Tuesday, July 31, 2012

Sensex 1991 and Sensex 2011...The Real Journey of Reforms in India

ACC, Ballarpur Industries, Bombay Dyeing, CEAT, GE Shipping, Century Textiles, Cummins India, Grasim Industries, GSK Pharma, Nestle Steel, Mukund Iron & Steel, Hindustan Motors, Indian Hotels, Indian Organic Chemicals, Indian Rayon Industries, Voltas, Zenith, Philips Electricals Company, Premier Auto, Siemens, Gujarat State Fertilisers & Chemicals

Making Sense of the Sensex & India Inc.
The sensex of 1991 has lost 70% of its constituents. however, they are not necessarily the usual suspects that form part of what we can call popular folklore!

The more things change, the more they appear to remain the same. And the more you believe propaganda being peddled as statistics, the more your chances of being mesmerized by contemporary mythology. Things are not very different when you actually sit down and analyze the kind of companies that have been entering and exiting the 30 scrip Sensex since 1991, when economic reforms were launched and the animals of entrepreneurship were unleashed.

Beyond the hype and hysteria that usually mark any coverage and analysis of India Inc. and the stock markets, let us puncture a few abiding myths about corporate India as reflected in the composition of the Sensex.

Myth number one is that old hoary chestnut about the decline and fall of Indian business families. Apparently, the unleashing of entrepreneurial energies since 1991 has triggered the emergence of new tycoons and companies and dynasties that have replaced the old business families who were so steeped in the license permit culture prevailing prior to 1991 that they had simply lost the art of competing in the marketplace. At a first glance, this interpretation does appear to be correct. Except for the Aditya Birla group, the Birlas have surely witnessed a terminal decline. Forget the Sensex, it is difficult to find them even in the list of top 100 listed companies in BSE. Once upon a time, Bombay Dyeing was a blue chip in the Sensex and Nusli Wadia a powerful name in India Inc. Alas, those glory days are gone. The Goenkas, too, have more or less vanished from the corner that holds the top industrial and corporate names of India. It is difficult to find a Singhania and almost impossible to find a Dalmia or a Modi. And yet, don’t be fooled by these disappearing acts. The Tatas and the Aditya Birla group are still there right at the top along with the Ambanis (it would be stupid to call the Ambanis a new business family now). And after years of being banished, that classic symbol of license permit raj monopoly, Bajaj Auto came back to the Sensex with a vengeance. It joined Hero Honda, and the Munjals are a business family that is older than the Ambanis. Even the Jindals find pride of place in the Sensex, and so do the Mahindras. Who says that the typical Indian business family is being elbowed out of the top echelons of India Inc? The thing is, the more things change, the more they remain the same!


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Monday, July 30, 2012

Policy-FOOD SECURITY BILL: STRUCTURAL BOTTLENECKS

Though The Food Security Bill has been finally approved by a Group of Ministers to be presented before The Parliament, what might finally take shape as The National Food Security Act is being questioned. Will the entire idea of food security for all fructify?

To be fair to NAC, the purpose of the legislation on food security, which was earlier an exclusive premise of the NAC, actually lost its teeth soon after government bodies got involved in the process.

Debates began that unfortunately led to the NAC succumbing to political pressure. The whole case of ensuring ‘food for all’ was lost. However, there are still a few positives that emerge from this forward movement, says senior economic expert Suvrokamal Dutta. “Even if the legislation was to be approved in the current form, something which looks very unlikely, it is a big leap ahead. I agree there is a lot more that is to be done in this front... but target groups need to be clearly defined, and there should be a pan-India survey conducted for this purpose. The targeted PDS could prove as a bottleneck for the government while implementing the NFSA. Still, it is a significant move ahead,” he says.

Expecting NFSA to deliver the originally desired results is being too optimistic. But as said, the fact that there is a definite intent within the government to move along the philosophy of food for all, is itself one of the most noteworthy commitments of the political class.

Still, the politicisation of critical issues and the effects thereon, have started to show already. Just before the beginning of the Monsoon session of the Parliament, Food Minister K. V. Thomas declared that it was unlikely that the Bill would be introduced in the current session, adding that it would now be introduced in the winter session, extending the deadline for its implementation to sometime next year. With food inflation rising worldwide, experts are already worried not only about the delay in the bill, but also the funding required to support the same.

Many state governments will look to sort out their differences with the Bill, which is also set to take time. Even if the government is able to push the Bill through in the winter session, it’s not quite clear right now on how the project could include self-sustainability. In summary, it’s a great promise that has been shown to the Indian populace, yet it’s actual implementation remains a distant dream.

Draft dilutes existing entitlements

B&E: What are your major concerns regarding the Food Security Bill? Do you think the proposed legislation in its current form can attend to the food-for-all idea?
JD: The government’s draft of the proposed National Food Security Bill – apart from ignoring the demands of the entire right to food campaign – has junked many provisions of the draft prepared by the National Advisory Council and has also diluted the existing entitlements. The entire draft has been written with the objective of minimising obligations and restricting the extent and reach of the Bill. In fact, it makes a mockery out of the idea of food security for all.

B&E: The extent of beneficiaries of the proposed bill is an issue of concern. Your views on the proposal of legal entitlement to food grains only to priority households.
JD: It is the framework that is problematic. First, it hinges on a lasting division of the population into three groups, without any clarity as to how the groups are to be identified. In the absence of any obvious alternative, the NAC is effectively falling back on the BPL census to identify priority groups. This is a major setback as the NAC’s entire work began with a virtually unanimous rejection of BPL-based targeting for the PDS. Exclusion errors in earlier BPL censuses were very large, and the next BPL census is unlikely to fare much better, judging from the pilot survey. Also, the issue here is not just of the priority groups. There are millions of households which will receive no benefit at all.

B&E: PDS in India has been an area of concern. Do you think the system will be able to deliver? Can the Planning Commission’s view of adopting a system of cash transfers instead of providing subsidised food grains prove to be a good idea?
JD: I think the issue is a little different here. I agree that there is tremendous scope for PDS to improve in India. Having said that, a survey that we recently conducted covering over 100 villages across nine states, indicated an impressive revival of the PDS across the country. In fact, we have found that the PDS has become a lifeline for millions of rural households. However, the other side of the story is that the BPL list on which the benefits of the PDS are based on, is very defective. There are huge inclusion errors, which has severely reduced the effectiveness of the PDS as a tool of food security.

B&E: What other concerns do you have regarding the Bill?
JD: The Bill is set to go to the Parliament for discussion. So, I would not like to comment on what it would come out as. However, there are many provisions of the NAC that were later diluted, which is unfortunate. Still, I believe certain modifications could help the cause. First, the idea of a universal PDS in the poorest 200 districts could easily be reinstated by waiving exclusion criteria in these districts for an initial period. Second, the Act could be gradually extended to the whole country, over a period of, say, three years, starting with the poorest 200 districts. This will make it easier to meet the additional foodgrain requirements in a phased manner throughout India.


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Saturday, July 28, 2012

4G Calling: Are we Ready?

Operators in India are still fixing the loose ends in their 3G networks but 4G technologies are already knocking on their doors.

The rollout of Fourth Generation, or 4G, services is the next big thing for India’s telecom sector. Operators like Reliance Industries, which has broadband wireless access (BWA) spectrum in all 22 telecom circles in India, are already chalking out plans. According to industry buzz, RIL is finalising vendors who would supply broadband equipment based on LTE technology for rolling out wireless broadband services by the end of this year. The other operators with BWA spectrum are also conducting trials to test 4G-based technologies. Qualcomm, Bharti Airtel, Aircel, Tikona and Reliance Infotel are some of the major players who own spectrum in the 2.3 Ghz band and are planning to launch 4G-based broadband services. The largest private telco, Bharti Airtel (which got BWA licence in just 4 circles), says that its 4G strategy depends on future allocations in 700Mhz and FDD 2.5Ghz bands and on its technology trials for BWA launch.

Fourth Generation telecom services are the next generation to the 3G and 2G families of cellular wireless standards and 4G is already the buzzword in many parts of the world. It is the next step in the evolution of mobile data transfer. The services are currently on offer globally by 64 telecom service providers in 31 countries. In the US, Sprint and T-Mobile have already launched 4G-based LTE networks. But in truth, 4G services as we know them today are more like 3.75G, or late stage 3G because “true 4G” networks are still in the works. The important thing, however, is that these networks are ready to be upgraded to full 4G once it arrives, which is expected between 2011 and mid-2012. Also, the underlying technology for providing 4G services is not the same. Sprint and T-Mobile, for example, use WiMax technology for their 4G network, while another player Verizon Wireless uses LTE. But irrespective of the choice of technology, 4G wireless is designed to deliver up to 100 Mbps of download speed and 50 Mbps of upload speed. On an average, 4G wireless today is anywhere from four to ten times faster than the existing 3G networks.

In India, full-fledged 4G services could be some years away as telecom operators continue to grapple with issues related to 3G infrastructure. So far, even the response to 3G rollout has not exactly been encouraging. Analysts estimate that India currently has 10 million 3G subscribers, or approximately 1.25% of the country’s total wireless subscriber base. While the number of 3G subscribers may be small, it is still significant considering that till date, there are only 11 million wireline broadband customers. Despite the poor quality of service to customers, the numbers are clearly on a rise and are expected to reach 142 million in 2015. Wireless networks have already started offering third generation capabilities, which provide benefits of increased data transfer speed and easier access to applications and Internet from mobile devices. The migration to 4G technologies (WiMax and LTE), which offer even better wireless connectivity speeds between 100 Mbps and 1 Gbps, is only to be expected. Predictably, more action on 4G is almost a certainty over the next couple of years as the demand for even more efficient data-centric services keeps growing. The trend is already visible in the increasing hordes of users accessing richer and more customised content, and asking for greater, faster and more efficient forms of delivery. Analysts project that by 2015, mobile internet traffic will increase to 23 Exabytes, which will be equivalent to 6.3 billion people downloading a digital book every day, 50% on laptops and the other 50% on small devices like mobile phones. As a result, the demand on laptop capacity would go up by 1000% and on small devices by 10,000%.


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Friday, July 27, 2012

Is HUL Losing The India Plot?

From #22 in 2009 to #30 in 2010 and now #35 in B&E POwer 100 list. Onkar Pandey tries to find out where is HUL Going Wrong


Certainly, the first decade of the 21st century has been a rough ride for Hindustan Unilever. For one, it’s growth rate has taken a big beating. It hasn’t been able to double its revenue in the last 11 years; poor, considering its scorching pace in 90s, when in was doubling its revenue in every four to five years. Second, it’s no more the feared giant whose marketing skills scared lesser FMCG mortals. Now Players like ITC, P&G, Nestle, Dabur, Godrej Consumers and Marico are slowly and steadily nibbling away its market share in both home and personal care category.

A big reason for the same is the fact that the company has gone for quite a few leadership changes and strategy overhaul in the last decade, which though were course-corrective in nature, forced the company towards a fits and start growth, with each new leadership and strategy change. And now it seems something has really gone amiss with the FMCG giant. The shareholders have started earning less and less from HUL (EPS has gone down from Rs.11.46 in FY’09 to Rs.10.58 in FY’11), which might force them to stay away from the stock in future. Already, Goldman Sachs has further muddled the troubled water by downgrading HUL to “sell” from “neutral,” saying it will find it difficult to sustain strong volume growth in a highly competitive environment, while high input costs will continue to put pressure on margins. It’s profitability is showing continuous dip – from Rs.25 billion in 2008-09, it dropped over 11% in 2009-10 to Rs.22.07 billion. Though it managed to improve its bottomline in the last fiscal to Rs.23.06 billion, it’s just a marginal 4.7% rise.

But more than the profit figures, the real problem for HUL at present is that it has been consistently losing market share across categories. According to Euromonitor International, its market share has dropped from a high of 36.6% in 2005 to 33.3% in 2010 in the personal care segment. Going by individual brands the problem is more worrisome. Its classic brands like Fair & Lovely (down from 5.5% to 5.3%), Lux (5.1% to 4.3%), Lifebuoy (4.2% to 3.7%), Clinic Plus (2.4% to 2.1%), Close-Up (1.8% to 1.2%), Breeze (2.1% to 1.1%), have continuously declined from 2005 to 2010, shows Euromonitor data.


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Thursday, July 26, 2012

Policy-LAND ACQUISITION ACT: CHANGE NEEDED

Violence, Protests and Controversies have always Surrounded Land Acquisition in India. The Latest spate of Violent Clashes at Bhatta-Parsaul in UP over Acquisition of Farmers’ land has only brought to fore The Urgent need for Amendments to The Existing Archaic law. 

Another bone of contention is property valuation. The techniques being flawed, there are claims that given a chance, land owners let go of no opportunity to demand higher values for their backyards than the real market value. This, using the much debatable concepts of ‘potential value’ and ‘opportunity value’ of their property. The government claims that this results in a huge strain on public finances and restrictions on the scale of development and re-development projects. There is also an opposition to the additional payment of solatium over the property value (which is a form of compensation for emotional than physical discomfort or financial loss).

People who argue that the act is draconian, claim that a number of projects with no public purpose attached, as in the case of SEZs, have also resulted in land being snatched away from property owners, with the help of the Act. That too, at well below market value. And preachers of market-based solutions cite evidences proving how even in the case of projects that are genuinely meant for public purposes, there have almost always existed a considerable difference between the market value of the property and the value that the land acquisition officer paid the land owners. Blame is also imposed on the authorities of not following up adequately on the issues of relocation and rehabilitation of land owners displaced by the actions of the Act. While speaking with B&E on this matter, CPM leader and MP Nilotpaul Basu, says, “There is absolutely no mention or recognition of the crucial resettlement and rehabilitation policies in the exisiting legislation which makes confrontations inevitable.”

The protests over acquisition of land had until now been an executive premise of the civil society. Despite huge ruckus (and many heartbreaks) over which political party scores over the other in terms of the huge vote banks that the farmers and landowners command, surprisingly, there is also a form of consensus emerging between these very parties over what the current legislation falls short of. Following the incidences that have occurred in the past month, all major political parties, seem to have woken up to realise that the contours of the more-than-a-century-old legislation are outdated and that either the political cartographers must do something urgent in the name of amendments or the clause should be totally scrapped. In their discussions with B&E, Salman Khurshid (the Union Minister for Minority Affairs), Shahnawaz Hussain (a BJP spokesperson), Ajit Singh (Founder & Chief, Rashtriya Lok Dal & a prominent leader of the farmers) and Nilotpaul Basu (Senior CPM leader & MP), all took a similar stand, denouncing the “mess” of a land act that we inherited from the British, and terming the exisiting law as obsolete. Amendments to the Act, as per them, is an immediate and necessary need. The BJP even assures the government of full support in Parilament when the new Bill comes up for discussion. “We are even ready for a special session of Parliament to get the Bill approved, provided it is in favour of the farmers,” says BJP’s Shahnawaz to B&E.




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Wednesday, July 25, 2012

We’re Happily Fired!

The Trend of Senior CIA Officials leaving The Agency is a Security Issue

The CIA proudly defines itself as the “Work of a Nation, the Centre of Intelligence”. But the brain drain within the Intelligence agency is a phenomenon that diminishes the connotation for the same. The trend of officers leaving CIA has gone up, especially after 9/11. According to data compiled by the Washington Post, about 91 upper-level CIA officials have left the agency in order to find a lucrative job in private sector since 9/11.

This evidently is an expensive trend for the US government. The huge money, time and energy invested for decades of experience and training, paid for by US taxpayers, comes to naught when officials leave for private employment. Most of these senior officials have assumed lucrative posts with private intelligence firms and security consultants, often making significantly more than they could ever make working at the CIA. A major migration to the private sector was witnessed during 2002-07, as business with intelligence contractors increased. However, in 2010, attrition rates at CIA were at an all time low, as quoted by an intelligence official in media. Apparently, out of 8,54,000 Americans with top-secret clearances, 2,65,000 are now employees of private contractors.

The reasons are many. Firstly, CIA is flexible allowing its employees leverage to join private firms. Secondly, the private intelligence industry has emerged as an extremely profitable and large industry, especially after the Iraq and Afghan invasion and war on terror. Thirdly, the financial leg-up appears to be significant enough for the ex-CIA personnel to accommodate some compromises on putting the nation first. While the average salary of the top CIA personnel remains around $180,000 annually, private firms are easily able to offer more.


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Tuesday, July 24, 2012

Scrutiny-LUCRE LOVE: LACK OF SOCIAL COMMITMENT

How nice it would have been if The BCCI and various Government bodies, Instead of just Announcing Obscene rewards for Cricketers, could have also Announced Various Socially Beneficial schemes, Scholarships and Grants!

BCCI has always been one of the richest sports associations with a net worth estimated at $1.5 billion; a sum expected to exponentially increase post India’s World Cup victory. Now, what would any sane government do in such situations? They would in all obviousness tax the gains from such a sport and redirect the collections to social service. Almost insanely, the Indian government recently announced a major relief to this association by allowing a Rs.450 million tax waiver to the ICC for the World Cup – of course, because a recent amendment in the Income Tax Act allows for such waivers.

Would it not have made better sense for BCCI and these various state governments to have announced an educational scheme for the girl child in celebration of our World Cup victory? Or perhaps the setting up of many new health centres? Sadly, at least this time, a Pakistani’s commitment to his nation seems fathoms more than our own to India.



 
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Friday, July 20, 2012

The Menace of Sexual Harassment will be a Tough Challenge

With The Government having failed to check cases of Sexual Harassment in Public Offices, ensuring The Impact of a new law Addressing The Menace of Sexual Harassment will be a Tough Challenge.

While the government often tends to largely attribute the rise in cases of harassment of women at workplaces to the private sector, a closer look unveils a number of similar cases in ministries, departments and public sector undertakings. What is worrisome is that cases involve officials at the absolute helm of affairs which is often seen as the true portrayal of the misuse and abuse of power within the ambit of maximum government control.

Recent studies reveal that sexual harassment is still prevalent, hidden or disguised, and exists in all kinds of offices, – be it the government sector or private. A look at some of the major cases within the Government’s spectrum where the existing guidelines have been found to have been flouted with utter disregard reveals the government’s failure in controlling the menace. Rupen Deol Bajaj, a senior IAS official, was slapped on her posterior by K. P. S.Gill, former Chief of Police, Punjab, at a dinner party in July, 1988. Bajaj filed a suit against him, despite the public opinion that she was blowing it out of proportion, along with the attempts by all the senior officials of the state to suppress the matter. Almost 10 years later, her efforts were rewarded when the Supreme Court fined Gill Rs.250,000 in lieu of three months of rigorous imprisonment handed to him under Sections 294 and 509 of the Indian Penal Code (IPC). The most notable feature of the subsequent trial was the complete unwillingness of witnesses on either side to provide reliable or accurate testimony. Most of the guests at the party were senior bureaucrats and officials.

In 2004, in a first ever incident of its kind, the Government found C. Venkataramana, Chairman and Managing Director of the state-run National Aluminium Company Ltd. (NALCO), guilty of sexual harassment and terminated his services. The case had hit headlines in February 2003, when a senior NALCO executive complained that Venkataramana had tried to sexually harass her. The incident took place in Mumbai when the woman met Venkataramana for her promotion, which had been pending for several years. The CMD is said to have invited the woman to a hotel, where he offered her drinks and later tried to molest her. The woman, however, somehow managed to escape. Following the furore over the incident, NALCO hurriedly conducted an internal probe – and predictably gave a clean chit to Venkataramana. However, the government took serious note of the development and constituted a committee, as prescribed by the Supreme Court in cases of sexual harassment, and the culprit was brought to book.

Another case is that of N Radhabai vs. D. Ramchandran. When Radhabai, Secretary to former minister D. Ramchandran, protested against the minister’s abuse of girls in welfare institutions, Ramachandran allegedly attempted to molest her and later dismissed her from service. Radhabai approached the SC, which in 1995, passed the judgment in her favour, and also ordered the department to pay her salary arrears and perks from the date of dismissal.

In August 2008, a RAW official tried to kill herself outside the Prime Minister’s Office after complaining of unnecessary delays in case of sexual harassment she had filed against her seniors. Nisha Priya Bhatia had accused her seniors of molesting her while she was on duty. The case is still pending. After having diligently served for 15 years as an official in the personnel department of a rural bank in Madhya Pradesh, Seema Sharma suddenly found herself flooded with memos and subsequent transfer orders after she resisted sexual advances from her new boss.

While incidents involving the high-ups in power does highlight the fact that it is prevalent but rarely out in the open, not much has changed for women at the workplace, says Delhi-based advocate Dheeraj Malhotra. “Women are forced to approach social organisations and courts as they fail to get justice in their own offices. This, despite the fact that the Apex court has underlined that sexual harassment at the workplace is not only personal injury to the victim, but also a violation of fundamental rights,” he adds.

It is true that the silence of the victims gives strength to the greatest human rights violators in India, and reporting such incidents are important to bring about the change required. But then, it is also pertinent to note that many cases go unreported as they also threaten to ruin the womens’ dignity. “The society itself would ensure that she cannot live a peaceful and dignified life. Here the fear of the society plays the greatest player who rips off the victim’s right,” says Pune-based human rights activist Alka Joshi, calling for drastic changes in societal beliefs. “When one such victim in Maharashtra decided to pursue her complaint, many of her senior colleagues told her that her experience was nothing extraordinary, and that pushing it would not harm the men but only give her a bad name. Unfortunately, even senior women officers advised her to give up, and she eventually did,” she observes, adding, “Even when complaints do come up, the attitude of authorities have been found to be crude, dismissive and insensitive in many cases”.

The most recent example is the case of Komal Singh, an air-hostess with Air India, who suffered a major setback in a sexual molestation case after the National Commission for Women chose to tread a safe path by coming out with a report that confirmed “assault”, but did not take a stand on whether the employee had been sexually molested by the pilots in the cockpit of a Sharjah-Lucknow-Delhi flight on October 3, 2009 or not. In an affidavit filed later by Komal, she went on to state that she was being pressurised by certain members of the NCW to withdraw her complaint, and that even her version of events was being ‘doctored’. The NCW finally stated that the air hostess had not been molested, but only pushed during a mid-air scuffle.

Sexual harassment has for long been recognised as the most intimidating form of violence in many developed countries where they have not only taken note of how degrading the experiences of sexual harassment can be for women as well as employers, they have also adapted legislative measures to combat sexual harassment. The point is that combating the issue of sexual harassment involves developing an understanding and requires a change of attitude in all employees, colleagues, friends, administrators, employers and the law makers. Even if it was recognised late in India, it cannot be an excuse to allow it to flourish to an extent that it becomes unnoticeable. As the world celebrates the liberalisation of women, in India, the real challenge for the Act will be to effectively address deeper issues which generally never come to fore. 


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Thursday, July 19, 2012

Cellular Phones will necessarily Cause Cancer! How Pathetic that no Government has The Guts to call a Spade a Spade and Take Action

Now, which part of all this is not understandable? To the World Health Organization, perhaps all. The WHO, which has ambivalently maintained that there is no proven connection between cancer and mobile phone usage, commented again in the Children‘s Environmental Health International Initiatives December 2010 newsletter, “We need to get to the bottom of what mobile phones do to our health. The scientific jury is still out on whether those powerful micro-waves may be causing long-term damage. Thousands of studies have already been published on the subject, especially into the links between brain cancer and radiation. Yet, the vast majority have proved inconclusive. The effects are as unclear as a decade ago. But one fact is indisputable. Brain cancer is on the rise among 20- to 29-year-olds.” That is in all probability the most shameful of statements that a global health organization, whose reports are followed by various countries, could give.

It’s sad that not many countries, if any, are following the Austrian mobile phone warning system (where the advice is that “mobiles should only be used briefly during urgent need, and by children, only in extreme emergencies.”). It’s worse that companies like MSNBC are proudly promoting mobile phones for children (‘Best cell phones for children’; featuring Disney Mobile, Verizon Migo, Tictalk and more) on their website.

By the time governments realise the gravity of the situation, it may well be too late. This is the time that governments across the world should come out and firstly – akin to tobacco products – ban the usage of cellular phones by children, and secondly force the cellular phone companies to print statutory health warnings on cellular phone handsets. That is the most logical step forward in today’s times of instant connectivity.



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Wednesday, July 18, 2012

Big Metal reaches Turning Point

Over the last two years, India has become a net Importer of Steel. As steel makers respond with Brownfield and Greenfield capacity addition Plans and a Slew of asset Acquisition Strategies, B&E analyses what These Players are Exactly up Against!

“Today, the Indian steel sector is at a critical point of its journey. During the current financial year, steel demand has increased by 8%, whereas production has only increased by 3%. This is widening the demand-supply gap, making this country more dependent on exports.”

The above words by our Honourable Steel Minister, Virbhadra Singh (at the 3rd Summit for Mining to Steelmaking) who also spoke exclusively to Business & Economy, underlines the sense of alarm that is building up in the Indian steel industry as well as within our policy makers over the last couple of years. After all, steel is one of the last additions India would expect or welcome in its ballooning import basket. But if the demand-supply gap continues growing as it is doing currently, and if greenfield capacities continue being hit by various issues, one wonders whether this will turn out to be an eventuality or something we could hope to avoid.

From 2008, India has turned a net importer of steel, as per figures released by the Steel Scenario Year Book 2009; and the import bill continues to grow, with imports expected to touch around 6 million tonnes in FY 2010. As a nation, India continues to have a very low per capita consumption of steel (45 kg), but the scenario is changing very fast. Kameshwara Rao, Executive Director – Energy, Utilities, and Mining, PricewaterhouseCoopers, tells B&E, “A strong demand driver is urbanisation, where India is presently a low 28% but this is expected to rise to 41% by 2030. Thus, even with the brown-field and greenfield capacity addition of 35 and 25 million tonnes respectively; we may fall short of the domestic demand.”

Indeed, the scenario does ignite a sense of concern, but it has to be viewed in the right perspective. First things first, we have a short term correction in place to the gap. A. S. Firoz, Chief Economist, Joint Planning Committee, Ministry of Steel, assures B&E that it is not a huge short term scenario, “By 2016-17, India will run into a shortage phase, especially if greenfield capacity developments don’t take place, depending on what kind of growth we experience.”

But in the interim, the major players are going for massive brownfield capacity expansion led by SAIL, which plans to expand its crude steel capacity from 13.4 million tonnes (MT) currently to 24.6 MT (21.4 MT by 2012) and its saleable steel capacity from 12.5 MT currently to 23.1 MT (20.2 MT by 2012) with investments of $8 billion. In all, these expansions are expected to create additional capacity of 33 MT, which would actually give us a surplus situation in 2012-13. This would again put downward pressure on price; and could potentially make India a net exporter once again, according to the latest Fitch Ratings report.

The worry, as Ministry of Steel’s A. S. Firoz points out, comes later in the next decade, when the demand again grows fast enough to outstrip supply. It is here that we talk about the problems we are facing regarding implementation of greenfield projects like Posco and Arcelor Mittal; where issues of environment and rehabilitation have cropped up recently. Vikram Amin, Executive Director, Essar Steel, points out to B&E, “There should be a clear policy on land acquisition to ensure this does not become a hindrance in project implementation.”

Every delay is increasing the cost of the projects and also deterring potential investors from participating in the India growth story. This is true generally for India’s infrastructure scenario. McKinsey estimates that the shortfall in achieving infrastructure development targets (of which steel projects form a significant part) in the 11th and 12th five year plan periods could cost India Inc. a whopping $200 billion by 2017, which at $500 billion is nearly 10% of GDP and a huge 40% of the 11th year plan expenditure.

The other – more critical – perspective in this regard is with respect to raw material, particularly iron ore availability. The Steel Minister has called for “proactive action by all Indian steel companies to have a secure raw material base.” In fact, most steel players lament the anomaly that India is importing steel on one hand and exporting iron ore on the other; whereas the onus should be on value addition in exports. India exports over 100 million tonnes of iron ore and imports over 6 million tonnes of steel.

Yet, one could argue that the two businesses have grown separately. When SAIL and Tata Steel came in, they had captive mines. And when Ispat entered the market, they worked on a contract with NMDC. As more Indian companies embarked on building steel capacities, scant focus was given to having captive mines or acquiring iron ore assets. That is why, the iron ore business started primarily as an export business.

But now, as access to iron ore has increasingly begun to define competitiveness and iron ore (being benchmarked on global spot prices) and coking coal price fluctuations are hitting bottomlines, players are increasingly considering it a key issue, with all players looking overseas for assets. Global giants BHP Billiton and Rio Tinto are currently pushing steel makers to accept a 100% hike in iron ore prices, or face the spot market, as demand from China grows faster than expected. Forward iron ore swaps are trading at around $117 a tonne for 2010 on CIF basis (China), versus last year’s $60 FOB. Even by a conservative estimate, prices are expected to rise by at least 40%. Fitch expects that even coking coal prices will be at least 30-50% higher yoy.


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3G in India is clearly too expensive on a rational and logical basis

The impact of the prices paid in India will result in an increase of capital employed for Idea, Bharti and Reliance of roughly 3.0%, 3.4% and 10.4% compared to the 255% increase for Vodafone. The immediate impact on the ROCE is to reduce the returns in the range of 0.2% to 0.9% which is relatively benign compared to the damage inflicted in the UK. Furthermore, unlike the UK, the Indian operators will be able to deploy their networks more cheaply and achieve greater performance by jumping to 3.5G in the form of HSPA. The spectrum will be used immediately to relieve congestion on the 2G voice networks and India will quickly emerge as the centre of innovation for low cost smart phones, applications and new mobile business models. The auction winners will not have to wait 10 years before they can start earning a return. Indian 3G prices for Mumbai, Delhli and Kolkata were certainly high and above expectations but they were not anywhere near as exuberant as those of the UK or Germany.

As regards the business case for the 3G spectrum, the 3G spectrum in India is both about voice and mobile broadband. Accessing the Internet from handsets i.e. the small screen will be a much bigger phenomena in emerging markets compared to developed countries. This is already apparent in some markets such as Egypt, Morocco and the Philippines. What matters now in India is not how much was paid for 3G spectrum, and as a classic “sunk cost” it should have little bearing on future decision making, but how quickly can a more rational market structure be established. Greater certainty over the future regulatory environment, including 2G spectrum pricing, along with consolidation and an end to the brutal price war will have a far more pervasive impact on future returns than the prices paid for 3G spectrum.


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