German Chancellor’s visit to India

German Chancellor, Angela Merkel lands in India this week for a three day trip. Needless to say, Chancellor Merkel’s visit is of great significance. She is not only accompanied by her elite cabinet ministers, but also by a large delegation of business leaders.

With 21 billion $ worth of trade, Germany is the top trading partner from EU. And there is still scope for expansion. Today there are around 1,700 German companies in India, creating 4 lakh jobs. Germany needs IT skills and India needs technology, to create more jobs. The major agenda that India is seeking is in manufacturing, infrastructure, vocational training and renewable energy. We, India is a fast growing economy with 7+ growth rate and we need a large amount of foreign investment. With the new policies, thanks to our new government, our Indian economy is opening up as never before. The recent visits by our PM to various nations highlights this. There is a significant relaxation in caps on FDI in key sectors.

India-Germany(Picture courtesy : indiatoday.intoday.in)

Infrastructure:
With Metro rail projects, Smart cities, Speed railways taking into shape it is vital that we have the support of German technology. German companies like Siemens are there from Decades. Companies like Deutsche Bahn can help us in developing high sped corridors. It is only about how well we reform and utilize their expertise.

Manufacturing sector:
The ‘Make in India’ providing huge potential, India is keen to parter in manufacturing sector. Indian government is driving hard to on the ease of doing business. German companies that are already make in India have brought their global business networks and advanced technologies.

Vocational Training:
Vocational training is used to prepare for a certain trade. It is all the training needed for a certain job especially Auto repair, plumbing etc. Germany is eager to provide its expertise in modernisation of the apprenticeship system and supporting in Small and medium enterprises. (http://thekalyan.com/2014/12/26/small-and-medium-enterprises-smes-are-key/)

Renewable energy:
Germany sees an opportunity to partner with India in development of solar power on rooftops in cities in India. Forecasts show that India plans to add 175GW of renewable energy in the next seven years. (our non renewable energy is 195GW for only 2014-15). German cooperation on in this aspect will be a great asset.

Clean Ganga Project:
It is also an opportunity for India if we can get the expertise of German’s having cleaned up Rhine River that was in the same state as Ganga now.

In conclusion this visit is an opportunity for India in many economic aspects.

(Analyzed from dw.com, financial express, yahoo news Indiatoday)

Global Slow Down – Silver Lining for India!!

While most of the articles in the news from the last week are on global slow down of economies including India, many say there is a sliver lining, as far as Indian economy is considered.

Some facts before we proceed: India has lost only 3.7% of total loss of $12 Trillion as compared to 41% China’s 21% US’s and 14% Hong Kong’s. While most of us know the root of this crisis is China, looking this from another angle many say it is an opportunity for India to benefit from the China crisis.

Global meltdown

How is India better than China?

  • Cost of doing business in China is going up as compared to in India
  • GDP growth trends for India shows an increment and a decrement for China.
  • There is little room for China to absorb money from public investments, where as India can absorb trillions just through infra
  • China’s working population is aging, where as India youth population is increasing
  • Domestic products and services consumption % in India is much higher than compared to China. This acts as a cushion for India’s economy during global crisis.
  • China’s debt has gone to alarming levels of 101% (from 2007-14) as compared to 5% of India’s. This gives India a better chance to take more debt for growth and development

Silver lining:

With the above scenarios foreign investors are looking up for India. They want to invest and produce in India. For years, India is fuelled by its domestic demand (except the IT sector), unlike where China sells its products abroad. India has good scope for attracting global investors during this time.

Factors favoring India:

Another key point to note here as compared to our counter parts – Brazil, Russia and South Africa, India has ample international reserves and is not highly dependent on foreign capital to fund imports.

India is also currently benefiting from lower oil prices, as 75% of its consumption is imported. Foreign exchange reserves are increased by 13% and inflation is halved from last year and commodity prices are declining. Current account deficit is narrowed to very large extent.

While there are negative areas like rupee depreciation that impacts FII inflow, Falling exports, high bank NPA’s (Non performing Asset: Once the borrower has failed to make interest 90 days the loan he took, it is considered to be a non-performing asset. This impacts banks because their major income is loan)

So what should India do?

Undertake the important structural reforms and ease the domestic bottlenecks.

Simultaneously US investors are looking at reforms in Patent laws, retro taxes etc. and India in total taxation etc.

  • Patent laws:
    • India has right to revoke a patent of any multinational company if it proves it’s only a minor modification of existing drug. Many multinational organizations claim that the new version though minor should be patented.
    • India currently has law that can grant a ‘compulsory license’ to any drug organization to produce a third party patented drug in order to make it affordable to 1.2 billion populations. Many multi nationals are not encouraging this as they loose profits.
  • Retro taxes: Amendment in the Income tax and made effective from a back date, especially for foreign transitions. This might be fatal for some multinational organizations that did not pay tax earlier as per the law that time, but will have to pay the tax now.
  • Totalization agreement: Indian professional working in US, pay their Social security taxes but they will not be able to reap that benefit as many of them don’t work for 10 years or retire in US. India is working with US in getting these taxes directly paid to PF fund in India so that Indians get the benefit once they return India.

In conclusion:

In summary it is right time for India to make right reforms and get the benefit out of global slow that that helps India economically dominate the next two decades in the way China dominated the last two.

-Data analysed from ET, NDTV, The Wall Street Journal, the guardian, ictsd.org and change.org

Changes in Indian IT industry

There are couple of articles recently in ET, Business Line on the challenges our IT industry is currently facing. Due to a steep fall in the crude oil prices in previous fiscal, IT investments by clients in the energy vertical have delayed, reduced and some are cancelled. Telecom services providers are also not doing well and hence the revenues from those accounts had a hit. Also there is this cross currency impact While there is stagnation/decline in the incremental revenues of IT majors like TCS, Wipro, Infy, HCL for the last year we should also understand the drastic changes in the way IT business is undergoing.

IT Companies

Unlike previous times, there are many small firms who possess consulting capabilities and are able to sustain in the market by having a kind of conversations clients want. While all IT majors have strong consulting capabilities, the technology is changing at a drastic level where IT majors are having challenges to go to customer and say “this is what your business problem is, and we can solve with this ‘new’ technology”, says Forrester Research.

Let us speak about Cloud. Well, Cloud is not a new technology at least when we see time vs technology changes, but the business strategies associated with cloud are changing. Cloud is gradually disrupting the enterprise software and hardware industry by being easy to scale up the infra and being cost-effective. It is making computing services / resources available on internet. Cloud makes infrastructure like Storage, Servers, networking as a service. This reduces the infrastructure maintenance needs, and, hence, infrastructure services will reduce. Mid-range clients who don’t have huge infrastructure prefer cloud-based systems. This will hamper the sections of infra business in IT companies.

At the same time automation and robotics are also booming along with cloud. With burst of new technologies and delivery models there is high competition in pricing too.

However, there is still time to adapt, experts say, irrespective of new developments though the changes are drastic. At the same time client relationships matters over the price. Again IT majors have their plans in place. Wipro and Infosys has already made large acquisitions/investments in automation companies, and in startups. ET says Wipro is planning to improve the efficiency and bring the reduction of 30% in it headcount in next three years by investing in automations and artificial intelligence and digital technology. Infy CEO Sikka too mentioned “New areas in Infosys of automation and innovation will constitute a tenth of total revenue by 2020.” TCS has its own innovation Labs.

Is Indian Ocean still India’s Ocean?!

Prime Minister’s visit to Seychelles, Mauritius and Sri Lanka has infused fresh energy and support to all these Indian Ocean states. Many of the countries in Indian Ocean are crucial for India’s security and economic concerns. As Hindustan Times rightly mentioned, New Delhi has to ensure that Indian Ocean is, strategically, India’s Ocean! This visit has signaled that India is a security provider in strategically crucial sea lanes for global commerce and geopolitics. India is making its maritime safe and secure for the nation’s interest.

Indian Ocean(Image taken from http://www.marineline.com website)

What PM did in these three countries was to assert India is still a leader with the ability to safeguard and develop these regions and it does not waste its comparative advantages to China and partly US which are trying to influence their presence.

At the same time this does not mean dominance or an ownership, but India would like these countries to consult it before taking any major strategic decisions. Generally small countries lying in the Naval borders of big Nations can feel venerable. For instance China’s revolution in military affairs (RMA) has raised fears of mineral rights, claims over territories, in the nations of East and South China seas. Where as India will never go for a territorial claim, it would strengthen the defense sectors of those countries to eliminate any external powers in those regions.

It is important and a high time for India to strengthen ties with these nations because:

  • Seychelles had previously offered refueling and docking facilities to Chinese warships. Sri Lanka too had hosted Chinese submarines for re-supplying. With the mindset of Chinese to send more and more Naval naval escorts to these places, India should ensure it is the “preferred partner” for these kind of activities.
  • Terrorism through sea is a threat to India

In Summary, Modi has signed two agreements with Seychelles and Mauritius and thus India acquired the infrastructure development rights. By operating and sharing the surveillance systems on these islands, India is slowing ensuring its presence and support in Indian Ocean.

Analyzed from ET and HT.

 

Indo US relations – Expectations from Obama’s Visit

The Obama’s visit last time in 2010 was to an extent beneficial. He announced a series of business deals worth more than 10 billion $ even though there was a declining trend in economy that time. Later, the bilateral relations between India and US were stalled in the last two years of UPA government because of Manmohan Singh’s inability to advance economic reform (due to various reasons). With few friends by the time he left the office, America was not happy with PM’s performance putting pressure to act tough on India.

Now that Modi is doing his best to advance the economic reforms, US is gaining the confidence back. His 5 day visit in September 2014 has induced feel good factor. Though there are still some challenges in the relations, for instance, the disagreement at the World Trade Organization over trade substitutes – unlike Singh, Modi has decade long track record of being a business friendly CM. This is a positive factor to US to advance in strong political relationships.

India US(picture copied from brahmand.com website)

Obama’s Visit can benefit in the following with some actions being taken:

Energy and Climate Change:

India is eager to produce electricity from US built nuclear power plants.
White House stated: “increasing energy access, reducing greenhouse gas emissions, and improving resilience in the face of climate change, President Obama and Prime Minister Modi agreed to a new and enhanced strategic partnership on energy security, clean energy, and climate change”

Defense:

  • Renew for ten more years the 2005 Framework for the U.S.-India Defense Relationship
  • US to work together in military education and training
  • Maritime security, especially important during the domination of China in Indian Ocean

High Tech and Space technologies:

  • India’s is a strong contributor with the U.S. Department of Energy on high-energy physics and accelerator research and development. India is expecting US to partner with IIT’s
  • Also the India is eagerly looking forward for the NASA-ISRO Synthetic Aperture Radar (NISAR) mission, to be launched in 2021.  Next steps to accomplish the mission can be discussed.

India ranks 4 in the most powerful Militaries!!

ET magazine today published “The 10 most powerful militaries in the world” in its centre page. I felt a moment of pride when I see India ranking 4th. I see India has second largest military manpower in the world after China. While US spends $612 billion and China $126 billion, Russia $76 billion, countries UK, Japan, India, France and Germany spend nearly $45 billion each of their budget. Also published are various numbers of military assets like tanks, rocket systems, aircrafts, helicopters, submarines, and aircraft carriers.

indiandefence

Image taken from indiandefence.com

It’s also nice to see India possess 2 aircraft carriers while rest of the countries has 1 or none. Of course no need to mention US has 10. The number of aircraft carriers a country has determines its air power and amount of dependency on other countries’ local military bases.

In the last year’s Union budget, FDI limit in defence was increased from 26 to 49% to boost military modernization. It is very vital for India to allocate its budget based on strategic and operational (military modernization) priorities. Government has made military modernization as priority for now.

Strategic priorities determine when and where the forces are to be deployed. Though two third’s of military is deployed against Pakistan, the threat of conventional military war from Pakistan is not as much as from China now.

Why threat from China is noticeable:

  • There are unanswered questions on how the mountain corps across the China’s border is raised.
  • There has been increased presence of China’s navy in Indian Ocean.
  • The increased China’s defence budget.

Well, when it comes to National security – defence, not all strategies are not visible to us. I am certainly sure; there is something in our government’s mind that has a counter to China.

“Extra” charge for Viber and Skype?

Recently Airtel has increased the tariff for some of the internet services like Viber and Skype. After a couple of days later, they have reverted the rates back. The analogy given in Economic times on 30th Dec is quite interesting. How would you feel if the Toll booth guy on the highway stops your Maruti Swift and says, “Sorry, we have decided to charge more for Maruti Swifts, can you pay double the rate now for the toll?” How would you feel?

network (image taken from it watchdogs.com)

Lets see what Net Neutrality is: ISPs and governments need to treat all data equally, irrespective of service provided by the data, type of user – because Internet is a public resource. A logical question from Airtel’ perspective can be right: how internet is a public resource?, how about my cost of fibre, towers, etc. An ISP has every right to recover those costs of investment, but there is a thin line of difference between right to determine the price and right to differentiate the traffic. As he built the highway, a toll booth guy can demand a toll price for a car, but he don’t have right to differentiate price among cars as all cars occupies same space on road.

Similarly, fibre network is different and Internet is different. An ISP to convert fibre cables to internet infrastructure, it needs internet resources like IP addresses that are public property. When you have access to public property, you cannot determine the usage of it on your terms, or for your business interests. Innovation is a right path to navigate through the new challenges in market instead of raising the charges for Viber and Skype calls in a lazy way. It is not really appreciated a kind of good “business strategy”

The above article is analyzed from ET, 30th Dec

Small and Medium Enterprises (SMEs) are key

 

Certainly, India is on a growing path. However, our economy still struggles to generate enough employment to match the eligible population. One reason is because the economic and financial institutions are not able to provide support the small and micro enterprises (SME). It seems banks are able to support only 4% of this small and micro enterprises sector. I have mentioned the significance of the small and micro enterprises in one of my previous articles: http://thekalyan.com/2014/05/29/india-should-focus-on-micro-small-and-medium-enterprises-now/

SME

(image taken from “The Hindu”)

As per the statistics, these small and medium enterprises provide 90% of employment to decentralized manufacturing, services industries. Majorly known as “unorganized”, this sector is owned by self-employed people. Also the numbers shows that 45 per cent of GDP is contributed by this sector. Once properly recognized, trained, this sector can be of great value to our nation.

Some of the recent positive events can help SME develop

  • Sebi has proposed that bank funding to listed SMEs. This move will give a huge boost to the SME trading platform and eases the financing needs of smaller companies. Another
  • As a part of its strategy to strengthen itself in India, foreign lender DBS is now focusing on SMEs as well, typically one that has a loan requirement of Rs. 5 crore or below.
  • The recent comments by Joe Hockey, Australian treasurer that SMEs can play a major role in strengthening trade ties between Australia and India has made us remind the significance of SMEs.

Well, “Make in India” initiative by our PM is majorly to improve the manufacturing areas of SME sector, we hope there will be new initiatives also taken for other areas of SMEs.

When oil price falls

Currently the oil price is around $80 per barrel.

In the past, whenever there is a fall in crude oil prices, Organization of Petroleum Exporting Countries (OPEC) led by Saudi Arabia used to cut production to ensure that supply fell and the respective prices were maintained. This time it did not happen. For some reason Saudi says “ We do not seek to politicize oil…for us, it’s a question of supply and demand, it’s purely business.” But one can easily see that the actual reason being that US and Canada has seen an increase in Shale oil production in their countries. (Shale oil – A substitute for traditional crude oil, one can comfortably use for power generation etc. ) This boom has led to the United States and Canada producing much more oil than they were a few years back. However, the production of Shale oil is very expensive and it is economically reasonable for US and Canadian oil companies to produce Shale oil only if the crude oil price is between $50 and $75 per barrel. Hence, by ensuring low oil prices the Saudis wants to ‘kill’ the shale oil producing companies in Canada and United States.

Oil picture Kalyan

The Saudi’s strategy is already working. It seems The International Energy Agency (IEA) has said that the investment in shale oil fields will fall by 10% next year, if oil prices continue to remain at $80 per barrel.

On a positive side, for countries like India, it is evident that fall in oil prices it is beneficial. Calculations say that, a $20-per-barrel drop in oil prices transfers $6-700 billion from oil producing nations to consumers worldwide or nearly 1% of world GDP. Falling oil prices are also benefiting the airline and shipping industries, where fuel is their biggest expense.

On the other side of the world, the countries that may get into trouble if the prices continue to stay low are mainly Russia and Iran. Russia and Iran relies heavily on exports of oil and gas. Saudi is giving a tough competition. Again the stats show that Russia and Iran compete with Saudi Arabia in the international oil market, and both need oil prices to be roughly $110 a barrel in order to balance their budgets.

– Analyzed from articles in firstbiz website, IndianExpress and The Economic Times

 

So it’s happening: E-Commerce / E-tail / Online retailing

Probably, you might have seen couple of headlines in the yesterdays and todays newspapers on the conflict between the views of traditional retail companies and that of online retail companies.

Arguments:

Traditional retail companies’ claim:
The ‘predatory pricing’ followed by e-retailers like Flipkart, Amazon, Snapdeal hurts the traditional brick and mortar retailers. The discounts provided by them are far below the landing price (the minimum price that is offered in retail shops). This has impacted 25-30% of the businesses of traditional retailers and have lost it to e-retailers in last 6 months. This may impact lakhs of jobs in the traditional retail industry.
Traditional retailers are also concerned if the owners of online retailers have funded the sellers to boost the sales. Boosting the traffic on these websites provide e-retailers higher valuation, hence more investments and improving their business.

 

E-retailer companies’ claim:
E-retailers provide only a ‘marketplace’ where sellers and consumers meet. They provide a website , a portal where the consumers can view the products from sellers and the respective prices from sellers. They do not own inventory or decide the prices for the products.

etail2image courtesy: mytokri.com

 

Point of view from traditional retailers
E-retailers sell brands indirectly. Once has to be cautious about it. Assume premium products getting sold for low prices in a consistent way, that will impact the brand value.
As per the basic concept of marketing, any business selling at below cost like that of predatory pricing following by e-retailers now is unsustainable. They have to be cautious that such business model will fall down eventually.
Only way traditional retailers can sustain the competition from e-retailers – move to omni-channel capabilities. These days all retailers also have an online portal available. We have also seen signs of some small kirana stores now offering online ordering and delivering facilities.

Point of view from e-retailers:
At the same time, online markets have enabled small sellers, retailers take their products to customers. People living in small towns have access now to the same selection of products as that in metros. E-retailers can reach to larger customer base using a fraction of the capital they would require for traditional retail store. Adding with the low cost of sales and distribution compared to traditional retailers has contributed to higher profits.

E-commerce is not only a meeting place for consumers and sellers. It is also improving the logistic and courier companies, which employ lacks of people.

Summary:
As per stats, Indian retail market will gear up from current $650 million to $1 trillion by 2020 and there are a lot of opportunities for both offline and online retailing.

 

Featured Image courtesy :www.business2community.com