30th Issue

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THE BUSINESS CAPSULE30th Issue Date: 19th May,2012

The Editorial By Ashwin Kumar

Lot of changes have come in the marketss with emerging trends ,withdrawl of FIIs and the global issues and its implications on domesticand international markets. With the chief aim of being acceptable and worthyful we have incorporated corporate news and economy newsand also market wach to more be able to read and understand the markets presently .

NEWS FOR USE By Namita Katariya

Market news

Cabinet clears Micro Finance Bill; RBI to regulate MFIs

The Union Cabinet approved a bill to regulate the micro finance industry and bring the micro lenders under the purview of the ReserveBank.The draft Bill, which was circulated for public comments in July last year, had proposed making RBI the regulator for the sector.Itwould be mandatory for micro finance institutions (MFI) to be registered with the Reserve Bank and have a minimum net-owned funds ofRs 5 lakh.In addition, a Micro-Finance Development Council will be set up to advise the government on formulation of policies, The draft

Bill also proposes that any MFI, which is not a company registered under the Companies Act, 1956, and which becomes a systemicallyimportant micro-finance institution, shall convert its institution into a company registered under the Companies Act, 1956, with orwithout a licence, under Section 25 of the Act.The Reserve Bank will cancel the certificate of registration granted to a micro-financeinstitution if it fails to comply with the directives or conditions, the draft Bill states.The government had earlier introduced the MicroFinancial Sector Bill in the LokSabha in March, 2007. However, the Bill lapsed when the term of the 14th LokSabha expired in 2009.

Securitisation norms to help boost mkt: Fitch

The final guidelines on securitisation transactions can promote long-term growth of the securitisation market, provided there is clarity onthe tax treatment side of the pass-through certificates (PTCs), Fitch Ratings has said.Securitisation involves pooling of homogeneousassets and the subsequent sale of the cash flows from such asset pools to investors.The RBI had issued the final norms for securitisationtransactions. It asked banks to conduct regular stress-tests on their securitisation exposure to ensure that banks are not exceeding theirprudential limits.Singh said the greater due diligence requirement in the new norms will also make it unattractive and has the potential toreduce new issuance volume in the country.

RBI asks exporters to sell 50% of forex earnings

In order to arrest the declining value of the rupee, the Reserve Bank today asked exporters to sell 50 per cent of their retained foreign exchange

earning."On a review of the scheme, it has been decided that 50 per cent of the balances in the Exchange Earners' Foreign Currency Account

(EEFC) accounts should be converted forthwith into rupee balances and credited to the rupee accounts as per the directions of the account

holder," RBI said in a notification.As per the existing rules, an exporter is allowed to retain 100 per cent of their earning into foreign currency.

Following a series of actions by the central bank, the rupee today recovered by a hefty 60 paise to 53.24 against the US dollar in early trade fromyesterday's close of 53.82.

Par panel for better coordination to check money laundering

Concerned over possible flow of tainted money in capital markets, a Parliamentary committee suggested setting up of monitoring andcoordination mechanism by all regulatory and intelligence agencies including RBI, SEBI and Enforcement Directorate to deal with themenace of money laundering. The Committee is headed by former Finance Minister and senior BJP leader YashwantSinha.It further saidthat "all the regulatory and intelligence agencies including the RBI, SEBI, FIU (Ind), the Enforcement Directorate, the Director of RevenueIntelligence and Investigation Wing of Income Tax Department should set up a monitoring/coordination mechanism for this purpose.

No FIPB nod required for FIIs to invest in commodity exchanges

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THE BUSINESS CAPSULEThe RBI said foreign institutional investors (FIIs) can invest up to the permitted limit of 23 per cent in commodity stock exchangeswithout prior approval of the government.However, prior clearance from the Foreign Investment Promotion Board (FIPB) is required forforeign direct investment (FDI) in such exchanges.India allows foreign investment in commodity exchanges, with a composite ceiling of 49per cent with FDI limit of 26 per cent and FII limit of 23 per cent under Portfolio Investment Scheme (PIS).In order to discourage importof sub-standard machinery, the DIPP had also decided to withdraw the facility of giving equity in lieu of import of second hand equipment.

FM rolls back duty on jewellery

Government rolled back the one per cent excise duty levy on branded or unbranded precious metal jewellery sacrificing Rs 6 billion anddeferred implementation of anti-tax avoidance rules by a year as a sop to foreign institutional investors.Finance Minister PranabMukherjee, even while standing firm on the on the Vodafone tax issue, addressed foreign investors' concerns saying the retrospective taxamendment will not be used to reopen cases where the assessment orders have been finalised.Jewellery traders all over the country hadgone on a long strike in protest against the one per cent central excise on branded and unbranded jewellery.Thewithdrawl of the 1 percent excise duty and some other changes in excise and customs duties would entail a revenue loss of Rs 6 billion.

Implementation of GAAR provisions deferred

Giving relief to investors, Finance Minister PranabMukherjee deferred the implementation of General Anti-Avoidance Rules (GAAR) tocheck tax evasion by one year.The GAAR provisions will now apply to income of Financial Year 2013-14 and subsequent years.TheCommittee has already held several rounds of discussion with various stakeholders including the Foreign Institutional Investors. "Afterexamining the recommendations of the Standing Committee on GAAR provisions in the DTC Bill 2010, I propose to amend the GAAR," hesaid.

India soon to export 1 mntonne of sugar

India, world's second biggest sugar producer, had in March allowed mills to export 1 million tons of sugar to ease a surplus.The globaleconomic crisis, the sovereign debt crisis in Europe and the economic slowdown in developed economies including US had adverselyimpacted demand for India's exports.Even though exports in March this year declined by 5.7 per cent - the steepest fall in three years - theexport target of US$ 300 billion was met in 2011-12 fiscal, he said.Oil import bill in 2011-12 touched US$ 162 billion while gold importscost US$ 60 billion.Trade deficit increased by 55.8 percent.

DoT moves cabinet note on NTP 2012

The DoT is learnt to have moved the draft Cabinet note on National Telecom Policy, 2012, which aims at de-linking spectrum from licencesamong other proposals."Draft cabinet note on NTP has been sent to cabinet for approval," a senior telecom ministry official told PTI. Thepolicy, if approved, will replace 13 year-old New Telecom Policy 1999 through which telecom sector is governed. DoT has also soughtapproval for decision on certain issued relating to the introduction of Unified Licences.Under NTP 2012, it has been proposed to de-linkspectrum from licences, reduce number of different licences, give industry liberal mergers and acquisition norms and remove roaming

charges burden from consumers

Corporate news

'Pvtairlines exploiting passengers by raising fares'

Noting that private airlines had raised fares exorbitantly in the wake of Air India strike, members in the RajyaSabha voiced concern overthe matter.Raising the matter during Zero Hour, Mukhtar Abbas Naqvi (BJP) said passengers were facing harassment due to cancellationof Air India flights on one hand and hike in fares by private airlines on the other.e matter has been brought to the notice of the CivilAviation Minister and I hope some concrete steps will be taken and private airlines told to resist from such activities.

2G: No offence made out against us, says Essar

The promoters of EssarGroup told a Delhi court that no offence of cheating is made out against them as the government had not foundany irregularity and illegality in granting 2G licences to Loop Telecom.Government found there is no irregularity and illegality in givinglicence to this company. Before licences were issued, a full examination takes place and it is clear from the stand of the government thatwhole thing was probed and then licences were given.The CBI, in its charge sheet filed on December 12 last year, had named Essar Group promoters Ravi Ruia and AnshumanRuia and LoopTelecom promoters I P Khaitan and KiranKhaitan, besides Essar Group Director (Strategy and Planning) VikashSaraf as accused in thecase.

Air India pilots' stir continues, 20 flights cancelled

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THE BUSINESS CAPSULEOver 20 Air India flights were cancelled from Delhi and Mumbai as the agitation by the protesting pilots entered the third da y.Despite theDelhi High Court declaring their stir as illegal, the pilots remained defiant and said the agitation would continue till their demands weremet.Three international departures from Mumbai and 8 from Delhi have been cancelled due to non-availability of pilotsThe pilots have beenprotesting against rescheduling of Boeing 787 Dreamliner training. Civil Aviation Minister Ajitsaid that theyshould withdraw their strike

and apologise to the passengers.

India cannot be a tax haven: Pranab Mukherjee

In a strong message to multinationals campaign against taxing Vodafone, Government of India makes it clear that India cannot be a taxhaven just to attract foreign investment.Itwould not allow a situation where a corporate would avoid paying tax here by operating from atax haven.There cannot be a situation that somebody will make money on an asset located in India and will not pay tax either in India orto the country of its origin.

Telecom CEOs warn mobile tariffs may double

Mobile call rates would double in some circles if the recommendations of sectoral regulator Trai on spectrum pricing are accepted,telecom CEOs who met Telecom Minister KapilSibal warned.In one circle, the cost of spectrum, the reserve price is Rs 7 crore and on other end, there are metros where it is Rs 717 crore, which is a

100 times differential.Trai has not considered the price elasticity of demand while formulating the 2 paiseassumption.As the prices rise,the consumption goes down. And it has been absolutely assumed as if the consumption will remain constant which is not correct," Kapoorsaid, adding that there is a 30 paise per minute impact and not 2 paise as Trai has assumed.

No negotiations with Vodafone: Fin Minstry

Vodafone had sent a notice to the Indian government threatening international arbitration in the tax dispute case.Invoking the investmenttreaty between India and the Netherlands, the company had alleged that the proposed retrospective amendment violated theinternational legal protections granted to Vodafone and other international investors in India.The Vodafone tax controversy pertains toMukherjee's Budget proposal to amend the Income Tax Act, 1961, with retrospective effect to bring into tax net overseas mergers andacquisitions involving domestic assets.

AI pilots threaten to go on strike

A section of Air India pilots threatened to strike workfollowing the failure of talks with the Air India management.Disappointed over themanagement's attitude, some 100 odd pilots have already join the agitation.The management held meeting with the pilots in New Delhi inits bid to defuse the crisis, arising out of the rescheduling of the dreamliners training programme.The management is also said to have told the pilots to wait for a solution till the Justice D M Dharamadhikari Committee report isimplemented by the government.

Tatas among 10 best cos for leadership in Asia

Tata Group is the only Indian entity which has managed to find a place in the list of ten best companies for leadership in Asia. The TataGroup is at the fifth position among ten best companies for leadership in Asia list, which has been topped by Samsung Group followed byToyota Motors and Unilever at the second and third position, respectively.Others in the top 10 inAsia are: Nestle, IBM Corp, Sony Corp,Procter & Gamble, Coca-Cola and Petronas.

I-T begins scrutiny of Reebok accounts

The Income Tax department has begun scrutiny of financial documents and transactions of global sportswear manufacturer Reebok afterits owner Adidas. German sportswear maker Adidas had said it found some commercial irregularities to the tune of 125 million euro inReebok India.I-T sources said during the course of investigations, they may summon the officials and accountants of the firm forexplaining transactions to them.

Oil Ministry serves notice to RIL

The oil ministry has served a notice to Reliance Industries, disallowing US$1.45 billion of cost recovery from the eastern offshore KG-D6fields for failing to meet its drilling commitment.The ministry has refused to join arbitration saying there is no dispute till now, but thenotice establishes there is a dispute over the amount of cost that can be recovered.The company has so far drilled 22 wells but has put onproduction only 18 wells.

Cipla slashes cancer drug prices by up to 76%

Drug major Cipla today slashed the prices by up to 76 per cent of its generic drugs, used in treating cancers of brain, lung andkidney.Cipla's brain cancer drug 'Temoside' in the strengths of 20 mg, 100 mg, and 250 mg will now be available at Rs 480, Rs 2,400, andRs 5,000, respectively, for a pack of 5 capsules.The drugs for cancer treatment are being manufactured at its Goa manufacturing facility,which has been approved by WHO-Geneva, USFDA, MHRA-UK and other international regulatory bodies, Ciplasaid.Shares of Cipla todayclosed at Rs 317.40 at BSE, down 0.02 per cent from its previous close.

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THE BUSINESS CAPSULEEconomy news

India to grow at 7.5% in 2012-13: UN report

India is projected to see a faster growth of 7.5 per cent this fiscal on the back of higher savings and investment ratesThe growth estimatein the current fiscal is higher than the estimated 6.9 per cent growth in the last fiscal year.The Indian government has projected theeconomy to expand by 7.6 per cent in the current fiscal. Asia-Pacific economies should try to maintain a growth-inflation balance, copewith capital flows and exchange rate volatility and create jobs to achieve high growth.

Slowdown in export growth, trade deficit lowest

Hit by slowdown in the western markets, India's export growth dropped to 3.2 per cent in April, but a sharp deceleration in importexpansion resulted in trade deficit narrowing to USD 13.2 billion, the lowest in a year.The drop in the balance of trade (BoT) shouldreduce pressure on the rupee which has lost value by about 15 per cent against the US dollar since September, 2011.Imports for themonth grew by 3.8 per cent to USD 37.9, also lowest in a year.

RBI asks exporters to sell 50% of forex earnings

In order to arrest the declining value of the rupee, the Reserve Bank asked exporters to sell 50 per cent of their retained foreign exchange

earning.In respect of all future forex earnings, an exchange earner is eligible to retain 50 per cent in non-interest bearing EEFC accounts.Following a series of actions by the central bank, the rupee today recovered by a hefty 60 paise to 53.24 against the US dollar in earlytrade from yesterday's close of 53.82.

LokSabha passes Finance Bill 2012-13

Chassis for commercial vehicle, ball point pen ink and goods required for solar power projects would become cheaper under dutyconcessions announced by Finance Minister Pranab Mukherjee in the LokSabha after which Finance Bill, 2012 was passed.

Industrial production dips by 3.5%

Indicating sharp slowdown in the economy, industrial production declined by 3.5 per cent in March mainly on account of contraction inmanufacturing and mining output. Growth in the factory output, was higher at 9.4 per cent in March last year. Output of the manufacturingsector, which constitutes over 75 per cent of the index, contracted by 4.4 per cent in March, compared to growth of 11 per cent in March2011Consumer goods output has grown by a meagre 0.7 per cent per cent in March, as compared to 13.2 per cent in the same month lastyear. Besides, the consumer durables segment output grew by 0.2 per cent in March, as against robust 14.9 per cent growth in the samemonth last year. Power generation witnessed a growth of 2.7 per cent in March, compared to 7.2 per cent in the year-ago period. In termsof industries, ten out of twenty two industry groups in the manufacturing sector have shown positive growth during the month of Marchas compared to the same month a year-ago

The Business Case By Ashwin Kumar

Ramcos System

Ramco Systems, one of India's largest pure-play IT products companies, has been burning cash for years, because of global competition and plain

old bad luck. But the company, piloted by CEO P.R. Venketrama Raja, kept investing in R&D. Can it finally make it big?

The year 1997 wasmemorable for Ramco Systems. The launch of its first full -fledged enterprise resource planning (ERP) product, called Marshal

3.0, was only part of the reason. The other part was getting Microsoft founder Bill Gates to launch it during a visit to India. It was a coup of sorts,

as Gates rarely launched other companies' products, and his involvement was interpreted by the market as a vote for the quality of Marshal 3.0.

Initial sales were brisk.

The company, it appeared, was finally heading somewhere. Ramco Systems was set up in 1992 as the research and development (R&D)

division of Ramco Industries. Hived off as a separate company in 1999, Ramco Systems was a dream come true for P.R. Venketrama Raja,

whose family owns the Chennai-based Ramco Group, a maker of cement and textile products.

THE PROBLEM

Despite good products, Ramco Systems

has not been able to make it big

THE SHORTCOMING

Lack of product differentiation in a

market dominated by well established

global players

THE CHALLENGE

Continue investing in R&D to develop

technologies to take on the competition

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THE BUSINESS CAPSULE"I wanted to create a great intellectual propertybased Indian company, with outstanding products in

the enterprise solutions space for the world market," says Raja, Ramco Systems's Vice Chairman,

Managing Director and CEO. His vision was not just ambitious, but bold, considering the environment

in India then was hostile for any IT products company. Besides, the enterprise solutions market was

(and still is) dominated by giants such as SAP, Oracle and Microsoft, who between themselvescontrolled nearly 80 per cent of the global business.

Ramco Systems began product development in 1993, and soon realised the enormity of the

challenge. A large enterprise-class product required the work of thousands of people over several

years, considering the amount of detail that varied from one industry to another. But its eagerness to

enter the market led to the launch of the first version of Marshal in 1994, just a year into its

development. "We were in for a rude shock," says Kamesh Ramamoorthy, the company's Chief Operating Officer. "With little experience in

product implementation - especially abroad - Marshal did not live up to customer expectations."

Between 1994 and 1997, with hardly any billings, Ramco Systems spent more than Rs100 crore, employed over 1,000 people, and designed

Marshal 3.0

The product did not fare well in India, either. Ramco Systems then refined the product and brought out new versions, but the market remained

indifferent. "At that point, most entrepreneurs would have backed out, but not Raja," says Ramamoorthy. Between 1994 and 1997, with hardly

any billings, Ramco Systems spent more than Rs 100 crore, employed over 1,000 people, and designed Marshal 3.0. "The product Bill Gates

launched was world-class and could take on the best of the competition," says Raja.

But his company had no time to rest on its laurels. The increasing use of Internet meant the future belonged to browser-based products, and

new languages such as Java were emerging. "Marshal 3.0 was designed on client server architecture, and developed entirely on a Microsoft

platform," says Shyamala Jayaraman, Senior Vice President, R&D, Ramco Systems. "Changes in technology gave the new product at best a two-

year market window."

That was not enough time to recover the money spent on the product. As if that was not bad enough, Y2K fears turned the market cold. "Most

companies across the world postponed large-scale IT investments and focused on making their systems Y2Kcompliant," says Ramamoorthy.

By 1998, Ramco Systems's stakeholders were worried about years of losses and no major revenues. Private equity investors, financial

institutions, banks and employees began to question whether the company should continue as a pure-play product company or jump on the

booming Y2K and software services bandwagon. Raja says: "I was faced with this stark reality. I had to give up my vision or think of a way to

overcome the serious disparity in strength and resources in order to compete."

Success in aviation solutions and the ERP product's inability to grab a big market share taught Ramco to differentiate its products

His association with management guru C.K. Prahalad came to the rescue. Prahalad prescribed disruptive thinking. Raja began by identifying the

typical challenges that small companies faced in the ERP business, where products were complex and required thousands of man years of work.

Marshal 3.0, for instance, had 23 modules and 25 million lines of code. To adapt to rapid technological change, all that code would have to be

completely rewritten. "While large ERP companies can employ thousands of people and spend billions of dollars to keep pace with these

changes, smaller companies like us have to think differently," says Raja.

So, Ramco Systems built VirtualWorks, a platform that automated software development. "It lets us develop products that are technology-

agnostic, easily adaptable and rapidly scalable with less manpower," says Jayaraman. In other words, VirtualWorks not only levelled the playing

field for Ramco Systems but also gave it the technological edge.

In 2002, Ramco Systems launched its web-based ERP product, built using VirtualWorks. Around the same time, it also released a niche product

called Ramco Aviation Solutions. Today, Ramco is the market leader in the helicopter segment, and among the top three in commercial airlines

and in the maintenance, repair and overhaul business. "Ramco Aviation Solutions accounts for 25 per cent of the company's revenues and

enjoys a premium in certain markets over SAP and Oracle products," says Thamizha Nambi M.M., the company's Senior Vice President, Business

Consulting Group and Aviation Solutions.

But the Web-architected ERP product did not do as well as expected. Most big companies had invested millions of dollars in a SAP or Oracle

solution and saw little reason to shift to Ramco's product. Besides, there was a preference for multinational players. Even new customers went

with SAP or Oracle, because these companies had a huge ecosystem of consultants, product implementers, and training institutes. RamcoSystems had no such ecosystem to propel demand.

The success of Ramco Aviation Solutions and the failure of the ERP product to grab a large share of the market taught Ramco Systems a valuable

lesson. "We learnt that the company can succeed against big players by avoiding a monolithic approach, and instead adopting product

differentiation," says Ramamoorthy. In 2004, the company launched Ramco DecisionWorks, a business intelligence platform which aids

management-level decision making. A few more years of losses ensued, but the company survived thanks to the support of group companies

such as Ramco Industries and Madras Cements.

The rise of cloud computing has helped Ramco Systems in its quest for differentiation. In 2008, the company used VirtualWorks to launch a

pathbreaking product, Ramco On-Demand ERP (RODE). "We married technology and necessity to offer a unique ERP product that taps an all-new

THE CATALYST

Rapid change in technology, and the rise

of mobile phones, tablets and cloud

computing

THE STRATEGY

Offer products that can leverage modern

technologies and reach an untapped

market

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THE BUSINESS CAPSULEmarket - small and medium-sized companies," says Raja.

RODE, a pay-per-use solution, helps such businesses become efficient by using ERP without having to invest heavily in hardware, software

licences and engineers to maintain everything. There are more than 300 RODE clients nationwide. "We are currently clocking 40 orders per

quarter," says Raja. According to data from IT research company Gartner, 30 per cent of the 83,000 small and medium businesses in India wantto adopt cloud-based ERP. The international market is larger. Gartner estimates that at least 55 per cent of companies worldwide will move to

some form of cloud application by 2015/16. Ramco Systems plans to take RODE global in April.

Raja says the company is on the verge of reaping the benefits of its R&D focus. Until 2010/11, Ramco Systems had invested Rs 350 crore in R&D.

Raja says he hopes RODE will catapult the company's financials to a new level (the turnover for 2010/11 was Rs 204 crore and net profit , Rs 2.31

crore). He is emboldened by the fact that big ERP players have a minuscule presence in the cloud. Ramco, then, has a headstart in this multi-

billion dollar market globally. Will the lack of a strong ecosystem hurt RODE? Will global ERP majors edge out Ramco Systems in the cloud, too?

Or can the company finally make it big?

Ramco needs to have a strong business orientation andits product suite should refl ect global trends inenterprise solutions: Sunil Padmanabh

GO-TO-MARKET STRATEGY

Ramco has mostly focused on mid-market enterprisesand relied on the strength of the product. Simplicity ofuse and pricing have been their key go-to-marketstrategies. They have played the India localisation cardwell, though the breadth and depth of domain expertisehas not been impressive compared to larger rivals suchas SAP and Oracle. Also, Ramco has lacked a strongpartner ecosystem, which is key to its growth strategies

in terms of selling, branding and delivery of its ERP solutions. The end result is that the productsuite has not captured the mindshare of large enterprises in India or attracted global enterprises.

It lacked an aggressive go-to-market strategy, and clients viewed it as a poor cousin ofSAP/Oracle. As regards RODEs success, it is directly proportional to its strong ec osystem thatincludes consulting, training, data migration services and hybrid deployment models. They needto bundle their services in order to provide a complete software as a service experience.

Post recession, Ramco has the edge in the on-demand ERP market as an early mover, but newercompetition is emerging with large vendors such as Oracle and SAP providing comprehensivesolutions with seamless integration between ERP, CRM and HCM, better pricing models anddeployment options. Ramco needs to focus on a strong partner ecosystem, devise an aggressivemarketing strategy and continue to invest in its product suite to keep pace with technologytrends. In order to enhance their branding globally, they need to refocus their partner strategyand work with leading system integrators, which could give them renewed impetus. But executionis critical. They need to have a strong business orientation and their product suite should reflectglobal trends in enterprise solutions.

Sunil Padmanabh is Research Director, Gartner

The Indian pyramid amazingly flat, and every time youdrop notch for eligibility, the addressable marketmushrooms: Bharat Goenka

SELLING IN INDIA IS TOUGH

There is little doubt that Ramco has attempted to tread apath which few Indian companies have. India has been,and will be for some time, an underserved market. It hasbeen more lucrative for companies to tap into and serviceglobal markets. Selling in India has been difficult foranyone, Indian or foreign. So, while the potential of Indiacontinues to attract attention, it has never really becomemanifest.

The top of the pyramid in India has typically been servedto the same level as its global counterparts, largelybecause of its access to resources. In the past couple of decades, therefore, this has been the targetmarket, and Ramco has naturally picked it up. What is intriguing is scoping out the size of themarket. The Indian pyramid is amazingly flat, and every time you drop a notch for eligibility (forexample, by turnover, or number of people, or any other parameter), the addressable marketmushrooms.

Considering their stated market to be below the top of the pyramid, I would have looked for amuch larger chunk, and developed my strategies around it. While foreign markets will continue tobe attractive, they do not need to come at the expense of the massive Indian one.

Since I am not privy to the underlying financial plans, it is entirely possible that the cost/revenue

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THE BUSINESS CAPSULEratios for foreign customers are far too attractive to be ignored, and therefore, there will be anatural shift to move the focus of their top-quality resources to chase it. As long as they areworking backwards from their internal definition of success, things should be good. It is alwaysdifficult to either agree or disagree from the outside, as assumptions will not be the same. We (atTally) have had far greater faith in India as a market than most of our counterparts, and this tends

to colour my statements somewhat.

Bharat Goenka, Founder, Tally Solutions

Gujarats power reform

Gujarat's power sector was in a shambles in 2001, when Narendra Modi became chief minister. A decade later it is in the forefront of states that

have carried outsweeping power reforms, as a result of which it now has surplus power. This case study details the key steps the government

took to bring about the change, which was carried out in a manner fair to all stakeholders.

WhenNarendra Damodardas Moditook over aschief minister of Gujaratin October 2001, he found the state's power situation grim. TheGujarat State Electricity Board, or GSEB, had posted a loss of Rs 2,246 crore for 2000/01, on revenues of Rs 6,280 crore. Interest costs alone were

Rs 1,227 crore. Transmission and distribution, or T&D, losses were a substantial 35.27 per cent, and load shedding was frequent. GSEB had no

funds to add generation capacity on its own, nor was it able to persuade theprivate sector to invest.

Reforming the GSEB, thus, became one ofModi's top priorities. "He feared that a bankrupt power utility could derail his vision for the state,"

says Saurabh Patel, Gujarat's Industries and Power Minister, then as now. "He knew electricity is crucial for growth."

Click here to Enlarge

Modi's first step was to identify a bureaucrat capable of taking on the enormous challenge. He chose Man- jula

Subramaniam, a Gujarat cadre officer, who had been joint secretary in the prime minister's office from 1993 to 1998,

playing a key role in the country's liberalisation, and appointed her Chairperson of GSEB and Principal Secretary, Energy

and Power.

Subramaniam quickly realised that GSEB was too large an entity to be managed effectively. But she did not rush into

unbundling it. Instead, she initially concentrated on two areas: bolstering the power utility's finances and building

employee morale. Discovering that GSEB had secured loans at interest rates of 18 per cent or more, she sought debt

restructuring, convincing banks and financial institutions to lower their rates, which resulted in savings of Rs 500 crore

in 2002/03.

Her next step was more radical. Rarely before had electricity boards renegotiated power purchase agreements, or PPAs,

already signed with private players. But having examined the PPAs her board had entered into, Subramaniam felt the

heat rate - a measure of generator efficiency - had been inflated by the power suppliers, who were consequently charging more than they

should have.

Though the private players initially resisted, the government-constituted committee set up for the process stood firm, and ultimately, after more

than 18 months of hard bargaining, got the rates lowered, leading to a further saving of Rs 675 crore in 2002/03 and Rs 1,000 crore in

2003/04.

Simultaneously, Modi's government began plugging the leakages in distribution. Power thefts in Gujarat then ranged between 20 per cent in

urban areas and 70 per cent in rural regions. It passed a law against power thefts and set up five police stations across the state, solely to nab

such thieves. Stringent action began against those who ran up large power bill arrears, including disconnecting their supply.

Unmetered power supply, which some rural areas were getting was stopped altogether, with GSEB entering into a structural loan re-adjustment

with Asian Development Bank to fund the installing of meters.

Subramaniam also found that many employees, disturbed by widespread talk of power reforms, feared for their jobs, and were feeling

somewhat alienated from GSEB. She appointed a consultant to suggest ways to win back their loyalties.

From mid-2002,armed with the consultant's suggestions, the board began its special effort to reach out to employees. It started training

programmes at all levels to reassure them that while people may be redeployed, no one would be laid off. Senior officials increased their

interactions with the staff, including holding 'town hall' meetings where they shared detai ls of the board's financial position and encouraged

employees to ask questions. An internal newsletter was also started.

Once assured of retaining their jobs, the employees themselves began discussing possible reforms. A 'reforms progress management group',

comprising GSEB employees, was also set up.

It was now time for the unbundling. In May 2003, the Gujarat government passed the Gujarat Electricity Industry (Reform and Reorganisation)

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THE BUSINESS CAPSULEAct, which divided the GSEB into a holding company, a power generation company, a power transmission company and four distribution

companies. This enabled better management and more efficient operations.

Another key reform was the separation of the feeder line that supplied power to the rural areas into two: one to supply power for agricultural

needs and other for household and other needs. This was part of the Jyoti Gram Yojna, a scheme Modi announced in 2003 to supply round-theclock power to villages.

"A single feeder has its limitations," says Mukesh Puri, Managing Director of the holding company, Gujarat Urja Vikas Nigam. "The vil lages got

power for only 12 to 15 hours a day, often of poor quality and at odd hours."

Since the tariff for power used for agricultural purposes was much lower, many used this subsidised supply for their household needs as well,

resulting in huge losses for GSEB.

"The chief minister asked us to have separate feeders, which was a path-breaking step no state had attempted before," Puri adds, "The results

were good." Though many rural residents had higher power bills to pay than in the past, they cooperated with the government, once they found

they were assured of uninterrupted, better quality power.

A study by Indian Institute of Management, Ahmedabad has estimated that the project saved the state capital expenditure of around Rs 23,000crore, or about 5,000 megawatts, or MW.

The Modi government has also taken scrupulous care to ensure that the state electricity regulator - unlike in most states - remains truly

independent of political pressures. The regulator has, thus, been able to revise power tariffs every year, which ensured the state bridged the gap

between the average cost of supply and what users paid for it.

The result ? The state electricity board posted its first profit of Rs 203 crore - after tax - in 2005/06. By 2010/11, net profit had risen to Rs 533

crore, while T&D losses had fallen to 20.13 per cent. Tariff collection efficiency is close to 100 per cent. Private players, once reluctant to invest

in Gujarat's power generation, are now rushing in: of the power plants with a total installed capacity of 16,945 MW coming up in the state, 6,864

MW - or roughly, a third - is by the private sector. "Abundant power is a major USP of our state today," says minister Patel.

A few worries remain. Though T&D losses have fallen, they are still higher than those of the southern states such as Andhra Pradesh, Karnataka,

and Tamil Nadu. The cost of power in Gujarat has been traditionally high, and remains so.

"Our share of hydel power is very low and our power plants are very far away from coalfields," says Puri. "At times the cost of transporting coal

equals the cost of the coal." A sizeable proportion of its power - around 29 per cent - also comes from gas-based plants, and the high cost of gas

has forced scaling down the operations of some of them.

But ultimately, it is a remarkable transformation for a state which was power deficient barely a decade ago, but now has a surplus of 2,114 MW

and a vibrant energy sector.

The separation of feeders for supply towards agricultural was a masterfor Gujarat: Kirit S. Parikh

Where there is a will

The Gujarat experience clearly shows what strong political will to reformthe electricity sector can achieve. Of the many innovations the state tried,the separation of feeders for supply towards agricultural use was amaster stroke. It not only helped farmers get quality power at fixed timebut also ensured that leakages were curtailed. It enabled measurement ofthe power used for agricultural purposes as well, so as to arrive at theexact quantum of subsidy that needs to be reimbursed to the distribution

companies. Today feeder separation is being adopted by many others states.

Also the manner in which pilferage was tackled is interesting. I know how the CEO of a state-rundistribution company that supplied to one half of a particular city in Gujarat was fully empoweredto take all measures to match the low T&D losses of a private sector company that supplied to theother half of the city. The state has also been proactive in promoting renewable energy. Byoffering to buy solar power at `12.50 per unit, the state will soon see over 350 MW of power from

solar energy.

It is true that the cost of electricity is higher in Gujarat but that is because the states

electricity regulator has proactively raised prices as costs of generation rose. This makes sense inthe long term.

As can be seen, companies foraying into Gujarat are not too concerned about paying a couple ofrupees more for consistent and good quality power. The challenge that the state faces is on theT&D loss front where there is still scope for reduction by four percentage points or so. More needsto done there.

Kirit S. Parikh is Ex-member of Planning Commission, and Chairman, Integrated Research and Action

or Development

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Gujarat's success mix of steps that have both commercial and socialovertones: V. Raghuraman

Shining contrast

Commercial losses and poor health are hallmarks of the power utilities ofstates in India. The distribution companies, or discoms, incurred anaccumulated loss of Rs 75,000 crore in 2008/09 which further rose to Rs106,341 crore in 2009/10. The share of costs recovered has deterioratedfrom 82.5 per cent in 2006/07 to 77 per cent in 2008/09. The dismalstate of affairs is due to continued political pressure opposing reduction

in subsidies and efforts to lower distribution losses. Most state utilities have not revised tariffs fora number of years. The state regulatory commissions are independent only on paper and aresubject to political compulsions.

Against this backdrop, the performance of Gujarat in turning around the GSEB is noteworthy.Timely tariff revisions have made the sector viable enabling the state to set up adequategeneration capacity. The state is in a supply easy position with which it has been able to meet therequirements of the farm sector. It has also been able to meet the subsidy requirements of

discoms on this account, which many states have not been able to do.

Gujarat has been able to achieve the growth with a mix of steps that have both commercial andsocial overtones, with stress on credible implementation and realising rational user charges. Thepolitical will along with the turnaround strategy has produced the expected benefits. Theworrying signs are high T&D losses, which are still over 20 per cent, and inadequate transmissionlinks. These need to be fixed. The demand for revision of tariffs of utilities, which are usingimported coal and have increased costs, if not heeded, could derail the capacity addition plans.However, the track record indicates that Gujarat has the ability to attend to the concerns.

V. Raghuraman is former Principal Analyst, Energy, Confederation of Indian Industry

Add Ons By Ashwin Kumar

Most Desirable Brands

1. Microsoft2. BMW3. Google4. Apple5. Adidas6. Mercedes7. Audi8. Disney9. Sony10.IBM

Recently the BRICS nations meet and discussed up on their economical and other issues ; the specifics of these nations are as

follows

Nations GDP PCI IR GDP GR Ranking in corruption

Brazil $2,087.89 $4,699.40 5.8% 1.4% 73

Russia $1,479.82 $2923.14 3.7% 4.8% 143India $1,729.01 $822.76 7.65% 6.10% 95

China $5,878.63 $2,425.47 3.20% 8.90% 75

South Africa $363.63 $3,745 6.10% 2.90% 64

Market Watch ByGirish Kumar

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THE BUSINESS CAPSULEBSE Sensex 16,152.75 [+82.27 (0.51%)]

NSE: 4,891.45 [+21.25 (0.44%)]

Thursday, 17 May 2012 ClosedBSESensex16070.48[+40.39(+0.25%)]

NSE 4870.20 +11.95 (0.25%)

Market Outlook:Indian markets are expected to have a gap down opening taking cues from global markets. US markets closed in deep red onThursday on worries from Europe along with the contraction in its own domestic economy for the month of May. Asian shares

got dumped on Fridays morning session as fresh concerns about the health of the Spanish banks added to existing worries aboutcapital flight from Greek lenders, sending investors fleeing from equity markets.

Technically Nifty has an intraday resistance at 4912 & 4953 and support is seen at 4839 & 4809 levels. The SGX Nifty was

trading down by 77 points at 4765.00 (at 8:30 am). FIIs were net sellers worth Rs.9.67 Cr on last trading session.

Currency Outlook:USDINR is still in a bullish trend. RBI intervention, if any may change the picture. The USDINR has support at 54.25 and 54.07

respectively. The resistance levels are 54.70 and 54.95.

Markets Yesterday: Thursday, 17 May 2012 ClosedNegative cues from European markets took their toll yesterday and the indices shed all the morning gains in the afternoon.FMCG, realty and metal outperformed all other sectors and closed with substantial gains while capital goods, consumer durables

and auto lost significantly. The CNX Midcap index was down 0.2% while the BSE Smallcap index gained 0.1% in yesterday's

trade. The market breadth was positive with advances at 720 against declines of 699 on the NSE. The top Nifty gainers wereAmbuja Cements, SAIL, ITC and JP Associates while the biggest losers included Reliance Infra,L & T, Mahindra & Mahindra and Bajaj Auto.

Market Last week (Saturday, 12 May 2012)

This was a dismal week for the Indian market which saw almost all sectoral indices end in the red. Infrastructure tookthe most beating, followed by technology, metals and banks. The range for the indices shifted further down and experts

believe next week will continue to be choppy and negative. This week's performance was poor and the numbers are:

Sensex down 3.2% and Nifty down 3.1%.

FM announces tax relief on jewellery, no excise duty on purchase valued Rs 5 lakh. Govt. slashes capital gains tax for PE investors. India defers GAAR measures by a year. April car sales rise 3.4% y-o-y. IIP for March 2012 at -3.5 vs 4.1 in Feb 2012.

News Koutons to raise over Rs 1,000 cr through pref share issue. Lodha in talks to buy DLF's Mumbai land. Jaypee Infratech Q4 net down 11% at Rs 349 cr. Essar Shipping posts Rs 55 cr profit in Jan-Mar qtr. Mahindra Satyam Q4 net at Rs 534 cr. Wipro close to bagging Rs 960-cr contract from IAF. Bajaj Auto Q4 net dips 45% to Rs 772 cr. DLF, Huda to invest up to Rs 600cr on 16-lane road in Gurgaon. RPower asks CAG to drop audit note on undue gains. Govt makes norms stringent for incorporation of firms. Bharti Airtel cuts 3G mobile data prices in India. NSPCL net up 2% at Rs 194 cr in FY12. Cairn deal boosts minor Vedanta's core profit. Nomura downgrades Ashok Leyland to 'neutral'. April indirect tax collection up 10% to Rs 33,045 cr. HDIL to sell Bangalore land to Godrej Properties.

The Business Quiz By Puneet

GK QUESTION

1. Name the Rashtriya Lok Dal (RLD) leader who was inducted into the Union Cabinet as civil aviation minister on 18 December 2011.

a. Ajit Singh

b. Jayant Chaudhary

c. Devendra Nagpal

d. Sanjay Singh Chauhan

2. The Union cabinet of India on 22 December 2011 approved __ percent share for minorities within the 27% OBC quota in jobs and university

seats.

a) 4.5

b) 5.6

c) 3.4

d) 5

3. Which company on 27 Deember 2011 mentioned that it would acquire the remaining 51 per cent stake from BP Alternative Energy Holdings in

the joint venture that it formed with BP?

a. Reliance Power

b. Tata Power

c. Adani Power Limited

d. ABB Ltd

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THE BUSINESS CAPSULE

4. Which paharmaceutical company announced in December 2011 the launch of Supamovecream used for treating pain and inflammation in

India?

a. Cipla

b. Ranbaxyc. Dr. Reddys

d. Sun Pharmaceuticals

5. According to the RBI data, India's foreign exchange reserves fell by what amount to $302.1 billion during the week ended 16 December 2011

on account of a fall in foreign currency assets?

a. $4.67 billion

b. $3.33 billion

c. $5 billion

d. $5.75 billion

6. Sally Pearson, the world 100m hurdles champion, was named the Female World Athlete of the year for 2011 by the IAAF. To which country

does she belong?

Australia

New Zealand

U.K.

U.S.A

7. Who is the author of the book 'The Exile', which is based on the life of Duleep Singh, the last Maharaja of Lahore?

Chetan Bhagat

Navtej Sarna

Mulk Raj Anand

Khushwant Singh

8. The term Bull's eye is associated with which of the following sports?

a. Badminton

b.boxing

c. shooting

d. cricket

9. Which of the following is not the name of a foreign bank?

a. BNP Paribas

b. Deutsche Bank

c. Barclays

d. Cathay Pacific

10. Which of the following awards/ prizes is given for science?

a. Templeton Prize

b. Jnanpith Award

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THE BUSINESS CAPSULEc. Phalke Ratna

d.Shanti Swarup Bhatnagar Award

Vocabulary

1.Piquant : appetizing flavour, stimulating

Syn: spicy, intriguing

Ant: bland, insipid, dull

A particularly piquant story kept me awake till early hours of the morning.

2. Transitory : not permanent

Syn: brief, temporary

Ant: lasting, durable

Europe was marked by transitory period of medieval greatness.

3. Sodden: soaked through, extremely wet

Syn: drenched, saturated

Ant: dry, dehydrated

One look at the sodden ground and the umpires called off play.

4. Knave: dishonest or unscrupulous

Syn: cheat, swindler

Ant: benefactor, idealist

Dont let yourself be hoodwinked by that knave.

5. Luscious: ripe, appealing

Syn: appetizing, delectable

Ant: unappetizing, unsavoury

Luscious fruits and vegetable were displayed in the store.

Editor in chief Ashwin Kumar Dwivedi

Sources- www.yahoo.finance.com , www.rediff.business.com, www.wikipedia.com,www.businesstoday.com

www.indiabiznews.com,www.moneycontrol.com , The economics times, Business standard,

economist.

Editorial Team- AshwinKumar Dwivedi , Namita Katariya , Puneet Arora , Payal Ahuja, Nandish ,Mani Dubey , Girish Kumar Mishra

Under the guidance of: Prof Avinash Deshpande

We welcome your feedback @ [email protected]