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MONDAY, 3 JULY 2017

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MUMBAI (CITY) ~6.00

VOLUME XXI NUMBER 226

How markets performed last week Sensex Nifty Dow Jones Nasdaq Hang Seng Nikkei FTSE DAX

Index on Jun 30, ‘17

*Oneweek

30,922 9,521 21,350 6,140 25,765 20,033 7,313 12,325

-0.3 -0.8 1.3 -1.1 0.5 1.8 -3.1 -2.2

% chg over Dec 30, ‘16

--————————————————————————————————————————————————————————

Local currency

in US $

16.1 16.3 8.0 14.1 17.1 4.8 2.4 7.4

22.1 22.3 8.0 14.1 16.3 9.1 8.0 16.6

*Change (%) over previous week

Source: Bloomberg

RBI SEES MATURING OF SECONDARY MARKET IN CORPORATE BONDS

CURRENCY CIRCULATION HEADING TOWARDS PRE-NOTE BAN LEVEL: FSR 4 >

SPECIALS

ON MONDAY

BRAND WORLD: Bata pitches a new image, runs into a sticky spot

The footwear brand runs into controversy over its new campaign. Will this help or dent its image? SOHINI DAS writes 15 >

PERSONAL FINANCE: Profit from buybacks Investors should consider the long-term prospects of the company, the premium it is paying, and acceptance ratio before deciding to participate in a buyback. 9> SANJAY KUMAR SINGH writes

BUSINESS LAW: Treading on a legal minefield

With no precedent for goods and services tax in India, there could be several interpretations of the new framework, say experts. SAYAN GHOSAL writes 16 >

START-UP CORNER: Personalising loans through technology

PUBLISHED SIMULTANEOUSLY FROM AHMEDABAD, BENGALURU, BHUBANESWAR, CHANDIGARH, CHENNAI, HYDERABAD, KOCHI, KOLKATA, LUCKNOW, MUMBAI (ALSO PRINTED IN BHOPAL), NEW DELHI AND PUNE

GST blues may turn markets volatile ANALYSTS FEAR MARKETS COULD CORRECT DUE TO INITIAL HICCUPS Mumbai, 2 July

T

he Indian stock market could continue to remain volatile with a downward bias as corporates and investors assess the impact of the landmark goods and services tax (GST) on their businesses, investments, and the economy. Market pundits are still trying to get a grip on how the new tax regimewillimpactinflation,gross domestic product, and profitmarginsoffirmsafterJuly1 roll-out.They,however,areunanimousintheirbeliefthatthemarketscouldremainunderpressure asthetransitiontotheGSTislikely to be fraught with hiccups, which could disrupt economic activities. Ahead of the GST — which subsumes most of the preGST indirect taxes levied by the Centre and states — implementation, the benchmark Nifty declined in six of the previous eight trading sessions, with automobile and banking stocks, in particular, underperforming the market. “The GST may disrupt the system for a few days, maybe weeks or months, as people are not yet fully ready for the execution. The Street will react to the initial disruption, as markets are trading at rich valuations with expectations of better corporate earnings,” says Motilal Oswal, chairman and managing director, Motilal Oswal Financial Services, adding that the benchmark indices

STATSGURU: Tracking stock markets

4>

HOW KEY BLUE-CHIP STOCKS COULD BE IMPACTED AUTOMOBILES (NEGATIVE) Maruti Suzuki, Tata Motors, M&M, Hero MotoCorp, Bajaj Auto PRE-GST RATE:Between 24.3% and 35.9% GSTRATE:Between 28% and 43%

TSI

COMPANIES

PAGE 3

FMCG

(NEUTRALTOPOSITIVE) ITC, Hindustan Unilever, Dabur PRE-GST RATE: Between 16% and 28% GSTRATE: 28%

P18 OPINION

CONSUMER STOCKS’ VALUATION AT NEW HIGH

EDIT: GOOD AND SIMPLE

could correct up to 3 per cent from pre-GST levels. The Nifty 50 index on Friday closedat9,520,whiletheS&PBSE Sensex closed at 30,921.6. Despite the recent correction, both the indices are trading less than 2 per cent below their all-time highs touchedlastmonth.Also,theyare trading at 19 times their estimated one-year forward earnings, compared to long-term

GLITCH-FREE GST ROLL-OUT IS EXPECTING TOO MUCH: CBEC’S VANAJA SARNA

TEETHING TROUBLES FOR CENTRE’S ‘GOOD & SIMPLE TAX’ “THE STREET WILL REACT TO THE INITIAL DISRUPTION. NOT BECAUSE IT IS SEVERE, MORE SO BECAUSE THE MARKET IS TRADING AT RICH LEVELS”

MOTILAL OSWAL

CEMENT

(NEGATIVE) UltraTech, ACC, Ambuja PRE-GST RATE: Between 23% and 26% GSTRATE28%

P13

POLICY RULES: PERFECTING THE GST

average of 16 times. “TheimpactoftheGSTonlisted company volumes and earningsmayextendbeyondtheJune quarter. At rich valuations, any hiccup in numbers could be a risk,” says Sanjay Mookim, India equity strategist at Bank of America Merrill Lynch (BofAML),askinginvestorstostay cautious in the near term. Turn to Page 8 >

FIVE THINGS THE CENTRE SHOULD FOCUS ON NOW

“THE IMPACT OF THE GST ON LISTED COMPANY VOLUMES AND EARNINGS MAY EXTEND BEYOND THE JUNE QUARTER. AT RICH VALUATIONS, ANY HICCUP IN NUMBERS COULD BE A RISK”

SANJAY MOOKIM

India equity strategist, BofAML

“I DON’T THINK THE MARKET REALLY UNDERSTANDS THE SORT OF REBALANCING OF THE ECONOMY THAT IS TAKING PLACE DUE TO A WHOLE PACKAGE OF REFORMS” SAURABH MUKHERJEA Chief executive officer, Ambit Capital

ADHIA TAKES TO TWITTER TO BUST MYTHS ON GST

Nine private power projects shortlisted for bank takeover Fixing the blown NPA fuse

New Delhi, 2 July

PE firms and lenders may take an exposure in Bhushan Power & Steel as part of the company’s restructuring. The firm is facing insolvency proceedings under the Insolvency & Bankruptcy Code. ISHITA AYAN DUTT writes

Banks have shortlisted nine coal-based power projects and are evaluating them for equity purchase and for NTPC to likely operate them subsequently. Of the nine, three major ones were Jindal India Thermal Power’s (JITPL’s) Derang project in Odisha (1,200 megawatt, or Mw); the RattanIndia Power plant in Nashik, Maharashtra (1,350 Mw); and Lanco Infratech’s Babandh 1,320 Mw power project in Odisha, official sources told Business Standard. The move is in line with the recent decision of the central government to convert stressed assets into ‘national assets’. In a meeting held in the first week of June, Union Minister of State for Power (Independent Charge) Piyush Goyal had said as regards the stressed power assets, the banks agreed to take over, NTPC offered to operate them. “Banks need assistance… We are focused on finding solutions to make stressed assets national assets,” Goyal said after the meeting with banks on June 7. Turn to Page 8 >

PLAN

| Revival of stressed thermal power projects | Banks to take over equity; NTPC offers to operate them

AGENDA

| To convert stressed assets into national assets

CURRENT STATUS

| Nine plants of the 25,000-Mw feared to be NPAs being evaluated by banks for bail-out

PRELIMINARY SHORTLIST

| BC Jindal Derang: 1,200 Mw in Odisha | RattanIndia: 1,350 Mw in Nashik (Maharashtra) | Lanco Infratech: 1,320 Mw in Babandh (Odisha)

ISSUES

| Coal block cancellation | Lack of power-purchase agreements | Increasing debt | Stagnant revenues

Divergence with PM didn’t stop govt working: Prez Modi says ‘Pranab da’ cared for him like a father would and advised him to take adequate rest PRESS TRUST OF INDIA New Delhi, 2 July

President Pranab Mukherjee with Prime Minister Narendra Modi at a book launch in New Delhi on Sunday PHOTO: PTI

Framework to incentivise employees referred to RBI for approval

CMD, Motilal Oswal Financial Services

SHREYA JAI

PE FIRMS, LENDERS MAY TAKE STAKE IN BHUSHAN POWER & STEEL

ESOPs to be linked to banks’ performance

CORRECTIONS A BUYING WINDOW FOR FUND MANAGERS

SAMIE MODAK

GST

17 >

AIRBAGS INFLATE THE BUSINESS OF SAFETY

DALIT ASSERTIVENESS FINDS A BJP PLATFORM

IMPACT

MoneyTap wants to facilitate banks in giving out ~300 crore in small personal loans by next March. ALNOOR PEERMOHAMED writes

COMPANIES P2

IMAGING: AJAY MOHANTY

The corporate bond market is slowly coming of age, with liquidity in the secondary market on the rise, according to the RBI’s biannual Financial Stability Report. Primary issuance in the corporate bond space rose to ~6.7 lakh crore in 2016-17, from ~1.74 lakh crore in 2008-09. ANUP ROY writes

POLITICS & PUBLIC AFFAIRS P19

Days before the end of his tenure, President Pranab Mukherjee on Sunday spoke candidly about his relationship with Prime Minister Narendra Modi. During the launch of his photo essay, President Pranab Mukherjee: A Statesman, at Rashtrapati Bhavan, Mukherjee said divergences with Modi did not hamper the President-Prime Minister relationship. “It did not affect the relationship between the President and the Prime Minister, between the titular head and the actual head of the administration,” Mukherjee said. Mukherjee said at times he would seek clarifications from Finance Minister Arun

Jaitley, who was present on the occasion and has often articulated the government’s position on various issues. Jaitley often convinced him like an “able and effective advocate” that he is. The President said he can claim with confidence that “the functioning of the government was never disturbed, never stopped, never delayed”. Modi, who launched the book, said he was fortunate to have got a chance to work with Mukherjee. Modi said he was fortunate he could hold Mukherjee’s hand while trying to settle in Delhi, and that there was never a meeting between them in the last three years when the President did not treat him like a son. “I am saying this from deep within. Like a father caring for his son...,” he said, turning emotional. Turn to Page 8 >

Page

8

towards ESOPs, maybe 5 per cent in the case of large banks and 3 per cent in the case of small banks,” he said. The proposed employee stock PSBs are facing a talent crunch option plans (ESOPs) for public secand the entry of more universal tor banks (PSBs) to retain talent will and payments banks is expected to be introduced for select banks that add to the human resource stress. meet the performance “ESOPs will give employees a criterion of the scheme. sense of ownership to work The framework the government towards improving banks’ has created to incentivise employhealth,” said the official. ees has been referred to the TheDepartmentofFinancial Reserve Bank of India (RBI) for Services, which has drafted the approval. ESOP framework, The finance will discuss the final ministry had, in contours of the plan March, agreed in STOCK OPTION BAIT TO withtheBanksBoard principle to allow Bureau (BBB). PSBs to offer stock ESOPs are comoptions to their The finance ministry had, mon in the private employees from in March, agreedinprinciple sector, as companies 2017-18. offer stocks to “We have toallowPSBstoofferstock reward and retain finalised the optionstotheiremployees talented employees. framework to from2017-18 The government issue ESOPs after ESOPs will be extended is also considering discussing the bonuses and other matter with the from thelevelofDGMand performance-linked Indian Banks’ additionalGMtothestar packages as suggestAssociation. performers ed by the BBB. Banks’ performESOPs will likely be available The government, ance will be a key as part of its parameter, along to PSBs making profits Indradhanush — a with others, for the anddoingwell,intermsof seven-pronged ESOPs. At the managingNPAs.Shares strategy to revive moment, it is with equivalenttocertainproportion PSBs — had said the central bank ofprofitsarelikelytogoasESOPs that ESOPs for top for approval,” said managements were a senior governunder formulation. Earlier this year, ment official. According to the proposal, BBB chief Vinod Rai had said that ESOPs will be extended from compensation packages across the level of deputy general PSBs needed to improve. “Maybe we are not able to do manager and additional general much about the fixed part of the manager to the star performers. The ESOP option will likely be compensationpackagebutaboutthe available to banks making profits variable part we are hopeful that in and doing well in terms of manag- the next financial year (FY19) we will ing non-performing assets (NPAs). be able to have bonuses, Shares equivalent to a certain pro- ESOPs, and other performanceportion of net profits are likely to go linked incentives,” he had said. There could be monetary or as ESOPs, according to the official non-monetary benefits to make it quoted earlier. NPAs have mounted to more attractive for professionals to join PSBs, he had said. than ~6 lakh crore in PSBs. “A share of net profit could go Turn to Page 8 > DILASHA SETH

New Delhi, 2 July

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MUMBAI | MONDAY, 3 JULY 2017

>

IN BRIEF

HC order on SpiceJet-Maran share transfer row today The Delhi High Court is likely to pronounce on Monday its verdict on the pleas of budget carrier SpiceJet and its cofounder, Ajay Singh, against a single judge order directing it to deposit ~579 crore in connection with a share transfer dispute with previous owner Kalanithi Maran. The judgment is expected to be delivered by a Bench of justices S Ravindra Bhat and Yogesh Khanna. A division Bench of the high court had in May reserved its decision on the pleas by the airline and Singh challenging the order which came on a civil suit by Sun Group chief Kalanithi Maran and his Kal Airways. PTI<

Anil Agarwal pledges wealth for child welfare

MiningbaronAnilAgarwal,who haspledged75percentofhis family-wealthforthelarger society,hassaidachunkofitwill gotonurturingover75million underprivilegedchildrenbelow thepovertyline.TheNRI billionaire,whocontrols London-listedVedanta Resources,hadanetworthof $2.4billionasofJuly1,2017, accordingtotheUSmagazine Forbes.“Istronglybelievethat wehavearesponsibilitytogive backtosocietyfromwherewe take.Nurturingunderprivileged childrenisclosetomyheart.I havealreadypledged75percent ofmyfamilywealthtosociety andagoodchunkwillgoto upliftingchildren,”Agarwalsaid inaninterview. PTI<

Whirlpool of India to invest ~200 cr; increase production Homeappliancesmaker WhirlpoolofIndiaislooking to investabout~200croreinthe nextthreeyearsontechnological innovationsandtoincrease productioncapacity.The company,asubsidiaryof WhirlpoolCooperation,iseyeing a25percentmarketshareby 2020onthebackofnewproduct offeringssuchaswaterpurifier, airpurifier,dishwasherand othersmalldomesticappliances. “Inthenextthreeyears,weare lookingforwardtoputtingin closeto~200crore,partofwhich willbeonincreasingcapacity andpartofitwillbeonenergy relatedmanufacturingprocesses andtechnologicalinnovations,” WhirlpoolofIndiaVP–Marketing KapilAgarwalsaid. PTI<

Eicher Polaris to begin exports to Nepal, Bangladesh EicherPolaris,which manufacturesandmarkets personalutilityvehicleMultix,will begintoshiptheproducttoNepal andBangladeshthismonth. Followingtherisingdemandfor MultixsinceitslaunchinJune 2015,thecompanyisincreasingits footprintintothemetrosandto allstatesbyaddingmoredealers. ItalsolaunchedtwoBS-IV variantsinMarchthisyear withhigherenginecapacityof 650-cc. PTI<

H&M to add 8 more stores, go online in India by 2018 SwedishfashionretailerHennes &Mauritz(H&M)willaddeight morestorestoitsnetworkover thenextsixmonthsfocusingon tier-IIcities.H&Mwouldadd 160,000squarefeetofretail spacebytheendofthisyear, totalling650,000squarefeet withintwoyearsofstartingits operationsinIndia.The additionofnewstoreswould takeitscountto24.Besides,the companyalsohadplanstogo onlineintheIndianmarket from2018.“Thisautumn,H&M willhaveeightmorestores acrossMumbai,Bengaluru, DelhiNCRaswellasIndore, CoimbatoreandAmritsar. Addingatotalof160,000square feetofretailspace,”H&M IndiaCountryManagerJanne Einolasaid. PTI<

LEAP India plans to raise ~100 crore via debt Mumbai-based supplychain solutions companyLEAP Indiaplansto raise~100crore throughdebttoexpand woodenpalletcapacityand increaseitsfootprints.“We haveraisedaround~110crore lastyearthroughSeriesB fundingfromexistingaswellas newinvestors.Wearenow lookingatraisingaround~100 crorethroughbankloansto meetourcapitalexpenditure plans,”LEAPIndiaManaging DirectorSunuMathewsaidon Sunday.“Weareaimingto garnerasignificantmarket shareintheassetpoolingspace whichotherwisehasbeena highlyfragmentedand unorganisedmarket,”Mathew said. PTI<

Housing sales fall 40% in Jan-May: PropEquity Housing sales fell by 41 per cent during the January-May period of 2017 at 110,000 units across 42 major cities as property demand continued to be sluggish after demonetisation, according to PropEquity. Housing sales stood at 187,000 units during the year- ago period. The real estate market is facing a multi-year slowdown, leading to significant delays in project execution, forcing buyers to protest and file cases against developers in courts. Housing sector got further affected after demonetisation. PTI<

Airbags inflate the business of safety AJAY MODI

Manesar, 2 July

W

hat have you done today to save more lives?” This message welcomes entrants to the Manesar factory office of Autoliv, the Stockholm-headquartered manufacturer of airbags and other automotive safety systems. The business of saving lives by making safer vehicles is getting bigger in India, the fifth-largest car market, because of new regulations. Take the case of Autoliv, which claims to be the largest player in the domestic airbag market. Its Indian subsidiary has seen revenue from airbags jump 88 per cent to ~400 crore in the year ended December 31, 2016. The contribution of airbags to the company’s revenue jumped from 31 per cent in 2015 to 42 per cent in 2016. Airbags also became the largest contributor and overtook seat-belts, the other key product. The increase in airbags revenue helped its total revenue grow 40 per cent in 2016 to ~956 crore. Autoliv’s growth from airbags is a good proxy for the expansion that other airbag makers would be seeing in India. Almost every new car that has been launched in the past one year has at least one airbag (driver side), while some also have passenger airbags. The government has mandated

NEW AUTO RULES All new cars will have to be equipped with airbags to meet crash test norms from October 2017 Existing models to introduce airbags from October 2019 Icra estimated the Indian airbag market at ~800 crore last year The report said airbag market could be as big as ~1,900-2,300 crore by 2019-20 that from October 2017, all new car models will have to be equipped with airbags to meet crash test norms. Existing models need to meet these norms from October 2019. Dual airbags in a car roughly costs ~15,000. Manufacturers say they will meet the norms ahead of the deadline. Autoliv India has airbag manufacturing units at Manesar (Haryana) and Bengaluru (Karnataka). “India is our next big market from the business perspective. The legislation is supporting growth,” said Sivakumar S, director (engineering & development), Autoliv India.

In 2016, the company manufactured and sold 2.6 million airbags in India — 73 per cent more than in 2015 — and claims to have a 45 per cent market share. The company says it saves over 30,000 lives globally every year and prevents over 300,000 severe injuries. The 146 million airbags it sold in 2016 brought over 50 per cent of its $10-billion global revenue. Airbags have been used in Indiamade cars meant for export markets for long, but the current growth is coming from the vehicles sold locally. Other airbag makers operating in India are Toyoda Gosei Minda, Ashimori, Rane TRW, etc.

“The availability of airbags is no longer an issue. Every supplier has been given volume indication for near future, and a plan has been worked out,” said C V Raman, executive director (engineering) at Maruti Suzuki, the country’s largest carmaker and a key customer of Autoliv. The challenge, however, is to increase localisation to bring down costs. “Inflator and bag are the major constituents in price and they are still imported. Our effort will be to localise. We are discussing how to localise the bag. These are made in millions outside. An economy of scale has to come to justify invest-

ments,” said Raman. Autoliv made its first airbag in India almost nine years ago. But, it was just an assembly of parts imported from its overseas suppliers. With time, it has managed to move the needle on localisation, currently at 50 per cent. Sivakumar said the company was doing a pilot to locally manufacture the nylon bag. Once that is done, localisation will move up to 70 per cent. The local manufacturing of inflator (which inflates the bag during a crash) might take some time. The selection of suppliers for an airbag is much more critical than selecting vendors for other auto components. This is because an airbag is a lifesaving device and has to deploy within seconds of a crash. “We are building capabilities of suppliers here,” he said. Autoliv conducts a random deployment test on every lot of airbags it makes. One test is mandatory after every 5,000 units, if the lot size is bigger. Raman said the first point of safety in a vehicle was the use of seat-belts by all the occupants. “That will reduce the injury predominantly. Airbags can only improve it by 10 per cent. If you don’t wear a seat belt and the vehicle has an airbag, the consequences are going to be more fatal. No number of airbags can save you,” he said.

Shriram Properties plans to GM India dealers to raise ~800 cr for new projects knock on PMO doors over “We are hoping that in the next six-to-eight months, we will be able finalise the deals (raising money from investors),” said Murali. The The ~90,000-crore Shriram Group’s real estate company is mainly targeting pension and sovereign funds, who typically arm, Shriram Properties, is planstay with companies for long. ning to raise about ~800 crore to The proposed fund-raising will fund its new projects. It is also support projects worth ~4,000mulling to go public by next year. 5,000 crore. Over 70 per cent of M Murali, managing director, them would come up in Bengaluru Shriram Properties, told Business and Chennai, said Murali, who is Standard the company had also looking at Mumbai and revamped the organisation by Hyderabad. bringing in young people, and was The company, which has delivlooking at aggressive growth in ered around 15 million square feet Chennai and Bengaluru. (sq ft) of residential space in south The organisational shake-up Shriram Properties India and Kolkata, is in the process has yielded positive results for the MD M Murali said of constructing 18 million sq ft, developer, which sold 600 units the company had while 60 million sq ft is in the in the first quarter of 2017-18 revamped the pipeline. against 350 units in the corre- organisation by On the company’s initial public sponding period of the last finan- bringing in young offering (IPO) plan, he said the cial year. people, and was process would start by the end of Murali said that with rules and looking at 2017-18 and the issue might hit the compliance norms in the real aggressive growth market by 2018-19. estate sector getting stringent, a in Chennai and Shriram Properties, which has number of developers would shut Bengaluru raised $805 million from various shop, which would lead to lower investors till now, has given return of around supply and higher demand. To tap the opportunity, the company, which 20 per cent, which according to experts is is focussing on mid- and affordable-housing “one of the best”. The company is also planning to enter into segments, is planning to invest in new projects and considering raising around ~800 crore the commercial space by developing threefrom investors, while it will pump in around four million sq ft of office space across Chennai, Bengaluru, Hyderabad and Pune. ~200 crore. T E NARASIMHAN Chennai, 2 July

Mittaltakeshome~30-crannualpay Sunil Bharti Mittal, chairman of India’s largest telecom operator Bharti Airtel, took home an annual pay package of ~30.1 crore for 2016-17. The package was over 8 per cent higher than the previous year, when Mittal had drawn ~27.8 crore. Mittal, who was last year reappointed as chairman of the company for another five years, received salary and allowances of ~20.13 crore, while the performance-linked incentive

stood at ~9 crore during FY17. That alongwith ~1 crore worth of perquisites, took his overall remuneration to ~30.14 crore for the year just ended, according to the latest annual report of the telecom company. Bharti Airtel Managing Director and CEO (India and South Asia) Gopal Vittal earned ~9.28 crore during FY17, which is almost 50 per cent higher than the previous fiscal year. During the year, he received salary and allowances worth

~6.46 crore, ~2.82 crore as performance-linked incentive and ~28,800 in perquisites. Vittal was also granted 150,000 stock options on August 8, 2016, under ESOP Scheme 2005, with a vesting period spread over three years. Besides, the annual report said Vittal’s remuneration does not include perquisite value of ~3.1 crore towards the value of stock options exercised during the year. PTI

compensation issues

PRESS TRUST OF INDIA New Delhi, 2 July

Dealers of General Motors will seek intervention of the Prime Minister’s Office (PMO) over alleged “cheating and misleading” by the US automaker which will stop selling vehicles in India by the end of the year. A delegation of dealers led by industry body Federation of Automobile Dealers Associations (FADA) will meet Minister of State in PMO Jitendra Singh to discuss the matter. The dealers claim that they are likely to suffer a total loss of around ~1,000 crore but have been offered measly compensation of just about ~100 crore. Moreover, they said, the decision by GM to pull out of the Indian market will result in around 15,000 people losing their jobs. “A delegation of GM India dealers led by FADA will highlight how they have been cheated and misled to believe that GM was making huge investments in India in the meeting with the minister on Monday,” FADA President John Paul Kuttukaran said. The company had said that the investments would result in launching a number of new models in India, he said. “Huge long-term investments were made by dealers both in infrastructure and manpower and the sudden decision to withdraw from the domestic market has resulted in huge losses to the dealers,” Kuttukaran said. General Motors India, how-

The dealers claim that they are likely to suffer a total loss of around ~1,000 crore but have been offered compensation of just about ~100 crore

ever, maintained that it was providing its dealer partners with a fair and transparent transition assistance package based on a methodology that is consistent across all dealers. A majority of General Motors India’s 96 dealers, which operate around 140 showrooms across India, are unhappy with the company's offer of just around 10 per cent of total investments they have made as compensation. The dealers are asking the government to intervene in the matter. Besides meeting Singh on Monday, the dealers plan to approach other ministries such as labour, heavy industries over the matter. The dealers have already decided to explore possibilities of filing class action suits against the American automaker in the US over inadequate compensation being offered to them. According to the condi-

tions set by General Motors, a dealer who does not accept its offer by July 15 would only get 50 per cent of the compensation amount being offered. In case a dealer does not accept the offer by September 15, he would not get any compensation at all. In 2015, the company had announced an investment of $1 billion in India to enhance manufacturing operations and roll out 10 locally-produced models over the next five years. In January this year, the American firm put on hold its investments on new models for India as it undertook a full review of its future product portfolio in the country. On May 18, GM suddenly announced that it would stop selling vehicles in India as there was no turnaround in its fortunes here even after struggling for over two decades to make a mark.

Inox turns the spotlight on premium multiplex market multiplex looking at scale. Jain believes in the potential of the latter markets but said he also saw huge potential in developing a A solid second in the list of leading portfolio of premium ‘7-star’ national cinema multiplexes, Inox multiplex properties. Leisure has its eyes set on expansion “The premium properties cater to in the premium segment over the the section of audience that wants coming 18 months. more than the ordinary movie-going Siddharth Jain, director, experience. We provide Inox Group, firmly what we call believes a combination of technology and luxury At 471 screens across 7-star movie watching experience at these propofferings is the way to 58 cities, Inox trails erties. It is something that expand its footprint. sector leader PVR enhances the theatreAt 471 screens across (570 screens). While going exercise and adds 58 cities, Inox trails sector the Ajay Bijli-led value to the trip, beyond leader PVR (570 screens). PVR cinema chain only watching a film,” While the Ajay Bijli-led has hit bulls-eye in he said. PVR has hit bulls-eye in the metros and Inox recently launched the metros and premium premium category, one such property at category, Inox seems to Inox seems to have R-City Mall in Mumbai’s have focused on the exfocused on the Ghatkopar. It plans to metro markets. Last year, ex-metro markets open 10 more over the the company said it saw next 18 months. Each potential in the markets property would have a varying numbeyond the metros, as these audiber of screens, depending on the ences were yet to experience the space available. These would have superior movie viewing experience. the latest in exhibition technology, Also, with real estate becoming with IMAX and 3D screens in some increasingly expensive and limited in cases. “We aren’t looking at launchthe metros, the tier-II and tier-III tering these properties at new locations ritories are a good idea for any

SCREENSHOT

URVI MALVANIA Mumbai, 2 July

Total screens 3D screens IMAX Operational In the pipeline Total number of properties Cities with Inox presence Additions planned in FY18

471 159 2 3 119 58 49

Source: Inox Leisure

only. Wherever possible, we might renovate an existing property, if the location proves suitable for a premium Inox property,” Jain said. The expansion will be part of the organic growth Inox sees for itself. “We see no real opportunities for inorganic (through acquisitions) expansion. It just makes more sense to add screens organically now. It also sets well with the targets we have set ourselves for the current fiscal,” says Jain. Inox intends to add 49 screens in this financial year. The investment on this would range between ~125 and ~225 crore, depend-

ing on whether these would be normal or premium screens. PVR recently decided on expansion of 4DX and IMAX screens over the next two years. The company will be spending up to ~110 crore for this. A premium screen costs ~4-5 crore for launch, and takes up to three years to break-even, depending on location. Ticket prices for these are higher than the average, while the number of seats per screens are fewer. So, the addition of premium properties brings up the average ticket price (ATP). The multiplex chain’s ATP for

FY17 was ~178. Premium screens have a mark-up of up to ~500 on normal shows in the first weekend and would help increase the ATP over time. Jain said expansion into tier-II and tier-III territories remains a focus area. The chain has invested in multiple properties in some of these towns and cities, such as Bharuch and Thissur where Inox has up to three multiplexes. “These are cities that have the potential to adopt the multiplex experience. We don’t see a danger of cannibalism as such, since we are

actually converting single-screen audiences to multiplex goers. The ticket prices in these markets are marginally higher than what movie goers are used to paying for single screen tickets but the facilities and the experience is different,” Jain explains. The mark-up on tickets in such markets, when compared to single screens, is ~20-30. Inox hopes to capitalise on the aspirational value attached to multiplexes in these markets, and provide a service which will eventually create a demand for multiplexes. “It’s not always that the consumer knows what he/she wants. Sometimes, one just needs to go ahead and provide a better experience, and the demand increases,” he says. Among the metro markets, Inox will continue to focus on north India, specifically Delhi and the surrounding territories, where there is potential for growth of both normal multiplex screens and premium ones. Competitor PVR has a stronghold on this market, with its most exclusive properties, PVR Director’s Cut, in the Delhi region.

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COMPANIES 3

MUMBAI | MONDAY, 3 JULY 2017

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PE firms, lenders may take stake in Bhushan ISHITA AYAN DUTT Kolkata, 2 July

BHUSHAN POWER & STEEL: LOAD SHEDDING

P

rivate equity firms and lenders may take an exposure in Sanjay Singal-controlled Bhushan Power & Steel as part of the restructuring of the company. Bhushan Power & Steel is facing insolvency proceedings under the Insolvency and Bankruptcy Code. Last week, lenders decided to refer it to the National Company Law Tribunal (NCLT). To date, the company’s debt is ~40,000 crore, which includes working capital. Sanjay Singal, chairman and managing director of Bhushan Power & Steel, said lenders were in discussions with two-three private equity firms. They were also likely to convert part of their loans into equity and the balance could be restructured. Bhushan Power & Steel is an unlisted company and the promoters hold around 95 per cent in it. It is likely that after the private equity firm takes an exposure and lenders convert loans into equity, the holding of the existing promoters could come down by 25 per cent. The plan will be submitted to the NCLT. “The discussion with private equity players is being held by lenders,” Singal said. Asked whether there would be any change of management, Singal said it would be joint management. Bhushan Power & Steel has a

FY10 FY11 FY12 FY13 FY14 FY15 FY16

Net sales 3,997 4,678 6,751 8,670 10,309 9,248 7,700

PBDIT PAT 1,117 256 1,416 438 2,056 534 2,705 572 3,295 635 2,002 -1,366 1,203 -2,436

Net worth 2,756 3,722 5,459 6,266 8,072 6,804 4,366

in ~ crore Total debt 10,509 13,402 17,907 24,810 30,558 33,785 37,248

PBDIT: Profit before depreciation, interest and tax; PAT: Profit after tax; Compiled by BS Research Bureau Source: Capitaline

steel-making capacity of three million tonnes across Odisha, West Bengal, and Chandigarh. The hotrolled steel facility is in Odisha and the cold rolling facilities are in Kolkata (West Bengal) and Chandigarh. Bhushan Power & Steel ran into trouble after its licences for iron ore and coal mines were cancelled. The company had been allotted a coal mine with reserves of around 250 million tonnes, and that was deallocated in 2014. The iron ore mines were committed by the Odisha government. However, the two mines were allocated in 2012 and 2014 after Supreme Court intervention. But subsequently, the amended Mines and Minerals (Development and Regulation) Act was passed in 2015. As a result, Bhushan’s iron ore mines also got cancelled. “The project was set up on the

India seeks discounted deal on Windows 10 EUAN ROCHA

Mumbai, 2 July

India is pressing Microsoft to offer a sharply discounted onetime deal to the more than 50 million Windows users in the country so that they can upgrade to the latest Windows 10 operating system (OS) in the wake of ransomware attacks. Microsoft officials in India have “in principle agreed” to the request, Gulshan Rai, India’s cyber security coordinator, told Reuters over the phone on Friday. A spokeswoman for Microsoft in India declined to comment on the matter. Officials at the company’s headquarters in the United States and regional headquarters in Asia also declined to comment. If Microsoft agreed to such a discount, it could open up the global software giant to similar requests from around the world. Rai said the government was in talks with Microsoft management in India. It is not immediately clear whether any other countries were seeking similar deals. Rai said India began talks with Microsoft after the WannaCry ransomware attack last month, noting that both WannaCry and this week’s attack, dubbed by some cyberexperts “NotPetya”, exploited vulnerabilities in older iterations of the Windows OS. “The quantum of the price cut, we expect some detail on in a couple of days,” Rai said, adding the Indian government expected the company to offer the software at “throw away prices.” “It will be a one-time upgrade offer to Windows 10 and it will be a discounted price for the entire country,” said Rai, who was hand-picked by Indian Prime Minister Narendra Modi to be the country’s first cyber security chief. Rai declined to be more specific, but said he was confident that it would be “less than a quarter of the current price.” Rai, who has over two decades of experience in different information technology areas including cyber security, said his team began coordinating with government agencies and regulators to push for OS upgrades soon after the WannaCry attack began on May 12. The government’s quick action helped minimise the impact of the NotPetya attack, which affected two of India’s container port terminals, he said. REUTERS

basis of the mines. We set up the coal washery on the basis of the coal mine. Otherwise, we would have gone for the blast furnace route. Our problem is because of the cancellation of the mines,” said Singal. The company’s debt increased from ~10,509 crore in FY10 to ~37,248 crore in FY16, while net sales during the period increased from ~3,997 crore to ~7,700 crore. According to Icra, the exposure of the Indian iron and steel sector in the banking system stood at ~3.13 lakh crore as on March 31, 2016, and gross non-performing assets in the sector were ~1.15 lakh crore. Apart from factors like the mines cancellation, weak demand and surge in cheap imports added to the problems of the sector, prompting the government to come up trade measures towards the end of 2016.

UK considers fixing pension loophole to help Tata Steel The UK government is reportedly considering a law change to plug a loophole in its pension laws to help Tata Steel savejobs at itsPort Talbot plant in South Wales, The Sunday Times claimed. A deal to reduce Tata’s financial burden in the £15-billion pension scheme for its British steel business is central to a plan to save Port Talbot and keep it open, conceived last year by interim chairman Ratan Tata. It is understood that the deal hinges on amending a quirk in the UK law that grants one group of retirees exceptional benefits, the newspaper reported. Tata Steel is trying toslashthescheme’scostsbysettingupanew retirement pot paying lower benefits. The new scheme has been established as an alternative to using the Pension Protection Fund (PPF) as Tata has offered to pump £550 million into it. The steel pension fund has about130,000 members — a legacy when the industry employed hundreds of thousands of workers. Ofthese,about5,800areentitledtoexceptional benefits that were designed to bridge the gap between early retirement and reaching the state pension age in Britain. A loophole means that these members would be better off entering the PPF than joining the Tata-sponsored scheme. PTI

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4 ECONOMY

1

MUMBAI | MONDAY, 3 JULY 2017

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N FINANCIAL STABILITY REPORT N

Secondary trade in corp bonds rising

2016-17 saw 26% growth in number of trades and 44% growth in volumes ANUP ROY

Mumbai, 2 July

T

he corporate bond market is slowly coming of age, with liquidity in the secondary market on the rise, according to the Financial Stability Report (FSR) published by the Reserve Bank of India (RBI). “Various initiatives by the Securities and Exchange Board of India and RBI to develop the market for corporate bonds over the past few years seem to be bearing fruit now,” went the report, issued on Friday. Primary issuance in the corporate bond space rose from ~1.74 lakh crore in 2008-09 to ~6.7 lakh crore in 2016-17. “Secondary market activities…are also on the rise, with 2016-17 witnessing growth of 26 per cent in number of trades and 44 per cent in terms of volume (from) the previous year,” it said. This is good news for the market and issuers looking to tap it. A bank-dominated market is giving way to a marketbased financial system. “The pick-up in the capital market has, to some extent, offset the fall in credit growth,” the FSR said, noting fund raising from the capital market has risen for

Alarming rise in banking frauds, warns RBI

SECONDARY MARKET TURNOVER DATA FOR CORPORATE BONDS Total amount (~ lakh cr)

Total no. of trades 10.9

9.7

14.7

10.2

ANUP ROY

7.4

Mumbai, 2 July

AMOUNT OF CORPORATE BONDS ISSUED 2012-13 66,383

2013-14

2014-15

70,887

75,791

2015-16 70,123

2016-17 88,495

Source: FSR ; PRIME database

the past four financial years. However, the corporate bond market is overwhelmingly dominated by private placement, with 95 per cent of issuance on a bilateral basis. In 2016-17, out of a total issuance of ~7.24 lakh crore,

Financial Year 2012-13 2013-14 2014-15 2015-16 2016-17

Through private placement route 3,41,701 2,67,652 4,57,032 4,68,997 6,94,952

about ~6.95 lakh crore was through private placement. “The dominance of private placement is because of operational flexibility, cost, and ease of issuance, compared with a public issue,” said a senior bond dealer. “The regulator’s

(~ cr)

Through public issue route Total 16,982 3,58,683 42,383 3,10,035 9,713 4,66,745 33,812 5,02,809 29,547 7,24,499

approach should be on initiating measures to provide a boost to the public issue route, to channelise retail (from individuals) savings into corporate bonds, without impacting the size and growth of private placement.”

Currency circulation heading towards pre-demonetisation level which enables people to transfer payments in an instant via their mobile phones. But the adoption rate of this Financial regulators seem to have app is not yet as broad-based as acknowledged that in India, cash was expected. However, to deter is king. A little over seven months customers from using cash, some after demonetisation, as on June 16, banks have put heavy cash handling the currency in circulation stood at charges in branches above certain Also, restrictions on ~15.29 lakh crore, or 86.2 per cent of limits. from automated the pre-demonetisation level of withdrawal teller machines (ATMs) are also ~17.74 lakh crore. The currency with the public will back as they were before the demoncontinue to rise as more notes get etisation exercise. The RBI has provided data of total printed, and so will the cash transacretail electronic clearing till tions, which State Bank of April, which includes data India (SBI) Chairman The adoption for all kinds of digital Arundhati Bhattacharya rate of the instruments, including termed as a “bad habit”. BHIM app is cards. But the data set is up “In the wake of demon- not yet as etisation, digital transac- broad-based as to April. The central bank does provide a segregated tions have got a was expected data set that is much substantial push. While the recent, but that is a set of a period of observation is not sufficiently long to derive definitive few representative banks and do not conclusions, normalisation of notes capture the entire banking system. Traditional cards and prepaid in circulation appears to be dampening the growth of digital transac- instruments still significantly domitions,” said the latest financial sta- nate the retail payment platforms, bility report, which is published by both in value and volume, the report the Reserve Bank of India on behalf said. Interestingly, in March, digital transactions peaked sharply, but then of all financial regulators. The government has given a dropped almost equally in April and major push towards unified payment has remained almost same in May interface (UPI)-based BHIM app, and June. ANUP ROY

Mumbai, 2 July

BACK TO THE OLD WAYS

VALUE OF NOTES IN CIRCULATION

(~ cr)

Non-cash methods largely used for retail payments. Traditional cards and prepaid instruments dominate this segment

FOCUS ON RETAIL Retail electronic clearing Volume Value (mn) (~ cr) Oct,’16 346.46 10,63,510 Nov,’16 321.37 9,81,740 Dec,’16 428.31 12,68,318 Jan,’16 386.31 12,39,962 Feb,’16 367.54 12,02,305 Mar,’16 446.28 17,76,989 Apr,’16 431.10 13,70,062 Source: RBI

Volume (mn) 1,032.14 896.14 1,162.39 1,154.21 1,039.67 1,089.38 1,035.38

Cards

Value (~ cr) 3,06,964 1,82,324 1,74,202 2,33,510 2,57,576 2,95,264 2,87,717

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Tracking stock markets

THE MARKETS ENDED their five-month winning streak, with the Sensex posting its first monthly decline in June this year. The benchmark index declined 0.7 per cent in June, after rising by 17 per cent in the first five months of this year. Since May 2014, it was up 37.8 per cent, as shown in Chart 1. While concerns are being voiced over valuations, the market currently trades at 23.04 times earnings, as shown in Chart 2, strong earnings growth could ease such fears. Earnings are expected to grow at 22 per cent in FY18 and 23 per cent in FY19. Small- and mid-cap stocks have consistently outperformed large-cap stocks over the past three years and the divergence has grown progressively, as shown in Chart 3. While public sector banks continue to be bogged down by worries over bad loans, the private bank index has doubled over the past three years, as shown in Chart 4. In June alone, the PSU bank index was down 6.27 per cent after the Reserve Bank of India (RBI) ordered the banks to make 50 per cent provisioning for accounts that were referred for bankruptcy proceedings. Sectors such as IT and pharma continue to underperform the broader market over this period, as shown in Chart 5. Since January 20, when Donald Trump was sworn in as US president, the IT index has barely budged, while the pharma index is down 8.4 per cent. And while demonetisation had dealt a severe blow to the real estate sector and the realty index fell 11.6 per cent on November 9, it has since then recovered quite sharply. As shown in Chart 6, the index is up 50.4 per cent since November 9. The commodity index has also rebounded, as shown in Chart 7. It is up 61.1 per cent since its lows in the early half of 2016, largely mirroring the trend in oil prices. ISHAN BAKSHI

The Reserve Bank of India’s financial stability report (FSR) has warned that frauds in the banking system were rising alarmingly. And banks could be hiding some of the fraud cases, masking these as bad debt. “Almost all corporate loanrelated fraud cases get seasoned for two to three years as NPAs (non-performing assets) before they are reported as fraud,” it said. In the past five years, it says, the volume of fraud rose 19.6 per cent, from 4,235 to 5,064. The value (loss incurred) rose 72 per cent,

“Almost all corporate loan- related fraud cases get seasoned for 2 to 3 years as NPAs (non-performing assets) before they are reported as fraud” RBI REPORT from ~9,750 crore to ~16,770 crore. The share in the advances portfolio was 86 per cent during 2016-17, in terms of amount involved. The FSR blames lax underwriting standards at banks for the rise. “While the fallout of adverse market conditions, recessionary trends, industry-specific vulnerabilities and macroeconomic risks on bank lending can be considered as relatively difficult to control and mitigate by banks, the same cannot be true in the case of loan fraud,” the FSR said. Some of the gaps it mentions are liberal cash flow projection at the proposal stage, lack of monitoring of cash flow and profit, overvaluation of security, ‘gold plating’ of projects, diversion of funds, double financing and general credit governance issues at banks.

BBB recommends 15 names for appointment as EDs in PSBs PRESS TRUST OF INDIA New Delhi, 2 July

The Banks Board Bureau (BBB) has recommended to the government names of 15 general managers of various public sector banks (PSBs) for appointment as executive directors. Sources said the recommendations were made by BBB Chairman Vinod Rai (pictured) and other members of the bureau. The list would be sent to the Department of Financial Services to get a clearance from the Appointments Committee of Cabinet (ACC), sources said. The ACC is headed by Prime Minister Narendra Modi. The interview for appointment to the post of EDs was held on June 30. Besides former CAG chairman Rai, the other members of BBB are Anil Khandelwal, former chairman and managing director of Bank of Baroda; H N Sinor, former joint managing director of ICICI Bank; and Roopa Kudva, managing director of

Omidyar Network India Advisors. RBI deputy governor, Financial Services Secretary and Department of Public Enterprises Secretary, are exofficio members. Recently, the government expanded the BBB by inducting two more members with the objective of strengthening the panel responsible for selection of MDs and directors of PSBs and financial institutions. Former Allahabad Bank chairperson and managing director Shubhalaxmi Panse and private equity player Pradip Shah have been inducted into the board as independent members.

ICRA lowers rating for Janalakshmi debentures ABHIJIT LELE

Mumbai, 2 July

Rating agency ICRA has lowered its rating for Janalakshmi Financial Services’ (JFS’) longterm loans and debentures, from ‘A+’ to ‘A’, saying there’s been a sharp deterioration in asset quality. Hits by the November 2016 demonetisation, the microfinance company saw loan overdues (90-plus days) jump from 1.1 per cent in January to 26.1 per cent in May. ICRA said its outlook had been revised from negative to stable for debentures and longterm facilities. This factors in the continued deterioration in asset quality after a postdemonetisation weakness in collection efficiency, which is likely to put pressure on the company’s capitalisation and profitability indicators. ICRA noted JFS had been trying to improve collections. However, with the unsecured nature of the loans, recovery remained to be seen. However, there is adequate

liquidity, backed by healthy cashdepositsandliquid investments (~2,548 crore as on endMarch) and access to funding lines from a diversified lender base. The Bengaluru-based MFI is to see on change into one of the new Small Finance Banks, in this financial year. Collection efficiency dropped to 78 per cent in January 2017, from 98 per cent in October 2016. And, didn’t recover meaningfully, remaining at 79 per cent in May. Tamil Nadu, West Bengal, Jharkhand and Bihar has seen MFIs relatively lessaffectedbydemonetisation but JFS collections have been hit, And, collections in Uttar Pradesh, Maharashtra and Karnataka remain significantly lower than the pre-demonetisation levels. ICRA has acknowledged JFS’ geographically diversified portfolio, strong management team and board composition. Net profit was ~170 crore on a managed asset base of ~15,053 crore in 2016-17, up from ~160.3 crore in 2015-16, on a managed assets base of ~13,345 crore.

1: MARKETS SHRUG OFF GROWTH CONCERNS, SENSEX UP 38 PER CENT SINCE MAY 2014

2: EARNINGS EXPECTED TO GROW AT 22 PER CENT IN FY18

Source: BSE

*estimates

3: SMALL- AND MID-CAPS OUTPERFORM LARGE-CAPS

4: NPA WORRIES DRAG DOWN PSBS, PRIVATE BANK INDEX DOUBLES OVER PAST THREE YEARS

Source: BSE

Source: NSE

S&P BSE Sensex

Source: Bloomberg

(May 1, 2014=100)

(May 1, 2014=100)

5: IT AND PHARMA UNDERPERFORM BROADER MARKET

6: REALTY UP, DESPITE NEGATIVE SENTIMENT, INFRASTRUCTURE SUBDUED OWING TO NPA CONCERNS (May1, 2014=100)

7: COMMODITIES INDEX UP 42 PER CENT OVER THREE YEARS

Source: NSE

Source: NSE

Source: NSE

(May 1, 2014=100)

StatsGuru is a weekly feature. Every Monday, Business Standard guides you through the numbers you need to know to make sense of the headlines

(Nifty Commodities)

Compiled by BS Research Bureau

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6 WORLD

1

MUMBAI | MONDAY, 3 JULY 2017

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IN BRIEF

Merkel says growth must be inclusive amid anti-G20 protest With an eye on anti-globalisation protests brewing in Hamburg before this week's G20 summit, Chancellor Angela Merkel said on Sunday leaders will have to focus on sustainable and inclusive economic growth rather than their own prosperity. In her weekly podcast, the German chancellor said this year's G20 summit will delve into issues championed by protesters such as distribution of wealth and consumption of resources - alongside related issues like climate change, free markets, consumer protection and upholding social standards.Tens of thousands of demonstrators marched against the meeting in the rain in Hamburg on Sunday in a prelude to the July 7-8 gathering, where 21,000 police from across Germany will protect the meetings of the world's 20 largest economies. BLOOMBERG

Germany's Aldi to invest ^5 bn in stores

German discount grocery chain Aldi North is planning to spend more than ^5 billion ($5.7 billion) to revamp its stores around the world, which would be its biggest investment project ever, German weekly Bild am Sonntagreported, citing company sources. Aldi and its German discounter rival Lidl have become giants in European retail, upending Britain's grocery retail market, and are challenging US retailers as well. Aldi North's sister chain Aldi South announced plans last month to invest $3.4 billion to expand its U.S. store base to 2,500 by 2022, raising the stakes for rivals caught in a price war. BLOOMBERG<

Egypt attracts $9.8-bn foreign investment in debt Egypt attracted almost a nine-fold increase in foreign investment in domestic debt instruments in the 2016-2017 fiscal year, the finance ministry said on Sunday. Appetite for Egypt's domestic debt has increased since the central bank floated the currency in November as part of an International Monetary Fund lending programme aiming to revive the economy. For the 2016/17 fiscal year, beginning July 1 in Egypt, foreign investment rose to $9.8 billion compared with $1.1 billion the previous year, the finance ministry said. BLOOMBERG<

Samsung to sell recycled Note 7 in S Korea for $611

Samsung Electronics said on Sunday it will start selling a refurbished version of the recalled Galaxy Note 7 smartphone in South Korea on July 7, using batteries different from those that caused some handsets to catch fire last year. Samsung said in a statement it will offer 400,000 phones, dubbed the Galaxy Note 7 Fan Edition, in its home country priced 699,600 won ($611) about 30 per cent lower than the Note 7's original launch price. The devices will be made from recalled, unsealed Note 7 handsets and unused Note 7 components. Batteries for the refurbished devices will have a lower capacity than those of the original Note 7s, but have passed new safety measures implemented following the recall, Samsung said. BLOOMBERG<

Volkswagen recalls 385,000 cars in Germany Volkswagen is recalling 385,000 cars in Germany for a software update to their anti-lock brake systems, news agency DPA reported, citing a spokesman for the automaker. Volkswagen's, Audi and Skoda brands were affected, it said. According to DPA, the braking control system may not function properly in certain driving conditions, such as when the driver over-steers, under-steers or slams on the brakes. REUTERS<

Trump attacks CNN in wrestling video on twitter

Abe’s party suffers defeat in Tokyo poll LINDA SIEG Tokyo, 2 July

P

rime Minister Shinzo Abe's Liberal Democratic Party suffered an historic defeat in an election in the Japanese capital on Sunday, signaling trouble ahead for the premier, who has suffered from slumping support because of a favouritism scandal. On the surface, the Tokyo Metropolitan assembly election was a referendum on Governor Yuriko Koike's year in office, but the dismal showing for Abe's party is also a stinging rebuke of his 4-1/2year-old administration. Koike’s Tokyo Citizens First party and its allies were on track for between 73 to 85 seats in the 127-seat assembly, according to exit polls by NHK public TV.

The yuan’s rebound may be undermined by a seasonal hunt for dollars as Chinese companies prepare to pay dividends to shareholders overseas. Demand for the greenback and other currencies will peak at $7.8 billion in July, a substantial sum considering that local lenders settled an average of $11.8 billion in foreign-exchange for clients in the first five months of 2017. China’s currency reserves have shrunk every July in the last three years. BLOOMBERG<

Shinzo Abe's LDP was forecast to win at most 37 seats, down from 57 before the poll „ His support slumped because of a scandal over suspected favouritism for a friend's business „ A poor showing for Abe's party will also be taken as rebuke of his 4-1/2-year-old administration „ Tokyo Citizens First party, led by Yuriko Koike (left) was on track for between 73 to 85 seats in the 127-seat Assembly „

LDP member, took office a year ago as the first female governor in the capital, defying the local LDP chapter to run and promising to reform governance of a megacity with a population of 13.7 million and an economy bigger than Holland's.

Among her allies is the Komeito party, the LDP's national coalition partner. "I am excited but at the same time, I am also keenly aware of the weight of my responsibility," Koike told NHK, adding the results had

CHINA, EMERGING MARKETS LEAD THE FINTECH CHARGE Adoption of financial technology products and services among consumers has grown globally, with users in China and other emerging markets leading the fintech charge, a new study by EY has found. The consultancy conducted more than 22,000 online interviews with consumers that are active online in 20 markets for its annual FinTech Adoption Index, and found that 33% of respondents now use fintech. Users in China had the highest level of fintech adoption, with 69% of respondents regularly using fintech services. Users in India came second at a 52%. Here is a look:

Japan

14

Canada

18

Singapore

23

Ireland

26

France

27

Netherlands

27

Switzerland

30

Hong Kong

32

South Korea

32

USA

33

Germany

35

South Africa

35

Mexico

36

Australia

37

Spain

37

Brazil

40

UK

42

India

52

China

69

exceeded her expectations. The strong showing by Koike's party will fuel speculation that she will make a bid for the nation's top job, though that may not be until after the 2020 Tokyo Olympics. It could also widen cracks

between the LDP and the Komeito while damaging prospects for the opposition Democratic Party. Abe's rivals in his party could be encouraged by the LDP's dismal performance to challenge him in a leadership race in September 2018, victory in which would set Abe on course to become Japan's longest-serving leader and bolster his hopes of revising the post-war, pacifist constitution. Gerry Curtis, professor emeritus at Columbia University, speaking before the results, said Japan’s political landscape could be set for a shake-up. "We may discover that Japan is not all that different from Britain, France, and the US in its ability to produce a big political surprise," he said, referring to recent elections in those countries. REUTERS

Hammond will urge CEOs to invest in UK after Brexit

Belgium & EU 13

SVENJA O'DONNELL & DAVID HELLIER 2 July

Chancellor of the Exchequer Philip Hammond will press British companies to try harder to seize opportunities from Brexit, promising in return that the government will heed their concerns over the split with the UK’s biggest trading partner. Hammond will use a Monday dinner speech in London organised by the Confederation of British Industry to promote a Brexit deal based on the needs of the economy. He will though also call on executives not to use the looming divorce as an excuse to delay investment and recommend that they increasingly seek out contracts beyond the European Union. Hammond has emerged as the main cheerleader for a business-friendly Brexit after Prime Minister Theresa May’s poor election saved his place in her Cabinet and put her under pressure to rethink her approach to the breakup. That gave him strength to speak out, helping to shift the debate toward a negotiation

Early adopters (2.5%-16%) > Global average (33%) > Early majority (16-50%) > Late majority (50-84%) > Source: Reuters

May could walk Hackers launch out of Brexit talks new attack on over exit bill MPs in UK British business leaders have been told to brace for the possibility that PM Theresa May's government may walk out of Brexit talks this year, according to the Sunday Telegraph. The move would be designed for "domestic consumption" to show the government is negotiating hard with the EU. The newspaper did not reveal how it obtained the information. The Sunday Telegraph said the briefing of business leaders by a senior May aide took place after last month's general election and the person has since left in the recent overhaul at the top of government. REUTERS

UK's Parliament has been hit by a new wave of cyber attack after hackers attempted to trick lawmakers into revealing their passwords, prompting officials to warn MPs and their aides to guard against such threats. Politicians have been warned that hackers were posing as parliamentary officials asking for their passwords. "This afternoon we've heard reports of parliamentary users being telephoned and asked for their parliamentary username and password," a message sent to MPs and staff earlier this week warned. REUTERS

focused more on safeguarding the economy than on curbing immigration. There are already signs the new government is tuning into the demands of business leaders. It established last week a new advisory panel of

industry lobby groups and some executives have been invited to talks with with Brexit Secretary David Davis at Chevening, the country estate he shares with Foreign Secretary Boris Johnson. BLOOMBERG

Airlines face new security rules in summer scramble MICAH MAIDENBERG

US President Donald Trump tweeted a modified video of himself on Sunday, starring at a pro wrestling event, punching a man whose face was obscured by a CNN logo. The tweet, which said, “#FraudNewsCNN #FNN,” linked to a video which shows Trump attacking and punching a man whose face is obscured by a CNN logo. The video escalates an ongoing war of words between Trump and the cable news outlet. The CNNsaid the President was “encouraging violence against reporters" and "involved in juvenile behaviour far below the dignity of his office". BLOOMBERG<

CRISIS AHEAD

FINTECH ADOPTION RATES ACROSS 20 MARKETS (%)

2 July

China Inc’s $7.8 bn of dividend payments set to stress yuan

Later vote counts showed the LDP was certain to post its worst-ever result, winning at most 37 seats compared with 57 before the election, NHK said, while Koike's party and allies were assured a majority. "We must recognize this as an historic defeat," former defense minister Shigeru Ishiba was quoted by NHK as saying. "Rather than a victory for Tokyo Citizens First, this is a defeat for the LDP," said Ishiba, who is widely seen as an Abe rival within the ruling party. Past Tokyo elections have been bellwethers for national trends. A 2009 Tokyo poll in which the LDP won just 38 seats was followed by its defeat in a general election that year, although this time no lower house poll need be held until late 2018. Koike, a media-savvy ex-defence minister and former

New directives from the Department of Homeland Security require airlines that fly to the United States to step up screening of passengers for trace amounts of explosives and, in some cases, impose more stringent security checks. The department, in announcing the directives on Wednesday, laid out generally what the measures would do. But the additional details were disclosed in an airline industry memo obtained by The New York Times. Aviation specialists and industry officials predicted that the new mandates would add to the challenges of airports and airlines, particularly small-

er ones, during the busy summer travel season. The directives said the airports must have the explosive detection devices in place in 21 days and conduct the tougher security checks by the fall. “I don’t expect everything to go smoothly because it never does,” said Ben Baldanza, the former chief executive of Spirit Airlines. “But I do expect the new directives to be implemented, and implemented well.” To comply with the new rules, some airlines and airports will need to buy explosive-detection equipment, hire more staff and spend time training employees. Besides the added costs, the challenge is putting the technology and workers in place at hundreds

Specialists said passengers might run into additional delays as they go through security. And as the airlines absorb the higher costs of complying with the new rules, ticket prices could increase

of airports across the globe. In the short term, the aviation specialists said, passengers may run into additional delays as they go through security.

And as the airlines and airports absorb the higher costs of complying with the new rules, the industry officials said, ticket prices could increase.

The rules require that 280 airports that are the last point of departure for flights to the United States have explosivedetection technology, such as devices that can detect bomb residue on passengers’ hands, in place within weeks, according to a memo the International Air Transport Association sent to airlines on Wednesday. A spokesman for the association declined to comment. Foreign airlines operating flights to the United States must, within months, show that they are carrying out certain security measures, including interviewing passengers as part of the security check, the memo obtained by The Times said.

US lifts laptop ban on flights from Abu Dhabi The US Department of Homeland Security lifted its ban on electronic devices in the cabins of commercial jetliners flying to the US from Abu Dhabi after validating security measures at a facility inside Abu Dhabi International Airport, according to a statement from Etihad Aviation Group. "The removal of the restrictions allows passengers flying to the US to carry all laptops, tablets, and other electronic devices onto the aircraft, subject to enhanced security measures," the airline said in a statement Sunday.

© 2017 The New York Times News

REUTERS

Yelp’s six-year grudge against Google CONOR DOUGHERTY 2 July

Jeremy Stoppelman, chief executive of Yelp, the local search and reviewing site, would like this article to be focused on his company’s growth, or on how its reviews help independent businesses, or on pretty much anything besides what it is about: How Yelp became Google’s most tenacious pest. “If you were to have asked me 15 years ago, ‘Hey, are you going to be an antitrust crusader?’ I would have said, ‘No, I have no interest in that,’” he said in a recent interview. “That was not a childhood dream.” For six years, his company has been locked in a campaign on three continents to get anti-trust regulators to punish Google, Yelp’s larger, richer and more politically connected competitor. He has testified before Congress, written op-ed columns and used Twitter to bash Google’s behaviour. Google wasn’t always a rival. At one point, it was a suitor. But out of that union that never happened was born a mighty grudge, perhaps even an obsession. At one point, Yelp held a hackathon to create a sort of alternate-universe

Google, the better for it to explain Google’s ways to regulators. And then you have Luther Lowe. Lowe, Yelp’s vice president for government relations, once spent $3,000 on a stuffed elephant, because it had been knit by Europe’s anti-trust chief. Unlike Google, whose office is full of artwork and free food, Yelp’s Washington presence is just a rented coworking space. So Lowe keeps the elephant at Yelp’s San Francisco headquarters, where there is more room. “This is a shoestring operation,” he said. But after years of trying and failing, that operation has finally landed a good punch. On Tuesday, the European Union fined Google $2.7 billion — the largest anti-trust fine in its history — for unfairly favouring its own services over those of its rivals. The fine was related to Google’s shopping service, so strictly speaking it had nothing to do with the Yelp-Google dispute, which is part of a separate investigation into local search. Still, Yelp and other American technology companies pushed hard to get regulators to issue a bold condemnation of Google’s behaviour toward competitors, signing a letter that accused Google of “destroying jobs and

Unlike Google, whose office is full of artwork and free food, Yelp’s Washington presence is just a rented co-working space

stifling innovation.” And by affirming that Google is the dominant company in online search — something most people take for granted — Tuesday’s decision is likely to help Yelp’s case. Asked about future investigations, Margrethe Vestager, the anti-trust chief, offered a diplomatic answer, saying that even though other cases make similar

allegations against Google, they must be considered one by one. “The one thing that has sort of changed from yesterday, before the decision was taken, was that now we will consider Google as a dominant company,” she said. Yelp is one of a number of American companies — Microsoft and Oracle are

others — that have agitated for the world’s governments to take up the fight against Google. It is one tiny player, but through persistence and doggedness, and by being loud and public with its complaints, it has become an unusually prominent voice. Stoppelman feels he has no choice. Like a lot of small internet companies, Yelp lives in a world where one company, Google, accounts for an outsize share of its business, and could destroy it at any time. Its complaints to regulators are less about working toward some epic and definitive conclusion than they are about continuously brushing back the giant so Yelp can have more room to grow. “It’s like, you get traffic from this company, and this company is a monopoly,” he said. “If you’re me, it seems like the obvious move.” Yelp’s campaign against Google provides an inside look at a constant battle in the technology industry: The conflict between large companies that control how people use technology and the internet, and the smaller, more vulnerable businesses that live inside those platforms. Be it Netscape, whose 1990s-era internet browser was the catalyst for

anti-trust charges against Microsoft and its Windows operating system, or Spotify, whose music service must now compete with Apple’s own music app, any company trying to build a business on another company’s system runs the risk of being snuffed out or swallowed up. For Yelp, the issue is where Google displays “organic” website rankings — the ones spit out by its algorithm — in relation to the “vertical” results that Google itself provides. For example, say you searched for “steakhouse New York.” The first set of results, consuming the entire screen of a mobile phone, is a map and a set of restaurants from Google’s local offering. The results have information like hours, stars and customer reviews. Below that are links to reviews, articles and other sites. Like Yelp. Yelp’s contention is that by putting its own results at the top, Google is giving itself an unfair advantage, because those results don’t have to jump through the same algorithmic hoops non-Google sites are subjected to. And since Yelp says few people go beyond the first or second result, companies like Yelp are made invisible. © 2017 The New York Times News Service

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ECONOMY & PUBLIC AFFAIRS 7

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he incoming 2017-19 batch of the Indian Institute of Management here (IIM-A) has seen the highest ratio yet of women in both the postgraduate programme in management (PGP) and the PGPFABM, the agri-business management course. The incoming PGP batch also has the highest ratio in 15 years of non-engineers, at 32 per cent. About 28 per cent of the PGP batch of 395 people are women, up from 21 per cent in the earlier one. The FABM one has seen a jump from 46 per cent earlier to 50 per cent of the batch size of 46. As for non-engineers, the PGP batch saw the share rise from 20 per cent a year before

a combination of active recruitment of woman candidates, Gender, discipline diversity at IIM-A in three years encouraging discipline diver„ 2015-17 „ 2016-17 „ 2017-19 sity in students called for interviews and paying attention to “holistic leadership potential” among those being interviewed. “A broad mix across gender will contribute to a richer learning environment at the institute,” he added. “Our admissions policy is to invite for interviews candiPGP PGP-FABM PGP PGP-FABM dates from different academic Women (%) Non-engineers (%) disciplines, subject to their PGP: Postgraduate programme in management; PGP-FABM: Agri-business management course Source: Institute clearing certain CAT (entrance to 32 per cent in this one; ences helps enrich the learning exam) cut-offs. This approach FABM saw a rise from 26 per process, by bringing different increases the discipline divercent to 45 per cent. perspectives to the class. We are sity of our incoming class. This IIM-A director Ashish pleased with the increasing per- is part of a conscious effort to Nanda says the diversity was centage of women students in improve the in-class learning achieved without giving extra our entering class. This has been experience of students, who credits or holding specific quo- achieved without giving extra we believe would benefit from tas on account of gender. “In credits or holding specific quotas being in class with people from our discussion-based learning on account of gender,” he said. diverse backgrounds,” said environment, diversity in stuThe increased percentage, Apratim Guha, chairperson, dent backgrounds and experi- he said, was achieved through admissions.

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Air India employees’ union to plan agitation against privatisation PRESS TRUST OF INDIA New Delhi, 2 July

Air India's largest employees' union will hold its general body meeting here this week to “organise its members for a movement” against the government's decision to privatise the debt-ridden national carrier. The Air Corporations Employees’ Union (ACEU) is also planning to meet a group of ministers to be set up by the government to look into the disinvestment of its stake in the airline. The ACEU is a grouping of Air India's non-technical staff and comprises nearly 8,000 of the total 21,137 employees. “The meeting will be held to enlighten the rank and file about the privatisation of Air India and how it will affect them. This will also be a forum to organise them as we plan a movement against the privatisation of the national carrier,” said a member of the ACEU.

“The move is clearly aimed at benefiting private airlines. If the government is so concerned about the taxpayers' money, then why does it not

recover the ~7.5 lakh crore borrowed by corporates from public sector banks?,” the member asked. Seven unions of Air India

have already joined hands to oppose the privatisation of the financially bleeding airline. Their representatives met last month and wrote to Union Minister for Civil Aviation Ashok Gajapthi Raju, warning him of an “industrial unrest”. The letter was written jointly by the AI Air Corporate Employees Union, AI Employees Union, AI Aircraft Engineers’ Association, United Air India Officers’ Association, AI Engineer’s Association, AI Cabin Crew Association and AI Service Engineers' Association.

US nod for drones to India PRESS TRUST OF INDIA Washington, 2 July

The US State Department has issued the necessary licences for the export of 22 predator Guardian drones to India, a government source here said, days after Prime Minister Narendra Modi and President Donald Trump had their first bilateral meeting at the White House. The state department has “issued the DSP-5 Guardian export licence” for India, the source told PTI. A DSP-5 category licence is issued for permanent export of military hardware as found in the US Munitions List which is defined by the International Traffic Arms Regulations. The Guardian drones will enhance India’s maritime surveillance capabilities in the Indian Ocean region and their sale was announced by Trump on June 26 after he met Modi for their first face-to-face meeting. The drones are estimated to cost around $2 billion and are being built by General Atomics, considered a pioneer in the unmanned aerial vehicles domain. The speed with which the Trump administration decided on India's request for the drones, the source said, is reflective of the desire in White House to strengthen India's military capabilities in the Indo-Asia Pacific region. “We are extremely pleased that President Trump and Prime Minister Modi have had excellent deliberations and the path forward for a game-changer in US-India defence relations has been charted,” said Vivek Lall of General Atomics.

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IMPACT PROVISIONSHAVEBEENPROVIDEDIN THELAWSFORHANDLINGLEGACYISSUES

IN BRIEF

FinMin says no major problem reported on Day 2 of GST As many as 223,000 new dealers have entered on the GST Network since June 25, when the registration was opened to them. Issuing a statement on the second day after the GST roll-out, the finance ministry said 63,000 of these dealers had submitted full details of which 32,000 had been granted fresh registrations. The GSTN gives preliminary IDs on the basis of basic information, and final registration after detailed information is submitted on the network. The ministry said the second day passed without any major problems being reported from the field. The revenue department has got encouraging reports from roadside dhabas and big restaurants as well as from kirana shops and departmental stores. BS REPORTER<

Tax roll-out a positive for credit profile: Moody’s

Apprehension on price rise misplaced, says Shaktikanta Das

The goods and services tax (GST) regime is positive for India’s credit profile as it will improve tax compliance and increase government revenue, besides enhancing the country’s attractiveness as a foreign investment destination, global ratings agency Moody’s has said. The GST, which seeks to subsume many indirect taxes at the Central and state level, came into force from July 1. William Foster, vice-president, Sovereign Risk Group, Moody’s Investors Service, said in a statement on Sunday that the GST would support higher government revenue generation through improved tax compliance and administration. BS REPORTER<

Rulingoutanypriceriseafter thegoodsandservicestax (GST),formereconomicaffairs secretaryShaktikantaDashas saidsuchapprehensionsare “misplaced”andinitial hiccupsinitsimplementation willbesortedoutinthenext two-threemonths.Dassaid theCentreandstateswerewell preparedforsmooth implementationoftheGST, launchedonthemidnightof June30.GSThassubsumedall indirecttaxesincludingvalue addedtaxandoctroiinto singletaxnationwide.Ithas beenadoptedbyallstates barringJammuandKashmir. AskediftheGSTwouldresultin spikeinprices,Dassaid,“Not atall”and“itismisplaced”as peoplearelookingattaxes fromonlyoneside. PTI<

Adhia takes to Twitter to bust ‘myths’ on GST PRESS TRUST OF INDIA New Delhi, 2 July

Two days into the GST regime, Revenue Secretary Hasmukh Adhia on Sunday took to Twitter to bust “myths” doing the rounds about the new tax regime. Adhia, the architect behind thecountry’slargesttaxreform, soughttodispelconcernsthatif a person makes payment of utility bills by credit cards, he/she will be paying GST twice. “This is completely untrue. Please do not recirculate such message without checking it with authority,” Adhia said. India ushered in the goods and services tax (GST) regime on the intervening night of June 30-July 1. Afour-tiertaxstructure—5, 12, 18 and 28 per cent — has been decided with essential items like salt, unpacked foodgrain, health care services being kept zero rated. People have been posting in social media pictures of receiptsissuedingrocerystores

or eateries showing tax deductions as GST, instead of VAT/Service tax earlier. Busting the myth that GST rates are higher than VAT, Adhia said, “it appears higher because excise duty and other taxes which were invisible earlier are now subsumed in GST and so visible now.” He reiterated that businesses can continue to do business under GST with provisional ID number and businesses need not wait for Goods and Services Taxpayer identification number (GSTIN). “Provisional ID will be your final GSTIN number. Start business,” Adhia said. He said that businesses need not generate all invoices on computer/ internet only. “Invoices can be generated manually also”. On the myth that businesses which were earlier exempt will immediately need new registration before starting business now, Adhia said, “You can continue doing business and get registered within 30 days”.

Airlines require company details for business class tickets PRESS TRUST OF INDIA New Delhi, 2 July

People travelling for business purposes on business class air tickets are now required to submit details about their companies to avail of tax benefits under the GST regime. The goods and services tax (GST) framework, which came into effect from July 1, provides for certain input tax credit only on business class tickets and there is no such provision on economy class fares. Air India, Jet Airways and Vistara — the three domestic carriers that offer business class seats — have already sent out communications to inform passengers that GSTIN details need to be submitted in order to avail the benefits. The GST Identification Number is issued to entities that are registered under the new tax regime. “It is now mandatory for guests travelling for business to add their company’s GST details at the time of booking. To ensure a seamless experience, we request that you inform your

guests travelling for business to register on our portal and claim up to 12 per cent back on flights,” Jet Airways said in a communication. The GST rate on first class and higher class tickets is 12 per cent while the rate is 5 per cent on economy class tickets. The GST would also replace service tax, krishi kalyan cess and swachh bharat cess. After submission of the details, the airlines would generate GST invoice for the particular travel and that invoice can be used to claim the benefits. “It is not compulsory to provide GST details. GST registration details for your business or company may be optionally provided if a customer wishes to claim input tax credit on the GST paid if travelling for business reasons,” Vistara said in a communication. According to Air India, all passengers requiring GST invoice for their tickets have to complete the one-time registration process on its website by entering the relevant details.

GOVERNMENTSHOULDFOCUSONREDUCING THERATESLABS,SAYEXPERTS

THEGSTRATEONFIRSTCLASSANDHIGHER CLASSAIRLINETICKETSIS12%

‘Glitch-free roll-out is expecting too much' VANAJA SARNA

CBEC, Chairperson

What will be on topofyour agenda for the next 15 days?

With the legal framework put in place, the next and most important step is to hand-hold the taxpayers and other stakeholders, to ensure their smooth transition into this new regime. We will be focusing on helping them in their compliance requirements. All our field offices have opened GST Sewa Kendras, from where taxpayers can get the help they need. Information on various aspects is also being disseminated through the media. Another important aspect will be clarifying any doubts that might arise while interpreting the laws and notifications. How prepared is CBEC (tobe soon renamed the Central Boardof IndirectTaxes and Customs)for the implementation?

We are fully prepared. The new GST formations have come into place since June 22. There are 21 zones, with a total of 107 GST commissionerates and 12 sub-commissionerates. Further divided into 768 divisions and 3,969 ranges. Plus, 48 audit commissionerates and 49 appeal commissionerates. This will ensure taxpayer services. For a robust information technology network, the Directorate General of Systems has been strengthened. Other key directorates, such as the National Academy of Customs, Indirect Taxes and Narcotics, Directorate General of Taxpayer Services and the Directorate General of Goods & Service Tax Intelligence, have also been expanded. What difficultiesdoyouforeseein the firstmonthofGST implementation?

The difficulties or glitches that could have been foreseen were addressed before the roll-out. As such a huge transition is unprecedented, a glitch-free roll-out will be expecting too much. However, the department is fully prepared for the transition and any issues that come forward will be resolved within the best time possible. How will the Centre compensate states ona shortfall in cess collection ina particular year?

By and large, the rates of all commodities have been fixed keeping in mind the incidence of taxes prior to GST. So, for commodites attracting compensation cess. Further, the basic structure of GST is such that it will increase compliance. That being so, there should not be a shortfall in cess collection. The GST Council can decide on raising the compensation rates on any of the existing commodities attracting the cess or for including any other supplies which might attract the cess if a need arises. Will the government lookinto the concerns of the textile sector? And, smaller players are learnt tobe grappling with return filing, three ina month.

Broadly, the fitment committee has already taken into consideration the concerns of various sectors while finalising the rates on all items. With regard to returns, essentially, there is only one return that taxpayers have to file themselves, which has details of the outward supplies

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The Central Board of Excise and Customs (CBEC) is prepared for the transition to the goods and services tax (GST). Any issues that come forward will be resolved within the best time possible, VANAJA SARNA, its chief, tells Dilasha Seth. Edited excerpts:

made by them. The other returns are auto-populated by the system itself, from the details captured regarding outward supplies. Further, small taxpayers selling within a state, are required to give only a summary of the sales made by them, not the invoice-wise details. Some companieshave cut prices after GSTroll-out.Is it todowithfear of the anti-profiteering law?

With seamless flow of input tax credit, prices of various commodities are likely to come down. The government considers trade and industry as an important stakeholder in passing on the benefits of GST to consumers. Further, competition within the sectors itself is an anti-profiteering mechanism. That being so, I see the antiprofiteering provision only as a last resort, when other factors fail to convince any company to pass on the benefits of GST to consumers. Companies are learnt tobe stopping dispatchesfor the next 10 daysto upgrade their software.Will the government intervene?

The roll-out date had been announced well in advance. That being so, the majority of companies had already geared up their information technology systems and software. Thus, fear of the roll-out impacting supplies appears ill-founded. What issues remain on GST that will be addressed over the next few months?

The majority of issues have been resolved in the 18 meetings of the GST Council held so far. Any other issue that might require a decision will be brought before the Council in due course.

I SEE THE ANTIPROFITEERING PROVISION ONLY AS A LAST RESORT, WHEN OTHER FACTORS FAIL TO CONVINCE ANY COMPANY TO PASS ON THE BENEFITS OF GST TO CONSUMERS” THE ROLL-OUT DATE HAD BEEN ANNOUNCED WELL IN ADVANCE. THUS, FEAR OF THE ROLL-OUT IMPACTING SUPPLIES APPEARS ILL-FOUNDED” THE DEPARTMENT IS FULLY PREPARED FOR THE TRANSITION AND ANY ISSUES THAT COME FORWARD WILL BE RESOLVED WITHIN THE BEST TIME POSSIBLE”

How will the department deal with legacy cases in service tax and excise duty?

The necessary notifications for reorganisation of field formations for legacy work under the central excise and service tax laws, and fresh work related to the central excise laws for the remaining excisable commodities, have also been issued. The intent is that the GST jurisdictions and the new central excise and service tax jurisdictions will be coterminous. Suitable provisions have also been provided in the laws for handling legacy issues.

FROM PAGE 1

Nine private power projects shortlisted... Emailed queries sent to Jayant Kawale, managing director, RattanIndia Power, did not elicit any response. Lanco Infratech is in process of selling its assets to pare debt. The company’s spokesperson declined any interaction with the media. While the government has tried to assist thermal projects with the new coal linkage policy, it will step up efforts by offering last-mile equity to some. Senior power ministry officials said the banks concerned were evaluating the assets and would soon come up with the final report on the equity push needed by them. NTPC, on the other hand, is not part of the financial evaluation. “NTPC would just take care of operations and maintenance and there is no question of it investing in these sick units,” said an official. However, NTPC is learnt to be weighing the idea of taking equity also in these projects. “The idea is if the banks give us 3-4 per cent equity, we have suggested that we may not charge fees for operations,” said an NTPC executive. The three plants under evaluation have been on the lookout for buyers for over a year. The Derang power plant and Lanco’s Babandh unit have been facing a fuel crisis after the Supreme Court in August 2014 cancelled all coal block allocations made during the past two decades. RattanIndia’s Nashik unit, however, has been facing problems becauseoflackofpower-purchaseagreements.JITPLiscontrolledbylistedfirms — Jindal Poly Investments (JPIL) and Jindal Photo (JPL) — through Jindal

THE BASIC STRUCTURE OF GST IS SUCH THAT IT WILL INCREASE COMPLIANCE. THAT BEING SO, THERE SHOULD NOT BE A SHORTFALL IN CESS COLLECTION”

India Powertech, a holding company owned by JPIL and JPL. A lack of fuel supply, along with increasing interest costs and tepid power sale, has hurt the bottom line of the company. The promoters have been trying to hive off the power unit. Earlier some private players had evinced interest in the Derang plant, but no deal could go through. The paper could not reach the spokesperson for JITPL. RattanIndia Power, which suffered a loss of ~215 crore during FY17, has been looking to restructure its core assets. The company in its annual report has said it will constitute a Refinancing and Restructuring Committee to “consider, examine, evaluate the ways and means of bringing about a restructuring of the core business of the company through a proposeddemergerofNashikplantfrom the company”. BusinessStandard recently reported thermal power projects of about 25,000 Mw were on sale. But as finding buyers is posing a challenge, most promoter companies of the projects — some operational and others under development — want to exit to lighten their debt. Sources said the projects in question were “ready to be fired up” but no state power distribution company was floating tenders for additional power procurement. To add to the woes, banks are concerned about non-performing assets increasing. As lack of power demand has hit most of the projects, sector experts say till 2022 new private investment is unlikely.

Five things govt should now focus on

M S MANI Now that the goods and services tax (GST) is a reality, it is necessary to look at some key areas that the government should focus on to unleash the true potential of the indirect tax regime. Fewerratesand classifications The GST has four base rates (5 per cent, 12 per cent, 18 per cent and 28 per cent), two special rates (0.3 per cent and 3 percent)andthreeratesofcess (1 per cent, 2 per cent and 15 per cent). While services were earlier taxed at a uniform 15 per cent, the four base rates are now applicable to services as well. The classification of goods and services across these rates is going to lead to disputes. The rates have also been changed a couple of times even before the launch, giving credence to the fact that the multi-tier rate structure and the rate equalisation exercise has created certain anomalies. Some of these issues have been addressed, while some would hopefully get resolved soon. Hence, it is necessary that the government now focus on reducing the rate slabs to possibly two base rates of 18 per cent (standard rate) and either of 5 per cent or 12 per cent as the merit rate. This would reduce the potential for disputes. Inclusionofpetroleum products,realtyand electricity The GST leaves out three important sectors, making the coverage sub-optimal. Petroleum, real estate and electricity generation would continue to have the older indirect taxes. The problem is exacerbated by the fact that these sectors would pay input taxes in the form of GST, which cannot be offset against the existing taxes. It is essential that the government work on a timebound plan to get these sectors into the GST framework. This will not only expand the GST basket but also make it a more comprehensive tax, besides ensuring that all suppliers to these sectors become part of the ecosystem. Softlaunchtobuild acceptability The ability to handle the changes that GST entails

‘Divergences with PM impede govt workings’ “‘Modiji, you will have to rest for half a day,’ Pranabda would say. ‘Why are you running around so much? You must cut down on your programmes. You will have to take care of your health.’ It was during the Uttar Pradesh polls that he told me that winning and losing happen all the time but health must not suffer,” the Prime Minister said. Mukherjee is an inspirational figure, he said, as he recalled his association with people from different walks of life who made an impact on him. Mukherjee, too, expressed his “deep gratitude and appreciation” for Modi. While talking about the book, Modi said the book shines a spotlight on the human side of the President, going beyond protocol. “Through the photographs in the book, people would know their President laughs like a child. They will also see the self-confidence of our President in front of foreign dignitaries, however, big in size they may be,” Modi said in a lighter vein, praising Pranab, a man of short height.

ESOPs to be linked to banks’ performance Last year, the then RBI Governor, Raghuram Rajan, made a pitch for offering ESOPs to bank employees. “With PSBs’ shares trading at such low levels, a small allocation to employees today may be a strong source of motivation, and can be a large source of wealth as performance improves,” Rajan said.

would depend on the size and nature of a business. While large businesses have the resources and knowledge to prepare for a change of this magnitude,smallerbusinesses would find it difficult. Businesses used to filing monthly returns and dealing with state tax authorities will find it easier to deal with GST, compared with service providersaccustomedtoacentralised registration with two returns a year. There is also now a need to ensure invoice matching to get input tax credits and reduce tax payment liability. It is, therefore, necessary that the government ensure a soft approach for the first year or so, instead of focusing on strictobservanceofprovisions. Similarly, there should be some leniency in allowing input tax credits for the first year, and the implementation could become progressively stricter.ThiswillmaketheGST more acceptable to all businesses. It is necessary to ensure that several penal provisions are kept in abeyance during the introduction period. Existingtaxissuesand assessments There is significant pendency of assessments in various states and a large amount of appeals pending at various levels of adjudication. Many of these relate to periods for which even records would be difficult to trace. GST signifies the commencement of a new journey. While embarking on this journey, it is essential to discard old baggage and start afresh. The government should fix timelines for disposal of cases and assessments so that businesses can focus on GST compliance and not worry about older cases and other such matters. SeamlessGSTNportal Key GST processes would be entirely dependent on an information technology (IT)enabled platform. The government has taken considerable pains to ensure the country gets a world-class ITenabled system. Butthegovernmentshould ensure that the GST portal is appropriately tested, even if thismeansinitialprocessesare put on an extended timeline. It is better to have a tested system with some small delays instead of launching an imperfect system on time. Any difficulty in accessing the database or in uploading transactions could lead to credibility issues.

(Thewriterisseniordirectorwith DeloitteHaskinsandSellsLLP)

GST blues may turn markets volatile BofAML, which did a GST mood-check with retail channels, says there is anguish among traders over the complexity of the new system and hurried implementation. “On the ground, this lack of readiness at businesses will impose costs — money and time. These should be temporary and are unlikely to be fatal,” says Mookim. Most economists have sounded caution on GDP growth for the next two quarters due to the implications of the GST’s short-term impact. “The short-term impact of the GST could be neutral to negative for the broader economy. Over the next few quarters as the dust settles on short-term glitches, the business will move to resolve the more structural issues of reforming business models and gaining efficiency,” says Suvodeep Rakshit, senior economist, Kotak Institutional Equities. While the market seems vulnerable for correction, the downside could be protected as most fund managers are hitting high cash, which is waiting to be deployed. “There has been no country where the GST has been implemented without glitches. As fund managers, we

look beyond the short-term. We will use the hiccups as buying opportunities,” says Sankaran Naren, chief investment officer at ICICI Prudential Asset Management. At the end of May, equity mutual funds (MFs) were sitting on cash level of ~36,300 crore, nearly 6.5 per cent of their total assets under management. On several occasions in the past, MFs have emerged as strong buyers whenever markets have seen sharp correction, helping stock prices to rebound. Beyond teething problems, many experts feel the GST has the potential to transform the economy and benefit large and organised businesses, which the market may not have priced in yet. “It’s not just the GST, it’s a whole package of changes, package of reforms that the government has thrust upon the economy, which is going change the economy more fundamentally. The winners will be big and few, and the losers will be many and small. And that sort of rebalancing of the economy, I don’t think the market really understands that,” says Saurabh Mukherjea, chief executive officer, Ambit Capital.

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PERSONAL FINANCE 9

MUMBAI | MONDAY, 3 JULY 2017

VALUE OF ~1 LAKH INVESTED IN VARIOUS ASSET CLASSES

# Gold and silver prices suffered losses; All post-tax returns are calculated without considering indexation benefit, except PPF; **Taxed at 30% income tax slab

SENSEX

GOLD

1-YEAR 1-YEAR POST-TAX RETURNS 5-YEAR 5-YEAR POST-TAX RETURNS

SILVER

FD (SBI)

PPF

1,14,526

93,652

89,715

1,07,000

1,08,700

1,14,526

NA#

NA#

1,05,075

1,08,700

1,77,408

96,652

73,764

1,35,684

1,51,060

1,77,408

NA#

NA#

1,34,613

1,51,060 As on June 30, in ~; data compiled by BS Research Bureau

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Wait and watch on GST impact A change as large as this means projections could be plain wrong The Goods and Services Tax (GST) is a big and long-term bet, altering the economic landscape. In the old system, excise collections amounted to 3 per cent of gross domestic product (GDP) or 16 per cent of gross central tax collections. Service tax generated another 2.5 per cent or 15 per cent. Excise DEVANGSHU DATTA collection of states was 2.25 per cent. The big bet is that GST will generate as much, or more, than all these taxes combined. Alcohol and petroleum products are outside GST. So, state excise will also generate significant revenues. There are many ways to hit revenue parity targets. The chosen route is a relatively high rate-structure, which tries to achieve parity as fast as possible. The Centre has adopted a complicated tax structure due to political expediency. Most successful GST systems work on few rates, ranging from one to four slabs. India has six, plus cesses, amounting to at least 11 different effective slabs, if I've got my calculations right. The logic for a high rate structure is that businesses get offsets. Every business on a value chain pays less tax due to offsets. But, since all pay, more revenue is collected. At the same time, barriers between states drop, making interstate trade easier. That’s the selling point for GST, and the assumptions of faster gross domestic product (GDP) growth are based on that. In a high-rate structure, the end-consumer could pay more since he/she doesn’t get offsets. The speed of offset credits is also vital. Indian business works on very thin margins and long credit lines. If tax offsets are slow, working capital costs will rise, maybe to a point where stress causes collapse of firms. Another problem is insane paperwork, with weekly reports and other filings, which will be a big barrier to doing business. As said above, gains come from assumptions that goods will be transported more easily inter-state, cutting down logistics costs. But, state excise machinery will implement GST and state excise remains on items. So physical checkpoints won’t disappear. Long lines of trucks at state borders will continue to be a logistical nightmare even if inter-state tax rates equalise. In services, small businesses in design, advertising, software/hardware support, other repair and maintenance, etc, will find it hard to cope due to the paperwork blitz. An estimated 500,000 data entry operators will be required to run the GST system. The GST Network authority is opaque. So, we have no means of knowing how efficiently it will function or what error-correction mechanisms it has. Also, provisions like anti-profiteering allow, and perhaps encourage, officers to extort. Given all this and sheer scale, things will be chaotic for a while. Any earnings and revenue projections are guesswork, with huge error margins, for at least two quarters. Projections on government revenue collections, including corporate tax, are also guesswork. Corporate tax is 32 per cent of all central tax revenues and more than excise and service tax combined. And, low profits mean lower taxes. The unorganised sector doesn’t gets offsets and, therefore, becomes tax-inefficient. Most businesses have a mix of organised/unorganised elements in value chains. Over 80 per cent of employment is in the unorganised sector. The hit taken by this sector will inevitably affect the organised sector. Businesses will migrate from unorganised to organised and that’s good. But, it won’t be an orderly process and there will be job losses. Analysts must wait and watch. If corporate earnings take a hit, and some sectors certainly will, investors must wait. Many kinks will have to be ironed out before the benefits of GST appear. The tax structure must rationalise; paperwork must reduce; the anti-profiteering clause will have to go. I haven’t seen any guesstimates on how long the system will take to settle. European GSTs averaged a couple of financial years. India has a much more complex tax structure and a less efficient bureaucracy. But, it probably has better information technology systems. Analysts and investors tend to make linear or semi-linear earnings and revenue assumptions. Good businesses have predictability. But, a change as large as this in the commercial environment means such projections will be plain wrong. There is a big potential upside but there may be a big downside, too.

MARKET INSIGHT

Profit from buybacks Investors should consider the long-term prospects of the company, the premium it is paying, and acceptance ratio before deciding to participate in a buyback SANJAY KUMAR SINGH

S

ince the beginning of April 2016, 69 companies have proposed or undertaken buybacks of shares worth ~58,592 crore (see table). Currently Engineers India has announced one worth ~658.8 crore. Information technology (IT) companies such as Tata Consultancy Services (TCS), Wipro and HCL Technologies have been at the forefront. In Union Budget 2016, the government changed the norm for taxation of dividend. Since then, buybacks have become the preferred route through which companies try to reward their shareholders. Investors need to learn how to decide whether to participate in a buyback or abstain. The basics: Buyback is one way through which a company returns a part of the profit it has generated to shareholders. By keeping the buyback price higher than the current market price, it puts some extra money in the pockets of shareholders. Buybacks also benefit the shareholders who don’t participate. When a company buys back shares, its total number of outstanding shares reduces. For the same level of total earnings, if the number of outstanding shares declines, the company generates higher earnings per share (EPS). A higher EPS in turn translates into a higher price for the stock. Sometimes there could be a double bonanza in the form of the PE valuation also getting re-rated upward. The most important reason for buybacks becoming the preferred mode is the change in taxation norms for dividends in Budget 2016. If the aggregate amount of dividend

IMAGES: iSTOCK

received by a high net worth individual (HNI) in a financial year exceeds ~10 lakh, the amount in excess of ~10 lakh becomes taxable. The rate of taxation of dividend is 10 per cent, plus the applicable surcharge and cess. This is over and above the dividend distribution tax (DDT) paid by companies (effectively 20.93 per cent: DDT at 15 per cent, surcharge at 12 per cent, and cess at 3 per cent). “The dividend route has become tax-inefficient, especially for HNIs,” says Arun Kejriwal, founder, Kris Research. The rate of taxation in a buyback, on the other hand, is much lower. “Where the gain is short-term in nature and securities transaction tax (STT) is levied on such a transaction, the gain would be taxable at 15 per cent (plus applicable surcharge and cess). Where the gain is long-term in nature, the buyback will be exempt from tax if STT is levied and the purchase of such shares is not disqualified under Section 10(38) of the Income Tax Act,” says Rajesh Thakkar, tax and regulatory partner, BDO India. Promoters also undertake buybacks when they feel the company's

stocks are trading at a price lower than their intrinsic value. “By buying when stock prices are low, promoters are able to increase their shareholding at a lower cost,” says Rakesh Tarway, head of research, Reliance Securities.

100 per cent discounts with zero taxable value, so that product value becomes zero or we don’t need to show product price in the tax invoice? Which is the best way? Is it necessary to mention any scheme numbers on the tax invoice and state that “under a particular scheme, we are dispatching free quantity” or simply present “as free quantity supply under a particular scheme”, and after that mention the product name and quantity we are going to deliver to our customer?

from the customer. Also, the government through its ‘FAQ tweets’ has clarified a supplier can issue a single invoice for supply of taxable as well as exempted/non-taxable goods. Therefore, in your illustration, you should be able to issue a single invoice for supply of product A and product B.

Tender offer versus open market purchase: Companies carry out buybacks either through a tender offer or through open market purchase. In the former, the company offers to buy back shares, usually at a premium, from investors who choose to sell them. In an open market purchase, the company buys shares from the market at the best price available. “The tender offer route is more attractive for shareholders as they know the premium they will get over the market price. In the open market offer, on the other hand, the company only buys when the price dips.” Of the 69 buybacks done (or being undertaken currently) since April 2016, only eight followed the open market purchase route. The rest were through the tender offer route.

TOP 10 BUYBACKS SINCE APRIL 2016 Company

Buyback details Price Amount % of ( ~) ( ~) Capital

TCS 2,850 16,000 2.9 NMDC 94 7,528 20.2 Coal India 335 3,650 1.7 Nalco 44 2,835 22.2 NHPC 32 2,617 7.3 Wipro 625 2,500 1.6 Bharat Electronics 1,305 2,171 6.9 Bosch 23,000 2,020 2.8 Bharti Infra 425 2,000 2.3 Oil India 340 1,527 5.6 These are the top 10 buybacks by aggregate amount since April 2016. All of them were through tender offers. Source:BS Research

Should you participate? The decision to participate in a buyback should depend on a variety of factors. It will, for instance, be driven by the nature of the investor—whether he is a fundamentals-based, long-term, buy-andhold investor or a more active trader. The former should try to understand

the long-term prospects of the company. “If the prospects are visible and sound, and the company is passing back excess cash to investors, that is a perfectly acceptable scenario. In that case, the investor should stay put. But, if the long-term prospects are not healthy, and the company lacks opportunities to grow its business and is then returning money to shareholders in the form of a buyback, we might prefer to take the buyback, assuming the premium is worthwhile,” says Sunil Sharma, chief investment officer, Sanctum Wealth Management. Concurs R Sreesankar, co-head, equities, Prabhudas Lilladher: “The premium offered in the buyback shouldn't be the only consideration. Suppose you opt for the buyback now and the company does well in the future. Its stock price will rise considerably. In that case, you would be selling cheaply today by participating in the buyback.” For active traders, the considerations would be different. “If the premium offered in a buyback is large, take advantage of the opportunity. If a company offers a 10-15 per cent premium to the current market price, the investor should tender his shares. If he is bullish about the long-term prospects of the company, he can always buy back those shares from the market at a later date,” says Tarway. The risk herein, of course, is that the prices may not return to current levels. Acceptance ratio is another important criterion. The company usually stipulates that it will accept only a certain percentage of the shares you own in a buyback. “Take into consideration both the premium offered and the acceptance ratio. That will determine the total amount of money you can get from the transaction. If the premium announced is small and only a few of your shares are going to be accepted, why go through all the paperwork involved in a buyback?” says Kejriwal. Finally, according to Securities and Exchange Board of India (Sebi) regulations, companies undertaking buybacks through the tender route have to reserve 15 per cent of the shares they propose to buy back for small shareholders, defined as those whose market value of securities in a company is less than ~2 lakh. This has been done to improve the chances of acceptance of shares tendered by small shareholders.

GST & YOU

AMIT BHAGAT I have certain queries regarding supply of goods. In our case, we normally give quantity against quantity offer: Say, if you buy 100 boxes of product A, then you will get one box of product B. How should we present the free quantity supply on the tax invoice? Should we show the product price and then give

In the illustration you provided, either of the methods to indicate free supply on the invoice should be fine from the goods and services tax (GST) perspective, as you should be required to pay the tax only on the taxable value charged

How does the anti-profiteering law work under the GST regime? Can you help me understand if there are any rules on valuations?

According to the GST law, every registered taxable person is mandatorily required to pass on the benefit of any reduction in rate of tax and/or increase in input tax credit to the customer, by way of reduction in price of the goods/services supplied. The

government is yet to release clear guidelines regarding various aspects relating to the anti-profiteering provisions (including those relating to valuation). The government has proposed to establish an authority which would be empowered to examine whether a supplier has actually passed on the benefit of reduction in tax rate/increase in input tax credit to the customer. In this regard, the government has recently released anti-profiteering rules, which lay down the provisions governing the functioning of the authority. I run an event management business. We do events in different states. Will a single registration work for me?

The government through ‘FAQ Tweets’ has clarified that in case

of provision of event-related services, a supplier should be required to obtain GST registration in the state where the event is held only if such person supplies any services from such state. Where the services are provided from a different state, the supplier can charge IGST, treating the location of event as the place of supply. Therefore, the need for you to obtain GST registration in the state where the event is held would need to be determined based on whether you supply any services from such state or not. The writer is tax partner, PwC India. Aditya Khanna, associate director, PwC contributed to this column. The views expressed are experts’ own. Send your queries to [email protected]

Tax on rental income depends on owner’s business For individuals, the safe option is to offer rent as income from house property even if it’s being used for commercial purpose TINESH BHASIN Classifying the rent you receive from a property can be confusing when filing income tax (I-T) returns. The money received can be included in the section ‘income from house property’, ‘income from other sources’ or even be classified as ‘business income’ if the owner’s primary business is letting out property. The classification has a significant impact on your tax outgo. If it’s income from house property, the owner gets deduction for maintenance on 30 per cent of the total rent received. He can also deduct the property tax he pays. But, many would prefer to show their rental income as business income, as there is no cap on the deduction for maintenance; owners get to claim depreciation, and when it’s vacant they don’t need to pay tax on ‘notional’ rent. “The law does not provide clear guidance on when an individual can classify rent as business income. The courts have ruled that only if the owner is engaged in the business of letting out properties can he classify it as business income,” says Sudhakar Sethuraman, partner, Deloitte Haskins & Sells. Thin line of demarcation: If you rent

the property as an individual or as a company, in most cases you need to mention the rent under the section called ‘income from house property’. It doesn’t matter whether it’s a house (residential) or an office (commercial). Even if you have a portfolio of properties that you let out, the rent would still be classified as income from house property. “It depends on whether the asset is being exploited commercially by renting out or whether it is being rented out for the purpose of enjoying rental income. The latter is always income from house property,” says Naveen Wadhwa, general manager, Taxmann.com. To classify the rent as business income, individuals and business owners also need to have detailed documents which show renting properties is their primary business. Say, an individual has a building where he runs a paying guest (PG) accommodation. To classify the rent as business income, his agreement with the tenants needs to be worded accordingly; he needs to brand the accommodation; the property needs to be advertised accordingly, and so on. Experts say because rent classified as business income impacts tax collection, the I-T department could go into details to check

INCOME FROM HOUSE PROPERTY | | | |

A house let out annually Paying guest accommodation Rental through apps like Airbnb Office premises rented out in individual capacity

INCOME FROM OTHER SOURCES | A tenant sublets property | If property and assets and services cannot be segregated

BUSINESS INCOME | Only if your company primarily lets out property if the property owner’s claim is backed by relevant documents. If the PG property is a part of your company, similar paperwork is required. In addition, your company’s article of association and memorandum of association should also say that renting out property is the entity’s business. If the taxpayer has only a flat or two and runs a PG accommodation in these, the rent should be offered as income from house property for tax purposes. The same is true if you let

out your property on rental apps such as Airbnb, where guests pay you based on the rate. If you want to opt for the safest route, offer rent as income from house property. When tenants let out property: For a taxpayer to include rent as income from house property, he needs to be the owner. But, if you are a tenant who sub-lets,

it means you don’t own the asset. “In such a case, the rent would be classified as income from other sources or business income, depending on the situation,” says Suresh Surana, founder, RSM Astute Consulting Group. The taxation of income from other sources is the same

as that of business income — the taxpayer can deduct all the expenses incurred. But, if it’s an individual subletting a property, he needs to justify it. In case he cannot, it’s better to classify it as income from house property. Segregate services from property: There are times when a property owner offers assets or services with the premises. Assets can be furniture, machinery and so on. Services include housekeeping, security, liftman, etc. In such cases, the taxation of property depends on whether the services or assets can be segregated. “In a case where letting out of a building and the assets is inseparable, the entire composite rent is charged to tax as profits and gains of business and profession or income from other sources, as the case may be,” says Chetan Chandak, head of tax research, H&R Block. In a case where the property and other assets and services are separable, the rent portion will be income from house property. The assets and services will be offered as income from other sources or business income. This rule is applicable even if the owner receives composite rent for both. If the tenant pays a combined rent for the two (property and assets) but they can be segregated, they should be offered to tax separately.

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12 ISSUES AND INSIGHTS

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MUMBAI | MONDAY, 3 JULY 2017

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After rational, emotional and social factors, experts have now decoded yet another magic ingredient that has been helping brands stay ahead

AMBI M G PARAMESWARAN

T

here was a time when branding was a relatively simple affair. You had to ensure that your brand had a strong rational reason for consumers to buy it and you need to ensure that you stuff it with enough emotional reasons as well. As Jonathan Harries, then worldwide creative director at Foote Cone Belding, put it, “You need brands to be both emotional and rationally anchored. Because if the consumer bought if for purely rational reasons they will never be happy. And if they

bought it for purely emotional reasons, they will never be satisfied.” So rational reasons help the consumer stay satisfied with the purchase. But real happiness with the purchase comes from the emotional infusion into the brand. So a soap is not just a cleaning agent, but is also the beauty secret (of film stars). A toothpaste not only cleans your teeth, but gives you a unique “ring of confidence”, a life free of bad breath problems. A detergent not only washes away stains, but helps your child feel confident in school and win the merit badge. Life was humming along and a few years ago companies started mouthing the need for brands for espousing social causes as well. So we now have a threelegged stool. Rational. Emotional. Social. Companies started identifying social causes that specific brands will embrace. I am not speaking of inane five-minute videos on YouTube that celebrate the fashion of the month social cause. I am referring to key social causes that brands embrace at their core and over a period

of time. So a detergent brand not only removed dirt, thereby giving the mother the confidence to let her kids play in the dirt (because dirt is good), but also used a lot less water. A food brand speaks of using organically sourced raw materials. A notebook brand speaks of being green-conscious through its plantations (we will plant a tree for every book you buy). And so on. As if these three raison d’être is not enough, now experts have decoded yet another magic ingredient that has been helping some brands stay ahead of the curve. They have looked beyond the usual rational and emotional reasons for their success and have unearthed yet another dimension. In his book Cultural Strategy, Douglas Holt speaks of brands that managed to get ahead of the competition by latching on to an emerging important cultural truth. Nike did not succeed, according to Prof Holt, because of empty superstar celebrity endorsements or their commitment to “Authentic Athletic Perform-

ance”. Nike succeeded because it managed to hit on a new emerging cultural phenomenon in the US, of people running to stay fit. Anyone and everyone could do it. Nike’s heroes were not sports celebrities (though they were featured in the ads), but the everyday Joe who had taken up running. Or take the brand Patagonia. This very successful brand of outdoor wear hit on the cultural truth of love for the environment. So the brand promises to recycle, commit resources for environmental development. Or take Body Shop, which is now being sold off by L’Oreal, that pleaded to a “no animal testing” commitment. They hit on the cultural truth of a caring woman who did not want to hurt animals in the process of getting a better eyeliner. If you look closer home, Royal Enfield has managed to mine the cultural truth behind an older bike lover, who is no longer a speed fiend. He likes it a little slower and hence culturally a little different from a typical mobile user, and we may say a little more rooted. Or take Manyawar which mined into the cultural truth behind big weddings and the concept of “YaarkiShaadi”. No amount of rational, emotional, social mining would have unearthed that cultural truth. Or take Paper Boat which mined into the cultural truth of “childhood tastes”. It did

not pass the muster of sugar/health or organic/natural, but it hit on the cultural truth of authentic, almost forgotten old taste. In a sense even Fab India has infused its brand with a strong cultural truth; authentic, natural, home-grown fabrics and also great social values of paying a fair price to their vendors. This is just an indicative list. I am sure there are many more brands in the Indian market that are able to score a win over deep pocketed competition, by hitting on a cultural truth and infusing itself with that truth. Is there a way to unearth such cultural truths? Or is it just a hit and miss? For a start you could start brushing up on some basic readings on cultural branding and anthropology research. Then spend more time in the market, with consumers. Invest in trying to understand how socio-cultural trends are being captured in mainstream popular culture and fringe popular culture. Finally you need to take that leap of faith. Classical consumer research may not be able to green-light a cultural infusion idea. You may need to explore new methodologies to get your reconfirmation. But I assure you it will be a fun ride.

Analytics will remain the differentiator for winning firms in an increasingly competitive hiring and customer environment

GANESH NATARAJAN

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e are justifiably proud of our IT and business process services industry, which has grown from humble beginnings to a 150 billion-dollar global powerhouse in a few decades. Today, there may be signs of the growth slowing down to single digits but there are some segments that will continue to present enormous opportunities — the evolving world of analytics is clearly one of the most exciting. The big data and analytics market globally, including software, services and hardware, is expected to be at the same level as our total industry, over USD 150 billion by the end of 2017 and will record substantial growth, to touch USD 210 billion by 2020. More than 50 per cent of all big data and business analytics revenues will come from the US market followed predictably by Western Europe. The two regions with the fastest growth in the next five years are expected to be Latin America and Asia Pacific excluding Japan, both growing at over 14 per cent. Corporations everywhere are looking at analytics as the next big opportunity to differentiate themselves, undertake deep descriptive analysis of customer journeys and buying behaviour and move towards predictive and

helping to optimise inventories and correlations to multi-variable modelling demand and supply chain management and analysis, and artificial intelligence across countrywide and multi-country and machine learning enabling predicnetworks, do route optimisation, ship- tions and prescriptions to become sharpment scheduling and overer and deeper, the early all logistics management and Most of the global adopters are exulting in the publish transportation ana- in-house centres of increasing maturity that lytics. HR analytics is also large corporations they are able to get in their catching on in a big way and in India have built analytics centres. Analytics substantially improving offer deep analytics is and will continue to be the to joining ratios as well as capabilities to true differentiator for winretention and engagement of support global ning firms in an increasingemployees in large corpora- teams ly competitive hiring and tions with widely spread out customer environment. workforce. Analytics helps in providing With social listening, text mining and touch points at every stage in the employ- sentiment analysis capabilities providee attraction, hiring and retention jour- ing deeper insights into customer and ney, design compensation plans that are employee behaviour, web and social in line with current market realities and media analytics is truly providing a cutprovide the spur for new solutions for ting edge to customer relationship manperformance measurement, just-in-time agement and human capital manageskilling and employee engagement to ment solutions. maximise productivity and performance. How does one find the right solution With analytics moving from simple partner in the exciting analytics space?

Darling disruptors also need sound biz models Like Blue Apron, too few of Silicon Valley ‘reimaginers’ see clear path to profit REUTERS

Blue Apron is a company that claims to have “reimagined the traditional grocery business model”. Thursday’s disappointing initial public offering makes you wonder if investors are losing faith in such “reimaginings”. Perhaps not, but it’s time to ask ourselves whether even some of Silicon Valley’s most vaunted attempts to rethink traditional business processes are sound, and what kind of future awaits them. Marc Andreessen, the outspoken and successful venture capitalist, says there are “no bad ideas, only early ones”. The example he gives is Pets.com — the start-up that dared to sell pet supplies online and flopped famously in the dot-com era. But earlier this year, as Andreessen points out, PetSmart paid $3.35 billion for Chewy.com, which does exactly what Pets.com did; it’s now a major competitor to Amazon in pet food and litter sales. From an investor’s perspective, Andreessen is right: Money can be made on many of these disruptive ideas, especially if there’s a good narrative to sell. But consumers don’t care how much money an idea can make for those who invest in it, so much as whether the service can be relied on over time. Many “disruptive” ideas can’t be. Chewy.com, which commissions oil portraits of its customers’ pets to retain their business, was unprofitable by the time it was acquired. Blue Apron, which placed its shares at $10 each rather than the expected range of $15 to $17, sends people ingredients and recipes so they can cook at home without worrying

The logo of Blue Apron is shown on a large sign in front of the New York Stock Exchange before its recent disappointing IPO about grocery lists or figuring out what to make. But the IPO prospectus also says this: “We may not be able to achieve or maintain profitability, and we may incur significant losses for the foreseeable future.” That was a softer version of this line in Snapchat’s parent IPO filing: “We have incurred operating losses in the past, expect to incur operating losses in the future, and may never achieve or maintain profitability.” Snapchat, of course, bills itself as a company that’s reimagining how we use the camera (as a communication tool). After years of relentless hype, the disruptors and reimaginers of transportation, such as Uber and Lyft, are still highly unprofitable, and it’s not quite clear how that can change. Aswath Damodaran, a finance professor at New York University’s Stern business school who specialises in business valuation, wrote in a recent blog post about Uber’s latest culture and management troubles: Prior to these news stories, Uber

Who coined good & simple tax? In his address at the Central Hall of Parliament on Friday to mark the launch of the goods and services tax (GST), Prime Minister Narendra Modi delivered a catchy phrase to describe the indirect taxes reform initiative. He described GST as the good and simple tax. A few minutes later the audio-visual presentation made at the roll-out function also described GST as the good and simple tax. Who coined this catchy phrase for GST? It turns out that well-known tax expert Satya Poddar used this phrase to reiterate what GST must stand for. And he did so in one of his articles published in Business Standard. The headline of Poddar’s article published on May 18, 2015, said : “GST should be a good and simple tax.”

Some relief after GST

The global environment is dominated by four key solution vendors — SAP, SAS, IBM and Oracle — with others like Microsoft, Qlik, Tableau, Teradata, MicroStrategy and Informatica also becoming partners of choice to many corporations with their solution stacks. The service provider space predictably has most of the large incumbents — IBM, Accenture, the Indian top six IT firms and business process specialists like Genpact, WNS and EXL. Some very interesting niche vendors like LA-based Systech Inc. and Bengaluru-based Bridge i2i Ltd. are holding their own, largely because of the deep insights they have developed in key customer domains globally and the collaborative approach they bring to customers. The service provider landscape extends from pure play vendors to small start-ups, KPO players and IT vendors, and most of the global in-house centres of large corporations in India have built deep analytics capabilities to support global teams. All these developments also open up enormous manpower opportunities in the analytics space and for industry watchers who are in panic at the decline of traditional high employment areas like applications and infrastructure management and package implementation services, it will be heartening to note that the inexorable drive towards digital transformation everywhere and the growing interest in analytics will create a swathe of new opportunities for career seekers and those who would like to reskill themselves to take on the new opportunities in this field. There has never been so good a time to be a learner in this country than now. The writers is chairman of 5F World and Nasscom Foundation

Mumbaikars are heaving a sigh of relief after octroi at the entry points to the city was abolished under the goods and services tax (GST) regime and the five check nakas are being dismantled. According to estimates, for every rupee earned by the Mumbai municipal corporation, another rupee was paid as bribe. Mumbaikars are hoping the state government would remove even the toll collection points at the entry to the city that delay free movement of goods — for hours at times — thus increasing the cost burden on traders. Traders suggest the government levy the same tax at fuel pumps.

A party gathering The Rashtriya Janata Dal (RJD) is planning to celebrate its foundation day on July 5 with great fanfare. Its MLAs and MLCs will gather at the party office in the morning and then move to founder Lalu Prasad’s residence in the afternoon. The afternoon meeting has been called to discuss Prasad’s August 27 rally — the “BJP Bhagao Desh Bachao” rally for which all leaders of the Opposition parties have been invited — and the political scenario in the state over support to the two presidential candidates and the just-introduced GST. Prasad has personally invited Congress President Sonia Gandhi and West Bengal Chief Minister Mamata Banerjee. Chief Minister and Janata Dal (United) founder Nitish Kumar has said he will attend the rally if he gets an invite.

> LETTERS

BUSINESS LIFE

LEONID BERSHIDSKY

WHISPERS

The writer is an independent brand strategist, author and founder, Brand-Building.com

The fast-growing analytics opportunity prescriptive models that will enable them to garner higher market and opportunity share. Banking, financial services and manufacturing are likely to lead the adoption and with increasing focus on digital transformation in every sector, changes in the way organisations interact with all stakeholders and everything — data, applications and infrastructure — moving to the cloud, the imperative and opportunities for gathering quantitative and qualitative data from multiple sources will only multiply every year. Indian firms, too, like their counterparts in the West, have taken to the analytics imperative in recent months and it’s good to see analytics centres of excellence springing up in key corporates around the country. Not surprisingly, the primary focus of many new centres is on customer behaviour with the design of marketing analytics solutions that target marketing spends optimisation, promotion campaign effectiveness and dynamic campaign management. Apart from improving the return on investment on marketing spend, analytics centres are also helping marketers manage the entire customer life cycle — acquisition to retention and predicting customer response to new campaigns by response modelling and ongoing customer satisfaction and churn analysis. Risk analytics products are also helping firms to profile customers based on credit risk analysis, model the collection and recovery risks and enable fraud detection and monitoring. Companies engaged in extensive analytics usage are already showing better bad debt management through the continuous generation of collection and recovery scorecards and prediction of default patterns. On the supply chain side, analytics is

> CHINESE

ILLUSTRATION: BINAY SINHA

Cultural infusion in brands

was a rule-breaking company with a business model that delivered revenue growth but offered a very narrow path to profitability. After these news stories, the story remains the same but Uber has just made its narrow path even narrower and much rests on who will head the company on this path. Spotify, Deezer and their peers — audio streaming companies, which have disrupted the music business — lose money. LendingClub, the banking innovator, reports steady losses after a brief period in the black. Tesla eats through cash faster than Elon Musk talks. Disruptive media companies like BuzzFeed and Vice may be highly valued, but their revenues depend on a shaky advertising market that’s being eaten by Google and Facebook. But aren’t Google and Facebook themselves huge, disruptive success stories? Isn’t Airbnb, which turned a profit for the first time in the second half of 2016? I wouldn’t rush on those, either. Facebook is beginning to commit crimes against user experience with sound-on, self-launching videos because it’s running out of non-intrusive ways to increase its revenues. Google has just run into dangerous obstacles in Europe, where the $2.7 billion antitrust fine it has received is only the beginning of a series of challenges to its use of dominance in “free” products such as search and mobile operating systems to push various ad formats. Google and Facebook have been successful with their promise of personalised advertising, but regulators and fickle advertisers themselves will inevitably dig deeper into how the companies deliver on this promise. © Bloomberg

Industry leaders With respect to Vikram Johri’s “Slippery slope” in BS Weekend (July 1), the headline drew my attention to the fine article. The author has done a wonderful job of introducing the fallacies of two of the biggest contemporary industry leaders and charmers. It does so in such a fashion that we do not lose our respect for their creativity and contribution and at the same time understand (as Indians) why it is vital to strike an emotional balance if one wishes to contribute to the lives of employees by not behaving like a demigod. The last paragraph is an amazing piece of writing that thrashes the expectations of lofty morality from leaders. It teaches us to look at their achievements and learn from the one-role wonders. When I look at our leaders of industry, we are proud of their allround personalities. Nevertheless, we want industry leaders to change people’s lives and impact the society in larger ways like some of their counterparts in the US. Nayan Sheth Pune

Restructuring Air India With reference to “IndiGo wants Air India’s overseas business” (June 30), the national carrier is reported to be up for sale following its huge accumulated losses and mounting debts. Air India is believed to be carrying a whopping debt burden of close to ~50,000 crore, which is unsustainable. The carrier is also believed to be spending ~4,000 crore every year on servicing debts. The real problem began with the merger of Indian Airlines with Air India a few years ago. The best option is to restructure by inducting some strategic private partners. The government is reported to have rightly approached the Tatas who were pioneers in the aviation business. The Tatas in India are well known for their business ethics, grace in dealings and philanthropic approach, and it is perhaps the one amongst very few business enterprises that has the characteristics of both the public and private sectors. That could

well fit into the government scheme of things and possibly the Tatas might respond to its offer by submitting an appropriate proposal. Yet, it is doubtful if the carrier would be able to effect a turnaround. Thus, even with this arrangement the government will perhaps continue to nurse for sometime longer until the restructured entity is able to stand on its legs. Alternatively, besides Tata as the main player the government can also think of inducting a few more such strategic partners including existing private airlines such as IndiGo that have proven experience. In that case, the debt burden will not fall on one partner, which would be difficult to manage. India has adopted a mixed pattern of economy where both the public and private sectors have an equal and important role to play in the socio-economic development of the country. Srinivasan Umashankar Nagpur

Farm loan waiver Former Reserve Bank of India (RBI) Gov-

> HAMBONE

ernor Y V Reddy was a tough man who tried to wield institutional autonomy in the larger interest of India’s economy. He did not mince words in expressing his views and often had to face the displeasure of the government. He was, like any other RBI governors, not for farm loan waivers. But some reviews of his new book, Advice & Dissent, suggest a mellowed personality. He says although farm loan waiver isn’t a good thing it is not a disaster. He can’t be wrong. The total outstanding in agriculture loan was around ~12.40 lakh crore, 12.1 per cent of the outstanding bank credit, as on September 30, 2016. While 70 per cent of the total stressed debts of ~600,000 crore, as of March 2016, are of corporates, one per cent accounts for the farm sector. As many as 1.36 crore farmers in Maharashtra have an outstanding loan of ~1.14 crore. The farmers, by and large, have been driven to commit suicide (no corporate borrower is constrained to commit suicide) as they were or are not in a position to repay debts mainly because of loss of crop on account of the vagaries of nature, coupled with non-remunerative prices on their produce received from middlemen and/or from successive governments. Ramanath Nakhate Mumbai Letters can be mailed, faxed or e-mailed to: The Editor, Business Standard Nehru House, 4 Bahadur Shah Zafar Marg New Delhi 110 002 Fax: (011) 23720201 · E-mail: [email protected] All letters must have a postal address and telephone number

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OPINION 13

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Volume XXI Number 226

MUMBAI | MONDAY, 3 JULY 2017

ILLUSTRATION BY AJAY MOHANTY

Good and simple But improving GST's design should be a priority

A

t long last, India has been able to enter the goods and services tax (GST) regime. It was opportune that the glittering ceremony to usher in the biggest tax reform since Independence was held at the Central Hall of Parliament, even though several opposition parties, most notably the Congress, decided to boycott the event. But none of that can take away from the fact that the GST will be celebrated as a watershed moment in the history of India’s economic reforms. Nor can anyone deny that it is, as both Prime Minister Narendra Modi and Finance Minister Arun Jaitley said in their speeches, a “high point” of Indian politics and a shining example of the success of its federal structure. The GST was first mooted by a task force headed by Vijay Kelkar in 2003 and the Atal Bihari Vajpayee-led government welcomed the recommendation. Later, the Congress-led government of the United Progressive Alliance took the first concrete legislative steps in 2011. Over time, the GST’s framework received critical inputs across party lines: From the BJP’s Yashwant Sinha, who led the Parliamentary Committee and gave the format of the GST Council, to several leaders from Opposition parties who served as the head of the empowered group of state finance ministers such as Asim Dasgupta of the CPI(M) in West Bengal, K M Mani of the Kerala Congress (M) in Kerala, and A R Rather of the National Conference in Jammu & Kashmir. It is indeed creditworthy that notwithstanding the 14-year-long wait, all decisions by the GST Council were taken by consensus. In terms of economics, the GST replaces 17 indirect taxes (each requiring a separate return) and 23 cesses and will thus unify the country (Jammu & Kashmir will hopefully join the new system by next week) into a single market, at least in terms of all the goods and services that are covered in it. Since it is a tax based on the value addition at each stage of production, allowing producers to claim input tax credit, it removes the cascading effect of indirect taxation that existed till now. It also is more equitable and socially reformative since it strengthens the hands of the honest taxpayer while making it more arduous for the corrupt to evade taxes. In the process, it expands the tax base, allowing lower tax rates to possibly throw up higher revenues for the central and state governments, and those, in turn, could be spent on increased welfare spending. Apart from simplifying processes for the domestic producers and reducing the discretionary powers with tax officials, the GST also makes it easy for the global investors looking to plough their money into India. Clearly, the GST does provide India with a truly modern “way of doing business”. However, it is also true that many commodities such as petrol, diesel, and potable alcohol as well as over 80 services have been kept out of the GST net. This will not only restrict expanding the tax net as well as the potential revenues but also impede the prime minister’s express objective of curbing black economy. Moreover, as several reports suggest, many a small business appears ill-equipped as of now to transition to the GST framework, thanks to the breakneck speed with which the government has chosen to run the last lap of the GST’s introduction. It is important to note that such wrinkles need to be ironed out at the earliest to strengthen the people’s faith in the tax system. It is in this regard that it is yet again the shared responsibility of the governments — both at the Centre and the states — to heed the president’s advice and continuously review and improve the implementation of the GST.

The mute Opposition Why is it so silent on lynchings?

T

he President of India has spoken out. So has Prime Minister Narendra Modi. Union Minister Ravi Shankar Prasad has condemned it. But what about the leaders of the Opposition? Only Brinda Karat, the Rajya Sabha MP from the Communist Party of India (Marxist), took the trouble to visit the family of Junaid Khan, a recent victim of such attacks against Muslims and Dalits, and robustly denounced the incident. Apart from her, leaders from Rahul Gandhi to Nitish Kumar to Mayawati and Mamata Banerjee — all vocal defenders of Indian secularism when it suits them — are yet to be heard. Instead, it has been the people who chose to respond to a Facebook post and gather to protest the growing culture of lynchings. Those headline-grabbing protests may have encouraged Mr Modi to issue his statement from Sabarmati Ashram, where, invoking Mahatma Gandhi and his creed of non-violence, he declared that violence was unacceptable and killing in the name of cow vigilantism was wrong. In choosing to speak out, Mr Modi has displayed mettle. Which is more than can be said of the Opposition, which has registered its protest only against the inadequacy of Mr Modi’s statement. Why is the Opposition so reluctant to champion a cause that concerns a foundational value of the Indian republic? Part of the problem lies in the hugely polarised climate. The “whataboutery” that passes for public discourse has reduced the issue to a childish trading of charges as to which political party has been responsible for banning beef, presiding over past lynchings, and so on and so forth. It is possible that the Opposition’s hesitation has to do with narrow electoral concerns: The over 280 seats that the Bharatiya Janata Party commands in the Lok Sabha and 312 seats it won in the Uttar Pradesh Assembly have been possible without giving due representation to Muslims among the candidates it fielded in these polls. From these numbers, it is easy to conclude that Hindutva as an ideology is widely popular, and a “soft Hindutva” stance ahead of 2019 may pay dividends for Opposition parties. Apart from the practical fact that “soft Hindutva” will never be able to compete with the Parivar’s proven ability to generate a competing and escalating hard line, such a cynical calculation ignores the weaknesses of the first-pastthe-post electoral system and a fractured polity that often delivers results that do not reflect majority opinion. In neither the 2014 Lok Sabha elections nor in UP in 2017 did the BJP win a majority of the total vote share. At 31 per cent, the lowest vote share for a single majority party in the Lok Sabha since 1967, and 40 per cent in UP, respectively, it is clear that a large number of Indian people do not subscribe to Hindutva. Ergo the Opposition leaders can safely jettison their indecisiveness and come forward to robustly defend India’s secular values. At the very least, it will make them more relevant than they are at present.

Perfecting the GST The current GST is imperfect. To fix it, the government must keep an open mind about complaints

T

he goods and services tax (GST) is now a another head with lower taxes. Third, it opens up reality. The GST might be imperfect, but it the possibility for rent-seeking, as various indusremains the best hope of knitting India tries and sectors clamour for lower tax rates for together into a single market. We need to welcome their particular products or services — some of it — but also to agitate for its improvement, and to which, according to reports, has already started stand ready to remedy its deficiencies and happening. Then look at the second condition I originally ill-effects. mention, the question of paperwork. As it stands, the GST dearly and Ideally, you should not be forced to desperately needs improvement. To submit monthly returns. Some see why, let’s try and compare it with major indirect taxes are currently the “ideal” GST — in other words, collected quarterly, and that should the one we were promised when the have been the expectation for the idea was first floated. GST. In Australia, for example, only That GST was simple — enticvery large companies have to pay ingly simple — and correspondingthe GST monthly; smaller compaly powerful. It suggested a single tax nies can pay the GST quarterly. In rate, or at most a narrow band of India, this benefit is possible only rates; a reduction in paperwork; and under the “composition” scheme, in a reduction in the overall tax rate which smaller companies can’t paid for by the expected increase in total tax revenue. claim input credits. In the current MIHIR S SHARMA GST, a taxpayer has to submit three None of these conditions has returns a month for every single been met. Definitely not in full, and only some in part. Consider first the idea that there state it’s in. Some of these are “auto-populated” — should be a single tax rate. Instead of this we have but that’s not as much of a relief as all that, for been left, thanks to the political bargaining you’re still liable for any errors in them. As one tax between states and parties — and also thanks to expert told the news service India Abroad: “Though some judicious lobbying — with a plethora of tax inward returns and monthly returns will be autorates, five or six depending on how you count. Food populated, the taxpayer will still have to validate in a restaurant, for example, can be taxed at any of these details before submission and add additionfour rates from 5 per cent to 28 per cent, depending al information like GST paid under reverse charge on various factors such as air-conditioning and the mechanism, details of credit notes etc.” star rating of the hotel the restaurant is in. Why is The idea should have been that all but the this a problem? First, it is not simple to administer. largest taxpayers have to produce at most four or Second, it leaves the door open for taxpayers to five returns nationally. As it stands, the strong disevade taxes by moving revenue from one head to incentive for small firms to expand beyond a single

POLICY RULES

BOOK REVIEW FRED KAPLAN Few have heard of the Defense Advanced Research Projects Agency, but this small Pentagon enclave has spawned some of the transformative inventions not just of modern war but of modern life: The Saturn rocket, stealth aircraft, armed drones, biofeedback systems and — biggest of all — the internet. Yet Darpa has also devised some of the most disastrous fusions of science and war, including Agent Orange (the defoliant that disabled thousands of American troops, as well as untold numbers of civilians, in Vietnam) and myriad other projects that treated the world as a giant laboratory but

[email protected] Twitter: @mihirssharma

The idea of a road I

have been on the road these past few days. It has been fascinating to notice the differences between roads and between cities. First, I was in Stockholm. Roads there are designed first for the people and then for the cars. As a Delhi resident, I hesitated stepping on the road even at a zebracrossing because I feared the car would not stop; it would knock me down. I realised how deeprooted our sense of insecurity is. Our road is not for walking. In Stockholm, the pavements are also low. It makes for effortless walking. In my city, the pavements are high. It takes some effort to step on to them, making it difficult for all, and not just the old and the disabled, to move on foot. The reason given is if pavements are low, people will park their cars on them. But that is because we do not enforce regulations for illegal parking. Then comes the priority: Who SUNITA NARAIN has the right of way, cars or pedestrians? This is where I noticed a difference between Stockholm and the next city I visited and walked in, Washington DC. In Washington, as compared to Delhi, you are in heaven as a walker. From the moment, you get off a train or a bus you will find pavements, mostly accessible and connected, till you walk to your home, office, or any other destination. The city is walkable but with a difference. In Washington, you have to wait for long for the traffic signal to change before you can cross the road. If there is no signal and only a zebra-crossing, then cars don’t respect the walker. They let you pass, but with a grimace. Worse, when you cross the road, it is also when cars turning right or

left also cross the same road. There is no right; it is a privilege. Car drivers tell you they are waiting. You scurry across as fast as possible. In Delhi, when our streets were not roads, we could cross them. There was chaos, mixed traffic, everything on the street, but also safety for women because of the numbers. The street was for walking and even talking. But then we moved to roads. The roads were designed for the efficient movement of just one kind of traffic: Cars. As cars spilled over, more space had to be created. This space came from footpaths. Delhi sacrificed its walking spaces. Now I go to other cities, where the same thing is happening. Another difference between Stockholm and Washington is the width of the road. In Stockholm, roads are not highways. Cities are meant for easy movement. In Washington, road widths are huge. It feels as if highways cross the cities. This means as the light turns white for pedestrians, it requires running to cross. In Delhi, we are now building in such a manner that highways transect our cities. Ridiculous. If we are not able to walk, we cannot really build a vibrant public transport network. Today, the Delhi Metro — efficient and clean — would be my choice of transport. In fact, there are two metro stops within a few kilometres of my home and office. But I can’t walk. I can’t cross the road. I am unsafe when I walk as a woman. I am likely to trip over all the businesses that have taken over the footpaths where they exist. The only part of my city that has footpaths is where nobody walks. In this part of Delhi, called

DOWN TO EARTH

Oddballs and their transformative power neglected to notice the people inside. In The Imagineers of War: The Untold Story of DARPA, the Pentagon Agency That Changed the World, Sharon Weinberger, an executive editor at Foreign Policy and the author or coauthor of two previous books about the military-scientific complex, traces the ups and downs of this agency, with its “mix of geniuses and mediocre bureaucrats” and the “procession of nuts, opportunists and salesmen” who pitched wild ideas and often won contracts to pursue them. The agency was established, originally as ARPA, in 1958, to get the United States into space after the Soviets beat us to the punch with the Sputnik satellite. Within a year, a new civilian agency, NASA, assumed that mission. So ARPA, “struggling to find a new role for itself,” turned to the escalating war in Vietnam. President John F Kennedy, an enthusiast of counterinsurgency, funded ARPA’s Combat Development and Test Center, which put in motion Project Agile, a “covert-operations shop” run by William

state remains. This was one of the crucial reasons why the early GST was a great idea, and it has been lost in the current conception of the tax. Partly, this is to placate the indirect tax bureaucracies in the various states — a terrible motive if ever there was one. Finally, what of the overall tax rate? It is possible that many staples will not be taxed at a higher rate than earlier — in fact, controlling or reducing the tax rate on goods that comprise the bundle from which the Consumer Price Index is calculated seems to have been a primary objective. This might help the government sell the reform to voters — “Look, inflation has not gone up according to the numbers!” But if the prices of other goods go up, voters won’t be fooled. More to the point, it is far from clear that this GST will have the silver bullet effect that the “pure” GST would have provided. That would have both reduced the incidence of tax on the honest and increased government revenue. In the current form of the GST, however, the effect on total government revenue is uncertain, while the effect on private consumption, investment and production is emphatically not going to be the immediate boost that a flat, lower rate would have provided. It is to be hoped that the GST Council is aware of these problems; and that the central government, in particular, recognises that its responsibility does not end with the introduction of an imperfect GST. It has to keep on building a political consensus for improvements to the GST, while keeping this “ideal” GST in mind as the target. As comfort grows in the broader political class with regard to the changes that the GST will wreak, these reforms should be introduced into the actual GST through rulings and changes mandated by the GST Council. In other words, the work is not over, so the government should stop patting itself on the back. The government also needs to be on the lookout for the various problems in implementation that are inevitably going to arise — as well as other, more serious problems inherent to the GST. For example, the effect on small and medium enterprises should be carefully gauged. SMEs were the drivers of a nascent growth revival about a year ago; but the investment crunch turned that into a slowdown and then demonetisation hammered SMEs still further. Now their compliance and working capital costs have been increased at a stroke — which was, again, certainly not the intention of the original GST. Their demands will need constant attention. More broadly, the concerns of certain states about their tax revenue should be carefully kept in mind. The current system has one major benefit: It allows states to raise or lower indirect taxes, and thereby control their own spending-taxation choices. State governments’ degrees of freedom have been reduced. That may have deleterious political effects in the long run if efforts are not made to ensure that they still have sufficient room to manoeuvre in response to local political demands. As problems, gaps and imperfections in the GST are brought to its attention, the government will need to be open to these complaints, and not dismiss them as the ravings of the corrupt. In order to make this vast reform a success, a government that both listens and acts will be crucial.

Godel, a veteran spy who helped recruit former Nazi rocket scientists in the late 1940s, then took on various roles in the NSA and the Pentagon’s special-operations directorate. It was Godel who turned ARPA into a forum for ideas that were “completely screwball,” in Weinberger’s words, but got funded anyway because they were “bold and scientifically interesting.” These included a plan to control Vietnamese villages through mass hypnosis, an acoustic sniper-detection system (which produced 5,000 false positives in field tests), an interplanetary spaceship powered by thousands of nuclear explosions and a magnetic force-field to repel incoming Soviet warheads, among others. With access to Godel’s unpublished memoir (from his daughter), Weinberger paints him as not only the driving force in this story — “more than any other ARPA official,” she writes, he “shaped the agency’s future” — but also a colourful character. His house was filled with gadgets straight out of James Bond’s Q lab. He travelled the world with

cash-stuffed briefcases and, in connection with that, was sentenced to five years in prison on fraud-related charges in the mid1960s. After leaving ARPA, he ran guns to Southeast Asia. Some suspected he was a security risk. The book — deeply researched and briskly paced — saunters down a gallery of oddballs apart from Godel. There’s Nicholas Christofilos, a flamboyant Greek, whose ideas were “scientifically sound but required technological miracles to make them work” and whose charisma stemmed from his lacking “any self-awareness that the concepts he proposed were outrageous.” There’s Herman Kahn, the ur-strategist of nuclear war and the probable model for Dr Strangelove, who proposed building a moat around Saigon to keep out the Vietcong. Anthony Tether, a more recent Darpa director, told Weinberger that the agency’s best program managers “have inside them the desire to be a science fiction writer.” Yet a desire to write science fiction could

Lutyens’ Delhi, where the government and the powerful live, the footpaths gleam. But just imagine, they are made with granite and polished so that you cannot walk. Or possibly for the powerful people to roll down the windows of their bullet-proof cars and feel good about their modern city. The question is: What is your vision of what a road should look like? My colleague Anumita Roychowdhury, who works on mobility, will tell you that her most frequent conversation with decision-makers is exactly about this. What is their idea of a road? On the one hand is the road — most frequently captured in photographs from the US or now even China and India — where cars move bumperto-bumper. There is no diversity of vehicles. Few motorcycles, fewer buses, and non-existent cyclists and pedestrians. On the other hand is the picture of a street in African cities or any smaller Indian city, where everything is moving side by side. Here people walk, cycle and take para-transit systems like auto-rickshaws. All side by side. This is seen as the chaos we would like to get rid of as we get rich, modern, and successful. But, as Roychowdhury will tell you, a chaotic road carries more people and is, therefore, a much more costefficient instrument for mobility than the carfilled road. The trouble is that we are lost between these worlds, where walking works because we are poor and walking works because they are rich. We need to cross this road, and for this we need to rethink our view of the road itself. The writer is at the Centre for Science and Environment [email protected] Twitter: @sunitanar

lead to inventions like the internet. And who could have judged, when they were first pitched, that armed drones or brain-controlled prosthetics were any less the stuff of fantasy than many of the projects dismissed here, in retrospect, as “lunatic” or “comical”? The key to Darpa’s successes and failures, apparently, was that it operated “below the radar,” as Weinberger writes, “unencumbered by the typical bureaucratic oversight and uninhibited by the restraints of scientific peer review.” The initial $1 million Budget for a cross-country computer network — the beginnings of the internet — was given the go-ahead after a 15-minute conversation. That was in 1965, when the agency was ensconced in the elite E Ring of the Pentagon. In later years, as it lost favour and was moved out farther into the suburbs, it also lost some of its élan and autonomy. In her final chapter, Weinberger laments the current Darpa’s focus on narrow “technical problems” and all but pines for the days when it “sought to understand the fundamentals of society and the causes of insurgency.” Yet a recurring theme of her book, up to this point, has been the fallacy of believing that technology can win a

war for hearts and minds and the “arrogance” of “treating nations as living test beds.” Just a few pages before her concluding nostalgic dip, she condemns the “allure of applying the wizardry of science and technology to warfare,” which makes wars “more inviting” and has “entangled the United States in a ‘forever war.’” This is a cogent (though not original) critique, worthy of a separate book, but it’s a bit overstated for this one. Darpa invented the armed drone, but, as she notes, a quarter-century passed before it came into wide production and use. “The agency has largely been absent from the past 10 years of national security debates,” she observes. The question, which she leaves uncertain, is whether that’s good or bad. ©2017 The New York Times News Service

THE IMAGINEERS OF WAR The Untold History of DARPA, the Pentagon Agency That Changed the World Sharon Weinberger Alfred A Knopf 475 pages; $32.50

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14 STRATEGY

MUMBAI | MONDAY, 3 JULY 2017

“Our strong balance sheet, profitability and robust domestic network make us an ideal candidate to acquire the international business of Air India”

“We plan to take our chocolate brand, Fabelle, outside hotels to premium trade outlets and select malls as well as Wills Lifestyle stores for greater accessibility and visibility”

“ When you look at the premium car market in India, the sub-2 per cent share of luxury cars is small compared to the 5-10 per cent in leading economies”

ADITYA GHOSH

HEMANT MALIK

VIKRAM PAWAH

Chief executive, foods, ITC

President, IndiGo

President, BMW Group India

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.

How GM can reduce exit pain The automaker has to meet expectations of all stakeholders before stopping domestic sales in India DALIP KUMAR

RITWIK SHARMA

A majority of GM India’s 96 dealers has opposed its offer of around 12 per cent of their investments as compensation

concerns of all stakeholders — buyers, dealers and the government — before exiting a market. “You may not be able to pay everything that dealers are asking for but you have to come to a consensus at least. Sufficient time for planning, so that you can take stakeholders into confidence, is the key.” Suppliers and employees are especially critical, and therefore the company has to make sure its decision does not impact them. Even as GM plans to halt domestic sales in India, its joint venture partner Shanghai Automotive Industry Corporation of China (SAIC) is set to enter the country with its brand Morris Garages and likely start operations in 2019. There is a possibility of GM selling a manufacturing plant in Gujarat to SAIC. Majeed says if a new company takes over, the outgoing firm can work out modalities to minimise the effects of its exit. “Even if you are selling assets to someone else, at least it would ensure continuity for some stakeholders,” he says, adding an example of South Korean auto company Daewoo Motors which had incidentally sold off its assets to GM. Siddharth Shekhar Singh, associate professor of marketing at the Indian School of Business, stresses that a company has to exit in a manner that its brand reputation is not damaged. “Wrong steps at the exit stage

Teamwork

10

Flexibility

15

Problem solving ability

25

Leadership

25

Persuasion

25

All figures in %

TOP 5 HARD SKILLS REQUIRED IN CEOS UNDERSTANDING HOW BUDGETS AFFECT INCOME

10

GOOD WRITING AND SPEECH, GRAMMAR

10

Excellence

30

Business acumen

MARKETING/ SELLING KNOWLEDGE

25

UNDERSTANDING OF FINANCIAL STATEMENTS

25

EXPERIENCE IN THE INDUSTRY

30

30 20

Urgency

Industry & market knowledge

Source: Soft skills versus hard skills, what is more critical for C-suite roles? By BTI Consultants

A company exiting a market must devote substantial time to address concerns of all stakeholders — buyers, dealers and the government. Building consensus is an important goal „ If a new company takes over assets, the outgoing firm can work out modalities to minimise adverse effects „ Since GM is producing vehicles for export, it can buy back inventory from dealers, if possible, to cut losses, or compensate them in some other way „

would make re-entry all the more difficult even if the conditions are right,” he adds. Singh argues that GM has not dealt with its dealers and customers too well, although it seems to have handled the issue of compensation to its employees better. “This is not a pleasant situation and there will be losses for all. How fair, caring and stakeholder-friendly GM comes across would decide the effect on its brand in India and subsequently impact prospects on re-entry, if any.”

GM India says it has prioritised a stable and smooth transition for its customers, employees and business partners. “We will maintain a service network across key locations in India, as well as continuing to honour Chevrolet vehicle warranties; provide support through Chevrolet’s roadside assistance, and spare parts to support maintenance and repair,” the spokesperson adds. GM India exports the Chevrolet Beat hatchback and sedan to a number of left-handdrive markets in Latin America. It recently announced regular shipment of the sedan version of Chevrolet Beat to Latin America. “We have a robust export outlook that supports continued manufacturing at our Talegaon plant and further leveraging of our local supply base,” the spokesperson says. Singh also feels GM erred in not giving enough of a lead time to all stakeholders to warm to its decision and thereby reduce risks to its brand reputation. “Since it is producing vehicles in India for export, it can buy back the inventory from dealers, if possible, to reduce losses, or compensate them in some other manner. Further, it should enhance the payment to them to cover losses. Regarding customers, GM should not only ensure that the service centres are open and functioning smoothly, but also publicise the same to remove apprehensions.”

Digital is where the hunt starts, but buyers prefer shopping in physical store Brick-and-mortar stores remain the preferred channel for shoppers globally. Even among technology-savvy Gen Z shoppers, 58 per cent prefer the physical store shopping experience, says a study titled “Shopper-first retailing: What consumers are telling us about the future of shopping.” The study has been conducted by Salesforce and SapientRazorfish. However, the study says about 60 per cent of the respondents were likely to start their hunt on digital, versus just 37 per cent in the physical store. Seventy-one per cent of all global consumers have used their mobile device for retail activity in the past 30 days, of which 27 per cent made a mobile paymentbased purchase. Meanwhile, 31 per cent orders are placed on mobile devices, and 40 per cent of traffic from buyers is on mobile devices. While mobile buyers are increasing their visit frequency on phones by 12 per cent, those visits are more fleeting, as the duration per visit fell a corresponding 12 per cent.

The branded content marketplace has grown very quickly and this form of advertising has become a viable alternative or compliment to digital display advertising, MIKESMITH tells Sangeeta Tanwar

Award (for excellence on the internet) in 2015 for a native ad campaign that it produced on Reddit. Marriott asked Reddit users to write or film “sales pitches” that would describe what makes their neighbourhoods special — either because they love their community or hate it — and then post them on Reddit. Marriott encouraged Reddit users to do this by offering “a vacation of a lifetime” with $4,000 to spend on flights and a stay at a Marriott hotel and the opportunity to try out the company’s 4-D virtual travel experience, where they can be “teleported” to the place of their dreams. The campaign was so successful that Marriott received about 200,000 clicks on its contest page and Reddit’s highest-ever user-generated content for sponsored posts.

MIKE SMITH Senior vice-president, revenue platforms and operations, Hearst Magazines Digital Media, and author, The Native Advertising Advantage

HARD SKILLS MOST IN DEMAND IN 2017 20

FOR A SAFE DEPARTURE

Wisdomjobs.com, an end-to-end online recruitment and career solutions portal, has published a survey on “how companies are fighting attrition with monetary and non-monetary benefits”. While there are several reasons why employees leave their organisations, a majority of these can be classified under three heads — for better monetary benefits, better career prospects, and personal reasons. Forty-one per cent of the respondents said employees leave looking for better pay and benefits. Thirty-two per cent said the biggest reason for employees leaving is better career prospects — career progression, more challenging work, etc. Another 27 per cent pointed out that the major reason for attrition is employees’ personal commitments such as marriage, relocation and health issues. And 50 per cent recruiters felt that career growth opportunities are essential to retain employees, while 38 per cent said training and mentoring of employees was important in retaining them.

‘To be effective, native advertising has to be subtle’

SKILLS AT THE TOP

TOP 5 SOFT SKILLS REQUIRED IN CEOS

Indian employees across cities rapidly adopting flexible, digital workspaces

50 per cent recruiters feel career growth prospects needed to retain employees

STATSPEAK Leadership skills (30%) are the mostsoughtafter bythe board of directors and senior managementfor hiring professionals at the C-suite level in India, according to marketmapping byexecutive search firm BTI Consultants. Hard skills that are most critical for C-suite roles consists ofindustryand marketknowledge (30%) and business acumen (30%)

INSIGHTS FROM CUTTING-EDGE RESEARCH

A large number of the Gen X and millennial workforce in India are open to digital workspaces, value work-life integration (rather than work-life separation), and are embracing flexible workstyles that enable them to be mobile professionals with a personalised way of how they work and live. This has been reported by Microsoft in its new Asia Workplace 2020 Study. In fact, the adoption of practices and advanced technology which enable flexiwork and collaboration have been ranked as the No. 1 and No. 2 reasons for joining and staying in an organisation. Interestingly, only six per cent of the respondents said that they were individual contributors. Eighty-eight per cent worked in cross-department or cross-geography teams, whereas about 43 per cent said that using collaborative technology (messaging apps, virtual meetings, enterprise social networks, etc.) would make a positive difference in working remotely from locations outside the office.

T

he recent announcement by General Motors India to stop selling cars in the domestic market by the year-end has met with strident protests from its dealers. Given the scenario, the company has to avert the possibility of a messy exit by building consensus among all stakeholders. A GM India spokesperson says the company’s decision to withdraw from domestic sales was based on its global business strategy. “GM is focused on strengthening our core business and investing to lead the future of personal mobility. This requires the company to take decisions on where we deploy our shareholders’ capital. If we don’t see a clear path to market leadership and long-term sustained profits, we will continue to look at opportunities to focus our resources on areas that will lead to the greatest results.” The American auto giant has been present in India for over two decades, but its brands never took off as it ran mounting losses and ended with a measly market share of 0.85 per cent in 2016-17. A majority of GM India’s 96 dealers, operating around 140 showrooms across the country, was opposed to the offer of around 12 per cent of their investments as compensation. Asked about the dealers’ allegations of inadequate compensation and demand seeking government intervention to prevent job losses, the spokesperson says, “We are providing our dealer partners a fair and transparent transition assistance package based on a methodology that is consistent across all dealers. The methodology is then applied to the individual circumstances of each dealership. The discussions with individual dealers are confidential.” Jones Mathew, professor, marketing, Great Lakes Institute of Management, lists factors that an organisation exiting a country like India should consider. These are — the economic impact of loss of jobs, social impact of an anti-American attitude toward brands exiting without adequate warning, transparent communication with stakeholders, fair compensation to channel partners, retraining and replacement of affected workers to reduce negative effects, proper evaluation of take-profit or stop-loss decision, and political and trade union support for exit decision. According to Mathew, the most important but often overlooked step is communication, trust building, and transparency through the entire exit process. “Given the magnitude of the decision, GM could have gone about the exit process in a more transparent and equitable manner,” he says, adding that dealers must be compensated with at least 25-50 per cent of their investments in the brand. Abdul Majeed, partner at PwC India, says a company has to devote substantial time, extending to over a year, to address

VANTAGE POINT

How has native advertising evolved over the last decade?

There have been two major developments in the evolution of native advertising. Two companies, Outbrain and Taboola, have co-led the development of the native advertising marketplace for content recommendations over the past 10 years. Most publishers include content recommendations on their web pages as an ancillary revenue source and to promote recirculation within their websites. Additionally, and in parallel, Sharethrough and BuzzFeed can also be credited for the growth of native advertising in the early days. BuzzFeed published many of the early native “in-stream” ads, and Sharethrough was the ad tech company that powered native “in-stream” advertising for other publishers. Many different types of native advertising forms have developed over the past decade. Another important development has come as the result of an industry trade group called the Interactive Advertising Bureau (IAB) creating a native advertising task force to develop a classification system

to define the various categories and types of native advertising. Among other benefits, the IAB’s classification system has helped to create consumer disclosure recommendations. With the advent of digital, what are the opportunities that native advertising offers to marketers?

Publishers are using native advertising to offer marketers new opportunities to reach consumers. Marketers are working with publishers to produce branded content that informs, inspires or entertains readers and at the same time builds brand awareness for the products and services of the advertiser. The branded content marketplace has grown very quickly and this form of advertising has become a viable alternative or compliment to digital display advertising. How successful have been global marketers in leveraging native advertising effectively?

GE and Marriott are two good examples of global marketers using native advertising effec-

tively. Under the leadership of Alexa Christon, head of media innovation for General Electric, GE has been working with many partners on native advertising programmes. In each case, the company creates a new experience for the specific audience that each publishing partner is best suited to reach. For example, in November 2015, The New York Times sent a Google cardboard virtual reality (VR) headset with the week’s “Sunday Magazine” to one million subscribers of the print edition of the Times. This campaign was done in conjunction with the Times’ T Brand Studios. GE created original virtual reality content that ran alongside editorial content, which was then promoted with native content as

well on nytimes.com. GE chose to partner with The New York Times to reach a mass audience and to introduce them to a new technology that allows viewers to experience a story in a whole new way — the medium being the message. Christon realises that many companies are interested in or in the process of creating a content marketing team, but at GE, “everyone in marketing thinks about content,” about how to create an experience that will resonate with people. There’s no individual content marketing manager or content marketing team. Instead, developing brand content and native advertising is part of the job for everyone working in marketing at GE. Marriott won a Webby

What are the key challenges that publishers face as they tap into native advertising to grow revenues?

The challenge to native advertising is to make it subtle enough that it truly becomes “native” — that it blends in with the surrounding editorial material so that readers will read it and not care that it is written by an advertiser rather than by a journalist or by a journalist on behalf of an advertiser — while at the same time, being sufficiently above board — by clearly identifying the sponsor — that the piece doesn’t confuse or irritate readers who may feel that they’ve been duped into reading something that isn’t truly informative but just turns out to be a pitch for some product or company. More on business-standard.com

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BRAND WORLD 15

MUMBAI | MONDAY, 3 JULY 2017

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.

DATA TRACKER

ANALYSIS

Bata pitches a new image, runs into a sticky spot

Tracking viewers on mobile Video is the future of content marketing, but in the absence of authentic and sufficient data, marketers are often second-guessing the online viewing behaviour of their consumers. In India, according to a report on mobile video watching by Kantar IMRB, the content landscape has changed dramatically as has viewing behaviour. Not only are more people turning to the mobile for entertainment, they are also watching and engaging more deeply online | Daily engagement time on mobile hovers around the four-hour mark | Mobile screens attract more engagement than any other media, 37 per cent higher than TV | Video adopts a dual role, becoming a means of consumption and expression. There has been rapid evolution in the way the consumer is expressing his/her opinion | Time spent on smartphone entertainment jumped by a whopping 23 per cent in the last nine months | The digital video subscription market is estimated to cross ~1,200 crore by 2020 | Mobile video consumption not just for affluent homes; more than 40 per cent of viewers belong to SEC C/D/E homes | The medium is popular across age groups, not just the young; over half the viewers are above 25 years | Adoption of video streaming is widespread, 65 per cent of viewers reside in non-metro towns | India has more than 20 million avid video consumers who spend more than 22 hours a month consuming video | OTT is growing rapidly, already, 3 out of 10 users access an OTT video platform | Scale is vital for popularity of video platforms, it has become imperative that they have a repertoire of successful creators creating content spanning multiple categories | Viewers look for diversity of content; music and entertainment are most dominant categories. Education and news are fastest growing categories

The footwear brand runs into controversy over its new campaign. Will this help or dent its image?

SOHINI DAS Ahmedabad, 2 July

I

n its 123 years of existence, European footwear brand Bata has spent 85 years in India. But never has it stirred the pot the way it has done with its latest campaign. Labeled ‘Me and comfortable with it’ the campaign exhorts women to not labour over labels (feminist, optimist and many such) and be comfortable with ‘being what no man can ever be’. However many women are booing the brand online, calling the message about feminism, empowerment and gender problematic. The company says that while all are entitled to their views, much of the response that they have received for the campaign conceptualised by Ogilvy & Mather has been positive. The campaign is an attempt to reposition the brand in a country where it is known for school shoes and comfortable affordable footwear. The brand is evolving to include style and fashion as inherent value points. Anand Narang, vice president marketing at Bata says, “It is not about looking pretty, behaving as per others’ expectations or fitting the standards.” The brand is about empowering women to be as they are. Empowerment advertising also called ‘femvertising’ is not new. Detergent brands Ghadi, Ariel, jewellery brand Tanishq are among those that have had recent campaigns exhorting women to speak up and do their thing. While many decry this as feminism through hashtags, marketing experts say that this is reflective of a more gender aware society. Brands are merely adopting a language that is gaining currency among their target audience. The Bata ads tell women that they should celebrate the fact that they get free club entry, that they can cry in public and when all else fails the real woman knows she can turn to retail therapy. This is a myopic view and for an ad targeted at women customers, these might not have been the best lines. But ad veteran Ambi Parameswaran, founder of

Bata is looking to re-position the brand as a trendier and more contemporary label to appeal to young customers

Brand-Building.com and former CEO of FCB Ulka, says that at least the controversy has grabbed them eyeballs. “The brand had lost connect with the youth. The only people who now associate with it are 30-pluses who have grown up wearing the brand. Controversial or not, the ad is in focus and the brand name is being discussed,” he says. Critics say that the preachy message trivialises an important issue. But Narang says that the campaign has surprised the TG in a good way. “The idea is to refresh the brand imagery and make it more contemporary and relevant,” he says. Bata is India’s leading footwear brand (Euromonitor) but a growing number of international and national brands threaten its growth. In its 85th year in India it is looking to redefine the brand’s image and imbue it with a more contemporary appeal. India is an important market; ranking among its top 5 footwear markets globally. While net profit in the fourth quarter of 2016-17 grew 27 per cent year on year, for the full year, profits have shrunk 26.8 per cent. It was time to shake off the old staid image say experts. “Bata has done well to shed off its ‘old school’

image and the campaign would help them ‘connect’ with their target audience,” says N Chandramouli, CEO of brand intelligence and data insights company, TRA. Narang says, “We base our plans on consumer insights as opposed to reacting to competitor’s moves. We are at a stage, even globally, where we are focusing on evolving the brand to encompass style and fashion intrinsically.” The company is doubling the advertising budget for 2017 and “We are all geared to communicate our new focus. Engaging our consumers is a long-term strategy and the shift towards being a lifestyle brand will be achieved over the next three to five years,” he adds. Bata sells around 50 million pairs of footwear every year and retails in over 1,265 owned stores across India apart from multi-brand outlets and online marketplaces. India is the second largest footwear producer in the world. Interestingly the men’s market, which contributes 60 per cent of sales is growing at a 10 per cent CAGR (compound annual growth rate), while the women’s market (30 per cent) is clocking 30 per cent CAGR. The campaign targets the

fastest growing category: women buyers. True, but femvertising is tricky. Not just in India, brands have been pilloried across the world for their attempts at being gender right; Dove’s ‘Real Beauty’ campaign (where the company launched body wash bottles in different shapes and sizes) being a recent example. Women protested saying that they do not need bottles to tell them about body image issues. Narang says, “The feedback that we have got is very encouraging and positive. Women and young customers are walking into stores, writing on social channels and also expressing how they have liked this modern-looking brand image,” he says. The campaign reaches out to a consumer neglected by other marquee footwear brands like Nike, Adidas among others say experts. Parameswaran believes that women are a direct target as well as an indirect one for another category that Bata is known for, children’s footwear. Chandramouli says “If the ad is courting controversy, then it might hit it with today’s generation who like to take a controversial approach to life. This kind of a narrative works for them.”

Average time spent on smartphone entertainment Time spent on smartphone entertainment jumped by 23% in the last 9 months

23%

JUNE - SEP 16

OCT - DEC16

JAN - MAR 17

Data traffic per active smartphone (GB*) Average mobile data consumption per smartphone in India is expected to increase five fold by 2021

1.4

*gigabytes

2015

7

Market to grow...

2021

...and bridge the gender divide

~ 170 Cr ~ 1230 Cr in 2016 in 2020

The digital video subscription market is estimated to cross ~ 1,200 crore by 2020

Women are 30% more likely to be avid consumers of mobile video

Adoption of online video is widespread

2 platforms are the most popular

65% of viewers reside in non-metro towns

On an average, consumers spend 3 hours/week on consuming mobile video. 90% of this is spent on YouTube and Facebook.

Source: India Mobile Video Report, Kantar IMRB, June 2017

ECONOMY

1

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Riots should not be part of curriculum: ICSSR chief PRESS TRUST OF INDIA

EDUCATIONIST’S VIEW

New Delhi, 2 July

| Subjects such as Hindu-Muslim riots and caste-based conflicts should not be part of school curriculum | ICSSR chief Braj Bihari Kumar said universities like JNU are becoming a “nurturing ground”

T

extbooks today are aimed at creating “activists” and not educating students, and subjects such as Hindu-Muslim riots and caste-based conflicts should not be part of school curriculum, according to newly appointed Indian Council of Social Science Research (ICSSR) Chief Braj Bihari Kumar. Kumar, an anthropologist who took over as the head of the apex body promoting research in social sciences last month, also believes that universities like Jawaharlal Nehru University are becoming a “nurturing ground” for activists. The 76-year-old Kumar also believes that caste-based conflicts and intolerance in the country are “fringe” phenomena and should not be seen as a

>

reflection of the Indian society. “Textbooks are not meant for making students activists but for educating them. Unfortunately the books are driven by an agenda today and there is a need for a curriculum rehaul. Subjects like Hindu-Muslim riots and caste-based conflicts should not form basis of students' mindset and their grooming,” Kumar told PTI in an interview.

for activists | Kumar said castebased conflicts is “fringe” phenomena and should not be seen as a reflection of the Indian society | He said there are several lapses in our textbooks “Textbooks are in bad shape today. I had found a map in a social science textbook showing Jammu and Kashmir outside India. There was another one not showing north east area as part of the country. There are several lapses in our textbooks,” he added. Kumar, who used to edit a journal, Dialogue, before he joined the ICSSR, had also written in an editorial in 2016 that “NCERT textbooks are

driven by political agenda and are partly responsible for the increasing social conflicts and anarchical trends in society”. “I had also written two letters to former HRD minister Smriti Irani pointing out the issue but I did not get any response,” he said. Kumar lashed out at “JNU-like universities”, claiming, “If you are part of society and you are not ideologically driven, several persons from a single family are massacred in Chhattisgarh and there is jubilation in JNU and a march in praise of the killers, much cannot be said about the kind of varsity that is.” Kumar claimed they project themselves to be one of the best universities but “they can’t claim excellence when they are hurting nationality’s sentiments and becoming a nurturing ground for activists and not a place for education. Taxpayers do not pay money for activist-making”.

It took 3 decades and many hands

EXIM MATTERS T N C RAJAGOPALAN The new goods and services tax (GST) regime is the culmination of a process that began in 1985, with the introduction of the Modvat (Modified Value Added Tax) scheme for a few items by V P Singh, the then finance minister (FM). Prior to that, a scheme of set-off was available in a very restricted way. The Modvat provisions for credit were part of the central excise rules. In 1994, the capital goods credit scheme was introduced by Manmohan Singh, the then FM. He also started the process of levying service tax, on three services, the same year. Over a period, the Modvat scheme was extended to cover all items, barring a few; the central excise rules were suitably modified. The

THE BS CROSSWORD

# 2769

service tax net was also enlarged. It was Yashwant Sinha who brought about significant changes in the central excise laws -- introducing new valuation rules in 2000, new central excise rules in 2001 and replacing the Modvat scheme and capital goods credit scheme with the Cenvat (Central Value Added Tax) scheme. He also allowed credit for tax paid on input services, for payment of tax on output services. A significant step was taken by P Chidambaram in 2004. He allowed inter-sectoral credit i.e allowing manufacturers to take credit for tax paid on input services and service providers to take credit for duty paid on inputs and capital goods. He also carried forward the initiative of Yashwant Sinha and brought all states on board to replace sales tax with Value Added Tax. He initiated the process of transition to the GST regime by setting up an empowered committee that had all state FMs. The first discussion paper on GST from this panel was put out in 2009 and formed the basis for all further progress in the evolution of these laws, that now take effect from July 1. Meantime, the list of services on which service tax is leviable went on expanding. And, in 2012, Pranab Mukherjee, then then FM, introduced

>

BS SUDOKU

the negative list regime -- levying service tax on all services except those on the latter list. He also enlisted Nandan Nilekeni to build the information technology platform – GST Network - that will be critical for the new tax’s implementation. The present regime decided on suitable compromises to bring in the Constitutional amendment and forge the needed consensus among FMs of states and Centre to ensure passage of the legislations and convergence on rules, tax rates and exemptions. Before bringing in the GST laws, Arun Jaitley and his team engaged in widespread consultation with all stakeholders Domain experts like L K Jha, Raja Chelliah, Amaresh Bagchi, Govinda Rao and Vijay Kelkar headed committees that gave critical inputs for most indirect tax reforms. So did Asim Dasgupta, Sushil Modi, Amit Mitra and K M Mani, who as heads of the Committee of State FMs played very important roles in bringing about consensus on many issues. So, even as we celebrate the advent of GST, let us thankfully acknowledge the outstanding contribution of these key persons, and many others in the background, who have made it possible. E-mail: [email protected]

# 2262

>

WEATHER

TODAY’S FORECAST O

Max/min temperatures in C

ACROSS 8 A sign twins are due next month (6) 9 A swan-song for a Scot? (8) 10 For instance, one group of police coming in about murder of top man (8) 11 Bird that is pleasing on the course (6) 12 Keep and use as a clothes line? (4,2,2) 13 Overcharged and got the bird? (6) 14 In Nice I desire to eat portion of fried mulloway (7) 17 Airman broke toes, sugar (7) 20 Big businessman from the firm Tony's worried about (6) 22 Unable to bear the weight of the game fish (8) 25 Bargain for the horse in such a hearty way (6) 26 Doe's tail damaged, cut off (8)

27 King left on embankment in gold rush area (8) 28 Given back in return for a towel (6)

DOWN

starting up fires (8)

Ahmedabad . . . .Thunderstorm

31/27

19 A certain contractor's outbreak of ego and bile (7)

Aizawl . . . . . . . . . . . . . .Showers

25/19

Bengaluru . . . . . . . . . . . .Cloudy 29/20

23 Exult, having daughter and son as hosts (6)

2 What she is doing when Cynthia, shortly, loses her ring ? (6)

24 Buddhist priests, we hear, domesticated guanacos (6)

4 Cry rises under the glare of summer-houses (7) 5 Capital may be initially reinvested by artist (8) 6 Row not unexpected in N Irish Parliament (8) 7 Discover one's knowledgeable in church affairs (6) 15 Beating your crewmen, illicitly selling (8) 16 Font style stops at nothing

Bhopal . . . . . . . .Thunderstorm

21 Annual count made in yards (6)

1 Frantically seek a man, one of the same denomination (8)

3 Burning puts America into trouble ? (6)

NATIONAL

18 Separated, the foreign nudes dressed to go out (8)

29/24

Bhubaneswar . . . . . . . . .Cloudy

31/27

Chandigarh . . . . .Thunderstorm

32/26

Chennai . . . . . . . . . . . . . .Cloudy 34/29

SOLUTION to #2768

Easy:



Solution tomorrow

HOW TO PLAY Fill in the grid so that every row, every column and every 3x3 box contains the digits 1 to 9

SOLUTION TO #2261

Delhi . . . . . . . . . .Thunderstorm

31/26

Guwahati . . . . . .Thunderstorm

28/25

Hyderabad . . . . . . . . . . . .Cloudy

31/23

Imphal . . . . . . . . . . . . . . . . .Rain

24/22

Indore . . . . . . . . . . . . . . .Cloudy

27/23

Kochi . . . . . . . . . .Thunderstorm

27/24

Kolkata . . . . . . . . . . . . . . .Cloudy

30/27

Lucknow . . . . . . . . . . . . .Cloudy

30/27

Mangaluru . . . . .Thunderstorm

29/23

Mumbai . . . . . . .Thunderstorm

28/27

Pune . . . . . . . . . . . . . . .Showers

28/23

Srinagar . . . . . . .Thunderstorm

29/16

Surat . . . . . . . . . .Thunderstorm

29/27

Thiru’puram . . . .Thunderstorm 29/25

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16 BUSINESS LAW

MUMBAI | MONDAY, 3 JULY 2017

>

BRIEF CASEN

M J ANTONY

A weekly selection of key court orders

Mining companies’ petitions dismissed

The Rajasthan High Court last week dismissed a batch of writ petitions moved by about 20 mining companies challenging the amendment to the mineral concession rules under which they had to pay more to the state. The mining companies, led by Khaitan Chemicals and Bhilai Engineering Corporation, argued that the amendment permitted notional determination of the sale price by adding 20 per cent of the benchmark value, and it was beyond the powers of the central government. They contended that the authority of the central government under the Mines and Minerals Act was limited to the extent of fixing and collection of fees for reconnaissance permits, prospecting licences or mining leases, surface rent, security deposit, fines, other fees or charges and the time within which and the manner in which the dead rent or royalty shall be payable. The earlier rate was 11 per cent of the sale price on ad valorem basis. The determination of sale price is an issue relating to the conditions of contract between the seller and purchaser; as such the central government had no authority to fix a notional sale price for determining the value of royalty, it was argued. The government contended that the change was introduced following the report of a study group which suggested the hike to avoid loss to the state. Accepting the government argument, the judgment stated that the government has not hiked the royalty, but only changed the basis for calculation of ad valorem royalty, based on the benchmark price as declared by the Indian Bureau of Mines from time to time.

Treading on a legal minefield

Commendable GST, with regrettable flaws

With no precedent for goods and services tax in India, there could be several interpretations of the new framework, say experts

New rule on executing award

The Calcutta High Court last week stated that an application to execute an arbitration award could be filed in the court even if the award has been challenged by the party which is aggrieved by the decision. However, this rule was introduced only in October 2015 by an amendment to the Arbitration and Conciliation Act. Therefore, it would not apply to awards delivered before that. The court clarified that the amended rule was prospective in the case, Braithwaite Burn & Jessop vs Indo Wagon Engineering Ltd. The latter had moved the court against the award against it. Braithwaite moved the high court for execution of the award. It was opposed by Indo Wagon arguing that no application for enforcement of the award could be filed until the application for setting aside of the award was disposed of. The court dismissed the application of Braithwaite stating that the award was made before the amendment and therefore it could not be executed. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

Taxmen to refund TDS to Dutch firm

The Andhra Pradesh High Court has directed the revenue department to refund the amount withheld from Vanenberg Facilities BV as the Dutch firm was not liable to pay tax in India under the Double Taxation Avoidance Agreement (DTAA) between India and the Kingdom of Netherlands. In this case, Director of IncomeTax (International Taxation) vs Vanenberg Facilities, the foreign firm constructed an industrial park in Hyderabad through its wholly owned subsidiary in India. Later, the shares of that company were sold to another Indian firm. The revenue department demanded capital gains tax on that sale and insisted on tax deduction at source. The Dutch firm objected to it, invoking the DTAA and asked for refund of the TDS to the tune of ~49 crore with interest. The revenue department took the dispute before the Income Tax Appellate Tribunal which rejected its stand. On its appeal, the high court confirmed the order of the tribunal and stated that the revenue authorities had no right to withhold the money and it shall be returned within three months.

ILLUSTRATION: BINAY SINHA

Compensation imposed on Canara Bank

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soap, detergents and similar products continues. I spent my whole official life distinguishing between Tweedledum and Tweedledee. The future generation will do the same. It is sad the bad days are back again. (ii) Revenue: Some argue that revenue will boom due to stoppage of SUKUMAR MUKHOPADHYAY leakage. They are plain wrong. Value-added tax (VAT) was already there, Goods and services tax so as all the so-called self(GST) and Shakespeare’s policing properties. So, character of Hamlet have nothing strikingly better something in common. can be expected. Many Both combine greatness studies on VAT and with tragic flaw. The greatGST in western countries, ness of GST has been where this system is in always advertised for long force for a long time, but now the tragic flaw also have established that needs to be understood VAT is not a money properly, so that we do not spinner. There is a lot of overestimate this great evasion there. tax reform. (iii) Distinction between I am one who goods and services will not remembers the pre-Modvat go and the much-hyped days; I was a collector of advantage of GST of Customs and Central combining the two has Excise in 1986, when remained on paper. Modvat was introduced. (iv) Inflation: Inflation And, I remember it for the will also depend on sheer simplicity of that whether the total tax system. It was a turnover collection is much higher tax, admittedly the most than the normal simple tax structure. But, expectation. For common economically it was not the items, tax has gone down. best. GST will surely be a So, the Consumer Price game changer and bring Index will not go up but immense benefit to the Wholesale Price manufacturers, traders, Index might. exporters and others but it (v)Anti-profit law will be illusory to expect draconian and too much from it. So, guard unconstitutional: The against over-expectation. provision for cancellation So far as the greatness of registration under of GST is concerned, the Section 29 (2) following are the under the GST most important: Many studies Act and under (a) One tax: The on VAT and common base for GST in western Rule 14 (3) (d) is charging GST for countries have blatantly unconstitutional. It is Centre and states established will consist of an that VAT is not directly against the fundamental amalgamation a money (subsuming) of spinner. There right under Article 19 (1) (g) to several central is a lot of practise any and state taxes. It evasion there profession, or to will enable us to carry on any occupation, have one tax, rather than trade or business. about 16. ‘One Nation, One Second, all fiscal laws Tax’ does not mean one like the Customs Act, rate. Excise Act, Sales Tax Act, (b) Common market: Service Tax Law, Income There will be a common Tax Act, etc, provide for market in the absence of fine, penalty and Central Sales Tax (CST) prosecution. Here, too, and Entry Tax. prosecution could have (c) No entry tax: The been provided for. That abolition of entry tax will would be legal but not be a boon for the advisable. But, to take movement of goods by away the right to pursue road transport. Some 16 on occupation, trade and per cent of time for truck business is absolutely movement were being lost extraordinary, excessive, at state borders. whimsical, arbitrary and (d) Common exemptions unconstitutional. This between Centre and states. rule has been written (e) Concept of manufacture without any application will go. It was the single of mind about its impact most litigated subject. on the market. It is a (f) Zero rating will be terrorist law. more comprehensive So, the conclusion is and easy, which should the GST we are heading boost export. towards on July 1 will At the same time, do not be a game changer but expect too much from GST. with grand defects. (i) The big central excise Lawyers will be happy tariff is not going: The and officers will have a rates have now been fixed field day. at zero, 3, 5, 12, 18, and 28; controversies for classification will remain. The writer is retired member The CCCN classification of the Central Board of like 44079990 or 76069110 Excise & Customs. will continue. And, the E-mail: difference of duty between [email protected]

EXPERT EYE

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The Delhi High Court indicted Canara Bank for “utmost negligence on the part of its officials” and directed it to inquire into and fix responsibility of its officials for letting go debtors scot-free while attaching the property of the wrong person without due-diligence. In this case, V K Bhatnagar vs Canara Bank, four persons took loans from the Lucknow branch of the bank. They failed to return it. The bank moved the debt recovery tribunal in Lucknow. It ordered attachment of property of V K Bhatnagar, living in Sainik Farms, Delhi. He did not know that another person of the same name in Lucknow had taken the joint loan. He came to know about the mistaken identity only when loudspeakers announced the attachment order around his house. Though a senior citizen suffering several serious ailments, he was made to run to the Lucknow DRT and then the Delhi High Court. Canara Bank did not relent despite the mistake pointed out by him. It delayed the hearing for two years and showed reports from two detective agencies asserting that this Bhatnagar was the same one in Lucknow. The high court narrated in detail the utter callousness of the bank and asked it to pay ~2.60 lakh as compensation for aggravating his medical condition and humiliating his family.

1

AREAS PRONE TO LITIGATION

SAYAN GHOSAL

I

f the present uncertainty surrounding India’s gargantuan indirect tax overhaul is an early indicator, the new goods and services tax (GST) framework is set to make extensive appearances in the country’s courtrooms over the months and years ahead. Experts feel the complexity and short timeframe given to adopt the new system will add thousands of lawsuits to India’s already burdened judicial system with over 24 million pending cases. According to N Meyyappan, leader, indirect tax, Nishith Desai Associates, since there is no precedent for the GST in India, there could be several interpretations of the new framework. “These differences in opinion are bound to increase indirect tax litigation. Even previously settled positions of law may have to be decided once again and will require a pro-active approach by the tax tribunals and the apex court,” adds Meyyappan. This observation stands in severe opposition to the government’s claims that the GST will consolidate several levies and greatly reduce indirect tax disputes — which had accounted for around 100,000 appeals and locked up about $23 billion of potential national revenue at the end of March 2015. However, issues with classification, valuation, availability of input tax credit, Centre-state apportionments, compliance, and anti-profiteering obligations under the new regime are instead expected to stretch these figures much further. "As with any tax reform of such significance, the potential for additional litigation is very high,” says V Sivasubramanian, executive partner, indirect tax, Lakshmikumaran & Sridharan. The GST system contemplates a differential tax levy — ranging between zero and 28 per cent. Depending on whether an activity involves a good or a service and in which category it falls under, the classification of the transaction could be a matter of much dispute. Experts highlight that the GST Council’s decision to prescribe multiple rates for similar classes of transactions and the possibility of not contemplating a particular business activity in advance will make disputes along these lines inevitable. According to Sujit Ghosh, partner & national head, Advaita Legal, concerns also exist over business activities that involve composite supplies. A composite supply is a transaction that involves both

CLASSIFICATION INPUT TAX CREDITS ANTI-PROFITEERING VALUATION

CENTRE-STATE APPORTIONMENTS COMPLIANCE PENALTIES

Sectors on a sticky wicket Construction

Involves complex composite contracts High potential for gain/loss depending on classification of activity

Banking and insurance

Complex place of supply rules Categorisation issues (as IGST or CGST/SGST) for services involving parties and collateral in multiple states

Software

Complex structure for classification of particular activities as good or service Possibility of rate arbitrage situations

Internet-based services

Possibility of different rate for domestic and international players Registration and compliance based issues

Lotteries and online gaming

Classification issues – good or service High potential of misclassification and tax rate variations a goods component as well as a service aspect in a naturally bundled manner. The conclusion reached by the tax authorities as to which component is dominant in such cases will drastically vary the rate of tax. The valuation of a business activity for determining the amount of tax payable is also expected to pose complexities even after the notification of the valuation rules by the government. As imported goods will be scrutinised by both the GST and the customs authorities, using different methods, there may be discrepancies with regard to the determination of the taxable amount. Relatedparty supplies, which involve the fixation of market value, will also add to valuation disputes, adds Ghosh. The availability or denial of input tax

credits — which is the focal point of the GST system — is expected to be yet another avenue of dispute. Since the GST is a destination-based tax and involves the classification of an activity as intra-state or inter-state, the tax authorities’ interpretations of the place of service rules are likely to be challenged by various service-based businesses. The fact that the state authorities have never dealt with the taxation of services and were not needed to consider segregating transactions in such a manner could roil the waters even further. State apportionments of Integrated GST (collected on inter-state activities by the Centre) could also be challenged by the states in the constitutional courts of the country. According to Sivasubramanian, the delay in formalising these settlement rules and in outlining the method of distribution of Integrated GST credits to the states increases the possibility of such issues approaching the doors of the judiciary. Other interpretational aspects of the untested law, when coupled with the newfound opportunities for the state tax authorities under the GST framework, may further complicate matters with each faction choosing to read the law to suit their own interests. Anti-profiteering obligations. which have been imposed without providing for a way to calculate the benefit accrued under the new system, as well as the enhanced compliance-based requirements, could also lead to penalties imposed by the tax authorities on noncompliant entities. These actions will be subject to challenge if the authorities do not take a business-friendly approach while transitioning to the new structure. "The intention of simplifying the indirect tax structure and reducing the potential for litigation through the implementation of the GST seems to have been lost somewhere along the line. It will take several years for the courts to iron out the creases and make the system fully functional," notes Meyyappan. On a parting note, Sivasubramanian also highlights the pressing need to make the administrative and judicial infrastructure for indirect tax more robust and to ensure effective and time-based resolution of grievances if the system is to ever live up to its hype and expectation. Without this, the minefield of potential legal issues could prove to be the Achilles heel of India’s new GST framework.

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Pre-deposit rule upheld

The Bombay High Court has dismissed the petitions of two export firms and upheld the rule of pre-deposit for appealing against orders of Customs authorities. Section 129E introduced in the Customs Act in 2014 mandated that if a person wanted to appeal to the commissioner or the tribunal, 7.5-10 per cent of the duty demanded or penalty imposed should be deposited, not exceeding ~10 crore. The high court, in its judgment, Harish Nagindas vs Commissioner of Customs, repelled the challenge to the rule, stating that it was reasonable and not arbitrary and the percentage was not high. Earlier, considerable official and judicial time was wasted on applications for waivers of deposit. Therefore the rule was introduced to speed up adjudication. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

Insurer to pay first, then sue owner

The Karnataka High Court directed United India Insurance to pay compensation for a road accident death, though it was proved that the driver who caused the mishap did not carry a valid driving licence. His licence had expired at the time of the mishap, though it was renewed after three months. The tribunal had imposed the liability to pay on the insurance company. It appealed to the high court. It ruled that though the insurer was not liable to pay compensation due to lack of a valid licence, since the Motor Vehicles Act provided for welfare steps, the company must pay the widow and children first and then may recover the amount from the owner of the vehicle who appointed the driver without due-diligence.

Directors face higher risks for tax default SUDIPTO DEY The goods and services tax (GST), India’s new indirect tax regime, makes directors of private limited companies liable for recovery of unpaid taxes, interest or penalties pertaining to supply of goods or services. To complicate matters, the GST Acts do not provide a definition for the term ‘director’ or make any distinction between executive or nonexecutive directors. Further, the existing directors and officer’s liability insurance — that helps a company hedge against professional and functional risks emanating from managing and running a business – do not cover the additional risks under GST. Section 89 of the Central GST Act refers to recovery of tax, interest and penalties in case of private companies. “In such cases all directors will be held liable unless they prove it is not due to their neglect or breach of duty,” says Shriram Subramanian, founder and managing director, InGovern Research Services. Legal experts say VAT Acts of some states put the onus on directors

WHAT THE CENTRAL GST ACT SAYS Section 89: (1) Notwithstanding anything contained in the Companies Act, 2013, where any tax, interest or penalty due from a private company in respect of any supply of goods or services or both for any period cannot be recovered, then, every person who was a director of the private company during such period shall, jointly and severally, be liable for the payment of such tax, interest or penalty unless he proves that the non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the company for such pending recoveries from private companies, which are in the process of being wound up. However, GST extends this to pending tax dues of all private companies, taking a cue from provisions similar to the one provided in Section 179 of the Income Tax Act, 1961, notes Lalit Kumar, partner, J Sagar Associates. Experts point out that these pro-

visions are applicable notwithstanding the limited liabilities that a director may have under the Companies Act, 2013. “As a consequence, all persons who were directors of the company during the period of default would be exposed to personal liability to make good the unpaid tax, interest or penalty liabilities,” says Sandeep

Chilana, partner, Shardul Amarchand Mangaldas. The maximum penalty liabilities under GST laws can go up to 100 per cent of the pending tax amount, he adds. The provision does not cover directors of public companies, including those which converted from private to public before recovery proceedings are initiated.

As the GST Acts do not define the term ‘directors’, this means the provisions would apply to executive as well as non-executive directors, including independent and foreign directors, exposing them to the liabilities. This could expose foreign directors in Indian subsidiaries and joint ventures to huge risks in India, necessitating a review of their position, points out a note on GST by law firm Shardul Amarchand Mangaldas. Insurance policies may not come in handy to cover the risks posed to directors by the new indirect tax regime. Experts say directors and officers liability insurance (also known as D&O insurance) covers are general in nature and are not specific to any kind of tax liability. “Taxes are always excluded from D&O policies. Also there is a exclusion for negligence,” says Chilana. In face of charges of non-recovery of taxes, interest or penalties, the best bet for a director is to prove that there has been no gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the company, say legal experts.

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START-UP CORNER 17

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.

Personalising loans through technology

MoneyTap wants to facilitate banks in giving out ~300 crore in small personal loans by next March, reports Alnoor Peermohamed

“We spoke to 1,000 consumers when we built this app, asking them what they wanted. The truth is they want something simple — no one wants to go to a bank, no one wants to fill forms, and getting rejected publicly is somewhat humiliating,” said Parthasarathy. Taking this as the basis of their service, the company built the front-end which customers would see and use, a back-end that would integrate with banks, and the most important middle layer, of algorithms that would help separate good borrowers from the bad. The firm launched its app for consumers in September 2015. By next June, it had raised $9 million as part of a Series-A funding round, led by Sequoia Capital.

The opportunity Shripati Acharya, partner at Prime Venture Partners which has backed MoneyTap, says the opportunity for lending to individuals is worth “a billion dollars”. He notes that several banks in India have revenues in tens of billions of dollars and profits of over a billion dollars. “More, with MoneyTap, there’s some market creation happening as well; there are now people being lent to for the first time. Of course, risk FAC T B OX comes with that but that’s a risk Inception: October 2015 we do take,” adds Acharya. MoneyTap disburses loans Consumerlaunch: between ~3,000 and ~5 lakh, a September 2016 space banks have stayed out of because of their huge overheads Area of business: in processing of loans. By digiConsumer lending tising the entire process end-toFunding: $12.3 million, end, MoneyTap says it’s able to retain a much higher percentage hen Suguresh Desai, an area man- MoneyTap co-founders (from left) Kunal Varma, Anuj Kacker and Bala Parthasarathy in two rounds of the earnings on the interest. ager in a TVS Group company, wantInvestors: Sequoia With small loans now becomed to purchase a new car, he was line of credit in two hours. “My experience experience of borrowing from ing financially viable, banks have short on cash to make the down payment. has been excellent. If I had gone through any end to end. From the initial India, NEA and Prime shown interest to partner with Instead of renegotiating his loan with the other service, it would have taken 8 to 10 days Know Your Customer (KYC) Venture Partners MoneyTap, for the simple reason check to the money being transbank, he simply withdrew ~1 lakh through for approval,” he says. Target: Disburse that it opens a new revenue MoneyTap is a service which helps cus- ferred to the borrower’s bank MoneyTap and paid. ~300 crore in loans by stream for them. Further, the Desai, who found MoneyTap through an tomers open a line of credit up to ~5 lakh with account, a customer can do it company has a revenue sharing advertisement on Facebook, said he was very a bank in a few hours. Rather than acting as a all from within the MoneyTap March 2018 agreement with the lender, impressed by the service — it cleared him a marketplace for banks, the firm controls the app. incentivising it to find the right The beginning type of customers, who will keep coming back Kunal Verma, Anuj Kacker and Bala and not default on their payments. Parthasarathy founded MoneyTap in October EXPERT 2015. They’d spent nearly a year working in the Way forward TA K E dark, building the product and integrating it MoneyTap aims to issue ~300 crore worth of borrowers,theadvantage filterouttherightprofiles. MoneyTapcandowell, with banking systems. Rather than lending loans through its platform by the end of March Ihavecomeacross isthatiftherearea providedithastheright from their own books, the firm thought utilising 2018 — a feat it says it will be able to achieve by companieswhichhave numberoflenders,their kindoftechnology capital from banks would allow them to grow partnering with at least six banks and non-bank theabilitytoscrape profileswillmeetthe platformandasystemof finance companies (NBFCs), and expanding its much larger, even if it took a little longer. informationfromsocial criteriaofatleastoneof checksandbalances, Neither of the three had any background service to customers across 50 cities. mediaofaprospective them,ifnotmany. whichneedstobe Parthasarathy says the ~300-crore figure is in the finance sector. Parthasarathy was earborrower,todecideif Traditionally,banks configuredproperly.The lier a partner at Prime Venture Partners, one more than marketing bait. After hitting that scale, they’reagood havestayedawayfrom modelofpartneringwith MIHIR JOSHI of India’s premier financial technology he expects the company will be able to make investment.It’simportant givingloanswherethey banksisanintelligent CEO, GVFL investors. His knowledge of working with money from each of the transactions it processthattheirdataanalytics one.Financialinstitutions don’tknowtheenduseof start-ups dealing with financial institutions, es. As for overall profitability, he says the business enginesarerobust themoney.Hereiswhere suchasbanksandNBFCs along with Verma and Kacker’s experience of if far too young to project a timeline but assures enough.Thatsaid,the start-upscancomein, areinterestedinservices building a company, prompted Prime to that MoneyTap has been working to build demandforcreditinthe usingalgorithmsalong thatwillfilterborrowers healthy financials since day one. incubate the firm. Indianmarketishuge. withtherightinputsto forthecompany.For

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Demand for credit in Indian market is huge

Jugnoo riding B2B product to turn Ebitda-positive

Samar Singla (left) and Chinmay Agarwal, co-founders of Jugnoo

RANJU SARKAR

New Delhi, 2 July

Jugnoo, a hyperlocal start-up offering services like rides, ready-to-eat food, grocery and restaurant food delivery, is betting on its business-tobusiness (B2B) logistics business to break even this year at the Ebitda or operating level. Ebitda is earnings before interest, tax, depreciation and amortisation. In simpler terms, it means Jugnoo’s long-term cash inflow will exceed its longterm cash outflow. Once it breaks even, it will have enough money coming in on time to pay for expenses. Jugnoo hopes to earn a revenue of ~70 crore in FY18 and turn Ebitdapositive. ‘‘We have been able to turn our tech platform as a profit centre,” says Samar Singla, founder and chief executive officer. Adding: ‘‘We have curtailed our burn, slowed our expansion speed in some verticals and focused on B2B business, where we see good realisation in on-demand logistics space.” Jugnoo started as a ridehailing app in Chandigarh for auto-rickshaws. It uses the same platform to offer a B2B product, Tookan, a field man-

agement and tracking device. It claims 17,000 clients in 150 countries. This business contributes 80 per cent of revenues and 95 per cent of profit. Founded in November 2014 by a handful of IITians, the auto-rickshaw hailing service has expanded into food, grocery and other deliveries in 35 cities. In July 2015, Jugnoo acquired Mumbaibased Bookmycab, bringing 4,000 cabs into its fold. Jugnoo claims to have 15,000 auto-rickshaws on its app, five million users and 50,000 transactions a day across verticals. It claims to be growing at 15 per cent a month. “We have always believed in the significance of developing a scalable but sustainable business model. This achievement means a lot to us, as it reaffirms our faith. We have witnessed 250 per cent growth over the past one year and are on track to achieve net revenue of ~70 crore in the current financial year,” Singla stated last week. Jugnoo has raised $16 million in funding across two rounds in as many years. Its investors include Snow Leopard Ventures, Paytm, Silicon Valley venture capital firm Rocketship and several angel investors.

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18 THE SMART INVESTOR BSE 200: TOP 5 GAINERS OF LAST WEEK Blue Dart Express Gujarat State Petronet Adani Power Dish TV Tata Steel

QUICK TAKE: CONSOLIDATION GAINS FOR THOMAS COOK

June 23

June 30

% chg

4,233.45 158.90 26.80 73.90 507.40

4,713.15 176.60 29.70 79.85 544.35

11.33 11.14 10.82 8.05 7.28

BSE price in ~

MUMBAI | MONDAY, 3 JULY 2017

Share price in ~

248

240

Thomas Cook

207

Jun 1

2017

260

220 Jun 30

200

The Thomas Cook stock gained 5.3 per cent and hit its 52-week high on completion of its acquisition of Kuoni’s global destination management network. Recent acquisitions are expected to enhance the company’s growth prospects, cut costs and improve margins

"RIGHT POLICIES, A YOUNG POPULATION AND NUMEROUS WELL-MANAGED COMPANIES… INDIA HAS ALL THE STARS ALIGNED AND THAT IS A VERY POWERFUL, LONG-TERM DRIVING FORCE FOR THE ECONOMY" ROBERT MARSHALL-LEE, portfolio manager, Newton Investment Management

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Consumer stocks’ valuation at new high

Expectation of cyclical recovery in revenue and profit growth, beside higher liquidity on the bourses is unrealistic, say experts

Street turns bearish on banks

Mumbai, 2 July

I

P/E multiple of 22.6 at the end of March 2016. The analysis is based on annual profit and loss accounts of 169 companies across sectors such as automobiles & ancillaries, cement, consumer durables, fast moving consumer goods, media & entertainment and retailers. These together reported a net profit of ~78,700 crore in FY17, on revenues of ~10.96 lakh crore. Based on Friday’s price, their combined market capitalisation stood around ~29 lakh crore. Some of the top stocks in the sample are ITC, Maruti Suzuki, Tata Motors, Bajaj Auto, Hero MotoCorp, Havells, Eicher Motors, Asian Paints, Colgate, Nestle,

Bosch, MRF, ACC, Hindustan Unilever, Zee Entertainment, Page Industries, Motherson Sumi, UltraTech Cement and Shoppers Stop. Together, these companies now account for nearly 34 per cent of the combined market capitalisation of all BSE 500, BSE Mid-Cap and BSE SmallCap companies, ex-financial and oil marketing companies. In comparison, these consumer companies accounted for 25 per cent and 23 per share of the universe of combined net profits and net sales in FY17, respectively. Analysts attribute this to investors’ expectation of a cyclical recovery in revenue and profit growth of consumer goods companies in FY18, beside higher liquidity on the bourses. “There is a widespread belief that consumer companies will report a faster growth in top line and bottom line in FY18, after a poor show last fiscal. Growth is

ASHLEY COUTINHO

* Valuation ratios for FY17 based on market capitalisation at the end of June 27, 2017, and FY17 earnings: For other period its at the end of respective financial year: Based on a common sample of 169 companies companies across segments; In the chart: Premium over Sensex surges, the return on equity and PE data is the difference over Sensex companies; bps: basis points; P/E: price-to-earnings; RoE: return on equity; Compiled by BS Research Bureau Source: Capitaline

likely to be led by higher government spending in the rural and farm sector, boosting rural demand for everything from passenger cars to packaged food to personal care products,” says Dhananjay Sinha, head of research at Emkay Global. Kotak Institutional Equities’ Sanjeev Prasad raises the issue of liquidity driving stock prices. “It seems to us that the sole investment thesis in some cases is liquidity, which is quite bizarre. We can only hope that fundamentals improve sufficiently to support the valuations of stocks,” he wrote in a recent report on equity valuation. The improvement in earnings

GST kicker for express logistics leader Blue Dart RAM PRASAD SAHU The Blue Dart Express stock surged seven per cent in trade on Friday after brokerages upgraded the stock, on expectations of higher revenues from the implementation of goods and services tax (GST), muted fuel costs and roll-out of new strategy from the current financial year. The latest upgrade comes from Kotak Securities with a price target of ~5,150 against ~4,420 previously. Post-GST, many manufacturers are expected to completely outsource their supply chain logistics to large third-party logistics players, such as Blue Dart Express, who would manage large scale operations for them along with proper paper work for input tax credit. Cumbersome tax structure and reluctance to share confidential information has constrained the growth of service providers. The implementation of GST, according to Amit Agarwal of Kotak Securities, will shift manufacturer’s focus from tax efficienciesbased supply chain to logistics efficiencies, translating to significant amount of business for players such as Blue Dart. Spark Capital analysts, who have a ‘buy’ rating on the company with a target price of ~4,450, in

a report earlier this week said the ground express segment (20 per cent of revenues, the other being air express, 80 per cent) will be driven by GST. The move by corporates to improve logistics efficiencies will result in warehouse consolidation and inventory on wheels, which will drive just in time deliveries, rather than warehousing of goods. Spark Capital’s Mukesh Saraf and Krupashankar N J expect Blue Dart to benefit from parent DHL’s aggressive foray in the third-party logistics space. DHL is expected to use Blue Dart’s strong network, reach and ground fleet for expansion. This should propel the ground express segment to grow at an annual rate of 18 per cent over FY17-19. Expectations of volume growth is another trigger. From 7.7 per cent

SIGNS

The Bank Nifty closed flat in the June series from its previous expiry close of 23,190. With a large number of short positions getting rolled over during Thursday's expiry, analysts expect public sector banks to remain under pressure in this series. Farm loan waivers in four states and higher provisioning requirements for non-performing assets have hit the sentiment towards bank stocks. The Bank Nifty will make a clear move upwards of 24,000 only if it can manage to hold 23,500 levels for a few sessions, say analysts.

KRISHNA KANT

nvestors continue to bid up stock prices of consumer goods companies, despite a sharp slowdown in earnings growth for the sector. On an average, these companies are now valued at nearly 37 times their trailing 12-months net profit, up from a price-to-earnings (P/E) of 28 times at the end of March 2016. In the same period, the sector’s net profit grew at the slowest pace in four years, increasing by 3.5 per cent in FY17, compared to a growth of 10.6 per cent in FY16. The return on equity (RoE) also continues to slide and hit a 10-year low of 16.7 per cent in FY17. Adjusted for RoE, these companies are now thrice as expensive compared to valuations at the end of March 2014. (see chart) The result has been a steady rise in the valuation premium of consumer companies over the broader market. The premium over the benchmark S&P BSE Sensex is now at an all-time high of 14 points. The earlier high was 11.3, at the eve of the previous market peak in March 2015. The 30stock Sensex is currently trading at 22.7 times the underlying trailing 12-months earnings of the index companies, unchanged from the

STREET

growth in tonnage in FY17, analysts expect the company to post 9 per cent growth annually over the next two years, driven by strong outlook in sectors such as banking and financial services, e-commerce, pharmaceuticals and automobiles. Within this the fastest growing segment is e-commerce. The company primarily caters to Tier-II, III, IV markets as metros and Tier-I markets are serviced by captive arms of the larger e-commerce players. What stands out is Blue Dart's capabilities in handling cash on deliveries, reverse logistics (getting products back from customers) with presence across the value chain including fulfilment centres. On margins, there are twin triggers for improvement, including benign aviation turbine fuel costs (35 per cent of the operating cost is fuel cost), which coupled with cost reduction measure suggested by Mckinsey can, according to analysts, boost margins from 10.1 per cent in FY17 to 12.5 per cent in FY18. While 60 per cent of the analysts who track the stock have a ‘buy’ with a target price of ~4,800, the stock, according to Spark Capital trades at stiff valuation of about 43 times the FY19 earnings estimates. Investors can buy on dips.

growth, however, has to be in the high teens to justify the current rich valuations of companies. “There could be an upside in earnings growth during the second half of FY18 if the monsoon is good, resulting in better crop harvest. However, I doubt if the growth would be high enough to justify the current valuations of top consumer companies,” says G Chokkalingam, managing director, Equinomics Research & Advisory. For the bulls, consumer goods companies reported an uptick in FY17 revenue growth, with combined net sales of the sample companies up 5.9 per cent year-on-year,

as against 1.5 per cent growth a year before. This is, however, attributed to higher price realisations rather than volume growth. “FY16 was a year of deflation, with companies forced to take price cuts, depressing top line growth. It reversed in FY17 and companies took price hikes to compensate for higher input cost,” says Chokkalingam. According to him, volume growth remains in low single digits across most consumer goods categories, with few chances of it moving higher anytime soon. “This calls for a more reasonable valuation of 25-27 times the trailing earnings, a significant cut from the current levels,” he adds.

IPO LEAGUE TABLE: FOREIGN BANKS BACK IN ACTION ASHLEY COUTINHO

After shying away from initial public offerings (IPOs) in recent years, foreign investment banks are getting back in action. Credit Suisse, Citi, Morgan Stanley and Nomura feature among the top 10 investment banks, which have handled the most volume of public share sales in the first half of 2017, Bloomberg data show. Only two foreign banks had made it to the top 10 in the first half of the previous two years. Domestic investment bank ICICI Securities has topped the league table. Credit Suisse and Citi are second and third followed by Axis Bank and IDFC Bank. Experts say while domestic investment banks have grown in clout, foreign ones are still in demand because they bring in a wider network of investors. Large offerings of over ~1,000 crore need a wider reach with foreign investors, which is where foreign investment banks’ expertise proves useful. The presence of foreign banks in the top 10 is notable, considering many of these had scaled down their operations in recent years. Six of the 13 companies that hit the market in 2017 have raised nearly ~1,000 crore each. Overall, they have mopped ~11,800 crore. The year 2016 saw 26 companies coming to the market, and collectively mopped ~27,000 crore, the best for IPOs in six years. The pipeline for the second half remains strong, with issues from insurers and mutual funds waiting to hit the market. The government aims to bring six, including those of GIC Re and New India Assurance.

AU Small Finance premium surges after IPO demand

The grey market premium of AU Small Finance Bank almost doubled following the huge response to initial public offering (IPO). According to broking sources, grey market operators were assigning a premium of 10-15 per cent for the stock, which has now surged to 25-30 per cent. “There are hopes that the stock will do well on listing, as the IPO has created legroom for foreign investment limit,” said a broker. AU Finance’s ~1,900crore IPO, which closed last week, was subscribed around 53 times. SAMIE MODAK

Investors' gain, BSE’s pain

Investors who managed to get shares of Central Depository Services (India), or CDSL, in its initial public offering (IPO) were rejoicing after the stock saw a huge jump on debut. However, the depository firm’s founder, BSE, might not be as happy, as it parted away with its 26 per cent stake in the company at ~149, around 75 per cent lower than the listing price of ~261. Interestingly, the exchange had sold 4.15 per cent stake in CDSL in October 2014 at just ~79 per share. BSE had to divest its holding to comply with the market regulator's shareholding cap. The solace for BSE, however, is that it continues to hold 24 per cent stake in CDSL, which has caught the fancy of stock market investors. SAMIE MODAK

> EVENTS Date 3-July

TOP INVESTMENT BANKS (In ~ cr)

ICICI Securities CreditSuisse Citi Axis Bank IDFCBank Edelweiss IIFL Morgan Stanley SBI Caps Nomura

Amount raised

No. of issues

Market share (%)

2,257 2,081 1,525 1,403 1,373 1,330 1,258 750 688 674

4 3 3 5 2 4 1 1 3 3

13.4 12.4 9.1 8.4 8.2 7.9 7.5 4.5 4.1 4.0

4-July 5-July

6-July

7-July

FIRST HALF TREND (In ~ cr)

1H2015 1H2016 1H2017

No. of IPOs

8 12 13

Amount Average raised deal size

3,849 8,183 11,783

481 682 906

9-July

THIS WEEK

Particulars India - Nikkei PMI manufacturing data US - Markit PMI manufacturing US - ISM manufacturing index UK - Markit PMI manufacturing China Caixin PMI manufacturing data UK - Markit/CIPS PMI construction data India - Nikkei PMI service & composite US - factory orders growth figures UK - Markit/CIPS PMI services & composite US - jobless claims US - Markit PMI service & composite US - trade balance figures US - unemployment & underemployment rate UK - Halifax house prices index UK - industrial & manufacturing production UK - trade balance India - SIAM car sales data# # TentativebetweenJuly9and12

Source:Websites; CompiledbyBSResearch

Sources: Bloomberg, Prime Database

‘Time-wise correction likely and will be healthy for markets’

> COMMODITY

PICKS

SOY OIL (~/10kg)

With the markets consolidating ahead of goods and services tax (GST) implementation, SAMIR ARORA, founder and fund manager of Helios Capital, speaks with Puneet Wadhwa on the changes ahead and related issues. Edited excerpts: you assign to these events materialising over the next one year?

SAMIR ARORA Founder and fund manager, Helios Capital

Given the run-up so far in 2017, do you think the markets could see a time correction? What is your view on the mid and small-cap segments?

The biggest risk globally can be disappointment with lack of progress on (US) President Trump’s agenda, including tax reforms. Domestically, the biggest risk can be any issues with goods and service tax (GST) implementation, which makes the market defer estimates for corporate earnings growth by one more year.

The Indian market (Nifty) has gained around 16 per cent year-to-date (YTD), while the mid-cap index is up nearly 22 per cent. We believe part of this rally is because the market had performed badly in November/December 2016. So, the choice of start date makes a big difference. If you look at the market from October 31, 2016, it is up a more sedate 10 per cent in eight months. Also, note that it has not outperformed the peer market group. For example, MSCI India is up approximately 19.5 per cent ytd, while the MSCI Asia ex-Japan is up 22.5 per cent and even MSCI Emerging Markets is up 17.9 per cent. Still, I agree a timewise correction is possible and will be healthy for the markets.

We are currently overweight on private sector banks, non-banking finance companies and the automobile and consumer goods sectors. We don’t change our stance easily and have had these overweight positions for three to five years. We do not choose sectors only to prove we are contrarian. We currently do not believe there is much to be excited in the information technology, pharmaceutical or telecom sectors. There might be a stock or two to look at in these but I am referring to the whole sector in general.

What are the biggest risks which can derail the rally? What probability do

Your interpretation of the GST rates? Are the markets being over-

In which sectors and stocks would you advise investors to place their bets for the next 12 months? Any contra picks?

optimistic on likely growth in earnings over the next one to two years?

GST is a mega reform and will be hugely positive for the economy in the medium to long term. In the very short term, there can be issues related to preparation or understanding or readiness of suppliers, of distributors or wholesalers and the like of even the largest corporates. Over the next year, should investors look at domestic/economy-related themes or will they be better off investing in export-related companies?

We are very clear that we need to focus on the domestic themes for the next few years. Have the measures to resolve the high debt issue with some corporate groups come in too late?

Since the debt and non-performing asset (NPA) issue was serious and large, it was but natural that it would take

time to find a solution and a path forward. The steps now announced by the Reserve Bank of India to force 12 companies to bankruptcy/sale and change of management to strategic investors is a welcome and desirable step. Over time, the markets will be comfortable with the process and banks will be able to take their own decisions. Plus, the defaulting companies will also have an idea of what they can lose if they default on loan payments. The banking sector has seen many policy initiatives. Your assessment of these and the outlook for public sector and private banks in this backdrop?

Public sector banks will need serious injection of capital to do well and play their right role in the economy. It was heartening to see State Bank of India raise $2.3 billion from investors recently.

DOMESTICALLY, THE BIGGEST RISK CAN BE ANY ISSUES WITH GOODS AND SERVICES TAX IMPLEMENTATION, WHICH MAKES THE MARKET DEFER ESTIMATES FOR CORPORATE EARNINGS GROWTH BY ONE MORE YEAR

639 633 627 621

May 30

2017

June 30

615

SoyoilpricesatMumbaimarketsaretradingat ~628per10kg.Goingforward,theseareexpected toheadlower.Hopesofanincreaseinimportduty onedibleoilsamidpositiveglobalcuescouldlend supportto pricesinthenearterm.

CASTOR SEED (~/Qtl)

4,470 4,390 4,310 4,230

May 30

2017

June 30

4,150

Castor seed prices are likely to rise on good demand amidst lower arrivals. Recently, prices have dropped sharply despite supporting fundamentals, due to GST (goods and services tax) confusion. Heavy rains were reported across the castor belts of Gujarat and Rajasthan. Early and timely rains could influence farmers to shift towards other crops which will limit the land for castor sowing. Anticipation of lower acreage is likely to support the prices in spot market. Prices are expected to touch ~ 4,450–4,500 per quintal from the current level of ~ 4,375 in the coming week. Prerana Desai, V-P (Research), Edelweiss Agri Services and Credit, Edelweiss Agri Value Chain

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POLITICS & PUBLIC AFFAIRS 19

MUMBAI | MONDAY, 3 JULY 2017

“The BJP has given a good candidate. I have a very old relationship with him”

“This is a fact that he (Ram Nath Kovind) is a hardcore BJP leader. How can one support a hardcore BJP leader?”

MULAYAM SINGH YADAV, Samajwadi Party leader

“The President's election has become a battle for safeguarding the Constitution and secular democracy”

GHULAM NABI AZAD, Congress leader

D RAJA, CPI chief

>

.

Dalit assertiveness finds a BJP platform The way the party is co-opting Dalits shows it is trying to re-position itself New Delhi, 2 July

T

here is no one prism through which the Bharatiya Janata Party (BJP) views Dalits, a community it has wooed since the ’90s, after cottoning on to the electoral potential and loyalty to a party they choose. It’s a BC-AD kind of situation, in which the benchmark for judging the BJP’s worth for a Dalit varies individually, depending on the length of the person’s association and, importantly, if he is of Rashtriya Swayamsevak Sangh (RSS) vintage or a born-again. This is perhaps why the nomination of Ram Nath Kovind, a Dalit from a penurious home, invited varying responses in the BJP, from exultation to circumspection. For Bizay Sonkar Shastri, 58, a Khatik and a BJP spokesperson,the choice is a “good” tactic to “infuse moral strength” in Dalits. A diehard swayamsevak, whose three-volume work on certain Dalit subcastes has located their issues in the context of Hindutva, Shastri said: “Dalit leaders have come into their own, the philosophy of the other castes towards Dalits has changed but the bureaucracy remains unchanged. That’s why our governments derive only 60 or 70 per cent instead of 100 per cent benefits from Dalit-targeted policies and schemes. Therefore, Kovind’s choice is significant. The president might not have overarching powers, but when (Bahujan Samaj Party president) Mayawati became the (Uttar Pradesh) chief minister, Dalits said she won’t share her house with us but she gives us social dignity. We feel the same about Kovind.” Shastri is from the RSS school of thought that never subscribed to the entrenchment of caste in India’s social and economic milieu. The Sangh’s caste denial caused its critics to allege that it expediently subsumed the old cleavages through an overarching definition of Hinduism. Much as Shastri emphasised that “in our RSS shakhas (units), nobody knows the caste of the person standing beside him”, even he now throws in contemporary phraseology like ‘vote banks’. “The Dalits were never BJP’s vote banks, we did not cultivate them. Those from the Valmiki and Khatik sub-castes came to us because the Muslims hated them for certain reasons but the rest stayed away. That is changing,” he said. The BJP’s recent Dalit converts reject the RSS’s nothing-like-caste theory. Udit Raj, a former civil servant who is presently the party’s Lok Sabha member for North-West Delhi and helms the Confederation of SC/ST Organisations, said: “Caste operates everywhere. That’s why there’s reservation, there are atrocities against Dalits in Saharanpur and Una, and they remain under-represented in the judiciary, the higher echelons of bureaucracy and corporate houses.” His office chamber has a figurine of a former RSS chief M S Golwalkar, with the portraits of Bhimrao Ambedkar and the Buddha. He’s upfront on why the BJP courted Dalits. “No political party exists for charity. It needs the support of every section to capture power.” Raj joined the BJP before the 2014 election. He explained he chose it because in 2001, the Atal Bihari Vajpayee

WHAT BJP GOVTS HAVE DONE FOR DALITS

As the Centre focuses on Dalit welfare and empowerment, the Bharatiya Janata Party-ruled states have done little on their own. Most of them are implementing the central schemes announced on the 125th birth anniversary of B R Ambedkar. Notably, one on providing free coaching to scheduled castes and other backward class students, to facilitate their entry in competitive exams and train them for jobs in the public and private sectors. A run-through shows that barring Maharashtra that has a 10.2 per cent Dalit population (2011 census) and to a lesser degree Madhya Pradesh (5.6 per cent Dalits, the other BJP governments haven’t done much. Maharashtra alone has unveiled a slew of substantive policies and schemes. The newer governments in Uttar Pradesh, Goa and Uttarakhand need to be judged after some time. Some highlights:

1 MAHARASHTRA MAY 2015: *Two acres of land to below poverty line Dalits; improving quality of residential ‘ashram’ schools in villages where Dalit population is more than 50 per cent; bringing 973 ‘ashram’ schools under Right to Education Act; shifting 1,000 aided hostels from rented to owned premises; increasing the beneficiaries of foreign education scholarships from 50 to 75 annually and enhancing annual income cap of eligible parents from 6 ~2.5 lakh to ~6 lakh AUGUST 2015: ~125 crore for projects and programmes for Dalits and backward castes for 2015-16, a year the government dedicated as ‘social justice and equality’” year to mark B R Ambedkar’s 125th birth anniversary FEBRUARY 2016: Maharashtra Industrial Development Corporation to allot 20 per cent plots to SC and ST entrepreneurs in MSME sector from those available AUGUST 2016: 125 Dalit settlements across Maharashtra selected for improving infrastructure MARCH 2017: Of total development plan of ~77,184 crore, ~13, 985 (18 per cent) allotted for sub-plans for SC/STs, ~7,231 crore for Dalits and ~6,754 crore for tribals. Under PM Awas Yojana (Rural), out of a total of 188,000 houses, half for Dalits and tribals

4 3

7 8

2 5 1

JANUARY 2017: Mukhyamantri Vidushi Yojana for Dalit students, entailing coaching classes for national competitive exams and coaching facilities for Dalit sportspersons MARCH 2017: ~50,000 crore on SC welfare in next three years; lessons based on Sant Ravidas to be taught in schools. APRIL 2017: "Purohityan or diploma course to take up priesthood open to Dalits

economic and social empowerment of Dalits Ambedkar skill training centre Ambedkar start-up scheme Ambedkar fellowship scheme for six “extraordinary” Dalit students; Ambedkar Electronic Information Library Network for students Ambedkar International Scholarship scheme for five ‘outstanding’ Dalit research scholars, involving financial aid of ~25 lakh to pursue Ph.D in foreign universities BR Ambedkar Research Chair at Kota University Ambedkar Centre of Excellence at Jaipur

of a Maharishi Valmiki Sanskrit University in Kaithal district, increasing fellowship grants under Ambedkar Medhavi Students scheme and insurance for employees of nagar palikas and nagar nigams

5 CHHATTISGARH MAY 2008: Free flying training to nine Dalit/tribal and OBC boys at a cost of ~1.32 crore annually

6 GUJARAT

JANUARY 2016: Government to underwrite expenses on higher studies of Dalit students FEBRUARY 2016: Free education for Dalit students in government colleges

APRIL 2016: A string of schemes were announced on the 125th birth anniversary of Ambedkar. Ambedkar Sambal Scheme for

OCTOBER 2015: Shortly after the attacks on Dalits in Faridabad, the chief minister announced setting up

DECEMBER 2015: 22 per cent quota for SC/STs in contractual government and semi-government appointments, 7 per cent for Dalits and 15 per cent for tribals Complex in Devni Mori (Aravalli district) where Buddha’s remains were reportedly found to be developed as a research centre to propagate teachings of Buddha and Ambedkar Complex in Vadodara considered as Ambedkar’s ‘sankalp bhoomi’ (place of resolution) Aim to maximise number of SC beneficiaries in housing and health schemes

government passed the 88th constitutional amendment, amending Article 16 (4 A) for allowing states to create laws that facilitated reservations in promotion of government employees. He liked to think the push came from him. For Raj, ideology is the last factor on a Dalit’s mind when he gravitates towards the BJP. “Ideology, what is that? The world over, governments only believe in running a welfare state and that’s what PM Narendra Modi has done,” he said. Adding that Modi’s “real test” on proDalit “commitment” awaits him on two issues — legislating quotas in the private sector and passing a central law to allow

for reservation in job promotions. Arjun Ram Meghwal, the junior finance and corporate affairs minister, was a bureaucrat in Rajasthan who joined the BJP in 2009, after stints in Sangh affiliates Sewa Bharti and Bharatiya Vikas Parishad. Unlike Raj, he did not junk ideology. “If anyone can demolish casteism, it is the RSS because it equally venerates Dalit icons Ambedkar, Sant Ravidas and Jyotiba Phule, as well as spiritual and thought leaders like Swami Vivekananda, Ishwar Chandra Vidyasagar and Dayanand Saraswati,” he said. Meghwal cited three inflection points

that conditioned his attitude towards the RSS-BJP. The first when K S Sudarshan, a former Sangh chief, famously remarked, “If untouchability is not a crime, there’s no crime in the world”. “Sudarshan signified a change in the RSS’ perspective by recognising the existence of Dalits as a distinct entity,” said Meghwal, tacitly acknowledging he was not wholly comfortable with the Sangh’s traditional ideology. The second was Modi’s speech at a national conference of SC/ST entrepreneurs, convened by the Dalit Indian Chambers of Commerce and Industry, on December 29, 2015. The PM stated, “Financial inclu-

sion is at the core of our focus. We want to create job-creators and not job-seekers (among Dalits).” Meghwal said, “This thought birthed our path-breaking schemes for Dalits like Mudra, Stand-Up India and special moves for entrepreneurs like venture capital schemes and dedicated feeder loans.” The third was former prime minister Vajpayee’s “recognition” of Ambedkarism as the country’s “sole ideology” when the BJP cemented a power-sharing covenant in Uttar Pradesh with the Bahujan Samaj Party in 1995. P L Punia, Congress leader and former chairman of the National

2 MADHYA PRADESH

3 RAJASTHAN

STORY IN NUMBERS

Launch New name date Indira Awaas Yojana 1985 Pradhan Mantri Gramin Awaas Yojana Comprehensive Crop Insurance 1985 Pradhan Mantri Scheme Fasal Bima Yojana Universal Immunisation 1985 Mission Programme Indradhanush Neem coated Urea 2004 Growth Claims Basic Savings Bank Deposit Account 2005 Jan Dhan Yojana Jawaharlal Nehru National 2005 AMRUT Urban Renewal Mission Rajiv Gandhi Grameen 2005 Deen Dayal Vidyutikaran Yojana Upadhyaya Gram Jyoti Yojana National Rural Livelihood Mission 2005 Deen Dayal Upadhyaya Source: IndiaSpend.com Grameen Yojana

4 HARYANA

7 ASSAM

BUDGET 2016-17: Total number of schemes for SCs reduced from 294 to 256; only 11 new schemes introduced BUDGET 2017-18: Allocation for Dalits was ~52,393 crore or 2.5 per cent of total. According to the Jadhav guidelines, amount should be 4.25 per cent of total

8 JHARKHAND

APRIL 2016: Sanitation workers of all municipal bodies given an ‘incentive’ of ~1,000 each on Ambedkar’s commemorative anniversary Shoes and clothes for sanitation workers Sanitation workers travelling long distance to get bicycles Women sanitation workers to get sewing machines Equipment for labourers in unorganised sector Establishment of SC Commission Housing scheme for Dalit widows under Bhimrao Ambedkar Awas Yojana; financial aid of ~75,000 to build houses in hilly areas and ~70,000 on the plains. Target to build 11,000 houses in ongoing financial year

Commission for Scheduled Castes and Tribes, refuses to be taken in by the BJP’s pro-Dalit avowal. “It practises the politics of tokenism. What is this Bhim App that Modi launched (on Ambedkar’s 125th birth anniversary) but a Paytm clone that means nothing to the Dalits,” he said. To a younger Dalit like Vinod Sonkar, an MP from UP and head of the BJP’s SC front, the Bhim Apps and initiatives like Jan-Dhan hold a “key to Dalit economic empowerment and social equality”. “The Congress used Dalits for 70 years like vote banks. We believe in their empowerment,” he contends.

NEWSMAKER / VISHWESHA TEERTHA

Principle above pragmatism, then and now, too

WHAT’S IN A NAME?

OnJune15,CongressMPShashiTharoorclaimed23oftheBJP-led government’snewprogrammeswererenamedversionsofschemes launchedbythepreviousgovernmentsledbyhisparty. Adeeperinvestigationsuggestsheisnotwrong.Forinstance,the BasicSavingsBankDepositAccountwasanominimum-balance servicewithallfacilitiesofanormalaccountexceptthatwithdrawals werelimitedtofouramonth,accordingtoaRBIcirculardated August17,2012.TheaccountscamewithanATM-cum-debitcardas well.UnderthePradhanMantriJanDhanYojana,launchedon August28,2014,anaccidentinsurancecoverof~1lakh,overdraft facilityupto~5,000aftersixmonthsandalifeinsuranceof~30,000 wereaddedtotheBSBDAaccounts.Hereisalongerlist:

Original name

NDA’s presidential nominee Ram Nath Kovind (second from left) with Prime Minister Narendra Modi, senior party leaders L K Advani, Murli Manohar Joshi and other NDA leaders before filing his nomination papers in Parliament in New Delhi PHOTO: PTI

Original name National Maritime Development Programme National eGovernance Plan Accelerated Irrigation Benefits Program Rashtriya Krishi Vikas Yojana and other programs National Girl Child Day Programs National Project on Management of Soil Health and Fertility Jan Aushadhi Scheme

Launch New name date 2005 Sagarmala 2006 2007 2007 2008 2008 2008

Rajiv Awaas Yojana Mission for Urban Housing Indira Gandhi Matritva Sahyog Yojana

2009

Swavalamban Yojana National Skill Development Program National Manufacturing Policy National Optical Fibre Network Nirmal Bharat Abhiyan

2010 2010 2011 2011 2013

Direct Benefit Transfer for LPG

2013

2010

Digital India Pradhan Mantri Krishi Sinchai Yojana Paramparagat Krishi Vikas Yojana Beti Bachao, Beti Padhao Yojana Soil Health Card Pradhan Mantri Jan Aushadhi Yojana Sardar Patel National Pradhan Mantri Matritva Vandana Yojana Atal Pension Yojana Skill India Make in India BharatNet Swachh Bharat Mission PAHAL

ADITI PHADNIS

NewDelhi,2July

The emergency imposed by Indira Gandhi was a test of character. Thousands were put in jail. The suppression of freedom and constitutional rights was total. The press was under strict censorship. It was dangerous to venture an opinion that authority could interpret as seditious. In this atmosphere, anyone who stood up to Indira Gandhi and her colleagues as they assaulted the Indian constitution has to be a good guy. Among all the politicians, activists and silent unknown supporters of democracy, one was unusual: Swami Vishwesha Teertha,headofthePejawarMathinUdupi, tasked with the upkeep of the famous Krishna temple there.The Swamiji, now in his 80s, is a follower of Madhvacharya, founder of the Dvaita school of philosophy, one of many branches of the Vedanta philosophy. In 1975, he wrote a letter to the PM, registering his moral resistance to tyranny, daring her to put him behind bars. In this, Vishwesha Teertha was following his guruji, active in the freedom movement. Few know he has kept a lifelong commitment to khadi and the idea it represents. Therefore, when he invited a group of Muslims to break their roza and offer namaz at the Udupi Math last week, the Sri Rama Sene, a fundamentalist outfit, and even the Rashtriya Swayamsevak

ILLUSTRATION BY AJAY MOHANTY

RADHIKA RAMASESHAN

Sangh was outraged. The Math is devoted to protecting the cow. How could they invite into the precincts of the temple people who slaughter cow? Vishwesha Teertha was composed and austere in his response. He said: “This programme gives a clear picture that the Hindu community wants to live together in peace. Namaz was not done in the temple; it was done in the dining hall. It’s their custom to have snacks after namaz and the hall was given for it. They are not the only people who eat beef; many Hindus eat it, too.” Sri Rama Sene is undeterred and has

threatened to launch a bandh on Sunday. The response to this will be illuminating as to its real strength. But, more on Vishwesha Teertha — he was also one of the founder members of the Vishva Hindu Parishad. Quite what his role was during the destruction of the Babri Masjid is not clear. However, he later justified it and said a Ram temple should be built on the site. He has said time and again that he abhors the way Dalits are treated by higher caste Hindus. True, he has not rejected the varnashrama dharma but believes Dalits would never have abandoned Hinduism for other religions if Hindu society had treated them better. He has vast philanthropic interests, from establishing gurukul education institutions to improve the religious infrastructure in temples for practising Hindus. Beginning with a constant campaign that temples should, above all, be clean, welcoming and sattvik. His devotees say he is a regular reader of a range of newspapers and journals; he loves English as a language. He also reads fiction in Kannada, chiefly when a book becomes controversial. It goes without saying that he has mastery over Hindu philosophical and religious texts and, according to his admirers, goes to the heart of complex philosophical problems in an instant. If Sri Rama Sene is taking on such a man, who is bested in that battle will be interesting to watch.

20

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1

MUMBAI | MONDAY, 3 JULY 2017

>

More lynchings happened under earlier govts: Shah PRESS TRUST OF INDIA

Panaji/New Delhi, 2 July

U

nder attack over mobs killing those suspected of cow slaughter or eating beef, Bharatiya Janata Party (BJP) chief Amit Shah has termed such incidents as “serious”, but claimed more of these happened under the previous governments than the three years of National Democratic Alliance (NDA) rule. The BJP president’s claim provoked a sharp counteroffensive from the Congress whose spokesman Randeep Surjewala accused the Modi government of “overtly” supporting the “lynching movement”. Shah also insisted there was “no apprehension or fear” anywhere in the country in the aftermath of such incidents. “I do not want to compare andunderminethecurrentincidents of lynching. I am also serious about it. But, there have been more lynching incidents in 2011, 2012 and 2013,” Shah told a gathering of professionals

BJP National President Amit Shah (centre) on his arrival at Dabolim airport in Goa on Saturday PHOTO: PTI

in Goa on Saturday evening. “There have been more lynchings each year in the past, compared to the total lynching incidents that have happened during our three-year-long tenure,” the BJP leader said, without elaborating. “Do you know of any such incident where arrests have not been made? I do not have any answer to apprehensions. There

is no apprehension anywhere in the country,” he said, responding to a question about whether an environment of fear prevailedaftermobsbeatuppeople over alleged cow slaughter or beef consumption, often leading to their death. Reacting sharply to Shah’s accusation, the Congress party whose government preceded Modi’s, alleged these incidents

had “tacit protection and support” of the BJP dispensation. Surjewala said despite President Pranab Mukherjee showing the “mirror of truth” to the BJP government on incidents of “mob frenzy that have become irrational and uncontrollable”, Shah had chosen to ignore it. “Insteadoflisteningtotheconsciencekeeperofthenation,Shah has most shamelessly chosen to ignore the reality of a bizarre yet concerted lynching movement whichthegovernmenthasovertly supported and encouraged in the past few months," Surjewala saidinastatement. “Will Amit Shahji respond to 52 mob violence/lynchings in the last three years of BJP government? What action was taken?” he tweeted. “Mob frenzy and lynching have become the rule under BJP government’s watch. Corrective action, not falsification is the way, Amit Shahji,” he said in another tweet. Mukherjee had on Saturday asked people to be vigilant

against the rising trend of mob lynchings which needed to be checked. “We will have to pause and ponder over, and reflect when we read in newspapers that an individual is being lynched because of some alleged violation of law or not. When mob frenzy becomes so hard and irrational, and uncontrollable, we are to pause and reflect ‘are you vigilant enough?’” Mukherjee had said. Noting that law and order was a state matter, Shah said when Mohammad Akhlaq was beaten to death at Dadri in Uttar Pradesh in September 2015 over thesuspicionofstoringandconsuming beef, the state had a Samajwadi Party government and it was its responsibility to prevent the incident. “But, protests were held in Delhi in front of the Narendra Modi government. What is this fashion?” A spate of such incidents have been reported from several states, including BJP-ruled Jharkhand, Haryana and Uttar Pradesh, shocking the nation and prompting protests.

Is your crematory booked? Japan offers corpse hotels MOTOKO RICH

Osaka (Japan), 2 July

The minimalist rooms at the Hotel Relation here in Japan’s third-largest city are furnished withplaintwinbeds.Flat-screen televisions adorn the walls. Plastic-wrappedcupsandtoothbrushes are provided in the bathrooms. And just across the hall are the rooms where the corpses rest. Checkout time, for the living and the dead, is usually no later than 3 pm. The Hotel Relation is what Japanese call an “itai hoteru,” or corpse hotel. About half the rooms are fitted with small altars and narrow platforms

designed to hold coffins. Some also have climate-controlled coffins with transparent lids so mourners can peer inside. Part mortuary, part inn, these hotels serve a growing market of Japanese seeking an alternative to a big, traditional funeral in a country where the population is aging rapidly, community bonds are fraying and crematories are struggling to keep up with the sheer number of people dying. By custom, Japanese familiestakethebodiesoftheirloved ones home from the hospital and sit for an overnight wake followed by a service the next morning in the company of neighbours, colleagues and

friends. Then, in the afternoon, the body is sent to a crematory. But as neighbourhood ties have weakened, funerals that once involved entire communities are increasingly the province of small, nuclear families. At the same time, Japanese society is getting old so fast and deaths per year are climbing so quickly that families sometimes have to wait several days before a body can be cremated. The corpse hotels offer a practical solution — a place where a body can be stored at low cost until the crematory is ready, and where small, inexpensive wakes and services can be held outside the home. “We can say the supply

doesn’t meet the demand,” mainly in urban areas, said Hiroshi Ota, an official at the Japan Society of Environmental Crematories. While Japan has an estimated 5,100 crematories, Tokyo, with a population of more than 13 million, has just 26. “The demand for cremation will increase until the baby boomers disappear,” Ota said. Japan has funeral parlours, too, an industry that developed as people moved from the countrysidetothecitiesanditbecame difficult — and often impossible —totakecorpsesintohigh-rises. But they cater to larger groups andmoreelaborateceremonies, and these days, that can seem a bitmuch.Inthebubbleeconomy

of the 1980s, “Japanese funerals werebasedonshowingofftoother people, and people cared how theywereviewedbyothers,”said Midori Kotani, executive researcher at Dai-ichi Life Research Institute,anarmofoneofJapan’s largest insurance companies. “Butfewerandfewerpeopletalk totheirneighbours,sotheydon’t have to show off or think about how they are viewed by them.” Thecorpsehotelsareusedby families who want a simpler affair, or want to skip a funeral altogether. According to Kotani, about30percentofdeathsinthe Tokyo area are not marked by a funeral service, up from just 10 per cent a decade ago. ©2017 The New York Times News Service

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wholly owned and managed. by the Muslim community. Situated on a large piece. of land without any. boundary wall, the shelter. is currently home to 217.

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However, sources fa- miliar with the transaction. and its purpose said it was. part of the repayment of a. loan advanced by Mr. Chi- dambaram to his son for the. construction of a house. They said a total. of 2.8 crore was. loaned through. three cheq

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Tata-Docomo deal. gets court nod. NEW DELHI. The Delhi High Court. declared as “enforceable in. India” the Arbitral Award of. $1.18 billion to be paid by. Tata Sons to its erstwhile. Japanese telecom partner. NTT Docomo Inc. BUSINESS PAGE 11. DDD