GST.

Demonitization and GST, which witnessed to be the epicentres of political mudslinging so far, are now getting reflected in the overall economic picture of the country. Heavy selling by FIIs in September (On 28th September, FII selling touched a whopping 5000 crore Rupees), falling rupee, low GDP growth, rising inflation, etc, have become a cause of concern. These problems are macroeconomic and fiscal, nevertheless.

As a matter of solving these bigger problems, the government seems to be building pressure on Reserve Bank of India to offer monetary solutions including softening the interest rates further. As an alternative, various measures could be considered - GST slabs can be revisited, cesses may be done away with, infrastructural expenditure can be increased, etc. 

In my opinion, trying to increase the money supply in the economy cannot help solve the problems that are fiscal in nature. I am sure you have got some interesting inputs in this regard. Let's deliberate on it further.

India's top E-commerce Startups plan to launch a Lobby Group

By Ridhima Malhotra

India’s leading e-commerce companies like Flipkart, Ola, MakeMyTrip and Quikr are coming together to launch an industry body – Indiatech.org. The lobby group is slated to be headed by Sachin Bansal, co-founder of Flipkart. At a time when international companies are successfully tapping into Indian markets, the lobby group seeks to present and advocate for the interests of local ventures.  The formation of the interest group clearly indicates the aggressive stance to fight against ‘deep pocketed’ global competitors for ‘fair market’ in country, reports The Economic Times.

Lobbying is an act of attempting to influence businesses and government leaders to create legislation or conduct an activity that will help a particular organisation. In India, like many countries, lobbying is viewed with skepticism. Though it is rampant, there is presently no law to regulate lobbying in the country. The 2G spectrum scam of 2010, unearthed the need to regulate lobbying and make it more transparent. Despite the ambiguity around lobbying, trade associations such as the FICCI, NASSCOM and CII have been able to carve out good deals for members in the business fraternity. But presently, there is no independent association that solely focuses on home-grown ventures.

The main work of Indiatech will be to push the government to make policies, which would help in the growth of the domestic startups and also boost the local internet business. Different Venture Capitalist and Hedge Fund firms like SoftBank, Tiger Global Management, Steadview Capital, Accel India and Matrix Partners India are invited to join the group. Besides lobbying, the group will also discuss issues related to job creation, skills training and providing resources to boost the internet business.

Data as reported from the Economic Times reveals that if the homegrown e-commerce companies fail, India would lose $10 billion of FDI and over $1 billion of the tax revenue per year. The nation would also lose a chance to create a million job opportunities. Many in the Indian start-up ecosystem feel that a composed gathering like Indiatech.org could be relied upon to provide a platform for the domestic players to voice out their interest. With an eye on domestic markets, it is however left to be seen if Indiatech will succeed in infusing a new sense of proactivity.

India ranked at 40th place out of 137 countries in World Economic Competitiveness

By Shweta Arya

The Global Competitiveness Report (GCR) is a yearly report published by the World Economic Forum. Since 2004, the Global Competitiveness Report ranks countries based on the Global Competitiveness Index, integrating the macroeconomic and the micro/business aspects into a single index.                                                            

For the year 2017, on a list of 137 economies, Switzerland stands at the first place, followed by the US at second and Singapore at third place. India remains the most competitive country in South Asia, appearing at No.40, while neighboring China is ranked at 27th. India's ranking is one lower than last year’s, but the two rankings are not comparable because of a change in the methodology this year.

The report assesses the ability of countries to provide high levels of prosperity to their citizens. This in turn depends on how productively a country uses its available resources. Therefore, the Global Competitiveness Index measures the set of institutions, policies, and factors that set the sustainable current and medium-term levels of economic prosperity. The yearly meeting brings together some 2,500 top business leaders, international political leaders, economists, and journalists for up to four days to discuss the most pressing issues facing the world.

India's score has improved across most aspects of competitiveness. These include infrastructure (66th rank), higher education and training (75th rank) and technological readiness (107th rank), information and communication technologies also saw a good improvement, reflecting recent beneficial public investments in these areas.

However, as stated by WEF’s Executive Opinion Survey 2017, corruption still remains the most troublesome factor for doing business in India. Access to financing, uneven tax rates, inadequate supply of infrastructure, poor work ethics in national labour force and inadequately educated work force are some other gridlocks affecting the rank. Hence, India needs a greater improvement in the mentioned problematic areas to rise above in the world competitiveness scenario.

Credit Opportunity Funds: a relief for retail investors

By Aarushi Singh

Credit opportunities funds essentially play on the credit ladder and don’t depend on interest rate movements to earn returns, unlike the traditional bond funds. These funds generate returns from interest accrual, mainly investing in higher yielding but lower rated (AA or below) corporate bonds.

There has been growing popularity for these funds as these can help negotiate the uncertainty in interest rates amid talks of a fiscal stimulus which is aimed at reviving growth. This category of fund has given a return of 9.1% over the last one year on the other hand bank fixed deposits have yielded approximately 6% and 6.75%. This differential is attracting investors towards credit opportunity funds and many top performers like Baroda Pioneer, Franklin India Dynamic Accrual Fund and Aditya Birla Bond fund are giving returns of 9.5%-10% over the last one year.

Wealth managers also believe that investors need to be careful while investing in these funds as they are investing in lower –rated paper that carries default risks.

Therefore, with declining rates on small savings and bank fixed deposits, lack of opportunities in company deposits fixed income investors are attracted to this category of funds but they need to be aware about the default risk associated to it.

Japan to fund mass rapid transit systems in Gujarat, Haryana

By Aashi Sehrawat

Funds from a Japanese government loan will soon be utilised for the first time in the $100 billion, Delhi-Mumbai Industrial Corridor (DMIC) project. So far, the mega-project was being developed only with the Indian government’s financial assistance.

The JICA is the Japanese governmental agency in charge of implementation of Japan’s Official Development Assistance (ODA) — with the main objective of ‘promoting economic development and welfare in developing countries. The interest rate of the loan will be kept ‘very low’ (at 0.1%) having a long repayment period (at 40 years, including a 10-year grace period).

The DMIC spans six States (Uttar Pradesh, Delhi National Capital Region, Haryana, Rajasthan, Gujarat and Maharashtra). It uses ‘the 1,500-km-long, high-capacity western Dedicated Railway Freight Corridor (DFC) as the backbone’ and aims to be ‘a global manufacturing and investment destination’.

A soft loan (with concessional conditions) to the tune of $4.5 billion to be extended by the Japan International Cooperation Agency (JICA), will shortly be utilised to develop two Mass Rapid Transit Systems (MRTS) — one each in Gujarat and Haryana — that will be part of the DMIC.

According to JICA, its “ODA to India started in 1958” and so far around “₹2.75 lakh crore in ODA loans have been committed for development across various sectors.” As per JICA, it is “India’s biggest bilateral donor.”

Incidentally, a JICA loan worth ₹88,000 crore, on similar terms , will be used to build the ₹1.08 lakh crore Ahmedabad-Mumbai bullet train project. JICA loans/assistance are being used to facilitate development of Metro rail networks including in Delhi and the Western DFC. The MRTS in Gujarat will be ‘at grade’ (ground level) and link Ahmedabad to the Dholera Special Investment Region (DSIR).

The sources said the Detailed Project Report (DPR) for the MRTS was ready and land was being acquired. The MRTS in Haryana will be an ‘elevated’ one and will connect Gurgaon and Bawal (part of the Manesar-Bawal Investment Region in the DMIC).

The land has been acquired and the DPR has been finalised, officials said, adding that the MRTS has been included in the JICA ‘Rolling Plan’ for the ODA loan. The Department of Economic Affairs will soon ask JICA to work on preparatory surveys for the project, they said. The length of these two MRTS projects will be 85 km each.

Google's Tez App: Fast-tracking Digital India?

By Ridhima Malhotra

Google Tez, a new digital payment app was launched in India this week. Based on Unified Payments Interface (UPI), Google Tez offers a simple and fast way to send and receive payments directly into bank accounts of individuals and merchants.

After demonetisation, a sudden spurt in the growth of digital money transactions was seen, but in recent months, cashless transactions have slowed down. At the launch of the app, Finance Minister Arjun Jaitley however expressed confidence and said that cashless transactions would bounce back, adding that the slump was temporary.

Google's Tez intends to cater to an audience which is looking for easy digital payments solutions. With a user-friendly interface, Google has launched Tez on both Android and IOS platforms. Tez was launched in partnership with four Banks - Axis Bank, HDFC Bank, ICICI Bank and State Bank of India - to facilitate the processing of payments across over 50 Unified Payments Interface (UPI) enabled banks.

So, how exactly is Tez App different from the existing digital payment apps available in the market? The Google Tez is a medium to facilitate bank transactions between the sender and the receiver. One of the interesting new features from the tech giant is the “Cash Mode” where one can pay without sharing bank details or phone number. This is done through technology called audio QR that works like near field communication (NFC) and uses ultrasound waves to connect two phones through microphone and speaker.

With digital transactions facing what seems to be a temporary decline, it remains to be seen if Tez would be able to carve out a niche for itself in the market. 

The Big Merger: Thyssenkrupp AG and Tata Steel Ltd.

By Shweta Arya

Mega mergers aren't very common, but when they happen, the numbers involved are truly massive, as seen from a very recent development in business. 

Leading German Steel maker Thyssenkrupp AG and India's Tata Steel Ltd. signed a memorandum of understanding to form a 50-50 joint venture in a non-cash deal on Wednesday. The newly formed entity will be called — Thyssenkrupp Tata Steel, to be headquartered in Amsterdam region of the Netherlands and will supply premium and differentiated products to customers.

The move to create Europe's second-largest steel company is an effort to affiliate the industry, which has long struggled with excess capacity and competition, particularly from China.

Speculations regarding this proposed merger started one year ago, the company is estimated to have a revenue of about €15 billion (₹1.16 lakh crore) per year, shipments worth 21 million tons a year and, at present, some 48,000 employees. The companies expect to save between €400 million and €600 million (₹40 crore to ₹60 crore) in costs per year by integrating activities including research and development.

The effect of this merger is supposed to help both the companies as the steel assets and identified liabilities will be transferred from their books to the Joint Venture, leading to a leaner balance sheet for both the firms. The combined business profitability will be higher than the Tata Steel Europe's current magnitude.

The critical point arises that up to 2,000 administrative jobs and around 2,000 jobs in production sector will likely be cut, the impact estimated to be shared between both sides. Another major contrast is that Tata Steel is a focused steel company whereas Thyssenkrupp has a more profitable 'capital goods business' it would like to focus on and producing steel is not it's prime initiative. More details are to be concluded in time for a formal signing of the transaction at the beginning of 2018.

The trend of regional consolidation is quite extensive, pointing to other four large combinations in China and ArcelorMittal acquiring ILVA, Italy's largest producer. Hence, how the two firms work to make the European steel business more rewarding and the eventual outcome are the aspects to watch out for in the years ahead.

SBI Life's $1 billion Initial Public Offering

By Shivam Saklani

All of us must have observed the SBI Life Insurance Company Limited’s advertisement, which had been making a prominent appearance in most of the reputed newspapers.

The company, through advertisements was proposing to make an IPO. An IPO or initial public offer, is the first time that the stock of a private company is offered to public.

SBI really came in big, with this IPO prospect and went on to offer 8,82,00,000 shares to general public. SBI Life has fixed a price band of Rs. 685 to Rs. 700 per share for the offer, which is India’s biggest in 7 years. The initial share offer will close on 22^nd September i.e. you still have a couple of days left, in case you are interested. Bids can be made for a minimum of 21 equity shares and minimum of 21 equity shares thereafter. The equity shares are listed on BSE as well as NSE.

SBI Life Insurance is a joint venture between the Bank and BNP Paribas Cardiff, wherein SBI owns 74% of the total capital and BNP Paribas the rest. After this stake sale, SBI’s stake in the arm is proposed to come down to 70.1% while BNP will continue to hold 26%

The stock market was really progressive for IPOs till mid-September, wherein many companies saw their stocks rise, even by a humongous rate of 102% in a very short period. SBI Life had also reported a profit of Rs. 954.65 crore in 2016-17. This made a perfect environment for SBI to launch its IPO.

Even after the entire favorable environment, there was still a speculation in the market, as it is a known fact that IPO can be a risky investment for the individual investor, as it is tough to predict, what the stocks will do on its initial day of trading in the near future because there is often very little to analyze and there is always a sense of uncertainty regarding their future values. This sense of uncertainty also prevailed in stock market as the public offer received bids for 852,81,413 shares against the issue size of 8,82,00,000.

SBI Life has already garnered Rs. 2,226 crore from anchor investors, some of which include Blackrock, Canada Pension fund, Govt of Singapore, HSBC, HDFC MF, ICICI Prudential MF, Kotak MF, Reliance MF etc, from among 69 of the total anchor investors.

With these figures, most brokerage firms believe that the investment is good only if the investor is planning for long term investment. An investor can enter at lower price post listing and can hold the equity for a long period of time for better returns.