“The FDI policy is still not ideal on several counts”

In an interview with B&E, Arvind Mediratta, COO, Bharti Walmart, talks about how the company is trying to improve supply-side dynamics for bringing about a farm-to-fork connect

B&E: Now that FDI is alowed in retail. will it help resolve some of the pressing issues in the food supply chain?

Arvind Mediratta (AM): The solution, we believe, is a partnership between the local and foreign players, suppliers, retailers and the government. We, at Bharti Walmart, have an initiative called the Direct Farm initiative, through which we’re reaching out and working with 7,000 farmers across seven different clusters in India. We are educating these farmers on modern agricultural practices, soil nutrient testing, pesticide usage, crop rotation and harvesting practices. Farmers are consequently getting better prices and timely payments. We have also set up model farms in each of these clusters and the yield has improved dramatically. Due to the limited storage infrastructure currently, a lot of things go waste. There is an opportunity for us and other players to set up state of the art distribution facilities, especially temperature- controlled rooms for fresh products – farm produce, non-vegetarian items, dairy, frozen bakery products – to minimise wastage and, of course. to ensure food safety.

B&E: What are the key challenges you are facing in terms acquiring solid growth and working towards an expansion strategy in the Indian market?

AM: As we open up stores in different states, there is a lot of complexity coming in. One issue is the APMC Act, wherein you require a licence for every municipality you operate in. For instance, when you operate five stores in Punjab, you require five different licences. If I buy something from Maharashtra – say grains from Nashik and oranges from Nagpur – I have to pay the APMC fee separately. Also, food habits are very different. The specs for daal, for instance, are different for different states and at times even within the same state. The acceptance for frozen chicken is still very low. We sell frozen mutton, but they want freshly slaughtered mutton. Second, the cold chain infrastructure in the country is woefully inadequate. Look at the power constraints. I may have a diesel genset back-up, but the small stores that sell these products may not have any power supply. So products go waste. 

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Source : IIPM Editorial, 2013.
An Initiative of IIPM, Malay Chaudhuri

and Arindam Chaudhuri (Renowned Management Guru and Economist).

 

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"Stagnancy in reforms is the top concern for most firms"

Director General, CII, discusses the general sentiment within India Inc. And the steps to be taken for revival with K. S. Narayanan of B&E

B&E: What is the general mood of India Inc. especially after the RBI not approving a rate cut? What is your view on RBI’s concerns related to inflation at present?
Chandrajit Banerjee (CB): India Inc. is unhappy with the RBI’s decision not to cut rates. It is not able to understand the RBI’s lack of concern about economic growth. CII believes that inflation is being driven by two factors. The first is the supply-side bottlenecks in the agricultural sector as a result of which food prices are rising especially for perishables. The second factor is the rise in the price of international commodities. Keeping interest rates high will not tackle any of these factors.

B&E: What are India Inc.’s key expectations in terms of reforms that can bring back growth in manufacturing and services?
CB: I would like to highlight two key reforms that would help bring back growth in manufacturing and services. Implementation of GST would rationalize the indirect tax structure and has the potential to raise India’s GDP growth rate by 1-1.5%. The other reform is to allow FDI in multi-brand retail, which will not only bring in investments and create jobs but also deal with the inflation problem.

B&E: Assuming the current scenario continues in terms of policy measures, what is your outlook on growth returning to 7% plus levels?
CB: If the current scenario continues, it will be hard for growth to return to 7% plus. However, we will continue to raise these issues with the government and hope that they will be resolved sooner rather than later.

B&E: Data on cash being retained by companies seems to indicate relatively lower risk appetite. What are the major factors affecting confidence and denting investment prospects?
CB: CII’s 79th Business Outlook Survey conducted earlier this year revealed that stagnancy in reforms is the top concern of most firms, followed by high interest rates and high raw material costs.

B&E: How is the situation back home influencing India Inc’s decisions w.r.t. investing in overseas markets?
CB: Indian companies will invest wherever opportunities arise and the business climate is positive. Indian companies are trying to diversify out of the traditional markets of US and Europe; and seeking destinations such as Middle East, ASEAN, Africa and Latin America. At the same time, developed markets will continue to be attractive, especially at current depressed valuations.

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Source : IIPM Editorial, 2013.
An Initiative of IIPM, Malay Chaudhuri

and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles

 

2012 : DNA National B-School Survey 2012
Ranked 1st in International Exposure (ahead of all the IIMs)
Ranked 6th Overall
Zee Business Best B-School Survey 2012
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Sanjay Kabra, Chief Financial Officer, Sunil Mantri Group

B&E: The cost of funding is going be higher as banks are bound to increase their lending rates, the industry is facing a crunch and the fund gap over the next five years alone as high as as $70 billion. Don’t you see these as ideal conditions for consolidation? What could be the potential targets?
SK: As for current valuations and potential targets, I do not foresee mergers & acquisitions kind of consolidation taking place in the real estate sector, so I am not commenting on valuations and targets. As a matter of fact, bank funding is still the cheapest source of funding for the realty industry.

With the prospects of raising funds from an IPO pretty much bleak, the industry is compelled to look at much costlier private equity, private finance, and NBFC’s to fund the land costs. The problem that sucks the industry is the denial of bank funding for land, which is an intrinsic raw material for the industry. Price/earning ratio of the real estate sector is 18 times the earnings per share. I don’t foresee any takeover targets.

B&E: What are the challenges to consolidation in the real estate sector? How relevant is it to the target of fulfilling the additional housing demand of 37 million units in the next Five-Year Plan, which would need around $3.2 trillion in investments?
SK: I reckon that industry players with the capacity would look at project acquisition opportunities rather than at M&A opportunities. It may be more prudent to do this rather than attempt wholesale takeovers and acquisitions of companies. The latter option could tag along lot of baggage that the acquirer may really not want or like. The chaos of urban explosion is already a reality. Chaos is very much a clear and present adjunct of economic growth story of India. So slums and high rises inevitably coexist in Mumbai. Traffic is and will continue to be a nightmare in all the metropolitans. The metros will arrive 5 years too late, except in Delhi, which alone has received a generous dose of infrastructure and was planned for rather well. Capacities of Indian real estate players may not be adequate to meet the overwhelming needs of housing & urbanization if the supply needs to be ramped up on a radical basis. FDI participation is forthcoming in FDI compliant projects, so there is already some degree of offshore participation. Urban developments may be small in size but they can involve huge investments.

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Source : IIPM Editorial, 2012.

An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles.

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Painful but cathartic verdict

By terminating all 122 licences issued by former telecom Minister A. Raja, the Supreme Court has shown its utter disgust and contempt for policies that smack of bias and are rigged to serve partisan interests. Will the government now come up with a transparent policy for allocating licences?

Much muck and dust has been flying around ever since the 2G scandal prised open yet another egregious instance of the unholy nexus between our crooked politicans, complicit bureaucrats and compromised businessmen. The landmark Supreme Court judgement early this month, cancelling all 122 2G licences issued by former telecom minister A Raja, brings to an end the kerfuffle that had been reverberating in the nation’s corridors of power and business. The SC verdict marks the opening of a new chapter in an otherwise so far sordid saga that has dogged India’s telecom sector in recent years. Immediately, following the verdict, telecom minister Kapil Sibal announced at a hurriedly called press conference that his government welcomed the SC ruling, which would help “remove the uncertainties clouding the telecom sector.”

Meanwhile, in the aftermath of the apex court ruling, several telecom operations seem to be in a state of funk. Many of them snapped up licences thinking they were buying into India’s telecom success story. But the SC ruling, some people say, seems to have thrown out the baby with the bath water. Copping the blame on the telecom players for obtaining a licence given out by the government on the basis of a policy that the Supreme Court has now repudiated seems a tad rich. Unfortunately, in light of the cancellation of telecom licences, these operators now look like having become dupes of the con played out by Raja and his underlings. The court’s ruling also comes as a stinging excoriation of the UPA government which, despite being alerted by various quarters to the flimflam orchestrated and pulled off by Raja and his minions, chose to string along with the first-come-first-serve policy for granting 2G licences.

Some players are certain to bear the brunt of the SC judgement more than the others. Already, Bahrain Telecommunications Co (Batelco) has announced that it is pulling out of its joint venture with STel and exiting India. The C. Sivasankaran-owned STel was among the beneficiaries of Raja’s 2G spectrum allocation. United Arab Emirates operator Etisalat, Norway’s Telenor and Russian company Sistema are the other foreign firms affected most as they had bought shares in the Indian companies whose licences have been scrapped. The court has given these companies four months’ time to shut shop. With the cancellation of all its 22 licences, Uninor (Telenor’s JV with Unitech) is the worst affected by the judgement. Though the company has one of the lowest average revenue per user of Rs 98, Uninor has the highest number of subscribers (36 million) amongst the greenfield operators. It has a workforce of around 17,500 and is operational in 13 circles. Uninor has also made substantial investments of around Rs.140 billion in the market.

Not everybody stands to lose though. Older incumbents such as Airtel, Vodafone and Idea stand to gain a lot since they are the ones who have been in operation well before 2008 when Raja gave out the new 2G licences. Idea has not done too well in the new circles it had won and hence its loss of nine circles does not amount to much. These players will most likely bid for maximum circles when fresh auctions are held so as to expand their reach further. “The court has said the government must now get the market value of these licences,” said a visibly elated Subramanyam Swamy, who was one of the parties that challenged the 2G licence allocations in the court.

While the angst of players adversely affected by the judgement is understandable, the SC has, in one deft stroke, dispelled the fog and murkiness surrounding Raja’s 2G licence allocations. The court’s verdict has ensured that the law of the land prevails. It has sent out a strong message to both the industry and government that crony capitalism will not be tolerated and that corrupt business deals facilitated by a collusive government will be subjected to judicial scrutiny. Says Member of Parliament Rajeev Chandrashekhar, “This is the first time that there has been such a detailed judicial scrutiny of the licence issuing process. This judgment signals that the sector is finally open to only those investors and stakeholders who wish to invest, build and succeed by following the laid down rules and laws.” He adds that the judgement clarifies many policy confusions and also lays down the mammoth task of cleaning up and reorganising the sector over the next year or so. “This scrutiny and the judgement establishes the unambiguous basis for licence grants through auctions or market-based mechanism by the government today and in the future.”

In order to prepare the ground for a fresh round of 2G spectrum auction, the Telecom Regulatory Authority of India (TRAI) has come out with a pre-consultation paper. The regulator has also sought to allay fears of existing subscribers in circles where telecom licences of operators have been cancelled. According to TRAI, subscribers need not fear about their connections as they can port to other service providers in their respective circles. While the modalities for holding the auction are being worked out, the government expects the auction to fetch a revenue of about Rs 750 billion. However, following the cancellation of licences there is likely to be an overabundance of spectrum in the Indian market, which will ensure that prices remain low. Besides, incumbent operators have already paid through their noses for 3G and Broadband Wireless Access (BWA). These investments will take a long time to turn profitable. In such a scenario, it seems doubtful whether these service providers will warm up to participating in another round of auction. Moreover, the incumbents (whose licences have not been cancelled) have enough 3G spectrum which can be used to accommodate new subscribers. Says Rajan Mathews, Director General of the Cellular Operators Association of India (COAI), “I don’t think that kind of money is available with domestic players. That is why the government itself indicated that it will raise the FDI limit to 74%.” Just to ensure that his reasoning comes across more convincing, Mathews draws your attention to 12th Five Year Plan proposals for the telecom sector. “The preliminary numbers put out by the Planning Commission suggest Rs 6,500 billion as the outlay for rolling out various initiatives by government. They themselves admit that 80% of that would have to come from international sources.”

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Source : IIPM Editorial, 2012.

An Initiative of IIPM, Malay Chaudhuri 
and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles. 

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Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting