IIPM - Live: September 2008

Monday, September 29, 2008

Uncommon wealth

The 2010 Commonwealth Games can make Delhites proud. Or it can lead to structures cropping up in environmentally-sensitive areas. By SIDDHARTH NAHATA
As we started from our office, we got stuck in a jam due to the High

Capacity Bus Corridor being built in Delhi. Moving forward, we could see several construction-related activities. It seemed as if Delhi had been dug out, which is somewhat true. The main factor behind the government’s massive attempt to transform the face of Delhi is the Commonwealth Games, scheduled to be held in the Capital in 2010. We finally reached the Games’ Village site near the banks of the Yamuna, adjacent to the biggest Hindu Temple, Akshardham, and being developed by Emaar MGF. The site is proposed to be the residence for athletes, and will comprise over 1,200 flats.

Numerous cranes and an army of workers were engaged in shaping up Delhi’s new landmark. A senior Emaar MGF executive, who was in charge of the site, says, “The project will see investments of upto Rs.1,200 crores and we are running three months ahead of schedule (April 2010).” He adds that 1,800 people were deployed and the figure will shoot up to over 2,000. A Delhi Development Authority (DDA) official contends that “there will be state-of-the-art training facilities next to the Village. We are linking the site via the Metro.”

A chief engineer in DDA confidently says that “everything is fine and on time. It’s like a marriage function; cards have been printed and distributed. We have to be ready at all cost and we will be ready to act as a perfect wedding host.” Even the budgets seem to be in place. In 2007-08, the union finance ministry has budgeted Rs.150 crores to the ministry of youth affairs and sports and Rs.350 crores to the Delhi government for the games. Adds the DDA chief engineer, “Earlier, we gave a budget of Rs.300-odd crores, but new estimates suggest that we require Rs.600 crores. This is under consideration, but we are getting funds regularly.”

Well, it does seem that the policy makers have things under control. Says R. Subramanian, chief engineer, PWD, “More than 100 infrastructural projects are under various stages of completion, and many more than that figure have been completed.” A PWD official on the condition of anonymity adds, “Sometimes, we face land acquisition problems and these are mainly due to DDA. It’s not the fault of DDA; it is our entire system which is bit odd and complex.”

However, like any other mega project, the Games has been criticised by environmentalists. Rajendra Singh, a Magsaysay Award winner, reveals: “The Village site is an environmental disaster. The development is taking place on Yamuna Khadar. Other people will now argue that if the Village can be built on Yamuna banks, why not other structures. The crux of the matter is that everything is happening on the back of dirty politics and this is sad.” Nevertheless, the work is on and it could be Delhi’s last chance to become a New York, or London.

For Complete I I P M Article, Click on IIPM Article

Source : IIPM Editorial, 2008

An IIPM and Professor Arindam Chaudhuri (Renowned Management Guru and Economist) Initiative

Read these article :-
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Tuesday, September 23, 2008

The ironies of Growth

For years, ever since the UPA came to power - and even before that when NDA ruled - PMs and FMs have espoused that India’s is the next growth story.
They have hinted that India, not China, will be the

next economic superpower. Everyone thought they were right - stockmarkets boomed, forex reserves shot up, growth threatened to cross the double-digit mark, and India became the global services czar. But now, slowly but steadily, red signals are flashing on many economic fronts. Economists talk about a slowdown. Stockmarkets are volatile, and no one knows whether stock prices will move northwards, or downwards. And inflation remains a key concern. All this is happening when the UPA coalition is getting ready for the general elections in 2009. B&E analyses the future of the exuberant India growth story. By A. SANDEEP, ASIF AHMED, VIRAT BAHRI, MANISH K. PANDEY AND GYANENDRA KASHYAP

A manufacturing slowdown?

The name ‘Gorilla’ comes from the Greek word Gorillai, which means a ‘tribe of hairy women’. Gorillas are seriously interesting creatures. Tamed, they can fight a pride of lions for you, er, as long as you have a two-metre, 250-watts electric shock-rod ready at your hand. Well, that’s exactly the India growth story right now. Undoubtedly, India’s growth saga is thundering upwards like nobody’s business; and, till now, almost all the indicators prove that. Strangely, some of the very factors that have led to this flamboyant growth in the recent past are now playing truant by restricting us from experiencing what could have been a dramatic transformative economic upswing, much more than the growth rates that we so proudly flaunt globally! And the blame lies completely with the policy makers, who have clearly erred in not utilising most required control measures in a timely fashion.

But first, a quick summary of the economic growth story. The February 2008 IMF India Assessment report mentioned that “over the past five years, average growth of 8¾% has made India one of the world’s fastest growing economies.” The report addsed that inflation has “remained contained,” current account deficits have been at a moderate level, factors which, as per IMF, “pay tribute to India’s sound macroeconomic policies and past structural reforms.” Although India’s growth rates have remained high, they have been relatively subdued – if we can call it that – in recent quarters. India’s GDP grew by a smashing 9.3% in Q1 2007-08 (but it was lower than 9.6% in Q1 2006-07). In Q2 2007-08, it was even lower at 8.9% (compared to 10.2% in Q2 2006-07). The IMF forecast for India’s GDP growth in this fiscal is 8.75%. Subir Gokarn, Chief Economist, Standard & Poor’s, Asia Pacific, told B&E, “India’s GDP growth is expected to be 8.6% during FY 2007-08.” Dharmakriti Joshi, Director and Principal Economist, Crisil, commented, “We expect the GDP growth to moderate further in 2008-09... to a little over 8%.” The cumulative GDP figure at current market prices at the end of Q2 2007-08 had reached $1.09 trillion. Interestingly, while India’s GDP – in PPP terms – in FY 2006-07 was $3.8 trillion, the World Bank downgraded it by 38% in January 2008 (quoting recalculation using a new methodology) to $2.34 trillion.

Comparatively, the manufacturing sector – as per RBI Q3 review – recorded “a lower growth of 9.8% during April-November 2007, as compared to 11.8% during April-November 2006.” Dr. Dalip Kumar, Consultant, NCAER, revealed, “Non-farm activities, manufacturing and services... are either slowing down or just maintaining their trajectory of growth.” RBI itself accepts that the slowdown is due to “decelerated/negative growth in 11 out of the 17 manufacturing industry groups”; the 11 sectors account for a whopping 49.3% weight in the Index of Industrial Production (IIP). Frankling Templeton, though, does mention in its January 2008 ‘Market Snapshot’ that “the composition of IIP hasn’t changed to reflect new economic drivers and sectors; and the government is expected to introduce a new index with... new weights and a wider basket of items.”

For Complete I I P M Article, Click on IIPM Article

Source : IIPM Editorial, 2008

An IIPM and Professor Arindam Chaudhuri (Renowned Management Guru and Economist) Initiative

Monday, September 22, 2008

Daring to reform

Seven major sectors reviewed
Of late, a historical Foreign Direct Investment (FDI) policy

was announced. With liberalisation of the norms in the seven major sectors, the government has not merely made a desperate attempt to win the lost trust of its vote bank, just before the announcement of annual budget, but also signaled that economic atmosphere is further going to be conducive for the multinationals.

For the first time, 49% FDI in Commodity Exchanges & Credit Information Companies (CICs) were permitted. For Commodity Exchanges FDI upto 26% & FII upto 23%, with a 5% cap on single entity has been allowed. The new policy for CICs has also allowed sub-cap of 24% for FIIs. Moreover, the cap for petroleum refining by PSUs has too been increased to 49% from 26% previously. “The move would definitely augment the potential of the market places, to help the rural areas unlock values in their economy and help spread benefits of economic growth,” said Joseph Massey- DMD-MCX. Besides, other sectors like aviation, real estate & Titanium mining industries too have their share of pie. The government has not made it mandatory for FIIs to invest for a lock-in period of three years, in real estate sector. It has further sanctioned 100% FDI in areas like Titanium mining and setting up of Maintenance Repair & Overhaul (MRO) facilities and aviation training institutes.

Most in the political fraternity have always resisted changes in the FDI policy. And this time too, the Left has not received it with open arms. But this policy pronouncement is more of a strategic move, ahead of elections scheduled in May next year.

For Complete I I P M Article, Click on IIPM Article

Source : IIPM Editorial, 2008

An IIPM and Professor Arindam Chaudhuri (Renowned Management Guru and Economist) Initiative

Saturday, September 20, 2008

From new forays to bankruptcy

Probably, it is time now to detail out some of other risks that Mallya has taken in his tumultuous corporate career. This is an account of a

man whose corporate strategies would baffle a few, scorn others. Two decades back, his father (the late Vittal Mallya) passed on the baton of UB Group to the 27-year-old Vijay. Ever since, nothing has been easy for this man, full of energy but condemned by his critics as a mere ‘playboy’. Two years after he became UB Group’s chairman, a humiliating income tax investigation saw Mallya’s self-exile to London, sans fortune, sans glory. All he probably had then was the cloud of bankruptcy over his head and that of the UB Group.

But then, he deftly persuaded HSBC to fund a 100% leveraged bid for Berger Paints and, eight years later, sold his stake for a mind-blowing $66 million profit. That was it. His risk had paid off. He came back to India and brought a storm with him that blew the tops and bottoms of many citadels willing to stand as obstacles in his way. And this was not the only piece of high-risk glory for him. In fact, this was just the beginning.

Do you recall the Shaw Wallace episode, and the wave that created was when after owner Manu Chhabria’s death in 2002, the Chhabria family excluded Mallya’s UB from the bidding process? Mallya went hostile and offered Rs.15.45 billion for Shaw Wallace and its subsidiaries in June 2005. It seemed like he was paying a high price. The result is for everyone to see. Mallya recalls, “It was a high-risk strategy. I had waited for 20 years. Shaw Wallace transformed my liquor business. It gave us a 60% market share in India, and improved profitability because both UB & Shaw Wallace had spent crazy sums competing with each other.” Today, the UB Group, strengthened by acquisitions, is the second-largest liquor producer in the world.

Many doubts were also expressed, when Mallya decided to launch a new airline; it was a sector where all the players were incurring huge losses. In addition, it seemed an odd business decision as UB Air, India’s first private air service launched in 1990, was later reduced to just providing helicopter services due to lack of profitability. Surely, any promoter would have thought many times over before launching another airline. His critics may have been proved correct as Kingfisher Airlines’ accumulated losses have touched $300 million in two years of operations (FY 2006 & FY 2007). But then, that’s not Mallya’s style.

As if this was not enough, Mallya went ahead and acquired 69% stake in another loss-making low cost carrier, Air Deccan, in December 2007. Air Deccan’s accumulated losses totted up to about Rs.20 billion. And Mallya has already evinced serious interest to ply on international routes, especially between India & the US. Now, what can be considered more risky than that? But, for Mallya, risk seems to be the opium of his life. It appears to be an even bigger gamble when you realise that his parent UB Group had accumulated losses totaling Rs.1.53 billion till FY 2005. So what is the primary force that gives rise to that risk-related fire in his belly and the utmost zeal to excel in disconnected areas that look like non-starters in the beginning? When asked about this issue, Mallya shoots back, “Passion. I have a passion for several things, and I try to rotate around things that I am passionate about. So, even in the future, I will be foraying into many new arenas about which I might know little but still have developed a passion. And perhaps this is what makes me different from many other industrialists in India.”

When asked about the value of brand Mallya, Harish Bijoor, CEO, Harish Bijoor Consultants, asserts, “Among the few names that I can think of when it comes to taking calculative risks, Mallya stands out distinctly. He is not a person who makes rash decisions but calculative ones and indeed stands out. He has through his risky strategies created world class brands and has managed UB better than many could have ever imagined. Indeed, he was close to bankruptcy once, but he has managed it well and has come out stronger as an entrepreneur.”

For Complete I I P M Article, Click on IIPM Article

Source : IIPM Editorial, 2008

An IIPM and Professor Arindam Chaudhuri (Renowned Management Guru and Economist) Initiative

Tuesday, September 02, 2008

Now easier on the pocket

Budget hotels should prosper in India but for rising real estate prices

“Seeking Fortune”- is what a lot in hospitality industry

seem to be doing these days. Raison d’être, driven by huge surge in both business and leisure travel, the industry is on a roll. And with over $2 billion waiting to be roped in the next three years, the sector seems hot among investors. However, interestingly, most of the treasure hunt happens to be in the mid-size and low-budget segments.

While international hotel chain Accor has already entered into a joint venture with Emaar MGF to bring its Formule 1 brand of budget hotels to India, Ginger , a subsidiary of Roots Corp owned by Taj Hotels, too, has confirmed its presence and plans to open 30 more in tier I and tier II cities, adding 3,000 rooms by the end of 2008. Even domestic players like Sarovar Hotels and South India-based Choice Hotels are leaving no stone unturned in making their presence felt in a big way.

Fortune Park Hotels, a subsidiary of ITC Ltd., has recently announced plans to augment its presence from 21 hotels and 40 signed alliances across 34 cities at present to 60 hotels in 65 cities in next few years. Fortune, whose expertise lies in the business of managing hotels, also plans to set up its own hotels investing about Rs.1.3 billion in next few years. Moreover, according to industry sources, as many as 40 brands are expected to set-up budget hotels in the next five to seven years in India.

Indeed a well thought off strategy by these players! As the domestic market continues to expand, the escalating economy has provided a growing and newly prosperous middle class population, many of whom are accessing travel for the first time, further raising the need for mid market and functional hotels. The demand for these hotels for corporate and leisure customers at affordable price, while maintaining the benchmark standards is also gaining popularity and the next few years are expected to see more such growth.

“There is tremendous growth opportunity as in the next 3-4 years India will need over 1,00,000 lakh additional rooms, and maximum should be contributed from three-four star hotel category.” says Girish Solanki, who is a hotel analyst. According to HVS International, the quality room supply in India is shockingly low at below 40000. Moreover, as per the report, budget hotels should account for an overwhelming 50.7% of all new hotels in India over the next five years. Players want to capitalize on it by creating a strong presence across with specialised products designed to suit the specific needs of various segments viz. business, leisure, pilgrims, adventure et al. “The segment of budget hotels has always existed; it’s only that big players are now moving into this segment and standardising the product offering with a view to capture the large mid-market segment,” Amol Rao, a hotel analyst at PINC Research, makes his point.

Surge in real estate prices is bound to act as a big obstacle. Initially, even a cluster of brands in a particular location are bound to co-exist without much ado. But as the hunt for low budget fortunes gets fiercer over the years, this industry might just see the same churn currently witnessed in the aviation sector.

For Complete I I P M Article, Click on IIPM Article

Source : IIPM Editorial, 2008

An IIPM and Professor Arindam Chaudhuri (Renowned Management Guru and Economist) Initiative

Read these article :-
ZEE BUSINESS BEST B SCHOOL SURVEY
B-schooled in India, Placed Abroad (Print Version)
IIPM in Financial times (Print Version)
IIPM makes business education truly global (Print Version)
The Indian Institute of Planning and Management (IIPM)
IIPM Campus

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