Uploaded by Debbie James

BS English 18.03.2019

18 pages in 1 section
How markets performed last week
Local currency
in US $
BANKER’S TRUST: $5-billion
swap smartest move of
RBI governor
12 >
The new instrument could be a
permanent fixture in the RBI’s liquid
management toolkit, the level of the
rupee determining the frequency of
in REITs for regular income 14 >
While experts expect this new asset
class to give annual returns of 12-14%,
investors should temper their
expectations in view of cyclicality
in commercial real estate. SANJAY
victims lack legal backing
17 >
The regulator’s ruling on compensation
has to be backed by statutory
provisions in law. AASHISH ARYAN writes
Large fund infusions in
PSBs fail to deliver
15 >
The Nifty PSU Bank Index is flat since
the Centre announced a ~2.11 trillion
recapitalisation plan in October 2017;
experts say stick to top stocks such as
Support of key institutional investors
crucial in case of an open offer
Bengaluru, 17 March
he Mindtree founders are
reaching out to top clients and
engaging with key institutional investors to fend off
attempts by engineering major Larsen
& Toubro (L&T) from making a hostile
takeover bid, sources in the know said.
Last week, the Bengaluruheadquartered firm said its board
would consider a share-buyback
proposal in its next meeting
scheduled for March 20. The
announcement of a possible share
repurchase has come amid reports
of L&T’s board giving the green
signal to buy Café
Coffee Day founder
MINDTREE V G Siddhartha’s
20.41 per cent stake
in Mindtree.
TAKEOVER action like a buyback usually pushes
up the share price,
many analysts had
seen it as an attempt
by the management to make it
costlier for any acquirer to take
control of the company, apart from
rewarding existing shareholders.
But apart from the price play, the
management of the infotech (IT)
services firm is actively talking to key
institutional investors to garner support
in case there’s an open offer. Currently,
Pulak Prasad-run Nalanda Capital holds
10.61 per cent in Mindtree, while
Akash Prakash-led Amansa Holdings
Turn to Page 6 >
owns 2.77 per cent.
Shareholding pattern of Mindtree
(as of December 2018)
| Founders’ group | V G Siddhartha
& his holding companies | Foreign
portfolio investors | Mutual funds
| Retail investors & others
% OF
Centre may hike import duty on
consumer durables yet again
New Delhi, 17 March
Not content with raising the
television (TV) sets last year, the
governmentisnowmullinganother round of duty hike — this time
on raw materials used in home
(ACs), refrigerators, washing
machines, and microwave ovens.
It is learnt that the Ministry of
Commerce is considering a
proposal to increase Customs duty
on compressors for ACs and
refrigerators and pre-coated steel
sheets and copper tubes used in
making condensers, among
others. This, despite the fact that
the duty on compressors was
raised from 7.5 per cent to 10 per
cent last year and that on fully
finished ACs, refrigerators, and
washing machines, among other
items, doubled to 20 per cent.
Manufacturers are worried
about the impact of the
proposed move. While the last
import duty hike had forced
them to increase the prices of
these items by 3-5 per cent, any
further hike in import duty
would adversely impact local
manufacturing activities, they
said. In fact, major players in the
consumer durables space are
demanding a complete abolition
of duty on components for TVs
and home appliances.
According to Vijay Babu,
appliances and ACs, LG
Electronics India, the Korean
company has taken up the issue
with the Centre.
Turn to Page 6 >
Mumbai, 17 March
Source: Exchange filing
Co-founder quits govt
role to take on raiders
Subroto Bagchi — one of the co-founders
of Mindtree — resigned on Sunday as the
head of Odisha Skill Development
Authority and will return to Bengaluru,
he said on his Twitter handle. “An
imminent threat of hostile takeover of
Mindtree has made me resign from the
(Odisha) government, (so that I will be)
able to go, (and) save the company,” he
said. “I must protect the tree from people
who have arrived with bulldozers and
chainsaws, so that in its place, they can
build a shopping mall.”
Turn to Page 6 >
| Higher import duty on
key components for
ACs, refrigerators,
washing machines, and
microwaves on the table
| InSeptember2018,duty
| Manufacturersvoicetheir
| Another round of price
hikes could follow
after duty increase;
prices have gone up
by 8-12% since 2017
| Centre wants to curb
import of these items as
CAD inches towards 3%
of GDP in Q2FY19,
from 2% in Q3FY18
Maruti cuts production by a quarter
A slowing demand in India’s passenger
vehicle market has prompted the car
market leader, Maruti Suzuki India, to
cut production by a quarter over March
last year, said people aware of the
company’s plans.
Maruti is estimated to have cut
production to around 126,000 units as
compared to more than 172,000 units
a year ago, which is a 26.8 per cent
reduction. This is in sharp contrast to a
positive trend in the past several years,
including double-digit growth for the
last four years.
Maruti March production volumes
YoY chg (%)
MANOHAR PARRIKAR, Goa chief minister
(CM) and former defence minister, who had
been battling pancreatic cancer for more
than a year, has died at his son’s home in
Panaji. He was 63. Parrikar’s heath had
been fluctuating for several days and
worsened on Saturday morning. The former
defence minister had been in and out of
hospital in Goa, Mumbai, Delhi, and
New York since February last year. The
four-time CM had said in January that he
“will serve Goa till my last breath”. While
presenting the state Budget of the Goa
Assembly in January, he made up for his
weakened delivery with rousing words:
“Present circumstances have prevented me
from delivering a detailed Budget speech,
but there is a josh that is too high, very
high and I am in hosh. Fully in hosh.”
Mindtree taps
institutions to
block takeover
December 13, 1955-March 17, 2019
Source: Bloomberg
*Change (%) over previous week
Dow Jones
Hang Seng
% chg over Dec 31, ‘18
Index on
Mar 15, ‘19
2013 2014 2015 2016 2017 2018 2019
6.6 12.5 14.1 10.3 11.9 -26.8
The cut comes amid demand
uncertainties ahead of the Lok Sabha
elections and Assembly polls in
some states, and a switch to stricter
Sources: Siam, Capitaline
emission norms, which takes effect on
April 1, 2020. A Maruti Suzuki India
spokesperson declined to comment on
Turn to Page 6 >
the matter.
New Delhi, 17 March
Lessors of cash-starved airline
Jet Airways are in talks with SpiceJet
to reposition some of its Boeing 737
Next Generation aircraft.
SpiceJet, which has been hit by
the grounding of 13 Boeing 737 MAX
planes, is looking to secure used aircraft to maintain its expansion plans.
“Lessors of Jet Airways have
discussed with SpiceJet to place their
aircraft with the latter. SpiceJet wants
12-13 planes. Depending on the
duration of the 737 MAX grounding, it
may take more,” said a person aware
of the development.
At least two lessors — GE Capital
Aviation Services and BOC Aviation
— have terminated the lease
Around 50 planes of Jet are grounded
due to non-payment to lessors;
SpiceJet has 13 737 MAX grounded
contracts of around eight planes
because no clarity on payment has
been given.
Lessors have grounded more than
50 of Jet Airways’ planes because the
airline has been unable to pay them.
It has been more than five months
that the airline has made any
payment to its lessors. Turn to Page 6 >
Binny Bansal may shift to S’pore
for deeper role in start-up world
| Even from Singapore,
Binny Bansal plans
to support Indian
start-up founders
| Started second venture
xto10x Technologies
to help early-stage
firms scale
| Backed
021 Capital,
invested in
Acko and Cero
since departure
from Flipkart
| Has over
40 angel
CureFit, GreyOrange,
Ather Energy,
Bengaluru, 17 March
Feted for jump-starting India’s internet
retail industry after co-founding the
country’s most-valuable e-commerce
giant Flipkart, Binny Bansal is moving
base to Singapore, multiple people in
the know said.
Since his unceremonious exit from
Flipkart in November last year, Binny
has kept away from the limelight and
was said to be contemplating his
next move. In this period, he
has invested in insurance
platform Acko, venture capital
(VC) firm 021 Capital, and
floated a new start-up called
xto10x Technologies.
“Binny now spends most
of his time outside. He is in
Singapore and travels to India
often,” a source said. While
reasons for his move are
not immediately
clear, sources
said he
would have a bird’s eye view of the latest
technologies and start-ups, and a more
intimate access to investors as well as
financial markets from Singapore, the de
facto financial nucleus of Southeast Asia.
On reaching out, a spokesperson for
Binny Bansal said “at this point,
Binny Bansal is scaling up the
xto10x Technologies business,
including overseas.”
In December, Binny started his second
venture xto10x Technologies with former
colleague Saikiran Krishnamurthy, who
was the head of Flipkart logistics arm
eKart between 2015 and 2017. According
to its website, xto10x Technologies
helps early-stage start-ups build
capabilities across functions like
strategy, finance, human resource
management, and growth.
“I’m looking forward to the next
chapter of my life. Person to person,
I can help 10 start-ups, but the ambition
is to help 10,000 early- and mid-stage
entrepreneurs, not 10,” Binny had told a
wire agency in a February interview.
Turn to Page 6 >
Kesoram Industries rating
downgraded to BB+: CARE
CARE Ratings has revised down the
rating pertaining to the long-term
banking facilities of B K Birla group
company Kesoram Industries from
BBB to BB+ and short-term facilities
from A3+ to A4+ on higher than
envisaged losses in the nine months
of the current fiscal year amidst high debt levels. This has led to
further weakening of the credit and financial risk profile, mentioned
the CARE Ratings release. Kesoram’s total debt as on December 31,
2018, was at ~3,520.41 crore. CARE rated ~906 crore long/short-term
bank facilities to BB+/A4+, under credit watch with developing
implications and short-term bank facilities of ~705 crore A4+, under
credit watch with developing implications. The revision in rating by
CARE coincides with the letter of Kumar Mangalam Birla, chairman of
Aditya Birla Group, to Sebi seeking reclassification from a promoter to
a public shareholder in Kesoram.
BSNL to move NCLT
against RCom to
recover ~700 crore
AirAsia's Fernandes
quits Facebook, citing
social media ‘hate’
BSNL will approach the National
Company Law Tribunal (NCLT)
this week to recover dues of
about ~700 crore from Reliance
Communications (RCom),
according to official sources.
Earlier, debt-ridden RCom in its
plea before the NCLAT said it
wanted to voluntarily go back
into the insolvency process, as it
will help selling its assets in a
time bound manner. It had
moved the tribunal, seeking
directions to the 37 lenders led
by SBI to release ~260 crore
directly to Ericsson. However,
lenders of RCom have said it
will lead to outgo of public
money for settling payment of
a private party.
AirAsia Group Chief Executive
Officer Tony Fernandes closed his
Facebook account and said he
may shut his Twitter page, citing
“hate” being transmitted on the
networks. “The amount of hate
that goes on in social media
sometimes outweighs the
good,” Fernandes said in a
Twitter post. “But on Twitter I
think the battle for me goes on."
Fernandes said his Facebook
account had 670,000 followers.
He said in a Twitter post Saturday
that while he is “a big fan” of
social media, he had to think
hard about whether to remain
on Facebook after the livestreaming of the mass shooting
in New Zealand. BLOOMBERG<
US-based Jubilant
Cadista recalls
anti-depressant drug
J&K Bank to offload
stake in PNB Metlife
for ~185 crore
US-based Jubilant Cadista
Pharmaceuticals is recalling
over 5,700 bottles of Bupropion
Hydrochloride extendedrelease tablets, used to treat
major depressive disorder, from
the US market. The company is a
fully-owned subsidiary of
Cadista Holdings, which is a part
of the Noida-based Jubilant Life
Sciences Company. According to
the latest Enforcement Report
issued by the US Food and Drug
Administration, Jubilant Cadista
is recalling the drug for "failed
dissolution specifications". PTI<
Jammu and Kashmir (J&K) Bank
on Sunday said it proposed to sell
its stake in PNB Metlife India to
private equity player Oman India
Joint Investment Fund II for ~185
crore. The bank has executed
share purchase agreement with
Oman India Joint Investment
Fund II for sale of 4.1 crore shares
of PNB MetLife India Insurance
Company, J&K Bank said in a
regulatory filing. This would be
subject to fulfilment of certain
conditions precedent, which
include requisite prior approval
from IRDAI, it said.
Now, Japanese firms set
sights on Indian realty
Mumbai, 17 March
Mumbai, 17 March
Accor Hotels, Europe’s largest
hospitality group that forayed
into India a decade back, does
not consider OYO Hotels as its
immediate rival considering
the differentiated positioning
the two have in terms of price
and business model.
It is, however, fully cognizant of the OYO’s growth
and expansion plans. JeanMichel Cassè, chief operating
officer, India and South Asia
of Accor Hotels, said he won’t
be surprised if the French
major finds the six-year-old
homegrown brand snapping
at its heal very soon and coming close to Accor’s core business. “I don’t think OYO is a
rival as their business model
is completely different. We are
not playing in the same price
game. However, I cannot say
blindly that they are not a
rival. If we look at their size,
their growth, we don’t know
where they will be heading
tomorrow,” Cassè said.
In a very short span, the
start-up has emerged South
Asia’s largest hospitality
chain valued at $5 billion having its presence in 10 countries. The Soft Bank-backed
firm has charted an aggressive expansion plan across
geographies and has ambitions to become the world’s
largest hotel company overtaking Marriott by 2023.
OYO’s agile approach has
been its strength, said Cassè.
“They are very flexible, very
fast and are very quick in shifting strategies according to
where the winds take them, in
their best interest. So, I won’t
be surprised to see OYO coming very close to what is our
core business today,” he said.
Meanwhile, the owner of
ibis, Sofitel, Banayan Tree,
among other brands, has its
hands full executing the
expansion for the India market. In the works are 20 hotels
that will come up over the next
n Mitsubishi is in talks with
Embassy Group to build
commercial properties in
South India
n The companies are also
looking to invest in
industrial parks
n Mitsubishi has a team
of 2-3, Sumitomo has
8 to 10
n Sumitomo Realty &
Development is looking
apanese real estate players
have set their sights on the
Indian commercial property
space after the American and
Canadian investors.
Sources in the know said big
conglomerates of Japan, including Mitsubishi Corporation,
Sumitomo Corporation, and
Mitsui Group, are looking to both
build and buy commercial properties in key Indian cities.
“Mitsubishi and Sumitomo are
looking to buy and hold the properties for long and earn rental
yields,” a source, who is working
with both the conglomerates in
the country, said.
According to the source,
Mitsubishi is in talks with
Bengaluru-based Embassy group
to build commercial properties in
southern India and is in negotiations with other developers for
similar tie-ups.
Mails sent to Mitsubishi and
Sumitomo did not elicit any
response till the time of going to
press. Jitu Virwani, chairman of
Embassy group, declined to comment, too. Mitsui group could not
be contacted for comments. The
companies are also looking to
invest in industrial parks, like
Warbug Pincus of the US has.
While Mitsubishi has a team of
two to three executives in India for
commercial properties, Sumitomo
has 8-10 people. Its real estate arm,
Sumitomo Realty & Development,
is also looking to develop or do
joint ventures with Indian firms
for commercial properties.
Early last year, Sumitomo had
tied up with auto components
maker Krishna group for a mixeduse project in the National Capital
Region (NCR) and for other
mixed-use projects in the country.
Mitsubishi’s investment arm had
also put in money in Shriram
Properties' project in Chennai last
year. In September, Surbana
Jurong, Singapore governmentbacked Temasek Holdings’ subsidiary, and Mitsubishi annou-
MAY 2013: Honda phases
out the 8th generation Civic
February 15 2019:
Commences bookings for
the 10th generation model
March 7, 2019: The all-new
Civic goes on sale
Bookings in a month
Up to 550
sales of D
Mumbai, 17 March
A month after Honda opened
bookings for its 10th generation
Civic, the local arm of the
Japanese carmaker has managed
to garner bookings for more than
1,600 units, three times the
monthly sales in the segment, a
top company official said.
Honda launched the Civic on
March 7 and accepted bookings
for the model from February 15.
The prices start from ~17.70 lakh
to ~21 lakh (ex-showroom, petrol
variant). “The response to the Civic
phenomenal. The
that we
have for
the first
New Delhi, 17 March
COO, India and South Asia
of Accor Hotels
five years and add to its inventory of 52 hotels and 9,500
rooms across all its brands.
Accor expansion strategy will
include ‘densify’ presence in
22 cities through Novotel and
Ibis across the economy and
mid-scale segments and further tap the luxury segments.
Accor has become the second-largest operator in the
luxury space globally after the
acquisition of Fairmont,
Raffles, and Swissotel a few
years ago and Movenpick last
year. It is giving the firm more
opportunity to bring these
brands to India, he added.
“In key cities, we are looking to grow our luxury network by growing brands such
as Fairmont and Sofitel. We
are also aiming to bring our
ultra-luxury brands like
Raffles to India,” Cassè said.
More on business-standard.com
nced a tie-up on urban building
projects across Southeast Asia,
with plans to recruit other partners for $2.5 billion in developments over five years.
Their plans included rail and
roads, housing, shopping centres,
hospitals, and other community
building blocks. They plan to do
projects in Myanmar, Vietnam,
Indonesia, the Philippines, India,
and Sri Lanka. Mitsubishi has
presence in automobiles, agro
chemicals, and elevators in India.
“Commercial real estate is witnessing a significant interest with
all foreign and domestic equity
players. The valuations are pretty
stable and attractive, and the success of the upcoming Reit offering
of Blackstone-Embassy would
provide further depth in the market in terms of entry and exit,” said
Shobhit Agarwal, managing director of Anarock Capital.
Indian commercial real estate
has seen the likes of US-based
Brookfiled and CPPIB investing
heavily. Both have invested about
$5 billion in commercial properties here. Of the total $4-billion
investments that have come in the
sector in 2018, nearly 44 per cent
are from foreign investors, primarily from the US, Canada, and
Singapore. Also, over 90 per cent
of the foreign investments have
preferred commercial projects
across Mumbai, Pune, Bengaluru,
and Hyderabad, said a report by
KPMG last year.
month are more than three
months’ sales of the segment,”
said Rajesh Goel, senior vice-president and director for sales and
marketing at Honda Cars India.
He said there had been a lot of
interest from cross section of customers, including existing owners,
many of whom are celebrities and
have held on to the older generation Civic and wanted to upgrade.
Close to 85 per cent of the demand
is for the petrol variant. Also, eight
out of every 10 bookings received
so far are for the top trim levels of
petrol and diesel.
The Civic competes with the
Skoda Octavia, Toyota Corola Altis
and Hyundai Elantra. With its
large wheels and thickest tyres, it
hopes to wean buyers off the SUV
segment. It should be a good
choice for those looking to
upgrade from the lower D segment unless someone is absolute-
ly keen on an SUV, said Goel.
The upper D segment of the car
market, as classified by the Society
of Indian Automobile Manufacturers, comprises sedans and
(4500 mm-4700 mm) with an
engine size of up to two 2 litres. In
the absence of launch of completely new models and buyer
preference shifting to SUVs, the
segment has lost its sheen. In the
year that ended in March 2018, the
segment sold a total of 10,350 units
against 11,730 units a year ago,
according to Siam. With many
models being discontinued, the
segment size has shrunk to 540 to
550 units a month.
The Civic returns to India after
a hiatus of six years. Faced with
unfavourable exchange rates and
capacity constraints, Honda
pulled the plug on the Civic in
2013 and skipped the ninth generation for the Indian market.
Mumbai, 17 March
Mindtree’s plan to buy back shares will make
picking stake an expensive proposition for
Larsen & Toubro (L&T). L&T is in talks with
the single-largest shareholder in Mindtree, V
G Siddhartha of Café Coffee Day group, to buy
his 20.41 per cent stake in Mindtree. At the
current price, the stake would cost L&T around
~3,300 crore.
Mindtree is already trading at two times its
enterprise value (EV) to revenues and the buyback at an expected at a price of ~1,000-1,200
would take the share price even higher, according to analysts.
G Chokkalingam, managing director of
Equinomics Research and Advisory, said anything beyond the current price will make it an
expensive deal for L&T, given there are other IT
firms available at 1-1.5 times their EV to revenues.
Once L&T buys Siddhartha’s stake, it could
also look at acquiring the 10.61 per cent stake of
foreign investor Nalanda (India Fund and India
Equity Fund), which will take its stake to over
30 per cent. This could
then trigger an open offer,
given the threshold for the
same is 25 per cent. While
the deal is expensive, L&T
has set high targets for its
IT services businesses —
L&T Infotech and L&T
Technology Services.
The L&T group plans
to break into the top five
Indian IT services companies and is expecting
30 per cent of the group’s turnover from IT services, so paying a premium for a controlling stake
in Mindtree might not be an issue for them.
Given its surplus cash, L&T Infotech had plans
for a buyback and had not deployed the same
so far. This cash (of over ~2,000 crore) could
come handy now.
For the founding promoters of Mindtree, the
buyback is an attempt to stall the takeover. Their
stake in Mindtree, at 13.3 per cent, is expected to
move up if they don’t participate in the buyback
as the equity base will shrink.
An IT analyst at a domestic brokerage said:
“In terms of service verticals and geographies,
Mindtree is similar to L&T Infotech. The same
promoter with two businesses, which are competitive to each other, is not a model they would
want to follow. They will have to merge L&T
Infotech and Mindtree leading to a change in
top management at Mindtree.”
For the current management of Mindtree,
the private equity players are the only ones who
can now queer the pitch for L&T by offering a
higher price for a stake in the company. The
biggest beneficiaries of the takeover battle
between L&T and Mindtree founding promoters could be Siddhartha and the minority shareholders.
Analysts said the stock price will move up
over the coming weeks if the battle heats up.
They said if the buyback price is upwards of
~1,200, investors should tender their shares,
because, at this level, the stock will be priced at
21 times one-year forward earnings, which is its
peak valuation as compared to the current levels
of 17-18 times.
NIIF yet to take a call on investment in Jet
The sovereign fund has
not approved a plan or
initiated due diligence
They (OYO) are very
flexible, very fast and
are very quick in
shifting strategies
according to where the
winds take them, in
their best interest. So, I
won’t be surprised to
see OYO coming very
close to what is our
core business today
to develop Indian
properties or form joint
ventures to do so
n Early last year, Sumitomo
tied up with auto
components maker Krishna
group to do a mixed-use
project in the NCR
n Mitsubishi’s investment
arm has put money in
Shriram Properties’
Chennai project
Civic races ahead in 1st month of bookings
OYO not our rival
as of now: Accor
Hotels India COO
Mindtree share
buyback to make
takeover costly
While lenders to Jet Airways are looking for a faster resolution to the crisis,
the National Investment and
Infrastructure Fund (NIIF) is yet to
decide if it will invest in the distressed carrier. Sources said the
board of the sovereign fund held two
meetings over investment but did
not approve any plan.
“The board meetings were inconclusive. There was opposition from at
least three members, which stalled
the (investment) approval process,”
said a person aware of the development. The board of NIIF has six members, which includes finance secretary Subhash Chandra Garg, IAS
officer Rajaraman Kalyanraman, and
NIIF Chief Executive Officer Sujoy
Bose. The rest of the members are private sector executives like Sanjay
Bhandarkar, an investment banker,
HDFC Chairman Deepak Parekh, and
Tata Sons veteran Ishaat Hussain.
“The NIIF has a stringent policy
to identify sectors and entities where
it would like to invest. It then does a
thorough due diligence. The process
can take more than month. In Jet’s
case, a due diligence process hasn’t
been initiated yet,” the person familiar with the matter said. Bose did not
respond to queries about the matter.
The NIIF’s indecision is critical
because, according to the deal signed
between Etihad and Jet promoter
Naresh Goyal, a new investor was to
infuse between ~1,600 crore and
~1,900 crore to hold about 20 per cent
stake in the company. According to
the agreement, the consortium of
lenders, led by the State Bank of India,
will convert its dues into shares and
pump in an additional ~1,000 crore
n Resolution plan envisaged
n NIIF board met twice but
NIIF to pick up 20 per cent
stake at ~1,600 crore
n Etihad Airways’ board
yet to sanction the
resolution plan
didn’t approve the plan
n At least three directors
have opposed the plan
of investing in a
loss-making sector
to raise its stake to 29.5 per cent.
Etihad was also expected to infuse
~1,600 crore to raise its shareholding
to 24.9 per cent.
The NIIF was approached by the
lenders after the Abu-Dhabi carrier,
which holds 24 per cent stake in the
company, refused to increase its stake
beyond 25 per cent without an
exemption from open offer. The
Carrier may gain from JetPrivilege’s success
New Delhi, 17 March
Its annual revenue is merely the
equivalent of about 10 days’
income of Jet, but JetPrivilege, the
associate firm which runs the
frequent flier programme, has
emerged as a trusty steed in this
time of crisis.
Cash-strapped Jet is finalising a
memorandum of understanding
with joint venture partner Etihad.
According to the deal, Jet is
pledging its entire shareholding of
49.9 per cent in JetPrivilege to raise
a loan for multiple urgent needs.
The airline has to pay off its
lessors (59 planes are grounded due
to non-payment), employee
salaries, and vendors to stop being
grounded. Under the terms of the
MoU, the airline is pledging 34.9
per cent of its shares in JetPrivilege
to secure an interim loan from bank
lenders and from Etihad of ~1,500
crore. It is offering the remaining 15
per cent as security for a loan of
$140 million from HSBC which
should have been paid in full by the
end of this month but which looks
as though it might be defaulted.
So why is JetPrivilege so
valuable? In 2017-18, the
company clocked up revenues of
~622 crore but made a net profit of
~106 crore. In the same period,
Jet made revenues of ~24,000
crore but slumped into the red
with a stand-alone loss of ~768
crore in FY18 after a profit of
~1,482 crore in FY17.
The contrast in status can be
seen in how the two are valued by
investors. Jet, for instance,
currently has a market cap of
merely ~2,679 crore which has been
eroding fast. JetPrivilege, which is
not listed, has received some
awesome valuations: in 2017,
Onpoint, a global agency that ranks
airline loyalty programmes, valued
JetPrivilege at $1.1 billion and
ranked it 31 in the most valuable
airline loyalty programmes
globally. Etihad’s loyal programme
was ranked 38 with a valuation of
only $765 million.
In October 2018, private equity
funds such as TPG and Blackstone
which were looking at buying Jet’s
stake in JetPrivilege, after an offer
from the airline, valued the
company at around $900 million —
a slight erosion which indicated the
seeds of the financial crisis now
engulfing Jet. Analysts peg the
valuation currently at around
~5,000 crore.
Despite the bumpy journey of
the airline, JetPrivilege has been
cruising smoothly. Set up in 2012 as
a fully owned subsidiary of Jet, it
first came to rescue of the airline in
2014 when founder-chairman
Naresh Goyal decided to rope in
Etihad as a partner to ease his
financial stress.
Etihad pumped in $600 million
to take a 24 per cent stake in Jet and
a 50.1 per cent stake in JetPrivilege
at a value of $150 million. An
abortive attempt to sell off part of
Etihad’s equity was made last year
but shelved. Instead, Jet dug into
JetPrivilege to raise ~250 crore from
advance sale of redemption miles
to the associate company.
While Jet pays JetPrivilege for
accrual of the miles, JetPrivilege
pays Jet when they are redeemed.
The loyalty programme has soared
from 2.6 million members and 72
programme partners in 2013 to over
9.5 million members and more
than 144 programme partners by
the beginning of 2019. In just one
year, through an aggressive
campaign, JetPrivilege won over
two million new members.
The airline, in its analyst call for
the Q3 of FY19, said that
membership has been growing at
26 per cent. The number is
significant as there are over 300
million active airline loyalty
members globally, according to
Securities and Exchange Board of
India did not agree to the idea.
Goyal had earlier reached out to
Lulu group owner Yusuff Ali M A for
infusing cash into the carrier, but the
plan didn’t materialise.
The NIIF is backed by India and
was established to provide long-term
capital to the country’s infrastructure
sector. Budget 2015 set the ball rolling
for its creation and NIIF was set up as
an alternative investment fund in
December 2016, with a planned corpus of ~40,000 crore. The Indian government has a 49 per cent stake in
NIIF with the rest held by marquee
foreign and domestic investors such
as Abu Dhabi Investment Authority,
Temasek and HDFC Group.
An early resolution to the financial
woes is crucial for Jet. More than 50
planes have been grounded by lessors
due to non-payment of lease rentals,
while it has defaulted on interest payment to domestic and foreign lenders
and delayed salaries to pilots.
Now, Jet cuts
flights to Gulf
Jet Airways has suspended services to Abu Dhabi and slashed the
number of flights to Dubai till
March-end. According to a notice
from Etihad Airport Services, the
airline has cancelled all its flights
from Monday for operational reasons. It has also stopped DelhiDubai flights.
“The airline has been committing
lessors and vendors regarding
payment and has not been able to
meet them till now. The airline
management is looking to raise
funds and clarity would be available in next few days,” said a
source familiar with development.
“Jet has proactively undertaken certain operational adjustments to its flight schedule, keeping in mind the likely, yet interim
non-availability of some aircraft
in its fleet in the foreseeable
future. The airline has kept the
regulator as well as its guests
informed of these changes,” it said
in a statement.
Panel on cards to ensure no turf
war among CCI, other regulators
CCI may soon engage with Centre, states in formulating policies so that competition is not affected
New Delhi, 17 March
he Centre is planning to set up a
separate forum of regulators
to ensure that there is no turf
war between various regulators and
the Competition Commission of
India (CCI).
The Telecom Regulatory Authority of
India (Trai), Central Electricity
Regulatory Commission (CERC),
Insurance Regulatory and Development
Authority (Irdai) and Petroleum and
Natural Gas Regulatory Board (PNGRB)
will be part of this forum, which will
resolve disputes with the CCI.
A senior official said, “These regulators can meet and address competition-related issues through dialogue
and discussions. This issue of overlap
between sectoral regulators and the fair
trade regulator has been going on for a
long time. There have been cases where
PNGRB, Trai and CERC have been at
loggerheads with the CCI.”
A recent instance of the CCI’s jurisdiction being questioned is that of the
three telecom companies Bharti-Airtel,
Vodafone India and Idea Cellular. The
CCI alleged that these firms had
They look into
REGULATORS issues before
they crop up
Looks into issues
such as abuse
of position
that affect
Issues that
affect public
at large
formed a cartel. The matter went to the
Supreme Court, which held that the
CCI should wait for the telecom regulator to complete its investigation.
In one instance, Reliance Industries
alleged that its rivals Indian Oil
Corporation Ltd (IOCL), Bharat
Petroleum Corporation Ltd (BPCL) and
Quality of service
Quality of service
does not come under
its jurisdiction
Hindustan Petroleum Corporation Ltd
(HPCL) formed a cartel for the supply of
aviation fuel to Air India.
However, during the course of the
investigation by the CCI, IOCL, BPCL
and HPCL filed a suit in the Delhi High
Court challenging the CCI’s jurisdiction claiming that the matter fell under
under asset
for IL&FS today
New Delhi, 17 March
the jurisdiction of the PNGRB, the sector’s regulator. Experts suggest that
while sectoral regulators act before
problems occur, the competition law
addresses anti-competitive activity
after it occurs. The CCI investigates
complaints it receives or can take up
cases suo moto if it feels there is anticompetition activity.
The government is planning major
amendments to the Competition Act,
which entails changing the definition
of “relevant market” and altering the
threshold for mergers and acquisitions.
The committee set up will look into
changes needed in the Act. The panel is
also deliberating whether there is a need
to have a separate division in the commission to examine mergers and a separate one to examine anti-trust cases.
The government has been planning
to expand the role of the CCI by making
it a body that will engage with the
Centre and states in formulating policies and revising them so that competition is not affected.
The government also wants the CCI
to be a think-tank that will analyse policy frameworks rather than only investigate cases and impose fines on those
who violate the Competition Law.
Cash-strapped IL&FS Group
will receive first set of bids
under asset monetisation
process on Monday as part of
resolution process, according
to sources. The company’s
board will later consider bids
for ~8,000 crore renewable
energy business that was put
on the block in November
2018, the sources said.
This will be the first set of
bidsthat willbeopenedunder
asset monetisation process as
part of resolution process by
government-appointed and
Uday Kotak-led new board,
they added. The group, which
is sitting on the debt of about
~94,000croredebt,haddecided to sell assets in various verticals, including roads, education, renewable energy, and
wind power plants with
an aggregate capacity of
873.5-mw, and under-construction such plants with
104 mw capacity.
Hedgers line up to gain from crash in forwards
Mumbai, 17 March
Importers and foreign currency
loan borrowers have increased
their hedging, taking advantage
after the Reserve Bank of India
(RBI) offered $5-billion swap
facility with banks, according to
currency dealers.
The one-year forward premium for dollar-rupee was 4.11
per cent a month back, and 4.05
per cent a week back, but is now
at 3.57 per cent.
The premiums are likely to
rise as more companies come
forward to hedge. Forward
premium is the fee a supplier
of dollar takes to commit to
supply dollar at the end of the
agreed period.
The central bank said last
week that it would swap up to $5
billion of three-year dollars with
rupee liquidity into the system.
Most of the hedging is happening on long-term external
currency consultants.
“We are observing increased
hedginginthemedium-tolongterm ECB segment,” said Samir
RBI guv to hold
pre-policy meet
with traders
on March 26
New Delhi, 17 March
The Reserve Bank of India
(RBI) Governor, Shaktikanta
Das, will hold discussions on
of trade bodies and credit rating agencies on interest rate
and steps to boost economic
activities, said sources.
The meeting, which comes ahead of the next financial year's first MPC meet
at broadening the consultation process, they added.
The bi-monthly policy, to
be finalised by the six-member Monetary Policy Committee, assumes significance as
it would be announced just a
week before the commencement of the seven-phase general elections beginning April
11. “The pre-policy consultation meeting” with the governor will take place in Mumbai
on March 26, the sources said.
Besides trade bodies, including industry chambers and
rating agencies, the governor
has also called representatives
of the All India Bank
Depositors’ Association.
Das has been meeting industry chambers, non-banking financial companies,
bankers, government representativesandratingagencies
to elicit their views on aspects
they expect from the RBI.
25th governor of the RBI in
December2018,hehadpromised to take all stakeholders,
including the government,
along on key policy issues to
maintain growth while keeping inflation under check.
in $ million
Inverted scale
Data up to March 14, 2019
Lodha, managing director of
QuantArt Markets Solution, a
treasury management firm.
“The RBI move helps ECB
hedgers since their forward premium impact is significant. For
regular importers with three to
four months import cycle, the
RBI swap impact is immaterial
at 8-10 paisa,” Lodha said.
According to Lodha, so far,
importers have been relaxed
with the appreciating rupee, but
it may not remain the same after
elections and the importers
should take advantage of the
strong spot movement from 71
to 69 a dollar to hedge.
Source: Bloomberg
The time, though, is not so
advantageous for exporters,
but they also have enjoyed a
good show last year when the
rupee rapidly depreciated to
reach its life time low of 74.15 a
dollar in October.
Currency dealers are advising their importer clients to buy
forwards as much as possible at
the present level, while telling
exporters to not enter the market if they can afford to do so.
The idea is that rupee would
soon fall to 71 a dollar once the
elections are over.
Rupee’s stability, and
appreciation in recent times
Top gainers,
losers after
Sensex jump
Sensex closed above
38,000 for the first time
since September 14, 2018.
Since the beginning of
this year, the Sensex has
rallied 4.8 per cent, as shown in Chart 1.
The recent rally has not been limited
to just the large caps. In fact, as seen in
Chart 2, even the beaten-down small and
midcap indices have recovered of late.
The Nifty Banking Index continues to
outperform the broader market. But it
is largely driven by private banks. As
shown in Chart 3, the Nifty Private Bank
Index has surged over the past year,
even as the public sector bank index
continues to languish.
Over the past year, the major gainers
have been Adani Power, followed by Bajaj
Finance, Divi’s Laboratories, Aditya Birla
Fashion and Muthoot Finance (Chart 4). On
the other hand, the major losers have
been DHFL, Reliance Power, Reliance Infra,
Reliance Capital and Central Bank of India.
Many have attributed the recent rally
to the surge in inflows from overseas
investors. As seen in Chart 5, over the past
two months, foreign portfolio investors
have pumped in close to ~32,000 crore in
the Indian stock market.
However, a closer look at the stock
market data suggests that this rally isn't a
one off. In fact, a report by KR Choksey
shows that the markets often tend to
rally ahead of elections. The report,
which analyses data over the past 23
years, shows that the markets rise in the
build-up and voting period between
January and May and the post-election
months of May to July (Chart 6). During
these months, sectors such as IT, auto
and capital goods tend to benefit the
most (Chart 7).
been strong. In equity, they have
they have invested $833 million,
on a net basis.
The voluntary retention
route (VRR), which cuts down
holding period to one year from
three years earlier, have been a
major draw for the money.
High bond yields (or lower
price) at entry point, and low
yields (or higher price) at exit
points is what lures the
investors in the fixed income
paper. The bond market has
managed to hold steady due
to unprecedented secondary
market bond purchases by the
have also encourage foreign
portfolio investors to pour in
their money without hedging,
currency dealers say.
“They are coming without
any hedging. Corporate bond
yields are offering attractive
return and there is a view that
even if rupee depreciates, it
won’t be more than 2-3 per
cent, which is lower than the
hedging cost, but that is dangerous tactics to take as the RBI
can change tactics anytime,”
said a treasury head of a private sector bank.
So far in March, FPI’s investments in Indian markets have
BANKER’S TRUST: $5-bn swap
smartest move of RBI gov 8 >
between the two contracting
parties but shall not be
excluded while determining
the value of supply. In its circular (no. 09/2019- Customs)
on ‘Turant Customs’, the
CBIC mainly talks of incremental facilities by leveraging information technology
to speed up imports and
The DGFT Policy Circular
(no.19/2018) says that applicants should apply for
Advance/EPCG authorisations as per current practice
Regional Authorities (RA) will
not issue any hard copy of
authorisation to the applicants. Instead, in case of
approval by the RA the applicant will get a suitable message on his mobile and email
address. RA will continue to
examine the application as
per current practice and, after
approval, send the authorisation details to other agencies/
departments, as usual.
The JNCH Public Notice
(no.3/2019) asks importers to
file advance or prior bill of
entry in re-import cases and
necessarily upload documentary evidence of surrender of
export incentives and intimation to specified authorities.
It says that where benefit of
exemption is claimed, the
‘first check’ procedure need
not be resorted to and identity of goods can be established
under ‘second check’ procedure also.
Under the RoSCTL, the
benefit to exporters shall be
given by the DGFT in the form
of Merchandise Exports from
India Scheme (MEIS) type
duty credit scrips. Till finalisation of procedural details,
claims filed under the existing
scheme-codes for the erstwhile RoSL (Refund of State
Levies) scheme will be treated as claims filed under
RoSCTL scheme.
Thus, the process of facilitating import-export trade is
quietly proceeding as usual
through a series of measures
that may not individually
amount to much but pursued
diligently over a period of
time, can collectively lead to
reduction of transaction
costs and improve the ease
of doing business.
The Central Board of Indirect
Taxes and Customs (CBIC) has
issued a useful circular clarifying various doubts regarding sales promotion schemes
under goods and services tax
(GST) regime. Another circular from its customs wing talks
of introduction of next generation reform named ‘Turant
Customs’ — a comprehensive
package of various elements
that would be implemented
from time to time in the next
few months.
The Director General of
Foreign Trade (DGFT) has discontinued issue of physical
copies of advance authorisations and EPCG (Export
Promotion Capital Goods)
authorisations. The Jawaharlal
Nehru Customs House (JNCH)
at Nhava Sheva has rationalised the procedures for reimport of exported goods. The
Ministry of Textiles has
announced an improved
scheme called Scheme for Rebate of State and Central Taxes
and Levies (RoSCTL) on export
of garments and made-ups.
The CBIC clarifies that
the goods or services or both
which are supplied free of
cost (without any consideration) shall not be treated as
‘supply’ under GST (except
in case of activities mentioned in Schedule I of the
Central GST Act, 2007).
However, input tax credit
(ITC) shall not be available to
the supplier on the inputs,
input services and capital
goods to the extent they are
used in relation to such supplies made without any consideration.
92/11/2019-GST) says that
under schemes such as ‘buy
one – get one free’, a single
price is being charged for the
entire supply and so, must be
treated as supplying two
goods for the price of one. It
also clarifies that credit
note(s) can be issued as a
email :
[email protected]
Source: BSE
Note: Base Jan 1, 2018 = 100
Note: Base Jan 1, 2018 = 100
Source: NSE
Source: NSE
Electionyear trend in the last 23years (1996-2019)
Months Oct - Jan
Jan - May
May - Jul
Returns Low/average
Positive/Above first
Volatility Above average High
Cools off
Volumes Building up
Calms down
Sightly high
Source: 2019 Election Report, KR Choksey
Price in ~
Mar 15, ‘18 Mar 15, ‘19 % Chg
BSE 200 gainers
Adani Power
50.60 79.75
Bajaj Finance
1725.80 2859.70 65.70
Divi's Laboratories 1086.10 1708.40 57.30
Aditya Birla Fashion 147.15 227.50 54.60
Muthoot Finance
397.30 597.80 50.47
BSE 200 losers
514.80 132.00 -74.36
Reliance Power
10.78 -73.05
Reliance Infra
449.65 131.30 -70.80
Reliance Capital
445.75 173.95 -60.98
34.00 -60.96
Source: BSE
TO ~32,383 CRORE
in ~ cr
Sectoral returns during electionyears
Outstanding >20% Average 10% -20% Neutral 0% - 10%
Underperform <0%
Banking & financial services
Capital goods
Health care
Information technology
Metals & mining
Oil & gas
Note: Data is till March 14, 2019; DII is domestic institutional investor, FPI is
foreign portfolio investor
Source: SEBI/NDSL/Exchanges
StatsGuru is a weekly feature. Every Monday, Business Standard guides you through the numbers you need to know to make sense of the headlines
RBI. At more than ~2.8 trillion,
the purchases have been
about 72 per cent of the net
borrowing of the fiscal, but
that may not be enough. More
OMOs could be needed to
keep bond yields in the lid,
and dollar swap facility to
infuse liquidity may not be a
substitute, according to
Soumyakanti Ghosh, chief
economic advisor of State
Bank of India group.
“Frictional liquidity is substituting durable liquidity,
which should never be the case.
Durable liquidity can substitute
frictional liquidity, but not the
other way round. Against this,
frictional liquidity injection
through repo has more than
compensated for the variation
in government cash balances,”
Ghosh said.
The government usually
builds up huge cash balances
with the RBI as tax money pours
in. This gets spent much later,
and in between creates liquidity
crisis, particularly at the end of
every quarter.
sales promotion
offers under GST
Source: 2019 Election Report, KR Choksey
Source: Exports to Jobs: Boosting the gains from trade in South Asia, World Bank and International labour organization; Compiled by BS Research Bureau
Some MPs in India
represent up to
2.5 million people
Mumbai, 17 March
ndia does not have enough representatives
in Parliament. India ranks among countries with the highest number of peopleper-Member of Parliament (MP), shows data
from across global legislatures. The peopleper-MP ratio in India is higher than global and
neighbourhood averages. Research has shown
that not having the right number of representatives can have a significant impact on policy-making.
A study showed an average of one MP per
146,000 people globally. In India, the figure was
ten times as much. There was one MP for every
1.5 million people. In fact, India had the lowest
number of MPs relative to its population across
democracies, shows data from a 2012 report by
the Inter-Parliamentary Union, an association
of national parliaments from across the world.
One MP representing 1.5 million people is poor
even by the standards of its neighbours. The
Asia-Pacific region had one for every 313,000
people, twice the global average. (See Chart 1)
The issue is unlikely to be the cost of maintaining an MP. Studies have shown that India
spends amongst the lowest on Parliament. The
per capita budget is $0.25 on a purchasing
power parity basis, which allows for costs to
be compared on an even basis across countries. (See Chart 2)
There can be no increase in the number of
members for some time. Parliament froze the
figure at 545 (543, plus two nominated AngloIndian members) till 2026, based on the 1971
census. This was done to allow for population
control measures to play out without skewing
representation. This is because any increase in
MPs will have to take population into account.
Some states (especially southern ones) have
been better than others in controlling their population. The amendment was because it was
seen that states with better population control
would be punished for their success, if states
with higher population get more MPs.
But meanwhile, the issue of not enough
representation remains. If one were to take
the Lok Sabha alone, even states with the
highest representation, such as Uttar Pradesh,
have one MP representing over 2.5 million
people. (See Chart 3)
Too few members can mean that policy is
skewed in favour of some, noted a study of representation in 100 countries.
“With too few representatives, public decisions could well be biased in favour of active
minorities, to the detriment of under-repre-
Inhabitants per MP (thousands)
Asia-Pacific 313.25
Arab states
Budget per capita (in $ on PPP basis)
Lao People’s
Note:Based on countries with least spends as per the report,
based on purchasing power parity which allows for
comparison across countries; PPP: Purchasing power parity
Source: Inter-Parliamentary Union (Global Parliamentary
Inhabitants per
(16th Lok Sabha) MP (thousands)
Uttar Pradesh
West Bengal
Tamil Nadu
Sources: Lok Sabha website, Census 2011 numbers,
Business Standard calculations
sented (or less organised) groups. Casual observations also suggest that the corruption level
could be higher in countries characterised by
an “excessive” number of representatives,”
according to a March 1998 article in Public
Choice, titled ‘On the Optimal Number of
Representatives’, authored by Emmanuelle
Auriol and Robert J Gary-Bobo.
It noted that too many members can create
other problems. But that’s a worry that can wait
till 2026.
Lucknow, 17 March
In the backdrop of the sugarcane arrears in Uttar Pradesh
(UP) topping ~12,000
crore, the cane belt of
western UP, scheduled
to witness polling in
the initial phases
beginning April 11, is
likely to set the tone
for elections in the
country’s top sugarproducing state.
impacts nearly 4 million farmers’ households and has an
intrinsic downstream integra-
tion with the industry, especially sugar mills.
The issue of sugarcane payments has always acquired
political connotations, especially during elections.
Bharatiya Janata Party
prompt cane payments in its election
manifesto before the
UP polls two years ago.
The politics of the
Rashtriya Lok Dal
(RLD) and Bharatiya Kisan
Union (BKU) is largely centred
around sugarcane and Jat
issues. The RLD has aligned
with the Samajwadi Party (SP)
and Bahujan Samaj Party
(BSP) in UP and is attacking
the state government on farm
distress and the outstanding
sugarcane dues.
In the ongoing crushing
season of 2018-19, the 119 operational UP sugar mills — 94
private, 24 co-operative, and
one state — had procured cane
worth ~23,200 crore from
farmers and paid ~11,350 crore,
thus leaving an unpaid portion
of ~11,850 crore.
Besides, mills have to make
a payment of ~290 crore for the
2017-18 season.
Earlier this week, UP Chief
Secretary Anup Chandra
Pandey summoned representatives of private mills and
asked them to ensure full
cane payments.
A leading sugar mill official
told Business Standard western UP mills had been directed
to settle dues by the end of
March, while central and eastern UP units had been asked
to pay by the middle and end
of April, respectively.
Since polling in UP will
start in the western pockets
and progress towards the east
in successive phases on April
11, 18, 23, 29, May 6, 12 and 19,
the ruling BJP wants to ensure
sugarcane payments are made
as much as possible.
Source: Inter-Parliamentary Union (Global Parliamentary
BJP steps up ‘Main bhi
chowkidar’ campaign
Cong calls off seat-sharing
deal with Left in Bengal
The Bharatiya Janata Party (BJP) on Sunday
stepped up its ‘Main bhi chowkidar’
campaign. Prime Minister Narendra Modi,
Finance Minister Arun Jaitley, and other
party leaders,
including president
Amit Shah, prefixed
the word chowkidar
(watchman) to their
names on their
Twitter profiles to
seek people's support
in the upcoming
Many of them also
put out short
showing people from
differentwalks of life
have turned chowkidar to do their bit for
the country like Modi.
Modi's Twitter
profile identified him
as ‘Chowkidar
Narendra Modi’.
“As chowkidars of
our nation, we are
committed to creating
a clean economy by
using cashless
financial transactions.
The menace of corruption and black money
has adversely affected us for decades. Time to
eliminate these for a better future.
#MainBhiChowkidar #ChowkidarPhirSe,”
Railway Minister Piyush Goyal tweeted.
Shah tweeted a campaign video to
highlight people's efforts to keep their
surroundings clean.
The West Bengal unit of the Congress on
Sunday called off seat-sharing talks with the
CPI(M)-led Left Front for Lok Sabha polls,
after weeks of hectic parleys failed to resolve
the impasse over distribution of seats. “It
has been decided by our unit that we don't
want any adjustment or alliance by
compromising our dignity. The Left can't
dictate us on who will be our candidate and
who won’t. We will
fight it alone in
Bengal,” state Congress
chief Somen Mitra said
after a party meet in
The Congress was
miffed at the CPI(M)
announcing the list of
its 25 candidates in the
state, and had expressed the party's
displeasure over the Left Front not respecting
the rules of alliance.
Polling staff to walk for a day
for lone voter in Arunachal
Election personnel will hike through an
Arunachal Pradesh district bordering
China for a day to ensure Sokela Tayang —
the lone voter of a polling station — can
exercise her franchise. Tayang lives with her
children in Malogam, around 39 kms from
Anjaw in the Hayuliang Assembly
“The polling station had two voters
during the 2014 elections. Now, for some
reasons, Sokela's husband Janelum Tayang
has transferred his name to another polling
booth,” sources at the state chief electoral
officer’s office said. It will take a full day for
the polling party — a presiding officer,
polling officers, security personnel and
porters — to reach Malogam polling station
from Hayuliang on foot, Deputy Chief
Electoral Officer Liken Koyu said.
Bihar NDA announces
candidates for 40 LS seats
The three National Democratic Alliance (NDA)
constituents in Bihar — BJP, JD(U) and LJP —
on Sunday announced the names of
candidates for the 40 Lok Sabha constituencies for the upcoming general elections.
(From left) LJP state President Pashupati Paras
with JD(U) state President Vashisht Narayan, and
BJP state President Nityanand Rai at the release of
the candidates’ list in Patna on Sunday
According to the announcement, the BJP and
the JD(U) will contest 17 seats each, while
the LJP will contest six.
BJP: Muzaffarpur, Patna Sahib, Darbhanga
JD(U): Siwan, Gaya, Bhagalpur
LJP: Hajipur, Samastipur, Jamui
Centre may
hike import
Other major players like Lloyd,
Panasonic, and Samsung, too,
have approached the authorities individually or through the
industry body, Consumer
Electronics and Appliances
Manufacturers Association
Kamal Nandi, president of
CEAMA and business head
and executive vice-president
at Godrej & Boyce, said,
“Customs duty on components should not be increased
any further as we don’t have
the ecosystem for manufacturing these components in India.
We fully support the government’s move to increase duty
on finished goods, but we want
Customs duty on components
to go down.”
Manufacturers, already
gasping under the cost burden,
pointed out that since mid2017, the prices of large appliances have had to be raised at
least thrice – first, due to the
higher tax rate under the goods
and services tax; second, due
to higher cost of raw materials
like steel and plastics and the
depreciation of the rupee; and
third, due to duty hikes in
September 2018.
Sources said that with the
country’s current account
deficit (CAD) continuing to
rise, the government is looking
closely at items that can be
taxed further. In JulySeptember 2018, India’s CAD
rose to 2.9 per cent of gross
domestic product, up from 2.4
per cent in the preceding quarter.
Shashi Arora, chief executive officer of Lloyd, is unfazed
about a probable duty hike on
components for ACs. However,
he wants the import duty on
TV parts like open cells and
panels to go. Incidentally, the
imposition of a 5 per cent duty
on open cells and a 7.5 per cent
duty on flat panels last year led
Samsung to move its manufacturing base from Chennai to
While over 80 per cent of
the compressors used in ACs
and refrigerators continue to
be imported, copper tubes for
condensers and pre-coated
steel sheets used in the outer
cover of appliances like refrigerators are largely imported
too. The components for
microwave ovens and indoor
units of ACs are imported from
Europe and China. Hence, any
further rise in the import duty
of these components is bound
to have a crippling effect on
local manufacturing.
Nandi said, “We are making
representations to the government to bring down the 10 per
cent duty on compressors.
Besides, since the duty on other components like open cells
(for TVs) can hurt local manufacturing, we are demanding a
cut there.”
LG’s Vijay Babu said, “We
will wait and see what decision
they take and determine our
course of action accordingly.”
He did not, however, specify
what changes LG was planning
if duties are hiked once again.
With inputs from Subhayan
Mindtree taps
Singapore-based Arohi Asset
Management Pte Ltd, which
manages the Ontario Teachers’
Pension Plan Board’s stake of
1.22 per cent, is another major
foreign institutional investor
in the company.
“The founders have
reached out to all major institutional investors, including
Nalanda Capital, as their support will be crucial in the case
of management change,” a
corporate governance official
said. He, however, added a
good premium over the market price would be the key
deciding factor.
Another source tracking
the development pointed out
that Mindtree is in touch with
its top client base in the US
and other geographies to get
validation of its work for bolstering its case before the
shareholders. This is significant, as customer stickiness
is critical in the IT services
industry, an outsourcing
advisor said.
“The founders have the
zeal to fight. They don’t want
to leave the company, which
they have built painstakingly
over the years, towards the
path of value destruction,” a
source familiar with the
development said. “So, all
defensive strategies are being
explored by them.”
However, many believe
that price is the critical element of ring-fencing the company from a takeover bid.
“The management knows
that price is the real game
changer. If L&T tries to gain
majority control in Mindtree
at a significantly higher price
than the market rates, its
shareholders will ask L&T’s
management about its implications,” another source said.
Siddhartha, who is the single-largest
Mindtree, is in advanced
stages of discussion with a
clutch of entities, including
private equity and L&T to
offload his stake in the IT
firm. But, with the founders’
reluctance to shed their
stakes of around 13.32 per
cent, the situation has turned
Earlier in an interaction
with Business Standard,
Natarajan hinted at the
founders’ desire to drive the
company in its next growth
phase. “As far as strategic
direction is concerned, we (the
founders) have the conviction
and confidence in the business and have a point of view
as to how the future should
be,” Natarajan had said.
The IT services industry
globally has seen very few
instances of hostile takeover
so far. Analysts say as IT services is a human resourceintensive business, any hostile takeover may create
integration issues in terms of
people and customers.
quits govt role
to take on
Terming Mindtree a
national resource, Bagchi
said it has not been
designed as an ‘asset’ to be
bought and sold. “I need to
be there in its time of
difficulty. Hence, (I have
taken) the hard decision to
return,” Bagchi said.
Mindtree faces the risk of
management change as its
largest shareholder is
reportedly in talks with a
rival technology firm to
offload his stake.
Bagchi, who co-founded
Mindtree in 1999, returned
to his native state Odisha in
2016, after stepping down
from his role as executive
chairman of the
information technology
firm. His return to Bengaluru may be seen a precursor
to a bitter boardroom battle
that the current management is preparing for in
order to restrict any rival
technology firm from
coming on board.
Production at the local arm of
the Japanese carmaker in
March 2019 is estimated to be
the lowest since March 2015,
according to the production
data notified by the company
to the stock exchanges and
Society of Indian Automobile
Manufacturers (Siam).
Production shows a deaccelerating trend on a
sequential month-on-month
basis. In February 2019, Maruti
produced 148,000 vehicles.
The cuts come amid flagging sales. In the 11 months
from April to February,
Maruti’s domestic sales grew
6.7 per cent.
Auto companies in India
count despatches to dealers as
Most of the growth, however, came in the first quarter of
2018-19, when despatches in
each of the three months
advanced at more than 14 per
cent. Since June 2018, sales
have remained muted or in
low single digits every month.
“Whatever was planned six
months ago has not worked
and sales have been falling
month after month. In a departure from the earlier plan of
closing the year with 2 million
units, the company may just
do 1.87 million as the second
half has been flat for the company,” said a Maruti Suzuki
“It is a sign of a large system
inventories that a production
cut is necessitated. However,
what is alarming is that the
company is struggling with
inventories for close to six
months now,” said Mahantesh
Sabarad, head, retail research,
SBICAP Securities.
With every second passenger vehicle sold in India coming from Maruti Suzuki’s stable, the company’s lacklustre
sales in recent times reflect the
slowdown in India’s broader
passenger vehicle market.
A combination of factors,
including the tightening of
credit norms by financiers in
Infrastructure Leasing &
Financial Services crisis, higher ownership costs, including
increased premium on insurance and higher fuel prices,
slower economic growth, and
a volatility in the stock markets
have weighed on buyer sentiment. Between April and
February, sales of passenger
vehicles in India advanced by
3.3 per cent to 3.09 million
units over the same period a
year ago, according to Siam.
Bracing for the lull in
demand and pile of unsold
stocks, every other two-wheeler and car company has been
paring production, said a top
official at an auto component
maker that counts leading
automakers as its clients. He
estimates production cuts
across all the manufacturers to
be in the region of 5 per cent to
“India’s passenger vehicle
market is facing a challenging
business environment, with
urban sales declining and rural
sales growth coming close to
single digits in the past few
months. A few regions witnessed a higher monsoon
deficit, impacting the rural
economy, which, in turn, has
dragged down demand over
the last four to five months,”
said Mitul Shah, vice-president, research, Reliance
Binny Bansal...
According to him, xto10x
Technologies leverages technology and process-automation systems for founders to
take on business operations
“One reason (for his move)
is that he intends to play a larger role in the start-up ecosystem. He wants to increase his
engagement in his recently
Technologies, which will provide technology tools and a
learning platform for start-ups
all over the world to scale up,”
said a source familiar with the
With Flipkart being registered in Singapore and many
of its investors based there,
Binny already has a strong network to start with. Even as he
moves to Singapore, he will be
frequently travelling to India,
at least for work trips, sources
Binny has angel investments in over 40 start-ups,
commitments to a handful of
home-grown VC funds, and a
4 per cent stake and board seat
in Flipkart.
Regarded as the poster boy
for India’s start-up landscape,
Binny, along with his Indian
Institute of Technology batch-
mate Sachin Bansal, founded
and grew Flipkart to be top
start-up from India. In May last
year, the founder agreed to sell
77 per cent of stake in the etailer to US major Walmart Inc.
for $16 billion, in the biggest ecommerce deal anywhere in
the world.
While Sachin sold his stake
during the deal, Binny stayed
on and was made the chairman of the board and group
chief executive. But, a few
revealed an internal investigation that uncovered “serious
personal misconduct” on his
part that led to his resignation.
According to media reports
in December, Binny may have
secured $100 million as part of
his severance package, and as
per contract will make more in
2020 when Walmart will buy
part of his 4-4.5 per cent stake
in Flipkart, which will be worth
$850 million at the time.
During and after Flipkart,
Binny has been an active
investor. He has stakes in an
array of start-ups, including
CureFit, GreyOrange, Ather
Energy, Inshorts, and Creo,
and VC funds pi Ventures,
Blume Ventures, and India
Quotient. Forbes estimates his
net worth at $1 billion.
SpiceJetlikely to
grounded Jet
Regulators around the world
have suspended flights of 737
MAX planes following the
Ethiopian Airlines crash last
Sunday. The MAX’s earlier
variant, known as the NG
series, continues to be the
mainstay for carriers around
the world, including Air India
Express, Jet Airways and
SpiceJet in India.
A SpiceJet executive confirmed the airline had a meeting with lessors on Saturday
and is finalising the number of
aircraft it intends to take.
SpiceJet and Jet Airways fly
the similar Boeing 737 NG air-
craft but with a separate configuration. “As of now there are
13 planes grounded. We had
planned to induct at least 15
more by the end of 2019. We
are looking at the grounded Jet
Airways planes to dry lease
them for six months,” the executive said, adding that the airline was eyeing wet leasing
planes from European carriers.
In wet lease, an arrangement under which an airline
leases aircraft along with crew,
maintenance from the lessor
is costly and will lead to a spike
in operational cost for the company, which had recently started enjoying cost benefits from
the fuel efficiency of the 737
MAX. According to the company’s statement in OctoberDecember, owing to a lower
fuel burn of the aircraft, its cost
increased only 2 per cent while
the jet fuel price had increased
by 6 per cent.
A second SpiceJet executive said the airline was engaging with Boeing to understand
how long the grounding of the
MAX would be before taking a
decision on leasing Jet Airways
aircraft. “As of now it looks like
it will be two months that the
planes will stay grounded. We
will not put a brake on our
expansion plans or surrender
the airport slots,” he said.
A deal with SpiceJet will be
a win-win for the lessors and
the airline. For SpiceJet, getting Jet Airways’ aircraft
means that they will come a lot
cheaper than at the existent
market rates and clearance
from the regulator, Directorate
General of Civil Aviation, will
come quicker because the
planes are registered in India.
“Getting the planes will be
faster and it would be cheaper than the existing market
rate as the lessors will try to
find a home for the aircraft
after termination of the deal,”
said a SpiceJet executive.
The grounding of the MAX
will increase the demand of
NG and increase its rate by
around 10 per cent, said an
aviation consultant.
More on business-standard.com
Carving out a
niche in online
insurance space
A quick and cheap
source of auto parts
Acko sells insurance — mainly automobile and
innovative products — online at a lower price, but
needs to build the brand, writes Gireesh Babu
anjay was going on a long road trip and UrbanClap.
Last week, the company raised $65
and he had only one day to renew
his car insurance. With no time to million in Series C round from several
waste for an insurance agent to turn up, investors, including Binny Bansal, cohe decided to renew his car insurance founder and former CEO of Flipkart and
online and reached a website that offered Intact Ventures Inc — the corporate venhim a scheme at a surprisingly low pre- ture arm of Canada’s largest property and
casualty insurer. Amazon
mium. After a quick web
check on the credibility
led the company’s Series B
round of funding, a $12 milof the site, he decided to
lion investment, last year.
buy the insurance. And
with Sanjay's purchase,
Acko has raised $30 million
November 2016
from investors, including
Mumbai-based fintech
Kris Gopalakrishnan, costart-up Acko General
Digital native insurer
Insurance, a native digital
founder of Infosys, and
insurer or that sells its own
TARGET: To expand
Catamaran Ventures.
products, had received one
physical presence to 30
more customer.
Bansal said technologycities in two years;
led insurance is likely to
Acko breaks the clutter
serve 100 million
play a key role in growth of
through the traditionally
customers in 3-4 years
middlemen-driven, comthe insurance sector in
India and Acko is posimission-loaded insurance
business in the country, by offering poli- tioned well to encash this opportunity.
cies online, which should help it scale
faster. It offers passenger car and two- Concept
wheeler insurance and innovative prod- Varun Dua, former co-founder of
ucts in the tie-up with online companies, Coverfox.com, is the founder of Acko. The
such as Amazon, Ola, Zomato, redBus company, registered in November 2016 as
Varun Dua,
founder of Acko
an independent general insurance company, received the IRDA’s approval in
September 2017.
It offers paperless purchase, cashless
claim settlement and pick-up of the damaged car within one hour and end-to-end
turnaround time of three days in certain
cities. Acko is claimed to be the only digital
native insurer, and the competition would
be mainly from the established traditional
insurance players which are expanding
their digital footprint, Dua said
It currently has a physical presence in
12 cities, while it operates pan-India online.
Being online gives it an advantage of scaling faster and attract customers in their
30s, especially in tier I and II cities.
The exclusive digital model gives it better access to data to assess good risks
against bad risks, which should help it personalise the product and price accurately.
Acko will need to woo more investors
Executive Director and
Co-head, Digital &
Investment Banking,
Avendus Capital
Indian general insurance is a
large market poised to exceed
$25 billion this financial year, yet
highly underserved. We expect
the general insurance market to
cross the $50-billion mark by
General insurers today face
structural challenges such as
information asymmetry,
intermediary dependent
distribution, branch-led
geographic expansion and
physically-intensive operations.
Acko’s differentiated go-tomarket has inherent advantages
over traditional models. The
company uses a direct-toconsumer approach for
distributing motor and health
products, allowing for
favourable risk selection and
superior underwriting.
Acko’s success is
representative of the power of
technology-driven business
Insurance is a capitalintensive business, therefore,
will continue to require
investors who are aligned with
Acko’s growth plans. The next
one-two years will be critical for
the company to build the brand
and attract high-quality
customers seeking intuitive
purchase experience, cheaper
prices and stress-free claims
It also helps the company bring in new
products, especially built target customers.
Apart from automobile insurance, which
it offers directly to the customers, the company offers products in collaboration with
third parties, like small accident and
missed flight insurance schemes.
“In 75-80 per cent of cases, customers
will find us 15-30 per cent cheaper than
the other options that are available in the
offline world,” said Dua.
It has, so far, covered around 200,000
cars and has served a total of 20 million
customers through its businesses.
Opportunities and challenges
The general insurance industry is estimated to be around $25 billion and it expected
to grow by around 15-20 per cent since the
penetration is low at around 0.9 per cent
of GDP. In the next five years, it is expected
to be a $60-billion market.
Online insurance is around 5-6 per cent
of the overall market and the growth is
around 40-50 per cent every year. In 2014,
it was 1.5 per cent online, said Dua. In the
next five years, digital presence could be
10-15 per cent of the total market. The
online insurance market could be worth
$8-10 billion insurance at that time, he said.
The challenge could be that there are
over 20 established offline players trying
to harness technology to bring down their
costs and attract more customers. It is a
deep capital business and the growth
would come with investment.
Road ahead
The fresh funds will be used into brand
building and on digital technology by
adding more manpower in the technology
front. “We will also be looking at health
insurance sometime next year,” he added.
Pune-based Dilip Londhe was looking for
replacement brake pads and sensors for
his BMW 3-Series car, but the automobile
parts were too expensive. He then stumbled
upon the website of SparesHub — an automobile parts start-up — and found that
prices quoted there for spare parts were
"reasonable" and decided to purchase the
items immediately.
The start-up solves the problem of the
unavailability of automobile parts
and provides them at a cheaper price, helping
car owners save
precious time, money, and effort. The
Pune-based company
has recently raised ~3.5
crore from Indian Angel
Network in its third round of
Besides selling auto spare parts
through its website, SparesHub works
with automobile companies and component manufacturers to make auto parts
available to customers through service centres, fleet owners, service aggregators, and
insurance companies.
Founded by Tapas Gupta and Arijit
Chakraborty, the start-up works with 250
B2B companies in Pune. “We solve the problem of over-expensive and unavailable
automobile parts. We not only provide them
at cheaper rates but make them available
to the customer in 120 minutes,” says Gupta.
Using data analytics, the company
studies the vehicle ownership pattern in
Pune to decide on its inventories. It then
buys spare parts from original part manufacturers across India. "There are around
26 companies with more than 100 models
and approximately 350 replaceable parts,"
says Gupta.
The company pegs the total market opportunity for spare automobile parts at $2.8 billion and aims to tap 10 per cent of this market in the next five years.
However, with electric vehicles on the
rise, vehicle technology is itself changing.
Not only are vehicles lasting
longer, with longer service
intervals, but there are
fewer parts to maintain, replace, or
repair, accord-
ing to the August 2018 report, Ready for
inspection: The automotive aftermarket in
2030, by consulting firm McKinsey. Besides,
SparesHub faces massive competition from
unorganised local workshops.
Revenue & road ahead
Four years into the business, SparesHub's
per unit economics is positive and it hopes
to achieve breakeven in four months.
Currently catering only for Pune, it will
utilise the fresh funds to expand to Mumbai,
strengthen its technology solution and
increase its 30-member team.
# 2693
Fill in the grid so
that every row,
every column
and every 3x3
box contains the
digits 1 to 9
Is the IBC losing its effectiveness?
On the contrary, it has the potential to change the behaviour of investors, lenders and
borrowers to create a more healthy ecosystem for India Inc
here is a growing concern that the
Insolvency and Bankruptcy Code
(IBC) has taken a bit too long in
resolving cases of corporate indebtedness — much beyond the stipulated outer limit of 270 days. The fear, therefore,
is whether the IBC will soon be rendered
as ineffective as some of the similar laws
like the Recovery of Debts Due to Banks
and Financial Institutions Act, 1993, the
Securitisation and Reconstruction of
Financial Assets and Enforcement of
Security Interest Act, 2002, the Sick
Provisions) Act, 1985 or even the winding up provisions in the Companies Act.
A recent study, conducted by three
researchers — Surbhi Bhatia, Manish
Singh and Bhargavi Zaveri — provides
a fresh perspective to this debate on
whether the IBC is losing its effectiveness. According to the study, a resolution of a case within 180 days, the first
deadline mandated in the IBC, is less
than 5 per cent. The probability of resolution of cases increases significantly
within 270 days, the second deadline
under the IBC, upto between 10 and 30
per cent. And within 360 days of a case
being admitted, the chances of resolution are even better at 30 to 70 per cent.
These findings are certainly reassuring, compared to what the earlier studies
had indicated. A 2018 study, led by Josh
Felman and others had concluded that
the 12 large cases, referred to the IBC by
the Reserve Bank of India in 2017, could
take more than 500 days and smaller
cases could take up to 350 days for resolution. At around the same time, Ajay
Shah and Susan Thomas came out with
a study that suggested there was an 80
per cent chance that a case might not
be resolved even after 270 days.
Clearly, the study conducted by
Bhatia, Singh and Zaveri has presented a
more optimistic picture as far as the IBC’s
effectiveness is concerned. Notably, this
is also borne out by the data that the
Insolvency and Bankruptcy Board of
India (IBBI) put out early this year.
According to the IBBI data as on
December 31, 2018, as many as 1,484 cases have been admitted so far. Of these,
142 cases or 10 per cent have been closed
on appeal or review. Sixty-three cases
have been withdrawn, indicating how
the borrowers’ behaviour has become
more compliant once the cases are taken
up under the IBC process.
Seventy-nine or about 5 per cent cases have been closed after resolution. And
302 cases or about 20 per cent, have
been closed after liquidation. Almost
three-fourths of the cases that have been
closed after liquidation are about companies that were either defunct or were
languishing at the Board for Industrial
and Financial Reconstruction, set up
under the Sick Industrial Companies
(Special Provisions) Act. This is also a
reflection of how the earlier law had
failed to bring about quick resolution
and the IBC has succeeded in securing
a relatively earlier closure for them.
About 61 per cent of these cases —
898 in all — are under different stages
of the corporate insolvency resolution
process (CIRP). The IBBI data shows that
about 30 per cent of them have been registered with the IBC process for more
than 270 days. Another 18 per cent of
the cases under CIRP have been registered for a period between 180 and 270
days. In other words, almost 48 per cent
of the cases under different stages of
CIRP have already crossed the second
deadline for resolution under the law.
This is what should cause concern.
Yet, there are several positive signals
emerging from these numbers. One, the
IBC process is certain to help India
improve its ranking under insolvency
resolution process in the 2019 edition of
the World Bank’s Ease of Doing Business
report. In 2018, the World Bank report
had mentioned that resolution of insolvency in India usually takes about
4.3 years. The data now shows there is
an improvement and whatever it is
worth, India’s ranking in the World Bank
Ease of Doing Business index should
improve a few notches in 2019.
Two, the IBC process is helping create greater certainty in the minds of
investors as also lenders on the timeline
for exiting businesses when they
become unviable and have to be shut
down. This is good news for a country
where capital is scarce and needs to be
freed up from unviable projects as early
as possible. And three, the IBC process
has already seen a positive change in
the behaviour of borrowers, leading to
greater compliance.
It is reasonable, therefore, to suggest
that the functioning of IBC so far has
not got the kind of credit that is due to
it. Not only has it outdone similar laws
of earlier years, it has the potential of
changing the behaviour of investors,
lenders and borrowers to create a more
healthy ecosystem for India Inc.
Gunning for attention
Is the Bharatiya Janata Party’s (BJP's)
Patna Sahib lawmaker Shatrughan Sinha
(pictured), who has an acrimonious
equation with the leadership of his party,
finally ready to quit? In a series of sharplyworded posts, he took on the government
over what he alleged were “unfulfilled
poll promises”. In one of the posts, he
said, “You may be having many admirers
but I won't be one of them.” In another,
he sent out a warning that he might not
stick around for long. In January, too, he
had said he was ready to quit the BJP “at
once”. He, however, had one condition —
the party “high command” must ask for
his resignation.
$5 bn swap smartest move of RBI gov
The new instrument could be a permanent fixture
in the RBI’s liquid management toolkit, the level
of the rupee determining the frequency of use
ndia’s banking regulator’s decision to
hold a $5 billion three-year
US$/Indian rupee buy/sell swap auction (on March 26) is driving forward premia down, paring the hedging cost of corporations for their overseas borrowings.
This is one of the many outcomes of
the Reserve Bank of India’s (RBI) latest
liquidity infusion move through a
unique instrument. Indeed, in the past
too, the RBI had infused rupee liquidity
using this route but that had been done
(last time in 2013) in difficult times, when
the local currency was under attack.
This diversifies the liquidity management toolkit of the RBI. A cut in the cash
reserve ratio (CRR) or the portion of
deposits commercial banks keep with
the central bank (on which they don’t
earn any interest) is the conventional
way of infusing liquidity on a durable
basis. The RBI’s preferred way, in recent
times, has been the so-called open market operations (OMOs): Buying bonds
from the banks and releasing money.
Through this auction, the RBI will
buy dollars from banks and release
equivalent amount of money — close to
~35,000 crore into the system for three
years after which the banks will buy back
the dollars from the central bank. To
hedge against the likely depreciation of
the rupee during this period, the banks
will pay the swap cost to be decided at
the auction. Even if the local currency
depreciates more, the banks’ liability is
fixed and the RBI too runs no exchange
risks as it holds enough dollar assets and
won’t need to buy dollar from the market
three years later.
In 2013, when the rupee was fast
depreciating against the dollar and India
was staring at its worst current account
deficit, the banking system mobilised
$26 billion through foreign currency
non-resident bank account (FCNR-B)
deposits to shore up India’s foreign
exchange reserves. The RBI encouraged
the banks to aggressively mop up such
deposits (and get rupee in exchange of
that) by offering a hefty discount to the
prevailing $/Re swap rate in the market
at a special window, kept opened
between September 10, 2013 and
November 30, 2013. These deposits
matured in November 2016.
We need to wait till March 26 to know
the cut-off swap rate at the auction. Since
the local currency is doing fine and there
is no urgency to pile up foreign exchange
reserves, the RBI is unlikely to offer any
sops to the banks this time. In 2013, it
had subsidised the swap cost as the context was different: We needed foreign
exchange and the rupee liquidity was an
offshoot of that.
During the current fiscal year, the RBI
has so far infused close to ~3 trillion in
the system through the OMO route. Why
has it chosen the new tool and what are
the benefits?
The liquidity is being kept lubricated
through regular bond buying by the RBI
but the liquidity deficit will intensify as
typically in the run-up to a general election more and more currency seeps into
circulation, leaving the system. Besides,
corporations are paying their advance
tax for the March quarter now. The currency in circulation was ~19.87 trillion in
January, far more than the ~16.6 trillion
a year ago. The credit deposit ratio in the
banking system has been hovering
around 78 per cent for months. This is
high but even higher is the incremental
credit deposit ratio — more than 100 per
cent for quite some time.
For every ~100 deposit, banks are to
invest ~19.5 in government bonds and
keep another ~4 with the RBI as CRR.
But since deposit growth is tardy, they
are using their entire fresh deposit and
capital to lend. If this continues, the cost
of money cannot come down despite a
rate cut by the RBI.
The timing of this experiment is apt
as foreign currency has started flowing
in through the newly opened voluntary
retention route or VRR. The RBI in
October 2018 announced this channel to
facilitate foreign portfolio investment in
the Indian debt market but the scheme,
which is pretty liberal, was finalised in
early March and it is attracting good flow.
Besides, the National Company Law
Apellate Tribunal giving the go-ahead to
ArcelorMittal’s ~42,000 crore bid for the
debt-laden Essar Steel will ensure another $6 billion flow. This will push up RBI’s
foreign exchange reserves, currently at
$402 billion.
While the new tool will infuse rupee
liquidity in the system, it will also bring
down the hedging cost for Indian corporations raising money overseas. In other
words, apart from generating liquidity,
the new tool will also open up alternate
source of funding for capital-starved
Indian corporations, particularly those
that want to make investments in new
projects but not getting money from the
local banking system.
This may, however, stiffen the yield
curve of government bonds at the
longer end even as there should be a
GST on real estate: Transition is key
oth consumers and builders were
delighted with the reduction in the
GST rates announced by the GST
Council in a recent meeting. The reductions were quite impressive as the erstwhile
rate of 12 per cent was brought down to 5
per cent and more importantly, the reduced
rate of 8 per cent applicable to affordable
homes was slashed to 1 per cent. There was
expectedly a condition that the reduced
rates would disentitle builders from taking
input tax credit (ITC) on their purchases.
The condition that ITC cannot be
availed of by builders has led to some predicting an increase in real estate prices,
especially in the case of affordable homes,
instead of the expected reduction. At this
stage, it is necessary to understand that,
even earlier, in case of restaurants, the rate
reduction was accompanied by a condition
that no ITC was permitted. However, in
case of restaurants, a large portion of the
inputs such as grains, vegetables, fruits and
milk do not attract any GST and hence the
loss of ITC is only on some expense items
such as rent and franchise fees. In the real
estate sector, a significant portion of the
inputs such as steel, tiles, sanitary fittings
etc. attract GST at 18 per cent and cement
attracts 28 per cent. The denial of ITC
60 sq mt in case of metros and 90 sq mt for
others, with a common value cap of ~45
lakh for all affordable housing projects. In
these cases, while a rate of 1 per cent would
be attractive for the buyer, the quantum of
denial of ITC would determine whether
there has been a significant dent to the
builder and whether the builder would be
compelled to marginally increase the price
of the apartment, if permitted, to overcome
the ITC loss.
It is necessary for builders to pass the
benefits of the rate reductions to the home
buyers in terms of the mandate of Section
171 of the CGST Act, 2017, and his failure to
do so would bring him in the crosshairs of
the National Anti Profiteering Authority
(NAA). In earlier cases, the NAA has consistently refused to permit netting off expenditure increases against rate reductions and
has reiterated the intention that the benefit
of a tax rate reduction has to be passed on
to the consumer, even if other costs have
increased. These principles would now be
tested if builders do not bring down prices
commensurate with the rate reduction
made, on the plea that ITC denial does not
allow them to pass on the entire benefit.
The real estate sector has faced significant headwinds in the past few years in the
form of RERA, demonetisation, working
capital pressures etc. in addition to GST.
While GST is one element in the overall picture, it is an important tool to revive an
employment intensive sector like real
estate and hence the Tuesday meeting of
the GST Council, which is expected to
finalise the transition provisions, will be
keenly watched.
The author is partner, Deloitte India
Views expressed are personal
Hot seat
All of a sudden,
the Pauri Garhwal
(Uttarakhand) Lok
Sabha seat is the
cynosure of all
eyes. Manish
Khanduri, who is a
son of former
Uttarakhand chief
B C Khanduri
(pictured) and has
joined the Congress over the
weekend, is expected to be fielded
from the seat, which his father, a
retired major general, represents.
There are at least three hopefuls from
the Bharatiya Janata Party (BJP) side.
National Security Advisor Ajit Doval's
son Shaurya has been campaigning in
the district for over a year now.
Col (retd) Ajay Kothiyal is also seeking
the BJP ticket. Rear admiral (retd)
Om Prakash Singh Rana is a potential
candidate listed by the BJP for
contesting from the constituency.
Khanduri senior has refused to contest
the seat this time, citing poor health.
liquidity-driven rally at the shorter
end. The RBI’s continuous bond buying through OMOs has been keeping
the long bond yield low. When the RBI
sells dollars to stem the volatility in the
foreign exchange market, it sucks out
liquidity from the system (for every
dollar it sells, an equivalent amount of
rupee goes out of the system). And,
when it buys bonds through OMOs to
infuse liquidity, the yield drops. Why?
Purely, a demand-supply game. When
the demand for the bonds comes from
the RBI, prices increase and yields
drop. The OMOs help banks as they are
able to get rid of illiquid securities
without paying the price for it and
make money.
Incidentally, banks’ holding of excess
government bonds has come down and
many of them many not have enough
securities to participate in OMOs.
Indeed, they hold close to 26 per cent of
liabilities in bonds against regulatory
norm of 19.5 per cent but they need a
large part of the cushion to conform to
the so-called liquidity coverage ratio,
leaving little to sell to the RBI.
Given a choice, I think, the new
instrument will be a permanent fixture
in the RBI’s liquid management toolkit,
the level of the rupee determining the
frequency of use. The Indian currency
is now trading at a level (closed at 69.09
to a dollar on Friday), far stronger than
its historic low of 74.48 seen in October
2018. On the metric of real effective
exchange rate, it is over-valued, making
it an ideal situation for such a cool experiment. I’d say this is the smartest move
of new RBI governor Shaktikanta Das
since he has taken over.
Room for appeal
During a recent hearing in the National
Company Law Appellate Tribunal (NCLAT),
Chairperson Justice S J Mukhopadhyay
expressed his anguish at the state of
infrastructure provided to him. He went
on to ask why, at the age of 70, he should
work so hard when the government was
refusing to provide adequate support.The
NCLAT functions from a small office
building in the CGO Complex. Despite
many requests from lawyers and even
directions from the Delhi High Court, there
has been little progress on upgrading the
NCLAT infrastructure.
The columnist, a consulting editor with
Business Standard, is an author and senior
adviser to Jana Small Finance Bank Ltd.
Twitter: @TamalBandyo
Interpreting Modi
Tomorrow’s GST Council meeting, which is expected to finalise the transition
provisions, will be keenly watched
would certainly have an impact on
builders. We also need to understand that
a large part of the project cost would be
attributable to the cost of land (which does
not attract GST), which in some large cities
could be as high as 50 per cent of the total
cost. Hence the impact of the ITC denial
would vary across projects with estimates
putting the quantum of ITC anywhere
between 3 per cent and 8 per cent. There
are reports that some states would like to
have an option of continuing with the earlier higher rates with input tax credit.
There is also a need to consider the
manner in which builders and home buyers would be taxed after April 1, when the
new rates come into force. To finalise the
transition provisions, a GST Council
Meeting is scheduled for Tuesday, March
19. Home buyers, who have booked an
apartment and have made part of the payment, would expect that the builders
charge the lower rates of GST on invoices
raised and payments made after April 1.
Builders will have to grapple with challenges such as dealing with ITC on purchases of inputs made before that date
where a large part of the inputs have
already been used in the projects. For projects where effective construction is completed by March 31 but occupancy certificate (OC) is obtained after that date, there
could be an ITC loss on instalments collected after April 1. A formulae to avail of
ITC in case of under-construction projects
could figure in the discussions of the GST
Council tomorrow.
There has been a renewed focus on
affordable homes, this time from a GST perspective, clearly in line with the government's plans of housing for all by 2023. The
carpet area limits have been increased to
sible, Modi and the BJP will have
to wake up to the need for upholding secularism and prove that
Hindutva was just a stepping
stone and that they are not averse
to building a consensus about
upholding the spirit of the
What Modi does and speaks
during the few weeks left before
the elections will be crucial in
deciding India’s fortunes in the
next decade, irrespective of who
wins or loses in the election.
M G Warrier Mumbai
A bridge too far
This refers to “Modi and the
Liberals” by TCA Srinivasa
Raghavan (March 16). Both, the
Congress and the country, are paying the price for not cultivating a
proactive Opposition in politics
and in the Parliamentary system
of governance we adopted, postindependence. The piece suggests
some action points that can be
considered by Narendra Modi
(pictured) if he is serious about
retaining the Bharatiya Janata
Democratic Alliance in power for
another term and beyond.
The Congress would have done
much better in 2019 if the party
had come out of the illusion that
British had handed over India to
one family. The party seems to
believe that the absence of family
control in governance is just an
aberration, off and on, and India
can ill-afford to displease the
Nehru hierarchy in the long-term.
This belief is preventing the party
from accepting new ideas or professionalising leadership at different levels.
To prove that an alternative to
the Nehru-Gandhi legacy is pos-
That was the title of the movie and
book on Operation Market Garden
— the largest paratroopers cum
ground force operation in military
history carried out in 1944. The
Allies needed to capture three
bridges but they failed. But in
India, particularly in Mumbai,
every suburban train commuter
needs to “capture” bridges at least
four times in his daily sojourn.
The first issue is that when an
accident takes place, all authorities compete to point out who is
not responsible. If the bridge
belongs to and is the responsibility of the Indian Railways, then
will the municipal authorities also
cede the mandatory 25 metres
space in the periphery as in the
case of rail lines? How about a
board on each bridge that this
bridge is under this authority and
if there are borders within the
bridge, that is, at which point the
responsibility of one authority
ends and the other takes over, that
too should be demarcated on the
floor of the bridge.
The same can be applied for
flyovers, sky walks etc. How about
a special “bridge insurance” with
only those who hold suburban
train passes eligible for a claim in
case of a mishap?
Again, the unnecessary load
contribution by hawkers and other unauthorised stuff that one
always finds on these bridges
should be cleared at once.
To evenly spread the load,
there must be a central barrier and
pedestrians must keep to the left
in both directions. Can the bridges
take the load that has increased
by more than three times since
they were built? These are questions that need to be answered.
T R Ramaswami Mumbai
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Nehru House, 4 Bahadur Shah Zafar Marg
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Volume XXlll Number 153
Anaemic exports growth
Trade deficit hits a new low, but that’s small consolation
ccording to the trade data released by the Union ministry of commerce on Friday, India’s trade deficit is at the lowest it has been
for more than a year. The deficit — the difference between how
much India exports and how much it imports — reached $9.6 billion in February 2019, as compared to the $14.7 billion deficit registered in
January 2019. Yet, this cannot be seen as a sign that stability has returned to
the external account. In fact, the data reveals that India’s structural weaknesses
continue, and thus macroeconomic stability cannot be taken for granted. In
particular, weak exports growth shows that India will continue to struggle to
pay for imports if the demand for those recovers.
Exports rose just 2.4 per cent year on year in February 2019, lower than
the 3.7 per cent increase registered in January. Crucial sectors such as engineering and gems & jewellery saw low or negative growth. Gems & jewellery
exports, for example, contracted by 2 per cent. It is clear that any hope that
was raised earlier this financial year of a rebound in exports was illusory.
Indeed, the withdrawal of the Generalised System of Preferences trading
programme from Indian exports by the United States administration will
only make it tougher for certain export sectors to recover. This is particularly
true of Indian engineering exports, which will have to deal with tighter competition from zero-tariff countries. There has been some improvement on
the ground in terms of permission and ease of doing business over the past
few years, but not enough to ensure competitiveness. It is not realistic, therefore, to expect a sharp upturn in the short or medium run for Indian exports
in these sectors. The Federation of Indian Exporters has blamed global conditions for this poor performance. But this claim does not stand up to scrutiny.
According to Deutsche Bank, for example, the weekly Harpex Shipping Index
tells the opposite story — that global trade began to improve in January.
Though the shipping index is not necessarily an index of either world trade
or the global economy, it is an indicator.
The reason that the trade deficit has narrowed is thus not a robust performance from exports but a fall in imports. This is driven partly by a decrease
in the oil import bill. As has been seen in the past, such a decrease can hardly
be relied upon to keep India’s external account stable — in fact, quite the
opposite. Gold imports also fell, puzzling many observers. But non-oil, nongold imports contracted for yet another month — falling 3.7 per cent in
February, following on from a 0.8 per cent fall in January. This is a disquieting
trend, as it suggests sluggish industrial demand within India. It is also hard
to reconcile with the overall data on economic growth. If growth in Indian
gross domestic product (GDP) is at an all-time high, it is hard to see why
import demand would be falling. It is also difficult to see how exports growth
can be so anaemic if the Indian economy is seeing record economic growth.
This underlines the continuing concerns about data that are being raised by
economists at this time.
Brexit in limbo
Ms May has not served UK’s best interests
s the UK gets ready for yet another vote on Brexit on March 19,
the only certainty that can be predicted is more uncertainty. With
a mandate from Parliament to extend the Brexit deadline from
March 29, Prime Minister Theresa May is bracing herself to bring
her third Brexit deal to vote. This vote is required ahead of the European
Union summit of March 21-22, where she will appeal for an extension of
Article 50, the withdrawal notification. The outcomes of both events on the
Brexit timetable are, however, open questions. It is hard to see why she
should win another vote on the same deal when many Conservative MPs
defied the party whip to hand her one of the largest defeats in parliamentary
history just last week.
Indeed, nothing seems to have materially changed. The “Irish backstop”,
which keeps the UK in the EU until a new agreement, remains the point of
fierce contention. The backstop has created turmoil because it potentially
commits the UK to a customs union with the EU without any say in rulemaking — that is, if the UK and the EU do not reach an agreement by
December 2020, when the pre-negotiated transition period ends. This defeats
the purpose of Brexit in the first place. Ms May insisted that the new deal
she negotiated with the EU — after her first deal was defeated in January —
offered assurances that the backstop would not be imposed indefinitely,
only to be contradicted by the Attorney General.
The short point is that Ms May has not served the UK’s best interests,
as she claims. The country is in a bind, more so now that MPs have voted
strongly against a second referendum. First, she set an extremely challenging
deadline for Brexit — just two years. Then she inexplicably called elections,
which whittled the Conservative majority so drastically that she is forced to
depend on the Irish Democratic Unionist Party (DUP) to stay in power, which
has led to the complication of the backstop. Third, she has refused to accommodate cross-party talks with the Opposition, which may have won her
more support.
Much now hinges on the upcoming EU summit. By one interpretation,
the extension can last only till May 23; any delay beyond that would require
the UK to participate in the elections for the European Parliament (EP),
which begin on that day. By another, the deadline could extend to July 2,
when the new EP members take their seats. Ms May appears to be banking
on the latter date, assuming it will give her more time to sell her unpopular
deal. On the whole, the issue is now so wide open that no one can say with
any assurance where Brexit is headed. Meanwhile, the Centre for European
Reform has shown that the British economy is 2.5 per cent smaller than it
would have been had the Remainers won the Brexit vote. The chancellor of
the exchequer has revealed that the country is scheduled to spend a stupendous £4.2 billion on Brexit negotiations. All economic modelling has
shown that the UK will be worse off outside the EU. It’s literally Mayday for
Europe’s second-largest economy.
Self-reliance in
The design, development and production of defence equipment
must be indigenised for strategic independence
ver the past few weeks we have heard a lot
about the Rafale deal in the political playground and the media. The focus of the arguments is mainly around the cost of the present deal as
compared to the earlier one which was under negotiation and about the role of the Prime Minister’s Office
(PMO) in the negotiating process. This particular football will continue to be kicked around during the election campaign and after. This is par for the course for
a major international arms acquisition deal.
The real problem is being
bypassed in this debate. It is our
heavy dependence on imported arms
supplies. According to the SIPRI
(Stockholm International Peace
Research Institute) database, the volume of international arms transfers
to India was around $3 billion in 2017.1
The other major claimants to global
or regional power status2 do not
depend on arms imports except from
close allies, the arms transfer to all of
them being just $4 billion in 2017. In
fact, many of them are major
exporters of sophisticated arms.
No country that depends heavily on others for
critical weapons systems can hope to have strategic
independence. From a long-term perspective, the
arguments voiced about the Rafale deal do not really
address what should be our core concern — our continuing dependence on other powers not just for
sophisticated systems like fighter planes but even
for basic things like rifles. Our defence acquisition
process has failed to stimulate long-term investments
in armaments research, precision engineering, new
materials, sophisticated electronics and other such
areas that are the foundation for the manufacture of
sophisticated weapons.
A defence equipment industry has to rest on a
or many Americans, the greatest reason to cheer during the sleepy, lowscoring game that was Super Bowl
LIII was not the Patriots’ victory. In certain
circles, it was the highly anticipated, multimillion-dollar commercial produced by
the Washington Post, featuring the voice of
Tom Hanks and heroic footage of journalists
from various outlets that proclaimed, over
a soaring score, these simple truths:
“Knowing empowers us, knowing helps us
decide, knowing keeps us free.”
It was a good ad, inspiring even. Who
doesn’t love Tom Hanks? But you could find
The Washington Post commercial uplifting
and also saddening, insofar as it was
deemed necessary.
1SIPRI values transfers at a standardised price, which for the
Rafale, for instance, is $55 million per aircraft, way below
what India will actually pay
2This includes the present and potential aspirants, other than
India, for permanent membership of the UN Security Council:
The USA, Russia, China, the UK, France, Germany, Italy,
Japan, Brazil and South Africa
3For more on this, see Ajai Shukla “Why Defence
Indigenisation Fails”, Business Standard, July 30, 2018
[email protected]
Repo-linked deposit rates: A tiny half-step
n Friday, March 8, State Bank of India (SBI)
announced that starting May 1, savings bank
account deposits and short-term loans (overdraft and cash credit) above ~1 lakh would be linked
to the Reserve Bank of India’s (RBI’s) repo rate from.
(Repo is the rate at which the central bank lends money to banks when they face shortage of funds.)
Every single commentator I read has hailed the
move as a logical next step, after the RBI asked the
banks in December last year to link all new floating
rate retail loans like home loans with
an external benchmark from April
1, 2019. Any careful observer will
immediately notice that what the
central bank wanted and what SBI
has done are far apart.
SBI has linked deposit rates to
repo rates (thereby making them
floating, from fixed). But it has not
announced the linking of lending
rates of longer-term loans for businesses and retail customers of home
loans, personal loans, auto loans, etc.
to make these true floating rates. For
borrowers affected by the opaque and
discriminatory practices of banks, the
loot will continue. Remember that under Urjit Patel
as governor, the RBI had announced that banks would
have to link lending rates to an external benchmark,
but, under the new governor, it is showing no hurry to
take this forward. In fact, it almost seems certain that
April 1 will come and go and banks will be let off again.
That would be in line with RBI’s repeated failure to
ensure a proper transmission of interest rates where a
reduction in the interest rate by the central bank would
ensure lower rates across the system and vice versa.
Will SBI’s move help the RBI’s objective of improving
transmission? Consider this:
1. Banks have been claiming that since the bulk of
the deposits is fixed, they do not have the flexibility
for transmission. How much of bank deposits are in
savings accounts? For SBI, savings account deposits
make up 38 per cent of the total. Of this 20 per cent
are below ~1 lakh. This means that only 80 per cent of
38 per cent, that is 30 per cent of deposits, will be
floating. So, 70 per cent of deposits will remain fixed,
which would continue to hamper the ability of banks
to implement a true floating rate regime.
2. What would be the impact on the
bank’s marginal cost of lending rate
(MCLR)? A 25 bps reduction in the
interest rate on these deposits could
lead to a reduction of only 7 bps in
the bank’s MCLR with this move. It
is better than before but only a very
tiny step.
3. In any case, SBI taking a tiny halfstep forward won’t mean much for
the system as a whole, unless the rest
of the banks follow SBI. According to
media reports, most other banks are
not likely to do so.
4. According to one interpretation,
after the savings account is repolinked, part of such deposits will get converted into
fixed deposits. If so, even less of the deposits would be
repo-linked, reducing the transmission even further.
Journalism’s advocate
It was an astonishing thing to witness
— an iconic news organisation feeling the
need to hawk not the quality of its writing
and reporting, but the most fundamental
virtues of its entire industry’s mission. Like
truth. And knowledge. Values thought to
be long settled. Merely having your business model enshrined in the First
Amendment to the Constitution is no
longer sufficient; now you need airtime
during the Big Game to respond to crude
and corrosive attacks on the free press by a
president and his supporters with their
incessant charges of “fake news!”
Fake news. It is a juvenile epithet, but it
has power because it is both thoughtless
and memorable. It is also a debate stopper.
When uttered with a contemptuous smirk,
it’s the equivalent of “shut up!” No intelligent response can suffice, no evidencebased retort can win. “Fake news” has the
charm of comedy, the ease of a sound bite
and now the imprimatur of the president
of the United States of America.
In his fine new book, Truth in Our
Times: Inside the Fight for Press Freedom
in the Age of Alternative Facts, the New
diverse and substantial manufacturing capacity and
research competence in the economy as a whole if it
is to keep up with its competitors. That is why Pandit
Nehru’s note on defence policy written more than
70 years ago in 1946 states: “No country which is not
industrialized can carry on war for long, however good
the army might be. No country which has not got its
scientific research in all its forms and of the highest
standing, can compete in industry or in war with another.” This strategic perception, rather than the
Mahalanobis model, lay behind the
drive to promote the rapid development of basic industries and the
strong commitment and support
given for the establishment of
defence-related R&D capacities like
the Defence Research and
Development Organisation (DRDO)
and the Atomic Energy Commission.
How well have we done on these
twin objectives of building manufacturing capacity and research competence?
At the macro level, the share of
manufacturing in GDP did rise in the
first phase of planning from around 11 per cent to nearly 16 per cent by the mid-seventies. But since then this
proportion has hovered around the 17 per cent mark.
This aggregate number of course does not capture the
definite change in the degree of sophistication in the
manufacturing sector. Moreover, we must recognise
that developments outside the manufacturing sector,
for instance, in information technology, also have substantial strategic value. Yet if one compares India to
China, one cannot escape the conclusion that in most
sophisticated products we are still dependent on
imports for production technologies, specialised materials and precision-engineered components.
With regard to science and technology (S&T), the
picture is not much better. India accounts for about
4 per cent of global R&D spending, according to the
authoritative Batelle assessment. For comparison,
China accounts for 21 per cent, more or less equal to
the share of Europe and only a little short of the share
of the USA. Our R&D spending as a proportion of GDP
is just 0.7 per cent, according to official statistics.
Clearly we have a long way to go in meeting the
challenge of creating world-class manufacturing and
S&T capacity. A determined effort to develop a sophisticated defence equipment industry by providing longterm assurance of demand can play a crucial role not
just for strategic independence but also for upgrading
the civilian part of the economy because of the potential spin-offs. Much of the United States’ strength in civilian technology areas rests on heavy investments in
defence research and production, both by the government and the private sector. The internet and information technology are prime examples of this spin-off.
As far back as 2004-05, the Kelkar Committee
report on strengthening self-reliance in defence preparedness laid out a glide path for moving from import
dependence to building genuinely Indian weaponry.
A key part of this was the identification of champion
companies which could undertake long-term
research, development and production in the private
and public sectors.3
Unfortunately, this has not happened. On the one
hand, public sector units like Hindustan Aeronautics
Ltd (HAL), which have built substantial technical competence, are being bypassed for perceived shortcomings in performance, particularly with regard to timely
delivery. On the other hand, the effort to build competence in the private sector has not gone much beyond
contract manufacturing. Long-term commitments of
assured demand to promote research and competence
building in private sector companies are still unknown,
perhaps because of a fear about crony capitalism accusations. The DRDO has been funded and accounts for
about one-third of public spending on S&T. It has some
significant achievements to its credit, but there is still a
big trust deficit between the user services and the DRDO.
Yet another factor is the pressure to quickly match the
capabilities of potential foes by importing rather than
waiting for an indigenous option. As for “private incentives” from suppliers, the less said the better.
These fault lines need to be erased. We must now
aim at bringing together the user services, the
researchers and the chosen producing companies
together in national missions for specific defence systems. We must short-circuit the political jousting by
creating a multi-party security council that will be
asked to endorse these national missions. We must
be ready to live with some short-term risks for stronger
and more reliable long-term security. Only then will
we have the strategic independence that we need to
protect our national interests.
York Times deputy general counsel David
E McCraw thoughtfully (and entertainingly) addresses this state of affairs as he takes
us behind the scenes of the venerable (or
failing, depending on your perspective)
New York Times. A self-professed “raving
moderate,” McCraw is in prime position
to provide this backstage view as he draws
equally on his experience as a writer and
a lawyer. He excels at both, explaining legal
issues in lay terms and unspooling the stories that propel the book.
But McCraw’s job was far more interesting than assisting in occasional ad-making.
He faced the challenge of vetting articles
for libel, obtaining blockbuster documents
through the Freedom of Information Act,
greenlighting the publishing of purloined
secret information and standing up to
intimidation from unhappy subjects of stories, one of whom is the current president.
There is plenty about Donald Trump
here, whose danger to the free press McCraw
concedes he was slow to acknowledge. His
professional experience with Trump went
back many years, and he adroitly tells the
story of how Trump, in 2004, threatened
Deposits: The false bogey
There are two critical factors being missed in this
debate. One, while banks are making a song and dance
about the fact that their liability side is not floating,
the real issue is the spread. In the debate on transmission, there is surprisingly no discussion on what
other factors go into deciding the spread, and thereby
the lending rates of banks. For the MCLR, the RBI
to sue over the one slight he truly could not
bear — that he was less wealthy or successful than he claimed. The Times had reported that his boast on “The Apprentice” that
he was the “largest real estate developer in
New York” was plainly false, by every objective measure. This was an intolerable slight,
and it drew the future president’s wrath.
But Trump’s outlandish claim was indefensible, and the matter was dropped.
Then there was the occasion when a portion of Trump’s 1995 tax returns showed up
one day in a reporter’s mailbox during the
heat of the 2016 campaign. McCraw
describes the warring that ensued.
Belligerent Trump lawyers threatened legal
action, as usual. In the end, as in every other
instance of high-decibel Trumpian legal
threats, the dog barked but never bit.
McCraw also takes time to meditate on
journalistic practices and ethics. He is candid and cleareyed about the lean of his
paper’s readers and its opinion writers. He
says that by the “time of Trump’s election
there was no doubt about the politics of
our core readership: It skewed left, and, in
any measure of its opposition to Trump, it
went off the charts.” He concedes, moreover, that The Times’s “Op-Ed columns and
contributors are overwhelmingly antiTrump, every day.” But he is insistent about
methodology includes three more factors other than
the cost of deposits/funds: Negative cost of carry on
the cash credit ratio and statutory liquidity ratio; unallocable overheads which left enough scope for banks
to show a higher figure by not being clearly defined;
and average return on net worth, which is another
figure that banks can fudge. Even experts blame the
inflexible cost of deposits (funds) as the only hindrance
to transmission. There is no scrutiny of the other three
factors that determine the MCLR. The RBI has also
played along with this farce.
Two, the biggest impediment to public sector
banks (PSBs) not being able make their lending rates
truly float is irresponsible, indiscriminate and corrupt
lending that has created a mountain of bad loans.
This has made them bankrupt, requiring public money to be pumped in to revive them, over and over
again. Unaccountable bankers have hampered the
PSBs’ ability to lend and this has kept lending rates
high, while they blame a distant factor such as inflexible deposit rates for lack of transmission.
The transmission of interest rates has failed miserably for 20 years, partly because of poorly designed
policies and partly due to the benign negligence of
the RBI. Banks are focused on their bottom line and
not on transmission. Transmission reduces their
profits and, hence, is not a concern to them. SBI
could have made its deposit rates floating anytime
since 2011 when the RBI policy allowed it to do so.
But it didn’t. It has acted now, under pressure, as a
nod in the direction mandated by the RBI. If transmission has to succeed, we need a clear set of guidelines that do not allow banks to fudge internal calculations to cheat borrowers, and continue with the
status quo.
The writer is the editor of www.moneylife.in
Twitter: @Moneylifers
the overall political objectivity of the news
people, the beat reporters. He argues that
the everyday news folk, at The Times and
elsewhere, are not generally partisan. He
doesn’t claim that they are perfectly
detached, disinterested, nonideological
chroniclers. He acknowledges a certain lean
on their part too. “Many journalists are
biased,” he concedes, but “just not in the
way that most people think about it.”
By McCraw’s reckoning, reporters tend
to champion the underdog, and it is this
worldview that skews their coverage. “The
easy rap,” he writes, “is that most reporters
lean liberal (true), and that dictates how
they cover a conservative like Trump
(false). … They believe, all other things
being equal, that the little guy is getting
screwed. … The reportorial default is to
think that most regulations are good, the
rich and connected don’t need more money or more power.” He insists, therefore,
that any bias “is not a left or right thing.”
McCraw is rightly proud of his role in
defending The Times in so many controversies. But there is also a whiff of helplessness in his telling about the degradation of truth and of people’s trust in the
press, neither of which is really a matter
of law or legal policy. The law, it turns out,
is in good shape.
Legal freedom, as an attorney might
say, is necessary but not sufficient. Just as
important, McCraw explains, is public
trust: “It doesn’t really matter how much
freedom the press has in a society if the
press is not believed. A distrusted press is
little different from a shackled press.” This
is the crisis, well identified. One need not
literally shutter press outlets in the manner
of Recep Tayyip Erdogan or Xi Jinping or
Vladimir Putin to render the press irrelevant and impotent.
But occasional and understandable
bouts of pessimism aside, Truth in Our
Times is not dire. It is spirited and hopeful
and even, at times, lighthearted. It is, in a
way, a love letter to the First Amendment.
McCraw captures the mood best in one early
sentence: “It was a hell of a time to be a
lawyer for The New York Times.” It sure was.
©2019 The New York TimesNews Service
Inside the Fight for Press
Freedom in the Age of
Alternative Facts
David E McCraw
All Points Books; $28.99; 304 pages
VALUE OF ~100,000
#Silver prices suffered losses;
*Note: Cumulative equity gains up to
~100,000 in a financial year are tax-free.
All post-tax returns are calculated for an
individual in the 30 per cent tax bracket,
without considering the indexation benefit
As on March 15, 2019, in ~; compiled by BS Research Bureau
Invest in Reits for regular income
While experts expect this new asset class to give annual returns of 12-14%, investors
should temper their expectations in view of cyclicality in commercial real estate
he initial public offer (IPO) of
Embassy Office Parks real
estate investment trust (Reit),
backed by private equity giant
Bengaluru-based developer Embassy
Property Developments, opens for subscription today. This is the country’s first
Reit issue, with plans to raise ~4,750 crore.
Before you make up your mind to invest
in this offer, carefully weigh the pros and
cons of this entirely new asset class.
Ensuring investor safety: The Securities
and Exchange Board of India (Sebi) has
taken a number of steps to make this new
asset class safe. “Since this is a listed
instrument, Sebi requires a long list of dis-
closures by the sponsors in the offer document, to ensure a high level of transparency,” says Vamshi KK Nakirekanti,
executive director and head–valuation
services, India, CBRE South Asia. Also, 80
per cent of the commercial real estate
portfolio held by a Reit will have to consist
of developed, income-generating properties. “Promoters will not be permitted to
launch a Reit with just a land bank,” says
Somy Thomas, managing director–valuation and advisory and co-head–capital
markets, Cushman & Wakefield India.
This provision will minimise development risk.
Furthermore, 90 per cent of the net
income after expenses will have to be paid
out as dividend. Payouts have to be made
at least twice yearly. “This will reduce the
Out of three players, two aren’t investment
worthy and the third is part of an opaque
Even after brutal consolidation, two
of the three survivors in the telecom
services industry look to be in trouble. Vodafone-Idea and Airtel are
reeling from massive losses and
raising huge sums to shore up balance-sheets.
The sector contributes 6.5 per
cent of the Gross Domestic Product
(GDP) and employs 4 million,
directly and indirectly, even after
huge job losses. It has absorbed
about ~10 trillion of investments,
including close to ~4 trillion on
spectrum payments. The industry
has over ~4.5 trillion in debt, and
about ~2.5 trillion in annual revenues. That debt: revenue ratio is
The 2019 Interim Budget estimates that revenues accruing to
government from telecom for 201920 will rise to ~41,520 crore, which
is 5.8 per cent more than the revised
estimate of ~39,200 crore for the current fiscal, 2018-19. The initial
Budget estimate for 2018-19 was
~48,661 crore, revised downwards to
~39,200 crore. Actual revenues to
the central government were
~30,700 crore in FY2017-18, against
a Budget estimate of ~44,300 crore.
Quite apart from the initial overestimates, which are significant, the
falling trend illustrates stress. The
central government’s revenue stream
includes spectrum usage fees, revenue share, goods and services tax
(GST) collections, etc. But the big
windfalls come from spectrum auctions. There were no auctions in 201819 since the industry wouldn’t have
been capable of bidding.
Telecom was already struggling
in September 2016, when Reliance
Jio (RJIL) launched services. Jio was
allowed to offer free services for six
months. That provoked a crisis and
triggered massive subscriber churn.
Already low average revenue per
user or ARPU and profitability nosedived for every player.
Just three private entities are
now operational. (The PSUs, BSNL
and MTNL, are bankrupt and surviving on bailouts). Two of them,
Vodafone-Idea and Airtel have suffered losses since the second half of
2016-17. The third, RJIL, has gained
revenue share and claims to be prof-
Capital value (~/ sq ft) Rental yield (%)
8,000 -9,000
Yields are for Grade A properties, Source: Cushman and Wakefield Research India
Telecom: A tough bet
Lower Parel
Pre-toll OMR
Prime NH-8
Noida Expressway
Reits make commercial real estate
accessible: If a retail investor wishes to
take exposure to commercial real estate
directly, he would find it very difficult.
The investment required is very high —
~5 crore and above for grade A commercial property. Investors could face titlerelated issues for which they may not be
able to do the due diligence themselves.
Exiting such large investments can be
time taking. “Many of these challenges
get taken care of when an investor takes
the Reit route. Investors can enter Reits
with just ~2 lakh of initial investment and
be able to diversify their portfolios,” says
Prateek Pant, head-products and solutions, Sanctum Wealth Management.
Exiting these investments should also be
less difficult as units will be listed on the
stock exchanges. Investors will also get
the benefit of professional management
of office properties.
itable, though it is still burning cash,
as it rolls out ambitious plans.
Unlike Airtel and VodafoneIdea, which are pure telecom plays,
RJIL has the backing of a highly
profitable, giant parent, with multiple interests. Hence, although
RJIL has spent well over ~2 trillion
so, it can continue to play an aggressive game. The RJIL drive into retail
plus fibre broadband rollout will
open up new revenue streams.
Bharti Airtel had 72 per cent
drop in consolidated profits for
October-Deccember 2018.The net
profit of ~86.20 crore was thanks to
a one-time gain of ~1,413 crore and
a deferred tax asset of ~7,002 crore.
Or else, Airtel would have had huge
losses. The total revenue was ~2,005
crore, just 1 per cent higher than
~2,003 crore in Q3, 2017-18.
Vodafone Idea registered ~5,057
crore in net losses, the second quarter of post-merger operations. This
was despite a tax write-back of
~2,000 crore. Merger synergies
helped it to reduce Operating
Expenses (ex-license fees and spectrum usage charges) by ~705 crore
to ~815 crore. Meanwhile RJIO
declared ~830 crore in net profits on
total revenues of ~10,383 crore.
The Q3, 2018-19, RJIL ARPU of
~130 (Dec 2018) is also better than
Airtel (~106) and Vodafone-Idea
(~89). Vodafone-Idea and Airtel did
raise ARPU by shedding low-value
“incoming only” customers. Airtel
dropped 48 million subscribers in
Q3, while Vodafone-Idea dropped
36 million subscribers. RJIL gained
28 million subscribers.
The highly-leveraged Airtel and
Vodafone-Idea are looking to raise
more cash. Both need to cut debt
and fund operations. Airtel will sell
a larger stake in its tower arm,
Bharti Infratel to raise upto $3 billion and it’s looking to raise about
~32,000 crore via a rights issue cum
preferential debt as well. VodafoneIdea is looking at a rights issue of
~25,000 crore.
India Ratings expects RJIO to
increase revenue market share from
the current 26 per cent to 38 per cent
by end of 2019-20 while Vodafoneidea RMS will decline to 29 per cent
and Airtel’s RMS will drop to
28 per cent.
This is not a healthy situation.
A highly concentrated industry
eventually ends up being monopolistic with poor service standards,
and low incentive for incumbents
to improve technology. At some
stage, all three will raise tariffs, for
sure. Investors are looking at a toxic
situation where two out of three
players are not investment-worthy
and the third is part of an opaque
risk of sponsors misusing rental income
from properties,” says Thomas.
Sebi has ensured that sponsors of Reits
continue to have skin in the game.
“Sponsors will have to maintain at least
25 per cent stake in the Reit even after its
listing. They can not list and exit,” says
Nakirekanti. One risk in a Reit arises from
its novelty. It remains to be seen whether
it will function in India as it has in developed markets like the UK, Singapore,
Canada and Australia, where it serves as
a stable, income-generating asset.
Returns you can expect: Rental yield
from commercial properties is in the
range of 8-9.5 per cent. In addition, there
is capital appreciation. These two components will together determine the return
from this product (less costs). Capital
appreciation will depend on a few factors.
First, the lease agreements with existing
tenants have an escalation clause. Second,
when leases expire and are renewed, the
old rental rates rise to existing market
rates. And third, the 20 per cent or so
under-construction portion will become
ready and get leased. As a Reit’s rental
income appreciates, it will get reflected in
the capital value of its assets, and hence
in the price of units. Real estate experts
expect REITs to give an annualised return
of 12-14 per cent.
Financial advisors are not so sure if
such high returns will be forthcoming. A
variety of factors can prevent rentals from
rising rapidly. Economic downturns affect
the demand for commercial real estate,
Part pre-payment charges
Foreclosure charges
13.75 -16.00
Up to ~1,500
13-24 months-5%
Post 24 months-3%
7-12 months-6%
13-24 months-5%
After 24 months-3%
(Max ~6,000)
Union Bank of India 10.60-12.10
Up to 0.50%
(Max ~15,000)*
Canara Bank
Bank of India
9.25-9.85# NIL till 31.03.2019
Up to 180 days -10%
After 180 days-5%
Up to 180 days-10%
After 180 days-5%
*50% concession in processing charges based on CIBIL score and valid till 31.03.2019, #Valid till 31.03.2019 under festive offer.
Note: Processing fee is a percentage of the loan amount, part prepayment charges are percentage of amount paid, foreclosure charges are a percentage of the
principal outstanding, HDFC Bank doesn’t allow part pre-payment for the first 12 months and foreclosure for up to six months. The lenders above have a maximum
tenure of five years, except State Bank of India (7 years) and Bank of India (3 years)
Source: Paisabazaar.com
with the bank, he can check
personal loan offers
| If the difference between a
personal loan and a used car
loan is 1-1.5 percentage point,
the former is preferable. For a
used car, a lender will give a
loan of up to 80 per cent of
Track provident fund default
by your employer
Enrol for universal account number and
use the Umang app to keep a tab
by-case basis.
The number of notices to employers for defaulting on provident
fund (PF) payments is on the rise.
The Employees' Provident Fund
Organisation (EPFO) has started
using technology extensively to
track provident fund payments,
according to human resource
(HR) consultants.
The retirement body is using
data mining and data analytics to
zero down on defaulters. “Every
month the EPFO system does an
area-wise analysis of employers’
contributions. If there are discrepancies or the contribution is
low, EPFO looks at the reasons
and sends notices,” says Prakash
Rao, founding member and chief
experience officer, PeopleStrong.
Defaults happen due to a variety of reasons. The company
could be making losses. They can
also happen due to employer’s
negligence or outright fraud on
his part. Earlier, it was difficult
for an employee to find out
whether the employer has been
depositing his share of PF contribution. With the introduction of
Universal Account Number
(UAN), it’s now easy for a salaried
person to keep a tab on his
employee provident fund (EPF)
account. Employees can now
complain immediately. The
retirement body, however, may
deal with each default on a case-
Enrol for universal account
number: For an individual
joining the workforce and earning a basic salary of over ~15,000,
enrolling for PF is optional.
The employer may also
choose not to give the EPF
benefit. But once enrolled,
the company or the salaried
employee cannot opt out.
Earlier, employees had to rely
on the annual statement slip that
their employer provided or apply
to the regional provident fund
commissioner (RPFC) to know
the details. Now, with UAN, an
employee can easily find out
whether his employer has
deposited the PF or not by visiting the UAN website or through
Umang app. If your employer
doesn’t deposit the PF, you can
approach the labour department
and file a complaint. According
to HR consultants, the labour
department has of late started
putting pressure on employers to
comply and it even mediates.
Even if your employer runs a private PF trust, you can still get the
information through UAN.
Wilful default by employer:
According to regulations, every
employer is supposed to deposit
the PF money with the EPFO by
the 15th of the next month. Even
if it misses one payment by the
Taxation of Reit: When a resident
Indian sells Reit units at a profit, he will
have to pay capital gains tax. “If the holding period is over three years, the
investor will pay 10 per cent of the gains
as tax, subject to payment of securities
transaction tax (STT). If the units are
held for less than three years, the gains
will be taxable at 15 per cent, subject to
payment of STT,” says Gaurav Karnik,
partner and national leader (real estate
practice), EY India.
The dividend paid by a Reit is taxfree in the hands of investors. A trust can
also earn interest from SPVs, which
could be passed on to investors. “The
interest income earned by a domestic
investor is subject to withholding tax at
10 per cent by the Reit and taxed at
marginal rates,” says Karnik. For a nonresident, the interest income is taxed
at 5 per cent, and capital gains tax
rate depends on the treaty India
has signed with the investor’s country
of residence.
rates (%)
Oriental Bank
of Commerce
Axis Bank
with the value of the car
based on its age, model and
kilometres clocked, and how
the four-wheeler was used
| Also, when a lender
gives a loan for a pre-owned
car, it funds a vehicle that
is in the name of the
previous owner
| If the borrower has a good
credit score and a relationship
Do the due diligence: Check the track
record of the sponsor, specifically, how
much commercial real estate he has
developed and its quality. Next, the quality of buildings needs to be checked. Since
it will be difficult for retail investors to do
so, they should use the quality of tenants
in those buildings as a proxy (information
on tenants is available in the prospectus).
“If a Reit has mostly MNC and blue-chip
companies as tenants, investors can rest
assured that the quality of buildings will
be good, since these companies have their
own standards and do not rent buildings
that do not meet their specifications,”
Who should invest? Those in need of a
regular income may invest in these new
instruments. Both risk and return from
this asset class is expected to be higher
than from fixed-income instruments.
Well-to-do retirees with some risk
appetite may invest in them. “For retirees
Reits should be one of the several instruments they use to generate income,” says
Dhawan. Income from Reits should initially be 5 per cent of their total income.
This figure can rise to 25 per cent if the
asset class lives up to expectations. Keep
your overall exposure to real estate in
mind. Whatever your exposure to growth
assets, roughly a third of it should be in
real estate, and your REIT exposure
should be a part of that allocation.
State Bank of India
| Used car loans are much
more expensive than new car
loans. The difference in
interest rates can be 3-7
percentage points
| While a new car only
involves taking credit risk
on the borrower, lending
for a used car is more
| A financier has to come up
causing rental rates to stagnate and vacancy levels to rise. Influx of new supply in a
geography can also affect the rate at which
rentals rise. “Treat Reit primarily as an
income-generating asset that will give you
returns close to the rental yield, with some
upside coming from capital appreciation.
By expecting a very high rate of capital
appreciation, you could set yourself up
for disappointment,” says Vishal Dhawan,
chief financial planner, Plan Ahead
Wealth Advisor.
says Thomas.
Reits will be listed on the exchanges.
However, the price at which the units
trade — at a premium or discount to NAV
— remains to be seen. This will depend
on factors like level of investor interest,
rate at which dividend income appreciates, and so on.
deadline, it is a default.
Sometimes a business starts
making a loss. Companies start
delaying salaries and also default
on depositing EPF money. HR
consultants say that EPFO may
give a few months’ leeway to companies in financial troubles to
comply. But before giving any further time to comply, the retirement body studies the company’s
financial situation. It goes through
the books of accounts and bank
balances to ascertain that the
financial troubles are genuine. If
the company still doesn’t comply,
EPFO can initiate proceedings.
There have also been many
cases where employers hold back
the money deliberately. The
penal interest that the EPFO
levies is low. Some employers
invest the money in bank fixed
deposits or mutual funds to earn
higher returns. After a few
the car value. A personal loan
can fund the entire purchase
as there’s no restriction on its
end use
 Usually, employers
provide the UAN EPFO has
allotted to employees
 You can also obtain the UAN
through EPFO portal
 Go to http://bit.ly/bspfuan
 Click on the tab ‘Know your
UAN Status’. A new page appears
 Fill in the details. You can get
the PF number/member ID from
your salary slip
 Click on ‘Get Authorisation
Pin’. You will receive a PIN on
your mobile number
 Enter the PIN and click on
‘Validate OTP and get UAN’
 Your UAN will be sent to your
mobile number
months, they remit the money as
arrears and pay the penal interest. To discourage such practices,
EPFO now levies “damages”
along with other penalties. “It can
be as high as 25 per cent of the
default amount,” says Divya
Baweja, partner, Deloitte India.
If a company diverts the money to defraud employees, EPFO
comes down heavily on such
employers. “In such cases, the
retirement body has in the past
got court orders to attach the
properties of promoters, and
employers have even been sent
to judicial custody,” says
Abhishek A Rastogi, partner,
Khaitan & Co. He points out that
there have also been cases where
an employee and an employer got
into a dispute. The latter stopped
contributing to PF and/or diverted the money after the relationship went sour. Such employers
have faced judicial custody when
the employee approached the
EPFO and courts.
Even unicorns have defaulted:
Many start-ups default during
their growth phase. From being
small outfits, when they suddenly experience high growth, compliances take a back seat. “Almost
all the Indian unicorns have featured in the EPFO’s defaulters list
at some point of time,” says Rao.
When start-ups are small, they
don’t hire proper HR consultants.
They start complying only when
they hit a critical mass.
According to law, any company that has over 20 employees
needs to start contributing to
EPF. Tax experts and lawyers say
that an entrepreneur should not
delay EPF compliance as, in
extreme cases, this can lead to
shutting down of the business.
BSE price in ~
Mar 8, ’19
Mar 15, ‘19
% chg
Edelweiss Financial Services
NBCC India
Adani Transmission
Jubilant Life Sciences
Natco Pharma was up 1.5% on Friday due to brokerage
upgrades. Scaling up of emerging market business,
upsides from multiple sclerosis drug Copaxone in the US
should drive strong earnings growth over the next couple
of years. India and rest of the world revenues too are
pegged to grow at 20 per cent annually
Global head of foreign-exchange strategy, Morgan Stanley
Large fund infusions in
PSBs fail to deliver
The Nifty PSU Bank index is flat since the government announced a ~2.11-trillion
recapitalisation plan in October 2017; experts say stick to top stocks such as SBI and BoB
Mumbai, 17 March
espite the government
infusing a whopping
~1.9 trillion towards the
recapitalisation of public-sector
banks (PSBs) between October
2017 and February 2019, a 4x
increase over the amount
infused during FY15 to FY17, the
move has failed to enthuse
investors. The Nifty PSU Bank
index is almost at the same level
as on the day of the announcement of recapitalisation.
In fact, barring State Bank
of India (SBI), stocks of all PSBs,
which benefitted from recapitalisation, are down by 16-57
per cent during this period.
Even in absolute terms, the
combined market capitalisation of the 20 PSBs is up just 24
per cent from October 24, 2017,
to ~5.09 trillion as of March 15,
2019. Without SBI, the combined gain for others is just
~50,668 crore against a fund
~ crore
Oct '17 till date
State Bank of India
Punjab National Bank
Bank of Baroda
Bank of India
Canara Bank
Oriental Bank of Commerce
Allahabad Bank
Central Bank of India
UCO Bank
TOTAL (For 20 banks)
Market cap
24-Oct-17 15-Mar-19 Apr '17-Dec '18
2,19,687 2,65,685
14,349 33,189
29,387 32,697
32,984 31,204
16,637 25,066
18,946 19,950
4,114 12,306
5,481 11,470
15,141 11,424
5,638 10,033
4,12,167 5,08,833
Net profit/(loss)
FY18 9MFY19
1,08,719 -6,547
34,285 -8,238
67,547 -12,283
21,725 -2,432
29,464 -6,044
22,485 -4,222
15,635 -5,872
16,808 -4,674
16,963 -5,105
13,037 -4,436
4,57,430 -86,630
All figures rounded off; list sorted by market capitalisation,9MFY19: Apr-Dec 2018, Note: IDBI Bank has been taken over by LIC
effective January 2019;
Sources: Banks, Capitaline, ICRA, compiled by BS Research team
infusion of ~1.9 trillion. Indian
Bank is the only PSB which did
not receive a penny.
It was October 24, 2017,
when the bad loan-ridden
PSBs saw their rebirth with the
government announcing an
~2.11 trillion recapitalisation
programme. The Nifty PSU
index had gained 27 per cent
in a day. But the hopes did not
last, thanks to multiple factors
weighing on asset quality of
PSBs, leading to higher provisioning and losses. Data shows
that the total bad loan provisioning made by PSBs during
April 2017-December 2018 was
~4.57 trillion, or about four
times the ~1.2 trillion infused
during from October 2017 to
December 2018 to February
2019, another ~71,364 crore
was infused.
With the announcement of
~2.1 trillion recapitalisation,
investors were expecting this
would not only take care of the
provisioning with then existing non-performing assets
(NPAs or bad loans) but also
help balance sheet growth,
says Anil Gupta, vice president
and head-financial sector ratings at Icra. However, some big
events such as the RBI’s new
stringent NPA regulations
shattered all hopes.
On February 12, 2018, the
RBI scrapped all existing loan
revamp schemes such as corporate debt restructuring. And,
said if there is even one-day
delay in fulling debt obligations by a borrower with
~2,000 crore or more
exposure, it should be
considered as a stressed
lenders should initiate
resolution process. If nothing
turns out in 180
days, then the
account should be
referred under the
Bankruptcy Code (IBC).
Though the move
is a long-term positive, it raised concerns about PSBs'
near-term earnings as
they account for
around three-fourths
of the total corporate
demands 50 per
cent upfront provisioning.
The other jolt came just two
days after the RBI's new NPA
rules, when Punjab National
Bank reported fraud of ~11,000
crore by Nirav Modi, raising
concerns around governance
at PSBs. The Nifty PSU Bank
index lost 11 per cent in just five
trading sessions with these two
More importantly, there are
structural issues. Ajay Bodke,
CEO & Chief Portfolio Manager
(PMS), Prabhudas Lilladher,
explains:The issues that hobble
the performance of PSBs
includes short tenure of CMDs
(chairman and managing
director), constraints in lateral
hiring and lack of proactiveness of employees to source
new business. But, barring the
top 2-3 PSBs, do they have the
requisite credit appraisal skills,
is still a question.
Because, PSBs are inferior
on metrics like net interest
margins, growth, asset quality
and operating expenses, the
market has rightly punished
them, adds Bodke.
PSBs’ financial performance has been worse than
expected. Gross NPAs expanded by a huge 350 basis point to
12.9 per cent in FY18 with slippages (accounts turning bad)
at 9.3 per cent in FY18, highest
at least from FY13. Thus, credit
cost or provisioning as a percentage of loan book, too,
soared to 4.2 per cent in FY18.
The combined net loss of 20
PSBs stood at a whopping
~86,630 crore in FY18, against
a combined loss of ~932 crore
a year ago. The impact also
percolated in subsequent
quarters in FY19.
Post PNB fraud, the discontinuation of letters of undertaking (LoUs) by the RBI also
impacted overseas loan book,
which grew only 4 per cent as
against 15 per cent domestic
loan book growth in December
2018, Gupta highlights.
Moreover, recapitalisation
also led to a significant equity
dilution as it was done when
PSBs’ valuation was below their
book value, thereby keeping
share prices under pressure,
says Rohan Mandora, analyst
at Equirus Securities.
Though PSBs’ asset quality
is now improving and some
banks have recently moved out
of the RBI’s Prompt Corrective
Action (PCA) framework,
experts say everything is not
hunky-dory. Barring SBI, we
are not positive on PSBs.
Concerns over exposure to
MSMEs, the impact of farm
loan waiver and loss of market
share remain, says Dhananjay
Research at Emkay Global.
Bodke believes PSBs can, at
best, be tactical buys and cannot form part of the core portfolio as they haven't generated
wealth for investors over the
long term. I would rather focus
on top PSBs like SBI and Bank
of Baroda, he says.
Unless PSBs focus on consistency and predictability of
performance and their top
brass is assessed on wealth
creation, investors are unlikely
to find themselves on the winning side. There is still a
dearth of growth capital at
PSBs, opine experts.
‘Market valuations at current level are not cheap’
The markets have gained ground last week despite the election-related uncertainty.
KRISHNA KUMAR KARWA, managing director, Emkay Global Financial Services, tells Puneet
Wadhwa that a pick-up in the earnings momentum will ensure that anyone investing in
the markets from a two-three year perspective will not be disappointed. Edited excerpts:
2009. For the markets, the continuity
of policy framework is the most
important vector. More than anything
else, the markets shun discontinuity
in policy direction.
Managing director,
Emkay Global Financial Services
The Indian benchmarks have
underperformed their global peers
thus far in the calendar year 2019
(CY19). Can the tide turn in the
remaining months?
Tide can definitely turn, if the country
witnesses arrival of a stable government at the Centre, a continuity in the
socio-economic policies, and resultantly, a continuation in the economic
momentum. On the other hand,
things may not improve if geopolitics
around the country deteriorates dramatically, and the same results in a
black-swan kind of situation.
How are the markets viewing
political developments? Do you
expect the current dispensation to
return to power?
We are no political pundits, and I have
no incremental insights into the same
than anyone else on the Street. But
yes, if the ruling dispensation comes
back, the markets will take it positively, the same way as the markets
rejoiced the return of the United
Progressive Alliance (UPA) regime in
Is the optimism in the mid- and
small-caps here to stay?
Mid-caps on current valuations offer
a healthy mix of valuation comfort
and growth compounding for many
years to come. This segment, many a
time, offers non-linear growth trajectories, which are rare in the large-cap
space. At some level, an investor in
mid-caps is playing the game of entrepreneurship, which is high risk and
high reward. In the long run, a basket
of mid-cap stocks offers the best
opportunity to generate significantly
superior returns over the nominal
growth of GDP (gross domestic product). Also, the mid-cap indices have
already witnessed a 30 per cent correction from the peak, and at that valuation offer a 5-6 per cent incremental
growth over the Nifty50.
Where do you see opportunities in the
current market?
Our strategy for many years has been
directed towards companies offering
consistent growth and not witnessing
huge technological disruptions. Also,
this consistent growth should be
brought to the shareholders’ fund, a
high level of return on equity (ROE).
In the current market, the opportuni-
Predicting foreign flows in the country’s markets is not a very smart way
to spend one’s mental bandwidth; the
flow can swing both ways. At the same
time, with the number of interest rate
hikes in the US not going to the level
of four, as predicted at the start of the
year, we remain hopeful.
Consistent performance
The fund has consistently outperformed its benchmark
(CRISL Short Term Bond Fund
Index) and peers (funds
ranked under the credit risk
ties are primarily around the consumption space; companies servicing
this appetite will gain the most.
How comfortable are you with
market valuation at this stage?
The current market valuation at 17
times is not in a very cheap zone, but
the same was in the vicinity of 19 times,
just a few months back. So, a reasonable correction has already happened.
At the current valuations, we do not
expect much re-rating. However, a
low modified duration to
reduce exposure to interest
rate risk.
Investors buy rating agency stocks
Shares of rating agencies, which had come
under pressure on concerns of a slowdown in
business and tighter regulations, seem to be
getting back in favour among domestic
investors. On Thursday, Reliance Mutual Fund
bought ~66 crore worth of shares of Icra. The
scrip has seen a correction of 20 per cent in the
last six months. Earlier, liquidity squeeze in
debt markets had stoked fears that fresh bond
issuances would significantly drop, slowing
down the revenue growth of the rating
agencies. Moreover, following the default of
Infrastructure Leasing & Financial Services
(IL&FS), the role of rating agencies has come
under the scrutiny of regulators, which are
both reportedly working together to improve
the rating standards in India.
Ahead of peers on the returns front
funds category in CMFR in
December 2018) over the trailing periods under analysis. It
significantly outperformed its
benchmark and peers during
the one-year, the two-year and
the three-year trailing periods.
A sum of ~10,000 invested
in the fund on December 07,
2011, (inception of the fund)
would have grown to ~19,465
(9.6 per cent CAGR) on March
12, 2019, as compared with
~18,064 (8.48 per cent CAGR)
for the peer group and ~18,036
(8.46 per cent CAGR) for the
A systematic investment
plan (SIP) is a disciplined
mode of regular investments
The retail investors who remained
invested have gained one of the best
returns any asset class has generated.
Also, the message has gone down to
the retail investors that the best way
to gain from equities is to take the
route of systematic investment plans
(SIPs). The retail flows can definitely
get better once the uncertainty
recedes, and the gains on the broader
indices are optically visible.
What about foreign flows?
Launched in December 2011
as Franklin India Corporate
Bond Opportunities Fund, the
scheme was renamed Franklin
India Credit Risk Fund in June
2018 and repositioned as a
credit risk fund after the
reclassification and rationalisation of mutual fund
schemes by the Securities and
Exchange Board of India
(Sebi). The scheme featured in
the top 30 percentile of the
credit risk category in the
CRISIL Mutual Fund Ranking
(CMFR) for the three quarters
ended December 2018.
Santosh Kamath (CIOfixed income) is managing the
fund for more than four years
now; he has over 23 years of
experience. Kunal Agrawal is
co-managing the fund since
October 2018. The fund’s
investment objective is to provide regular income and capital appreciation through a
focus on corporate securities.
offered by mutual funds to
investors. A monthly SIP of
~10,000 in the fund over seven
years (an investment of ~8.4
lakh) would have grown to
~11.5 lakh, earning 8.98 per
cent per annum as of March
12, 2019. A similar investment
in the benchmark would have
grown to ~11.13 lakh at 8.04 per
cent per annum.
Duration management
The fund maintained modified duration in a narrow
range of 1.47 years to 2.34 years
during the past three years,
averaging 1.81 years. The fund
focuses on credit calls to generate returns and maintains
Portfolio analysis
During the past three years,
the fund maintained a predominant allocation to NCDs
and bonds, averaging 96.57
per cent. Exposure to money
market securities (CDs and
CPs) averaged 2.44 per cent.
The fund has the mandate
to invest 80 per cent or more
of the portfolio in AA and
below rated corporate bonds.
Its allocation to sub-AA+-rated securities averaged 91.25
per cent during the past three
years. Exposure to A+ and
below rated securities averaged 67 per cent; the AA category securities exposure
averaged 26.62 per cent during the same period. The
fund did not take exposure to
sovereign securities during
the period under analysis. It
maintained an average 6 per
cent allocation to the highestrated corporate bonds (AA+
and above /A1+) during the
past three years.
pick-up in the earnings momentum
will ensure that anyone investing in the
markets from a two-three year perspective will not be disappointed. The markets can easily offer a better return than
nominal growth of the GDP. That said,
in the long-term, the markets which
are a slice of corporate India, will offer
a rate of growth in conjunction with
the GDP growth rate.
How convinced are the retail
investors about market stability?
What are the plans for Emkay’s
different business verticals,
especially wealth management and
broking segments?
India will soon cross $2,000 in per
capita GDP, which is where the
demand for wealth management
products generally witnesses a proverbial point-of-inflexion. We are preparing for such slow-grinding, but tectonic shifts in individual wealth creation,
and preservation behaviours. Our two
decades of understanding of equities,
and other asset classes, positions us
uniquely to capitalise on this opportunity. Also, there is always an opportunity for cross-selling and trailing fee
incomes. Prediction of growth rates is
based on multivariate analysis, so
offering a quantitative figure will not
be a prudent thing.
Many Nifty stocks still
offer value
With the Nifty nearing all-time
highs, valuation for the 50-share
bluechip company index has
moved above historical levels. The
index currently trades at nearly 18
times its estimated one-year
forward price-to-earnings (P/E),
higher than the 10-year average
of 16 times. Price-to-book (P/B)
for the index also is currently 2.5
times compared to historical
average of two times. However, a
deep-dive into valuations of
individual scrips suggests the
market still offers value. Only 14
Nifty stocks trade at a premium to
their historical average on oneyear forward P/B and 18 on a oneyear forward P/E basis, according
to BNP Paribas. Companies where
valuations are currently above
their historical levels mostly
belong to sectors such as
financial, FMCG and IT services.
“Beyond a select few stocks,
valuations have fallen for several
Nifty names and much more so for
those outside the Nifty,” says
Abhiram Eleswarapu, head of
India equity research, BNP Paribas
India. The Nifty companies that
are much below their historical
CRISIL Research
Nifty stocks that are quoting at a premium
and discount to their historical P/E
Bajaj Finserv
Bajaj Finance
Reliance Ind
Indiabulls Fin.
Eicher Motors
Tata Steel
Yes Bank
In % -40
Chinks in price discovery armour
Stock exchanges have strict trading guidelines
for newly-listed companies. For instance, a
stock listing through a demerger, can move only
in a 5 per cent band for 10 days. The band is
applicable on the price discovered after a
45-minute pre-open session. The framework is
aimed at curbing volatility and better price
discovery. However, the recent listing of Arvind
Fashions, which was demerged from Arvind, has
exposed some chinks in the armour. The
discovered price for the apparel retailer was less
than half its fair value price. As a result, the stock
hit 5 per cent upper limit for five straight days
post its listing. Real price discovery for the stock
will take place once the 10-day price band
period gets over, said a broker.
18-Mar India BoP CAD figures*
US-NAHB housing market
UK Rightmove house prices
19-Mar UK ILO unemployment rate
UK employment change
20-Mar US FOMC rate decision
UK CPI & core CPI
UK RPI & retails price index
UK house price Index
21-Mar US leading index
UK Bank of England bank rate
UK public finances figures
22-Mar US Markit PMI manufacturing
services and composite
US home sales figures
Source: exchange/websites/Bloomberg
Compiled by BS Research Bureau
P/E include Tata Steel, Eicher
Motors and ONGC. Meanwhile, the
companies below their historical
P/B are Tata Motors, Eicher Motors,
Sun Pharma and Indiabulls
Housing Finance. On the other
hand, the P/E multiple of Grasim,
Reliance Industries, Titan and
Hindustan Unilever is higher than
their historical average.
Soy bean prices at the benchmark Indore
markets are trading at ~3,746 per quintal. For
the week ahead, prices are expected to head
towards ~3,685 per quintal. Weak processors
demand due to lack of fresh meal export deals
to weigh on prices.
Prerana Desai,
VP-Research -Edelweiss Agri Services and Credit,
Edelweiss Agri Value Chain
"Weak Modi is scared of
Xi. Not a word comes out
of his mouth when China
acts against India"
“This 'jhoola' diplomacy is so
fantastic that China refuses to
cooperate in blacklisting this
terrorist (Masood Azhar)"
RAHUL GANDHI, Congress president
"...Leaders who describe this (China blocking banning
of Masood Azhar at the UN) as our diplomatic failure
may see for themselves that in 2009, India was alone.
In 2019, India has worldwide support"
SUSHMA SWARAJ, external affairs minister
In uncharted waters
not show much interest.
Experts feel minorities, especially
Muslims and Christians who have
been voting for the DMK, may prefer
Haasan over the Dravidian party.
The Lok Sabha and the assembly by-polls will test the next generation leaders of the
AIADMK and the DMK, besides a few other prominent faces
An unexpected, but not surprising
new entrant who is still not fully in
the limelight is the DMK president’s
son-in-law Sabareesan, who is said
to be liaisoning between his party
and its allies. Sabareesan’s role in
the party and its alliance has been
more tangible in recent times, especially with the elections on the cards,
said experts. The communication
between the DMK and its ally
Congress was earlier mostly managed by Kanimozhi, daughter of
Some senior party leaders are not
pleased with the emergence of a new
power centre, they said.
According to reports, when the
DMK initiated talks with the Congress,
a three-member team met Congress
President Rahul Gandhi. Those were
Kanimozhi, T R Baalu and Sabareesan.
Sabareesan, it is rumoured, also
has a say in the selection of candidates.
When Reliance Industries Ltd (RIL)
Chairman and Managing Director
Mukesh Ambani and his wife Nita
Ambani visited Stalin at his residence
recently, the couple was received by
he upcoming Lok Sabha election and by-polls for 18
Assembly seats in Tamil Nadu
are not only a test of leadership for the
ruling All India Anna Dravida
Munnetra Kazhagam (AIADMK) and
the Opposition Dravida Munnetra
Kazhagam (DMK), but also for the next
generation leaders of these two parties,
besides prominent faces like T T V
Dhinakaran and Kamal Haasan.
After the demise of AIADMK
supremo J Jayalalithaa and DMK chief
M Karunanidhi, both the Dravidian
parties are facing the first big election
under the new leadership. While the
AIADMK is led by Tamil Nadu Chief
Minister E K Palaniswami and his
deputy O Panneerselvam, the DMK is
spearheaded by M K Stalin.
There will be a few faces, who were
working behind the scenes so far, coming out into the open and representing
their respective parties during these
T T V Dhinakaran
V K Sasikala’s nephew and AIADMK
rebel leader Dhinakaran had won the
R K Nagar seat in 2017, defeating both
the AIADMK and the DMK.
Following Jayalaithaa's death and
Sasikala's imprisonment in a disproportionate assets case, the Sasikala
faction named Palaniswami chief
minister and Dhinakaran the leader
of the party. However, Palaniswami
Panneerselvam group and expelled
Dhinakaran to take over the name
and the party symbol.
Dhinakaran floated the Amma
(AMMK). It may tie up with a few
regional parties ahead of the polls.
While he may not be able to make
any inroads in the Lok Sabha, he may
split the AIADMK votes in favour of
the DMK in the by-elections. The
AMMK representative said that the
outfit is targeting at least 10 seats.
Dhinakaran's caste could play a
major role in getting votes for his party. He is a Thevar, a dominant OBC
community in southern Tamil Nadu.
There is a perception that the
Thevars leaned towards the AIADMK
in the past only because of Sasikala's
family. This notion will be put to the
test as Paneerselvam also belongs to
While MNM of Kamal Hasan (top left)
will look to target Muslim and
Christian voters, T T V Dhinakaran’s
AMMK will battle it out against the
AIADMK for Thevar votes.
(In inset) Vijayakanth (right) with
son Vijay Prabhakaran, who is also
set to take the politicial plunge
the same community.
Kamal Haasan
The actor-turned-politician said that
his party Makkal Needhi Maiam
(MNM) is open to aligning with likeminded parties, but so far, he has failed
to ink a deal with any of the major par-
(1) AGRA
R S Katheriya
Margin: 300,263  283,453
 134,708  34,834
Savitribai Phule
Margin: 95,645  96,904
 336,747  24,421
A total of 131 seats (18.42 per cent)
of the 545 Lok Sabha seats are
reserved for representatives of
Scheduled Castes (84) and
Scheduled Tribes (47). These seats
are reserved in proportion to the
SC/ST population as a share of the
total population in a state.
According to the 2011 census, these
sections comprised about 16.6 per
cent and 8.6 per cent, respectively, of India's population.
For the first time in the 2014
parliamentary elections, the BJP
won the largest number of seats
in these constituencies — 66 of the
131 seats. This is also the highest
number of reserved constituency
seats won by any single largest
party ever, since 1991. The BJP
retained almost 88 per cent of the
seats it had won in 2009.
Uttar Pradesh, which has the
Ravindranath Kumar
Panneerselvam's son O P Ravindranath Kumar has sought a Lok Sabha
ticket from the Theni or Virudhunagar
constituency in southern Tamil Nadu.
While there is criticism over the deputy
CM seemingly promoting his son,
Kumar rubbishes the perception.
"I have been working for the
AIADMK since I was 18. Now I am 39.
It's only with the right of a genuine
and committed party worker that I
have sought the ticket," he says.
highest scheduled caste population and where the Bahujan Samaj
Party (BSP) and the Samajwadi
Party (SP) have traditionally had a
strong following, saw the same
trend: The BJP won swept all the 17
reserved constituencies in the state
in 2014. The SP, which had 10 seats
in 2009, could not retain even a
single SC seat.
This time, there is an alliance
between the SP and the BSP.
Central to this is a seamless vote
transfer. The evidence suggests
that if the SP and the BSP votes
are added, in several cases the
combination will trounce the BJP.
But such was the party’s stupendous performance that this will
not apply in all cases. Either way,
in the reserved seats, at least, the
BJP may suffer: If arithmetic is all
that goes into an electoral victory.
Kamlesh Paswan
Margin: 189,516  133,675
 133,534  50,675
Priyanka Singh Rawat
Margin: 211,878  167,150
 159,284  242,336
Bhola Singh
Margin: 421,973  182,476
 128,737
Ashok Kumar Doharey
Margin: 172,946  192,804
 266,700  13,397
Anshul Verma
Margin: 81,343 279,158
 276,543  23,298
Vijay Prabhakaran
Desiya Murpokku Dravida Kazhagam
(DMDK) leader Vijayakanth’s son Vijay
Prabhakaran is also set to take the
plunge into active politics this election
season. The party has joined the
National Democratic Alliance and is
set to contest four seats in the Lok
Sabha election.
ties or alliances, including the DMKCongress alliance.
The DMK and Haasan are almost
on the same page in terms of their ideology regarding Hindutava and in
their anti-Brahmin mindset. However,
when there were talks between the
Congress and the MNM, the DMK did
Neelam Sonkar
Margin: 63,086  233,971
 260,930  21,832
 BSP  SP  Cong
Ram Charitra Nishad
Margin: 172,155 266,055
 191,387  36,275
Rajesh Kumar Diwakar
Margin: 326,386  217,891
 180,891
Bhanu Pratap Singh Verma BJP
Margin: 287,202 261,429
 180,921
 82,903
Vinod Kumar Sonkar
Margin: 42,900 201,322
 288,824  31,905
Anju Bala
Margin: 87,363
 3,25,212
 194,759  33,075
Kaushal Kishor
Margin: 145,416  309,858
 242,366  52,598
Yashwant Singh
Margin: 92,390  245,685
 275,435
Margin: 190486  187725
 135,966  86,235
Krishna Raj
Margin: 235,529  289,603
 242,913  27,011
Source: Election Commission of India
Modi vs Raavan
in Varanasi?
their constitutional rights and
they will no longer tolerate
Will Chandrashekhar Azad (or oppression. The Bhim Army is
Raavan, the name he has given not to scare off anybody but for
to himself) be the Opposition the security of Dalits,” Raavan
candidate against Prime said in a recent interview.
Minister Narendra Modi in
Raavan’s troubles started in
Varanasi? Congress leader 2015, when he put up a board
Priyanka Gandhi Vadra’s recent outside his village which promeeting with him has everyone claimed: ‘The Great Chamars
talking about this. You need to of Dhadkauli Welcome You’. In
be exceptionally brave to fight a village that also had Thakurs,
Modi in Varanasi and Raavan how could this be tolerated?
certainly is.
The Thakurs defaced this. This
On the face of it, Raavan is began a phase of confrontation,
fighting everyone. He was born which peaked when the BJP
in Dhadkauli village of took out a ‘Shobha Yatra’ in
Saharanpur in a Dalit family, Saharanpur without permisstudied at a Thakur-owned col- sion through communally senlege in nearby Chhutmalpur, sitive areas. Dalit-Thakur clashwitnessed the discrimination es broke out a few weeks later
against Dalit students and in the district on the birth
vowed to fight it. Being an anniversary of the Rajput king,
Ambedkarite and an admirer Maharana Pratap. The state
of Kanshi Ram (but not of government held the Bhim
Mayawati), he tried to follow Army responsible for inciting
the same principles of organ- violence even as Raavan rejectising the Dalits as Kanshi Ram: ed the allegation. He was arrestVia education, through the ed, but the high court acquitted
bureaucracy and in self- him. But within hours, the Yogi
defence. He founded the Bhim Adityanath
Army and set up
ordered his re400 Bhim Army There is speculation arrest under the
schools in Saha- that ‘Raavan’, chief National Security
ranpur district of the Bhim Army,
Act. He was incarwhich
provide could be the
cerated amid masfree-of-cost pri- Opposition
sive protests by
mary education. candidate against
civil rights groups
He started self- PM Narendra Modi
and released only
defence classes in Varanasi
and led bike rides
Saharanpur is
through villages — including well-known for Dalit mobilisaupper caste Thakur villages — tion and the unity among
as symbolic self-assertion.
Muslims and Dalits. This project
This is important. Uma has been endorsed by many
Bharati, a sadhvi from the Lodh activists. According to Chandra
caste who rose to become a Bhan Prasad, noted writer and
Union minister, once recalled Dalit thinker, “There are around
how, in her village Tikampur, 400 Lok Sabha constituencies
others from her caste could not where the Dalit-Muslim comcycle past the homes of bine constitutes 30 per cent of
Thakurs. They had to dismount the electorate. Also bear in
and walk past on foot: Because mind that 90-95 per cent of
the Thakurs saw this assertion Dalits and Muslims go out and
as an affront. That was 25 years vote. So, if they are able to come
ago. Nothing has changed.
together, they become signifiThe Bhim Army asks Dalits cant electorally.” Raavan has
over 18 to join them. Most of emerged as a face of this unity,
the members belong to the even though he is not that well
community of leatherworkers known in the rest of India.
or its sub-caste Jatav. But the
Little wonder then, that the
Bhim Army also welcomes Congress is reaching out to
Muslims. It lacks a formal struc- him. His party is unrecogture and is an unregistered nised. And the Congress sees
body, but claims to have over in him the same political
20,000 members in and potential as Hiralal Alawa,
around Saharanpur. Its stress convenor of tribal political outis on direct action based on fit Jai Adivasi Yuva Shakti,
confrontation to preserve, pro- who was a key factor in swingtect or restore the dignity of ing tribal votes towards the
Dalits. “Through the Bhim Congress in MP.
Army, the Dalit youth become
Will Chandrashekhar Azad
aware that they can struggle for ‘Raavan’ have the same effect?
Yogi faces litmus test
expansive canvas to govern and also
extend the party’s base in the state.
Now having completed two years as
chief minister, the report card of
Adityanath is at best a mixed one. Even
as the saffron party won 14 of the 16
monastic order, had been acknowledged
urban local bodies mayoral posts in
to have wielded influence over 12 eastern
December 2017, the BJP suffered defeats
UP districts, including Deoria, Basti, Sant
in all the three parliamentary
Kabir Nagar, Maharajganj,
and one assembly by-polls
Sant Kabir Nagar and
held last year, including his
Siddharth Nagar.
own turf of Gorakhpur.
As things turned out, the
While Adityanath prefers
BJP and allies, riding on the
to discount these defeats by
euphemistic “Modi wave” and
noting they did not alter the
aided by the division of votes,
constitution of his governwent on to score a stupendous
ment, the fact that the ruling
victory at the hustings, winparty lost these by-polls with
ning 325 of the 403 seats.
Adityanath at the helm had
Adityanath, on the basis of
put a big question mark on his
preference of the party’s electability to deliver in highed legislators, was anointed
the 21st chief minister of the
UTTAR PRADESH octane contests.
In this backdrop, the Lok
country’s most populous state.
Sabha polls are an acid test for
The firebrand Hindutva
Adityanath to prove his merit as a politileader, who had shared rather bittercal leader, possessing the capacity to
sweet relations with the BJP owing to his
deliver beyond his traditional pocket
larger-than-life image in eastern UP
boroughs of Gorakhpur and adjoining
pockets, was suddenly entrusted with an
He became an unexpected chief minister in 2017.
Now he has to justify his party was not wrong
In the run-up to the Uttar Pradesh
Assembly polls in 2017, which subsequently morphed into a triangular contest between the Congress-Samajwadi
Party (SP) combine, the Bahujan Samaj
Party (BSP) and the Bharatiya Janata
Party (BJP), speculation was rife about
then Gorakhpur MP Yogi Adityanath,
lobbying for tickets for his candidates in
about a dozen constituencies in eastern
UP, or Purvanchal.
It was no secret that Adityanath and
his supporters, predominantly comprising the influential Hindu Yuva Vahini
(HUY), a self-acclaimed social and cultural organisation founded by him, were
at the same time peeved at the BJP not
projecting him as the party’s chief ministerial candidate.
Adityanath, who is also the presiding
seer of the powerful Gorakshnath Peeth
The report card for the two years of the Yogi Adityanath government has been mixed
districts. The coming together of the SP
and BSP just ahead of the crucial elections has made the path tougher for
Adityanath, considering these two opposition parties represent 42 per cent of the
vote in the state.
Interestingly, the “trial by fire” for
him becomes even tougher since he is up
against the charm offensive of the
Congress general secretary in charge of
eastern UP, Priyanka Gandhi, who had
recently led an impressive road show in
Lucknow, alongside his brother and party president, Rahul Gandhi.
Political commentator Sharat
Pradhan told Business Standard there
was more hype around the personality of
Adityanath than what was real. “He has
been touring other states for campaigning, but hasn’t done any magic so far.”
The BJP faced poll reverses in Hindi
heartland states of Rajasthan, Madhya
Pradesh and Chhattisgarh, where
Adityanath had addressed nearly 75 rallies, even as the opposition criticised him
for allegedly neglecting UP while electioneering in other states.
Further, Pradhan said the phenomenon of stray cattle destroying crops in
rural areas would hit the poll prospects
of the BJP. “There is a strong undercurrent of anger among farmers, especially
small agriculturists, since their livelihood is getting affected due to the menace of ever-increasing stray cattle.”
In contrast, Adityanath has been religiously talking about the successful
holding of the UP Investors Summit 2018
and Kumbh in Prayagraj in 2019.
Nonetheless, the Opposition has been
sharpening attacks on his government
over rising crime, including crime
against women. A senior Congress leader
slammed the government for functioning like an “event management company” and trying to conceal its failures.
The accusation of graft and impropriety against the personal secretaries of
three UP ministers, caught in a sting
operation by a news channel in
December last year, had put the state
government in the dock.
A weekly selection of key court orders
Pre-deposit demand for arbitration illegal
A condition in a notice of tender
demanding a pre-deposit of 10 per
cent of the claim for invoking
arbitration is illegal and arbitrary, the
Supreme Court ruled last week in its
judgment, Icomm Tele Ltd vs Punjab
State Water Supply Board. Such a
condition will discourage parties from taking the route of
an alternative dispute resolution process. The judgment of
the Punjab & Haryana High Court which took a contrary
view was struck down. In this case, the board invited
tenders for augmentation of the water supply and
sewerage system in the state. Icomm was selected. When
disputes arose, the terms of the contract were challenged.
According to the board, the party invoking arbitration
shall “deposit at call” 10 per cent of the claim to avoid
frivolous demands. The Supreme Court stated that 10 per
cent of a huge contract will amount to a large sum. It will
deter an aggrieved party from invoking arbitration. It
would act as a ‘clog’ according to the law of contract,
while the arbitration law is meant to de-clog the courts
burdened with huge arrears. “Any requirement to deposit
would certainly amount to a clog on this process. Also, it is
easy to visualise that often a deposit of 10 per cent of a
huge claim would be even greater than court fees that
may be charged for filing a suit in a civil court.” The
judgment pointed out that if there are frivolous claims,
the arbitrator or the court can impose a deterrent penalty
on the guilty party.
Tax demand against dissolved firms
A claim of income tax will not become
infructuous even if a company’s name
has been struck off by the Registrar of
Companies, according to the Supreme
Court. The Companies Act and the
Income Tax Act deal with such
situations and those provisions
should be followed. The Rajasthan High Court had
dismissed the appeal of the Commissioner of Income Tax
against the order of the appellate tribunal in the case of
Gopal Shri Scrips Ltd. The high court had ruled that
nothing survived in the case as the company was
dissolved. Reversing that judgment, the Supreme Court
stressed that the method prescribed in the two Acts should
be adhered to in this case. The Supreme Court asked the
high court to reconsider the appeal.
NCLAT must hear party before order
The Supreme Court has set aside the
order of the National Company Law
Appellate Tribunal, New Delhi (NCLAT),
in an insolvency case as it had not
followed the rule of granting the
opposite party an opportunity of
presenting its case. In this case, Jai
Balaji Industries Ltd vs State Bank of India, the appellate
tribunal had asked the NCLT, Kolkata, to admit an
application moved by the bank against the company. The
latter appealed to the Supreme Court arguing that the
appellate tribunal’s order was passed without hearing it.
The bank defended the order contending that it had given
an advanced copy of the appeal and documents to the
company. The court rejected that contention stating that
though the bank had served an advanced copy of the
appeal on the company, it could not be treated as service
of notice as stipulated under Rule 48 of the NCLAT Rules.
The appeal and other documents shall be served along
with the notice on the other side. An advanced copy would
not fulfil the requirement of natural justice, the judgment
emphasised, while remanding the matter to NCLAT.
Compounding in electricity theft cases
Criminal proceedings in cases of theft of
electricity have to be separately dealt
with even if there is a settlement
between the supplier and the
consumer. The Electricity Act provides
for compounding of the offence of theft
under Section 152 but that proceeding
must be gone through even after the settlement, the
Supreme Court stated in its judgment in Mukesh Chand vs
State of Delhi. The power distributor, BSES, found that there
was theft of electricity by an industrial unit and therefore,
slapped a bill for ~3.5 lakh on it. Since it did not pay the
amount, a criminal case was filed against it. Later the matter
was settled in a Lok Adalat and he paid ~1.6 lakh according
to the agreement. He then moved the Delhi High Court for
quashing the prosecution as he had paid the amount
according to the settlement. The high court dismissed his
petition. On appeal, the Supreme Court set aside the high
court order and asked it to decide his case according to the
provision for compounding of offences in the Electricity Act.
Wrong order, but no recovery from staff
An employer who wins a case against
an employee cannot recover from the
employee the amount already paid
during the litigation, even if it is
substantial. The Supreme Court stated
so in the appeal, Dilip Mani vs M/s Siel
Ltd. In this case, the employee
challenged his termination before the industrial tribunal in
Uttar Pradesh. The tribunal ordered his reinstatement with
back wages in 1998. The firm appealed to the Allahabad
High Court arguing that he had not completed one year of
employment. The high court accepted it and held the
tribunal was wrong in 2007. The employee appealed to the
Supreme Court. It declined to examine the facts of the case
and dismissed the appeal last week. During the litigation,
the employer had paid dues according to the order of the
tribunal. The Supreme Court ruled that though the tribunal
order was wrong, the employer had no right now to recover
the amount already paid to the “delinquent workman”.
Diagnosis of delays in commercial courts
The Delhi High Court last week
lamented that cases in commercial
courts are unnecessarily being delayed
because of the lax attitude of lawyers.
The judgment in the case, Vifor
International Ltd vs Suven Life Sciences
Ltd, starts with a long narration of the
maladies affecting commercial suits. Parliament passed the
Commercial Courts Act, 2015, intending to speed up disposal
of suits. But a series of lawyer-made obstacles are put
before the court tending to make the legislation “a mere
piece of paper”. The judgment listed a series of hurdles
which delayed disposal of suits. For instance, petitions are
not drafted precisely, spelling out the basis of the claim or
defence. These lead to unnecessary pleas being raised later
and irrelevant issues being framed and evidence led in
them. Lawyers should prepare a blueprint in the
beginning. It is often found that parties and counsels
themselves, owing to lack of attention, do not understand
their own claim/defence. Such conduct leads to a plethora
of applications being filed to make up the lacunae.
Implant victims lack legal backing
The regulator’s ruling on compensation has to be backed by statutory provisions in law
n a first of its kind ruling, the
Central Drugs Standard Control
Organization (CDSCO) recently
asked Johnson and Johnson (J&J),
a US-based company, to pay a hefty
penalty of nearly ~75 lakh to an
unidentified Mumbai-based victim
of a faulty hip implant.
In November, the government
had come up with a compensation
formula based on factors such as
age, risk and percentage of disability. The quantum of compensation
recommended in such cases varied
from ~30 lakh to nearly ~1.2 crore.
Experts, however, doubt the ability of the government, and the regulator, to actually realise the penalty
amount from the company in the
absence of statutory legal provisions
to back this decision.
“The government order asking
J&J to pay compensation is complete hogwash. There is no provision
(in law) under which the government can do so,” says Prashant
Reddy, senior resident fellow at
Vidhi Centre for Legal Policy.
There is no law that empowers
the government to order one private
party to pay a certain amount to
another private party, he adds. Most
legal experts expect J&J to challenge
the ruling by the regulator.
A senior advocate notes that in
US companies such as J&J pay hefty
fines to settle legal cases because of
the high cost of litigation. “India will
see many rounds of legal battle,”
he says.
Experts say it is unlikely that the
compensation suggested by the regulator will become a precedent and
help other victims to claim compensation easily.
“The process of claiming relief by
claimants is painstaking because it
is not easy to establish negligence,
especially under criminal laws,” says
The US
2010: DePuy, a manufacturer for J&J recalls,
93,000 ASR hip-replacement systems
2013: DePuy stops selling ASR hip-replacement
systems after the US FDA tightens rules
J&J says it has paid $2.5-billion ASR settlement to
around 8,000 patients in the US
2013-2019: Nearly 10,400 lawsuits filed in the US
over the failure of device
2019: J&J pays $120 million to resolve deceptive
marketing claims made in the US
2010: The CDSCO gives DePuy’s fresh imports licence
for implants on the basis of renewed registration
2011: The CDSCO asks J&J for details of compensation
paid to victims; the company says the information
is confidential
2012: The CDSCO cancels import of J&J ASR
hip-replacement system
2013: DePuy stops selling ASR hip-replacement
systems after the US FDA tightens rules
2014: CDSCO receives patient grievances on ASR
implants, takes it up with company
2017: An expert committee of the health ministry
formed to look into the issue
2018: The expert committee makes report public,
suggests ~33 lakh as minimum penalty
2019: The government accepts the committee
report, says the firm must pay within 30 days
The CDSCO asks J&J to pay a penalty of nearly
~75 lakh to a Mumbai-based victim
Atul Pandey, partner at law firm
Khaitan & Co. Experts say the only
legal compulsion for paying compensation can come through a court case
invoking tort law or product liability
law or consumer protection law.
Most experts, however, believe
that the formula suggested by the
government is a start. Since the
Supreme Court accepted the formula suggested by the government, it
could become a precedent, notes
Rajdutt Shekhar Singh, partner at
law firm Singh and Associates.
“In case, any similar matter arises in the future, the procedure
adopted by the government in the
J&J case would be considered as a
precedent in determining the quantum of compensation,” Singh adds.
The Drug Technical Advisory
Board (DTAB), set up by the government last year, suggested including
compensation for victims suffering
from faulty implants in the law.
Though the Medical Devices Rules
of 2017 could be amended for this
purpose, dedicated legislation that
deals with compensation laws for
aggrieved patients and users of
medical devices will help ease the
burden of proof that currently lies
squarely on the patient, says
Though the new medical devices
rules talk about compensation in
cases of clinical investigation-related death, the rules for victims of
faulty medical devices and implants
are absent.
The lack of a proper legal framework notwithstanding, the Indian
medical consumer is also largely
unaware of his or her right, say
experts. “The consumers in the West
are more aware of their rights associated with health care, along with
the seriousness accorded by the
courts to such cases. Therefore, we
see a larger number of medical malpractice compensation claims in
countries like the US and the UK,”
says Pandey.
In the J&J hip implant case,
instead of each victim approaching
the courts in their individual capacity, the government could file a collective case on behalf of the
patients, suggests Reddy.
“For individuals to prove that a
medical device causes a problem
requires an expert certifying the
same. Now, that cannot obviously
be done for free. The government
should get such experts and it will
help bring down the costs for victims,” he says.
According to experts, this can be
done under Section 12(1)(d) of the
Consumer Protection Act of 1986
that empowers the central or the
state government to take up the
case, either in its individual capacity
or as a representative of interests of
the consumers in general.
How taxation skews share
buyback over dividend payout
Hiren Bhatt, partner–deal advisory, M&A tax and private equity tax, KPMG in India,
explains the differences in tax treatment of share buyback and dividend payout
Is the tax treatment of share
buyback by a company different
from dividend payout?
What would be the tax treatment
when a listed company undertakes
buyback of its shares?
The Income-tax Act, 1961 (the Act),
provides for different tax treatment
both for share buyback and dividend
payout. While dividend has been
subject to dividend distribution tax,
to be paid by the company, taxation
of buyback would depend upon
whether it is a buyback of listed
shares or unlisted shares. Also, both
dividend and buyback would have
different tax treatment in the hands
of the shareholders.
With regard to listed companies, two
scenarios of taxability arise. When a
buyback is not conducted through
stock exchanges and securities
transaction tax (STT) is not paid,
long-term capital gains on buyback is
subject to tax in the hands of the
shareholder at 20 per cent with
indexation, or at 10 per cent without
indexation. Further, when STT is
paid, long-term capital gains will be
taxed at 10 per cent. Short-term
capital gains in the above two
scenarios i.e. without and with STT
payment, will be taxed at applicable
slab rates and 15 per cent,
Is a company liable to pay any tax
when it declares the dividend to its
When any company declares the
dividend, whether interim or final,
such dividend is subject to dividend
distribution tax (DDT) at the effective
rate of 20.56 per cent on the payout.
Will such dividend be also taxed in
the hands of the shareholders?
Yes. Any dividend receipt above ~10
lakh is taxable at 10 per cent in the
hands for certain categories of
shareholders, like individual, Hindu
Undivided Family and firm.
What are the tax implications for
unlisted companies when buyback
of its shares is undertaken?
Buyback of shares undertaken by an
unlisted company is governed by the
specific provisions of Section 115QA
of the Act. As per these provisions,
any unlisted company undertaking
buyback of its shares will pay
buyback tax at the rate of 20 per cent
on the difference between the
consideration paid by the company
to the shareholders on the buyback
and the amount received by the
company on the issue of such shares.
This section is akin to dividend
distribution tax wherein
responsibility is cast on the
company to pay the tax. It is
important to note that cost-step up
and indexation available to
shareholders cannot be considered
by the company while computing
the amount of buyback tax payable.
This may adversely impact the
taxation on the buyback of shares
acquired by shareholders through
secondary acquisition.
Will there be any taxation in the
hands of the shareholders of an
unlisted company undertaking
the buyback?
The Act provides for a specific
provision which exempts income
from a buyback in the hands of the
shareholders, if the company has
paid buyback tax under the Act.
Does Section 115QA cover buyback of
all kind of shares issued by an
unlisted company?
The term buyback (as defined under
Section 115QA of the Act) was
amended by the Finance Act 2016 to
cover all types of buyback of unlisted
shares within its purview, including
preference shares.
Will it be fair to say that the tax
treatment is skewed in favour of
share buyback vis-a-vis dividend
As discussed above, when a listed
company undertakes buyback of its
shares, the effective tax rate for its
shareholder ranges from 10 per cent
to 30 per cent on capital gains (as
may be applicable) and for an
unlisted company, the tax rate is 20
per cent with no tax on
In contrast, the aggregate
taxation on dividend distributed by
the company could be 20.56 to 30
per cent. So, there is no straight
forward answer and depends on a
case-to-case basis.
All the tax rates mentioned
(other than DDT) are exclusive of
surcharge and cess.
What should companies keep in
mind when deciding between share
buyback and dividend payout?
While dividend payout largely
depends on profits available for
distribution, the buyback will be
subject to multiple considerations as
required under the Companies Act,
2013. Some of the key criteria for
buyback of shares could be the debtequity ratio of the company, the
availability of free reserves or
securities premium account, the
maximum cash payout and the
maximum amount of paid-up capital
which can be bought back. Also, if a
listed company is carrying out
buyback, the Sebi regulations will
have to be appropriately considered.
Needless to say, income-tax
implications as discussed above
would also have to be considered.
Reflection on governance issues in IL&FS and L&T
Over the past few months, a spate of
events occurred in the space of corporate governance presenting challenges in improving corporate governance and ethical standards being
practised by companies. Those are
worrying, but no solution is in sight.
As per media reports, the government-appointed board has
charged 14 former directors of group
firm IL&FS Financial Services Ltd
(IFIN) with facilitating money laundering, sanctioning loans in violation of rules and causing "huge
financial stress and losses’’ to the
company. Those serious allegations
are based on the special audit report
submitted by Grant Thornton. It
reported numerous financial irreg-
ularities in deals with financial
implications of over ~13,000 crore.
The company has issued notices,
dated February 27, asking former
directors as to why departmental
and legal actions should not be taken against them for their "misconduct, dereliction of duties, gross
negligence and acts of conspiracy
and getting unlawful gains for oneself and others". Independent directors in the board that had been
superseded by the government after
a series of defaults by the company,
included individuals of high repute
like R C Bhargava, chairman of
Maruti, Michael Pinto, a former secretary for Shipping, and Sunil B
Mathur, former LIC chairman. It is
likely that independent directors
failed to apply due diligence, possibly because of lack of their understanding of the complex business
model of the company. If independent directors fail to demonstrate
that they had applied due diligence,
they will be held liable for the omissions and commissions of the company. They may face imprisonment.
Interestingly, the board that
replaced the disgraced board of
IL&FS is acting swiftly, decisively and
effectively. In the case of Satyam also,
the board that replaced the disgraced
board did a wonderful job in bringing million to settle charges that it vioback the company from the crisis and lated the Foreign Corrupt Practices
protecting its value. In both cases, Act (FCPA). The US Securities and
the newly appointed boards are/were Exchange Commission (SEC)
effective because their performance alleged that Cognizant authorised
is/was measurable and is/was in pub- the construction firm to make
lic view. Unfortunately, when the bribes to government officials in
going is good or until the crisis does India. It has come out that the said
not surface, the independent direc- construction firm is L&T. L&T has
tor’s performance is not visible to decided to take the services of external experts to ascertain
stakeholders. Therefore,
whether its employees
independent directors,
In a society
were involved in bribing
in general, lack motivawhere corruption
the government offition. A solution to motiis
cials. Quite likely, evivational issues is yet to
investors are not
dence will not be availbe found out. Therefore,
bothered about
able, as companies have
the use of the stick is the
learned the art of cononly solution. It will be
of the company,
cealing such payments
interesting to observe
if by aligning
skilfully. If evidence is
how the IL&FS story
available, the employees
unfolds -- whether the
environment, it
will be made scapegoats
company will proceed
earns a profit
to clean the image of the
to take legal actions
against the members of
Ethical standard and
the superseded board
and if it proceeds, what view the values of institutions cannot be betcourt will take on the alleged failure ter than the ethical standard and
of independent directors to apply values of the members of the system
within which they operate.
due diligence in decision making.
The story of bribing government Corruption and crime are not
officials by L&T on behalf of important issues in parliamentary
Cognizant is also interesting. In the elections. Voters elect corrupt and
second week of February 2019, criminals to represent them. In a
Cognizant had agreed to pay $25 system (society) where corruption
is a non-issue, investors are also not
bothered about ethical standard of
the company, if by aligning with the
external environment, the company
earns a profit for them and manages
the risk by skilfully doctoring the
books and documents to avoid
detection. It may be argued that
mighty players like L&T should take
the lead to eradicate corruption, but
that is a difficult proposition in a
fragmented industry like construction, where a large number of players of different sizes operates. The
risk of spearheading the fight
against corruption is to lose in the
competition. As long as the eradication of corruption remains rhetoric for the government and political parties, both the government
officials and companies will continue to adopt corrupt practices and
investors will not bother too much
about the same.
Big names in the board do not
provide comfort to stakeholders, as
the practice of ‘lending names’ with
token participation continues. A corruption-free India is yet a mirage, but
we need to work towards it.
The writer is director, Institute of
Management Technology, Ghaziabad
Email: [email protected]
Defence reformer with a clean image
anohar Gopalkrishna Prabhu
Parrikar, who passed away in
Goa on Sunday evening, is
remembered in the defence ministry
and across the industry as a rare
minister who grasped the daunting
technological dimensions of the
“His extraordinary passion and
commitment to the public good
brooked no short cuts or unholy
compromises. A rare figure in public
life, his absence will be sorely missed,”
says former defence acquisitions chief
Vivek Rae.
Yet, many of these policies are
now coming on stream and the credit
goes to Parrikar, say defence ministry
“He was an affable, approachable,
man-on-a-mission who devoted
himself to deciphering and
simplifying the complexities of
defence acquisition policy,” recalls
Rajindar Bhatia of the Kalyani Group.
Goa BJP loses the Parrikar advantage
New Delhi, 17 March
butmostcharismaticchiefministers, Manohar Parrikar, died
last evening plunging the politics of Goa into chaos.
Atrainedmetallurgicalengineer from IIT Bombay, Parrikar
became defence minister when
2014, but his induction in the
Centre was, in some ways, a second thought. He took over in
November 2014 from Arun
Jaitley and while he came to
Delhi and presided over a complex ministry with aplomb, his
heart was always in Goa.
Parrikar hated being com-
pared to Modi but the career
He was like Modi, an RSS
Pracharak, and his defence of
conceded riots should not have
taken place at all, blamed the
not blame Modi as ‘Modi was,
after all, a new CM’. He first
became CM of Goa in October
2000 — raising the strength of
the BJP from four MLAs in 1994
to 17 in 2002. But he could stay
CM for just two years.
He made several mistakes,
four months later to rule as CM
till 2005, when he lost the elections. In 2012, ahead of the
assembly elections, he made a
Christian community: the BJP
fielded six Christian MLAs and
2017, assembly elections to the
40 member-house were held
the single largest party with 17
MLAs. But Parrikar had moved
back to Goa where the Congress
lost three MLAs to the BJP,
which formed the government.
He became the CM again.
Since then, politics in the
state has been unstable, especiallyafterParrikarfellill.In2017,
Vishwajit Rane was the first
welcomed into the BJP and
made a minister even before he
was re-elected to the legislature.
Two other Congress MLAs —
Dayanand Sopte and Subhash
Shirodkar — quit the party in
October 2018, to join the BJP.
They are facing by-elections to
polls bringing the BJP on a par
with the Congress at 14 MLAs
each. However, with the death
of BJP MLA Francis D’Souza in
once again became the single
largest party in the House.
Another BJP MLA, Pandurang
Madkaikar, is unwell and hasn’t
been seen since he suffered a
stroke in June 2018. In October
2018, too, the Congress staked
claim to form the government
and called for a floor test but its
request was ignored by the
Governor. Now, all indications
are that the Congress will make
another bid to form the government.
The BJP’s ally, Goa Forward
mount pressure.
“We supported Manohar
Parrikar, and not the party. So,
in case of any eventuality, we
will rethink (our support to the
BJP),” Goa Forward Party chief
Vijai Sardesai said two days
ago. Three MLAs each of the
Goa Forward Party, Maharashtrawadi Gomantak Party
(MGP) and an Independent
and a lone Nationalist
Congress Party (NCP) legislator are supporting the BJP.
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