Budget & Beyond

Ending all the speculations over union budget for the fiscal year 2016-17, Finance Minister Arun Jaitley finally presented his third and perhaps the most awaited and anticipated budget of recent times, equally by bourses, economy and commoners. ‘Most anticipated’ in the sense that this budget was considered by many as the ‘only trigger’ that can virtually drag Indian economy out of the soup, which otherwise would be into a complete mess considering the global headwinds that are flowing across the planet. The FM also was quite aware of that and started his budget speech pointing towards the global crisis. “I am presenting this budget when the global economy is in serious crisis. Global growth has slowed down from 3.4% in 2014 to 3.1% in 2015. Financial markets have been battered and global trade has contracted,” he said at the outset. But he didn’t forget to showcase the sweet spot that India is standing at. “Amidst all these global headwinds, the Indian economy has held its ground firmly. Thanks to our inherent strengths and the policies of this Government, a lot of confidence and hope continues to be built around India.” he added.

At a time when Indian economy coping up with so many pressures both from inside and outside the country, it won’t be sensible to expect that the FM would be able to satisfy all the sectors and strata of society but there is no doubt about the fact that his intent and acumen was quite clear wanting to give spurt to the economic growth and over all development. When DSIJ clinically investigated about the budget presented by the FM, though it looked quite a neutral budget at the first go, but its finer prints clearly reveal that it will boost the economy on long term basis specially the ‘Bharat’ i.e. the rural economy.

Agriculture and Rural Economy In focus:

Key focus of Arun Jaitley was clearly on the rural economy and agriculture as there is no denying the fact that his government on one hand wants to change its image as a government that is quite concerned about well being of farmers, BPL population and other vulnerable classes and on the other hand it has got the feeling that if India has to grow at a higher GDP growth of 8+ percentage then it would be the rural economy that needs to be strengthened. Considering that the FM has aimed to double the income of farmers by 2020 and also allocated a whooping amount of Rs 35984 crore for farmers and agricultural sector welfare, also additional Rs.20000 crore has been earmarked for irrigation fund under Nabard and Rs. 15000 has been provided for farm credit interest subvention. Also to give impetus to rural growth and pushing the demand Rs.19000 crore has been allocated for Pradhan Mantri Gram Sadak Yojana.

In addition to this, an amount of Rs.87765 crore has also been allocated for the development of rural sector. Jaitley also announced highest ever budgetary allocation for MGNREGS amounting to Rs. 38500, besides earmarking Rs. 2.87 lakh crore towards grant to gram panchayats as per 14 finance commission recommendations.

Government focus was clearly on farmers and villages and soon after budget PM Narendra Modi congratulated the FM for his focus on rural economy. “Our focus is on villages, poor, farmers, women and the youth. The budget has plans for ambitious schemes to bring in a qualitative change in their lives.” PM said.  “Several measures have been outlined to double the income of the farmers. Pradhan Mantri Krishi Sinchai Yojana is one of them where a substantial allocation has been made to ensure water to every farm,” he added. Experts feel that this rural focus is quite sensible on the FM’s part as it will also give BJP some support during upcoming elections in various states including West Bengal, Assam and importantly Uttar Pradesh next year.

Subdued Announcements for Banks

One sector that was highly anticipating a lot from this budget would certainly be the banking sector as it is already reeling with the pressure of NPAs and bad debts and desperately needing government’s support in terms of recapitalisation. But with so many aspirations, budget was clearly not able to fulfill the wishes of PSU bank space and banks’ investors were shell shocked. Actually the FM has provided Rs. 25000 crore for the recapitalisation of banks but the banks are hit hard by the higher provisioning norm for NPAs and bad loans. Actually banks were expecting at least Rs 40000 crore of recapitalisation plan but it couldn’t be materialised.

On the other hand, major announcements that could impact investment climate in banking space was to give in principal approval to decrease the government shareholding in PSU banks to less than 50 per cent and IDBI bank has been chosen for it. Going forward this decision can really change the face of PSU banks space and could see privatization of banks in the long run. Similarly, as a big boost to the insurance space, go ahead has been given for the listing of general insurance companies and this can really change this space altogether and would also be helpful is raising vital funds for the government.

Government Sticks to Fiscal Discipline

As far as investment climate and India’s growth story is concerned, the biggest positive that can further strengthen India’s position as investment hub in the world is the government’s grit to stick to fiscal discipline. In fact, as per the revised estimates, fiscal deficit in FY16 and BE FY17 have been retained at 3.9% and 3.5% respectively. Importantly this one step would crucially give RBI the headroom to cut the interest rates going further as it will ease out some pressure on rupee and inflation concern. In fact, experts are of the opinion that soon RBI Governor can slash key rate to reduce borrowing cost.

Interestingly FM has also announced to appoint a committee to review the implementation of the FRBM Act that clearly means government doesn’t want to get pressurized by the stiff fiscal deficit target and wants a kind of range to play around. Crucially FM has also done away with Plan and Non-Plan classification from 2017-18.

Automobile, Jewellery, Garments and Coal Producers Hit

Budget remained categorically bad for the automobile sector as the FM remained quiet ‘ruthless’ towards the sector. First and foremost and infrastructure cess of 1% on small petrol, LPG, CNG cars, 2.5% on diesel cars and 4% on other higher engine capacity vehicles and SUVs have been implied that clearly impact the investment scenario into the sector as it makes almost all cars expensive for buyers and at a time when sector is struggling with sluggish demand, this tax can pinch the most. In addition to this tax to be deducted at source at the rate of 1 % on purchase of luxury cars exceeding value of Rs 10 lakh, that will make cars further expensive.

Just like automobile, jewellery space is being negatively impacted by the budget announcement. The FM has imposed an excise duty of 1% without input tax credit or 12.5% with input tax credit on articles of jewelry with a higher exemption and eligibility limits of Rs 6 crores and Rs 12 crores respectively. This will exclude silver jewellery, other than studded with diamonds and some other precious stones. In the same line excise on readymade garments with retail price of Rs 1000 or more raised to 2% without input tax credit or 12.5% with input tax credit.

On the other hand ‘Clean Energy Cess’ has been levied on coal, lignite and peat renamed to ‘Clean Environment Cess’ and rate increased from Rs200 per ton to Rs400 per ton that will surely impact coal producers and companies like NTPC, Adani Power, Tata power will be adversely impacted by this announcement.  As usual excise duties on various tobacco products other than beedi raised by about 10 to 15%. Bad new also came for the markets as FM has increased Securities Transaction tax (STT) in case of ‘Options’ trading from .017% to .05%.
[PAGE BREAK]

‘Not-so-happening’ education stocks may be revisited now

As industries have skilled employees to drive them to new heights, at the end investors’ wealth will increase in future term, feels Lohit Bharambe after carefully studying the union budget.

Its less about infrastructure sector, also less about FMCG or mining and metals, the union budget speech of Finance Minister, Arun Jaitley surprisingly but at the same time, interestingly talked much more about education and skill development sectors.  The hefty budget document did not bring in much relief for the ailing PSU banks on the contrary to speculations and markets’ assumptions and various such theories. While Prime Minister, Narendra Modi was seen sitting confident in Parliament on his pre-specified chair even as his colleague Jaitley continued reading out the budget documents, stocks from the education and skill development sectors were showing momentums (see box). Day after the union budget was tabled, on March 1 as Sensex climbed up by 777 points in one such huge rally in last 7 years, education stocks also took part in the rally. Time to have a relook on this apparent not-so-happening sector.

The education related companies may have lot of tractions in the coming fiscal year. Companies related to IT training also experiencing a lot of contributions to make multi-skilled employees and students. The multi skill training institutes will provide unique skilled employable worker as per industry need. The lack of specialised employees is a major concern across the industries. According to the investors’ perspective, education sector will maximise wealth for them over near term.

The Finance Minister focused on creation of skilled employment. The employable resources would be available to employee centric industries such as education, computer and IT and other service sectors. Service sector contributes around 52 per cent of India’s gross domestic product (GDP). Overall if education and skill development is properly implemented over the years then growth of economy may accelerate. As industries have skilled employees to drive them to new height, at the end investors’ wealth will increase in future term.

Meanwhile, education and skill development is an on-going process. There would be considerable amount of time and money required to bridge the gap between employable resources and non employable one. Service sector companies will have good amount of tractions too in the coming year. The quarterly earnings will stimulate the success for these companies.

The companies are likely to spend in corporate social responsibility (CSR) funds on higher education, skill development and job creations during 2016-17. Other central government initiatives also have been lined up such as, National Board for Skill Development Certification, Entrepreneurship Education and Training etc. There might be retail sector’s demand also for skilled employees which would also improve the employment numbers in the country. The positive sentiment would increase the purchasing power.
[PAGE BREAK]

‘See the markets going up six months from now as the budget did not dampen the spirit’

He was the most controversial director of the continent’s most prestigious business school. He was the man who had taken head-on two heavyweight HRD minister but he never lost the battle. Former Director of IIMA , Member of Committee on Pricing and Taxation of Petroleum Products and now Director General of International Management Institute, Dr Bakul Dholakia explains union budget in the simplest manner while interacting with DSIJ’s Poonam Singh. Excerpts:

1.     The union budget looks more farmers' friendly than it being industry-friendly. What’s your take?

The reason is, we are in this year which is the third consecutive year when particularly last two years the monsoon have not been good and there has been lot of stress on farm sector, everybody talks about slowdown and not utilising capacity and banks having stressed loans and all that. Now who is bothered about the fact that the farm sector is stressed, that the farmers are stressed and therefore there can be financial problem for the farmers. All this is because of inadequate monsoon and our inability to create capability for farming in conditions when the weather and monsoon does not become good, fortunately for us monsoon does not been a disaster, I mean, it has not been 25% shortfall and so on but 12 to 13% shortfall in rain for two consecutive years has created major problem of capacity utilisation in Indian agriculture. Now that is a reason why that is leading to famers’ suicide and lot of depression in farm sector. Now somebody has to adapt, independently of the budget. Prime Minister talked about launching second green revolution in Indian agriculture, now whatever has been done is in the contrast of creating enabling conditions to implement another Green Revolution. You need to first create a platform, so everything that has been done is from that particular angle. The FM has spread this out very clearly that there are lot of many problems that economy is waiting and I have very limited fiscal space to I have to prior that. As a priority they have said that the farm sector and the social sector and infrastructure are the three priorities. That means taking care of farmers, taking care of the poor and economically vulnerable and taking care of infrastructure. Means with infrastructure focus in rural areas. So these are the priorities. If explicit statement has been made by both the PM  and FM, Prime Minister much before the Budget & Finance Minister in the Budget itself that are temporarily focusing on these sectors as for as 2016-17 concern, so it’s not a matter of surprise.. Like an earlier budget it doesn’t mean nothing was there for agriculture but much focus was on non-agricultural sector. Now in this budget there is a greater focus on rural sector and social infrastructure but FM and any government has a right to decide what the priorities are 

2.     FM talked about infusing 25000 crore funds for the health of ailing PSU banks. Do you think this much of amount is enough?

No, I don’t think so but the question is not the adequacy of amount you said. If you read carefully between the lines of budget and subsequently after the budget what Jayant Sinha said, in terms of approach, I think it is absolutely clear that currently there are 27 public sector banks and over the next five years we do not see a scenario there would be 27, which means why these board has been created, bank board which is headed by Vinod Rai. Now one of the things for that is consolidation and restructuring of Indian banks. Now all the banks are not equally stressed. There are banks which have very decent profit, their profits have fallen but they are making good profits and there are other banks where NPAs have been so large that their profits have been converted into losses. Now no country in the earth would have 27 banks in public sector where government itself is the owner. So this budget has signalled consolidation, mergers and restructuring of public sector banks. This is absolutely clearly mentioned in budget speech and probably it might have been missed. Therefore when a healthy bank takes over a weak bank, some amount of stressed assets absorption happens because of the consolidation of balance sheets. So Rs 25000 crore is the provision made this year, now if suppose, the 4^th quarter results turn out to be worse then what is expected and if consolidation and restructuring does not progress at the right pace, then the same para says, if required we will put more money and will found more resource for that. The healthy banks can raise resources from the market also. The government dosn’t have to provide and the mergers and consolidation can bring it synergy. So therefore, this is to be viewed as one step in the process of cleaning of the Indian public sector banking space.

3.     Also how much important you think the Bankruptcy Bill will be once it’s passed? Also can you tell our readers about the role of newly created Bank Board headed by Vinod Rai?

Bankruptcy Bill will be a historic event indeed. It will transform Indian banking sectors as well as Indian industrial sector. Because our problem is we have opened up the entry by delicensing, deregulation and everything but we have not provided for a policy for corporate closure and smooth exit, everywhere in the advanced countries the markets are efficient because while there is free entry there is free exit. Enterprises close down in the western countries every day. There are failed adventures we just shut down but all that is facilitated because there are clearly laid down policies for corporate closure and proper bankruptcy bill and now if that happens when the stressed assets have to be revalued and absorbed in the system. This is what happens all the time, now the Bankruptcy Bill without a proper Bank Board will be difficult to enforce in the Indian public sector banking space for the single reason that there can be allegations that default was willful like it has been happened in Mallya’s case and there can be allegations  for corruption for Board and stock management of banks that you preted away the resources now that is the reason why you require effective banking systems and Vinod Rai has a reputation for highest level of being a person with integrity.

4.     The FM stressed on funds allocation for skill development. India still lags when it comes to skill development activities. You have headed premier B-schools like IIMA and Adani Institute of Infrastructure Management previously. What else should be done by the government towards skilling?

Lets put it his way, when you talk about skill development then that has to be a priority area something which has to be recognized. You can’t over-stress this point. Now the issue is everybody in this country cannot become Master’s degree holder, everybody does not need to be a PhD because the labour force and the man power requirement is at different levels from unskilled to semiskilled to skilled and within skills there are lot of gradations. So there are whole hierarchies and structure of manpower that we require. Now the problem is that even in our education system, there are lot of people who drop out at the 10^th board level, 12^th board level, there are college dropouts. All of them are young, all of them have energies, capabilities but those capabilities are not properly channelised. Now why there is rush for certain selection procedure because outside that you not get decent income earning opportunity. Now the vocational education and skilled development is only answer of these questions. Training potential and capacity of skill development and vocational education in India is so large that it can be almost 4-5 times of the capacity of a university. I mean that is the kind of level, scale that is required but the problem is you need to first identify what are the skills that you want to develop, create the manpower that has been there with all to give the training. Same problem in terms of faculty, higher education system faces and then same problem the vocational education and skill missions are also going to face where is the manpower to do this. For this we have to design a strategy that builds volumes and ensure the efficiency of skill, training methods in partnership of the industries which are very very important. Therefore, the practitioners can be wonderful trainers as far as such skill development efforts are concerned. What has been done in the budget is simply like taking initial steps.

How do you see the Indian stock markets to react on post-budget era?

I think the Indian stock markets right now are quiet confused. There is no clarity about what and stock market always reacts to the short term aspects. Let’s understand, 80% of the volumes in the stock markets are not based on cash, those are like in futures, not usual deliveries of stocks. Now when you impose the transaction tax on the futures has been increased three times. It was 0.017 which has been made into 0.05, that means almost three times. Now the margins there are small and the tax becomes an important element of the margin. So the trading volumes will get affected by this and once the trading volume gets affected, the market gets negative sentiments. Secondly, markets are driven by large institutional investors, large domestic funds and large retail investors, HNIs. Now when you say that you will put an additional 10% tax on dividends above Rs 10 lakhs, it is also something which is going to dampen the spirit but what we must understand is that the positive hour are the long term capital gains that one- year limit has been retained which means that whatever profits you have made holding the investments for one year, is completely tax-free.  There is nothing which has been done to that.  You must also understand that the increase in service tax has been postponed to the time when GST comes in.  So GST when it happens, service tax rate will definitely become 16 to 17 %, there is no doubt about that.  So therefore the industrial sector is going to suffer less in terms of additional taxation. Now corporate tax rate-everybody was expecting that across the board there would be 1% deduction. That has not happened. So some of the things that the market was expecting have not happened. That is the reason why the sentiment is negative. But I personally believe that the negative sentiment is as much the impact of global factor as it is of the domestic factor. Last few sessions the global markets are falling and see, global markets are not influenced by the Indian markets. Therefore, there is an impact of the global markets as well on the Indian stock markets. Secondly, the markets have not understood fully the actions that have been taken for the banking sector. Therefore, the turnaround of the banks will now happen sooner than expected, the situation for these banks before the budget and now, is completely different. So, if you take a three to four months’ prospective of the markets, then the markets will be driven more by the results and the global scenario. But, if you look at the long term picture of the markets, scenario beyond six months, there is nothing in this budget that may depress the sentiment of the stock markets in India. In my view, six months or more, down the line, the markets will actually have an uptrend rather than a downtrend because of this particular step. There is nothing so overwhelmingly negative in the budget that can depress the sentiments of the markets.
[PAGE BREAK]

Multi-Skill Training Institutes in Indian Context and What Does Budget Holds for It

DR. DARLIE O. KOSHY, DG & CEO of ATDC and IAM in this exclusive article written for DSIJ explains why earlier itself with the launch of ‘National Skill Mission’ in July, 2015 the ‘Skilling India’ project has got a big fillip. Like “Make in India and make for India ” vs. “Make in India” and “make for the world” debate, “skilling in India” and “Skilling for India” as well as “Skilling in India and skilling for the world” have also been flagged but not debated sufficiently.

The Ministry of Finance, government of India have floated a twitter invitation to the stakeholders to respond as to which of the government’s flagship schemes are to be given priority in funds allocation in the upcoming Union ‘Budget 2016’. Among the options are ‘Swachh Bharat Abhiyan’, ‘Make in India’, ‘Skill India’ and ‘Digital India’. As the voting concluded, it is understood that “Make in India” and “Skill India” have both got 36% each of the votes cast. Finance Minister Arun Jaitley in the budget speech on 29^th Feb. 2016 responding to the above has made a new proposal for setting up 1500 multi-skilling institutes and also of training under PMKVY over 1 Crore Youth in the coming year. Certainly India’s Skill Mission is poised to get a boost! However, what are the ground level realities and challenges going forward?

The fact is India has about 430 million people in the age group of 18 to 45 which require regular wage employment and every year 17 million to 18 million people get added to the workforce. There are large number of drop outs at the level of primary to middle school level and middle school to higher secondary level. The school drop outs and school leavers form one category and the other is the graduates of various disciplines including engineers etc. who lack ‘employability’. The Gross Enrolment Ratio (GER) to Universities currently at 23.6% shows a dismal picture. The higher education itself has been under scanner as a majority of candidates are found ‘not employable’ owing to either ‘domain skills’ or ‘soft skills’ deficit.

Earlier itself with the launch of ‘National Skill Mission’ in July, 2015 the ‘Skilling India’ project has got a big fillip. Like “Make in India  and make for India ” vs. “Make in India” and “make for the world” debate, “skilling in India” and “Skilling for India” as well as “Skilling in India and skilling for the world” have also been flagged but not debated sufficiently.

I believe the period 2016-2022 when India reaches 75 years post-independence, is the crucial phase for ‘Skill India Mission’ for putting good money after “Low-hanging fruits” i.e. of training more intensively in ‘employable’ skills the current engineering and other University graduates which would help the manufacturing and service industries’ short term human resource requirements. The quality of education / training for the workforce has been a significant value addition for the developing countries and the outcomes indicate that better levels of ‘literacy’ (numeracy, literacy, IT-racy)  has helped countries like South Korea and China etc. to increase their productivity which is India’s  Achilles’ heel. Our workforce have certainly better levels of ‘creativity’ and ‘ability to think’ and solve problems, though ‘formal education’ or even ‘formal professional training’ has been abysmally low at 4-5%.

Given this background it is to be noted that the world had woken up to the need for intensive “Skills” training in the post 2^nd World War period when faced with labour and skills shortage by coming together to have the ‘World Skills’ set up especially by the European countries and to have the first world skills meet held in 1950. By 2015, the world skill competitions have differentiated and identified the sectors under the following six heads for the Sao Paulo edition in 2015.

·         ‘Manufacturing and Engineering Technology’

·         ‘Creative Arts and Fashion’

·         ‘Information and Communication Technology’

·         ‘Construction and Building Technology’

·         ‘Transport and Logistics’

·         ‘Social and personal services’

The above 6 distinct areas have envisaged 50 diverse ‘skills competitions’. In fact, if you look at the skills required for the adult population of any developing or emerging, economy, this categorization would hold good and I wonder why our ITIs cannot be modelled as Centres of Excellence with six such departments.  India by 2022 that is about 6 years from now will be a totally different ‘India’. Given the massive and rapid technological changes which can be expected, it is necessary to look at where the ‘world skills’ are headed rather than overstating the achievement of training at the entry level courses. As a matter of fact, the Minister of Labor and Skill Development of Kerala had lamented in a public speech in Delhi recently that “Till we had reached Sau Paulo in Aug. 2015 we were feeling good that the State (Kerala) is doing well in skills but once we reached Sao Paulo, we realized that we have only scratched the “tip of the Iceberg”. In addition, we have to realize that more than 80-90% of our employment is being generated in the unorganized sector. Helping the MSMEs and informal sector to understand the need for skilled and trained workforce and better educated and trained professionals will be an overarching strategy which the ‘Skill India Mission’ has to pursue aggressively. While almost all the government training Schemes are insisting on 70% or 75% placement post-training, the same also betray that the Govt. is not abreast of the realities of SMEs, unorganised and informal sectors which do not have such HR policies like the larger players when it comes to giving appointment orders even before testing them out on the job. The statistics from Ministry of Skill Development & Entrepreneurship has shown that the top 10 sectors provide 80% of the jobs; building construction, real estate, retail, transportation and logistics, beauty and wellness, furniture and fixtures, tourism and hospitality, textile and clothing, handloom and handicrafts, domestic help, private security service, telecom and IT hardware topping the list. Target-Train-Transform assume critical importance but the benchmarks have to be global!

India had joined the ‘world skills’ only in 2006-07 while our competitors had joined the system much earlier. For example Malaysia joined in 1962, South Korea joined in 1966, USA joined in 1973, Macau (China) joined in 1993, Singapore had joined in 1993 and Hong Kong (China) joined in 1997 and as evidence suggests these countries have progressed rapidly in terms of “Skill Levels”. We can hope to reach the desired level only if we prepare the country to travel on a difficult terrain and not one of least resistance like the entry level courses to distribute huge amounts of money under the garb of ‘Skilling India’.

The world skills competition indicates India’s current position at 18 out of 55 countries (in Sao Paulo 2015) in terms of number of competitions in which India has participated. If we look at just one area of competition where India has over quarter of century experience since NIFT was set up in 1986 ! For ‘Fashion Technology’ in 2011 in London (World Skills Meet) India’s participant got 451 points against the topper with 544 of Switzerland and 526 of China. In 2013 in Leipzig India’s competitor got 447 points against the topper with 540 of Finland and 535 of France. In Sao Paulo, India’s representative got 492 while the gold medal winner got 537 from Chinese Taipei and 535 of Brazil. It is similar story for other sectors where India has done rather well like prototype modelling, beauty therapy, jewellery, plastic die engineering, welding, hair dressing, graphic design, brick-laying etc.

It is important that whatsoever may be the ‘skill policy’ at the National level it should look at a two pronged realistic strategy i.e. one phase, spanning ‘2016-2022’ and the other covering 2022-2035. If we focus on current employable skills till 2022, India could reach a position of strength to then supply productive workforce not only for Indian companies but also for the World at large. Right now with entry level training only being taken up by “gold diggers” among the training providers, there is hardly any attention on longer-term quality vocational training programmes. By 2035, India’s sweet spot of demography will begin to vanish with ageing population climbing rapidly. The current system of chasing candidates for short-term training and then fitting the individual to ‘available job’ profiles, may lead to a “self-fulfilling prophecy of doom for the mission” and could damage the implementation in the longer-term.

It is important to have ‘National trade tests’ which are administered by a National body like DGT so that ‘skill benchmarks’ are set in Indian context. (I am glad to see that the Govt. have accepted the proposal through the budget speech to set up a National Board for Skill Certification which indeed is a right and timely step!). World experts need to be involved in evaluation so that India makes the right decisions not only in terms of the skill training objectives but also in terms of embedding “skills with knowledge” as “knowledge without skills” even at school or college levels has become redundant. “Skills without knowledge” will also not help in pursuing ‘make in India’ nor ‘digital India’ nor ‘innovation-led India’ as overriding objectives. A more pragmatic and knowledgeable approach taking into consideration a training eco-system in global context will be the right step for ‘Aspirational India’.

In Sao Paulo over 1,00,000 young children were brought to the ‘world skill arena’ to witness the 50 competitions in progress before their eyes to prepare them for the future and to take pride in ‘Skills’. In a decade’s time some of them could be the winners in certain skills competitions. Can India miss the bus in the skill revolution sweeping across the world ? This is the question we need to ask while we form the strategies for ‘Skilling India’, ‘for India’ or ‘for the world’.

(Note : These are author’s personal views and not that of the organisations he represents)

[PAGE BREAK]

Balanced budget committed to revival of economic activity across sectors

M.S. Unnikrishnan, Managing Director of Thermax Limited in this exclusive article for DSIJ believes on the power front, the budget could have maintained continuity if it had also followed up on the plans declared in last year’s budget

Overall, the Union Finance Minister has given us a balanced budget. One has to appreciate the Minister’s resolve to contain the fiscal deficit to 3.9% in the current year and for sticking to his earlier commitment to maintain the fiscal deficit at 3.5% for fiscal year 2016-17. Though there could have been many people asking for a relaxation in fiscal deficit target to release more funds for investments in infrastructure projects, it is really commendable that the Minister opted for a disciplined budget.

The budget has several positives that mark a commitment to reviving economic activity within the various sectors:

It underlines the importance of the revival of the rural economy. It has set aside Rs.    17,000 crore for irrigation, Rs.8500 crore for rural electrification and Rs.38, 500 for MGNREGA, the highest allotted so far for this scheme. Add to these, a provision of Rs. 15,000 crore for interest subvention to farmers, the total allocation for rural development amounts to Rs. 87,000 crore. There is a 228 % hike in allocation for grant-in-aid for gram sabhas and municipalities.

These measures should offer support to the rural economy already reeling under the impact of two consecutive monsoon failures. The important point would be effective implementation, full utilisation of funds, and avoiding leakages so that the intended allocations reach the right beneficiaries.

The budget has identified multiple infrastructure projects worth Rs.2, 21,000 crore – for roads, railways and other infra related projects. It will certainly give an impetus to infra supporting India Inc.

The budget promises to bring a new bill for dispute resolution of Public Private Partnership (PPP) projects. This move will certainly help unshackle some of the stranded PPP projects and encourage similar initiatives.

The allocation of Rs.25, 000 is certainly inadequate for recapitalisation of the public sector banks. However, as a statement that reflects the government’s decision to stand by the banking sector, is certainly reassuring.

Allocation related to health care for the poorer sections of the public is a step in the right direction – especially the health insurance scheme of Rs.1 lac per household and the national dialysis programme.

The Finance Minister’s announcement to provide skills to one crore youths in the next three years and 1,500 multi-skill training institutes to be set up for realising this objective is a very timely move. The country’s growth plans can be met only through a trained workforce, let’s hope for effective execution of this programme.

On the energy sector – though not well articulated – the government’s intention to incentivise natural gas exploration and the annual allocation of Rs.3000 crore for the next three years should support expansion programme in the hydrocarbon sector.  The budget also mentions a plan spanning 15-20 years to augment capacity in nuclear power sector. On the power front, the budget could have maintained continuity if it had also followed up on the plans declared in last year’s budget, such as setting up ultra-mega power plants.

Among the disappointments, let me highlight the doubling of the clean energy cess to Rs. 400 per ton.  The hike would amount to around 6% additional burden in fuel cost. The gencos will pass it on to the already stressed discoms who won’t be in a position to share it with the consumers as power costs are regulated by the government.  This move could push the balance sheets of discoms further into the red, and eventually result in stressing the financial health of banks too. In a power starved country, this cess could have been avoided.

Imposition of 10% dividend tax maybe alright for individuals, but it was not expected they would be applied to companies who, through their wholly owned subsidiaries, do invest in newer projects.
[PAGE BREAK]

“A pragmatic budget with some encouraging signals for our sector”

Mayank Ashar, MD & CEO, Cairn India in this article exclusively written for DSIJ says given the global scenario of mounting oil woes, the Finance Minister’s announcement of levying a cess at the rate of 20% on domestic crude calculated at ad valorem, though welcome, offers only partial relief

For India, which is heavily reliant on imports of crude oil to meet its energy needs - production maximisation continues to be the single policy objective as far as energy is concerned. In low price oil regime, the cess levies impose significant economic burden on producers and puts the domestic crude oil at a disadvantage to its imported counterpart.

Oil Cess

With the government addressing the long pending issue of cess in the union budget, it is a step in the right direction. However, the domestic oil producers who were looking forward to significant reforms find the outcome way below than what they have been hoping for. Given the global scenario of mounting oil woes, the Finance Minister’s announcement of levying a cess at the rate of 20% on domestic crude calculated at ad valorem, though welcome, offer only partial relief. As the oil prices spike, the high cess rate may thwart the viability of some fields that will render itself uneconomical.

It is a pragmatic budget with some encouraging signals for the oil & gas sector, especially in the current low oil price scenario. We appreciate that the government has seen the need for relief in cess. However, this is a temporary partial relief which will need to be revisited, as this short term relief may de-incentivise investments in the long term. The current margins for Cairn after depreciation are negative in our world class Rajasthan field.

The bone of contention for the domestic oil producers is now about the quantum of the ad valorem cess rate. For the upstream producers a lower rate of cess of 5 to 8% of realised price of crude oil would have likely helped stimulate the oil & gas sector; particularly fields which are already producing crude oil. Lower cess rate was imperative as, given the geological landscape, the fiscal burden on the Indian oil & gas sector is very high vis-à-vis other countries.

In the current US$30 per barrel environment the domestic oil producers are hard-pressed on the fixed values of Cess. However, the revised ad valorem cess rate at 20% leads to a nominal relief which may evaporate as oil prices inch closer to US$ 45, and towards an even more enhanced burden thereafter.

This is just not applicable to Cairn India. Other crude oil producers like ONGC, OIL also have similar issues and the way we see it is to have a continued dialogue with the government on this and other measures to ensure that the necessary investment in the sector is not further curtailed which may hamper India’s quest for energy security.

Gas Pricing

Turning to Natural Gas. As the Indian economy booms, the energy consumption is set to spike. Therefore, it is vital and inevitable that one should look towards natural gas as an alternate source of energy. To this end, the budget proposal for new gas discoveries and areas which are yet to commence production, first, to provide calibrated marketing freedom; and second, to do so at a pre-determined ceiling price to be discovered on the principle of landed price of alternative fuels is a major positive step from the government. This move will provide an impetus for future gas discoveries.

The budget also has made provision which could likely violate existing signed contracts. For instance, budget announcement with respect to Section 80-IB is of concern. It envisages no deduction for mineral oil or natural gas which commences production on or after 1st April 2017. This provision, many in the industry feels, is contrary to what has been provided in the production sharing contract and stated policy.

India has the best market and the best economy and now we will have to divert our focus to be energy Independence. We believe that a strong oil and gas industry is absolutely vital for India’s economy. Therefore, it is imperative that we amplify our exploration and production efforts to attract foreign investments and thereby achieve energy self-sufficiency. We were hoping our concerns will be addressed. For instance, with respect to the applicability of service tax, which is a cost to the upstream Oil & Gas industry, the budget could have incentivized exploration in India by exempting service tax.  Further, the budget could have provided impetus for construction of cross-country pipelines, treatment of natural gas as declared goods, amongst others

Also, as we would like to engage with the government for a further dialogue to resolve issues weighing down our sector, our focus will be to work together towards a positive economic and social development which is the need of the hour. The way forward will be for the sector to create an energy roadmap that will open up a world of possibilities – by creating more jobs, improving infrastructure and create a massive hub for manufacturing.
[PAGE BREAK]

‘Cheers to Jaitley from FMCG players’

Vivek Gambhir, Managing Director of Godrej Consumer Products in an exclusive article written for DSIJ believes for the FMCG sector, government initiatives to support the recovery of rural and urban consumption should help to bring growth back on track

Overall, this is a responsible “Rural First” budget that attempts to strike a balance between reviving demand and continuing on the path of fiscal consolidation.

For the FMCG sector, initiatives to support the recovery of rural and urban consumption should help to bring growth back on track. Allowing small and medium shops to remain open for seven days should boost retail trade.

Millions of consumers are increasingly aspiring to consume affordable and quality products. Growth has however recently been dampened due to insufficient job creation and the tepid growth in disposable income. 

Focused efforts to alleviate rural distress; to uplift the agrarian economy and address the impact of poor monsoons and weak agricultural prices, through enhanced irrigation cover, improved agricultural productivity and better targeted subsidies, will help put more money in the hands of farmers and augur well for inclusive growth. Rural India will benefit from initiatives like MNREGA, electrifying all Indian villages by 2018, health insurance and spreading digital literacy. Statutory backing of the Aadhar scheme and other such initiatives for “minimum government, maximum governance”, will ensure more targeted delivery of benefits to those who need it. Accelerating rural infrastructure projects and investing in capacity building will also lead to more productive jobs being created in rural India.

The need of the hour is job creation, which we hope will be boosted through ‘Make in India’ and investments in manufacturing and infrastructure. Concrete steps towards improving the ease of doing business, making labour markets more flexible and speeding up infrastructure projects, will greatly help this. Focusing on skilling and education is imperative to make people more employable and provide the long-term backbone to sustain this trajectory.

For the medium term, the implementation of transformative reforms, like the GST, at the earliest, will be imperative to fast track economic growth and boost consumer confidence. Given the Government’s intent to stick to its path of fiscal consolidation, we look forward to an interest rate cut or more liquidity in the system to drive private capital investment. 

Going forward, given the plethora of schemes that have been announced, it will be important for the Government to deliver on the promises made through ensuring effective on-the-ground execution.
[PAGE BREAK]

‘PAN mandatory for purchases above one lakh going to have serious impact’

Chief Executive of Future Group, Kishore Biyani finds various measures in Arun Jaitley’s third budget which might help the consumption and subsequently, development

“I look at the budget purely from the lens of Consumption. To me consumption equals to development and from that point of view this budget is a mixed bag of announcements for me. I believe the government’s intention was quite positive but it had to walk on a tightrope, juggling between social and economic reforms at the same time. I saw various measures in this budget that would help the consumption and in turn the development.

“Announcements like increasing the limit of deduction for health insurance premium and increase in the deduction for rent paid for people living in the rented houses is going to increase the monthly disposable income. While I see quite a few positives in this budget, I see one announcement that can prove to be a dampener. Making PAN mandatory for any purchases above one lakh rupees is going to have a serious impact on consumption. Not more than 13 percent of Indians have PAN card and only about 4% of them pay Income Tax. Without expanding the PAN and Income Tax net, a move like this will enormously hamper the consumption space. I expect its significant impact on retailing as well as on manufacturing, especially of Consumer Durable products like televisions, gadgets, furniture and other home products.”
[PAGE BREAK]

‘A budget to remember for infra and allied sector’

Rohan Suryavanshi, Head (Strategy and Planning) of Dilip Buildcon revisits the union budget tabled by Finance Minister and justifies why it may soon bring ‘acche din’

On the day of the budget, as we saw our Finance Minister, Arun Jaitley, outlined his vision of a resurgent India with bold strokes of a strong intent and then took up the palette of nine pillars and fill in the finer details of execution in vibrant colours, a sense of synchronicity flowed over us. How apt it was that an epoch marking budget should be announced on a day that comes along, once in every four years- 29^th Feb in a leap year!

Before I share my thoughts on how the budget will impact our business, I would like to take you on a journey. A journey to visit a farmer in some remote corner of our country. A farmer, who for generations has been tilling his small piece of land, sowing seeds bought with money loaned to him by the moneylender, looking in hope towards the sky for abundance of rain, so that he can get a good harvest and return the loan and have something left over. To reach this farmer we must travel on a new highway, which will take us near his village. Then the new roads will take us to his village. For the farmer to reduce his dependence on nature, he needs irrigation sources & electrification. To take a loan on easy terms and keep his money safe, he should have access to banking facilities. To protect his crop against losses, he should have insurance.

Now let’s look at the 9 pillars announced by the FM we see that most of them will positively touch the life of the hypothetical farmer that we desired to visit. Roads and Infrastructure (Highways & Pradhamantri Gram Sadak Yojna ) will take us to his village. The irrigation schemes will help in reducing dependence on monsoon. The aggressive rural electrification target ensures that the farmer will be able to access the benefits of modern technologies. His crop will have the highest protection under the PM’s Fasal Bima yojna. Increased target disbursement under the MUDRA and recapitalisation provisioning of the PSU banks will help him get funds cheaper. These are just some examples of how FM is attempting to successfully translate his broad vision at a granular level with exquisite detailing.

Now let’s return to the impact this budget will have on us. We are the largest player in the Indian infrastructure space with emphasis on road construction. This budget has huge positive ramifications for us and our industry.

Infrastructure is the 5^th pillar in the FM’s endeavour to build a stronger and a more resurgent economy. He has announced an allocation of Rs. 2.19 lakh crores in rail and road infrastructure. Out of this, Rs. 97,000 crores will be spent on roads. He has also announced Rs. 20,000 crores for irrigation projects with a planned expenditure of Rs. 87,000 crores over the next 5 years in this sector. These allocations will, to a great extent, help the government achieve a big chunk of its targets and kickstart the economy.

The allocations in road and highway sector translate to a significant increase of 22% from last year’s budget. However, the government is also looking at the private sector to play an important role in meeting the aggressive target of completion of 10,000 kms set for the National Highways construction in FY 2016-17. The PPP model, which involves both private and public sectors, joining hands, symbiotically, is the route forward to achieving success. The government has taken a multi-pronged approach to improve the PPP model for all stakeholders. They have systematically identified the hurdles of these projects & tried to address them. The announcements on Public Utility bill, guidelines for renegotiation of PPP concession agreements and new credit rating system for infrastructure projects are some of the ways the government has gone about strengthening PPP contracts & kick starting stuck projects.

Another good move by the government is allowing Life Insurance Corporation of India (LIC) to certify bonds from infrastructure companies and consent Foreign Institutional Investors (FIIs) to invest in unlisted securities.  An assurance from LIC could improve credit ratings of these bonds, allowing large local as well as foreign investors to buy them. This will surely bring down the cost of funds for companies like us.

Of course, we don’t look at these infrastructure focused initiatives in isolation. If you take a look at the last year’s budget, then too the government had emphasised infrastructure as one of the priority sectors for development and had taken proactive steps to speed up projects’ developments. 85% of road projects are on track and as expected, they have continued their focus on this sector which is a positive move.

I believe the government is committed to improving connectivity across the country. This improvement will further provide invaluable support to the various initiatives like Make in India, Smart Cities, Swacch Bharat Abhiyan among others.

I will end by saying that this budget has all the makings of a blockbuster and will be remembered, in the times to come, as an example of how good intentions, when back by planned execution skills can change lives of all for the better.
[PAGE BREAK]

Investors should pick projects with high capex or with innovations’

Abhimanyu Kumar, Director of Preventine Lifecare in an interaction with Mayuresh Deshmukh believes a big relief is that the union budget hasn’t gone in the direction of drawing medical diagnostics in the service tax regime

1) What are your views on the just concluded union budget? 

From the perspective of a long term equitable growth, I find this a just budget which gives a primary focus to the rural India, farmers, women and entrepreneurs. In the long term, that larger portion of the pyramid has to drive consumption and boost the economy. I believe, any step in the way of reducing disparity can be called a good step. This budget seems like one

2) How is this budget going to affect your industry specifically?

For lack of much initiatives and government spending for this fiscal, I do not think there is going to be any significant impact on the healthcare industry.

3) How has union budget 2016 actually turned out compared to your and industry's expectations?

A big relief is that the budget hasn’t gone in the direction of drawing medical diagnostics in the service tax regime. But, if I were not running a medical diagnostics company, it most probably wouldn’t register to me as much it perhaps didn’t register to the honourable finance minister that there exists a healthcare sector pivotal to success/ failure of any other initiative. The Hon. Minister fumbles twice while pronouncing “Autism” as he proposed to exempt service tax on general insurance services provided under ‘Niramaya’ Health Insurance Scheme for the Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disability. To me that says about the degree of attention on these critical areas which have deeper and long term impact on the QALY (Quality Adjusted Life Years) vis-à-vis dialysis facilities for kidney ailments which seem to have taken the major (and seemingly, the only) share of initiatives.

Any initiatives with healthcare, whatsoever, is always welcome. Be it the 3000 medical stores for generics or, the new health protection scheme for health cover up to 1 lakh per family. But a simple medico-economics math of preventive care could demonstrate that the investments if made in such initiatives would yield great dividends to the economy. Unfortunately, there is not much announcement about the public spending on healthcare. And this is where is doesn’t work out to be per my expectations.

4) What is in store for the investor community at large in long term?

Investors have broadly two choices in the healthcare industry. Either pick projects with high capex and scale, or pick projects which have innovation and technology as drivers. For the former, the returns are nominal, if all compliances are fairly met and infrastructure support taken from the government is honest. And for the later, I yet feel that the innovators will have to keep creating something out of just brain equity because there is no easy investments available nor the union budget has showcased something exemplary to boost the flow in this specific direction. Having said this, I’d still maintain that the investors who can keep confidence in the strengths of India in medical technology, will have places to go.

5) What are your views on the Healthcare sector of India? Do you see governments renewed push for universal healthcare to help the industry?

Since a large part of population is yet to receive a proper healthcare, I believe any push is appreciable. But if it is about the population receiving “quality healthcare”, we are far from even a decent starting point.

Healthcare sector in India stands to remain fragmented with low premium placed by the companies on quality and accuracy. There is no direct or indirect ‘incentive’ proposed by the government to encourage companies to spend in quality management.

Government’s push through the health protection scheme for health cover up to 1 lakh per family sounds great. But given the lack of announcing any other significant initiatives, it calls for suspecting the impending slow public expenditure in healthcare.

4) PM Jan Aushadhi Yojana to be strengthened, 3000 generic drug store to be opened. Do we see opportunities emerging out of it for the pharmaceuticals companies?

India is about just two things – cost and reach. Lower the cost and higher the rich, bigger is the game. That holds true for most of the commodities, and hence equally true for the pharmaceuticals. Yet, it is for another debate whether 3000 is a significant enough a number given the size of India’s population, to impact the prospects of pharmacos.

5) Views on medical technology in India?

Potential is far beyond imagination. We have simply everything that innovations in medical technology need. The genomic variance of population, the abundance of rare mutations, economic and high quality resource for software based analysis and automation, big data analytics, scalability of services using technology and whatever you name of. The only thing missing is an unambiguous and safe environment to conduct research and develop the technologies.

Since even I run a medical technology company which does significant basic research, I am glad that the Union Budget has spoken of the special patent regime with 10% rate of tax on income from worldwide exploitation of patents developed and registered in India. But, this benefit is to be harnessed when you have gone through the struggle of first of all, innovating, which encompasses costs of several filed experiments; then protecting the research data from theft/ replication – which unfortunately has no live forum in India to seek quick protection through, then filing and getting a patent within safe time in an age when technologies change so quick; and then develop your business through other countries – and then get the tax benefit as announced in the budget-2016. Well, there could be some other basic initiatives which would boost the confidence of research companies more than just a tax-benefit announced in this budget.

6) How is make in India help healthcare technology companies in future?

India is unarguably the largest supplier of generics to the world. So there is already plenty of “Make in India” happening on that front. But as long as Make in India is about mechanical production, at best we will remain mediocre. Whatever we make shall be generic or based on licenses against which heavy royalties have to be paid in foreign currencies. So, limited to only job generation and related aspects, health care industry can gain as much as other industries will. But as I said, we have simply everything available right here to create technologies which if stand at the base of “Make in India” will yield significant dividends to the government.

If a small medical technology like mine brings in a few crores in Euros and Dollars to the Indian economy, I am sure with a more fertile research environment and security, there can be major contribution by the likes of us. The Union Budget on 29 February 2016 rolls out significant policy-related measures to give the Indian economy a much needed boost. The targeted fiscal deficit of 3.5% and the special focus on rural economy and infrastructure are praiseworthy. But, if I were not running a medical diagnostics company, it most probably wouldn’t register to me as much it perhaps didn’t register to the honourable finance minister that there exists a healthcare sector pivotal to success/ failure of any other initiative. Thankfully, the union budget does not drag in the medical diagnostics in the service tax regime, but the sector remains wanting for more. 
[PAGE BREAK]

‘Financial expenses for the quarter declined due to reduction in cost of fund’

Consumer Durable

Blue Star is excited with implementation of the 7^th Pay Commission recommends as it expects a jump in the sales. In an interaction with DSIJ’s Abhishek Kumar and Lohit Bharambe, C P Mukundan Menon, Executive Vice President of Blue Star shares his company’s strategies and future.

Recently we heard from the Union government about OROP and 7^th pay commission which are going to be implemented this year. So that would add more income in the hands of individuals. What opportunities do you envisage?

We have always noticed that whenever there is something like a pay commission thing happens then there is always a jump in the sales in that particular year. We have noticed this trend over the last couple of decades so we see this as an opportunity honestly and we feel that this will improve the consumer sentiment and the ability to spend some extra money certainly will come up. 

You just now have launched a star rated inverter AC’s. So could you just brief us about the new product?

What we have done today is that we have introduced full range of 130 different models of AC’s and out of the 130 models roughly 30 of them happen to be in the star rated invertor category, which is the premium category. There are different stars of AC like 2 star, 3 star and 5 star and then those are known as fixed split AC’s. Then there is the premium range which is called the invertor split AC’s in that we have introduced the lineup of 30 new models all of them are in the 3 start and 5-star range. So the highlight of this thing is that the power savings is very high and when you use an invertor AC you save 30 to 40 per cent power compared to a normal split AC and also the level of comfort is also very high., that means the temperature that it maintains in the room is far more uniform and precise.

What is your target market for this kind of AC range?

Currently we have a market share of roughly around 10 per cent in the overall air conditioner space. Specifically, on the inverter we have a little higher share roughly around 12 per cent and our plan is that in the invertor AC space we want to go to a 20 per cent market share this year. That is because we are one of the few brands which have introduced such a wide range of star label invertor AC, that is a reason we feel that is a reason we feel there is a good potential and chance for us to take a much higher share of the upcoming technology which is the invertor split AC.

Recently there was news about Blue Star investing around Rs 215 crores in two new plants in J&K and Andhra Pradesh in next 2-3 years. So how is this going to affect your business?

So what we are planning to do is start manufacturing facility for our room AC’s and deep freezers in two places, one is Jammu and next is in Andhra Pradesh very close to Chennai, roughly 3 hours’ drive from Chennai. Our plan is to manufacture both room AC’s and deep freezers in these two plants. The idea is that in Jammu of course we have a benefit of the excise i.e. there is an excise holiday which we would certainly want to leverage from that perspective and the south plant is from a perspective that roughly 50 per cent of our business come from South and West, from a logistics standpoint its easier and saves some cost. One plant in north in order to cater to the North and Eastern markets and south one to cater to South India and Western part.

You currently have two plants one in Thane and Bharuch that would be shut down. So are there any plans to make use of these plants for some other purpose?

So both these plants we would be shutting it down and we will not be investing in to those facilities, that is a reason these two plants are coming up actually. The investment that we are going to make in these two plants in after we sell of these plants.

So the new plants being set up in Jammu and Andhra. In terms of capacity will those have more capacity than the existing ones?

 The existing two plants which we have shut down are not the ones manufacturing this product category, they are one of our earlier plants like there some of them around 25 years old. So what we were making in Bharuch we have shifted it to Ahmedabad our new plant and what we were manufacturing in Thane we have shifted to a place called Wada near Mumbai. So new two plants are basically to augment capacity. We have two plants in Himachal Pradesh and we want to augment our capacity further since we are growing very rapidly in these two segments that is the reason we are building these two plants, predominantly for the AC & freezer segment.

Coming to your Q3 numbers, we saw decline in your net profits by 24 per cent. Is there any specific reason behind this?

Actually the operating profit basically for the quarter was higher actually, which was around Rs 27.9 crore vis-à-vis Rs 8.9 crore in the year ago period, that was mainly because of higher increase in sales, tighter control on the operating cost and much lower provisions. Overall financial expenses for the quarter in fact declined basically due to reduction in the cost of fund and also due to the effective management of the working capital. There were few other exceptional losses which we had roughly around Rs 1.95 crore as against for a same quarter we had exceptional gain of Rs 18 crore, that is why the swing. Gain of Rs 18 crore was due to the sale of assets and this exceptional loss of this quarter is due to bonus expenses of the earlier years due to some correction in the accounting practices.

How do you see your margins shaping up going forward, given the competition in this space?

We have been very fortunate to maintain a very premium position across all price segments, that means if there are multiple price segments in all the price segments Blue Star is at the premium. That is the way we have positioned both in terms of quality of the product the way it is perceived by the customer and the value for money the customers get. Positioning is helping us in maintaining a very healthy margins especially for the AC category which is a B2C product. So that has been a strength and we don’t intend to dilute it by any stretch.  We don’t see a major dilution of course there is one aspect which probably can affect with respect to the excise benefit which we use to have in our Himachal Pradesh plant which has expired last June, so from Q3 of this year going on to new year till our Jammu plant comes up, we will have some stress on because of the excise benefit loss to the tune of couple of percentages.

Lately Blue Star forayed into air cooler segment and targeting sales of around Rs 150 crore in the next few years. So how do you see this segment to perform for you?

The organised category of air coolers is around Rs 2700 crore market. Its currently dominated by some brands like Symphony, Usha, Bajaj etc, and also recently Voltas entered into this space. We felt like a brand like Blue Star which very trusted in this country because one is the pedigree of the company which is 72 years old plus being experts in cooling space. We are not a generalist and that’s what we would be leverage upon and see whether we can establish our self in the air cooler market. This year what we are doing is only the test marketing in select markets, we are not going for a pan India launch of this and then the next season that will be next summer is the time we can seriously get into the air cooler market depending on how we fair this year.

So in terms of your revenue, currently you generate Rs 200 crore from export markets. Going forward you are eyeing almost triple that amount. How are you going to achieve this?

Our plan is to significantly increase that figure that means we want to move from Rs 200 crore to Rs 600 crore and this plan is basically a combination of multiple markets that we will go into. We are planning to be far more aggressive in the middle east markets. Currently we have office in Dubai and multiple distributors in places like Oman, Bahrain, Saudi Arabia etc and in addition also expand into the North Africa markets. We are also having a fair amount of presence in SAARC countries. We also have early presence in markets like Vietnam and Fiji. These are the markets which we are now looking at. The timing of this plan is not conducive as overall crude prices which are hurting the economy, which may make our journey a little slower. It won’t change our long-term strategy but in the near term probably there will be a little bit of slow progress.

Currently in India what we basically see is consumption of AC’s are more prominent in Urban clusters. So by any chance do you plan to touch upon the rural markets with any one of your other products?

Things have changed substantially now as 65 per cent of the sales comes from Non-metro that means Tier-2, tier-3 tier-4 and tier – 5. In fact, tier-4 & tier-5 are significant as 25 per cent of our business comes from there. These smaller towns are growing at a brisk pace. Therefore, it is no more a metro centric thing. It is more broad based now. In the entry level segment, we are focusing on selling air coolers to the first time customers where the ticket size is much smaller.
[PAGE BREAK]

‘Jaitley brought that big push for PSU banks, finally’

Dhruv Desai, Chief Operating Officer of Tradebulls Securities while analysing union budget for the fiscal year 2016-17, finds the Finance Minister while doing a rural urban balancing trick, also helped the PSU banks big-time. 

The government has kept fiscal deficit target at 3.5% (of GDP) for 2016-17 while achieving 3.9% target in the current fiscal year giving RBI the elbow room to cut interest rates. Monetary policy will be the key in the coming fiscal year. Finance minister has outlined his nine pillars: agri and farm welfare; the rural sector; the social sector including health care; education, skills and job creation; infrastructure and investment; financial sector reforms; governance and the ease of doing business; fiscal discipline and tax reform. The FM in his Budget announced to spend Rs 25,000 crore towards the recapitalization of banks, as part of the Rs 70,000 crore announced for five years last year. This amount is too little to take care of the capital needs of India’s government-owned banks given that the banking industry, 70 percent dominated by state-run banks, is in the midst of a crisis. Banks have begun aggressively disclosing their bad assets after RBI set a target of March, 2017 for banks to clean up their balance sheets. FM Jaitley, however, said government stands firmly behind state-run banks and will find resources to fund any additional capital requirement. This has given much needed boost to the PSU banking stocks. The PJ Nayak committee, which had come with a slew of reform measures for the banking sector had proposed to bring down the government stake below 51 percent to provide more capital to the banks. The finance minister in his Budget speech said that the government was open to reduce its stake PSU banks below 50 per cent. FM minister Jaitley said the process of transformation of IDBI Bank has already started and government will take it forward reducing its stake in the public lender below 50 per cent. This is also positive for PSU banks. The government on Sunday has set up a Bank Board Bureau (BBB) to help manage state-run banks better. SARFAESI Act is to be amended to strengthen Asset Reconstruction Companies. This will help in dealing with stressed assets of Banks. PSU banks require Rs 1,80,000 crore over the next 4 years in capital. Bankruptcy code is also slated to be introduced in parliament by FY17. At present, the recovery process takes anywhere between 5 and 10 years. Government said PSUs will now have to monetize their idle assets for new investments, while renaming the Department of Disinvestment to Department of Investment and Public 

Asset Management (DIPAM). FM had said the government will raise Rs 28,500 crore by way of strategic stake sale. But with no specific policy detailing how to select a PSU for strategic stake sale, methodology for valuation and the process to be followed, the disinvestment department could not go ahead with selling any PSU so far this fiscal. Now FM has been proposed disinvestment target of Rs 36,000 crore this year. The Finance Minister has chosen wisely by imposing STT and dividend distribution tax instead of tinkering with long-term capital gains tax and has also kept sales tax stable. No change in capital gains tax regime for listed stocks a positive for the stock exchange, however an additional tax 10% on dividends in excess of 10 lakhs and increase in STT on options a dampener for the markets. No change in individual slabs, POEM deferral, GARR confirmation, action point on BEPS master file and country by country report, road map to reduction to lower tax rates and phase out of exemptions along expected lines. The 25 percent corporate tax for new manufacturing companies without any tax exemptions clearly indicates defining course for tax rate to come down to 25 percent in future. Even as FM stuck to the fiscal path; he did manage to provide a major push to the farm sector and to infrastructure. The FM has stressed on the need to move farmers from food security to income security with the aim of doubling farmer’s incomes by 2022. There’s also a big push on irrigation and large sums allocated on that front. Roads and highways also gets major emphasis in Budget 2016, with a total outlay of Rs 2,18,000 crore being earmarked for roads and railways together in FY17. Rs 55,000 crore has been earmarked in the Budget for roads for that year.

Announcing more financial sector reforms, FM minister said new derivative products will be developed by SEBI in the commodity derivatives market.  Statutory basis will be provided for a Monetary Policy framework and a Monetary Policy Committee through the Finance Bill 2016. Target of amount sanctioned under Pradhan Mantri Mudra Yojana is proposed to increased to Rs 1,80,000 crore. General Insurance Companies will be listed in stock exchanges for improving transparency, accountability and efficiency. Comprehensive Central legislation to deal with Illicit Deposit Taking schemes will be enacted. FM also proposes to launch new health care scheme with Rs 1 lakh as cover per family. This will be positive for finance and insurance companies. Also has proposed Rs 5,500 crore for crop insurance scheme for FY17. This again is positive for insurance companies. If we talk above NBFC (Non-Banking Financial Services), they shall be eligible for deduction to extent of 5% of its income in respect of provision for bad debts. Foreign investment in insurance, pension sectors has been increased up to 49% via automatic route. This will give boost to financial sector and insurance companies. Deduction for additional interest of Rs 50,000 per yr, for loans up to Rs 35 lakh sanctioned in 2016-17 for 1st time home buyers. This is positive for housing financial companies.

The government has given a much-needed boost to the rural economy, which has been a drag on the economy as a whole compared to urban consumption. This also means that the nascent recovery in domestic consumption should get some legs in 2016, important in the context of weak global growth signals. The FM has outlined nine pillars on which the government would base its transformative agenda for the economy in the coming year, first among them agriculture and farmer’s welfare. Allocation for rural electrification with the target to electrify 100 per cent villages, digital connectivity of villages, crop insurance scheme, thrust on irrigation and organic farming, Rs. 15 lakhs for every panchayat for village development and MNREGA are all announcements towards giving boost to rural economy. FM has allocated Rs 35,984 crore for farmers' welfare, besides announcing a 228 per cent jump in funds for rural transformation and allocated Rs 38,500 crore for rural employment scheme MGNREGA.

In his attempt to mobilize additional resources to help the rural economy and keep the environment clean, FM proposed a dividend distribution tax (DDT) that will uniformly apply to all investors regardless of their income slabs. He propose that in addition to DDT paid by the companies, tax at the rate of 10% of gross amount of dividend will be payable by the recipients, that is, individuals, HUFs (Hindu Undivided Families) and firms receiving dividend in excess of Rs.10 lakh per annum. The same income is taxed thrice (economic triple taxation and juridical double taxation in hands of company) namely, corporate tax, DDT and additional 10% tax. This will restrict promoters with higher holding in companies from distributing profits. The FM also proposed to hike rate of Securities Transaction Tax (STT) in case of ‘Options’ to 0.05 per cent from 0.017 per cent earlier. The change in STT will not impact transaction volume in a meaningful way as it is levied on the option premium and not the total turnover.
[PAGE BREAK]

‘Disappointing to note imposition of excise duty on branded readymade garments’

Arun Ganapathy, CFO of Spykar Lifestyles in this exclusive article written for DSIJ, opines the textile industry is going through a rough patch with poor market sentiments as well as onslaught of online players through heavy discounting. Hence the idea of imposing excise duty on branded garments may dampen the spirit of this segment.

The Finance Minister has laid down a positive budget with focus on growth keeping the fiscal deficit under 3.5%.  The agenda being ‘Transform India,’ the budget proposals have been built on the nine pillars as envisaged by the FM in his budget speech.  Those nine pillars have clearly spelt the agenda of the Government in improving Rural and Social sector with focus on improving quality of life for the farmers and the NDA’s Government’s agenda on Development as there was special emphasis on Skills as well as job creation, transparency in financial sector reforms, Ease of doing business and reducing the compliance burden with better tax reforms.

However, as part of apparel industry, it is disappointing to note imposition of Excise Duty on branded readymade garments.  The industry is going through a rough patch with poor market sentiments as well as onslaught of online players through heavy discounting.  Considering the way the apparel market and demand is today with players clocking single digit same store growth, it would be difficult to pass on the effect of excise duty to the end consumer.  Hence, we need to be very cautious in increasing the MRP of the products – it should not lead to higher inventory levels with the brand.  Additional cess was expected as the Government works towards the path to implementation of Goods and Services Tax (GST).  However, this would impact those who cannot take input tax credit.

On the personal tax front, there are no big ticket proposals in the Budget which will help the common man to have some additional money in his wallet.  Salaried class, in particular will be disappointed.  This would impact the apparel industry as we vie for the share of his wallet.  Unfortunately, there is no addition to the money he carries in his wallet.  Added to this, the proposal to tax 60% of Provident Fund withdrawals have dented the sentiments of salaried class further.  However, at the time of writing this article, there is a clarification from the Revenue Secretary that only interest accrued on the contributions would be taxed.  This is a welcome move as many plan the marriage of their kids by withdrawing their PF.

The Budget has also laid emphasis on infrastructure investment as promised by Prime Minister Mr. Narendra Modi in the run up to 2014 Elections.  Investment programmes in roads, electricity, ports, waterways and digital connectivity has been given adequate budgetary allocation.  The focus is not only on increasing income of farmers through various schemes like E-platform, but also on improving the productivity with additional budgetary allocation on Irrigation, Crop Insurance and high budget allocation to Pradhan Mantri Gram Sadak Yojana which will improve the standard of living.

On the tax reforms, as mentioned earlier, though there is no big ticket item for individual tax payers other than small tax payers, certain reforms towards employment generation and affordable housing is a step in the right direction.  Though the limit for affordable housing is very low in case of metros, it would help those in other cities.   For the super rich individuals with annual income of more than Rs. 1 Crore, surcharge is increased from 12% to 15%.  Also, those with a dividend income of more than Rs. 10 lakhs, will need to shell out additional tax @ 10% on dividends received even though the company that is paying the dividend will pay Dividend Distribution Tax. 

Also, the proposal to reduce litigation and provide certainty in taxation is a positive move.  The proposal to settle tax cases pending before appellate authority by paying tax due along with interest upto the date of assessment as well as relaxation on penalty for cases where tax demand is less than Rs. 10 lakhs will pave a long way in reducing the litigations pending before Appellate authorities as well as the Courts. 

Relaxation of Foreign Direct Investment (FDI) norms, like permitting investment upto 49% in insurance and pension sectors through automatic route as well as 100% FDI in marketing of food products through FIPB route will lead to increase of share by Foreign investors in Insurance and pension sectors and farmers benefitting with investment by Foreign investors in food processing sector.
[PAGE BREAK]

“Jaitley made a good attempt to balance”

-          Ramesh Agarwal, Director, Rupa and Company  claims newly structured excise duties may bring down margins of the texile players

The union budget 2016, as presented by Finance Minister, Arun Jaitley, has made a lasting impact on the textile sector of India with the introduction of new customs and excise duty rates on certain inputs, raw materials, intermediaries and components, besides others. The textile sector of India is already reeling under tremendous competition and is operating at minimum margins. The introduction of excise on readymade garments with MRP above Rs. 1000 per piece has further brought down the margins and added to the cost of compliances.  

There has also been a surge in the tariff value for readymade garments and made up article of textile from 30% to 60%, as per the budget. The net impact of excise for readymade garment with MRP Rs.1000 and above is as below:

  1.2% without Cenvat credit (RSP* x 60% x 2%)

  7.5% with Cenvat (RSP* x 60% x 12.5%)

[* RSP = Retail Selling Price]

The industry expectations from the Union Budget 2016 have been a pragmatic one. Though, our Finance Minister, Arun Jaitley, can be said to have made a good attempt to balance both the worlds, given the small rope he is having. However, the results of the same can only be seen in the days to come, as the policies are implemented and reforms take shape. 
[PAGE BREAK]

Plan to diversify power generation sources for long-term stability is praiseworth

Nationwide electrification of villages, improving the tax litigation framework, renouncing retrospective taxation, plans to double farmers’ incomes within five years, recapitalisation of PSU banks, announcement of the GAAR implementation date as well as plans to skill
10 million youth and launch an Entrepreneurship Education and Training programme
are some commendable highlights of the 2016 Union Budget, says Ratul Puri, chairman of Hindustan Powerprojects Limited during a conversation with DSIJ.

Like previous budgets, the 2016 Union Budget would have been one of the most trying moments for Finance Minister Arun Jaitley. Nevertheless, the FM has done a commendable job by not only managing the fiscal deficit, but also balancing extra expenditures on many counts, such as public sector banks’ NPAs, OROP, the Seventh Pay Commission and other expenses.

Diversifying Power Generation

To begin with, the target of electrifying all villages across India by 1 May 2018 as well as provision of Rs8,500 crore for Deendayal Upadhayaya Gram Jyoti Yojna and the Integrated Power Development Schemes are all worth commending. The Government’s plan to diversify power generation sources for long-term stability is also praiseworthy because this is a comprehensive plan that will boost investments in nuclear power generation over the next 15 to 20 years. Despite apprehensions to the contrary, it should be noted that nuclear power creates a much lower carbon trail compared to conventional sources of power such as fossil fuels. Therefore, the Budgetary allocation of up to Rs3,000 cr per annum in this regard marks a robust beginning.

Increase in the Clean Environment Cess on domestic coal production from Rs200 to Rs400 per tonne will make coal-fired power generation more expensive and lead to somewhat higher power tariffs. On the flip side, though, this should make solar energy prices more competitive and come as a blessing in disguise, particularly for the Smart Cities’ programme, which will promote clean energy in a major way.

There are other aspects of the budget worth applauding, such as the initiative to improve the tax litigation framework, which is a critical area that can boost the ease of doing business in India. With the country having attracted negative perceptions due to retrospective taxation and other tax-related issues, this development is most welcome, along with the Finance Minister’s assurance of doing away with retrospective taxation. Globally, such developments will foster a positive image of India, making it much easier to attract overseas investments once the spectre of retrospective taxation has been buried.

Another good step is the Government’s bold announcement committing itself to doubling farmers’ incomes within five years, though it is not clear whether a roadmap for this has been announced. Given that the Indian economy still continues to be largely agrarian, this step should have a positive impact on the country’s growth.  

Addressing Multiple Imperatives

Additional highlights of the Union Budget include the Government’s commitment to implement GAAR (General Anti-Avoidance Rules) by 1 April 2017 and the deferment by a year of POEM (Place of Effective Management) to determine the residency of foreign companies. Other measures will make tax compliance easier, such as small corporate entities with a turnover of up to Rs2 cr per annum being allowed to avail the benefit of presumptive tax provisions and new manufacturing companies established after 1 March 2016 being permitted to take advantage of a lower rate of corporate tax at 25% plus surcharge and cess, subject to some provisions.

Amidst the pulls and pressures of budget allocations, the Finance Minister has not forgotten the travails of public sector banks saddled with high NPAs. Allocation of Rs25,000 cr for recapitalisation of PSU banks in 2016-17 however falls short of expectations. Nonetheless, this is a beginning of sorts for the troubled banks and higher amounts could be allocated in subsequent budgets, indicating the Government’s seriousness in boosting the bottom lines of PSU banks and improving availability of debt finance.

Yet another initiative that needs special mention is the Government’s decision to establish 1,500 Multi-Skill Training Institutes across India, for which an amount of Rs1,700 cr has been set aside under the ‘Skill India’ mission. Since there is an immense mismatch in the demand-supply of skilled talent, such Skills Training initiatives and the decision to skill 10 million youth over the next three years under the Pradhan Mantri Kaushal Vikas Yojna is laudable. Moreover, plans for Entrepreneurship Education and Training to be provided in 2,200 colleges, 300 schools, 500 Government ITIs and 50 Vocational Training Centres through Massive Open Online Courses will impart a long-term boost in the creation of jobs and other employment-generating avenues.

The roadmap outlined by the Finance Minister is the apt prescription to manage the country’s economic and physical well being. The Budget’s focus on the nine pillars as highlighted by the FM will benefit a cross section of society, including rural and urban Indians.
[PAGE BREAK]

‘ A credible budget with an eye on gradual reforms ‘

We cannot have a situation where a large portion of Indian industry turns defaulter. Instead we need to devise ways to enable the industry to revive with reviving economy and pay back its debt, says Arun Kumar Jagatramka, Chairman and Managing Director of Gujarat NRE Coke in this exclusive article written for DSIJ.

The budget had enormous expectations - the challenge was massive and ‘Budget 2016’ almost lived up to the expectations. This was the third budget that the Finance Minister Arun Jaitley presented and probably the most crucial in terms of the challenges he was facing. One must accept that he has done an exceptional job in terms of renewing the faith of the investors along with keeping an eye on the importance of rural economy as well as various structural reforms.

The underlining objective of the budget was clear- to increase the ease of doing business and to promote ‘Make in India’. The nine pillars of the budget as emphasised by the finance minister revolved around creating an ideal mix for the economy to attain double digit GDP growth. Increased budgetary allocations for government’s flagship social schemes like the MGNREGA, roads and highways, rural electrification, health insurance for the poor, crop insurance, education and skill development, water resource management etc are all aimed at creating an equitable society.

The focus on rural development and agriculture along with steps to increase rural income would have a positive effect in kick starting demand and consumption. The increased public investment in various infrastructure projects would help in reviving the investment cycle in the economy. India lives in villages. The demand growth that would come from rural India would certainly help in reviving the manufacturing sector and employment in the long run.

While the long term view is laudable, the budget lacks in providing an immediate relief and a booster dose to rejuvenate and revive the ailing domestic industry.  Continued downturn of over last five years has struck the domestic industry very hard. The industry is suffering from excessive involvement in debts, high interest burden, sustained low demand, and high operational cost and squeezed margins. The budget did not provide the means to impart liquidity in the system to come out of the crisis. The amount of Rs.25,000 cr set aside for recapitalisation of bank is inadequate. We cannot have a situation where a large portion of Indian industry turns defaulter. Instead we need to devise ways to enable the industry to revive with reviving economy and pay back its debt.

In the regulatory reforms, the roll out of the comprehensive Bankruptcy Code and the proposed Public Utility Dispute Resolution legislation are welcome steps for promotion of business and entrepreneurship. The aim of the government in reducing litigation in case of direct taxation and certainty in taxation has been the need of the hour. The abolishment of 13 cesses levied by various ministries is a right step in the simplification of taxation. This is just the stepping stone for introducing the GST that has been long pending. Reduction of customs and excise duties on certain inputs, raw materials etc is in union with the ‘Make in India’ objective of the government.

The doubling of the clean energy/environment cess on coal may be seen as a regressive step. The doubling of the clean environment cess from Rs 200 per tonne to Rs 400 per tonne, which is also applicable on coking coal, will have a telling effect on the metallurgical coke industry and subsequently on the steel industry. Coking coal is different from thermal coal as no carbon is burnt and hence carbon dioxide is not produced while coking coal is converted to metallurgical coke being used in steel production. There is no other alternate to coking coal that can be used as a raw material for production of metallurgical coke. Renewable energy sources are alternate to thermal coal, hence there exists a case for clean environment cess on thermal coal to promote use of clean renewable energy. However, in the absence of any alternate to coking coal, the clean environment cess only increases the cost of production of met coke and consequently steel production in India. The government needs to rethink on this issue and separate coking coal from non-coking coal so that the former is not subjected to an irrelevant taxation.
[PAGE BREAK]

‘Budget has failed to address the concerns of tourism industry’

Navin Suchanti, Managing Director of Sinclairs Hotels claims despite the fact that tourism industry has a huge potential to create jobs and generate foreign exchange earnings, the Finance Minister has ignored the demands of the industry in his third budget. He writes for DSIJ on the issues of tourism industry in India and what role the government could have played through its budget document.

A)            What are your views on the union budget?

Finance minister Arun Jaitley has passed the test of staying on course of financial consolidation while still finding additional resources to keep the country’s growth engine chugging with flying colours. From the International Monetary Fund to World Economic Forum, every institution is seeing in India a “bright spot” when the global economy is facing headwinds. India is to end the current fiscal with GDP growth of 7.6 per cent. The two major points of concern that Mr Jaitley has addressed adequately in the budget are rural distress caused by two consecutive years of deficit monsoon and lack of private sector investment.

Doubling the income of farmers in five years is a challenging task. Undaunted, Mr Jaitley has announced a series of measures including provision of Rs.900,000 crore for agricultural credit, crop insurance and a unified e-platform for farmers. The capacity of an economy to absorb investment depends on its infrastructure. This and also the need for job creation has led the finance minister to provide Rs97,000 crore for road building during 2016-17. The total on this head comes to Rs218,000 crore if the Railways investment in road construction is included. Infrastructure as a whole is a high priority area for the government.

Public sector banks with growing stressed assets and the swelling ranks of wilful defaulters remain a major concern for the government. In order to restore health to these banks, Mr Jaitley will have to ensure that the “special efforts to effect recoveries” that he mentioned in his Budget speech bear fruit. He has made a provision of Rs25,000 crore for recapitalisation of banks. The banks have also the assurance of further capital support from the finance minister if need arises.

B)             How is the budget going to affect your industry?

The massive investment in infrastructure is certainly good news for the tourism industry. With better rail and road infrastructure and newer airports, the connectivity to various tourist destinations will improve and this will directly result in growth of tourism. There is a big shortage of skilled manpower in the industry and the ‘Skill India’ initiative will hopefullysee a large number of skilled resources being available to the hospitality industry.  

C)             How has Union budget 2016 actually turned out compared to your and the industry’s expectations?

Over the years, the wish list of industry has got sufficiently moderated. What will make every businessman happy is good governance, simplification of tax administration and not to be tied down by bureaucratic red tape.

As far as tourism industry is concerned, unfortunately the budget has failed to address the concerns. Despite the fact that tourism industry has a huge potential to create jobs and generate foreign exchange earnings, the Finance Minister has ignored the demands of the industry. While superior infrastructure will improve connectivity and hence boost tourism, the industry expected that given the capital intensive nature of the business, tourism will be accorded ‘Infrastructure status.’ This expectation has been belied. The industry was also looking for a rationalised tax structure as the multiplicity of taxes and the high taxation structure  is one of the greatest hindrances to tourism growth.

D)            What are your views on the travel and tourism industry of India given the huge potential it has in terms of employment generation and foreign exchange earnings?

India has a rich repository of tourism assets and unfortunately we have not been able to realise the potential of tourism in the country. Setting up hotels and resorts have become prohibitively expensive, given the cost of land, especially in metros and established destinations. Therefore, until long term finance at competitive rates are available, the industry cannot expand. In addition, fiscal incentives in terms of policies and tax exemptions for the first five years is a necessity for the industry to survive and prosper.  For example hotels and resorts should be eligible for a higher FAR and eligible for tax exemptions in procurement of capital assets. Just like the government has announced Smart Cities, it should look at announcing ‘PARYATAN NAGAR’ by selecting destinations which have enticing natural beauty but presently underdeveloped. There are many such places in north east India which abounds in natural beauty but because of lack of infrastructure, tourism has not developed there.
[PAGE BREAK]

Siddarth Bharwani, Vice President of Jetking Infotrain in this exclusive article written for DSIJ says the budget is well-rounded however there is a scope for improvement in plenty of areas and lacks clarity in terms of execution of some the initiatives announced.

On higher education:

The plans to enable regulatory architecture which will be provided to 10 public and 10 private institutions is a welcome development which will address the participation of private sector players in the education sector and emphasize teaching and education.

The creation of a Higher Education Funding Agency (HEFA) with Rs 1,000 crore for the improvement of infrastructure in higher education institutions is the right decision. Whereas in the case of skill development, the government has announced 1,500 Multi Skill Training Institutes across the country with a recognized board for certification purposes. Hopefully, this will enhance the recognition of formally skilled alumni and youth will be more widely accepted for employment in public & private sector. For ‘Make in India’ to be a workable solution for employment and economic growth, the government needs to work on the 2-R framework, i.e. Rigour & Relevance while training students:

Rigour would address the Hands-on training, imparting students with 21^st century skills and a more correlated system between the industry and academia so that education is end to end. While relevance, would ensure that everything that our students are learning and the curriculum the academics is imposing is relevant. The manpower imparting the education is equipped with relevant tools i.e. SMAC enabled technology and/or digitized learning platforms that can provide a holistic learning environment.

On Rural skill development:

The initiatives aimed towards setting up of model career centers and activities aimed to increase job creation are also welcome. However, attracting foreign investment to address the lack of quality education infrastructure for everyone and also promoting online and virtual education for wide-spread coverage and removing service tax incidence on input services have not been addressed.

According to the United Nations Human Development Report, 2015 has ranked India on 130th position among 188 nations listed in the UN’s Human Development Index. Even among the BRICS countries, India trails behind Russia, Brazil, China and South Africa. To ensure we can leverage the massive demographics advantage we possess, we need to revisit the state of education, health and social welfare currently prevalent. There has also been talk of setting up 62 more Navodaya Vidyalayalayas and a digital literacy scheme for rural India. However, at present there are no clear indications as to how the thousands of government schools will be improved to provide quality school education for all. Massive online courses (MOOC) could easily address these concerns and are the need of the hour.

 

On Start-ups:

The sops that are being offered to start-ups such as tax holidays for three to five years of setting up a company will give a boost to micro businesses to a large extent. The announcement of a hub to support SC/ST entrepreneurs is going to further accelerate India’s tech dominated start up story as a lot of talk has been about how this is a farmer’s budget or is a pro poor budget. I would completely agree. Such hubs will not only empower more rural level business but also create multiple jobs in smaller towns. . This will also increase the options for bigger firms who have invested in these ventures in the past. Hence we might witness more such partnerships in the next few years.

On IT Giants:

In the last few quarters, healthcare and BFSI verticals of most Indian IT companies have seen a fall in the sales growth charts due to weak global cues and demand. Further, with growing competition from new startups and peers, profit margins have been slashed. Hence, the push for the digital India initiative by the government is going to offer opportunities in relatively untapped areas for these firms.

Thus, while the budget on education and skill development points in all the right directions, we have miles to go to make education and skill development transformation a ground reality.

On Manufacturing of Electronics:

Many are rightly unhappy about the 2% special additional duty levied on populated printed circuit boards used to make mobile phones and tablet computers but is far cheaper an alternative for imported parts and hence in line with the government’s objective of establishing India as a hub for electronics manufacturing.

The industry would also need a Knowledge Attitude Skill Habits (KASH) to cash mapping, i.e. KASH of the younger generation need to be aligned to the jobs coming from the Make in India initiatives. For these job to be exciting, the ‘cash’ needs to be mapped to the Employability assessment of the students thereby making it important to keep the Make in India initiative aspiring for the younger job seekers.

-          The author is Siddarth Bharwani, Vice President at Jetking Infotrain Limited
[PAGE BREAK]

‘Pains to see aviation sector been royally ignored in budget’

The only positive could be a proposal to increase visa-on-arrival to 150 countries since this could boost tourism and therefore aviation in the country, feels Deb Mukherjee, CEO of Wisdom Capital.

Introduction

India is the ninth largest civil aviation market in the world. India’s civil aviation industry is on a high-growth trajectory. It recorded an air traffic of 163 million passengers in 2013, estimated to be 60 million international passengers by 2017. The market is also estimated to have 800 aircraft by 2020.India aims to become the third-largest aviation market by 2020 and the largest by 2030. 

The Civil Aviation industry has witnessed a new era of expansion, driven by factors such as low-cost carriers (LCCs), modern airports, Foreign Direct Investment (FDI) in domestic airlines, advanced information technology (IT).

Market Horizon

In the July-September quarter of 2015, domestic air passenger traffic surged 21.5 per cent to 20.12 million from 16.57 million in the corresponding period a year ago. Total passengers carried in September 2015 increased 13.24 per cent Y-o-Y to 8.73 million from 7.71 million in September 2014. International and domestic passenger traffic grew 6.6 per cent and 15.5 per cent, respectively, in September 2015.

In September 2015, total aircraft movements at all Indian airports stood at 145,628, which was 10.2 per cent higher than September 2014. International and domestic aircraft movements increased 7.5 per cent and 11 per cent, respectively, in September 2015.

Over the next five years, domestic and international passenger traffic are expected to increase at an annual average rate of 12 per cent and 8 per cent, respectively, while domestic and international cargo are estimated to rise at an average annual rate of 12 per cent and 10 per cent, respectively. The airlines operating in India are projected to record a collective operating profit of Rs 8,100 crore (US$ 1.29 billion) in fiscal year 2016, according to Crisil Ltd.

Foreign Direct Investment:

According to data released by the Department of Industrial Policy and Promotion (DIPP), FDI inflows in air transport (including air freight) between April 2000 and June 2015 stood at US$ 573.12 million.

Government /Public Private Partnership

Government agencies project that around 500 brownfield and greenfield airports would be required by 2020. The private sector is being encouraged to become actively involved in the construction of airports through different Public Private Partnership models, with substantial state support in terms of financing, concessional land allotment, tax holidays and other incentives.

Union Budget & Sector’s Euphoria:

It is felt by most of the aviation honchos that the sector has been largely ignored in the Union Budget for 2015-16, as most of the sector's demands such as giving airlines infrastructure status and bringing down taxation on MROs have been ignored. Besides, air travel in business class or first class could get more expensive as the rebate available earlier has been reduced.  Also, it remains to be seen if the announcement by Finance Minister Arun Jaitley that this government may look at divestment or strategic sale of loss making PSUs could have any implication for the ailing Air India.

For 2015-16, Jaitley has provided only Rs 2,500 crore against the airline's demand of Rs 4277 crore. Air India's net loss came down to Rs 5,389 crore in FY14 compared with Rs 5,490 crore in FY13 and Rs 7,559.74 crore in FY12.

In the Budget, Rs 80 crore has been provided to the Airports Authority of India, of which Rs 22 crore has been earmarked for the new greenfield airport coming up in Pakyong, Sikkim.

CAPA's Kapil Kaul said he was not expecting anything from the Budget "and the FM has not surprised me. Aviation continues to be completely ignored and a low priority".

Amber Dubey, partner and India head, aerospace and defence, KPMG, termed the Budget as a disappointing day for aviation. He bemoanted that long pending industry demands of tax rebates on Aviation Turbine Fuel, Maintenance Repair and Overhaul services (MRO), airports and general aviation have been ignored. "Higher service tax will enhance airfares. Loss of MRO revenue, jobs and taxes to Sri Lanka, ASEAN and the gulf countries will continue,” he regretted.

The only positive could be a proposal to increase visa-on-arrival to 150 countries since this could boost tourism and therefore aviation in the country. Moving towards a unified regime of GST will also help in unifying the taxes across the country and will be helpful to the aviation sector.

Conclusion

India’s aviation industry is largely untapped with huge growth opportunities, considering that air transport is still expensive for majority of the country’s population, of which nearly 40 per cent is the upwardly mobile middle class.

The industry stakeholders should engage and collaborate with policy makers to implement efficient and rational decisions that would boost India’s civil aviation industry. With the right policies and relentless focus on quality, cost and passenger interest, India would be well placed to achieve its vision of becoming the third-largest aviation market by 2020 and the largest by 2030.
[PAGE BREAK]

‘We intend to reduce our debt by Rs.300-500 crores per year,’ Cox & Kings//header

Synonymous with travel and tourism, Cox & Kings is positive on the medium-term growth prospects of its Leisure – International portfolio. Talking to Abhishek Kumar of DSIJ, its Chief Financial Officer, Anil Khandelwal also says his company is positive on the mid-term growth prospects of its businesses.

First share your views on recent Q3 numbers, which have beaten the street expectations.  

Our Leisure – India business continues to perform strongly. We have gained market share. The Meininger hotels business has seen see robust occupancy and rates this year. The third quarter is seasonally lean for the education business, so one may not read much into the numbers. Within our Leisure – International business, we made large investments in our online brands this quarter.

Going forward do you think Cox & King would be able to sustain this level of performance?

Each of our individual businesses is uniquely positioned with robust brands. We are positive on the medium-term growth prospects of each of our businesses.

What are your views on the intense competition your business faces from both online and offline competitors?

We have gained substantial market share this year, versus leading players both in the online as well as offline area (excluding any inorganic growth). The Cox & Kings brand is very strong and our holiday packages are highly competitive. The market for holiday packages is growing well on the back of strong income growth, contained inflation rates, changing expenditure patterns in favour of holidays rather than material goods, excellent value offered by tour operators, and value-added services such as visa, forex etc. all delivered under one roof.

Leisure segment has shown an improved performance as it increased by 22 per cent y-o-y. Do we see Cox & King improve this performance in the coming quarters?

We are very positive on our leisure business. Leisure – India continues to grow well as described above. Within our Leisure – International business, we have added a significant online brand in the last six months called Laterooms to complement our Superbreak short-city-breaks online brand. This gives us a significant beach-head in the online travel space in the UK which is a traditionally strong market for us. We are positive on the medium-term growth prospects of the Leisure – International portfolio.

How do you expect your education business perform in the coming years? As on a yearly basis we saw a decline in revenues.

The third quarter is lean season as mentioned above and hence not much can be extrapolated by the performance in the third quarter, which was affected by the Paris attacks. 9M16 net revenues have risen by ~4% y-o-y on a very high base of last year. We are a market leader in the UK in the experiential learning business. Our brands PGL and NST are household names. We have made a successful foray into Australia 18 months back, and we intend to bring experiential learning to more countries, using our 57 years of experience in this field. We are positive on the long-term prospects of this business, which is characterised by our significant moats with regard to health & safety and quality of our programs.

We saw a substantial decrease in your finance cost for Q3. Where does your debt currently stand, and how much can you reduce it by the end of FY16?

Our net debt currently stands at Rs.2,304 crores. We have reduced our debt by ~Rs.1,900 crores over the past 18 months through a slew of measures and are now in a robust financial position. Our net debt to equity stands at a comfortable 0.6x. We intend to reduce our debt by Rs.300-500 crores per year.

It is widely expected that any slowdown in the domestic leisure travel and education business could pose risks to your earnings. How prepared is Cox & King to tackle such a scenario?

We have market-leading brands across travel and education. Both leisure travel and experiential learning are sectors which are on a secular growth trajectory globally. We are uniquely positioned as market leaders in both those industries. Of course in the event of macro instability or some financial crisis, it may not be correct to assume that we will not be affected.

Cox & Kings recently acquired one of the oldest online brand LateRooms. How will Cox & King be able to drive synergies between LateRooms and SuperBreak?

Laterooms  is an extremely strong online brand in the UK, which is a big market. There are numerous synergies between Laterooms and Superbreak. We will use Laterooms’ 3.5-million strong customer register to sell our great-value city-break holiday packages (Superbreak) online. There is substantial demographic overlap between the two businesses and we believe this combine will spearhead our move in the online space, thereby boosting medium-term growth prospects.

In future do we see Cox & King going after more such technology driven hotel- booking firms or startups?

We are always looking for value-added technology; we have a substantial IT budget which we are pre-disposed to spending organically.

What are your views on the Travel & tourism industry of India? Given the huge potential it has in terms of employment generation and foreign exchange reserve for the country?

Inbound tourism is a focus area for this government, which can be a massive employment generator and foreign exchange earner. Each job in the tourism sector multiplies almost three times upon itself, according to the World Travel & Tourism Council.

However, there would have to be substantial investments made in soft as well as hard infrastructure if India is to achieve the same kind of success as Malaysia or Thailand or Cambodia in the tourism sector.

Indian rupee has declined more than 6 per cent in 2016, which in turn make foreign travel costlier. How do you see this affecting your overall business?

The rupee has been remarkably stable against the dollar over the last 24 months, especially when compared with other emerging market currencies, which have depreciated significantly. Indeed, the rupee has strengthened considerably versus the euro – a key tourist destination – over the last 18 months.

Due to the overall strength of the rupee, currency is unlikely to be a key concern for Indians wanting to book international holidays.

Over the last 15 years, rupee depreciation against the dollar has not been a material adverse factor against the trend of rapidly growing outbound travel.

A trip has many elements when it comes to costing. This includes the currency in which the trip is priced (i.e. the destination’s currency), the airline ticket price, the hotel room price, the food costs, the taxiing and transferring, the site-seeing, tours and attractions, the volumes that we send (i.e. the higher the volumes, the lower the cost).

Trip prices to the US for e.g. have not increased substantially this year despite the rupee depreciation against the dollar. This is partly because the price of an airline ticket has stabilised at a lower level than last year.

Looked at from the point of view of some other destinations such as Europe, Middle East, Australia, South East Asia, Africa etc., the rupee has been quite firm against these currencies, making the trip even less expensive y-o-y, i.e. in addition to lower airfares.

The role of package tour operators such as Cox & Kings in making a foreign trip cheaper should also not be under-estimated. Indians love travelling in groups, much like people in other countries such as China. C&K has managed to play to its strengths to extract the best possible value from destinations by channelling volumes to suppliers/vendors effectively. The higher volumes keep the overall cost of the trip low and allows more and more people to travel at a reasonable price.

For a customer, there is a certain minimum outlay of money for any foreign trip – especially for families. As travel agents, we understand our role as a custodian of the traveller’s holiday, and our performance has led customers to reward us with their trust over the years. We utilize our buying power in various geographies to deliver the best possible value in each destination to our customers. Europe remains a hot favourite among Indian travelers – and more particularly with the depreciation in the euro year-over-year versus the rupee. We can see increasing demand for trips to Eastern Europe. We also see demand for destinations such as Africa and Australia/NZ. We have also seen some demand for trips to China due to excellent-value deals on offer. South East Asia remains a perennial favourite, as does Dubai.

What are your views on the concluded Union Budget 2016?

For the customer, on the income side, measures such as the Seventh Pay Commission will serve to increase disposable incomes in the hands of our customers and bodes well for the travel sector. This is significant because it is coming at a time of contained inflation rates.
[PAGE BREAK]

Four banks that you can bank upon in these days of uncertainty

Karan Bhojwani reads through FM’s budget document and decodes what does the union budget mean for PSU banks. He finally finds four banks’ stocks for DSIJ reader-investors while adding, invest in these four for a medium or long term.

The Indian equity markets are off to an unpleasant start in the year 2016 following slowdown in the world’s second largest economy, China and the steep correction of crude oil prices. separated for these elements one more elements which has noiselessly added to the fall in the Indian markets is the NPA concern for PSU banks. It's difficult to accept that twenty-nine state-possessed banks discounted an aggregate of Rs 1.14 lakh crore of terrible obligations between budgetary years 2013-2015, a great deal more than they had done in the previous nine years. As the union budget was tabled on February 29, the central issue what is in store for the PSU banks was not clearly sorted out by finance minister, Arun Jaitley except an indication of allocating Rs 25,000 crore worth funds for these ailing banks run by the government. Clearly, this is the one sector that requires further solid sprucing up from the government.

There is a typical illness among investors and traders. They want to mould themselves in the same style as of ace investor Warren Buffet. They are everlastingly inquiring as to whether there is a deal in purchasing stocks that have been pounded down. This strategy is not altogether different from purchasing in a positively trending market, wanting to locate a greater imbecile who will pay more. In bear markets, investors feel costs have fallen so much that they need to go up irrespective of considering that the stock is a value or a trap. Those tormented by this malady are currently gazing toward PSU bank stocks. Henceforth, the central issue emerges is this the opportune time to enter the PSU Bank Stocks or still there is more torment left?

Let’s look at the technical perspective on the Nifty PSU Bank index and PSU bank stocks which are the ones to grab in heavy discounted price.

On the weekly time frame, the Nifty PSU Bank Index registered 52-week high around levels of 4453-4454 in the month of January, 2015. The index had formed a bearish Tweezer Top pattern around the 52-week high levels, this pattern occurs during an uptrend when bulls take prices higher, often closing the candle near the highs. However, the second candle opens at higher levels and goes straight down, eliminating the entire gains of first candle. From that point forward the index has framed succession of lower top lower bottom and bringing about fall over of 50 per cent in span of one year. As of late, the PSU bank index has formed a double bottom pattern, this pattern is shaped by interfacing two noteworthy lows, and first low was formed in the month of August, 2013 around levels of 1908 and second low around levels of 1894 in the month of February, 2016. The momentum oscillator RSI has also marked a double bottom pattern around levels of 19-20.

Presently going ahead, the PSU bank index has significant resistance around levels of 2200, only if the index manages to maintain over these levels it will open up for levels of 2440 on the upside. However, breach of double bottom pattern, the index is likely to open for further correction and in this case it’s likely to test levels of 1577 on the lower side.

Here is the list of some stocks which are quite a bargain buy at current levels

1.     State Bank of India: The stock is currently trading at Rs 157. Its 52-week high/low stands at Rs 315/ Rs 148.25 were made as on 04^th March, 2015 and 12^th February, 2016. Stock after registering high of Rs 336, on the weekly time frame it formed a ‘Bearish Engulfing’ Candlestick pattern, this pattern indicates dominance of the bear’s and then the stock entered into a corrective phase and it formed a sequence of lower top and lower bottom. At present, the stock is hovering around its crucial long term support is marked by horizontal trend line in the chart around levels of Rs 144. Investors and traders can consider this support zone to accumulate this stock for medium to long term horizon.  The momentum oscillator is in oversold zone and hence, a bounce back cannot be ruled out. On the upside level of Rs 188 would be a strong resistance zone for the stock and further up-move can be seen only if stock sustains above this level.  

2.     Bank of Baroda: The stock is currently trading at Rs 128. Its 52-week high/low stands at Rs 216.30/ Rs 109.35 were made as on 18^th August, 2015 and 12^th February, 2016. After registering high of Rs 228.90 stock underwent a correction phase and retraced about 61.8 per cent of the up-move from the lows of Rs 86 registered in the month of August, 2013 to high of Rs 228.90 in the month of January, 2015. The Stock found a good base around 61.8 per cent retracement and started to move northward and moved about 78.6 per cent retracement of the down move from the highs of Rs 228.90 to Rs 137.15. Since then the stock formed a sequence of lower top and lower bottom. The low of Rs 109.35 is a PRZ (Potential Reversal Zone) as per the Harmonic Pattern named as ‘Bullish Gartley’. Considering this investors and traders can accumulate the stock in zone of Rs 109-115 for medium term to long term. The zone of Rs 141-147 is a resistance zone and only if the stock moves above these levels expects a further upward movement in the stock.

3.     IDBI Bank: The stock is currently trading at Rs 55.60. Its 52-week high/low stands at Rs 95.70/ Rs 47.25 were made as on 03^rd December, 2015 and 12^th February, 2016. The stock has formed a Bullish Harmonic Pattern named as ‘Bullish Bat’ and the PRZ (Potential Reversal Zone) stands around Rs 52.30. The stock has formed multiple bottoms around the Potential Reversal zone of the Bullish Bat and once the stock did breach this support, but the bears were not able to hold prices lower and stock respected the horizontal trend line support and now it’s comfortably trading above the support line. Investors and traders can accumulate stock in the range of Rs 52-54 for medium to long term investment horizon. However, if stock manages to close below levels of Rs 45, then there would be failure of pattern and stock will move in southward direction.

4.     Bank of India: The stock is currently trading at Rs 83.70. Its 52-week high/low stands at Rs 250/ Rs 80.10 were made as on 04^th March, 2015 and 12^th February, 2016. The stock has formed a Bullish Harmonic pattern named as ‘Anti Shark’. The stock had also formed a Tweezer Bottom pattern along with a Doji which is a reversal candlestick pattern around the PRZ (Potential Reversal Zone). At present, stock is consolidating around the PRZ zone. Hence, medium term and long term investors can start accumulating stock at current levels. However, Once the stock moves above levels of Rs 88-89, its likely to gain momentum and its likely to move further up to levels of Rs 107-110. Investors can maintain a stop loss of Rs 75. The momentum oscillator RSI is trading in oversold zone and hence a pullback rally is likely to be seen in the stock.

Conclusion:  As the saying goes ‘Every Cloud has a Silver Lining,’ after a hefty correction in the Nifty PSU bank index, its open door of opportunity for the long term investors to accumulate quality stock which are likely to deliver handsome gains in the medium-long term. We have handpicked four stocks out of 11 stocks in the Nifty PSU bank index, which are bargain buy in the PSU bank index. We are not recommending these stocks for short term bets or day trading.
[PAGE BREAK]

‘Positive for cement manufacturers and infra players’

MSR Manjunatha, Director- Ratings of Brickwork Ratings believes budget FY17 will have a beneficial impact on the cement Industry, based on investment and increase spending in infrastructure, housing sector, and commercial real estate.

India is the second largest cement producer as well as consumer in the world accounting for around 6.7 per cent of the entire world’s output.  This has attracted international cement majors like Lafarge, Holcim and Italcementi. Current installed capacity is in the range of 400 million tonnes, and set to rise further. This capacity creation is led by the significant growth in infrastructure and construction (mainly housing) sectors for the last two decades.  Capacity utilisation is expected to touch 75% for FY16. As the government is allowing import of cement without levy of import duty, in recent times, Clinker is being dumped in India by imports from countries like China, Indonesia and Thailand. Industry expects levy of import duty as it has done in the case of dumping of steel, to support the Industry.

Firstly, one needs to await the Exim Policy of the government to see if the government will announce any tariff based constraint for import of clinker. However, there is a silver lining in the form of budgetary allocation of Rs. 55,000 crores for Roads and Highways for speeding up the stalled projects. Overall outlay of Rs. 97,000 crores including PMGSY allocation and Rs. 2,21,246 crores outlay for Infrastructure sector are expected to provide boost to the Cement sector as ~29% of investment in highways is towards construction or upgradation of bridges.  Government has speeded up the process of road construction and is looking to award 10,000 kms of road contracts in FY17. This would give a boost to cement consumption. The allocation towards the Pradhan Mantri Gram Sadak Yojana scheme has been increased to Rs 19,000 crore for FY17. The government has pledged to connect remaining 65,000 eligible habitations by 2019.

Likewise, cement sector benefits from other announcements that increase spend on construction.  Government initiatives through Pradhan Mantri Awas Yojna embodies the assurance of housing for all.  Other measures to encourage housing sector include 100% deduction for profits to undertaking in housing project for flats up to 30 sq. mt. in four metro cities and 60 sq. mt in other cities, approved during June 2016 to March 2019 and completed in three years, additional interest deduction of ` 50,000 per anum for loans up to Rs. 35 lacs and value less than Rs. 50 Lacs, and excise duty exemption for Ready Concrete Mix manufactured at site from 12.5% to nil.  Benefits to new SEZ units will be available to those units, commencing activity before March 2020, which can boost commercial real estate.   In line with government's vision to develop smart cities as satellite towns of larger cities, the government has allocated Rs. 7,296 crore towards Urban Rejuvenation Mission (AMRUT and Mission for Development of 100 Smart Cities).

Overall, Budget FY17 will have a beneficial impact on the cement Industry, based on investment and increase spending in infrastructure, housing sector, and commercial real estate.