Ordinary women, extraordinary work

Until a few days back, they were a mix of housewives from middle-class families and slum dwellers who worked as domestic help. Now they own a company -- Swamini Mahila Bachat Gat Akhil Sangh Ltd -- that will manufacture polythene bags.

At the heart of this turnaround are 160 women in Pimpri-Chinchwad, a city adjacent to Pune, who inaugurated their polythene bag unit in the industrial area of Talawade on May 28. 

SMBGAS has an initial order -- for 700 kg of bags per day for 250 days -- from Sumedh Polymers, a Pune-based manufacturer of plastic and polythene products which will market the bags in Dubai and the United States. The development has brought about immense confidence in the women, who now plan to manufacture 700 kg of polythene bags daily.

Some of the women are slum-dwellers who worked as domestic help; others are housewives who never thought of taking up jobs or generating employment for others.

With help from the Pimpri-Chinchwad Municipal Corporation, which has subsidised this project, as well as Sumedh Polymers (which helped the women draw up a business plan, and will also train them), the women have organised themselves into a self-help group named Swamini. Commercial production is expected to begin in the second week of July.

Sulabha Ubale, a political activist and member of the group, told Business Standard, "From being poor and socially deprived, the women are now empowered human beings. Many still find it difficult to believe that they own a small industrial unit which will change their future."

The investment in the project is Rs 1 crore (Rs 10 million), to start with. The women have jointly contributed Rs 20 lakh (Rs 2 million), while the PCMC has given SMBGAS a subsidy of Rs 30 lakh (Rs 3 million). The Bank of Baroda has advanced the unit a loan of Rs 50 lakh (Rs 5 million), which has to be repaid over a period of seven years. 

"The most interesting aspect of this project is that we have signed a seven year contract with Sumedh Polymers to supply polythene bags as per their requirements. This makes the business viable. We are recruiting 70 odd women at this unit and paying them a good salary," said Ubale. 

"The unit will supply plastic bags to Sumedh Polymers, which will export them to Dubai and the US. Hence, we need to manufacture bags to specific standards. Over the next one month, we will undergo extensive training and then begin commercial production," said Swati Mujumdar, an activist.

She added, "We are not focusing on profits, as this unit has been set up to bring about social change. Once the women are employed, they will deliver better results and the business will grow automatically."

Mujumdar said, "Some 11 self-help groups were formed in Pimpri-Chinchwad around 15 months back. These groups had their own savings, which were added to the financial assistance by PCMC."

SMBGAS has the capacity to manufacture 700 kg of polythene bags daily and it will sell them to Sumedh Polymers at Rs 18 per kg. This is expected to generate annual revenues of about Rs 36 crore (Rs 360 million) for the unit.

After paying various taxes, salaries, the loan installments and other expenses, SMBGAS expects to earn a profit of Rs 4 lakh (Rs 400,000) in the first year of operations. Six months after the start of operations, it will begin making polythene sheets, tarpaulin sheets and a few other products as well.

Chanda Bhande, a vegetable vendor and chief of a self-help group, said, "I only knew how to sell vegetables and run my house. Things have now changed for me. I am making money and also helping others to earn money."

Damayanti Gaekwad, another member, added, "This has worked as a confidence building exercise for us. We want to expand the business beyond this single unit."

RBI deputy governor hints at small savings rate cut

A reduction in government-administered small savings rate will signal a benign interest rate regime and facilitate reduction in banks' lending and deposit rates, according to K C Chakrabarty, who on Monday took over as the Reserve Bank of India's deputy governor.

In his first interaction with the media after taking charge, the former chairman and managing director of Punjab National Bank said, "When the government is giving a certain interest rate on small savings, it is not logically correct for banks to provide a lower rate of interest. When we are saying that interest rates are coming down, that means the small savings rate should also come down."

However, he said the small savings rate was not the only factor influencing lending and deposit rates. "A slight increase or decrease in the small savings rate will not greatly affect bank deposits, but this is a directional issue," said Chakrabarty.

Small savings schemes such as public provident fund and post office deposits earn around 8 per cent a year. Bankers cite this as an impediment to lowering deposit rates and, consequently, lending rates.

At the RBI, Chakrabarty will oversee eight departments, including customer service, administration and personnel management, information technology, payment and settlement systems, human resources development, the Rajbhasha department, rural planning and credit and urban banks. He will also serve as the alternate appellate authority under the Right to Information Act, 2005.

On consolidation in the banking sector, Chakrabarty said financial inclusion was more important than consolidation in a country where 60 per cent of the population did not have access to banking facilities.

He said consolidation was necessary and unavoidable and a road map for it should be drawn in the next three-five years.

Asked about the possibility of the government selling its stake in public sector banks, Chakrabarty said the issue was whether these banks were adequately capitalised to meet their lending targets.

"On this matter, the finance minister has categorically assured that public sector banks will not suffer due to inadequate capital."

Chakrabarty is the RBI's 51st deputy governor. Commenting on his move from a commercial bank to the central bank, Chakrabarty said, "It is the dream of every commercial banker to become a central banker and after spending 30 years in commercial banks, I am now part of the central bank."

Can this government deliver what India needs?

The exercise that I am asking you to attempt is simple.

Let us take government as a black box whose internal workings we shall try not to apply our mind to. You are feeding your tax money into this black box and standing at the out gate to receive something in return -- some basic services that all respectable governments want to ensure for their people like potable water, food, shelter, roads, healthcare, education, power, security and the like.

The result at this out gate is startling every time you look at it afresh.

There are over 300 million Indians living in abject poverty, while those above them face deprivation in different spheres, whether it is in education or shelter or energy. Drastic improvement is required in the basic human development indicators. My belief is that there is a better chance of that happening if money is directly taken from the taxpayers and given to the needy in some form of cash transfer than if money is routed though the black box of the government, with all its inefficiencies and susceptibility to vested interests.

The government has already dabbled with some cash transfer schemes focusing on the girl child (Ladli, Dhanalakshmi, Janani Suraksha Yojana and so on) and more are being talked about. It is obvious that one hop in this transfer of cash can be reduced -- instead of the money going from the taxpayer to the government to the poor, it can be directly channelised to the poor, supported by a smart system of fiscal incentives.

There are many people, and companies, who would happily set aside money to sponsor a child, or a child's education, or pay for healthcare or food of the poor, as long as they can see the results.

Seeing the 100 students that have gained an education from your (tax) money definitely beats seeing where your tax money is going in the annual budget statement under the 'rupee goes to' head which reads something like this in the current year: 20 per towards interest payments (which is the largest head), 13 per cent on defence, 9 per cent on subsidies, 18 per cent on the central plan, 15 per cent to states as their share of taxes and duties, and so on.

The economists would have their own view on such a direct transfer mechanism and there would be questions on the practicality of the proposal, but such a scheme is likely to be more effective in denting the poverty numbers and taking us closer to our development goals than elaborate and inefficient government programmes, of which more are in the making by ministers in the new government.

Walk through even the most somnolent ministries and you are likely to see a flurry of activity as these new ministers get down to the task of formulating a 100-day agenda as if the agenda is an end in itself.

There has been an agenda on road development for the last few years. That did not yield roads. The power capacity addition programme did not bring in additional power capacity of any significant scale. If an agenda could substitute for action, we would be well on our way towards developed country status.

The new power minister -- who has been in the same ministry before -- reiterates his commitment to rural electrification and to power for all by 2012. The minister for small industries promises to address the credit needs of the sector. The heavy industries minister promises higher transparency in all transactions. The minister for housing and urban poverty alleviation talks about affordable housing for all and the plans for a slum-free city campaign. They could have been talking two or four or six years ago and would not have needed to change a single comma in their speeches.

We know that urban development is required. We know that people in a civilised society should not be forced to live in slums. We know that power is required. We know that the credit needs of the small scale sector need to be met. We know that the country needs adequate security. We know that there should be zero-tolerance for corruption.

What we need to know is what is being done to deliver results. What are the milestones that we should look out for standing at the out gate. That would be the real measure of any government's success. Nothing else!

ESPN STAR, advertisers on a sticky wicket

At least a dozen advertisers, including Reliance Communications, Nokia, Pepsi, Hero Honda, Maruti and Visa among others, and host broadcaster ESPN STAR Sports may find themselves on a sticky wicket with India's exit from the current world Twenty20 cricket tournament.

Advertisers are in a fix because they have invested around Rs 185 crore in ad spots for the tournament that is being broadcast on the STAR Cricket channel in India, and India's exit means they'll get less bang for the buck.

Ratings of non-India matches have consistently fallen below 1.5 per cent, which media planners consider extremely low for a popular cricket tournament, and this raises concerns over viewership for the remaining matches.

Since India has lost two of its fixtures in the Super Eight stage, it has no chance of making it to the semi-finals (it has one more match to play against South Africa). "With India out of the World Cup, the ratings for the semi-finals and finals may also fall extremely low, so the cost-per-ratings-point, the factor on which advertisers get their returns, will now work out very high," said a media planner requesting anonymity.

"With dismal ratings for the non-India matches, most of the regular advertisers are evaluating their options of continuing to use the T20 World Cup platform for their brands," added a senior executive of a leading media agency.

As a result, sources in the advertising industry added that ESPN STAR Sports may not be able to offload the 10 to 15 per cent inventory of ad spots it was reserving to sell at a premium for the semi-final and final matches. This could translate into a Rs 20 crore to Rs 25 crore loss. ESPN STAR Sports executives declined to comment on the issue.

Meanwhile, film exhibitor PVR Cinemas is also in trouble, having acquired the in-theatre telecast rights for the tournament for which it has to pay ESPN STAR Sports Rs 50,000 per match, per screen, irrespective of whether it sells tickets or not.

"Attendance was extremely low in the six theatres in which we broadcast the T20 match on Sunday. However, we will continue to telecast the remaining matches, since there is no compelling Bollywood movie lined up till June 21," said Gautam Dutta, CEO, PVR Cinemedia.

According to overnight ratings agency aMap, the India-England match on June 14 recorded a rating of 4.8 per cent on STAR Cricket, lower than the India-West Indies tie on June 12 that fetched a rating of 5.2 per cent, the highest so far in the current edition of the T20 World Cup.

It's business as usual for GM India

"Just media hype," said a relieved Sachin Kumar, executive of the Auto Vikas showroom of General Motors India in West Delhi's Moti Nagar. "There were some showroom queries on the first two days, but it died down."

If prospective consumers of GM's cars are visibly disturbed by the news that its United States parent has declared bankruptcy and filed for restructuring, it isn't apparent over here. All showroom staff have been directed to wear big badges with a 'There for you, there for India' logo. And zonal executives have been told to visit individual dealerships to directly tell customers that all's well and will continue to be so for GM India and its products. But the need doesn't seem pressing, given the scene at dealerships through the big cities.

"There has been a dip, about 15 per cent," said the manager of a Mumbai showroom, of the fortnight since the news of the giant's fall. But no cancellations. Enquiries are still flowing in."

The Detroit automaker filed for Chapter 11 bankruptcy protection on June 1 -- the largest auto industry bankruptcy in history.

The automotive industry in India has been going through a rough patch. The worst sales slump in eight years saw top automakers like Tata Motors and Mahindra & Mahindra cut production. Subsequently, government stimulus measures sparked a recovery, with car sales climbing for a fourth month in May and foreign car firms launching new models for India.

GM, which is dropping high profile brands, including its Hummer, Saturn and Saab brands, is now betting heavily on small cars and expanding in countries like India via new brands and local sourcing. It has 192 showrooms in the country and sold 61,526 cars last financial year.

"A few of our customers did cancel earlier bookings, but many others don't seem much aware of it," said the sales manager at Sundaram Motors, a long-time dealer in Bangalore for GM, one of two in the city. "Sales have been normal for the past 10 days."

"There was some apprehension in customers initially," admitted J K Singh, at Kolkata's India Automobiles' showroom. "But things improved after the company held press conferences and confirmed its India investment plans and launches were on track."

Added Rajesh Sanei, director of Dulichand Motors, another leading GM dealership in that city, "Customers are mostly concerned about spare parts availability, and we tell them we are maintaining ample stock and can refill as and when required from the plants."

"We are booking six-seven cars on an average every day and there has been no significant drop in bookings since December. Though, footfall is down by 5-10 per cent," said Sanei.

It helped that GM prepared the dealerships before the formal announcement. They were told of what was in the offing and what it meant and how to address the queries. Notably, for instance, they were told that no service warranty was being withdrawn, that the earlier planned launches of the LPG variant of the Spark, the Chevrolet Cruze and the Beat mini-car would all be held as planned, that the company was here to stay. And, that the Chapter 11 bankruptcy filing was meant to restructure and shed flab, to resume business, not to shut down.

"They assured us that there will be no supply problems for any spare parts or any other maintenance issue relating to the vehicles. And that GM India will continue to work, just as earlier," said the Mumbai dealership. "That they've invested more than $1 billion in India and are here to stay."

But what about the customers?

"When there were queries, we explained the difference between bankruptcy filing in India and the US, that this is meant to prevent closure. And on all the plans and launches for the Indian market," said Shashank Immanuel, sales executive at Delhi's Vardajyoti Automobiles. The giant displays in showrooms, on the three-year warranty or free maintenance for 100,000 km, unmatched by either Maruti or Hyundai, do help. And the tubeless tyres' offer.

"That three-year, no maintenance cost service on the Spark gets a good response," said a manager at Bangalore's Sundaram Motors. Each Indian dealership, said Kolkata's Sanei, keeps 150-200 cars in stock and that helps, too. More so, the 30-day stock of spare parts, something the company re-emphasised in the run-up.

At the moment, the Chevrolet Spark, the Aveo and the U-VA are the most sought after, says Kolkata's Sanei. His dealership booked 108 cars last month and the daily average pace has continued.

"It is the service back-up and spare parts that prospective buyers have on top of their minds, not the US news," says the Mumbai dealership, which sells around 100 cars a month. That gives their sales people a chance to pour out all the reassuring data.

"The average customer who comes to buy a Spark or to ask about a Tavera seems to be either ignorant about the Chapter 11 filing or has forgotten about it," said Auto Vikas in Delhi. "Only a few of our customers have cancelled their bookings and others don't seem much aware (of the US news)," echoes Sundaram Motors in Bangalore. "Overall, it's normal sales for the past 10 days."

"We tell everyone that the company sees India as a major market for growth," say executives at the Mumbai dealership. "The idea is that people, sooner or later, come to see GM India as part of the 'Good GM' unit."

Airtel allowed to 'unlock' Apple's iPhone

Apple has authorised Bharti Airtel  to 'unlock' its 3G iPhones, launched earlier, enabling the Indian company to sell it through their stores to any user, not necessarily only an Airtel subscriber.

This is in contrast to the existing practice of Apple in offering the iPhones - launched in two versions, 8 GB and 16 GB - bundled with the services of only two operators, Bharti Airtel and Vodafone-Essar.

According to Apple's global support site, Bharti Airtel has been authorised to legally unlock the iconic handsets in the country. Vodafone in Australia, Orange in Austria and Movistar in Argentina are among the 40 global carriers (Airtel is the only one in India) authorised to unlock the handsets.

The companies may also charge an additional fee for the unlocking, the website said.

When asked, a Bharti Airtel spokesperson declined to comment. Apple's spokesperson could not be spoken to.

According to sources, this means Bharti Airtel will continue to sell the handsets in the country, but it necessarily would not be exclusive to its user. A user can walk into Airtel's retail showrooms and buy an iPhone and use it with his or her existing connection. Airtel had a signed an agreement with Apple in May 2008 and was the second provider of the service in the country.

Meanwhile, bloggers said that unlocked iPhones were available in India at certain select retail outlets, and the phones were being sold at the prices at which Airtel and Vodafone were selling the locked ones. However, this could not be confirmed.

In India, the 8 GB model costs around Rs 31,000, while the 16 GB is priced at Rs 36,000. Apple will also launch the latest version, iPhone 3GS, billed as the "fastest, most powerful iPhone yet", on August 9.

Banks seek more sops for core financing

Banks have sought relaxation in norms for classifying loans to delayed infrastructure projects as sub-standard assets even as the Reserve Bank of India has indicated its unwillingness to ease the group exposure ceiling.

Bankers said that the issue of infrastructure financing came up for discussion during Finance Minister Pranab Mukherjee's meeting with public sector bank chiefs last week, where the lenders had sought tax breaks for accessing cheaper funds to finance infrastructure projects.

The suggestions included permission to issue tax-free bonds, access to refinance and tax exemptions on loans for infrastructure projects under the Income Tax Act. The government has already allowed India Infrastructure Finance Co to issue tax-free bonds and banks have also sought similar facility.

According to sources, the central bank was not keen on relaxing the group exposure ceiling despite government prodding. A higher ceiling could create concentration risk to certain industrial groups, it was felt.

According to the master circular on exposure norms issued by RBI in July last, a scheduled commercial bank's exposure to a single company is capped at 15 per cent of the capital funds, with an additional exposure of 5 per cent allowed for financing infrastructure projects. Similarly, the exposure ceiling to a group of companies is capped at 40 per cent, with an additional 10 per cent lending allowed for infrastructure projects.

With many infrastructure project developers, especially in the power sector, raising the issue, the finance ministry had written to RBI seeking relaxation.

But bankers present at last week's meeting said that the central bank has indicated that it would not relax the ceiling. "Exposure beyond 50 per cent can create problems, especially during uncertain times," said a bank chief. A senior executive of an infrastructure-focused finance company also said that the ceiling should not be raised.

At the meeting, sources said that the banks asked the apex bank to ease the provisioning norms for those infrastructure projects which were unable to start repayment on schedule due to project delays. "There are a lot of projects where implementation is delayed by a few months, but banks have to make provisions. It is not a case of default, but the provisions have to be made," said a banker.

According to RBI guidelines, in case of infrastructure projects financed by banks and financial institutions after May 28, 2002, the completion date has to be clearly spelt out at the time of financial closure. From April 1 last year, if the date of commencement of commercial production is beyond two years as originally envisaged, the account should be treated as a sub-standard asset, which requires provisioning.

In November 2008, a special dispensation was provided by RBI for seven infrastructure projects which, post-restructuring continued to be treated as standard assets.

The projects included Nandi Economic Corridor, gas-based power projects of GVK Industries, Gautami Power, Konaseema Gas Power, Vemagiri Power, a development project of Tirupur area and another  being implemented by Delhi Gurgaon Super Connectivity.

In addition, loans restructured under the special scheme announced last year can also be treated as standard assets despite restructuring.

Ambani brothers directed to take mother's help, again

The Bombay high court, while pronouncing the verdict on the gas dispute on Monday, advised the Ambani brothers for the second time to settle their row in consultation with their mother.

An executive with Anil Ambani's camp said: "In case the Mukesh Ambani group fails to agree with the terms and conditions of the new gas sale agreement, we will request Kokilaben to intervene in the matter, as requested by the court."

In RIL's case, an executive with the company said the order is not different from the earlier single-bench judgment, but he also added that the Mukesh Ambani camp will consider approaching the Supreme Court to protect the interests of shareholders.

"As it is more a company issue rather than a family matter, the meeting with Kokilaben need not be hyped," he pointed out.

In August last year, the Bombay high court had advised the Ambani brothers to seek the help of their mother to mend differences and were given four months' time. To this, the RNRL counsel said Anil Ambani was ready to renegotiate with his brother Mukesh. But they failed to reach an agreement within the stipulated time frame.

Similarly, both the groups were to meet for settling the row over the merger of Anil's Reliance Communication with South African telecom giant MTN in mid-2008. That time, Mukesh had claimed right of first refusal for the shares of RCom. Following this, the proposed talks between the groups did not happen and RCom called off the deal.

Interestingly, US magazine Time had come up with an advice for the billionaire brothers three months ago. Ahead of finalising its list of 100 most influential people in the world, Time had advised one of the probables Mukesh Ambani, to settle his spat with younger sibling Anil over a 'pillow fight' - using pillows stuffed with $1,000 bills.

Many times, the stocks of both group companies shot through the roof on rumours of a settlement between the brothers. The man who helped broker the demerger of the Reliance empire in 2005, K V Kamath, was rumoured to be playing mediator again in the fight. Both the group officials denied such moves on every occasion.

According to legal sources, the Ambani brothers are yet to sort at least a dozen issues even four years after splitting the Reliance business empire. The unresolved issues include claim over properties, such as a building in Mumbai's Bandra-Kurla Complex, a property in Mehrauli on the Delhi-Gurgaon highway, the Richmond Road property in Bangalore and some residential flats occupied by employees of both groups, in addition to the fight over shares of some companies which formed a part of the Anil Dhirubhai Ambani group after the division of assets in June 2005.

Focus on aam aadmi, infra: Colleagues to Pranab

Not a single voice in Finance Minister Pranab Mukherjee's pre-Budget meeting with Congress party office-bearers sought further economic reforms. Instead, the overwhelming demand from the party on the eve of the 2009-10 Budget was: take care of the 'aam aadmi (common man).'

A delegation of Congress party general secretaries, secretaries and other functionaries met the FM on Monday for the traditional pre-Budget meeting. Most demanded focus on four areas -- education, health, infrastructure, agriculture -- and provision of more budgetary support to these sectors. Sonia and Rahul Gandhi did not attend.

Among the aam aadmi measures, leaders sought an increase in the minimum support price mainly for sugarcane, income tax relief to the salaried class and more benefits to senior citizens. Suggestions were also made to increase subsidy for diesel for farmers and fishermen. Soft loans for minorities and SC/STs were also demanded.

But issues like disinvestment, SEZ amendments, insurance bill or financial sector reforms were not discussed. Many leaders said infrastructure should be given priority, as the sector is able to churn jobs and investments.

Former Union home minister Shivraj Patil initiated the discussion and gave his vision of the next budget, stressing on enhanced outlay for the defence and home ministries, along with social sector schemes.

Initially, the FM didn't want to say anything. But when party general secretary Oscar Fernandes requested him to address the meeting, Mukherjee went back to his favourite subject, history, to talk about the future.

He spoke about former US president Ronald Reagan and British premier Margaret Thatcher and how they tackled economic woes in their time. Mukherjee also mentioned World War II and the Great Depression before assuring his listeners that India would maintain at least 6-7 per cent growth rate during the current fiscal.

According to insiders, many in the party also expressed political concern that state governments were 'hijacking' centrally-sponsored schemes and that these schemes should maintain their own identities.

Mukherjee told them the party had got a mandate to govern the country for the next five years and even if all the schemes promised in the party manifesto were not implemented in the coming budget, the party still had five years to fulfill all its promises.

Some leaders like Jairam Ramesh and Arjun Singh remained silent. When asked what he said in the meeting, Singh replied, "Nowadays, I am in silent mode."

Dr Reddy's to recruit 1,300 this year

Global drug maker Dr Reddy's Laboratories is adding 1,300 people this year, including about 350 through campus recruitment, according to Prabir Kumar Jha, DRL's senior vice-president and global chief.

Speaking to the media in Hyderabad on Monday, he said about 300 of them had already joined and the rest would join in phases. In all, the company has about 11,000 employees, of which 12 per cent are women and 20 per cent work overseas. The attrition rate has come down to 12 per cent from the earlier 18 per cent, he added.

The new recruits would go through the mandatory reorientation programme before being put to regular work at the Leadership Academy at its Bachupally premises on the city's outskirts.

Jha said the company was also reworking its HR policies, which are aimed at enhancing employee productivity. It has introduced self-appraisals with a random audit, to ensure that employees do not take undue advantage of the system.

Satyam staff get new 'learning' portal

Satyam Computer Services, which initiated a one-time 'Virtual Pool' programme aimed at addressing 'non-billable' staff costs while retaining talent within the company on June 11, has launched an internal portal on learning services effective Monday.

"The portal will be accessible to both existing employees as well as the 8,000-10,000 associates who received sabbatical letters as part of the VPP. The internal portal provides modules on competency enhancement, outplacement services, coaching and counselling support for financial planning and project and knowledge management," a Satyam spokesperson told Business Standard.

Satyam, which is treading on the recovery path after Tech Mahindra acquired a majority stake in it, launched the VPP for those based in India and even allowed associates to take time off from work on a reduced pay structure for up to six months.

'Associates identified to be part of the VPP will continue to have access and guidance to continuously upgrade their skills, utilising Satyam's learning programmes and mentoring resources,' the company had earlier said in a press release.

On the commerce ministry granting an extension to the IT  company's two IT and ITeS special economic zones in Hyderabad and one at Thotlakonda in Visakhapatnam up to June 2010, the spokesperson said the company was planning to re-apply for the Vizag SEZ, as the land initially allotted belonged to the Navy.

"Now the Andhra Pradesh government is in the process of identifying an alternative piece of land to the extent of 50 acres. However, Satyam is yet to submit an application in this regard," he added.

Bags award

Meanwhile, Satyam has received an excellence in practice award for talent preparation services and six excellence in practice citations for enterprise learning technologies, family learning, integrated project management, learning management review and re-skilling services from the American Society of Training and Development.

Air India: Headed for a crash landing

With the state-owned National Aviation Company of India Limited forced to delay salary payments, it could be that the government will now rush through the package that the company has been demanding for many months.

Whatever the final details of the bailout package (Nacil officials insist it is not a bailout but the cost of the merger of Air-India and Indian Airlines, which the government must legitimately pay for), the government's strategy remains unclear.

The implementation of the merger has clearly not worked; the numbers at senior executive levels have exploded in an effort to keep everyone happy, and the two airlines are yet to operate on a single reservation platform and achieve other synergies. So there is a question mark over what the government hoped to achieve by the merger.

What is equally unclear is why, unlike Jet and Kingfisher, Nacil has not deferred its purchases of aircraft to cope with the aviation slump; it has ordered 111, of which nearly half have been delivered.

What is intriguing in this context is the logic of liberally awarding bilateral rights to other airlines. While Air India has always resisted any move to allow more competition, the ministry's insistence on awarding more bilaterals probably stems from an understandable desire to give passengers more choice. But if more bilaterals are to be given and these reduce Nacil's share of the ex-India business (now down to 23.5 per cent), why buy 111 planes?

The resulting financial crisis was long foretold. The airline has spent about Rs 20,000 crore (Rs 200 billion) already on the new planes delivered, a sum that is substantially in excess of its annual turnover -- which has fallen despite the fleet expansion!

Another Rs 25,000 crore (Rs 250 billion) will be spent in the coming two to three years, for taking delivery of the remaining aircraft ordered. And the government has talked of ordering another 100 aircraft after that!

Any airline would have gone bust, with such reckless expansion. So it is no surprise that Nacil has accumulated debt of Rs 16,000 crore (Rs 160 billion) -- a sum that is equal to its turnover.

While the airline has not been allowed to defer the delivery of aircraft, its protests over the terms of a joint venture for ground handling have been ignored and its chief executive sent packing after he protested.

Nacil is also being pressured to hand over more than 100 acres of land that it has on long lease adjacent to the Mumbai airport, for a pittance in return from the privatised Mumbai airport company. It is almost as though the airline has been deliberately run into the ground in the last few years.

While the civil aviation ministry's activist supervision of the airline's functioning is said to be responsible for much of the mess, the airline management has its own sins to answer for.

Despite having a new fleet, Nacil discounts its fares more than rival airlines with older fleet. And if its market share keeps dropping, one reason could be poor on-time performance. In the last one month, just 73 per cent of its international flights left/landed on time, compared to 85 per cent for competitors like Singapore Airlines; on domestic routes, it was 42 per cent, versus 68 per cent for Jet Airways.

Cheaper gas to give fillip to R-Power's Dadri project

With the Bombay high court directing the Mukesh Ambani-led Reliance Industries to supply gas to the Anil Dhirubhai Ambani Group's Reliance Power at $2.34 per million British thermal unit 44 per cent lower than the rate approved by the government, the power generation company's plans of setting up a gas-based power project at Dadri in Uttar Pradesh will now gain momentum.

Sources at Reliance Power said if RIL honoured the 2005 family agreement to supply 28 million metric standard cubic metres per day of gas from its Krishna-Godavari basin to its group fuel transportation company Reliance Natural Resources Ltd as directed by the court, it would be sufficient to run a gas-based power plant of over 7,000 Mega watt capacity.

"The demerger scheme offered gas to RNRL on the same terms and conditions for supply to NTPC and that agreement has all the details on timelines for supply of gas and setting up of the plants," an R-Power official said, who did not wish to be identified.

Reliance Power's plans are to set up a 7,480-Mw project, which will be the largest gas-fired power project at a single location in the world, which will cost about Rs 20,000-25,000 crore (Rs 200 � 250 billion). The Dadri project, which was planned before the split of the Ambani brothers in 2005, has got most of the clearances, including environmental clearance and water linkages. ADAG is also in possession of more than 2,000 acres at the project site, said sources.

A few months ago, the company had initiated negotiations with General Electric, Bharat Heavy Electricals and a few other gas turbine makers for the supply of turbines, boilers and generators for the project. Since the global demand for gas turbines are less, the equipment could be procured in 9-11 months of placing the orders and the project could be commissioned by 2011 or 2012, sources said.

The project could come up in two phases, with the first phase generating 3,600 Mw of electricity with four-five gas turbines.

Reliance Power, which mobilised over Rs 11,500 crore (RS 115 billion) through its initial public offer, can raise about 25 per cent as equity for the project's first phase, which will cost about Rs 12,000 crore (Rs 120 billion). Recently, the group had achieved financial closures for about four projects, tying up with banks to raise the debt portion for over Rs 20,000 crore (Rs 200 billion).

Once R-Power succeeds in ensuring gas availability, Dadri will overtake the three 4,000-Mw coal-based ultra mega power projects it is implementing at Sasan, Krishnapatanam and Tilaya as the largest and one of the earliest power projects to be commissioned by R-Power. Existing projects of R-Power are currently planned to take off progressively in phases between the end of 2010 and 2016.

Reliance Power is planning to implement about 13 power projects to generate close to 30,000 Mw of energy and, with Dadri coming into the picture, the total generation capacity will shoot up to nearly 40,000 Mw.

Financial sector shines in advance tax payments

Available data on advance tax payments for the first quarter of the financial year indicates the manufacturing sector may take more time to recover, while the financial sector remains buoyant.

Among manufacturing sector companies, Reliance Industries' first instalment of AT payments fell by 7.65 per cent to Rs 314 crore (Rs 3.14 billion), as against Rs 340 crore (Rs 3.4 billion) during the corresponding period last year. Similarly, almost all Tata group companies, barring Tata Power, have paid lower AT (see table).

Collections
Company	June 2008	June 2009	% change
SBI	663	1,068	61.09
RIL	340	314	-7.65
Tata Steel	356	230	-36.39
HDFC Bank	215	250	16.28
United Bank	105	105	-
L&T	95	110	15.79
Tata Power	14	20	42.86
Tata Chemicals	40	25	-37.5
TCS	75	50	-33.33
Tata Motors	30	30	-
M&M	14	17.5	25

Engineering major Larsen and Toubro has seen a 15.79 per cent rise, while Mahindra and Mahindra's AT payment went up by 25 per cent.

The banking sector has put up a healthy show. According to data available so far, State Bank of India is the highest taxpayer during the first quarter of 2009-10.

Even smaller banks such as IndusInd Bank (122 per cent increase to Rs 20 crore (Rs 200 million), Dena Bank (75 per cent rise to Rs 35 crore (Rs 350 million) and YES Bank (42 per cent increase to Rs 27 crore (Rs 270 million) have followed the trend, sources said.

Successive interest rate cuts by the Reserve Bank of India and consequent downward movement in rates on government securities are a big reason for banks to garner good profits and thus pay higher taxes, which was not the case last year, said an official. Last year, interest rates remained high, leading to fund crunch and tightness in credit markets.

While collections are still underway, officials said available data pointed to a 15 per cent increase in collections on a quarter-on-quarter basis.

They added that the newly-formed large taxpayer unit in Mumbai had so far collected Rs 892 crore (Rs 8.92 billion) of the annual target of Rs 3,703 crore (Rs 37.03 billion) for 2009-10.

The Central Board of Direct Taxes has fixed a target of direct tax collection of Rs 1,34,185 crore (Rs 1,341.85 billion) for the current financial year, of which Rs 91,158 crore (Rs 911.58 billion) would come from corporation tax.

Entities that earn beyond a specified level are required to pay AT in four installments with the first one due on June 15, when at least 15 per cent of the liability has to be paid. By the time the second installment falls due on September 15, at least 40 per cent of the liability for the year has to be deposited and this amount increases to 75 per cent by December 15 and 100 per cent by March 15.

Domestic BPO biz to earn $6 bn by 2012

The domestic business process outsourcing market, with a growth rate of 50 per cent over five years, grew faster than the exports market to reach nearly $1.6 billion revenues in the financial year 2008.

Though it is smaller than the $11 billion BPO exports market, it is expected to reach $6 billion by 2012, according to a new Ernst and Young study.

The BPO sector's exports depend heavily on North America and the UK, which account for 87 per cent of the total exports revenue. With these two economies having been hit badly, the growth rate for exports is expected to fall further. But, if it's the 'business as usual mode,' India's BPO exports will touch $28-30 billion over four-five years, states the report.

The domestic BPO market, hence, presents a huge untapped growth opportunity. Its addressable market opportunity is in the range of $16-19 billion by 2012, with significant business growth coming in from sectors like BFSI (banking, financial services and insurance), telecom, media, retail and government.

"Outsourcing is not new to India. Indian companies have been doing this for a long time now. But what we were surprised to find was the depth and scope of portfolio outsourcing firms are ready to consider," said Milan Seth, partner, technology practice, E&Y.

Eighty per cent of the industry comprises captive shared service centres. The rest of the industry is highly fragmented. Estimates suggest that 650-700 firms constitute the unorganised sector. Over the next few years, the market will be consolidated and 8-10 large vendors will dominate it, says Seth.

Indian IT biggies, such as Tata Consultancy Services, Infosys and Wipro, are increasing their focus in this segment. India's second-largest IT firm, Infosys, recently announced its foray in the domestic market. Wipro is expected to do so soon.

Global players like IBM Daksh, Firstsource, MphasiS BPO and Intelenet Global Services are also planning to significantly expand their presence in this market.

Firstsource's revenue contribution from the domestic market has grown from 3.8 per cent in FY07 to 10.8 per cent in FY08. Similarly, the NYSE-listed Genpact has signed up four customers among the Indian financial services segment. Likewise, the Nasdaq-listed EXL Services is understood to be scouting for local buy-outs.

Although domestic suppliers offer an entire portfolio of services, as offered to international markets, the domestic market has limited services currently. According to a leading domestic provider, 90 per cent of this business is voice-based and 10 per cent non-voice based.

Hence, customer care and sales and marketing are the two largest service-line segments, having accounted for over 70 per cent of the overall market in 2008. However, services like HR and finance and accounting are expected to have a positive growth in the next two-three years.

However, margins and cost structures will remain a challenge for service providers. Entry-level salaries for domestic BPO are between $135-182 per month (around Rs 6,340-8,550) and wage costs have been increasing at 10-12 per cent annually.

'As compared with export-oriented BPOs, the annual revenue per full-time employee is 2.5 times in favour of export BPOs. However, the domestic BPO is expected to ride on huge size and net margins are anticipated to increase to about 12.5 per cent by 2012 from about 9 per cent in 2008,' states the report.

Seth adds the Indian buyer is very different from his global counterpart.  "When it comes to pricing, it will be the buyer who will decide. Players will have to devise different models and cost structure in the emerging markets," he added.

Finance ministry mulls re-entry of investment allowance

An intense debate is taking place within the finance ministry over a proposal to reintroduce investment allowance for companies implementing new projects or creating productive assets to expand their businesses.

Within the ministry, there are strong views against and in favour of the proposal. But the fact that the ministry has informally sought clarifications from industry on the matter is a sign that the proposal is under consideration.

Investment allowance for expenditure incurred by industry on plant and machinery stood withdrawn with effect from April 1990. Till then Indian companies could claim a deduction of an amount equal to 20 per cent of the cost of plant and machinery installed or put to use while computing their profits from business.

Madhu Dandavate, finance minister at that time, had argued that since his Budget had reduced the corporation tax rate by 10 percentage points to 40-50 per cent, incentives and concessions like the investment allowance needed to be withdrawn.

Proponents of a reintroduction of the investment allowance are using this as their main argument. Since an across-the-board cut in corporation tax rates is unlikely because of its adverse impact on the government's fiscal deficit, the ministry should consider concessions such as the investment allowance to promote investments during an economic downturn.

Significantly, in a rare meeting of minds, both the Confederation of Indian Industry and the Federation of Indian Chambers of Commerce and Industry have pleaded for a reintroduction of the investment allowance in their respective pre-Budget presentations to the finance minister. Finance ministry officials are now examining industry studies on the impact of the withdrawal of the investment allowance in 1990-91. According to one such study, by Ficci, the introduction of investment allowance in the 13-year period ended 1989-90 saw gross domestic capital formation rise over six percentage points to 24.5 per cent of GDP at market prices in this period.

The study has argued that in sharp contrast, gross domestic capital formation in the previous decade stagnated at 17-18 per cent of GDP at market prices. Similarly, there was no sharp increase in the gross domestic capital formation after the withdrawal of the investment allowance for about a decade. The rate, however, began to rise sharply from 2001-02 till last year, when it was estimated at 36 per cent of GDP at market prices.

Those who oppose the proposal for reintroducing the investment allowance point out these incentives are effective only when there is full or near-full capacity utilisation in industry. At present, most industries are suffering from low capacity utilisation because of a decline in demand. Hence, reintroducing investment allowance may lead to inefficient allocation of resources at the cost of the central exchequer.

Another argument against its reintroduction is that most developed and emerging economies have done away with incentives like investment allowance. A counter-argument to this view in the ministry is that the government should treat India's economic situation as unique and consider such measures as the Indian economy needs high growth through such specific policy interventions.