TUESDAY, 19 NOVEMBER 2019 www.business-standard.com 16 pages in 1 section MUMBAI (CITY) ~9.00 VOLUME XXIV NUMBER 68 THE MARKETS ON MONDAY Sensex 40,284.2 Nifty 11,884.5 Nifty Futures* 11,920.9 Dollar ~71.8 Euro ~79.5 Brent crude ($/bbl)## 62.8## Gold (10 gm)### ~37,946.0 Chg# 72.5 11.0 36.4 ~71.8** ~79.2** 63.9** ~147.0 *(Nov.) Premium on Nifty Spot; **Previous close; # Over previous close; ## At 9 pm IST; ### Market rate exclusive of VAT; Source: IBJA BACK PAGE P16 COMPANIES P3 HONGKONGPROTESTERS TRAPPEDINCAMPUSSIEGE AMAZON DOING VERY WELL IN INDIA, SAYS JEFF BEZOS PUBLISHED SIMULTANEOUSLY FROM AHMEDABAD, BENGALURU, BHUBANESWAR, CHANDIGARH, CHENNAI, HYDERABAD, KOCHI, KOLKATA, LUCKNOW, MUMBAI (ALSO PRINTED IN BHOPAL), NEW DELHI AND PUNE GOVT: NO 5% SLUMP; INDIA STILL FASTEST GROWING ECONOMY India is not facing 5 per cent economic slowdown and continues to be the fastest-growing economy in the world, Union minister Anurag Thakur said in the Lok Sabha on Monday. During the Question Hour, Thakur also said steps were being taken by the government to strengthen the economy, including mergers of banks and tax concessions to industries. MANMOHAN SLAMS MODI GOVT FOR MISUSE OF ‘MONEY BILL’ PROVISIONS > PAGE 6 THE SMART INVESTOR P11 Debarring audit firms: Apex court relief to Sebi TheSupremeCourtonMondaystayedthe observationsmadebytheSecuritiesAppellate Tribunal(SAT)thattheSecuritiesand ExchangeBoardofIndia(Sebi)hadnopowers todebarauditorsfromauditingthebooksofa listedfirm.Theapexcourtmadetheobservationwhilehearinganappealbythemarket regulatoragainstanorderpassedbytheSAT inthePriceWaterhouseCoopersmatter. COMPANIES P3 YES Bank could extend deadline on binding offer EmbattledprivatesectorlenderYESBankhas theoptiontoextendthedeadlineonthe bindingoffermadebyUS-basedinvestorto invest$1.2billionasequityinthebank.The deadlineforthebindingofferbyinvestorsto pickupsizeableequityinthebankexpires onNovember30.Accordingtoasourceclose tothedevelopment,thebankisstillintalks withtheinvestorandhasnottakenany decisionontheoffer,whichwouldhelpthe banktoshoreupitsfinancesandhelp mitigateitsweakeningfinancialposition. BACK PAGE P16 JNU protest: 100 students detained, released later Around 100 JNU students, including students union president Aishe Ghosh, were detained and some were injured when police allegedly baton-charged protesters as they marched towards Parliament on the first day of the winter session on Monday, demanding a total roll-back of the hostel fee hike. The police denied using force with the students and said those who had been detained were released later in the evening. Budget to focus on tax sops, pvt investments ARUP ROYCHOUDHARY New Delhi, 18 November T he government is setting the tone for 2020-21 Union Budget with a clear focus on steps to encourage private investment, sources in the know said. If welfare schemes were at the centre of Budgetmaking in the past few years, private investment, economic growth, and tax incentives are expected to be the dominant themes now, they pointed out. The 2019-20 Budget, after the general election, drew flak and several initiatives had to be rolled back. In that backdrop, the political leadership is likely to have a bigger role in preparing the Budget this time, according to senior officials. Among the steps that are being considered for the upcoming Budget on February 1, long-term capital gains tax may be scrapped and RUN-UP the burden of dividend TO THE distribution tax could perhaps be shifted from companies to shareholders. Also, the Budget BUDGET could provide income tax 2020-21 relief for the salaried classes, while proposing tax sops for small, medium and micro enterprises. These measures are expected to revive the animal spirits in the private sector as well as ensure greater liquidity in the system. “The initiative was somewhat lost after the last Budget. The amendments to the Companies Act criminalising corporate social responsibility lapses were also rolled back,” said a government official. All of this just added to the narrative of economic mismanagement, alongside the slowdown, the person said. The Narendra Modi government wants the 2020-21 Budget to serve as a springboard for reforms in the midst of a slowdown, the official quoted above said. In some ways, the next Budget is being seen as a vision document for the CONSUMER SENTIMENTS INDEX (Base: September - December 2015 = 100) ANUP ROY Mumbai, 18 November (%) Source: CMIE A TRIPLE WHAMMY IN NOVEMBER? After multiple roll-backs to the FY20 Budget, the government looks to seize the initiative > More control Political leadership has taken greater control of the Budget-making process > Tax cuts ROMITA MAJUMDAR Q2 performance Incumbent telecom operators Vodafone Idea and Bharti Airtel, bruised by fierce competition to keep prices low, will hike tariffs starting December 1, the companies said in a surprise announcement on Monday. The first telecom tariff hike in several years follows record second-quarter losses reported by the two operators. The telcos, however, did not provide any guidance on the amount of the hike or the subscriber segments to be impacted by the move. Analysts see the hikes as a positive for the sector, which has only witnessed tariff cuts since the launch of Reliance Jio in September 2016. The decision of Vodafone Idea and Airtel to raise tariffs is being seen as a step to encourage the government to offer a relief package to the industry, saddled with mounting losses and piling debt. Telcos, which are awaiting a potential remedy from the government, QoQ subscriber -3 % 1% 7% growth Broadband 112.2mn 124.2mn 355 mn subscriber addition Data usage 10.4GB 13.1GB 11.7GB (per subscriber) ARPU ~107 ~128 ~120 Mumbai, 18 November 8> The working capital cost for India’s top-rated companies has fallen significantly since the IL&FS-induced credit crisis a year ago. They are now raising money very close to the overnight repo rate, as liquidity improves in the banking system to more than ~2.5-trillion surplus. Rates on AAA-rated papers up to one year have fallen from 8.51 per cent on November 27, 2018, to 6.1 per cent now, much sharper than a 100 basis points fall in the 10-year bond yield. “On one hand there is this near assurance of easy monetary condition from the RBI (Reserve Bank of India), and sloshing banking system liquidity, on the other hand skewed preference of investors for safe haven and Burden of the dividend distribution tax could be shifted to shareholders Proposals to cut income tax or tweaks in slabs likely Prime Minister’s aim to make India a $5-trillion economy by 2024-25. The government believes public investment and capital spending commitments from the Centre and stateowned companies won’t be enough to kick-start economic activity. So, private investment must also pick up to revive the economy, according to another official. Turn to Page 13 > CHEAP CAPITAL MATURITY DATE Old New Dec 18, ‘18 Mar 13, ‘20 Nov 22, ‘18 Jun 17, ‘20 Dec 3, ‘18 Nov 18,’19 Dec 14, ‘18 Feb 13, ‘20 Jan 10, ‘19 Mar 3,’20 Aditya Birla Finance Bajaj Finance Chennai Petroleum HDFC Reliance Industries For the automobile sector reeling from slowdown, there could be some breather from steelmakers lowering contract prices by 11-14 per cent for the second half (H2) of the financial year (2019-20 or FY20). Some have already sealed half-yearly contracts for the auto segment; others are in the process of finishing them. “The auto industry is an important stakeholder for the steel industry. It is important for us to support them when they are facing challenges,” said a leading steel producer that has already closed negotiations. It added, “It’s in the nation’s interests that both survive and grow. Hence, we support each other.” G H Bang, managing director of Korean firm Posco’s India operations, said in H1FY20, prices of commercial *days TENURE* Old New 32 121 16 226 3 3 22 90 41 117 YIELD % Old New 7.9 5.8 7.5 6.6 6.6 5.0 7.1 5.3 7.7 5.5 Source: FIMMDA the market. For example, Reliance Industries raised 41-day money in November 2018 at 7.68 per cent. In November this year, it had raised 117day money at just 5.45 per cent. Similarly, Aditya Birla Finance raised 121-day money at 5.75 per cent, against 7.9 per cent for 32 days last year. Turn to Page 13 > tepid supply of commercial papers (CP) have brought down money market yields considerably, although, for limited entities,” said Soumyajit Niyogi, associate director at India Ratings and Research. Most highly rated companies are enjoying rate benefits of more than 150 basis points in their working capital raised from NHAI to pay land cost to states in bonds MEGHA MANCHANDA New Delhi, 18 November The National Highways Authority of India (NHAI) is planning to issue land bonds to pay for acquiring land from states or other stakeholders — as part of a funding mechanism amid escalating land acquisition and compensation cost. Through this mechanism, the NHAI will not have to make upfront payments for land acquisition. “Land bonds are expected to be interest-bearing instruments but the issues as to whether they would be listed and how the interest component would be finalised are being worked out,” an official said. The financing model is part of a larger plan to open a revenue stream for the NHAI, which includes levying development charges for appreciating values of land around national highways. It is called value- capture financing — which is a type of public financing that recovers some or all of the value that public infrastructure generates for private landowners. Besides issuing bonds, the NHAI wants states to share the cost of land for constructing national highways because the resultant increase in the real estate price benefits landowners and states, in the form of higher stamp duty at the time of sale. Experts say the approach is being conceptualised mainly to reduce the financial burden on the NHAI. “This way the NHAI will not have to immediately shell out money and land can be bought via bonds. The cost of land acquisition has increased due to higher compensation and also because land is available in urban areas and is costlier,” said Kushal Kumar Singh, partner, Deloitte India. Turn to Page 13 > 184.5 NHAI FINANCIALS IEBR Borrowings (in ~ ’000 crore) 75.4 28 45.3 Mar ‘16 33 Mar ‘17 122.5 59.3 Mar ‘18 IEBR: Internal and extra-Budgetary Report have in the past got feelers from the government that they must raise tariffs to cut their losses. With the incumbent telcos taking the first step to hike tariffs, the government is expected to offer relief in terms of lowering the licence fee, a moratorium in paying spectrum charges, and perhaps a staggered payout of adjusted gross revenue (AGR) 62 Mar ‘19 Source: SBI Caps dues, sources in the know said. The Telecom Regulatory Authority of India (Trai) too has been weighing the option of introducing a floor price for tariffs in the backdrop of rock bottom prices prompted by competition, according to reports. But a Trai official said recently that the regulator had not got any reference from the Department of Telecom (DoT) on that. Turn to Page 13 > LESS PRICEY Kolkata, 18 November Long-term capital gains tax could be abolished Bharti Reliance Airtel Jio ARPU: Average revenue per user Source: Companies, Bank of America Merril Lynch, SBICAP Securities ISHITA AYAN DUTT Sops for MSMEs likely DESCRIPTION A LOOK AT THE NUMBERS Vodafone Idea Steel companies reduce prices by 11-14% for automakers Top-rated firms tap into low money market rates THE CMIE TRACKER UNEMPLOYMENT RATE REBOOT ON CARDS Airtel, Voda bite the bullet; to hike tariff from Dec 1 Steel prices for the auto sector CRCA Before revision: ~54,000 a tonne After revision: ~48,000 a tonne AUTO GRADE HR Before revision: ~44,000 a tonne After revision: ~38,000 a tonne Note: CRCA: Cold-rolled close-annealed products; HR: Hot-rolled products grade steel had dropped by $100 a tonne, but that had not been factored in the contracts for the auto segment. “In the contracts for the second half, prices are being cut by ~6,000 a tonne,” he said. Turn to Page 13 > 2 COMPANIES STOCKS IN THE NEWS MUMBAI | TUESDAY, 19 NOVEMBER 2019 > Glenmark Pharmaceuticals > Bharti Airtel Brokerage firm CLSA upgraded stock to 'buy', citing attractive valuation ~365.50 CLOSE 21.35% UP* * OVER PREVIOUS CLOSE > Wockhardt > Gayatri Projects Top gainer among S&P BSE Sensex stocks Peers and global PE firms race to buy select divisions: Report CARE revised ratings of various facilities to 'D' due to delays in debt obligations ~409.15 CLOSE 4.06% UP* ~296.75 CLOSE 9.50% UP* ~87.35 CLOSE 10.82% DOWN* > Cadila Healthcare Received tentative USFDA nod for Apremilast tablets ~241.35 CLOSE 2.99% UP* > . IN BRIEF Pai: IT companies may shed about 40K mid-level staff India's information technology (IT) services firms may shed 30,000 to 40,000 middlelevel employees this year as growth slows, IT industry veteran T V Mohandas Pai (pictured) said on Monday. The former chief financial officer of IT major Infosys termed these job losses as once-in-five-years normal phenomenon with maturing of the industry. "As in all sectors in the West, in India, too, when a sector matures, so many people will be there in the middle level who will not be adding value... It’s going to happen again and again and again every five years,” said Pai, chairman of Aarin Capital and Manipal Global Education Services. PTI< ICRA downgrades Karvy Broking’s loans for lack of info Bounce partners Exicom Tele-systems for electric foray ICRA has downgraded the rating for Karvy Stock Broking and Karvy Data Management Services because of lack of adequate information regarding the performance. The rating agency has moved both the entities to noncooperating category and downgraded some of their loans to ‘BBB’, from ‘A’. BS REPORTER< Bengaluru-based scooter sharing app Bounce has tied up with Anant Nahatacontrolled Exicom Telesystems to actualise its plans to go electric. Bounce provides first-mile and last-mile connectivity via dockless scooters where users are allowed to pick up and drop a scooter at their place of convenience. To help Bounce go electric, Exicom is providing its latest generation of swappable Li-ion batteries and supporting charging solutions. BS REPORTER< Jaypee Infra case: Lenders discuss bids by NBCC, Suraksha Lenders to Jaypee Infratech on Monday discussed the bids submitted by NBCC and Suraksha Realty to acquire the debt-ridden firm in an insolvency process, and decided to meet again in November last week to negotiate with the two contenders, sources said. A meeting of the Committee of Creditors was held in Gurugram, Haryana. PTI< For expansion, HeidelbergCement India looks for buys HeidelbergCement India, a subsidiary of HeidelbergCement Group, Germany, is looking at acquisition and debottlenecking of its existing plants to expand its capacity in India. BS REPORTER< The rise and fall of an Idea Once a rising star, Voda Idea is squeezed between high debt and poor revenue realisations KRISHNA KANT A FALLING STAR Mumbai, 18 November No collusion with former promoters of Fortis: IHH ANEESH PHADNIS Mumbai, 18 November he possible liquidation of Vodafone Idea will be one the fastest declines of an industry major, which was once one of India’s top companies in terms of revenue, assets, and market capitalisation. Just four years ago, Idea Cellular (which merged with Vodafone India) was the most valuable member of the Aditya Birla Group and the fastest-growing mobile operator in the country with the industry’s best financial ratios. At the end of March 2015, Idea had net debt to equity of 0.6x, against Bharti Airtel’s 1.8x. The Aditya Birla Group company was the biggest beneficiary of the mobile number portability (MNP) and gained subscriber base and revenue market At its peak, the company’s ad campaign ‘What an Idea, Sirji’, featuring Abhishek share from most of its rivals then. Bachchan, showed novel ways to use mobile telephony to solve India’s complex The company’s success was most vis- social and economic problems. It was a big hit among users and ad critics ible in smaller towns and villages and it had emerged the top operators in many similar levels of financial liabilities, high point for the company when it non-metro circles such as Maharashtra raising question mark over its survival reported an operating profit of (ex-Mumbai), Madhya Pradesh, Gujarat, as a going concern (see adjoining chart). around ~6,500 crore and had interest The biggest issue for the company is liability of ~1,340 crore. and Eastern Uttar Pradesh, among others. Analysts say that trouble for the comAt its peak, the company’s ad cam- a steadily widening gap between its revpaign ‘What an Idea, Sirji’, featuring enues and earnings and its financial lia- pany started with the February-March actor Abhishek Bachchan, showed bilities. In the first half of the current 2015 spectrum auction. The then Idea novel ways to use mobile telephony financial year, the company reported Cellular was the most aggressive bidder to solve India’s complex social and operating loss of ~1,037 crore without the and spent ~30,100 crore in buying spececonomic problems. It was a big hit adjusted gross revenue dues, down trum as it had to renew bread and butter sharply from ~1,773 crore operating prof- 2G spectrum that was about to expire among users and ad critics. The stock market recognised its it a year ago and ~6,336 crore profit dur- later that year. In comparison, Bharti Airtel spent potential and Idea Cellular’s market ing the first half ended September 2018. Its operating profits are now inad- ~29,130 crore in that auction, while the capitalisation nearly tripled between FY11 and FY15, against 15 per cent rise equate to service interest on its out- amount spent by Reliance Jio was even in Bharti Airtel market capitalisation standing debt. The company has lower at ~10,078 crore. Not surprisingly, a senior company (m-cap) during the period. At its peak, interest liability of ~7,378 crore during Vodafone Idea’s m-cap was only 40 per the first half of FY20, having doubled official likened the 2015 spectrum auccent less than Bharti Airtel’s. This is in in the last one year. Till about FY15, tion to a shakedown at gun point. “We line with the revenue gap between the the company’s interest liability was had to choose between shutting our operaround ~500 crore every six months ations or paying through the nose to renew two companies. Now, the m-cap of Vodafone Idea against half-yearly operating profits spectrum in circles where we had worked — the merged entity — is just 5 per of around ~6,000 crore. The six 20 years to create profitable operations.” Besides, the then Vodafone India cent of Bharti Airtel’s despite having months ended March 2016 was the T Compiled by BS Research Bureau Source: Capitaline had spent ~25,810 crore during 2015 spectrum auction. In all, these two companies (Vodafone and Idea) together spent nearly ~1.03 trillion on acquiring or renewing their spectrum since 2010. This is as much as the total spent on spectrum acquisition by rest of the operators. “All this liability is now sitting on Vodafone Idea’s balance sheet whose interest liability is squeezing the company’s finances dry,” said an analyst, on the condition of anonymity. On the business side, discounting by Reliance Jio hit Vodafone Idea the hardest as it was the market leader in smaller towns and rural circles where mobile users were most susceptible to lower call rates. “Idea’s success with pre-paid users in smaller towns and villages became its biggest liability as Jio began to entice them with free calls and rock-bottom 4G data rates,” said G Chokkalingam, founder and managing director of Equinomics Research and Advisory Services. In comparison, market leader Bharti Airtel was dominant in metros and big cities, with large numbers of high paying postpaid customers, who were least likely to switch to a new operator. IHH Healthcare Bhd (IHH), a Malaysian company, has denied colluding with the former promoters of Fortis Healthcare, after the Supreme Court extended its stay on an open offer that would give it majority control of the latter. IHH acquired 31 per cent stake in Fortis last July, after a four-month bidding war involving rival hospital chains and private equity firms. However, the subsequent proposed open offer to acquire an additional 26 per cent in Fortis is stuck due to the apex court's order. Last Friday, the Supreme Court initiated contempt proceedings against Fortis and held its former promoters, Malvinder Singh and Shivinder Singh, guilty of contempt of court, in a plea initiated by Japanese drugmaker Daiichi Sankyo. The court also extended its stay on the open offer. In a stock exchange filing in Malaysia on Monday, IHH said: “The board further states that the subscription (of Fortis shares) was undertaken and completed (through a process run by the reconstituted Fortis board) after Malvinder Mohan Singh and Shivinder Mohan Singh were no longer in control of Fortis. IHH has at no time dealt with nor colluded with the erstwhile promoters or any entities related or controlled by them in relation to the subscription.” ‘In India’s EV shift, we’ll be there as a partner of choice’ After a merger with Dow Chemical Company in 2015, DuPont, one of the largest chemical business entities in the world, went through internal change. ANUPAM JAISWAL, president, DuPont, South Asia, talks to Shine Jacob on its shift towards a speciality products and solutions major. Edited excerpts: Real estate got $14-bn foreign PE funds in 5 yrs Indian real estate attracted nearly $14 billion of foreign private equity (PE) funding between 2015 and third quarter of 2019, says latest Anarock data. Sixty-three per cent (approximately $8.8 billion) of the total foreign investments backed commercial real estate, the real estate services company said. The residential sector attracted just $1.5 billion of foreign PE in the same period, trailing even the retail sector which saw cumulative inflows of $1.7 billion. Logistics and warehousing drew over $1 billion. In stark contrast, domestic PE funds pumped nearly $2.4 billion into Indian real estate since 2015, of which nearly 71 per cent went to the housing sector, it said. PTI You underwent some structural changes this year? What are the implications of this split for DuPont? It began with our merger with Dow. It was announced in 2015 and came to fusion in 2017. Then, we kind of split into three companies in 2019. Basically, we were trying to create standalone companies that would be successful in their own field. A dedicated agricultural company called Corteva was created, Dow was going to be the materials division and the new DuPont, an amalgamation of some businesses of heritage DuPont and some businesses that came from Dow, were really the speciality businesses that focused not on the commodity or the chemicals space. That is the kind of genesis of why we did the split. Emerging from that is the new DuPont, a $23-24 billion company with close to 32,000 employees and more than 200 manufacturing sites and operations in 70 countries. We invest close to $900 million (annually) in research and development. We have come out as a focused company. We have four industry verticals — transportation, safety and construction, nutrition and bio sciences, and electronics and communication. The nature of these industries are such that we are constantly looking at innovations and partnerships across the value chains, so that we can work on the problems they are trying to solve... We have moved away from being a chemicals firm. We are more of a speciality products or solutions firm today. We expect to be working much closer with partners than ever. What growth potential do you see for DuPont in India? If you look at our four businesses — nutrition and biosciences globally is a $6.5-billion business; transportation and industry is $5 billion; safety and construction, too, comes to around $5 billion; electronics & communication is $3.5-3.6 billion. Depending on the “If you look at the Indian macro space, a lot of trends are emerging and aligning very closely with the areas DuPont is focused on. I find India an exciting market” relevance of the industry in India, the penetration could vary anywhere between 2.5 per cent and 5 per cent. In some, India’s contribution might be 8-10 per cent. Strategically, we are looking at major trends in India. How DuPont kind of aligns with these mega trends, from a capability standpoint. One such trend in India is a lot of push around lightweighting and emission norms in the automotive sector. We play a very significant role in that space, by converting metals into plastics. That reduces the weight of a car, improves fuel consumption and thereby emissions. The second area is around the electrification of vehicles. We have solutions. Our penetration into electric vehicles (EVs) will be probably double our presence in conventional internal combustion engine ones. We have solutions around lightweighting of batteries, making batteries safer, etc. These are two mega trends the government is optimistically talking about. Then, talk about clean water — in the safety and construction portfolio, we have a water business. We have a whole bunch of filtration solutions, where we can provide you clean water, can go into reverse osmosis solutions, and also recycle and reuse waste water. If you look at the Indian macro space, a lot of trends are emerging and aligning very closely with the areas DuPont is focused on. I find India an exciting market and we expect the Indian business to grow. The focus sectors you have mentioned are not doing well. Let me take the automotive industry, where we do have a significant play. I think it (the current slowdown) was a combination of the internal and external environments. I don’t think a lot of people have realised that 60-70 per cent of the credit that went to auto buyers came through the NBFC (non-banking financial companies) sector. We all are aware of the huge challenge the NBFC sector is facing and the huge credit crunch which has come in there. That is one thing impacting the auto sector. The second thing that plays around is the tightening of norms around emissions. Auto manufacturers have had to invest in technologies. There are regulations like the shift from Bharat Stage (BS) IV to BSVI norms. If you look at the needs related to emission and the air quality, those are necessary steps but adding some amount of cost. The third element that has come in is global uncertainty — people today are not spending money. I think it was a combination of internal and external factors that have created a bit of stress in the market. My personal view is that it is not really long-term and we will bounce back. The area that needs to be addressed is how to bring back consumer confidence, so that people can start spending money. We actually saw the auto industry slowing in August of last year. We saw a similar slowdown in 20112012 and bounced back from there. If you look at the trajectory, I think it is positive for the economy. Do you see EVs as part of your growth strategy in India? Electrification of vehicles is a space where the government has set higher goals. We are trying to get an assessment on what is realistically possible. I don’t think the policy has taken complete shape. DuPont is currently contributing to the internal combustion space, too, in a very significant manner. It is not that we are a new entrant; we are well positioned in most of our businesses in India. We are working with all the major original equipment makers in the country. We work with almost all the players in the sector, including Suzuki, Hyundai, Toyota, Mahindra, and Tatas. As they shift towards electrification, we will be there as a partner of choice. We will evolve or help the technology evolve. Hire hard, manage easy: Essel Propack’s Blackstone makeover starts PACKED AND READY Finding the right CEO fast, and expanding various segments are the key to growth PAVAN LALL Mumbai, 18 November Ninety days after private equity major Blackstone started running Essel Propack, a packaging company that makes one of three toothpaste tubes worldwide, debt has reduced, revenue is increasing, and there’s an uptick in margins. Now what it needs is to get a top-flight chief executive officer (CEO) on board with a new sales engine to crack open new areas and grow the business worldwide. After Blackstone spent ~3,215 crore for a 75 per cent acquisition in Essel Propack, it has, in trademarkstyle, swiftly revamped the top leadership. There is a new board of independent directors including former Ranbaxy CEO Davinder Singh Brar; Uwe Roerhoff, a former CEO of a packaging firm in Europe; and former PwC audit head Sharmila Karve. They have joined senior shareholder board representatives from Blackstone including India Head (Private Equity) Amit Dixit, Senior Managing Director Alex Yang, and Managing Director Amit Jain. On the operational side, Parag Shah, an executive earlier in supply chain management at Hindustan Unilever, has been parachuted in as chief financial officer. Also private equity (PE) insiders say around 12 high-performing CEOs have been selected in keeping with Blackstone’s philosophy of “hire hard, manage easy” and getting a 10/10 leader to set the course for the firm in its new avatar. Earlier that role was occupied by Ashok Goel, the largest shareholder at the firm, which was part of the Essel Group run by his billionaire brother Subhash Chandra before it sold. While Blackstone’s other acquisitions have been closer to turnaround stories with cases like IT firm Mphasis, Essel is a different animal. While it does make 8 billion laminated tubes a year, and Essel Propack Loan 711.57 funds (~ cr) 501.9 Revenue 683.5 (~ cr) 730.5 PAT 53.4 (~ cr) 59.3 Adjusted 53.4 profit (~ cr) 77.9 Adjusted 135.2 EBITDA (~ cr) 152.1 Adjusted 19.8 EBITDAM (%) 20.8 Q2FY19 Q2FY20 Compiled by BS Research Bureau Source: Capitaline is the global leader in oral care packaging, making it a sticky consumer business in which “clients take time to get in but never leave once they do”, the commercials itself are not enormous: Essel Propack’s revenue last year was around ~2,700 crore and Ebitda (earnings before interest, tax, depreciation, and amortisation) ~501 crore. “Part of the challenge for such a business is that customers are highly concentrated in one area, namely oral care and possibly even in certain geographies only, and the world is moving away from plastic,” says a PE executive. Blackstone did not respond to queries till the time of going to press. As example, Essel Propack’s India business sees almost ~1,400 crore, or half its revenue, come from oral care, with clients ranging from Colgate and P&G to Patanjali and Weimizi of China. The challenges then for Blackstone? For one, new “tube-package” categories have to grow. Those include pharma, foods, and personal care products such as ophthalmic products, cheese tubes, personal lotions, and lip balms. The other is to ramp up its other core markets that include Europe, China, and the US. Sustainability is also going to be a challenge for any company in polymer. However, it’s also something that packaging firms are working on by focusing on optimising recycling technology. Firms are moving to single polymer or plastic that is easier to break down. For example, a packet of wafer chips is made of three types of polymer plastic, which makes it hard to recycle because you have to segregate them all before breaking down, says Ankit Gor, vicepresident, institutional equity research, Systematix Group. He goes on to add that while Essel is one of the few firms that is backwardintegrated to make various components of single-use polymer, its global access to technology through Blackstone’s other investments shouldn’t be ignored. Others agree. “The company’s performance has been way above expectations, driven by improved performance across regions. The influence of Blackstone is clearly visible. Their global advisors are engaged with the company on growth initiatives and operational improvements. The focus on growth, especially on personal care, is visible across regions,” says Ruzmik Oza, senior vice-president, head of fundamental research, Kotak Securities. During the acquisition, Blackstone’s Amit Dixit said the philosophy was to build business, not be opportunistic. “The idea is very strategic — to accelerate the growth of the company along two vectors. The first is newer-end segments, which is beauty, cosmetics, and pharmaceuticals, and the second growth vector is emerging markets of India, China, and Latin America.” He went on to add that Blackstone operated a large global network in the consumer sector, had owned or currently owned other packaging companies, and thus knew the sector and its customers well. While those are pros, the new incoming CEO’s biggest challenge will be to stimulate new hunger within an old company. That, of course, is not new to Blackstone. COMPANIES 3 MUMBAI | TUESDAY, 19 NOVEMBER 2019 < . YES Bank has option to extend deadline on binding offer DEV CHATTERJEE Mumbai, 18 November E mbattled private sector lender YES Bank has the option to extend the deadline on the binding offer made by a US-based investor to invest $1.2 billion as equity in the bank. The deadline for the binding offer by investors to pick up sizeable equity in the bank expires on November 30. According to a source close to the development, the bank is still in talks with the investor andhasnottakenanydecisionontheofferwhich would help the bank to shore up its finances and help mitigate its weakening financial position. There is no clarity from the Reserve Bank of India (RBI)forthetransactionasitwouldinvolveacquisitionofsubstantial stakeinthebank-takinginto account the current market price. "The ball is in the RBI's court," said a source close to the development. A YES Bank source said both parties have the option to extend the deadline for the binding offer and the bank expects fresh capital to come in by December-end. The bank had made the announcement on October 31 that it has received a binding offer from an investor, but did not disclose the investor’s name. If the bank fails to shore up its finances in time, it risks a downgrade by rating agencies as indicated by global rating firm Moody’s on November 6. Moody’s had said the bank’s weakening financial position can be offset by the planned capital raise. But, it said, there are significant execution risks around the timing, price, and regulatory approvals required for the investment. During its review period for the bank, Moody’s said it would focus on the bank’s ability to raise new equity capital and warned that an inabilitytoraisetheplannedequitycapitalwould negatively impact the bank’s credit profile and rating. The threat of a downgrade has put more pressure on the bank to finalise the transaction. An email sent to YES Bank did not elicit a comment. On Monday, the YES Bank stock closed4percentdownat~65.90ashare—givingittotal market valuation of ~16,807 crore. Since the bankhasmadetheannouncementofthebinding offer, its share price has gone up by 16 per cent. In August this year, the bank had raised ~1,930 crore via qualified institutional placement at an issue price of ~83.55 a share. The bank is in dire need of capital to not only pro- Advent to buy majority stake in BharatSerums RANJU SARKAR New Delhi, 18 November Private equity (PE) firm Advent International has signed a definitive agreement to acquire majority interest in Bharat Serums and Vaccines (BSV) for an undisclosed sum. BSV is a biopharmaceutical player in women’s health care, assisted reproductive treatment, critical care and emergency medicine in India and emerging markets. OrbiMedPEandKotakPE, which previously held minority positions in Bharat Serums, will fully exit their investments in the firm. The Daftary family, which founded Bharat Serums, is retaining a meaningful equity stake and is partnering Advent on the company’s next stage of growth, Advent said. Founded in 1971 in Mumbai, Bharat Serums is one of the fastest-growing biopharmaceuticalfirmsinIndia.BSV researches,develops,manufactures and markets specialisedinjectablemedicineswith a portfolio focused on biotech and biological products. It has multiple niche products that are leading brands across women’s health, assisted reproductive treatment, critical care and emergency medicine. With this deal, Advent has committed $2.2 billion in seven companies across the health care industry in 2019, further expanding its depth and commitment to the sector globally. The firm has also invested or committed more than $600 million in five Indian businesses this year in sectors such as health care, consumer products and financial services. “Bharat Serumshasadifferentiatedportfolio of biotech and biological offerings in high-growth segments,” said Pankaj Patwari, a director at Advent International in Mumbai. “We are also excited about the company’s robust R&D pipeline, which offers the potential to capture whitespacebothinIndianandglobal markets,” said Shweta Jalan,MDandheadofIndiaat Advent. “Advent’s high level of investment activity in India this year demonstrates the attractiveness of the market and our commitment to investing here,” she said. Amazon doing very well in India, says Jeff Bezos PRESS TRUST OF INDIA Washington, 18 November E-commerce giant Amazon is doing “extremely well” in India, its founder and CEO Jeff Bezos has said while expressing hope for regulatory stability in the country. Bezos’ remarks came in response to a question on Amazon’s concerns over some Indian policies with regard to digitization. “Regulatory stability is the Moped sales skid 26% in Apr-Oct on poor rural show T E NARASIMHAN Chennai, 18 November DOWNWARD MOVE BSE Price in ~ M-Cap ~ cr vide for bad assets but also for growth. The Common Equity Tier 1 capital stood at 8.7 per cent as of September, close to the regulatory requirement of 8 per cent till March 2020. The bank’s asset quality deteriorated sharply in the September quarter, with its gross nonperforming asset (NPA) ratio at 7.39 per cent in the second quarter (Q2) of 2019-20 (FY20), compared to 1.6 per cent reported in the September quarter of 2018-19. The net NPA ratio stood at 4.35 per cent in Q2FY20, against 0.84 per cent in Q2 of 2018-19. Its gross slippages were ~5,945 crore for September. The bank had lent funds to almost every stressed company in the past few years, which finally culminated in the bank reporting huge losses as these companies defaulted in repaying loans. Moped sales in the country dropped 25.6 per cent in the first seven months of this financial year (April-October), hurt by poor demand in the rural market, where the cheap and lightly powered vehicle is used for both travel and carrying goods. TVS Motor Company, the only entity in India to make mopeds, said export dropped by nearly 40 per cent in the same period. Howevr, it is confident that sales will improve after the new BS-VI emission norms take effect (from April 1). Domestic moped sales dropped to 392,586 units in April-October from 527,505 units a year before, according to numbers from the Society of Indian Automobile Manufacturers. Moped export dropped to 8,232 units, from 13,688 a year before in that period. Scooter sales at TVS in the period dropped 15.9 per cent to 36,97,553 units; motorcycle sales fell 15.3 per cent to 73,63,858 units. thing that we would always hope for India. Whatever the regulations are ... they are stable in time and that’s one of the things we’re hoping will now be true. We’ll see,” Bezos, 55, said here on Sunday. He said Amazon was doing very well in India. “Our business in India is doing extremely well. It’s growing very rapidly,” Bezos said. He said the head of his India operations Amit Agarwal, with whom he has worked for 20 years, was an extraordinary leader and is doing really well. Responding to another question, the Amazon head said he “definitely” wants to go to space, asserting that he is having a great deal of fun doing everything that he does. Ruling out a 2020 White House run, Bezos said he has a lot of other things that he wants to accomplish and is currently focused on them. “Governing and running are two different skill sets,” he said. 4 ECONOMY & PUBLIC AFFAIRS MUMBAI | TUESDAY, 19 NOVEMBER 2019 “The government has set a target of taking India's defence exports to $5 billion by 2025 under the 'Draft Defence Production Policy 2018” “During the last five years, the government has implemented major reforms to build the investment climate in the country for becoming a $5-trillion economy" “I want to assure Delhi that just like we forced them to pass our CCTV, mohalla clinics files, we will force the Centre to regularise the unauthorised colonies” RAJNATH SINGH NIRMALA SITHARAMAN ARVIND KEJRIWAL Defence minister Finance minister Delhi chief minister > . IN BRIEF Low health care expenditure to impact risk-pooling model: NITI HC notice to Centre over input tax credit denial to restaurants Think tank plans building up system for middle class, which isn’t covered under any health scheme SANJEEB MUKHERJEE SPENDING ON HEALTH New Delhi, 18 November President Ram Nath Kovind administers the oath of office to Justice Sharad Arvind Bobde after he was appointed the 47th Chief Justice of India, at Rashtrapati Bhavan on Monday PHOTO: PTI Edelweiss to transfer wholesale loans worth ~2,000 crore to AIF Edelweiss Financial Services will transfer wholesale loans worth ~2,000 crore to Alternative Investment Fund (AIF) for real estate completion financing, as it shrinks corporate credit portfolio by 50-60 per cent over the next two years. Its corporate loan book stood at over ~16,100 crore at the end of September. Of this, the wholesale book comprised of ~11,000 crore and balance was structured finance portfolio. Rashesh Shah, chairman and chief executive, EFSL said the deal with Korean Investor for AIF was timely, as a lot of real estate projects were economically viable but had been suffering from last-mile financing. This gives liquidity window as some of the current loans would get transferred to this AIF. ABHIJIT LELE< Chidambaram moves SC against HC order dismissing bail plea India ranks 59 on IMD World Talent Ranking Senior Congress leader P Chidambaram moved the Supreme Court on Monday challenging the Delhi High Court verdict, which dismissed his bail plea in the INX Media money laundering case filed by the Enforcement Directorate. The matter was mentioned before a bench headed by Chief Justice of India S A Bobde where senior advocate Kapil Sibal, appearing for Chidambaram, sought urgent listing of the plea. Sibal told the Bench that Chidambaram has been in jail for around 90 days. PTI< India has slipped 6 places to 59 rank on a global annual list of 63 countries, due to low quality of life and expenditure on education, according to the latest edition of IMD World Talent Ranking, which was topped by Switzerland. The ranking, based on the performance in three main categories — investment and development, appeal, and readiness — noted that India is lagging fellow BRICs countries — China ranked 42nd on the list, Russia (47th) and South Africa (50th). PTI< Govt notifies steel scrap recycling policy: Pradhan The government has notified a steel scrap recycling policy (SSRP) to provide for a framework to facilitate and promote establishment of metal scrapping centres in India for scientific processing and recycling. Union Steel and Petroleum Minister Dharmendra Pradhan said in Lok Sabha the framework provides standard guidelines for collection, dismantling and shredding activities in an organised, safe and environmentally sound manner. PTI< NBFCs with ~500 crore assets can go for insolvency resolution The Reserve Bank of India (RBI) can seek resolution of nonbanking financial companies (NBFCs) having assets worth of at least ~500 crore under the insolvency law, a move that is likely to help in addressing woes in the NBFC sector. After discussions with the RBI, the corporate affairs ministry on Monday issued a notification specifying the categories of financial service providers that can be taken up for resolution under the "generic framework" of the Insolvency and Bankruptcy Code. PTI< he country’s low expenditure on public health care (estimated to be 0.9-1.1 per cent of GDP) is a big constraint in growing the subsidised risk pooling model in health care. This is particularly true for the poor and sick and those who need them the most, a report by NITI Aayog, released on Monday, said. The current Pradhan Mantri Jan Arogya Yojana (PM-JAY), commonly known as Ayushman Bharat, is an example of a subsidised risk pooling model in the health care sector. The report titled, ‘Health Systems for a New India: Building Blocks – Potential Pathways to Reforms’ that was released by NITI Aayog Vice-Chairman Rajiv Kumar, in the presence of Bill Gates, said better evidence-based decisions on what components of the health care package are to be subsidised for these populations are the need of the hour. The Aayog, meanwhile, is mulling building up a health care system for the middle class, which is still not covered under any public health care system. The system would exclude those covered under the newly-launched Ayushman Bharat scheme that mainly caters to the bottom 40 per cent population of the country. Meanwhile, the report said that esti- Persistentlylowlevel offiscal allocation to health care T Expenditure as % of GDP Germany 9.4 Japan 9.1 France 8.7 UK 7.9 Chile 4.9 Turkey 3.2 China 3.2 Mexico 3.1 India 1.0 Source :NITI Aayog report mates suggest that per-capita expenditures in health care for the poor (after cost-effective public goods are financed for the entire population) would more than triple if public funds were to be fully targeted only for the poor. While India’s public expenditure on health care has stagnated at around 0.9-1.1 per cent of GDP, in China it is 3.2 per cent of GDP. In Chile, it is 4.9 per cent and 9.4 per cent of GDP in Germany. (see chart) The report said that out-of-pocket (OOPs) expenses, that are health care expenses, aren’t covered by any insurance coverage, are expected to remain high for the next decade as well unless substantial improvements are made to risk pooling models in the country. Studies show that around 62 per cent of an individual’s total expenditure on health care in India is on OOPs, which the report advocates changing to a more risk-pooling model. Complementing the PM-JAY as a good start, the report said the scheme targeted well (population and health interventions) and scaled up properly (with good contract management systems and capabilities). It has the potential for harnessing the rapidly developing power of private insurance in the right direction. “This is a legacy, which today is still at the initial implementation stages. However, it can serve as a foundation for accelerating subsidised risk pooling growth, rebalancing demand and supply-side financing in the public sector. It can steer private insurance development in the right direction (away from its current market failure direction),” the report said. The report came down heavily on Employees State Insurance Corporation (ESIC) hospitals in the country on the ground that given the lack of expansion of supply (own or contracted), health service utilisation for ESIS beneficiaries is extremely low. It is among the lowest in India as well as among social insurers in the world. “This low performance not only deprives its members from due access to services but, is likely contributing to labour market distortions in the country as well,” the NITI Aayog report said. The report also calls for greater synthesis among the Centre’s PM-JAY, Rashtriya Swasthya Bima Yojana (RSBY), state health insurance scheme and also ESIC to ensure that greater benefits accrue to the poor and the needy. It has suggested a six-point guideline for transforming the health sector in the country. This includes changing the health system financing structure away from the predominant undesirable OOP spending into larger risk pools, with strong strategic purchasing capabilities. Panel for further decriminalising in Cos Act RUCHIKA CHITRAVANSHI New Delhi 18 November The government’s committee to review the law on companies has recommended further decriminalising of many provisions and reducing of penalties, for both declogging the criminal justice system and doing more to provide “ease of living for law abiding corporates”. The panel’s final report was given on Monday to Union finance minister Nirmala Sitharaman and is open for comments from stakeholders till November 25 . The 11-member group was chaired by Injeti Srinivas, secretary of the corporate affairs ministry. Other members included Uday Kotak, managing director, Kotak Mahindra Bank; Shardul S Shroff, executive chairman, Shardul Amarchand Mangaldas; Ajay Bahl, founder, AZB Partners; Sidharth Birla, chairman, Xpro India; Rajib Sekhar Sahoo, principal partner, SRB & Associates; and Amarjit Chopra, senior partner, GSA Associates. The panel suggests the gov- ernment be authorised to raise the thresholds which trigger applicability of Corporate Social Responsibility provisions. It has recommended re-categorising 23 compoundable offences, to be dealt with in the in-house adjudication framework and subject to lower penalties. Also, limiting 11 offences to only fines and removing the imprisonment requirement. Government is planning to introduce the Companies Amendment Bill with special focus on decriminalisation in the winter session of the Parliament. “Procedural, technical and minor noncompliances, especially the ones not involving subjective determinations, may be dealt with through civil jurisdiction instead of criminal,” the committee report said. In recent amendments to the Companies Act, as many as 16 sections saw decriminalisation of breaches. Most of these cover lapses such as prohibition on issues of shares at a discount or failure to file a copy of a financial statement with the registrar. “With decriminalisation, the government is moving in the EASING COMPLIANCE BURDEN Keyrecommendation for offences 6 to have 7to be omitted 5to be dealt with rationalisation of penalties from Companies Law in an alternative framework 11 to be limited to 23 provisions to be shifted to fine only in-house adjudication right direction. Lots of suggestions given by the panel will reduce the compliance burden on companies,” said Ankit Singhi, partner, Corporate Professionals. For non-compoundable offences in the law, the panel has suggested status quo. And, to extend the benefit of the provisions on lower penalties for small and one-person companies to producer companies and start-ups, to encourage budding entrepreneurs and farmers. To improve ‘ease of doing business’, it has suggested reducing of timelines, so as to hasten rights issues for fund raising by companies and nonlevy of penalties for delay in filing the annual returns and financial statements in certain cases. Currently, under Section 62 of the Act, companies are required to give a notice of at least 15 days for offering shares. The panel has also batted for adequate remuneration to nonexecutive directors in case of inadequacy of profit, by aligning these with the provisions for remuneration to executive directors, in such cases. It suggests wider consultation to review the provisions in respect of debarment of audit firms and disqualification of directors. The group has also called for consultation with the Securities and Exchange Board of India (Sebi) for exempting certain private placement requirements in Qualified Institutional Placements. The panel has also proposed extending the exemptions from filing of specified resolutions to certain classes of non-banking financial companies, in consultation with the RBI. DILASHA SETH New Delhi, 18 November The Gujarat High Court has issued a notice to the Centre seeking to know why the option of input tax credit under goods and services tax (GST) regime is not available for restaurants, unlike others. This was in response to a writ petition filed by Hardcastle Restaurants, which is the master franchisee for McDonald’s, against the Centre, asking for the option to avail of input tax credit by paying a higher rate of tax. GST rate on restaurants was cut from 18 per cent to 5 per cent in November 2017, but without any input tax credit. When they were charged GST at 18 per cent, they could avail of the input tax credit. The National Restaurant Association of India, which represents more than 500,000 restaurants, had this year written to the revenue secretary, arguing that the denial of input tax credit had adversely impacted the sector, leading to closure of 20,000 outlets last year. The restaurants’ body suggested for availability of option to either claim the input tax credit with a GST rate of 12 per cent or pay 5 per cent GST without that. The writ was admitted by the Gujarat High Court on November 14. A notice was issued to the Centre, which has time till December 11 to respond. Abhishek Jain, tax partner at EY, said while a lower rate had optically fared well with customers, a denial of input tax credit to restaurant businesses had increased their tax costs. “These businesses have for long been discussing with the government on an optional higher rate with input tax credit and would now also look forward to the final high court ruling on this,” said Jain. 63% pregnant women in rural areas work till delivery Finance panel may SANJEEB MUKHERJEE New Delhi, 18 November Almost 63 per cent of pregnant women in rural India work right until the day of delivery. And, 49 per cent say they felt exhausted during pregnancy, due to lack of food and rest, a recent survey has found. A third of the respondents had to borrow or sell assets to meet afterpregnancy costs. Symptoms of weakness included swelling of feet (41 per cent), impairment of daylight vision (17 per cent) or convulsions (9 per cent). The survey was conducted this June in six states, on 702 women (342 pregnant and 364 nursing, the latter defined as someone who delivered a baby in the six months preceding the survey). It is a nongovernment effort, conducted by tams of student volunteers, coordinated by academic-activists Jean Dreze and Reetika Khera, among others. It says 48 per cent of pregnant women and 39 per cent of nursing women in Uttar Pradesh had no idea whether or not they gained weight during pregnancy. And, 22 per cent of the nursing women reported they ate more than usual during pregnancy. The exercise, titled Jaccha BacchaSurvey (JABS), is critical of the Pradhan Mantri Mantru Vandana Yojana (PMMVY), launched in 2017 as part of obligations under the National Food Security Act, which said all pregnant women are entitled to maternity benefits of ~6,000, unless they already received similar benefits under other laws, e.g as formal sector employees. Critics say on violation of the NFSA, the Yojana restricted the benefit to one child get extension for J&K and Ladakh NOT IN THE PINK OF HEALTH 23.0 26.0 Proportion of respondents unable to read (%) Average number of living children Average weight gained during pregnancy (kg) Proportion of respondents eating less during pregnancy (%) 1.9 0.9 7.0 Nursing women Pregnantwomen NA 47.0 49.0 Proportion of respondents who faced problems during pregnancy (%) 30.0 34.0 Proportion of respondents who felt they did not get enough rest during pregnancy (%) 38.0 30.0 Source: The Jaccha Baccha-Survey (JABS), a survey of pregnant and nursing women in rural India, conducted in June 2019; in total, around 702 women were interviewed for the survey in six states, which included 342 pregnant women and 364 nursing women It finds the proportion of nursing per woman – the “first living child” -- and women who reported eating nutritious also arbitrarily reduced the benefit from food (e.g eggs, fish, milk) ‘regularly’ during ~6,000 to ~5,000 per child. The survey says a query pregnancy was less than half Critics say in violation of the sample as a whole, and under the Right to only 12 per cent in UP. Information Act revealed only the NFSA, the Pradhan half of the eligible women And, due to poor diet Mantri Mantru Vandana during pregnancy, the average received any PMMVY money Yojana restricted the weight gain in the sample was in 2018-19. And, since 55 per benefit to one child cent of pregnant women are barely seven kg (in UP, four per woman and also kg), compared with the norm not even eligible ('first living arbitrarily reduced the of 13-18 kg for women with a child' condition), this means benefit from ~6,000 to low body-mass index. “A effective coverage of PMMVY ~5,000 per child is 22 per cent. significant minority (21 per cent) of nursing women said no one (not “PMMVY could have been a promising even a grown-up child) was available to scheme but has been ruined by stinginess help them with household work during and technocracy. Aside from undermining women’s rights, this is a major loss for pregnancy,” the survey says. Pregnant and nursing women are children,” the survey report said. acutely deprived of quality health care. Many get some basic services (e.g tetanus injections and iron tablets) at the local anganwadi or health centre but very little beyond these. Against this gloomy picture, the survey also records some positive changes. Such as the use of of public ambulance services that have becomey common. In Odisha, the government has started giving eggs as 'take-home ration' to pregnant and nursing women. Himachal Pradesh stands out for relatively good public services, including maternal care, for pregnant women and nursing mothers; Chhattisgarh and Odisha are improving. In Jharkhand, Madhya Pradesh and — especially — UP, the situation is described as dismal. ARUP ROYCHOUDHURY New Delhi, 18 November The 15th Finance Commission is likely to get an extension, as the panel has to examine devolution to Union Territories (UTs) of Jammu and Kashmir and Ladakh in the light of Jammu and Kashmir Reorganisation Act, 2019. Chairman NK Singh, on the sidelines of an event in New Delhi, said the government was yet to give fresh terms of reference to the panel regarding Jammu and Kashmir and Ladakh, even after the two UTs came into being on October 31. He did not directly say that an extension would be given. With the deadline of the panel’s report submission of November 30 fast approaching, it is becoming increasingly likely that an interim report could be submitted on or before that day, with a final report later. Business Standard had reported that the term of the commission could be extended by six months, primarily due to uncertainty regarding how to treat any devolution of resources. The interim report will be Chairman NK Singh says the government is yet to give fresh terms of reference to the panel regarding Jammu and Kashmir and Ladakh submitted to enable Finance Minister Nirmala Sitharaman and her bureaucrats prepare the 2020-21 Budget. This course of action has precedence in at least three commissions. On the demand from states that GST compensation be extended for the entire tenure of 15th Financial Commision’s award period (till 2024-25), Singh said the Centre had already committed 14 per cent compound annual growth rate in compensation for the states’ revenue shortfall and would cover the first two years of the commission’s award period. ECONOMY & PUBLIC AFFAIRS 5 MUMBAI | TUESDAY, 19 NOVEMBER 2019 < . TikTok’s chief Alex Zhu is on a mission to prove it is not a menace Woman moves Bombay HC for ban on TikTok The head of the Chinese-owned viral video app is trying to assuage Washington’s fears. “I am quite optimistic,” he said RAYMOND ZHONG 18November L ike almost everybody who runs a big tech company these days, Alex Zhu, the head of the of-themoment video app TikTok, is worried about an image problem. To him — and to millions of TikTok’s users — the app is a haven for creativity, earnest self-expression and silly dance videos. In almost no time, TikTok has emerged as the refreshing weirdo upstart of the American social media landscape, reconfiguring the culture in its joyful, strange wake. But to some people in the United States government, TikTok is a menace. And one big reason is the nationality of its owner, a seven-year-old Chinese social media company called ByteDance. The fear is that TikTok is exposing America’s youth to Communist Party indoctrination and smuggling their data to Beijing’s servers. The desire to fix this perception gap is what brought Mr. Zhu last week to a WeWork in Manhattan, where a handful of his colleagues are based. Mr. Zhu, a trim 40-year-old who speaks fluent if lightly accented English, helped found Musical.ly, a Shanghai-based lip-syncing app that ByteDance acquired in 2017 and folded into TikTok. In an interview — his first since taking the reins at TikTok this year — Mr. Zhu denied, in unambiguous terms, several key accusations. No, TikTok does not censor videos that displease China, he said. And no, it does not share user data with China, or even with its Beijingbased parent company. All data on TikTok users worldwide is stored in Virginia, he said, with a backup server in Singapore. But China is a murky place for companies. Even if TikTok’s policies are clear on paper, what if Chinese authorities decided they didn’t like them and pressured ByteDance? What if China’s top leader, Xi Jinping, personally asked Mr. Zhu to take down a video or hand over user data? “I would turn him down,” Mr. Zhu said, after barely a moment’s thought. Washington at this moment is suspicious of Chinese tech companies to a degree that can feel like paranoia. The Trump administration’s biggest target has been Huawei, the giant supplier of smartphones and telecommunications equipment. But it has also tried kneecapping Chinese producers of microchips, surveillance gear and supercomputers. That a lip-syncing app now finds itself in the same position shows the extent to which any Chinese advancement is seen in Washington as harmful to American interests. Over the past year, TikTok’s app has been downloaded more than 750 million times — more than Facebook, Instagram, YouTube and Snapchat, according to the research firm Sensor Tower. The weapon being wielded against TikTok is the Committee on Foreign Investment in the United States. The secretive federal panel, known as CFIUS, is looking into ByteDance’s purchase of Musical.ly. Earlier this year, the committee forced a different Chinese company to relinquish control over the dating app Grindr, which it had bought in 2016. The concern was also that Beijing might gain access to personal information. Mr. Zhu said TikTok user data was segregated from the rest of ByteDance, and was not even used to help improve ByteDance’s artificial intelligence and other technologies. “The data of TikTok is only being used by TikTok for TikTok users,” he said. It is unclear how such assurances will be received in Washington. “If Instagram or Facebook wanted to be sold to a Chinese firm in some way, I would 100 percent see the same issues at hand,” said Clark Fonda, a former congressional chief of staff and an author of a 2018 law that expanded CFIUS’s powers. “It’s about the underlying distrust of the Chinese government and what, theoretically, they could do with this data.” In this tense time, Mr. Zhu is an unlikely peacemaker. With his long salt-and-pepper hair and light mustache and goatee, he looks more like a poet than a tech founder. He seems to relish a little artsy oddness. On his LinkedIn profile, he describes himself as a “designtrepreneur” and gives his work location as “Mars.” “In the past, my personal focus was always design and user experience,” Mr. Zhu said. He spent a lot of time thinking about the colors of buttons. Now as TikTok’s boss, he reports to ByteDance’s 36-year-old founder, Zhang Yiming. Mr. Zhu said dealing with TikTok’s sudden crisis had been “very interesting,” if nothing else. “I am quite optimistic,” he said. Mr. Zhu grew up in the landlocked Chinese province of Anhui. After studying civil engineering at Zhejiang University in eastern China, BofAML REPORT RBI rate cut 110 bps, but lending rates up by 8 bps PRESS TRUST OF INDIA Mumbai, 18 November Despite the Reserve Bank making credit cheaper, lending rates are rising for borrowers after accounting for inflation and falling economic growth, a foreign brokerage said on Monday. The weighted average lending rate in the system is up 0.08 percent since April, economists at Bank of America Merrill Lynch (BofAML) said in a report. Economic growth has fallen to a six-year-low of 5 percent in the June quarter and is widely expected to slip further with almost all key components of the economy contracting or falling since the first three months. The RBI has responded by cutting rates by 110 basis to a nine-year-low of 5.40 percent since April cour- on all the debt, is up because higher money supply and tesy low inflation. The RBI has been blaming credit demand are unable to banks for slower transmission ensure banks reduction in of its policy moves into their marginal cost of funds-based lending rates and continu- lending rates, which are typically applicable ously nudging them to cut more, Analysts say weighted for new loans. Among the so that credit pick average lending rate solutions to push up can increase to is up because higher growth up, the help the broader money supply and report said the growth. It has also credit demand are monetary helped make ade- unable to ensure authority and quate liquidity banks reduction in the finance minavailable. marginal cost of istry will have to “Growth is still funds-based pull down averfalling as real lend- lending rates age lending rates ing rates are still through measrising,” the report said. Real lending rate is the ures like starting a 2 percentage number after calculating for points loan subvention done to small businesses, which would inflation. In their note, the analysts cost ~21,100 crore next fiscal said the weighted average year and also a reduction in the lending rate, which is the cash reserve ratio by 0.25 per aggregate of the interest paid cent by the RBI in February. he worked in the United States at SAP, the German software company. As he tells it, the idea for Musical.ly came to him as an epiphany. On a train once from San Francisco to Mountain View, Calif., he noticed the teenagers around him listening to music, taking selfies and passing their phones around. Why not combine all that into a single app? Musical.ly debuted in 2014. It quickly attracted tens of millions of monthly users, and Mr. Zhu moved to Shanghai. He went to great lengths to learn about the young — sometimes very young — Americans flocking to his platform. He registered fake Musical.ly accounts so he could comment on videos and understand their creators, he said in 2016. Around the same time, ByteDance was storming phone screens in China with a news aggregator called Jinri Toutiao. In 2016, the company released a video app for China named Douyin; TikTok followed soon after. The platforms are RBI plans to set up college of supervisors: Shaktikanta The Reserve Bank of India (RBI) is in the process of setting up a 'college of supervisors' to augment the supervisory skills of its key personnel, RBI Governor Shaktikanta Das has said. The development can be attributed as a response to the massive scam at Punjab & Maharashtra Co-operative Bank, which for three years hoodwinked the regulator with cooked up books-something the annual inspection by the RBI supervisors could not notice and take preventive action. The RBI has already created a unified department of supervision and a unified department of regulation from November 1 this year, which will strengthen the oversight of commercial banks, cooperative banks and NBFCs, Das has said. PTI Better agri data to help tackle climate change: Bill Gates PRESS TRUST OF INDIA New Delhi, 18 November Prime Minister Narendra Modi with Microsoft Co-founder Bill Gates during a meeting in New Delhi on Monday PHOTO: PTI Better statistical information and innovative tools will help minimise the damage of climate change on the farm sector, billionaire philanthropist and Microsoft co-founder Bill Gates on Monday said. As the effects of climate change on smallholder farmers will increase in future, there is an opportunity for engaging with the private sector in the field of agriculture and play an important role in boosting the crop yields, he said. “At a time when we have to increase productivity, climate change is making it far difficult. Understanding how the changing weather is affecting our crops and productivity and how we can adapt to that — requires best work in agricul- ture statistics including use of new tools,” Gates said in his keynote address at the 8th global conference on agri-statistics. Referring to India’s soil health card, he said soil quality data helped farmers determine what fertilisers to use. However, there are opportunities to add additional data to the existing one and make a detailed soil mapping. “Better soil, better information and better statistics will help minimise the damage of climate change,” he said. Gates, who is also co-chair in the Bill & Melinda Gates Foundation, said since the issue of climate change was “complicated”, interventions were required to be taken, including developing new variety of seeds and their distribution to farmers. similar but separate — TikTok is unavailable in mainland China and vice versa. In late 2017, Musical.ly agreed to be taken over by ByteDance. Last year, the Musical.ly app was merged into TikTok. Mr. Zhu stayed to help with the transition. He then took a few months off last year to rest, go clubbing in Shanghai and listen to jazz. He rejoined TikTok early this year, not long after ByteDance raised funding at a valuation of around $75 billion, making it one of the planet’s most richly valued start-ups. TikTok surely owes some of its success to the sunny, fun-for-itsown-sake vibe it has cultivated. But that has led to suspicions that TikTok suppresses material, such as clips of the Hong Kong protests, that could be a buzzkill. The company says it previously penalized content that “promoted conflict.” Now “we don’t take any action on any politically sensitive content as long as it goes along with our community guidelines,” said Vanessa Pappas, general manager for TikTok in the United States. Those cover things like hate speech, harassment and misleading information. Mr. Zhu said TikTok, which makes money by selling ads, was still drawing up its content policies. “Today, we are lucky,” he said, “because users perceive TikTok as a platform for memes, for lip-syncing, for dancing, for fashion, for animals — but not so much for political discussion.” He acknowledged this could change. “For political content that still aligns with this creative and joyful experience, I don’t see why we should control it,” he said. The deeper concern is that ByteDance’s vast business in China could give Beijing leverage over the company, and over TikTok. In its brief existence, ByteDance has had plenty of run-ins with Chinese authorities. This month, regulators hauled up company executives after finding search results from ByteDance’s search engine that supposedly defamed a revolutionary hero. There are other steps ByteDance could take to try to convince Washington of TikTok’s independence, such as reorganizing TikTok as a separate company with a new board of directors. Mr. Zhu said the company wouldn’t rule out such possibilities. But there had been no discussion about selling off TikTok’s American business, he said. Harry Clark, a CFIUS specialist at the law firm Orrick, said that was probably what the committee would end up demanding. CFIUS might have entertained other options had the companies applied for a review before doing the deal, Mr. Clark said. Now, he said, Washington’s concerns about China and data protection are deepening. “Three years ago, I doubt any CFIUS expert would have said it’s crucial that you go to CFIUS here,” Mr. Clark said. “Now, most would.” ©2019 The New York Times New Service PRESS TRUST OF INDIA Mumbai,18November A public interest litigation (PIL) has been filed in the Bombay High Court seeking a ban on video app TikTok for being a medium of "unfiltered sexual content, and harming youths of the country". The petition was filed on November 11 by Mumbai-resident Heena Darvesh, a mother of three children. Copies of the PIL were made available on Monday. The petitioner has claimed that the usage of TikTok has resulted into several criminal incidents, including deaths in some instances. TikTok is an application used to create, upload or share short lip-syncing comedy or music videos. The app was launched in 2017 by China-based developer Bytedance. Darvesh claimed a similar plea was filed in the Madras High Court last year seeking a ban on the app for its sexual content. "Unfiltered sexual content on TikTok causing harm to the youth of the country. In July this year, two cases were registered by the Mumbai Police against few persons for posting videos on TikTok inciting violence and promoting enmity between religious groups," the petition states. The plea is expected to come up for hearing before a division bench this week. 6 ECONOMY & PUBLIC AFFAIRS 1 MUMBAI | TUESDAY, 19 NOVEMBER 2019 > N WINTER SESSION OF PARLIAMENT BEGINS N Not facing 5% slowdown: Govt ARCHIS MOHAN NCP, BJD adhered to parliamentary norms, says PM New Delhi, 18 November mid Opposition protests and demands for a discussion on economic slowdown, the Narendra Modi government on Monday said India did not face a 5 per cent gross domestic product (GDP) slump. The country continues to be the fastest-growing economy in the world, it said. During the Question Hour in the Lok Sabha, opposition MPs asked questions on the economic slowdown and whether demonetisation and implementation of the goods and services tax (GST) contributed to the economy having taken a hit. Minister of State for Finance Anurag Thakur said a number of steps, including bank mergers and tax concessions to industries, were being taken to boost the economy. According to the National Statistical Office (NSO), Thakur said, annual GDP growth on average was 7.5 per cent in 2014-19, the highest “THERE IS NO 5 among G-20 countries. He PER CENT SLUMP. said the World Economic WHERE DID YOU Outlook (WEO) of October GET THE FIGURE? 2019, projects a significant slowdown in global output SHOW US” and trade in 2019. “India, ANURAG THAKUR despite recent deceleration of MoS, finance GDP growth, is still projected by WEO to grow at the fastest rate in 2019-20 among G-20 countries,” he said. The minister said the government had been taking measures to address the moderate levels of fixed investment rate in the economy, plateauing of private consumption rate and modest export performance. “There is no 5 per cent slump. Where did you get the figure? Show us,” Thakur countered, when Aam Aadmi Party’s Bhagwant Mann said India was facing slump. “By 2025, India will be a $ 5-trillion economy,” the minister said. ‘Incoterms CPT, CIP terms oblige seller to contract for carriage’ A Prime Minister Narendra Modi speaks in the Rajya Sabha on Monday PHOTO:PTI Manmohan slams govt for misuse of ‘money bill’ provisions Former prime minister Manmohan Singh on Monday bemoaned “instances of misuse of the Money Bill provision” by the Narendra Modi government in the recent past. He said the government “must ensure that such instances are avoided”. Speaking on the occasion of the 250th session of the Rajya Sabha, Singh said a crucial difference between the Lok Sabha and Rajya Sabha was that Article 110 of the Constitution allows the Lok Sabha precedence in matters of a ‘Money Bill’. “In the recent past, we have seen instances of misuse of the Money Bill provision by the Executive, leading to bypassing the Rajya Sabha on crucial legislations of importance, without any deliberation. Those in Treasury benches must ensure such instances are avoided. It dilutes the stature and importance of our institutions, including the Rajya Sabha,” Singh said. In its previous term, the Modi government did not introduce some of the Bills in the Rajya Sabha, as it claimed that these were ‘Money Bills’ as decided by the Speaker. Congress leader Jairam Ramesh had moved the SC against the government decision. Singh, a Rajya Sabha member since 1991, spoke on the importance in the constitutional system of checks and balances. He said the Rajya Sabha “has a central role to provide checks and balances to a majority government in the Lok Sabha, along with its other key role was to represent the interest of the states in our federal Union.” ARCHIS MOHAN Prime Minister Narendra Modi on Monday said in the Rajya Sabha that people’s hearts can be won by political parties even without rushing to the Well of the House to register protest on various issues. Speaking in the House during a special discussion marking 250 sessions of the Rajya Sabha, he said the Nationalist Congress Party (NCP) and the Biju Janata Dal (BJD) had wonderfully adhered to parliamentary norms by not entering the Well of the House. “Yet, they have made their points effectively. Much can be learnt from this ... people’s hearts can be won even without rushing to the Well.” The PM said Rajya Sabha is about checks and balances. “This is absolutely essential ... here is also a difference between checking and clogging,” he said. With some questioning the effectiveness of Rajya Sabha as crucial legislative work got stalled because NDA lacked a majority in the House, Modi recalled the then prime minister Atal Bihari Vajpayee's words that the Upper House "may be the second house but no one should think of it as PTI a secondary house." In FY18, percentage of 15 yrs Female participation in & above workers was 46.8 labour force declining Allow Farooq Abdullah to Shiv Sena takes a dig at attend House: Opposition Centre over slowdown Minister of State for Labour and Employment Santosh Gangwar said on Monday the Periodic Labour Force Survey (PLFS), conducted by the National Sample Survey Office, during 2017-18, showed that the percentage of workers of 15 years and above engaged in work was 46.8 per cent. While it did not cite any PLFS survey data for the previous two financial years, it stated that the survey for 2015-16 put the figure at 50.5 per cent and for 2013-14 at 53.7 per cent. This was a reply to a question by TMC MP BS REPORTER Mala Roy in the Lok Sabha. Attacking the government over the detention of Lok Sabha member Farooq Abdullah, Opposition members on Monday termed the National Conference leader’s detention illegal and demanded he be allowed to attend the House. Opposition leaders raised the issue of MPs not being allowed to visit Jammu and Kashmir after abrogation of its special status, whereas parliamentarians from Europe have been taken to the state, with Congress leader Adhir Ranjan Chowdhury describing the European Union BS REPORTER delegation as hirelings. The Centre on Monday said surveys depict “a declining female labour force participation rate”. The government said this decline could be attributed to higher participation of women in education and migration. In a reply to BJP’s Rita Bahuguna Joshi, Labour and Employment Minister Santosh Kumar Gangwar said the government had taken initiatives to improve women’s participation, like setting up child care centres, time-off for feeding children and enhancement in paid BS REPORTER maternity leave. The Shiv Sena, which has quit the BJP-led National Democratic Alliance, on Monday signed a notice moved by the Trinamool Congress for a discussion on the economic slowdown. During obituary references to former finance minister Arun Jaitley in the Rajya Sabha, Sena member Sanjay Raut took potshots at the BJP. “We learnt from Jaitley the importance of relations and how to maintain them,” he said, which his colleagues took to mean the recent severing of ties BS REPORTER between old allies. CHATROOM means the seller must deliver the goods and transfer the risk to the buyer when the goods, once unloaded from the arriving means of transport, are placed at the disposal of the buyer at the named place of destination or at the agreed point at the destination, if any such point is agreed. So, the obligation to unload the cargo is on the seller. T N C RAJAGOPALAN I refer to your clarification (Chatroom, Business Standard, November 5, 2019) on certain aspects of FCA/CIP/CPT in Incoterms. My understanding is that in case of CPT/CIP terms, the carrier need not be nominated by the buyer. Is this correct? Who is required to contract for carriage? You are right. The Incoterms CPT/CIP terms cast no obligation on the buyer to nominate the carrier. It is a matter to be agreed between the buyer and seller. The obligation to contract for the carriage from the agreed point of delivery to the named place of destination, or, if agreed, any point at that place, is on the seller. The cost for contract for carriage must be borne by the seller, who must ensure that it is on usual terms and usual route as customary for the type of cargo. He must also ensure that any transport-related security requirements are met. To that extent, the earlier clarification must be read with this explanation. In any case, it must be noted that the risk passes upon delivery of the cargo to the carriers within theagreed date. In case of DPU Incoterms 2020, whose obligation is it to unload the goods at the place of delivery? DPU is the abbreviation for “Delivery at Place Unloaded”. It Under FOB Incoterms, who should bear the container booking charges and BL charges? First, please note that for containerised cargo, the appropriate Incoterms is FCA and not FOB, as containers are usually handed over by the seller to the carrier at a container yard or terminal and not on board a vessel. Anyway, in an FOB contract, the seller must bear all costs till the goods are delivered by placing them on board the vessel (nominated by the buyer, unless agreed otherwise). So, the container booking charges incurred prior to such delivery will be to the account of the seller. If the agreed proof of delivery is a bill of lading, the seller must bear the costs for procuring the same. In the new Rule 36 (4) of the CGST Rules, 2017, we are allowed to take 20 per cent of the eligible credit even if the seller has not uploaded his invoices. What is meant by “eligible credit”? It is not defined. Basically, it means the credits for invoices that have been uploaded by the seller and that you find in auto-populated GSTR-2A. But, there are many other finer points. The CBIC has clarified most of them, with examples, through its circular no. 123/42/2019-GST dated November 11, 2019. I suggest you go through it for greater clarity. Business Standard invites readers’ SME queries related to excise, VAT and exim policy. You can write to us at smechat@bsmail.in 8 ISSUES AND INSIGHTS MUMBAI | TUESDAY, 19 NOVEMBER 2019 > > Why MNCs are changing their India tune The reasons are myriad — maturing of markets, change in business strategy — but there is a clear indication that global firms are not willing to tolerate any more slack in India ACROSS THE BOARD SHAILESH DOBHAL I f you are someone who has watched multinational firms’ India play in the heady days of the 1990s and 2000s, the current goings-on are a big let-down. Back then, for the globetrotting MNCs India was the last El Dorado, to be conquered and won at all cost. Though China, another big consumer market, also beckoned, it was considered “taken”, by either government-led local firms or other MNC peers. No wonder most played the Indian market much in the PGA Tour's Together Anything’s Possible style, their ambition not constrained by money, men or material. The liberalisation and globalisation-led 90s and noughties was a time when western capital markets were infatuated with a strong emerging market play, and fortunes were made or lost on mere the mention of whether the firm was going in or out of India! Global firms poured money into India as if there was no tomorrow, and often chased losing, thin on strategy ideas and projects that they would have been loath to back in most developed markets. It was clear that there was a huge error in estimating the true size of the addressable Indian market, and some correction in expectations did happen in the 2000s and later, but most kept the faith and the purse strings open. Something has changed dramatically of late. Though in the past four-five years alone, there have been some flight out of the country by MNCs — such as French retailer Carrefour closing down its cash-and-carry business in 2014 or Japanese drugmaker Daiichi Sankyo exiting India in 2015 — it is not so much a Quit India movement as yet. More like an expectation that India has to start behaving like any other market and stand up on its own and stop depending on the parent’s largesse. The reasons are myriad. For some, it is the global strategy at play, but for most it is Indiaspecific issues like regulatory overhang, underperformance of the market or the inability to compete in perhaps of the world’s most complex market. After pouring over ~1 trillion in the last decade or so, British tel- co Vodafone announced last week that it has finally closed the funding spigot to its gasping Indian subsidiary, and is ready to face... well... even exit from the country if it comes to that. One of the earliest MNC carmakers into India, American Ford Motors has agreed to take a junior role in a partnership with local automaker Mahindra & Mahindra for its struggling operations in India. Why, even General Motors is learned to be looking for buyers for its only remaining factory in India in Pune. Though not as dramatic as a retreat from India, there is clear change of tack among many others across sectors. Time was when American beverages major Coca-Cola was gobbling bottlers in India, and writing down losses it had run up to fuel its aggressive take-markets-atall-cost strategy. Now, the firm is reportedly hawking those bottling plants to its franchise bottlers in order to generate cash. Japanese investor SoftBank, after pouring in almost $10 billion in Indian startups, including nine unicorns, is demanding all new funding to be linked to timebound public exits or the chance to sell stake to any willing buyer. Singed by huge losses run up by its Vision Fund globally due to unprofitable bets on WeWork and Uber, SoftBank, according to venture capital tracing firm Tracxn, has not put even a single dollar in new investment in India this year! And after a bitter separation with its partner for half of the country, McDonald’s has now reportedly put stricter rules for prospective new partners with no leeway to take the operations public and to hypothecate the operating company’s shares to the parent. The steel scrap recycling policy has opened the door for large steelmakers to enter the recycling business and meet steel demand in a sustainable manner honour goes to a Mahindra and MSTC joint venture, which already has in operata Steel made all its 16.81 million ation two units in Greater Noida and tonnes (mt) of crude steel in India Chennai — Tata Steel is making an entry last year through the primary into scrap recycling business to give a blast furnace-basic oxygen furnace (BF- push to formalising the steel scrap genBOF) route. The company’s production eration industry for the benefit of seccapacity at Kalinganagar in Odisha is ondary sector. The 500,000-tonne recybeing enhanced from 3 mt to 8 mt by cling plant that Tata Steel is building way of installing a 5,800 cubic metre BF, near Delhi on build, own and operate to be the largest in the country. Its entire basis will be ready for commissioning targeted capacity expansion to 30 mt by during this financial year. Steel recycling 2025 is likely to be produced via the BF- is part of the company’s attempt to genBOF channel. Even then, Tata Steel erate 30 per cent revenue from non-core acknowledges the secondary sector that businesses. Many are seeing in Tata includes electric arc furnaces (EAFs) and Steel’s entry into recycling work the first induction furnaces (IFs) where ferrous step to build secondary mills in different parts of India to tap marscrap is the principal raw matekets far removed from rial will have an important role Jamshedpur and in meeting the country’s growKalinganagar. Smaller ing demand for steel in a “susmills will enable the comtainable manner.” pany to make small Citing examples of many parcels according to countries where “very efficient” requirements of buyers. relatively small plants in the secThe many recent proondary sector exist focusing on nouncements by steel production of “very high quality minister Dharmendra special steels” in small lot sizes ANALYSIS BEHIND Pradhan and steel secreof “40 to 80 tonnes,” Tata Steel THE HEADLINES tary Binoy Kumar highCEO and Managing Director TV light the point that for the Narendran says: “We in India first time the central govneed to have a very strong secondary sector... There are roles that are ernment will be closely working with the specially cut out for the secondary sector states to develop a steel hub covering like servicing customers who will be dif- Odisha, Jharkhand, Chhattisgarh and ficult to reach for the primary sector. I West Bengal to address effectively indusdon’t think the country’s steel industry try issues concerning raw materials secucan prosper with just a few large steel rity, logistical hindrances, credit requireplants. Ideally, the primary and sec- ments and skills development. Attempts ondary sectors should grow in parallel will be made to use the hub for producand both will have to be world class in tion of high value added steel with the secondary sector playing a major role in efficiency, cost and product quality.” Though not the first to be off the the quest. The new initiative coincides block in steel recycling business — that with release of a “robust” steel scrap pol- FORGING AHEAD T TAKE TWO 106.56 mt 50.08 mt 56.48 mt Production in 2018-19 via BF-BOF units via EAF & IF 300 mt total steel capacity target for 2030-31. icy whose implementation will prove to be a “game changer” for steel’s secondary sector, according to Kumar. In any case, the secondary sector already has a major presence in the industry, capacity-wise. During 2018-19, the combined production of crude steel by EAFs and IFs was 56.48 mt. This constituted 53 per cent of that year’s total output of 106.56 mt, the remaining 50.08 mt coming from BF-BOF units. Considering the usefulness of EAFs and IFs in giving a boost to steel use by their sheer presence in proximity to present and potential market, the 2017 steel policy recommends for secondary sector a share of 35 to 40 per cent of India’s targeted steelmaking capacity of 300 mt by 2030-31. The country has 47 EAFs and 1,128 IFs and their combined capacity is around 75 mt. No one will doubt Indian entrepreneurial intelligence in seizing investment opportunities in the steel secondary sector provided of course there is some degree of raw material security — in the present case, it is about steel scrap. After all, in the past, businessmen here, seeing the country’s growing dependence on imports of metallurgical coal, built sponge iron capacity of 50 mt, the world’s largest, based on local non-coking coal and gas? A case of turning a problem into an opportunity. New Delhi is hopeful that the implementation of the newly announced steel scrap recycling policy will make the country self-reliant in ferrous scrap by 2030. Sufficient investments will be forthcoming in the secondary sector for capacity to rise, according to steel policy. At any point in what proportion EAFs and IFs will be using scrap and sponge iron will depend on their prices. The fact that the government is found rigorous in enforcing quality for most steel products will explain the growing industry preference for imported scrap. This is in spite of a 2.5 per cent import duty on foreign origin scrap. India is spending around ~24,500 crore a year for steel scrap imports, the shortfall in domestic supply vis a vis > ON THE JOB A triple whammy in November? MAHESH VYAS F rom a growth perspective, an increasing labour participation is more important than a falling unemployment rate. It is important to increase the number of people willing to work. If fewer people are willing to work, a low unemployment rate is meaningless. This is because the unemployment rate is merely the proportion of those that are willing to work who cannot find jobs. Compared to global standards, India has a very low labour participation rate and now, it also has a high unemployment rate. This is a classic double whammy. And to this, we can now add the misery of a rising inflation rate. Is there something called a triple whammy? In the world of medicine, the term is associated with renal failure. This dispiriting opening para is inspired by the early signs of labour market stress in November 2019. Besides the worrisome rise of inflation and the elevated unemployment rate, we now also see a fall in the labour participation rate. The first half of November 2019 saw a sharp fall in the labour participation rate (LPR). In August, September and October, labour participation rate was a little over 43 per cent. This was an improvement over the sub-43 per cent rate prevailing in the preceding six months. In comparison, the labour participa- tion rate in the weeks ended November 3, November 10 and November 17 was 41.6 per cent, 42.6 per cent and 41.8 per cent. The rate seems to be heading below 42 per cent in November. In November 2018, the LPR was 42.8 per cent. If the LPR ends below 42 per cent in November 2019, it would be the lowest LPR witnessed since 2016. Weekly data is volatile and it is not wise to generalise from the dip seen in just one week as was seen in the week ended November 3. But the week ended November 17 has once again fallen to sub-42 per cent levels. This warrants some concern regarding the strength of the recovery in the LPR seen in the past few months. The LPRs in August, September and October 2019 were systematically higher than the levels recorded in the corresponding months of 2018. This is the first time we have seen such a sustained year-on-year increase in the LPR. This was sufficient to start believing in a possible revival of the LPR after a long period of steady fall and then an equally long period of stagnation at low levels. Very early signs of November threaten this belief. The fall in labour participation in the week ended November 3 was concentrated in rural India. Here, the LPR fell 204 basis points from 44.2 per cent in the week ended October 27 to 42.2 per cent in the week ended November 3. Rural LPR did recover in the week of November 10 to 43.3 per cent but, it fell again to 42.9 per cent in the week ended November 17. In urban India, the LPR fell only marginally in the week ended November 3. But, it fell sharply in the week ended November 17. This fall was a steep 155 basis points from 41.1 per cent to 39.6 per cent. Data of the first half of November 2019 also show a sharp fall in the employment rate. This implies that there is either a shrinking of employment in the month or at least a slower growth in employment compared to the growth in working age population. The average employment rate in the three weeks that ended in November 2019 was 38.8 per cent. If the month ends with an employment rate less than 39 per cent, it would be the lowest employment rate recorded since 2016 when we began measuring labour statistics. The employment rate has fallen in rural and urban India. The fall in urban India appears to be more worrisome than the one in rural India. Urban employment rate appeared to have bottomed out in August 2019 at 36.9 per cent. It inched up a bit to 37 per cent in September 2019 and then, it shot up to 37.4 per cent in October. Now, in the first half of November, it seems to have slipped again to lessthan 37 per cent. The long-term trend of the employment rate in urban India is one of steady decline. August and September 2019 had provided hopes of some respite from this. However, November 2019 could belie these implying a continuation of a long term trend of falling employment rates. Unlike urban India, the country side has seen a somewhat volatile stabilisation of the employment rate in the past 14 months. The employment rate had declined steadily from 43 per cent in November 2017 to 40.8 per cent in August 2018. Thereafter, the employment rate has remained around this level with substantial month-to-month variations. It is possible to read the decline in rural employment rate in November as part of these monthly variations. Nevertheless, early indications of a decline in overall labour participation and employment rates in November is worrisome. The author is the MD & CEO of CMIE Chit or cheat? The Lok Sabha on Monday took up a discussion on the Chit Funds (Amendment) Bill. Among Lok Sabha members who participated in the discussion, the YSR Congress Party’s (YSRCP’s) Raghu Ramakrishna Raju Kanumuru (pictured) demanded a change in the nomenclature of not just the Bill but also in the way these schemes were named. The MP from Andhra Pradesh’s Narsapuram constituency said the word “chit” was being pronounced “cheat”, which was reducing the importance of such schemes for people with no banking facilities. He said the name “chit fund” should be changed to “fraternity fund”. Gujral’s centenary Prime position for secondary steel KUNAL BOSE CHINESE WHISPERS demand being 7 mt. Now that the scrappage policy, which has laid ground for promotion of collection, dismantling and processing of end-of-life vehicles, a major source of pollution in our cities, consumer durables and plant and machinery on scientific lines, secondary steelmakers can breathe easy. Steel as also aluminium and copper are infinitely recyclable and all these metals retain their inherent quality on their being repeatedly recycled. Tackling greenhouse gas emission (GHGE) in a major way when steel is made from scrap and resources conservation involving iron ore, coal and limestone are principal drivers for scrap recycling. But environmental sanctity is compromised if dismantling of vehicles and other machines is not done in a sufficiently large gated compound and the subsequent work of baling and shredding is carried out manually with workers exposed to grave health risk. Secondary producers are making a reasonable demand that they should be able to procure high quality scrap locally to be able to produce steel for use by quality demanding sectors such as automobile and machine building. This will be fulfilled as likes of Tata Steel, MarutiToyota and Mahindra-MSTC emerge as major players in steel recycling. Leading steelmaking countries such as China, Japan and the US are relentless in their pursuit of using more and more scrap in producing the metal finding application in the more demanding sectors. Driven by growing restrictions on GHGE, Chinese mills in the first half of 2019 raised its steel scrap use by 20.7 per cent to 103.28 mt from 85.57 mt in the same period last year. India will have to catch up fast. The 100th birth anniversary of former prime minister Inder Kumar Gujral is on December 4. His son Naresh Gujral and the rest of his family will have a function at the India International Centre, New Delhi. Naresh Gujral is a Rajya Sabha member of the Shiromani Akali Dal (SAD), an ally of the Bharatiya Janata Party. Gujral senior, who passed away in 2012, was in the Congress and then in the Janata Dal. For the function, those invited to speak are former president Pranab Mukherjee, former prime minister Manmohan Singh, former vicepresident M Hamid Ansari, and Congress leader Karan Singh. Given Gujral senior’s interest in diplomacy and his stints as India’s ambassador to Moscow and as the country’s external affairs minister, there will be a discussion on India’s foreign policy titled “Continuity and Change”. Four former foreign secretaries Shivshankar Menon, K Raghunath, Kanwal Sibal, and Shyam Saran will participate in the discussion. Proposal drowned Computer Baba, self-proclaimed godman and chairman of the river trust for the Narmada-Kshipra and the Mandakini, surprised many when he announced that he would deploy some 2,000 sadhus (monks) on the banks of rivers in Madhya Pradesh to stop illegal mining. He said: “We will surprise the sand mafia.” The plan was to deploy four to eight groups of 250 to 300 sadhus each on the banks of the state’s many rivers. His scheme was shot down by the government. Mining Minister Pradeep Jaiswal jettisoned the plan, saying, “Computer Baba is a religious figure and chairman of a trust but he has nothing to do with mines and the minerals department.” Jaiswal said he should stick to “babagiri” and refrain from getting involved in the operations of government departments. LETTERS Early detection crucial This refers to "All you wanted to know about banking frauds" (November 18). At a time when the banking sector, particularly the government-owned banks, are hamstrung by the undeterred incidents of bad assets, controlling and addressing the creditrelated frauds is crucial to protecting the banks from financial and credibility damages. Despite robust systems to ensure preventive vigilance, the banks fail to prevent the occurrence of frauds which indicates that the strong involvement of the staff nullifies the existing prevention measures. While loans and advances are more prone to frauds, banks should keep a watch on the activities of the concerned staff who are dealing with the borrowers of the bank. Beginning from the receipt of an application for credit facilities to the liquidation of the loan, there are various phases which are vulnerable and that enables fraudsters to cheat the bank. The risk factors vary with the nature and type of loan, the economic activity of the borrower and the securities offered or available to the lender. As such, any flaws in the observation of the prescribed checks and balances defeat the due diligence and taking advantage of the situation and the loopholes, the fraudsters are cheating the banks. Despite the importance of watching the early warning signals and accordingly redflagging the loans, many a time these are wilfully or unintentionally ignored and cause losses to the bank. Banks must scrupulously observe all the systems and procedures prescribed for the conduct of the banking activities. Violation of the norms by the functionaries have often jeopardised the interest of the bank and exacerbated the losses. Early detection and reporting the frauds to the banking regulator and to the investigating or enforcement agencies are imperative to curtail losses as well as to retain the confidence of all the stakeholders. VSK Pillai Kottayam Hydra-headed problem This refers to the editorial “Saving the telecom sector” (November 18). Vodafone and Airtel posting mammoth losses aggregating ~74,000 crore in Q2 of this year is a matter of deep concern. These two service providers also have to pay up cumulative licence fees and spectrum user charges around ~1 trillion within a short period of time. This will likely result in these two companies folding up and the users will be facing a monopolistic situation. Monopolies resort to all sorts of anti-consumer actions like predatory pricing, restrictive practices, poor service etc with no other options for hapless consumer. If these two companies > HAMBONE close down, it will badly impact the balance sheets of the banks who have lent to them. The financial system cannot afford another massive hit after the PSB saga, NBFC/HFC problems and urban cooperative bank fiasco. It will result in massive big job losses and hit associated businesses. The international image of the country will take a serious beating at a time when there is growth slump and high unemployment. Reckless competition is also responsible for this situation. There is a need for the concerned regulatory body to examine whether unfair practices are being followed in the industry. Assets and businesses of these two companies which are unrelated to their core activities need to be hived off. The government must allow for the payments of dues (by these telecos) to be staggered and penalties and interest need to be waived, if possible. It cannot allow the golden goose to be killed. The government has wisely decided to examine this issue. Something meaningful needs to be done quickly lest it will be like bolting the stable door after the horses have fled.unemployment. Arun Pasricha New Delhi Letters can be mailed, faxed or e-mailed to: The Editor, Business Standard Nehru House, 4 Bahadur Shah Zafar Marg New Delhi 110 002 Fax: (011) 23720201 · E-mail: letters@bsmail.in All letters must have a postal address and telephone number OPINION 9 > Volume XXIV Number 68 THE EMPLOYMENT CHALLENGE MUMBAI | TUESDAY, 19 NOVEMBER 2019 Beyond deposit insurance Mechanism should be economically viable T he central board of the Reserve Bank of India (RBI) is expected to raise the deposit insurance limit from ~1 lakh to ~5 lakh. This should be welcomed as it will cover most retail depositors of banks. As reported by this newspaper, a new scheme is also likely to be considered to cover wholesale deposits up to ~25 lakh. Besides, two other important proposals are expected to be examined. First, it could allow banks to obtain deposit insurance over and above the enhanced limit for both individual and institutional depositors. If implemented, it will help boost confidence, especially in the private sector banks, and help strengthen financial stability. Second, the Deposit Insurance and Credit Guarantee Corporation (DICGC) will create a separate reserve to protect depositors of banks hit by frauds, such as in the Punjab & Maharashtra Cooperative (PMC) Bank. However, it has been reported that the premium paid for deposit insurance will not be increased from the current level of 10 paise per ~100 worth of deposits. The banking regulator should examine the proposal carefully and make sure the insurance mechanism remains economically viable. It is reassuring that the central bank is looking for ways to protect the interests of depositors. However, it is also important to address other issues related to deposit insurance. The biggest beneficiaries of deposit insurance are cooperatives banks, while over 90 per cent of the premium is paid by commercial banks. What this essentially means is commercial banks are paying for the failures of state governments in regulating cooperatives banks. For instance, between 2009-10 and 2018-19, over 400 claims from cooperative banks were settled, compared with only one from commercial banks. Now with the increase in deposit insurance, the payout might go up significantly. It is also likely that a class of depositors would want to keep more money in cooperative banks because of higher interest rates. Thus, it is important to review the regulatory architecture of cooperative banks. The present system of dual regulation by state governments and the central bank is not working. Also, it is worth reassessing whether the Indian financial system needs so many cooperative banks. They served a purpose in the past, but are perhaps not relevant anymore with the expansion of commercial banking and adoption of technology. In fact, with a lack of expertise and capital, it will become increasingly difficult for cooperative banks to compete and survive in the changing financial landscape. Therefore, the presence of cooperative banks must be reassessed and reforms should be implemented in an orderly fashion. Some of the better-run cooperative banks could be merged and converted into small finance or commercial banks. The central bank must also strengthen its own regulatory and banking oversight capabilities, so that vulnerabilities in the banking system are addressed in time. For example, the fraud in PMC Bank remained undetected for years and was known only after the management itself wrote to the regulator. Therefore, to protect the interests of depositors, the government and the banking regulator need to do a lot more than just raising the deposit insurance limit. Sri Lankan reset Gotabaya’s election presents challenges and opportunities I STAY INFORMED THROUGH THE DAY @ WWW.BUSINESS-STANDARD.COM ndia’s foreign-policy establishment is unlikely to have viewed with equanimity the election of Gotabaya Rajapaksa, the feisty former wartime defence minister, to the Sri Lankan presidency. But the development is not entirely negative from India’s point of view. Prime Minister Narendra Modi was among the first leaders to tweet his congratulations to the brother of a former president (Mahinda Rajapaksa) with whom he scarcely enjoyed warm relations, a strong signal that the Indian government was keen to reset relations with the islandnation’s most powerful political family. Indeed, it is a little-known fact that as defence minister, the younger Rajapaksa enjoyed a positive engagement with the Indian establishment during the civil war against Tamil separatists. India also conspicuously chose to remain an observer in these polls, addressing a major grievance voiced by Mahinda Rajapaksa of poll interference in 2014. The opportunities to build on this relationship, then, are manifold, not least because of the natural personal affinities between two “strong” leaders and the fact that India’s current foreign minister had wide experience in Sri Lanka during his Indian Foreign Service days. For India, however, China is the biggest elephant in the Sri Lankan island. On Mahinda Rajapaksa’s watch, the country became the biggest foreign investor in Sri Lanka. Though his successor, Maithripala Sirisena, sought to leaven that relationship — not least by signing an agreement with India and Japan to develop a deep-sea container terminal at Colombo port — he could do little to stem the tide. Under him, China took over the strategic Sri Lankan port of Hambantota, and has moved ahead with plans to develop an international financial centre near Colombo, which could eclipse Gandhinagar. Gotabaya Rajapaksa is reliably expected to augment this relationship. India can do little to alter these facts on the ground. By incrementally building on the strong ties between the two countries, New Delhi could usefully strengthen the relationship. For instance, one little-noticed fact is that air connectivity between the two countries has grown exponentially over the past few years — one in four tourists to the island nation is Indian — and there has been closer integration between India’s southern states and Sri Lanka in terms of student exchanges and ferry services. India is also Sri Lanka’s largest trading partner, and the opportunity to augment a Free Trade Agreement signed in 2000 with a wider Comprehensive Economic Partnership Agreement has the potential to bind the two countries beyond the trade in goods. Apprehension also arises over Mr Rajapaksa’s overt ethnic nationalism, evident from the fact that none of the Tamil-speaking areas of the north and Muslimdominated east — the two groups that account for a fifth of the population — voted for him. It is also significant that Mr Rajapaksa chose to be sworn in at Anuradhapura, capital of an ancient Sinhala civilisation closely associated with Buddhism, and emphasised national security as a priority in his inaugural speech. His message was, no doubt, addressed to the IS terrorists who orchestrated attacks on tourists earlier this year but the optics for Tamil minorities would not have been reassuring. India has the opportunity to play a moderating hand. It has already played a role in building housing for war-displaced people in the north. In short, emphasising a positive agenda would go a long way in tackling the challenges embedded in the Indo-Sri Lankan relationship. Unemployment rate (%) Youth (15-29) unemployment rate (%) Labour force participation rate (LFPR) (%) Female LFPR (%) Total employment (millions) Youth (15-29) not in labour force, education/training (NLET) (millions) Share of agriculture in employment (%) Share of industry (including construction) in employment(%) Share of regular salaried workers in employment (%) Share of self-employed and casual labour in employment (%) Percentage of regular salaried workers in non-agriculture with no written job contract 2004 -05 2011 - 12 2017 - 18 2.3 2.2 6.1 5.4 6.1 17.8 63.7 55.9 49.8 42.7 31.2 23.3 459 474 465 70 84 100 58.3 48.8 44.1 17.5 24.2 25.0 14.4 17.9 22.8 85.6 82.1 77.2 59.1 BOOK REVIEW CHINTAN GIRISH MODI I s the growing discourse around mental health yet another social media fad, or does it reflect that our society has got rid of the stigma attached to mental illness? It is difficult to come up with a pat answer because it can only be based on perception, feeling and conjecture. On the one hand, users of mental health services are openly talking about their diagnoses on Twitter, Facebook and Instagram. On the other hand, there are frequent reports about suicide cases involving young people, particularly from marginalised communities. 71.1 Sources: PLFS (2017-18) and Santosh Mehrotra and Jajati Parida, "India's Employment Crisis : Rising Education Levels and Falling Non-agricultural Job Growth", Centre for Sustainable ; Employment Working Paper 2019-04, Azim Premji University. The jobs crisis worsens Economic slowdown is only partially to blame for the rise in unemployment. The principal reason is weak policies I ndia’s large and growing working age popula- Interestingly, and as one would expect, the youth tion, currently numbering close to a billion, is unemployment rate in 2017-18 rose steeply with her greatest potential resource for rapid and the level of education, from 7.1 per cent for illitersustained economic development. Sixteen years ates to 14.4 per cent for secondary school and furago, I had warned that this demographic dividend ther to a staggering 36 per cent for graduates and could be squandered in the absence of the right post-graduates. This data is fraught with potential policies (Business Standard , November 25, 2003, for serious social and economic distress and dis“Can India grow without Bharat?”, republished in content. 2007 by Academic Foundation in a book with the n Perhaps even more distressing than the trends in open unemployment are those same title). Since then, successive in labour force participation rates governments have persisted with (LFPR). This refers to the ratio of wrong or weak policies and prothose employed or seeking grammes, including a poor public employment to the working age education and skilling system; an population (above 15). The LFPR extremely complex and anti-jobhas fallen substantially, from 64 creation maze of labour laws; trade per cent in 2004-05 to just below and exchange rate policies that dis50 per cent in 2017-8. That means courage labour-using exports and less than half of India’s working import-competing domestic proage population have jobs or are duction; poor infrastructure that seeking work! undermines productivity and conn Unsurprisingly, total employnectivity; a chronically weak edifice ment in India actually fell by a of public sector banks; and avoidfew million between 2011-12 and able major policy shocks like 2017-18, for the first time since demonetisation. The recently pub- SHANKAR ACHARYA 1972-73, when the official national lished (June 2019) Periodic Labour sample surveys of employment Force Survey (PLFS) for 2017-18 conditions was first conducted. brings out the dismal consequences. The table shows the serious worsening of India’s n Much of the decline in the overall LFPR is employment situation in the 13 years between because of a steep fall in the female LFPR, from 43 2004-05 and 2017-18, according to nearly all key per cent in 2004-05 to a pathetic 23 per cent in 2017-18. This compares poorly with female LFPRs indicators, especially after 2011-12: n The open unemployment rate has almost tripled (in 2018) of 61 per cent in China, 52 per cent in since 2011-12 to 6.1 per cent. Since the poor can Indonesia and 36 per cent in Bangladesh. Nor can rarely afford to be unemployed, much of this this precipitous decline in female LFPR be increase reflects a surge in educated unemployed. explained away by higher rates of female enrolment n The youth (15-29) unemployment rate has also in education, since the 20 percentage point drop tripled to an unprecedented 17.8 per cent in 2017- in LFPR is observed among both the 30+ age group 18, reflecting the growing paucity of jobs. (down from 46 per cent to 27 per cent) and female A PIECE OF MY MIND The writer is honorary professor at ICRIER and former chief economic adviser to the Government of India. Views are personal. Bad news: What you say doesn’t matter A ll it took was “loud” allegations from a lenders. The futures and cash prices of stocks whistle-blower to knock 16 per cent off the crash long before the credit ratings start disapInfosys market value in a single session pearing into the basement, the auditors quit, just about a month ago. To date, the company says lenders begin to panic or before PILs are filed or there is still no evidence of alleged wrongdoing investigators come calling at midnight. And once by the CEO or others. Regardless, the damage to in the reputation glare, it is difficult for most firms the company’s reputation is done. The ~53,000- and leaders to extinguish the flames before somecrore hit in its market cap and the reputation of one gets badly burnt. Note the household names —Zee, Yes Bank, the firm and its leaders will take Infosys some DHFL, Jet Airways — whose years and a lot of outperformance shares now litter the floors of the to claw back. bourses, where once they were Reputation has become the held in high esteem and rewardbiggest driver of market and brand ed with frenzied valuations. value today for investors and cusWhile the underlying causes may tomers. For PE funds or mutual be economic and even circumfunds — reputation is increasingly the touchstone for investment decistantial — excessive promoter leverage, ill-conceived expansions and a leading indicator of true sions or just too much real estate market value. exposure in a country with 0.7 A 2018 study by Reputation million empty apartments — the Institute, a global firm, estimated that corporate reputation is now reputational injuries suffered directly responsible for an average may be fatal, as far as customer PRADIPTA BAGCHI trust and market valuations are of 38 per cent of market capitalisation across the FTSE 100 and FTSE concerned. So where did blue-chip Infosys err? In her col250; of that the CEO’s brand accounted for about 40 per cent of the company’s brand. Given the umn, “Infosys Forgot Founder’s Mantra: When In recent falls in some respectable names, one sus- Doubt, Disclose”, senior journalist Menaka Doshi pects that for the Sensex 30 or Nifty 50, the repu- says that the key point is not the allegations per tation weightage would be a few notches higher. se but the manner in which the company chose While consultants are busy selling fancy envi- not to react or disclose immediately. It was only ronmental, social and governance (ESG) frame- when two media reports forced their hand, folworks as the new mantra for “responsible corpo- lowed by a sharp stock price fall that it merited rations”, the reality is that in today’s age of media more detailed explanations from its chairman. Immediate response and disclosures as well as polarisation, reputational damage often trumps a corporate’s ESG score. a rapid and calibrated resolution path are the only As ever, equity markets continue to pick up defence left for firms today. The other time-tested these cues on reputation damage far quicker than tactics, like timing the release of bad news after a THE NUTGRAF ‘What happens when madness descends’ What is going on? Side Effects of Living: An Anthology of Voices on Mental Health edited by Jhilmil Breckenridge and Namarita Kathait is a book that you might want to pick up in order to explore these questions. Instead of privileging the expert opinion of academics or mental health practitioners, this anthology gives you direct access to the accounts of people who experience or have experienced mental health distress. There is a rawness to their narratives, which is presented lovingly by the editors who hatched a plan to create this book while speaking about their own journeys over a shared bowl of noodles and hot tea in paper cups after an open mic event on a winter evening in Delhi. Ms Breckenridge had survived incarceration in a mental institution in the city, whereas Ms Kathait had grown up with a mother who had severe schizophrenia. Their personal histories 64.7 Note: All employment data are on Usual Principal and Subsidiary Status (UPSS) basis. youth (down from 37 per cent to a heartbreakingly low 16 per cent). The current and future implications for overall female economic and social empowerment are deeply saddening. n In their paper last month (see table for full reference), Santosh Mehrotra and Jajati Parida (henceforth MP) attribute the steep declines in India’s LFPR to the phenomenon of discouraged workers (they call it “disheartened labour force”); that is job aspirants simply drop out of the labour force because of persistent failure to get jobs. Focusing on youth (15-29), they define this category as equal to the PLFS-based numbers on youth “Not in Labour Force, Education and Training (NLET)”. This number has increased from 70 million in 2004-5 to 100 million in 2017-18. Taking their maximalist definition of disheartened labour force to its logical conclusion, and adding NLET both to the usually defined labour force and unemployment, we would have 125 million “unemployed” out of an “adjusted labour force” of about 240 million, giving an “adjusted youth unemployment rate” of 52 per cent in 2017-18! Even if only half the NLET were taken as “disheartened workers”, one would get a youth unemployment rate of nearly 40 per cent. n The trajectory of sectoral employment shares over time also shows distressingly slow shift of labour from low productivity agriculture to higher productivity industry and modern services. Even in 2017-2018, agriculture still accounted for 44 percent of national employment, much higher than in all other G-20 countries. Worse, the share of industry (including construction) was stagnant between 2011-12 and 2017-18. Most disappointingly, the share of manufacturing stalled at a lowly 12 per cent between 2004-5 and 2017-18. n The share of self-employed and casual labour in national employment still totals nearly 80 percent. As Radhicka Kapoor points out (“Understanding India’s Jobs Challenge”, www.TheIndiaForum.in, September 6, 2019), this is worrying for several reasons. These categories are typically characterised by widespread worksharing arrangements and associated underemployment. They also tend to have low average earnings, often well below recommended levels of the national minimum wage. n On the plus side, the share of regular salaried workers in employment has risen from 14.4 per cent in 2004-05 to 22.8 per cent in 2017-18. However, the percentage of regular salaried workers in non-agriculture with no written job contract has risen from 59 per cent in 2004-05 to 71 per cent in 2017-18, reflecting rising insecurity even in this category. n In sum, the jobs situation in India has worsened seriously over the past 15 years. Furthermore, today, in mid 2019-20, it is almost certainly worse than the numbers discussed above, since economic growth has slowed sharply in the 18 months since PLFS (2017-18). What can be done to reverse the bleak trends outlined above? There is no silver bullet. In fact, there really is no viable alternative to tackling the policy and programme weaknesses sketched in the first paragraph of this column. Until we make serious progress along those lines, the rise in unemployment, underemployment, discouraged workers and job insecurity is likely to continue, with very adverse consequences for the nation’s economic well-being and social cohesion. kindled a recognition of pain, and a desire to tell the stories they had kept hidden out of sheer shame. They set up a notfor-profit trust called Bhor Foundation, and began to scout for more submissions to this book. It is a moving compendium of writing by contributors from Kolkata, Srinagar, Meerut, Bangalore, Hyderabad, Pune, Delhi, Tehran, and other places. Ms Breckenridge writes, “Through the stories of survivors, writers, poets and artists, those who have suffered or those who have watched their loved ones suffer, we have tried to make sense of what happens when madness descends, why it descends and what we can do when it does. Is it the result of a chemical imbalance; is it a virus that attacks only a few? Why do some people seem more prone to depression, anxiety and other mental health distress? And can we do anything about it?” This book challenges the idea of “normalcy” against which society measures individuals. Those who do not fit in are often seen as inconvenient or embarrassing. Many of them are bullied, abused, discarded and gaslighted. Others are treated with kid gloves, sent to shamans, or given unsolicited advice that has no connection with their condition. Huzaifa Pandit writes about a pir in Srinagar who pronounced that his mental health issues could be traced back to a pari who was besotted with him. The baba started beating him with a plastic rod to drive away the pari. When that did not help, he began to pull Pandit’s hair and also bore into his calf with a sharp instrument. You might assume that people who visit psychologists for therapy or psychiatrists for medication are in a better place but the testimonies in this book show that the treatments prescribed by these professionals do not work for everyone. There are people who have benefited specific corporate event (like quarterly results in Infosys’ case) or more generically late on a Friday evening (“putting out the trash” as PR folks call it) and expecting it to be forgotten by the Monday news cycle, don’t work. Equally difficult is “stopping a story”, when news outlets have multiplied and the need for good content has become insatiable — ergo if one or two don’t publish, the fourth or fifth outlet will. The 2019 Crisp Crisis Impact report also underscores this argument. In today’s online frenzy, the importance of a timely response is key to avoiding reputation damage. Over 50 per cent of those surveyed said that they expected brands to respond to a crisis within 60 minutes. A similar number wanted to directly hear from the CEO and not through an impersonal press note in such situations. Moreover, there are strong upsides for brands in responding immediately that many firms and their leaders don’t seem to appreciate. Ninety per cent of customers in the Crisp report felt that they would continue to favour a brand that reacted promptly to a reputation issue. Investors are less likely to dump your stock once they are convinced about the authenticity and immediacy of the response. For firms, these issues are only going to intensify. Online and social linkages between value and reputation will continue to strengthen as the next billion come online. The impact of user-generated content which takes the brand out of the brand owner’s control is only growing. Once on social media, the brand is every Twitter, Insta and TikTok user’s to toy with. They can post about your brand, meme it, mock it and share it. How well and how quickly a firm responds will determine its value. The writer is a communications professional immensely from their support but there are also multiple instances of expert knowledge being used to invalidate lived realities. Bharti Manoj was diagnosed with severe depression and borderline personality disorder at the All India Institute of Medical Sciences. She writes, “I was given a cocktail of psychiatric drugs. I think I became a guinea pig for them — they constantly experimented with my medication. Sometimes I felt better, sometimes worse.” The person experiencing distress is pathologised, reduced to a label describing their condition, and is stripped of their autonomy and agency. What does recovery mean in a context in which the medical-industrial complex determines the fate of a person struggling with mental health issues? This book questions the construct of recovery as a return to “normalcy”. According to the editors, and several contributors, this ideal condition is nothing but a myth that is perpetuated by oppressive social structures. The individual who does not embody the norm is branded an outlier while the real problem lies with families that cannot accept diversity. The distress these individuals experience might never go away because of the society they live in but they devise ways to manage or reduce their distress. There are people who choose community care over therapy or medication. They wish to heal through immersion in activities such as writing, gardening, quilting, painting, cooking or hiking. They have the right to decide what to do with their lives, without being subjected to what Mr Breckenridge calls “the ableist lens of a capitalist society which decides on behalf of everyone else.” That is the central point of this book. It is made with remarkable conviction and consistency. SIDE EFFECTS OF LIVING: An Anthology Of Voices On Mental Health Jhilmil Breckenridge and Namarita Kathait Speaking Tiger, 213 pages, ~299 QUICK TAKE: MARGIN GAINS AHEAD FOR SANOFI INDIA The Smart MUMBAI | TUESDAY, 19 NOVEMBER 2019 Investor “When markets rise — we stay out as we are value investors. When they fall — we stay out as we are growth investors Eventually FD returns!” The stock of Sanofi India was up over 5% on expectations that a fast growing chronic portfolio and leadership position in basal insulin should help keep growth rates high. Further, margins could move up further on higher proportion of domestic branded business after the Advent deal KALPEN PAREKH President DSP Mutual Fund < WWW.SMARTINVESTOR.IN FOR INFORMED DECISION MAKING Slew of companies in process of filing, re-filing public issue documents with the regulator Slow growth, pricey stocks make brokerages cautious ASHLEY COUTINHO PUNEET WADHWA IPO market sees green shoots TOP IPO GAINERS THIS YEAR Mumbai, 18 November Issue size (~cr) IRCTC 64.51 Affle (India) 459.00 IndiaMART InterMESH 475.59 Polycab India 1,346.19 Neogen Chemicals 132.35 Metropolis Healthcare 1,204.29 Spandana Sphoorty 1,189.85 Embassy Office Parks REIT 4,750.00 MSTC 212.04 Rail Vikas Nigam 481.57 A fter a dismal year, the market for public share sales is seeing a few green shoots. In the past two months, four companies — Route Mobile, Monte Carlo, Mazgaon Dock Shipbuilders, and Indian Renewable Energy Development Agency — have refiled offer documents with the Securities and Exchange Board of India (Sebi) for initial public offerings (IPOs). Mumbai-based realtor Puranik Builders may also refile its offer document, said people in the know. Also, SBI Cards & Payment Services, UTI Mutual Fund, and a few small finance banks are in the process of submitting their IPO documents with the market regulator in the next few months, say industry experts. So far, 27 firms have IPO approvals from Sebi and they could raise an estimated ~18,000 crore through the share sales, data from Prime Database shows. These include the likes of CSB Bank, Ujjivan Small Finance Bank, Bajaj Energy, Shriram Properties, and Penna Cement. Another seven, which include some of the names cited above, have filed offer documents in the past three months but are yet to receive the regulatory nod. “We may see a few deals coming through but it may not necessarily point towards a revival,” said Pranav Haldea, managing director, PRIME Database. This year, 14 companies have raised a little over ~15,000 crore via IPOs. All, except one, are trading in the green on the bourses, with IRCTC and Affle (India) clocking gains in excess of 100 per cent. FY17 and FY18 had seen a combined mop-up of over ~1 trillion through IPOs. While the markets have run-up a bit since September, the rally may not sustain owing to lack of improvement in earnings growth, believes Haldea. RCom stock down 8% over Q2 loss G/L: General ledger; Source: Basis of allotment Brokerages are cautious on the markets following a slump in key economic indicators and a sharp liquidity-driven rally post the government’s move to cut corporation tax rates. The benchmark BSE Sensex is up 12 per cent year-to-date. And if the secondary market does not see a meaningful rally, the mood in the primary market is unlikely to see a turnaround. Several companies have let the approvals for IPOs lapse this year. This may continue if there is not enough demand at the price they are looking to raise money, says Haldea. “Valuations remain tricky and companies will have to ensure they leave enough money on the table to ensure their IPOs sail through,” he said. “For companies, it’s a question of trial and error,” Compiled by BS Research Bureau said Dara Kalyaniwala, vice-president, investment banking, PL Capital Markets. “There is still a great deal of uncertainty in the market, and a refiling will enable companies to hit the market as soon as sentiment improves.” Sebi’s letter of observation is usually valid for 12 months. Give or take a month or two from the date of filing and getting regulatory approval, companies are essentially looking at a 14-month window at the time of filing or refiling to hit the market with their offerings. According to Kalyaniwala, companies that refile shell out ~1-1.5 crore by way of fees to the regulator, investment bankers, lawyers, if IPOs are below ~1,000 crore. The amount could be slightly higher for larger issues. Morgan Stanley sees global GDP growth at 3.2% in 2020; says EMs to outperform PUNEET WADHWA Shares of debt-ridden Reliance Communications (RCom) on Monday tumbled over 8 per cent after the company posted a consolidated loss of ~30,142 crore for the September quarter. The company's scrip dropped 3.39 per cent to close at ~0.57 — its record low — on the BSE. At the NSE, it slipped 8.33 per cent to close at ~0.55. RCom on Friday posted a consolidated loss of ~30,142 crore for July-September 2019 due to provisioning for liabilities after the SC ruling on statutory dues. The company, which is going through insolvency process, had made a profit of ~1,141 crore in the corresponding three months a year ago. The SC last month upheld the Centre's position on including revenue from non-telecommunication businesses in calculating the annual AGR, which has to be paid as licence and spectrum fee to the exchequer. PTI Current G/L (%) 187.98 119.57 97.47 74.35 71.12 58.41 51.70 39.17 32.46 28.95 New Delhi, 18 November Months after cutting their projection for global real GDP growth for CY19 to a six-year low of 2.9 per cent in July, analysts at Morgan Stanley now see a marginal recovery and expect the year to record 3 per cent growth. They have retained the projection for CY20 at 3.2 per cent and expect growth to speed up in CY21 at 3.5 per cent. With the global monetary easing since the first quarter of 2019 (1Q19) and trade tensions now subsiding, Morgan Stanley believes global growth is likely to trough in the fourth quarter of 2019 (4Q19), followed by a recovery from the first quarter of 2020 (1Q20) onwards. “Global growth should recover from 1Q20, reversing the downtrend of the past seven quarters as trade tensions and monetary policy are easing simultaneously for the first time since the downtrend began,” wrote Chetan Ahya, THEY PROJECT A BETTER FUTURE GLOBAL US Euro Area Japan UK China India Brazil Russia 2019 Morgan CLSA Stanley 3 2.2 2.3 2.2 1.2 1 0.9 0.7 1.2 NA 6.1 6.3 5 5.7 0.8 NA 1.2 NA 2020 2021 Morgan CLSA Morgan CLSA Stanley Stanley 3.2 1 3.5 2.2 1.8 1 1.9 2.2 0.9 0.3 1.2 1.5 0 NA 0.7 0.7 1.4 NA 2 NA 6 6 5.9 5.8 6.3 5 6.8 6.2 2.2 NA 3.1 NA 1.7 NA 2 NA All figures in %; NA: Not available Morgan Stanley’s chief economist and global head of economics in a recent coauthored report. Uncertainties relating to trade wars, macro data from the US, and the reduced scope of monetary policy, however, are the three key risks. Region-wise, Morgan Stanley expects growth in Sources: Morgan Stanley, CLSA reports emerging markets (EMs) to be higher than their developed market (DM) peers, as central banks continue cutting rates. It expects 13 central banks to ease further in 2020, bringing the global weighted average policy rates to a seven-year low by March 2020. These rate cuts, it says, will be concentrated in EMs, with central banks in India, Brazil and Russia cutting rates once more. Regarding India, Morgan Stanley expects growth to average 5 per cent in CY19 and improve to 6.3 per cent in CY20 and 6.8 per cent in CY21. On a financial year basis, its analysts peg GDP growth at 6.5 per cent in FY21 and 6.9 per cent in FY22 (versus 5 per cent in FY20). “We expect growth to improve in 2020 with the support of past policy measures and expectations of continued reform action from the government. Apart from a cyclical recovery, we expect a policy focus on improving trend growth through productivityenhancing measures,” Ahya said in the co-authored report. Analysts at CLSA, however, remain cautious on how the global economy will pan out in 2020. They see 2019 global growth at 2.2 per cent, down from 2.9 per cent in the previous year, and slip to a mere 1 per cent in 2020 before bouncing back to 2.2 per cent in 2021. THE COMPASS Glenmark shines as Q2 marks rebound in earnings Analysts expect sales to pick up in US, domestic markets UJJVAL JAUHARI Glenmark Pharmaceuticals’ better-thanexpected July-September quarter performance, after several quarters of weak results, enthused the Street. The stock gained more than 21 per cent on Monday, following brokerage upgrades. The quarter proved to be good for both India and US sales, which saw momentum rebound, and was well supported by other geographies. Analysts believe that Glenmark finally seems to be turning the corner, as is evident from its good operational performance and cost management in Q2. JPMorgan says that execution missteps, strategy shifts, and weak cash flow had led to the stock de-rating from 18-19x last year to 10x currently. While these concerns were known and discounted in the stock price, data points from Q2 results do highlight scope for margin improvement in the coming quarters. The India business, which is about a third of revenues, grew more than 15 per cent year-on-year (YoY) in Q2, led by contribution from diabetes treatment drug, Remogliflozin. Notably, the momentum is expected to continue and the run-rate is expected to double by March 2020, with annualised revenues of ~70-80 crore versus ~36 crore now. The dermatology portfolio also continues doing well and so is the consumer products business, which recorded 20 per cent YoY growth in Q2. A little less than a third of revenues, the US sales grew 4.6 per cent YoY and 15 per cent sequentially in Q2. The eight product approvals helped Glenmark grow, despite 5-6 per cent sequential erosion in the prices of its dermatology portfolio. The oncology generics of Fulvestrant injection and dermatology Pimecrolimus topical cream are expected to drive growth, feel analysts, who expect these products to attain $30 million annual revenues in the coming quarters. The start of commercial supplies from the Monroe plant by the end of March 2020 and pick-up of injectables and nebuliser sales are seen as other key drivers of US sales. As capital expenditure requirement of the Monroe plant moderates, it should also help improve cash flows. Glenmark has maintained its guidance to reduce debt by at least ~700-800 crore by utilising proceeds from the sale of non-core assets (likely in the second half of 2019-20) and cashflow from core business. While the Street will keep an eye out on the progress on these fronts, analysts at HSBC believe the worst is behind and have upgraded the stock to ‘buy’ from ‘hold’, while those at Nomura have arrived at a target price of ~653 for the stock trading at ~365. Is Pidilite losing stickiness with investors? Stiff competition, construction slowdown could make volume recovery difficult SHREEPAD S AUTE With close to 3 per cent decline in the last two trading sessions after its July-September 2019 quarter (second quarter, or Q2) results, the stock of Pidilite Industries has underperformed the flattish trend on the Sensex. From its all-time high of ~1,494.50 on September 23, it is down 13 per cent, against 3 per cent rise in Sensex. Volume growth worries in the near term are making investors jittery about the stock, which is currently trading at rich valuations of 49x its 2020-21 estimated earnings growth. The owner of popular adhesive and waterproof brands such as Fevicol, FeviKwik, Dr Fixit, and M-seal, among oth- ers, reported a nine-quarter low volume growth of 0.6 per cent in Q2. This was led by a 0.9 per cent volume decline in consumer and bazaar (C&B) products, which account for over 80 per cent of Pidilite’s revenues. As a result, Pidilite’s net sales grew by a meagre 2.8 per cent year-on-year (YoY) to ~1,807 crore. Besides liquidity crunch and prolonged monsoon, competitive intensity in waterproofing from players such as Asian Paints weighed on Pidilite’s C&B volumes in Q2. Competitive intensity, in fact, is making the volume and margin outlook gloomier for Pidilite amid feeble consumer demand. This is because, competitive intensity would warrant more advertisement and promotional spends and restrict its pricing power to some extent. And this, in turn, would negate the benefits from an expected improvement in gross profit margin, at the earnings before interest, taxes, depreciation, and amortisation (Ebitda) level. Currently, prices of key raw material such as vinyl acetate monomer (VAM) stand at $890 per metric tonne, against $901 per metric tonne in Q2, and Pidilite has 45 days of VAM inventory in place. In Q2 also, higher advertisement expenses led to Pidilite’s Ebitda margin shrink by 48 basis points (bps) YoY to 20.4 per cent, despite a sharp 398bps improvement in gross profit margin. Advertising spends in Q2 were 4.8 per cent of sales, compared to typical levels of 3.9-4 per cent. Pidilite’s profit before tax rose by 5.8 per cent YoY to ~376.6 crore. Net profit growth of 40.6 per cent was driven by lower corporate tax. Against this backdrop, Emkay Research has cut its 2019-20 to 2021-22 earnings estimates by 3-4 per cent for Pidilite and believes further pressure exists from the ongoing slowdown in constructionrelated activities and increase in competition. Overall, the stock could remain under pressure till clear signs of volume and margin recoveries emerge, given the pricey valuation.Overall, the stock could remain under pressure till clear signs of volume and margin recovery emerge given the pricey valuation. New Delhi, 18 November The slump in key economic indicators and a sharp liquidity-driven rally since the government cut corporation tax rates on September 20 have made brokerages cautious on the markets and they now indicate a limited upside for the indices in the short-tomedium term. Since the cut in corporation tax rates, foreign portfolio investors (FPIs) have pumped in ~39,930 crore or $5.6 billion (as on November 14) in equities, while mutual funds have invested nearly ~6,000 crore, data show. The S&P BSE Sensex and the Nifty 50 have gained 12 per cent and 11 per cent, respectively, since then. “Belying our expectations of recovery starting in the third quarter, high-frequency indicators have plunged and domestic credit conditions remain tight amid weak global demand. As a result, we now expect India’s economic recovery to be delayed and the subsequent pickup to be sub-par,” wrote Sonal Varma, chief economist for India and Asia ex-Japan at Nomura in a report. Analysts at CLSA, too, apprehend that real gross domestic product (GDP) growth for FY20 may slip to 5 per cent. Their worst-case scenario stands 50 basis point (bps) lower than this projection at 4.5 per cent. “India is in the middle of a severe credit contraction that started with the liquidity squeeze triggered by the crisis in the non-banking financial companies (NBFCs) which has now spread to deposit-taking companies as well. Corporation tax cuts are a bold move but will take time to gain traction. India’s recovery will be postponed to late 2020,” said Eric Fishwick, chief economist at CLSA. Analysts at Kotak Institutional Equities led by Sanjeev Prasad, MD and cohead for institutional equities, caution against rich valuations at which the Indian markets Markets reverse gains as winter session starts BLOOMBERG Mumbai, 18 November Indian equities snapped a three-week advance to end the day in the red, as investors turned their attention to the winter session of Parliament and uncertainty surrounding the U.S-China trade talks. The S&P BSE Sensex Index fell 0.2 per cent, reversing from an intraday gain of as much as 0.5 per cent. The NSE Nifty50 Index was little changed at -0.1 per cent. The markets in Asia were mixed as investors awaited fresh developments in trade talks between the US and China. While India unveiled rules on Friday to help creditors recover loans due from large shadow lenders, all eyes are now on the US-China negotiations and the winter session of Parliament. Ordinances related to corporate-tax rates and e-cigarettes are on the agenda. Investors are also turning their attention to economic data out later this month for cues on growth. are trading despite weak eco- fiscal deficit to slip by around ~1 trillion or around 50 basis nomic scenario. “The Indian market is trad- points (bps). We remain cauing at rich valuations in the tious. Overweights in our modcontext of historical valuations el portfolio include financials, despite a sluggish economy. industrials and technology, and The Nifty50 trades at 22.4x underweights (are) consumer, FY2020E EPS and 17.7x materials and energy,” wrote FY2021E EPS. We remain scep- Somshankar Sinha, managing tical of a quick recovery in the director and head of equity Indian economy given several research for India at Jefferies in a recent report, structural issues, which has been cothe limited fiscal The market, authored with anacapacity to sup- analysts at lysts Piyush Nahar port consump- Jefferies say, and Pratik Chaudhuri. tion or invest- craves a personal BNP Paribas ment demand, income tax cut but Securities sees the and inefficacy of the government S&P BSE Sensex at policy rate cuts, has appeared 40,500 by end-2019 given ‘crowding hesitant — just 0.5 per cent out’ by high government borrowings,” he wrote higher from the current levels. in a recent co-authored report. Nomura, on the other hand, Those at Jefferies also maintains a March 2020 believe it is too early to call a Nifty50 target of 12,545 — bottom for the macro, necessi- 5.5 per cent higher from the tating more policy support. The current levels. As an investmarket, they say, craves a per- ment strategy, they prefer the sonal income tax cut but the corporate bank, insurance, government has appeared hes- infrastructure and healthcare itant given fiscal constraints. sectors. They are underweight “Even without an expendi- on consumer, autos, IT services ture stimulus, we expect the and NBFCs. THE SMART INVESTOR 11 MUMBAI | TUESDAY, 19 NOVEMBER 2019 < . NEW INDIA ASSURANCE VS ICICI LOMBARD Buying property on auction is cheaper Size fails to beat profitability HOW THE NUMBERS STACK UP HAMSINI KARTHIK Mumbai, 18 November Q2 FY19 New India ICICI (~ crore) Assurance Lombard Net premium written 5,019 2,167 % YoY growth 19.5 -2.1 Underwriting profit/(loss)* -1,219 -32 % YoY growth* -9.4 -19.5 Investment income 1,609 501 % YoY growth 7.3 6.6 Operating profit 388 461 % YoY growth 56.1 2.7 Operating margin (%) 7.4 20.2 Net profit 347 346 % YoY growth 54.6 17.9 I CICI Lombard General Insurance Company and New India Assurance Company (NIA) hit the bourses around the same time in SeptemberNovember 2017. While the latter is the industry leader, the former rakes the top slot among private general insurers. With segments such as motor, health, fire and crop insurance being the stronghold of both players, they have nearly the same product profile. Yet, ICICI Lombard is more popular among investors, while fewer people seem optimistic on NIA. The dichotomy in investors’ preference is also visible in the stock price movements (see chart), especially in the past 18 months (since June 2018). ICICI Lombard stock price has more than doubled since listing, while NIA’s has eroded by 62 per cent. Not surprisingly, valuations, too, are poles apart, with NIA trad- But those at HDFC Securities think otherwise. “We note the company’s competitive positioning is only weakening and thus we remain concerned of its ability to write high quality business in the near future,” they said. This perhaps explains why NIA’s dependence on investment income is also quite pronounced and higher than that of ICICI Lombard. NIA also suffers from the overhang of a possible merger with other state-owned companies, talks of which have been doing the round of a while. Nonetheless, analysts at JP Morgan (and perhaps the only brokerage, going by Bloomberg polls) remain positive on the NIA stock. “As we do not expect ICICI Lombard’s combined ratio to improve much in the next couple of quarters, NIA’s potential underwriting gap narrowing with private players is likely to be the key investment thesis on the stock,” the analysts note. The New India Assurance ICICI Lombard Gen Ins 250 197 Base =100 200 150 100 42 Nov 13 2017 Nov 18 2019 50 0 *negative figures indicate a loss; Year-on-year decline indicates reduction in loss Source: Companies ing at 13 times, and ICICI Lombard at 33 times their respective FY21 estimated earnings. So, what explains this wide gap between the two stocks? Despite being the leader in the general insurance space, with a balance sheet nearly five-times and September quarter (Q2) premium about 2.5 times larger than ICICI Lombard’s, NIA’s ability to grow its profitability has remained a challenge. When compared against the 20.2 per cent operating profit margin that ICICI Lombard earned in Q2, NIA’s 7.4 per cent margin appears insipid. Weak operating performance driven by elevated claims ratio and operating expenses, and higher underwriting losses on the key motor and health insurance segments often lead to high underwriting losses for NIA. Positively, in Q2, underwriting losses narrowed down a bit for NIA, prompting analysts at JP Morgan to note that there is perhaps supporting evidence that the industry is gradually moving towards an underwriting upcycle. More on business-standard.com Debarring audit firms: PASSIVE INVESTMENT GAINS CURRENCY Apex court relief to Sebi SAMIE MODAK Mumbai, 18 November The Supreme Court on Monday stayed the observations made by the Securities Appellate Tribunal (SAT) that the Securities and Exchange Board of India (Sebi) had no power to debar auditors from auditing the books of a listed company. The apex court made the observation while hearing an appeal by the market regulator against an order passed by the SAT in the Price Waterhouse Coopers (PwC) matter. Sebi had debarred PwC from auditing any listed company for two years in connection with the decade-old Satyam scandal. “In a given case, a measure of debarring a person from entering the securities market will be justified, but in our view, banning an audit firm or an auditor from auditing the books of a listed company or from certifying any report of a listed company cannot be justified,” the SAT had observed on September 9, while quashing Sebi’s order in the PwC matter. The apex court move comes as a big relief to Sebi as the SAT order had led to jurisdictional ambiguity when it came to passing strictures against entities, such as audit firms, which are primarily governed by separate regulatory bodies. “Debarment of auditors comes within the purview of the Companies Act, so the SC move has helped in streamlining of the regulatory action,” said Vidisha Krishnan, partner, MV Kini & Co. Legal experts said many were waiting for the SC to give a final word in this matter as SAT observations had led to a lot of uncertainty. The regulator had used its powers under Section 11 and 11B of the Securities and Exchange Board of India Act, 1992, which allow it to take action against any entity to protect the interests of investors in the securities market. In January 2018, Sebi had issued an order banning PwC firms and a couple of its auditors from providing audit services to listed companies and market intermediaries for two years for their involvement in the multi-crore accounting scam at Ramalinga Rajupromoted Satyam. The scandal involving overstatement of bank and cash balances by over ~3,300 crore had come to light in January 2009. Sebi had also ordered disgorgement of over ~13 crore. The SAT partially upheld the disgorgement, stating PwC wasn’t justified in retaining the fee it earned from Satyam. The apex court on Monday also issued notices to PwC, its associate audit firms and two of its auditors on the appeal filed by Sebi against the SAT order. The court will take up the matter once all parties submit their replies. Exchange-traded funds (ETFs) are gaining traction as investment vehicles, given their low-cost structure and better returns to actively-managed schemes. In the past five years, assets under management (AUM) of ETF schemes have jumped more than 30fold to ~1.47 trillion. While ETFs are still a small fraction of the total AUM, market players say the share of passive investment vehicles will only grow in the years ahead. Also, the market is expected to expand as more schemes get launched in the debt segment. In some developed countries, debt ETFs account for a bigger chunk of the total ETF market. In India, currently, it is only 2 per cent. On the equity side, experts say investors may increasingly prefer ETFs over actively large-cap schemes as the return scorecard in recent years has been in favour SAMIE MODAK of the former. DOMESTIC INVESTORS HAVE WARMED UP TO ETF INVESTMENTS One has to do serious groundwork, and take help from a seasoned lawyer BINDISHA SARANG Plagued by non-performing assets, banks are busy putting properties up for sale. State Bank of India alone has auctioned ~700 crore worth of properties this month. Samantak Das, chief economist and head of research and REIS, JLL India, says, “The offer price of such properties is linked to the loan outstanding. Usually, you may get the properties at 10-25 per cent discount-to-market value.” Sathya Kalyanasundaram, country head and managing director, Experian India, says, “Foreclosure is when an individual prepays his or her loan before the agreed loan tenure. However, if an individual is not able to repay the home loan, and the lender has to repossess the home asset, this will reflect as a delinquent tradeline in customers’ credit reports. The case may even be indicated as ‘written off’ by the lender. The high delinquency in a report and/or the written-off status indicates gross repayment indiscipline.” offered at a discount, they may have pending issues or liabilities, which need to be adequately investigated. So, getting a lawyer and property valuator is essential. Mumbai-based lawyer Pratibha Bangera says, “A lawyer can find out if there are other bank claims or litigations against the same property, whether the bank has original title deeds and loan details and pending dues. In addition to calculating default price and market value, the lawyer will also know if, in reality, these prices can go beyond the market price if society dues or other charges are in dispute with the bank or if it is being sold on an ‘as is where is’ basis. Sometimes, there could be a tenant who may have adverse possession rights to the property. Sometimes even society or municipal authorities may have some claim for illegal additions or alterations. So such properties should not be purchased without the help of a lawyer who understands property.” In short, ensure you do proper due diligence. YOUR MONEY Number of ways to apply: You can bid in an auction — online or offline. Banks usually advertise the sale in local newspapers inviting the bid. Distressed property aggregators, such as Foreclosure.com, NPAsource.com, and bankauctions.com or direct bank’s auction site like sbi.auctiontiger.net, list the details of the property, price, auctioneering bank, and date of auction on their websites. Some sites even conduct online auctions. Das says, “Once you get preliminary information about an auction, you should see the property with a bank official. Check for structure, the physical condition of the property, etc.” Buyers need to bear in mind that though the properties are being Seal the deal: The bank that forecloses a property sets a ‘reserve price’ while auctioning it. This is based on the price at which the property was bought and the outstanding loan on it. To participate in the auction, you need to submit the required paperwork along with know-your-customer documents. And, a deposit of 10 per cent of the reserve price. On sale, the highest bidder wins. You have to pay onefourth the quotation within 24 hours, and you get a month or so to come up with the remaining amount. You can even apply for a home loan to buy the property, with your lender of choice, including the bank auctioning the property. Das says, “Get a valuator to know the real value of the property.” HOME LOAN PORTFOLIO NUMBERS* EQUITY ETFs DOMINATE THE SCENE AUM share (%) Debt WITHIN EQUITY, NIFTY 50-BASED ETFs HAVE THE BIGGEST SHARE Gold 2 Equity ETF break-up (%) Nifty Next 50 4 Other 1 1 Bharat 22 5 Nifty CPSE ETF Equity 8 94 Sensex 55 17 Bank Nifty 13 Sources: Amfi, NSE The balance amount was ~1,820,869 crore in January and there were 14,020,829 active accounts. Of this, 0.7% delayed payments between 90 and 180 days in terms of amount, and 1.4% in terms of accounts Jan Feb Mar Apr May Jun Balance amount 1,820,869 1,808,169 1,882,069 1,894,023 1,911,234 1,938,783 (In ~cr) Active 14,020,829 14,041,587 14,514,877 14,113,252 14,274,748 14,497,196 accounts Net 90+ 0.70 0.80 0.70 0.70 0.80 0.80 % amount Net 90+ 1.40 1.50 1.30 1.10 1.20 1.20 % accounts * Figures from Jan 2019 to June 2019 Source: Experian India COMMODITIES > Capacity utilisation of edible oil refineries falls Global mistrust over buying gold: Survey RAJESH BHAYANI Mumbai, 18 November Stagnant oilseed output, higher refined import hurt 6,110.8 -2.5 7.2 2,700.4 3.9 1,457.9* -3.7 1,642.9 0.3 16.8* -1.8 19.1 0.0 ENERGY Crude Oil ($/bbl) Natural Gas ($/mmBtu) 63.2* 7.7 62.8 7.6 2.6* 18.2 2.6 18.3 AGRI COMMODITIES ($/tonne) Wheat 186.2 11.4 302.8 3.6 Sugar 335.9* 6.9 486.8 0.8 635.0 17.6 1,007.4 17.5 Palm oil Rubber Cotton 1,485.6* -8.3 1,418.2 7.1 1,795.7 -11.9 1,572.9 -8.0 * As on Nov 18, 1800 hrs IST, # Change Over 3 Months Conversion rate 1 USD = 71.8 & 1 Ounce = 31.1032316 grams. Notes: 1) International metals, Indian basket crude, Malaysia Palm oil, Wheat LIFFE and Coffee Karnataka robusta pertains to previous days price. 2) International metal are LME Spot prices and domestic metal are Mumbai local spot prices except for Steel. 3) International Crude oil is Brent crude and Domestic Crude oil is Indian basket. 4) International Natural gas is Nymex near month future & domestic natural gas is MCX near month futures. 5) International Wheat, White sugar & Coffee Robusta are LIFF E future prices of near month contract. 6) International Maize is MATIF near month future, Rubber is Tokyo-TOCOM near month future and Palm oil is Malaysia FOB spot price. 7) Domestic Wheat & Maize are NCDEX future prices of near month contract, Palm oil & Rubber are NCDEX spot prices. 8) Domestic Coffee is Karnataka robusta and Sugar is M30 Mumbai local spot price. 9) International cotton is Cotton no.2-NYBOT near month future & domestic cotton is MCX Future prices near month futures. Source: Bloomberg Compiled by BS Research Bureau 2014-15 2015-16 2016-17 2017-18 2018-19 16.4* 1.8 33.4 2,427.0 15.6 5,812.0 Zinc Silver ($/ounce) -5.2 32.3 Copper Gold ($/ounce) 1,879.2 15.0 1,741.0 -0.8 31.5 METALS ($/tonne) Aluminium A 15.4 Domestic Price %Chg# ------------------------------------------------------------------------------ (In million tonnes) 31.3 International Price %Chg# ------------------------------------------------------------------------------ 14.7 As on Nov 18 verage capacity utilisation at Indian edible oil refineries has fallen to 46 per cent, a decline by half in the past five years. The industry says this is due to stagnant oilseed production and increase in vegetable oil import, to meet the country’s rising demand. Data compiled by the apex industry body, the Solvent Extractors’ Association (SEA), says average capacity utilisation was 65 per cent five years earlier. And, in that period, expecting consumption to rise, oil mills have created six to seven million tonnes (mt) of additional capacity, to around 33 mt annually now. The decline in utilisation, says SEA, indicates closure of some parts of large units and full shutdown of small and medium sized units, rendering thousands unemployed and idling investment worth crores. Such closure creates “undue pressure” on oilseed prices, which have in the past five years often slipped to no more than the government’s Minimum Support Price (MSP), triggering farmer discontent and protests. Import of refined oil has increased by 64 per cent to around 2.7 mt for oil year (NovemberOctober) 2018-19 as compared to nearly 1.7 mt in 2014-15. Its share in India’s overall import of refined and crude edible oil was 18 per cent for 2018-19, from 12 per cent in 2014-15, though the overall import figure rose only marginally to 14.9 mt, DIPPING SUPPLY India’s availability of oilseeds & edible oil nOilseeds output nVegetable oil import 25.3 Mumbai, 18 November CARD 14.6 > PRICE 27.5 DILIP KUMAR JHA 2019-20# Note: Oilseed output for June-July; Vegetable oil import for October-November # 1st advance kharif estimates plus rabi output of last year, * estimates Sources: Directorate of Economics & Statistics, The Solvent Extractors' Association of India; Compiled by BS Research Bureau from 14.4 mt in the period. Apart from edible oils, India also imports palm derivatives to the tune of around 600,000 tonnes annually, for use in soap and detergent making. Overall import of palm products was 15 mt for 2018-19. The variation in capacity utilisation of Indian edible oil refineries depends on what is termed oilseed crushing parity, the profit on making oil from local oilseed versus imported refined oil. Normally, the operating capacity of domestic units declines if this parity turns negative or unviable (import becoming cheaper than oil produced from local seeds). In this case, domestic edible oil refineries import crude palm oil (CPO), mostly from Indonesia, for blending with locally produced oil for selling. When refined oil becomes cheaper than CPO, refineries shift their import of refined, bleached and deodorised (RBD or refined) oil from Malaysia for repacking in local units and selling. Also, capacity utilisation of Indian refineries depends on oilseed availability. Output has stayed at 33 mt annually for five years. Import of palm derivatives faces a 7.5 per cent duty; it is 40 per cent on crude oil. Import from Malaysia has resumed after a month of pause, with the latter’s exporters offering a discount of $5 a tonne to pricess quoted by their competitors in Indonesia. Earlier, after the Malaysisan prime minister’s critical remarks on the Indian parliament’s abrogation of earlier Constittuional protections for Jammu & Kashmir, the trade had asked its members to stop import from that country, as a patriotic gesture. A retail consumer survey by the World Gold Council has some surprises. The survey was done in the June and September quarters by the Council, an association whose members comprise the world’s leading gold mining companies. Retail here refers to individual buyers, as opposed to institutional ones. The survey reveals gold to be the third most consistently bought investment, with 46 per cent of global retail investors choosing gold products, behind only savings accounts (78 per cent) and life insurance (54 per cent). Looking at jewellery, the survey shows 56 per cent have bought fine gold jewellery, compared to 34 per cent who have bought platinum jewellery. However, there is also global mistrust regarding the buying of gold. The survey says: “There is some mistrust among those that have never bought gold in the past but are open to the idea of buying it in the future, with 48 per cent and 28 per cent of all potential investment and jewellery consumers, respectively, citing lack of trust as a significant barrier. That could be mistrust around fake or counterfeit bars and coins, product purity or trustworthiness of some retailers.” Of the 48 per cent who have not invested in gold due to mistrust, 28 per cent said they were worried about fake WHAT WORLD GOLD COUNCIL SAYS | 18,000 consumers surveyed across major markets | 48% said they will buy gold again | 38% new buyers waiting to buy | More and more millennials buy pink and white gold in US and China while Indian young consumers are traditional | More consumers in 18-22 age group want to buy gold in India than US or China | 31% of urban Indians prefer to buy with Roboadvisors’ recommendations Govt raises duty drawback rates for gold, silver jewellery exports The government has increased duty drawback rates for gold and silver jewellery, a move that would make Indian exports from these sectors more competitive in the global market. The drawback rates have been raised to ~372.9 per gram for gold jewellery from ~272 per gram, according to the finance ministry notification. Similarly, for silver jewellery, it has been raised to ~4,332.2 per kilogram, from ~3,254. gold. Of the 28 per cent who have not bought jewellery, 19 per cent said they stayed away due to purity being not guaranteed, as they saw it, while 14 per cent did not trust retail jewellers. Trust has been a perpetual issue in India. However, that has not stopped the buying of jewellery, albeit largely for marriage. Hallmarking has been promoted aggressively by the Bureau of Indian Standards and, according to BIS data provided by the Indian Association of Hallmarking Centres, 90 per cent of jewellery manufac- tured in this country is now hallmarked. The survey says 48 per cent of those who had bought gold in the past are considering doing so again. Of those who’d never bought it, 38 per cent are interested in buying; 13 per cent want to stay away from buying. Countrywide, 49 per cent want to buy again. In America, 48 per cent of citizens are also considering it; the proportion is 56 per cent in China. PTI More on business-standard.com BRAND WORLD 13 MUMBAI | TUESDAY, 19 NOVEMBER 2019 < . Alia, Ranbir make hay while the brand shines Curiosity about the relationship between the two actors has translated into advertiser interest. But will it last? VIVEAT SUSAN PINTO Mumbai, 18 November hey look coyly at each other in a commercial for a pack of chips, currently on air. Actors Alia Bhatt and Ranbir Kapoor are the most stylish couple, according to a survey by Mumbai-based Indian Institute of Human Brands, promoted by ad man Sandeep Goyal and the latest entrants into the league of couple-brands. But the question is: Will their magic last? The actors, the only unmarried ‘power couple’ presently around, have a few brands banking on their star appeal. This includes Lay’s from PepsiCo India and Flipkart Fashion, the latter they endorse individually as well. Flipkart has launched at least two campaigns with the actors since May, and proposes to roll out more commercials and digital videos in the future. The stars have also done onground events and interviews together for Flipkart Fashion, launching their clothing collection and accessories. Celebrity managers said that Bhatt and Kapoor will be tracked closely by prospective advertisers seeking a new pair for their brands. “There is a curiosity factor with AliaRanbir, in part due to their relationship status and a certain feel-good factor that they bring to the table. Brands will be watching them closely as their relationship evolves,” said a celebrity manager, who has worked with Kapoor. It is nothing new for marketers to tap into “power couples”. For example, apparel brand Manyavar was among the early names in the business to leverage the personal rela- T > COUPLES AND BRANDS Alia Bhatt & Ranbir Kapoor: PepsiCo Lay’s, Flipkart Anushka Sharma & Virat Kohli: Manyavar, Myntra Deepika Padukone & Ranveer Singh: Lloyd AC Twinkle Khanna & Akshaye Kumar: P C Jewellers, Fortune Basmati Gauri & Shahrukh Khan: D’décor Kareena & Saif Ali Khan: Airbnb, VIP (luggage) tionship between Virat Kohli (who had been their ambassador for over a year) and Anushka Sharma for commercial gains. By releasing an ad with the two as a couple, just before they announced their impending marriage in December 2017, the brand cashed in on the huge public interest on the issue. In recent years, actor couples that have also tied the knot off the screen—DeepikaRanveer, Twinkle-Akshaye, Saif-Kareena, Genelia-Ritiesh and Ash-Abishek have all done ads together as married couples. So have Sharma and Kohli, who featured in a new Manyavar commercial as a married couple recently. Bhatt and Kapoor are yet to take the plunge even though they have declared their love for each other, thereby shovelling in huge amounts of attention from fans and followers, on their social media timelines. Brands track their profiles assiduously to see if they can ride on the popularity of the actors, cash in on the moments tent, uploading videos, photos and Instagram stories of their time together. He says that Bhatt and Kapoor are among the savviest users of social media and have routinely trended on Twitter as a couple. Their high profile and appeal is what led him, he says, to include them in his study despite their unmarried status. When announcing Bhatt and Kapoor as brand ambassadors of Lay’s, Dilen Gandhi, senior director, marketing, foods category, PepsiCo India, said, “Both Alia and Ranbir are youth icons and are talented actors of their generation. Combining Lay’s with Alia and Ranbir’s talents, will enable us to tell the kind of stories that resonate with consumers across the country.” Both actors demand close to ~3 crore per brand a day as endorsement fees and hiring them as a couple would mean that advertisers would have to fork out at least ~6 crore for a day’s shoot for a brand. For the time being, advertisers seem prepared to pick up the tab. FROM PAGE 1 Budget to focus... “Unlocking private investment will be the key to beating slowdown. Steps have already been taken over the past few months, and there will be more in the budget,” he pointed out. “The last five years were about making welfare and social sector schemes more targeted and efficient. The next five will be about growth and the private sector,” he added. In fact, the proposed tax measures for the Budget are something that people in the top levels of the government are taking a keen interest in. To arrest slowdown, Finance Minister Nirmala Sitharaman in September announced steep cuts in corporation tax rates, effective from April 1 this fiscal, despite some opposition within the bureaucracy. The rate was cut to 22 per cent from 30 per cent for the existing companies that do not get any exemptions, and to 15 per cent from 25 per cent for new manufacturing companies. Apart from corporation tax cuts, Sitharaman has in the recent past made several sector-specific announcements aimed at MSME, housing, non-banking financial companies and other sectors to alleviate the deep consumption slowdown. The FM has over the last few months been interacting with tax officials, representatives of industry and MSMEs and other stakeholders across cities. She’s learnt to have taken extensive feedback from stakeholders during those interactions, much before the traditional pre-budget meetings. Real GDP growth for the April-June > in their relationship. Kapoor is managed by Kwan Entertainment, while Bhatt is handled by Matrix India. Both companies were not immediately available for their comment. Lay’s, incidentally, was the first joint endorsement deal signed by Kapoor and Bhatt and the buzz is that more advertisers are queuing up as the stars prepare for release of their films shortly. Bhatt and Kapoor will be seen in director Ayan Mukherji’s movie Brahmastra, which releases next month. The film’s publicity team has been releasing behind-the-scene videos and sneak peeks of the film’s shoot for some time now. It is no coincidence that social media chatter has been growing around their “wedding” as Brahmastra’s release draws near, said several. Goyal says that Bhatt and Kapoor have a youthful appeal and seem to enjoy each other’s company despite their hectic schedules. Both actors also seem to be feeding into social media’s growing need for con- quarter was 5 per cent, the lowest since 2013. The nominal GDP growth came in at 8 per cent, the lowest since the third quarter of 2002-03. July-September quarter numbers could hover around 4 per cent, estimates suggest. For 2019-20, the growth could be between 5 and 6 per cent. Airtel, Voda... “To ensure its customers continue to enjoy world-class digital experiences, Vodafone Idea will suitably increase the prices of its tariffs effective December 1, 2019,” said the company’s statement on Monday. It added that Vodafone Idea will continue to actively invest in making its network future-fit by embedding new-age technologies and launching new products/services to cater to the evolving needs of its over 300 million customers. “The telecom sector is highly capital intensive with fast-changing technology cycles that require continuing investments. It is, therefore, extremely important that the industry remains viable to support the vision of Digital India,” said Bharti Airtel in a statement soon after. Mobile data charges in India are by far the cheapest in the world, even as the demand has grown. From October 10 onwards, Reliance Jio started charging customers 6 paise a minute for making calls to any non-Jio mobile number. Till then, it was for free. This initiative came at a time when Jio already commands a bulk of the market share. The additional charge was introduced soon after Trai moved to reopen the deadline for ending charges for terminating calls on # 2899 rival networks beyond January 2020. BS SUDOKU Steel firms... SOLUTION TO #2898 Hard: Solution tomorrow HOW TO PLAY Fill in the grid so that every row, every column and every 3x3 box contains the digits 1 to 9 Posco, which supplies automotive steel to the domestic market, said some contracts had been done and some were pending. In the analysts call after the second quarter results, JSW had indicated that there would be some correction because the first-half prices had been stable for the automotive customers. It is in the process of negotiating contracts. The suppliers who meet the 10 million tonne automotive steel demand are Tata Steel, Tata Steel BSL, JSW Steel, Essar Steel, Posco, and some long product producers. For the past few years, the industry has been consistently focusing on the valueadded mix, with a focus on the automotive segment. The prices of the benchmark cold-rolled close-annealed (CRCA) products have been revised to ~48,000 a tonne from ~54,000 a tonne. CRCA products are used in a car’s exterior. Prices of auto-grade hot rolled products — used in body panels — were revised to ~38,000 a tonne from ~44,000 a tonne. Steel accounts for 50 per cent of a car’s weight. For two-wheelers, it is lower. Auto sales have been in the slow lane for the past 11 months which has hurt the steel industry as well. Most companies have been resorting to exports to offset the slide in demand. In October, however, festive demand bumped up sales marginally. Passenger vehicle sales in October rose 0.28 per cent to 285,027 units, stemming the slide. Overall vehicle sales, though, recorded a decline. A steel producer said lower prices would hopefully support the auto sector. Bang, however said, “The situation in the Indian economy needs to get better for auto sales to pick up.” NHAI to pay... Under the value-capture financing mechanism, states can agree to pay 25 per cent of the acquisition cost and they will get a priority in project execution. “One such case is of the government of Kerala, which has agreed to pay 25 per cent of the land cost for national highways in the state,” an NHAI official told Business Standard. The reason for this is the high cost of land, most of which is in urban areas, and the state needs better road connectivity because of floods in the last two consecutive years. In addition to this, the upcoming projects under the Bharatmala scheme will be executed through this mechanism. The Ministry of Road Transport and Highways has been grappling with higher land acquisition cost for the past few years. Approximately, a cost of ~12 crore per km is incurred in the expansion of a highway from two-lane to four-lane and the number would be five-six times higher in a greenfield project like an expressway. The cost of the marquee Eastern Peripheral Expressway is ~11,000 crore, of which ~5,673.05 crore was the land cost. “These are steps to address the larger issue of increasing land cost,” another official said. While the allocation for the NHAI has risen in the past couple of years, the authority’s IEBR (Internal and Extra Budgetary Resources) has also gone up. IEBR is the money the department raises in the form of profit, debt, and equity. In FY18, the NHAI’s IEBR was ~50,532.41 crore. It went up to ~62,000 crore in FY19 and further to ~75,000 crore in FY20. Money market... A year ago, the credit market nearly froze as IL&FS started defaulting from September, and governance concerns emerged in systematically important non-banking finance companies (NBFC). The bond market still gave money to good companies, but at a high rate. For average companies though, both the bond and credit market became inaccessible as lenders became risk averse. More on www.business-standard.com 14 COMPANIES 1 MUMBAI | TUESDAY, 19 NOVEMBER 2019 > Arcelor hopes to complete Essar buy by Dec-end AIRLINES’ OCCUPANCY IN OCTOBER Driven bylowfares, airlines managed to maintain their capacity despite sagging demand. According to estimates, demand was atits peakduring the festive season. On an average, airfares on metro routes were down by20-25% for tickets booked in the past seven days, compared to the same period lastyear. This trend has gained momentum in November also. COMPILED BYARINDAM MAJUMDER = 10% SPICEJET 90.0 INDIGO 85.1 Clocks first net profit of ~49 crore for FY19; sales rise twofold GOAIR 83.1 YUVRAJ MALIK Bengaluru, 18 November Source: DGCA 83.0 AIRASIA INDIA VISTARA 77.9 AIR INDIA 76.0 Patanjali stabilises biz; revenue up 2.4% ARNAB DUTTA New Delhi, 18 November After completion, ArcelorMittal will jointly own and operate ESIL in partnership rcelorMittal is expect- with Nippon Steel ing to complete the Corporation (Nippon Steel), transaction for Essar Japan's largest steel producer Steel before the end of and the third-largest steel December. producer in the world, in-line ArcelorMittal with the joint venannounced that The acquisition of ture (JV) formafollowing receipt ESIL would make tion agreement and review of the its owners the signed by the two formal written fourth-largest companies. order, Arcelor has a player in the ArcelorMittal 60:40 JV with second-biggest India Private market for steel Nippon Steel. Limited's (AMIPL) Nippon Steel said resolution plan for Essar in its statement, Steel India (ESIL) has been “ArcelorMittal and Nippon unconditionally approved by Steel have agreed that the the Supreme Court. “The share capital ratio will be 60 Supreme Court approval of per cent for ArcelorMittal AMIPL's resolution plan is and 40 per cent for Nippon the final procedural step in Steel and that both compaESIL's corporate insolvency nies will have equal repreprocess. Completion of the sentation and voting rights transaction is now expected on its board of directors. The before the end of the year," it JV will be jointly controlled said. and be accounted for based ISHITA AYAN DUTT Kolkata, 18 November A on the equity method by both companies.” With the Supreme Court approval of AMIPL’s resolution plan, the last hurdle in the acquisition of ESIL was cleared. The corporate insolvency process for the firm has stretched beyond 835 days. The acquisition of ESIL would make its owners the fourth-largest player in the second-biggest market for steel. The ~42,000-crore bid gives the steel makers an effective steelmaking capacity of 9.6 million and pellet making capacity of 20 million tonnes. The pellet capacity is spread over Vishakhapatnam and Paradip - eight million tonnes is in Vishakhapatnam and 12 million tonnes in Paradip - of which six million tonnes is operational. However, some last mile funding will take it to full capacity. After a year of faltering sales, Patanjali Ayurved has managed to address the slide. The ayurveda major clocked ~8,330 crore turnover for 201819, 2.4 per cent higher than ~8,136 crore it had posted in 2017-18, according to its fillings with the Registrar of Companies. While the company did not reveal its profit or loss for the period, according to its fillings, food and beverages was the largest category — accounting for 62.23 per cent or ~5,184 crore of its total sales. Chemical-based products, pharmaceuticals, medicinal chemicals and botanical products — primarily representing its personal care range — contributed 34.99 per cent to its top line. Wood and wood products, furniture, paper and paper products contributed 2.4 per cent. The top line growth for Patanjali that once used to grow by leaps and bounds — between 2012-13 and 2016-17 — has come down since. However, its performance last year indicates a turnaround from the downward slope that it found itself in 2017-18. From ~8,964 crore operating revenue in 2016-17, it A paranoid guide to fighting the ‘bugging epidemic’ With surveillance gear cheaper and easier to use, security experts say checking your environment for cameras and microphones is not a crazy idea KATE MURPHY 18 November People worry that Big Brother and Big Tech are invading their privacy. But a more immediate concern may be the guy next door or a shifty co-worker. A growing array of socalled smart surveillance products have made it easy to secretly live-stream or record what other people are saying or doing. Consumer spending on surveillance cameras in the United States will reach $4 billion in 2023, up from $2.1 billion in 2018, according to the technology market research firm Strategy Analytics. Unit sales of consumer surveillance devices are expected to more than double from last year. The problem is all that gear is not necessarily being used to fight burglars or keep an eye on the dog while she’s home alone. Tiny cameras have been found in places where they shouldn’t be, like Airbnb rentals, public bathrooms and gym locker rooms. So often, in fact, that security experts warn that we are in the throes of a “bugging epidemic.” It is not paranoid to take precautions. A lot of spy gear is detectable if you know what to look for, said Charles Patterson, president of Exec Security, a firm in Tarrytown, N.Y., that specializes in corporate counterespionage. Look for anything in your surroundings that appears disturbed, out of place or odd. Surveillance can be done by more than clunky nanny cams. It can be conducted with wireless microdevices, some as small as a postage stamp, that can be stashed in hard-to-spot places like inside clocks, light fixtures and air vents. Be wary of anything with an inexplicable hole in it, like a hole drilled into a hair-dryer mount in a hotel bathroom. And scrutinize any wires trailing out of something that’s not obviously electronic, like a desk, a bookcase or a plant. “A basic physical inspection is something everybody can do,” Mr. Patterson said. Another low-cost way to spot surveillance equipment is turning off the lights and using a flashlight to scan a room to see if the lens of a camera shines back at you. If you don’t have a flashlight, look around using the frontfacing camera on your smartphone (the side you use for video chats), which may allow you to see the otherwise invisible infrared light that spy cameras emit. A quick way to see if your phone’s camera detects infrared light is to look at your television remote through the viewfinder. If you can see a light flash on the tip of the remote when you press its buttons, you’re good to go. You can also download the Fing app on your smartphone, which when activated will show you all the devices connected to your Wi-Fi network. Anything that includes the name of a camera manufacturer — like Nest, Arlo or Wyze — or that the app flags as a possible camera is cause for concern. As is anything that you can’t readily identify. More sophisticated voyeurs may use spy gear that has its own hot spot for live streaming. So it’s a good idea to check for other Wi-Fi networks in the vicinity that have a strong signal. But that won’t help if the device is recording everything onto a tiny memory card for the peeper to retrieve later. If you want to be more comprehensive in your sweep, several do-it-yourself counter-surveillance tools are available. Among the easierto-use devices are specially designed camera lens detectors. They cost $200 to $400 and emit a circle of superbright red LED strobe lights. When you scan the room looking through the viewfinder, even the tiniest camera lens will appear to blink back at you, giving away its location. “I used to sell mostly cameras, but in last few years it’s more detection devices,” said Jill Johnston, chief executive of KJB Security Products in Nashville. “There are just a lot more things to spy on you with. It’s really changing our business model, to be honest.” Also popular are radio frequency, or R.F., detectors that can pick up signals emitted by surveillance devices. While you can get them for as little as $40, the better models start at $300 and can cost as much as $8,000, depending on their ability to analyze and differentiate signals. Like old-fashioned metal detectors, R.F. detectors often produce a beep or tone that Urban Ladder turns profitable gets louder the closer you get to a transmitting radio signal. The more expensive versions have digital displays that detail the various radio frequencies detected and where they may be coming from. Most environments today are filled with radio signals. Unless you get the most expensive gear and the associated training offered by the manufacturer, you’re going to have a hard time knowing whether your place is bugged or you’re picking up a signal from your neighbor’s Wi-Fi or your wireless computer mouse or Bluetooth speaker. To reduce the number of false positives, security experts recommend first turning off or unplugging all your devices before you start your scan. Browsing Amazon and other online stores like Brickhouse Security and Spygadgets.com can also help. You’ll see that cameras and microphones don’t always look like cameras and microphones. They can look like smoke detectors, water bottles, air fresheners, cellphone chargers, pens, key chains, coffee makers, space heaters, birdhouses and plush toys. Of course, you can always get professional help. But a professional sweep of a home or an office can range from $1,500 to more than $10,000, depending on the size of the space, the number of nooks and crannies, and the amount of clutter. USA Bug Sweeps, a surveillance detection firm in Freehold, N.J., specializes in residential bug detection and does as many as three sweeps a day versus maybe one or two a week three years ago. Jimmie Mesis, the company’s chief executive, attributes the surge to recent news reports about cameras being hidden in homes by creepy landlords or handymen. ©TheNewYorkTimes REVENUE AT A GLANCE Patanjali’s revenue though remains lower than FY17 (~ cr) 2014-15 2015-16 2016-17 2017-18 2018-19 2,006 4,812 8,964 8,136 8,330 Source: Registrar of Companies fell by 9.3 per cent in 2017-18. According to the firm, introduction of goods and services tax (GST) in mid-2017, severely disrupted its operations. The initial glitches related to GST and the realignment work required due to its implementation cost the firm two months of its business in 2017. A report by CARE Ratings said the decline was “primarily because of its inability to adapt in time to the GST regime and develop infrastructure and supply chain.” To counter the falling sales, Patanjali had adopted a multipronged approach in 2018. The firm, which depended heavily on branded outlets till 2017, began going deeper into the market by adding mom and pop stores. To strengthen its sales and distribution in general trade, Patanjali hired 11,000 field personnel in mid-2018, and set a target of doubling that number within the financial year. Patanjali Ayurved, which used to see 70 per cent of its sales from branded Patanjali stores till early-2018, set a target of catering to three million outlets by end-2019. Patanjali, which was losing share to its rivals in the market like Hindustan Unilever and Colgate, regained some of the lost grounds during 2018-19. According to data from Nielsen, Colgate-Palmolive lost market share, primarily to Patanjali and Dabur. HUL’s share dipped by 80 basis points to 16.4 per cent. According to analyst firm Jefferies estimates, ColgatePalmolive lost its market share by eight percentage points since 2015 as Patanjali’s herbal-natural products attracted consumers. Colgate, in fact, launched a new sub-brand ‘Ved Shakti’ and revived the brand Cibaca to counter the growing threat. Online furniture retailer Urban Ladder has joined the league of select Indian startups such as Byju’s, PolicyBazaar, and OLX by turning profitable on net basis. The eight-year-old company posted net profit of ~49.4 crore and nearly 200 per cent jump in revenues for the financial year ended March 31, 2019. The results showed a turnaround in its fortunes as the company had suffered a loss of ~118.6 crore in FY18 and ~458 crore in the previous financial year. With investors now cautious of funding lossmaking businesses, start-ups have turned their focus on profitability and unit economics. Urban Ladder could not be immediately reached for comments. The Bengaluru based firm, started by IIM-B alumni Ashish Goel and Rajiv Srivatsa in 2012, had been on a major business realignment on its way to profitability and this also resulted in layoffs and bringing down focus to specific cities and states, instead of going on an expansion spree with its offline stores. Most recently, Srivatsa, who was also the chief product and technology officer of the company, announced his exit from executive roles. In the year under review, Urban Ladder’s revenues jumped 187 per cent to ~434 crore, according to the company’s regulatory filing accessed by business intelligence platform, Tofler. The overall revenue in this period was primarily aided by the rise in 'other income', which went up to ~135.5 crore from ~54 crore in FY18. Key components of ‘other income’ could not be immediately ascertained. The start-up’s total expen- CLIMBING THE LADDER FY18 FY19 ] (% change) ( ~ cr) ] (187) 434.0 151.2 (NA) 49.4 -118 Revenue Net profit/loss Source: Company diture went up 41 per cent to ~382 crore, even as employeerelated expenses dropped 3 per cent to ~51.98 crore. In July this year, Urban Ladder has let go around 90 employees and the move is expected to further bring down its employee benefits costs in the current financial year. The online furniture market in the country is mostly a duopoly between PepperFry and Urban Ladder, where the latter trails. Even though PepperyFry has not released its financial numbers for FY19, it has reported ~308 crore in revenues in FY18, though its losses for the period stood at ~258 crore. The much-desired profitability now puts Urban Ladder in a unique position as the company can now fund business growth from internal accruals, if it is able to maintain the profitability. It also comes at a time when Urban Ladder is witnessing a dry spell of funding, with the company failing to attract new investors. Its last two funding rounds in 2017 and 2018 were supported only by existing investors Sequoia, SAIF, and Steadview Capital. In total, the firm has raised ~745 crore, almost half of what PepperFry has raised, to date. 16 MUMBAI | TUESDAY, 19 NOVEMBER 2019 > More talks are needed on Maharashtra: Pawar PRESS TRUST OF INDIA New Delhi, 18 November A fter a meeting with Congress chief SoniaGandhi,NationalistCongress Party (NCP) chief Sharad Pawar on Monday queered the pitch for the Shiv Sena in formation of a new government in Maharashtra, saying this issue was not discussed and remained non-committal in forging an alliance with its political rival. As the deadlock over the government formation entered the 26th day with no signs of an early resolution, Prime Minister Narendra Modi set tongues wagging when he praised the NCP, the Congress’ prepoll ally, in the Rajya Sabha (RS) for strictly “adhering to parliamentary norms”. Maharashtra is currently NCP chief Sharad Pawar with Sunil Tatkare during a press conference after a meeting under President’s rule. with Congress President Sonia Gandhi PHOTO: PTI Addressing the RS on the occasion of “We will keep an eye on the situation Pawar, whose meeting with Gandhi at its 250th session, Modi said, “Today I want to appreciate two parties, NCP and Biju her residence in Delhi was being billed as a in Maharashtra. Congress and NCP leadJanata Dal (BJD). These parties have strict- major step towards a possible tie-up with ers will hold further talks on the future ly adhered to parliamentary norms.” The the Shiv Sena, said if the NCP and the course of action,” he added. The Congress for its part took to BJD headed by Naveen Patnaik is the ruling Congress have to take a view on forming a new government they have to first discuss Twitter to say that the representatives of party in Odisha. the prepoll allies will meet in Delhi to Modi said the members of the two par- it between themselves. Addressing a press conference after discuss the way forward. ties never rush to the Well of the House to “Sharad Pawar met the Congress raise their issues and yet highlight their his 50 minute-long meeting with Gandhi, he also said there was also no discussion president on Monday and briefed her points effectively. on the situation in Maharashtra. It was Keeping his cards close to his chest, on a common minimum programme. “There was no talk of government decided that in a day or two, represenPawar said he only discussed the political situationinMaharashtrawithSoniaGandhi formation in our meeting. This meeting tatives from NCP and Congress will and that the NCP and the Congress will was all about discussing Congress and meet in Delhi to discuss the way forhold talks with their other allies before tak- NCP and the situation in the state,” ward,” Congress Spokesperson Randeep Surjewala said in a tweet. ing a decision on government formation. Pawar said. POLICE HALT JNU STUDENTS’ MARCH TO PARLIAMENT Jawaharlal Nehru University (JNU) students try to break through police barricades during a protest march towards Parliament on Monday, on the first day of the winter session, demanding a total roll-back of the hostel fee hike. Delhi Police urged the students not to take law into their own hands and maintain peace. The HRD ministry appointed a threemember committee to recommend ways to restore normal functioning of JNU, officials said. The entry and exit points of three Delhi Metro stations near Parliament were reopened after a brief closure because of the ongoing protest, the authorities said PHOTO: PTI HK protesters trapped in campus siege, raising fears of crackdown Hong Kong police laid siege to a university on Monday, firing rubber bullets and tear gas to pin back anti-government protestersarmedwithpetrolbombs and other weapons and stop them from fleeing amid fears of a bloody crackdown. Dozens, choking on the tear gas, tried to leave the Polytechnic University by breaking through police lines after a night of mayhem in the Chinese-ruled city in which roads were blocked, a bridge set on fire and a police officer was shot by a bow and arrow. Some protesters were arrest- ed,tackledtotheground,asothers scrambled and tripped over barricades and fences as police pointed guns at them and threw punches. “The police might not storm the campus but it seems like they are trying to catch people as they attempt to run,” Democratic lawmaker Hui Chifung told Reuters. “It’s not optimistic now. They might all be arrested on campus. Lawmakers and school management are trying to liaise with the police but failed.” Police said officers had been deployed “on the periph- Three dead in shooting at Walmart store in Oklahoma Three people were killed in a shooting early Monday at a Walmart store in Duncan, Oklahoma, local media reported citing the state's highway patrol and local police. According to TNN television, Duncan Police Chief Danny Ford said the shooting took place in a parking lot in front of the store and the suspect is one of those killed. Schools in the area had been placed on lockdown temporarily before being given an "all clear" by local police, according to a Facebook statement from Duncan Public Schools. The shooting took place shortly before 10:00 am on Monday, police said. They said two men and a woman died in the incident. A gunman killed 22 people in a Walmart store in August in El Paso Texas, while another Walmart store in Mississippi was the scene of a shooting in July, when a disgruntled employee killed two coworkers and wounded a police officer. In the El Paso shooting, a 21-year-old gunman said he had launched the deadly attack in response to what he called a "Hispanic invasion" of Texas. AFP/PTI Trump: Strongly considering impeachment testimony USPresidentDonaldTrump saidonMondaythathe’s “stronglyconsidering” testifyinginhisown impeachmentinquiry, complimentingHouse SpeakerNancyPelosiforthe ideainatweetafteragain insultingherandcongressionalDemocratsforpursuing hisremovalfromoffice. Trump indicated that he thinks his testimony — possibly in writing — would be a way to resolve the inquiry and get Congress focused on issues he’d like to advance before his 2020 reelection campaign, including a new North American trade deal and drug prices. BLOOMBERG ery” of the campus for a week, appealing to “rioters” to leave. “All our warnings were ignored,” they said in a statement. “Our message was loud and clear, the violence has escalated to rioting.” They said “toxic and dangerous chemicals” had been stolen from the university laboratory. “We must warn that the university campus has become a powder keg where danger is far beyond what we can estimate,” police said. Police arrested 154 people aged between 13 and 54 over the weekend. Police said a car tried to hit an officer in the nearby Yau Ma Tei district on Sunday night, reversing and trying again. Police fired a shot and the driver fled. Thirty-eight people were wounded overnight on Sunday, the Hospital Authority said. Reuters witnesses saw some protesters suffering from burns from chemicals in jets fired from police water cannons. The High Court ruled on Monday the ban was unconstitutional and police said they would suspend all such prosecutions. REUTERS 1 Four soldiers, two porters killed in avalanche in Siachen Tata Steel plans to cut around 3,000 jobs across Europe New Delhi, 18 November Tata Steel plans to cut around 3,000 jobs across its European operations as it wrestles with excess supply, a source close to the discussions told Reuters on Monday. Earlier, the group's European chief executive Henrik Adam said Tata was planning to announce job cuts across the European business, which employs around 20,000 people, but did not give figures on job losses. Following a meeting of Dutch employees, a source AGENCIES Four soldiers and two civilian porters died after being trapped in snow for hours after an avalanche hit Army positions in northern Siachen Glacier on Monday. The soldiers were part of a patrolling group of eight; they died due to extreme hypothermia, defence officials said. The team was on patrol when the avalanche hit them around 3 pm. The Army launched a massive search and rescue operation to bring back the trapped soldiers. All the soldiers were pulled out of the debris; seven were critically injured. The soldiers were evacuated by helicopters to the nearest military hospital where they are undergoing treatment. The Siachen Glacier at the height of around 20,000 ft in the Karakoram range is known as the highest militarised zone in the world where the soldiers have to battle frostbite and high winds. told Reuters around 3,000 jobs would go and details would be worked out over the coming weeks. A Tata spokesman had no immediate comment on the number. Indian-owned Tata Steel, which launched a transformation programme in June to strengthen its European business, has operations including steelmaking in the Netherlands and Wales and downstream operations across Europe. REUTERS