AIRTEL POSTS LOSS OF ~1,035 CR IN Q3

Bharti Airtel on Tuesdayposted a net loss of ~1,035crore for the quarter endedDecember 31 (Q3), as itprovisioned for the interestaccrued on account ofadjusted gross revenuepayment. Analysts had

pegged the loss figure at ~640 crore. This isthe company’s third consecutive quarterlyloss. The firm had recorded a profit of ~86crore in the year-ago quarter. It posted animprovement in average revenue per user from ~128 to ~135, sequentially. 2 >

TO OUR READERSThe eight-page pull-out on DEFEXPO,being carried as a separate section, isequivalent to a paid-for advertisement.No Business Standard journalist wasinvolved in producing it. Readers areadvised to treat it as an advertisement.

> RESULTS RECKONER

Quarter ended Dec 31, 2019; common sampleof 667 companies (results available of 768)

SALESDec 31, ’18 22.8% ~10.76 trillion �

Dec 31, ’19 1.7% ~10.95 trillion �

PROFIT BEFORE TAXDec 31, ’18 -22.5% ~91,589 cr �

Dec 31, ’19 64.0% ~1.50 trillion �

NET PROFITDec 31, ’18 -35.3% ~56,414 cr �

Dec 31, ’19 94.3% ~1.10 trillion �

Companies with zero sales excluded; given the change in corporationtax rates, to give a fair comparison the profit before tax has beenconsidered; compiled by BS Research Bureau Source: Capitaline

THE MARKETS ON TUESDAY CChhgg##

Sensex 40,789.4� 917.1Nifty 11,979.7� 271.8Nifty futures* 11964.3� 15.4Dollar ~71.3 ~71.4**Euro ~78.8 ~79.0**Brent crude ($/bbl)## 53.7## 53.2**Gold (10 gm)### ~40,443.0� ~211.0

COMPANIES P5

AIRASIA CHIEF STEPS ASIDEAMID BRIBERY PROBE

COMPANIES P2

www.business-standard.com

*(Feb) Premium on Nifty Spot; **Previous close; # Over previous close; ## At 9 pm IST; ### Market rate exclusive of VAT; Source: IBJA PUBLISHED S IMULTANEOUSLY FROM AHMEDABAD, BENGALURU, BHUBANESWAR, CHANDIGARH, CHENNAI, HYDERABAD, KOCHI, KOLKATA, LUCKNOW, MUMBAI (ALSO PRINTED IN BHOPAL) , NEW DELHI AND PUNE

PUSHED BY DGCA, PRATT PLANS$250-MN MRO UNIT IN INDIA

WEDNESDAY, 5 FEBRUARY202030 pages in 3 sectionsMUMBAI (CITY)~9.00VOLUME XXIV NUMBER 123

Markets roar backafter Budget shockSUNDAR SETHURAMAN

Mumbai, 4 February

Asharp drop in crudeoil prices, coupledwith a rally in globalequities, propelled

the domestic market onTuesday, helping the bench-mark indices close at levelsseen before the Union Budget.

The Sensex soared 917points, or 2.30 per cent, to endat 40,790, while the Nifty50index rose 272 points, or 2.32per cent, to close at 11,980. Boththe indices logged their biggestsingle-day gains sinceSeptember. The Sensex hadended at 39,735 on Saturday,following the worst sell-off inthree years as investorsdumped equities due to Budgetdisappointment.

The rupee moved up by 13paise to close at 71.25 againstthe US dollar as forex marketparticipants gauged improvedsentiment in global marketsamid efforts to contain deadlycoronavirus.

Market players saidinvestors resorted to buying onhopes that the fall in crude oilprices would provide macrostability. Also, investor appetitefor risk assets showed animprovement after the sell-off

in the China market halted.Foreign portfolio investors

(FPIs) were net buyers to thetune of ~366 crore, reversingsome of the recent outflows. Inthe past one week, the domes-tic market has seen a sharppullback from FPIs amid thecoronavirus outbreak.Domestic institutionalinvestors (DIIs) remainedstrong buyers for a second dayin a row. On Tuesday, DIIsbought shares worth ~600crore, adding to their ~1,300-crore buying tally a day earlier.

Besides improvement in theglobal situation, the slew ofincentives announced in theBudget should help improveoverseas investor sentiment,said experts.

Following a sharp drop inthe past few sessions, Brentcrude was trading near the $54a barrel level.

Any fall in the price of crudeoil, India’s biggest import, isadvantageous for India. Every$10 rise in crude oil pushes theheadline consumer price indexinflation by 0.4 percentagepoints, say economists.

The latest fall in oil prices isdue to worries about a slow-down in China, the world’slargest importer of the com-modity. Turn to Page 21 >

Oil fall, global rally help recoup Budget-day losses; indicesjump most since Sept; rupee gains 13 paise against dollar

THE BULLS ARE BACKSENSEX INTRA-DAY

TOP GAINERS BSE price in ~

TOP SINGLE-DAY GAINSSince Jan 2019

Feb 4 1-day chg (%)

Titan 1,275.5 7.6

ITC 215.7 3.9

HDFC 2,345.7 3.8

Bajaj Fin 4,518.1 3.6

Tata Steel 452.1 3.6

Date Sensex % chg

Sep 20, ’19 38,015 5.3

May 20, ’19 39,353 3.7

Sep 23, ’19 39,090 2.8

Feb 4, ’20 40,789 2.3

Aug 26, ’19 37,494 2.2

Source: Exchange

917.1 pts2.30%

Ball in your court now toinvest, FM tells India IncSUBHAYAN CHAKRABORTY

New Delhi, 4 February

Finance Minister NirmalaSitharaman on Tuesday exhort-ed India Inc to shed its hesita-tion and make investments topush up economic growth, say-ing the government had takenseveral pro-business measuressuch as reduction in corpora-tion tax rates, removing mini-mum alternate tax in the newtax structure, and scrappingdividend distribution tax (DDT)levied on companies.

“We have done whatever lit-tle we can. We are ready to domore. But I want meaningfulinterventions from the govern-ment and not the ones whichare irrelevant to the ground sit-uation. Now, we expect you tobe an equal engine to pull theeconomy forward,” she said at apost-Budget interaction, organ-ised by the Confederation ofIndian Industry (CII).

Sitharaman said govern-ment spending alone could notpull the economy towards thegrowth rates that all wanted intoday’s conditions.

“Critics say the governmenthas reduced corporation taxrates, but where are the invest-ments? It is six months now,”she said, apparently nudgingthe captains of industry topump money into the economy.

She said some people hadtold her that maybe businesseswere repaying their debts tobanks by using tax savings. “Iam quite happy with that too. At least banks are gettingmoney. If you are giving divi-dends, it is equally good, asmoney is going back to share-holders,” she said.

Turn to Page 21 >

Finance Minister NirmalaSitharaman arrives for the BJPParliamentary Party meeting, on Tuesday PHOTO:PTI

Mutual fund (MF) players, who were expectinginvestoroutflows overuncertaintyon taxdeducted at source (TDS)on capital gains,were relieved on Tuesday with the Central Board of Direct Taxes (CBDT) clarifying that the proposal would belimited to dividend payouts.

The proposed Section 194K of theIncome-tax (I-T) Act stated: “Any personresponsible for paying to a

resident any income in respect of units of a mutual fund ... shall at the time of credit of such income to

account of payee ... deduct income tax at the rate of 10 per cent.” According to sources, the MF

industry had sought clarification fromgovernment officials on whether the proposalwould apply to investor redemptions, asuncertainty could have led to investors exiting before April 1, 2020, when the proposal would

come into effect. JASH KRIPLANI reports 10 >

10% TDS ONLY ON DIVIDEND PAYMENT BY MUTUAL FUNDS

Says govt spending alone can’t be enough

PNB NET LOSS AT ~492 CR P4

MUMBAI | WEDNESDAY, 5 FEBRUARY 2020 COMPANIES 3. <

PAVAN LALL

Mumbai, 4 February

Tata-owned hotel chain Indian HotelsCompany (IHCL) is on track to openat least one hotel a month that will

add an inventory of about 2,500 rooms forthe year ahead, pushing it into an unprece-dented growth phase. Market leader, theMarriott International, has also charted itsown aggressive plans for growth.

Last year, Marriott opened 13 hotels inIndia across multiple brands that includeMarriott, Courtyard by Marriott, Fairfield byMarriott and the Ritz Carlton. They alsoinclude The Four Points, the Le Meridienand the Sheraton. This year, the multina-tional has another dozen openings plannedand the room count of 25,000 rooms isexpected to reach around 28,000 by 2020-end, said Marriott officials.

Puneet Chhatwal, managing director(MD) and chief executive officer (CEO) atIHCL, said, “We opened nine hotels in thelast nine months of the financial year.” Themove is part of a strategic target to reach aninventory of 25,000 rooms by 2022, of which7,000 are under development, he added.Currently, Taj has 18,500 rooms.

The new destinations that will beopened include the Taj Fateh PrakashPalace in Udaipur, the Devi Ratn in Jaipurand the Taj Convention Center Goa, incentral Goa.

The opening in Goa will take IHCL’shotel count up to 11 in the resort city, mak-ing it one of the largest operators there.Other IHCL openings slotted for this yearinclude Darjeeling, Shillong, Gangtok,Wayanad, Haridwar, Navi Mumbai,Bharuch, Karad and Kalinganagar.

Notedly, Ginger accounts for at least afourth of the company’s number of newhotels for the immediate future.

In the last two years, IHCL has signedon as many as 46 hotels across its four dif-ferent brands that include Taj, Vivanta,

Ginger, and SeleQtions. Those, as well ascontracts signed earlier, are now opening.The expansion is about more than just newhotels in existing hotspots.

One analyst, who did not wish to beidentified, said there are newer tourismhubs emerging that are getting the attentionof larger operators. The key to future trac-tion hinges on how fast “hospitality circles”are built around those spots. For example,IHCL is also looking at previously untappedmarkets in India. It has inked pacts for twohotels in Gangtok, Sikkim, and one inTawang, Arunachal Pradesh.

Marriott has also been opening instrategic pockets that include locationssuch as Siliguri, Surat and Kolkata withfuture plans for Thiruvananthapuram,Navi Mumbai, and Mahabaleshwar.

Beyond just size and volume, analystssaid the key to the tourism industry forany player is staying profitable. On thatmetric for now, IHCL is on track. “Whilethere is a slowdown, we have looked atvarious ways of reengineering, restruc-turing and reimagining our businessesand brands. This is to unlock potential,optimise market share, rationalise costs

and monetise non-core assets to ensurewe deliver seven consecutive quarters ofmargin expansion,” Chhatwal said.

IHCL’s profit after tax (PAT) in the thirdquarter of FY19 was ~203 crore, up 26 peryear-on-year. Earnings before interest, tax-es, depreciation and amortisation (EBIT-DA) margin was at 32.7 per cent, the high-est in a decade. Even so, the hotel chaindoes have around ~1,800 crore debt on itsbooks and will have to resolve the matter ofthe Taj Lands End-Sea Rock Hotel.

This was a property that was acquiredover a decade ago and is yet to break groundbecause of permissions that have been longpending. On that score, while Marriott’soverall profitability isn’t available becausethey operate through a franchise of licensedmanagement contracts, their debt is alsorestricted to individual properties.

It’s something that IHCL is well awareof. “Our management contract base hasmoved from 32 per cent to 42 per cent inthe last two years. Barring The Connaughtand Taj Fateh Prakash Palace, all othersignings are without any investment, thusnot having any impact on the balancesheet,” said Chhatwal.

Indian Hotels playingcatch-up with MarriottTata-owned firm plans to open a hotel every month; this will add 2,500 rooms

Taj Hotel & Convention Centre in Goa

PEERZADA ABRAR

Bengaluru, 4 February

Paytm on Tuesday announcedthe launch of its All-in-OneAndroid POS (point of sale)device for merchant partners.The company said the devicehelps merchants accept pay-ments on Paytm wallet, all UPI(unified payments interface)apps, debit and credit cards, aswell as cash.

Besides accepting pay-ments, merchants will also beable to generate goods andservices tax (GST)-compliantbills, and manage all transac-tions and settlements throughtheir ‘Paytm for Business’ appin one go.

The android-based devicecomes with a full-size displayand is pre-bundled with Cloud-based software for billing, pay-ments, and customer manage-ment.

It can also be used to acceptpayments, print bills, and scanitems for faster checkout. Thedevice works on Wi-Fi andcomes with a pre-installed SIMcard, ensuring round-the-clock

connectivity with all of Paytm’sbouquet of services.

“Over the past 18 months,we have invested a lot of time inunderstanding the needs ofsmall businesses around digi-tal payments.

This device offers a compre-hensive business tool right onthe desk of millions of smallbusinesses,” said Vijay ShekharSharma, founder and chiefexecutive of Paytm.

Infosys co-founder NandanNilekani, who spearheaded themassive unique identificationproject ‘Aadhaar’, was also pres-ent at the launch and saidPaytm was democratising pay-ments in the country.

“The All-in-One AndroidPOS is a very important device.There are choices that peoplehave; they can use these cards,UPI and wallets. You are sayingI will give you one device andany payment can be made. Ithink that really eliminates this‘A vs B’ kind of argument (as)everything is in one device,”said Nilekani.

Paytm is eyeing the digitalpayments space in India, which

is expected to rise fivefold to $1trillion by 2023, and this will beled by the growth in mobile pay-ments, according to a report byCredit Suisse.

Paytm has done a series ofsuccessful pilots for the newdevice in different spaces,including bus ticketing service,logistics, and home delivery.

IRCTC, one of Paytm’s part-ners, is using the All-in-OneAndroid POS machines to billfood items sold inside trains. Ithelps in keeping track of salesand has proved to be a strongtool for inventory management.

The company alsoannounced the launch of twoinnovative business solutionsfor small and medium enter-prises (SMEs) that will helpthem streamline and digitisetheir business processes.

The firm has introduced ‘All-in-One PG’ and ‘Paytm Bus-iness Solutions’ that increasethe overall efficiency of bothaccepting payments and mak-ing payments. Together, thesetwo solutions complement thenewly launched all-in-one PoSdevice, said the company.

Paytm unveils all-in-one PoS device

At what stage has India leap-frogged in the fintech sectorand have we gone beyond theWhatsApp moment in thefinancial sector? I think it is ubiquitous andeverybody understands whatit can do. People have their con-cerns if they are not on boardyet as digital payment con-sumers or merchants. As far asthe large cities are concerned,the penetration is incrediblybig. I understand that peopledon’t use it too often every day,but that will happen once thepenetration of merchants beco-mes even deeper. So, right now,with 10-15 million mer-chants, at Paytm, we stillbelieve that we could havedone another 15 million.There are people like streethawkers and auto-rickshawdrivers who are not evenaccounted for as small andmedium enterprises.

Talking about the bankingindustry, start-ups in the fin-tech space, including playerssuch as Paytm, are disruptingthe financial services andbanking industry. Are banksright to be afraid of the fintechboom in the country?I always believe that we don’tneed to disrupt the financialservices or banking industry, weneed to add to their capabilities.What SBI, HDFC or ICICI have

done is phenomenal. WhatPaytm or Paytm Bank has to dois to serve another set of users.And, that is exactly where wewill focus on. In other words,

we believe that it is notimperative for us to growso that somebody else ne-eds to be disrupted.

How do you view competitionfrom players such as GooglePay, PhonePe and AmazonPay? How do you see Paytmdifferentiating itself whencompared to them in the nextfew years?I think when it comes to payinga merchant, Paytm clearly, asthe data shows, dominates themarket share. Paytm is biggerthan everybody else combinedin the market. When it comes toperson-to-person money trans-fer, it is not economic transac-tional value.

More on business-standard.com

‘Paytm is clearlyahead of GooglePay and PhonePe’Infosys co-founder and Aadhaar architect Nandan Nilekani says Paytmfounder and Chief Executive VIJAYSHEKHAR SHARMA is “democratisingdigital payments in the country and nobody has done a better jobthan him.” Nilekani also threw a challenge to Sharma to buildAadhaar-enabled payments system and allow Paytm to work onfeature phones. In an interview with Peerzada Abrar&Yuvraj Malik,Sharma says when it comes to paying merchants, Paytm clearlydominates the market share. Edited excerpts:

Jewellery-to-watch makerTitan has paid ~25 crore to itsformer managing director (MD)Bhaskar Bhat as special retire-ment benefit, said the compa-ny in a BSE filing on Tuesday.

“During the quarter endedDecember 2019, the board ofdirectors approved the specialretirement benefits payable tothe managing director whoretired in September 2019,according to the company pol-icy ,” said the Bengaluru-head-quartered firm. Bhat continuesto serve as a non-executivenon-independent director onthe company board.

“This is a distinctive recog-nition for the kind of fast-pacedgrowth that he created forTitan,” said brand consultantHarish Bijoor. Bhat was associ-ated with Titan for nearly 36years, and was with the com-pany even before the brand

existed. The Tata Group JV sawan increase of almost ~77 crorein the employee benefitsexpenses for the quarter. Itposted a pre-tax profit of ~648crore, a rise of 8 per cent ascompared to the correspondingquarter of the previous finan-cial year. Net consolidated prof-it for the same period registeredas rise of 15 per cent YoY.

SAMREEN AHMAD

Titan pays ~25 croreto ex-MD as specialretirement benefit

Bhaskar Bhat

4 ECONOMY & PUBLIC AFFAIRS MUMBAI | WEDNESDAY, 5 FEBRUARY 2020

> .

“Two big states (Punjab & Rajasthan) have joinedAB-PMJAY only in late 2019. Large states (UP, MP, andBihar) are implementing the scheme for the firsttime and hence, their demand is still picking up” HARSH VARDHAN

Union health minister

“Prime Minister Narendra Modi and Delhi ChiefMinister Arvind Kejriwal are not interested in jobs for youngsters, but are keen on makingone Indian fight another for staying in power” RAHUL GANDHI Congress leader

“When ministers come out to thestreets holding guns, then what liesahead for the country? We do notknow what will happen tomorrow” MAMATA BANERJEEWest Bengal chief minister

SOMESH JHA

New Delhi, 4 February

Punjab National Bank (PNB)slipped into losses in the thirdquarter of 2019-20, posting itsfirst quarterly loss in over a yearahead of its planned mergerwith two other public sectorbanks (PSBs).

PNB’s net loss stood at~492.3 crore in October-December 2019, compared to anet profit of ~507 crore in theprevious quarter.

A big jump of 73 per cent inprovisioning for bad loans,from ~2,565 crore in the samequarter in the previous finan-cial year to ~4,445 crore, affect-ed the profitability of the sec-ond-largest PSB.

PNB was in the red last inthe September quarter of 2018-19, when its net loss was ~453crore. In the third quarter ofthis financial year, the bank’snet interest income (differencebetween interest earnedthrough lending and interestpaid to depositors) remainedflat at around ~4,355 crore froma year-ago period.

The bank’s fresh slippages— the amount of loans thatturned from good to bad —doubled to ~6,783 crore from~3,324 crore in the same quar-ter last year. More than 50 percent of the fresh slippageshappened in agriculture(~2,100 crore) and the micro,small and medium enterprises(MSME) sectors (~1,400 crore).The bank had to provide for~1,189 crore towards housingfinance company DewanHousing Finance Corporation.

The bank has an exposureof around ~1,000 croretowards Vodafone Idea, whichwill add to the stress. Thebank is expecting fresh NPAsof ~3,000 crore in the next twoquarters, mostly on accountof stress in agriculture andMSME accounts.

“Cases worth ~8,800 crorewill come up for resolution inbankruptcy courts in the fourthquarter and we expect a recov-ery of ~3,000 crore from theseaccounts,” PNB Managing Dir-ector and Chief ExecutiveOfficer S S Mallikarjuna Raotold CNBC-TV18 on Tuesday.

DILASHA SETH

New Delhi, 4 February

Interim chairman of the CentralBoard of Indirect Taxes andCustoms (CBIC) John Josephsaid the government was work-ing on a lottery scheme forgoods and services taxpayers,where the winning amount mayrange from ~10 lakh to ~1 crore.

This is being done toimprove compliance and boostcollections that have been lag-ging in the current fiscal yearon account of the economicslowdown and fake invoices.

“Every GST bill of a taxpay-er will be a price winning lot-tery ticket,” said Joseph.

The lottery scheme will be

on the lines of what the Delhigovernment had under the val-ue-added tax (VAT) regime forconsumers, said the official.The Delhi government hadintroduced the ‘Bill Banao,Inaam Pao’ scheme in 2015during the VAT regime.

According to the scheme, acustomer was eligible for a prizeof five times the taxable valuesubject to a cap of ~50,000, if hemade a purchase from a regis-tered dealer. About ~5.65 lakhof reward amount was distrib-uted to customers who partici-pated in the scheme.

Meanwhile, during a post-Budget interaction with indus-try, Central Board of DirectTaxes (CBDT) chairman P C

Mody on Tuesday said thatunlike corporates, individualtaxpayers will have the flexi-bility to switch between thenew and old income tax rateson a year-to-year basis.

He added that the govern-ment wants to phase out allexemptions and deductions

that a taxpayer gets in a stag-gered manner.

Propagating benefits of thenew tax regime unveiled byfinance minister NirmalaSitharaman on Saturday,Mody said even the salariedclass will benefit from theoption of the lower tax regime.

This is in lieu of exemptionsand deductions and it was time to relook at theentire system.

“Taxpayers will be able toswitch between the old andnew personal income tax rateson year-to-year basis. The taxstructure has been made sim-ple. I think time has come fora relook at the entire system.The younger people, who havenot got used to the deductionsand exemptions, will find itattractive to go for a lowerrate,” Mody said at anAssocham event.

The option to switchbetween the two rate regimesis available only to the individ-ual and Hindu undivided fam-ily (HUF) categories that do nothave a business income.

The Budget memorandumhas specified that those hav-ing a business income will not

be allowed to revert to the oldregime, once they haveswitched to a lower tax regime.

Sandeep Sehgal, director,tax & regulatory, AshokMaheshwary & Associates LLP,said the option to switch fromthe old to new regime and viceversa may not be beneficial formajority of middle-class tax-payers. This is because theywould be claiming deductionsand exemptions for recurringinvestments/expenses likehealth and life insurances,tution fee for their children,home loan and house rentallowance, among others.

“However, this optionwould serve millennials well asthey may not be committed ini-tially to these expenditures andare in a better position to eval-uate from year to year whichparticular slab would savethem more tax,” he added.

SACHIN P MAMPATTA &

ADITI DIVEKAR

Mumbai, 4 February

T he rewriting of divi-dend taxation rulesmay have an impact on

dividends received from theforeign subsidiaries of domes-tic companies.

Easier rules of taxationapplicable earlier havechanged, potentially leadingto double taxation on theamount received from foreignsubsidiaries and distributedby their parent companies toshareholders, according toexperts.

Dividends received byIndian companies from for-eign subsidiaries have beensubject to a concessional taxrate of 15 per cent, said PranavSayta, national leader,International Tax andTransaction Services, EYIndia. When the parent firmfurther paid out dividends toits shareholders, dividend dis-tribution tax only applied tothat amount and excluded thedividend from the foreignsubsidiary. This avoided dou-ble taxation.

For example, consider aparent company whichreceived ~70 from its foreignsubsidiary and paid out ~100in dividends.

Dividend distribution taxin FY20 would only be appli-cable after deducting ~70received from the foreignsubsidiary, meaning 20.56per cent DDT would be paidonly on ~30. Only sharehold-ers earning dividend of over

~10 lakh a year would pay anadditional 10 per cent tax inFY20. “Now all of that isgone,” Sayta said.

Under the new rules, thedividend on the entire ~100would be taxable at the mar-ginal rate for the parent firm'sshareholders.

Some of its shareholdersin the highest tax bracketwould end up paying a tax of42.7 per cent. This wouldinvolve the dividend beingtaxed twice.

Tushar Sachade, partner-tax and regulatory services,PricewaterhouseCoopers, too,pointed out that there was akind of cascading credit, pro-vided for dividends paid byIndian companies, whichtook into account dividendsreceived from foreign sub-sidiaries.

Dividends from a foreignsubsidiary were taxed at 15per cent, however, if the par-ent were to pay dividends, itwas not required to pay DDT

(on foreign dividends)."Now in case of a foreign

subsidiary, there is doubletaxation. If the Indian parentreceives dividend, it pays taxwhen it declares dividend; therecipient also pays tax," hesaid.

Indian companies havemade several foreign acquisi-tions over the years. Forexample, Aditya Birla Group'smetal sector major HindalcoIndustries acquired globalaluminium player Novelis in2007. Similarly, Tata Steelacquired UK-based Corus in2007.

Any dividends receivedfrom such acquisitions wouldpotentially be subject to high-er taxes.

Tata Steel’s operations out-side India many a time havenot been in a position to paydividends. Hindalco, too, isnot looking to return capitalat this point, according to asource.

“We have not taken any

dividend from Novelis for sev-eral years. In any case, we donot look at Novelis as a sub-sidiary which is (at a stage) togive us dividends. We want tosimply grow the company.But going ahead, if we takedividends from Novelis and ifthat situation arises, we willstudy the tax implications,”said the source.

Spokespersons for thecompanies mentioned abovedid not respond immediatelyto a request for comment onthe new tax rules.

The removal of DDT,announced in the Budget, wasseen as a positive by somequarters as it ensured that for-eign shareholders could getcredit for taxes paid on divi-dends. This also means thatcompanies no longer have thecompliance burden ofdeducting the tax. Tax is nowto be paid by the recipient atthe applicable rate, instead ofthe flat DDT rate of 20.56 per cent.

FinMin to assuageconcerns of ratingagencies: DEA secyThe finance ministry has said itwill try to assuage concerns ofrating agencies on opting forhigher deficit and otherBudget numbers whilestressing that fundamentals ofthe economy are strong.Department of EconomicAffairs Secretary AtanuChakraborty said the Indianeconomy remains robust andmore than meets therequirement of investmentgrade and above. PTI<

FDI at $34.9 billiontill November ofthis fiscal yearForeign Direct Investment inIndia has been increasing onan annual basis and was at$34.90 billion till November of this fiscal year, governmentinformed the Parliament on Tuesday. PTI<

CSB Bank’s pre-taxprofit up multiplefold to ~42.4 croreFairfax-backed CSB Bank'sprofit before tax (PBT) rose bymultiple fold to ~42.4 crore inthe December quarter, from~1.6 crore during the sameperiod last year. BS REPORTER<

India’s economicgrowth projectionsambitious: Moody’s

Moody's Investors Service onTuesday said economicgrowth projections made byFinance Minister NirmalaSitharaman in her Budget for2020-21 appear ambitiousgiven the structural andcyclical challenges facing theIndian economy. The Budgetexpects nominal GDP growthof 10 per cent in 2020-21,followed by 12.6 per cent and12.8 per cent in FY22 and FY23.

PTI<

Looking to create airdefence command tocover aerial ops: CDSThe armed forces are likely tocollaborate and create an ‘airdefence command’ to coverall aerial operations takingplace in the Indian airspace, a ‘peninsula command’ tolook after all naval operationsin the closer Indian Oceanregion, and a 'logisticscommand', said India's firstchief of defence staff (CDS)General Bipin Rawat onTuesday. PTI<

LIC STAFFHOLD STRIKE AGAINST IPO

Employees of LIC staged a walkout in Mumbai on Tuesdayto protest against the government’s move to sell its stakethrough an IPO. More than 1.2 million agents will strike workfor two hours on Wednesday and stage a protest in Delhi nextmonth PHOTO: KAMLESH D PEDNEKAR

Newrules to hit dividendsfrom foreign subsidiaries

PNB back inred, net lossat ~492 crore

Govt pegs GST lottery rewards at up to ~1 crore

Rewriting dividend taxation norms may result in double taxation, say experts

‘Budget strikes right balance between growth push & fiscal discipline’

Though you have expanded your FY20and FY21 fiscal deficit targets,compared to earlier estimates, it wasstill a fiscal contraction year-on-year(YoY). Should there have been a biggerstimulus?This is the beauty of comparisons.When you use different benchmarks,the same comparison can have differentmeaning. So, at least for me, theway I would look at it is that beforethe Budget, we were actuallylooking at 3.3 per cent for this yearand 3 per cent for next year. Andwe have taken the Fiscal Responsibilityand Budget Management (FRBM) Actrelaxation of 50 basis points to go from3.3 per cent to 3.8 per cent for this year,and 3 per cent to 3.5 per cent for nextyear. That’s the way I look at it.

Now, many have commented onwhether there should have been agreater stimulus push. In the EconomicSurvey, what we basically said is in thisdelicate balance between fiscalprudence and a spurt to growth, we saidwe need to lean on growth, we did notsay put your full weight on growth.Because, if you look at the experiencefrom 2009-10, when after the globalfinancial crisis we let fiscal deficit go upindiscriminately, we had the taper

tantrum in 2013 and India became partof the fragile five.

As they say, if you don’t learn fromhistory, [you] are condemned to repeatit. So, the worry this time was that if wego for indiscriminate fiscal expansion,2-3 years later, we may actually have asimilar problem. Macro stability is non-negotiable. We have come close to the

sweet spot in ensuring that we’vegiven a growth spurt andmaintained discipline as well,within the ambit of the frameworkprovided by the FRBM Act.

With so many import dutyannouncements in the Budget, are wegoing back to being protectionist?I like making a distinction betweenfinished goods and raw materials. Inraw materials and intermediate goods,custom duties have been brought down,which is good. For exports of finishedgoods, imports of some of theseintermediate products are important.And that’s what we’ve shown in theEconomic Survey as well. It is importantto keep in mind this distinction betweenfinished goods and intermediates andraw materials. This is important, ratherthan painting it in one stroke… calling itprotectionist.

High-cost economy comes fromimports of intermediates and rawmaterials not being allowed. The costfor a producer is basically either the rawmaterials or the intermediates, and I'vebeen very clear on that. This is about thedelicate balance between domesticproduction, imports, and enablingexports as well. If you are charginghigher import duties for finished goods,that doesn’t really affect the coststructure for producers, so it’s reallyimportant to make that distinction.

In media interactions, the EconomicAffairs Secretary said economists want

to play T-20 cricket match to makethemselves popular, and DIPAMSecretary said the idea of a Temasek-like holding company for PSUs(proposed in the Economic Survey)needs to be debated. What are yourthoughts as an economist and author ofthe Survey?I think the T-20 versus test match debateis a good characterisation of economicpolicy, of taking care of the short runversus taking care of the long run. Ithink what we have done is we areplaying a test match. With the Budget,we are in test-match mode. The role ofthe Economic Survey, in some parts, is

to foster debate. Mentioning theTemasek model has led to discussionson its pros and cons. I think that isimportant. Just because we haverecommended something does notmean it should immediately getimplemented. It has to be debated. Butby bringing it into the into thepolicymaking arena, we actuallyencouraged debate on that. As anacademic, I am absolutely comfortablewith that.

The revenue estimates for the nextfiscal again appear unrealistic withdirect tax growth pegged at 12.7 percent, as against a nominal grossdomestic product (GDP) growth rate of10 per cent. Besides, for FY20, even therevised target of 2.9 per cent appearshigh, considering that we are hoveringat a negative 6 per cent…There has been a strong emphasis ongetting the projections as realistic as wecan. Therefore, in this Budget there hasbeen an emphasis on transparencycompared to the previous two Budgets.The realistic 10 per cent growth rate anda tax buoyancy at 1.2 per cent is easilyachievable. And with some of themeasures like “Vivaad se Vishwas”scheme introduced, I don’t think theyare unrealistic. There are close to500,000 cases under dispute… While itis very hard to Budget the exact amountof these, even normal tax numbersshould be achievable. The annexure to

the Budget speech showing off-Budgetitems is a step towards transparency.Overall, there has been a real emphasison being as realistic and transparent as possible.

With you being a member of the directtax committee that submitted itsreport in August last year, what do youhave to say on the personal income taxcuts introduced in the Budget? The report is not in the public domain,so I cannot talk about that. But, I can talkabout the tax proposals in the Budget.As an economist, if I were to design a taxscheme it will be a flat rate scheme. I willget rid of all exemptions. The incometax act is so voluminous because wekept adding clauses for the last 50 years,which gives people the opportunity tointerpret it in different ways. Taxresearch shows that a simple scheme isefficient and enables to garner greaterrevenues. Getting rid of exemptions is amove in the right direction. If you doquick back-of-the-envelope calculation,someone earning ~10 lakh can get abenefit of anywhere between ~35,000and ~45,000, even if he or she is availingexemptions. According to the data putout by the department of revenue, alarge proportion of people do not availfull exemptions as they don’t havemoney to invest in those schemes. It is astep in the right direction, but we needto keep working on it to have a flat taxand no exemptions.

Chief Economic Advisor KRISHNAMURTHYSUBRAMANIAN said the hikes in Customs duty in theBudget were not protectionist as they were aimed at finished goods and not raw material.Speaking to Arup Roychoudhury and Dilasha Seth, Subramanian said that fiscal year 2020-21(FY21) targets were transparent and realistic. Edited excerpts:

Stress in wholesale book ofNBFCs to rise further: CRISILRealty exposure ofnon-bankingfinancial comp-anies (NBFCs),which is out ofmoratorium, has abad loan ratio ofover 10 per cent asof September 2019and the fear is restof the book undermoratorium may go the same way, said rating agency CRISIL. About30 per cent of the realty book of NBFCs has come out moratoriumwhile 40 per cent of the exposure is still0 under moratorium. Thebad loan ratio of the realty portfolio of NBFCs was 1.8 per cent as ofMarch 2019 and by September it almost doubled to 3.3 per cent.CRISIL said the overall NPA ratio of NBFCs can rise by 30-150 basispoints, depending on the asset class as stress in the space is inchingamidst the challenging economic environment. SUBRATA PANDA<

ADJUSTED 90+ DPD FOR THE REAL ESTATE PORTFOLIO (in %)

Share 19 19to AUM Mar Sep

Book in moratorium 40 0% 0%

Lease rental discounting 30 <0.5 <0.5

Book out of moratorium 30 5.8 10.2

Reported NPA 1.8 3.3

Q3 SCORECARD In ~ cr

Oct-Dec 2018 July-Sept 2019 Oct-Dec 2019

Total income 14,854 15,557 15,967

Total expenditure 11,754 11,995 122,045

Provisions towards 2,566 3,253 4,445bad loans

Profit/loss before tax 346 633 -383

Net profit/loss 346 507 -493

% of net NPAs 8.22 7.65 7.18

% of gross NPAs 16.33 16.76 16.3Source: Punjab National Bank

TAX WOES � Foreign subsidiarydividends taxed at 15% in FY20

�Dividend distribution taxcalculation excluded suchincome

�Newregime requires tax inhands of recipients

� Foreign subsidiarynowtaxed in hands of parent,and again on redistribution

� Leads todouble taxation

“I THINK TIME HASCOME FOR A RELOOKAT THE ENTIRESYSTEM. YOUNGSTERS,WHO HAVE NOT GOTUSED TO DEDUCTIONSAND EXEMPTIONS,WILL FIND THE NEW TAX REGIME

ATTRACTIVE” P C MODY,

CHAIRMAN, CBDT

CBDT chairman clarifies taxpayers canswitch between new and old regime

MUMBAI | WEDNESDAY, 5 FEBRUARY 2020 COMPANIES 5. <

CHARLOTTE RYAN, YANTOULTRA NGUI

& ASANTHA SIRIMANNE

London, 4 February

Airbus SE and AirAsia, the dis-count airline built by TonyFernandes, were inseparable for

years, with the boisterous aviation exec-utive gorging on ever-larger aircraftorders to become the manufacturer’sbiggest customer for single-aisle jets.

That happy marriage ended in acri-mony last week after Airbus admitted toillegally trying to sway plane sales andagreed to a record $4 billion bribery set-tlement. By Monday, Fernandes steppedaway from the Malaysian airline hebought in 2001 and turned into one of thebest-known brands in Asian aviation.

Fernandes was one of Airbus’s mostloyal customers, a fixture at air showswhere he’d make a splash with hugedeals while bucking the stodgy formal-ities of traditional business. Among hismost memorable moments was thesigning of the European company’sbiggest order at the 2014 Farnboroughexpo, where he exchanged man-hugswith legendary, since departed saleschief, John Leahy.

Now a corruption probe that has rico-cheted through Airbus for almost fouryears, claiming the scalps of many seniorstaff, is coming for its airline counterparts.Fernandes will leave his role as chief exec-utive officer of AirAsia for two monthswhile the government examines corrup-tion claims, according to a statementMonday. Chairman Kamarudin Meranunalso stepped down, in a sign of furtherrepercussions from the bribery case.

Fernandes, 55, who is already fac-ing corruption charges in India, andMeranun on Monday denied allega-tions of wrongdoing, saying they stooddown to ensure a full and independentinvestigation. They added in a news-paper op-ed Tuesday that a Formula 1sponsorship deal which was the sub-ject of the Airbus accusations was “abranding exercise” and not a ventureto make money. Malaysia’s anti-graftagency said Saturday that it was look-ing into corruption at AirAsia. Airbus,which admitted to the SFO’s allega-

tions as part of its settlement,declined to comment.

Shares of AirAsia tumbled as muchas 12 per cent Tuesday, after losing 10%of their value on Monday. Fernandesand Meranun are still the company’sbiggest investors through Tune Group.

“AirAsia is clearly a major Airbuscustomer,” said Sash Tusa, an aero-space and defense analyst at AgencyPartners in London. “At times theyhave given the impression of orderingaircraft at an exceptional rate.”

After starting his career in RichardBranson’s Virgin Group in the UK,Fernandes returned home to Malaysiaand teamed up with Meranun to buy anailing and indebted AirAsia for 1 ringgit.

Affable and almost always casuallydressed, Fernandes was rarely seenwithout a grin and a red baseball capbearing the AirAsia logo. Like Bransonbefore him, he was never shy of thelimelight. AirAsia would become

Malaysia’s first low-cost carrier and itsexplosive growth across the continentcoincided with unprecedented demandfor air travel in developing nations.

Fernandes then ventured into oth-er businesses including hotels, insur-ance, telecommunications and motorracing. In 2011, he took control of theQueens Park Rangers soccer club in theUK. Two years later, he hosted an Asianversion of The Apprentice reality show.

Prosecutors at the UK’s SeriousFraud Office said Airbus paid $50 mil-lion in sponsorship to a sports teamjointly owned by two AirAsia executivesas a reward for an order of 180 aircraft,later amended to 135.

The executives and the sports teamweren’t named in the case, but AirAsiaover the weekend called the sponsor-ship “a well-known and widely publi-cized matter bringing branding andother benefits to Airbus.” Fernandesand Meranun in their op-ed article

identified it as the Caterham Formula1 team, founded in 2009 withNasarudin Nasimuddin, chairman ofcar assembler Naza Group. They saidthe team made no profit and “waseventually disposed for £1”.

The July 2014 Farnborough deal thatproduced such fraternal bonhomie —for 50 A330 wide-bodies — was sup-posed to trigger an additional $55 millionpayment, though it was never received,according to the prosecutors.

Four days after the order announce-ment, an AirAsia executive emailed asenior Airbus employee saying that“instead of sponsorship we want to putit as a grant.” The A330 purchase wasfinalized in December, but by then thestrategy and marketing department atthe center of the Airbus corruption wasno longer in a position to fulfill its com-mitments. “We have kept our side ofthe deal,” the AirAsia executiveemailed. “Pls don’t let us down”.

In all, corruption dating back 13years boosted profit at Airbus by morethan $1 billion, prosecutors said incourt documents.

Fallout from the scandal has alreadyrippled across the globe. Colombia’sAvianca Holdings SA said Monday ithad retained a law firm to conduct anindependent internal investigationinto the carrier’s relationship withAirbus, and whether it was the victim ofwrongdoing. Taiwan’s chief prosecu-tor started investigations of formerexecutives in charge at now-defunctTransAsia Airways, which was alsonamed in the documents, a prosecutorsaid by phone Tuesday.

In Sri Lanka, prosecutors are seek-ing the arrest of the state-owned air-line’s former top boss and his spouse.The attorney general’s office saidKapila Chandrasena, the ex-CEO ofSriLankan Airlines Ltd., and his wife,Priyanka Niyomali Wijenayaka, weresuspects in a money-laundering caselinked to aircraft sales at Airbus.

Sri Lankan police were ordered toobtain an arrest warrant, according toa statement Monday. Chandrasena did-n’t respond to multiple calls seekingcomment. BLOOMBERG

Tony steps aside as AirAsia boss

TonyFernandes (right)and Kamarudin MeranunAfter stepping aside as CEO and chairman ofAirAsia, respectively

"Caterham F1, the company alleged to have been sponsoredimproperly by Airbus, was at the relevant time a Formula 1 racingteam that had gone round the globe promoting amongst othersAirAsia, AirAsia X, GE and Airbus... Throughout the period wewere shareholders in Caterham, the company made no profitand was eventually disposed of for 1 pound sterling in 2014.From start to finish, this was a branding exercise and not aventure to make profit”

Chairman Kamarudin Meranun, too, relinquishes post temporarily over links to bribery scandal

VIVEAT SUSAN PINTO

Mumbai, 4 February

After exiting fast-moving consumergoods (FMCG) segment in India a fewyears ago, German major Henkel hasbeen quietly ramping up its presence inadhesives, a business that gives it near-ly ~2,500 crore in revenue. While rivalPidilite is best known for its consumer-centric brands such as Fevikwik andFevicol, Henkel is strong in the indus-trial adhesives segment, providingsolutions to sectors such as automo-tive, metals, packaging and aerospace.

On Tuesday, the company launchedis eighth plant in India, which is its firstmulti-technology unit, at an invest-

ment of ~400 crore. The plant, alsoHenkel’s largest adhesive manufactur-ing unit in the country, is located nearPune in Maharashtra.

Besides its manufacturing facilities,Henkel also has an innova-tion and product develop-ment centre and a flexiblepackaging academy in thecountry for its adhesivesbusiness.

Jan-Dirk Auris, memberof the management board at HenkelAG, said the plan was to push India upthe pecking order of markets in termsof top line from its current 10th posi-tion, using acquisitions, joint venturesand alliances as way forward. The con-

sumer adhesive space, in particular, hesaid, was an area that Henkel was eye-ing closely for future growth.

“India is an important emergingmarket, with tremendous growth

opportunity for our adhe-sives business. I will notexclude moving into con-sumer adhesives in thefuture, given that we wouldlike to see India get into thetop five markets for Henkel

globally in the next few years,” he said.The statement acquires significance

since Pidilite has been strengthening itspresence in industrial adhesives, tyingup with German player Jowat recently.Jowat is counted among Henkel’s com-

petitors globally and the collaborationwith Pidilite will see its portfolio avail-able in India, Sri Lanka, Bangladeshand Nepal, experts tracking the marketsaid.

Pidilite has also stepped into areassuch as floor coatings, wood finishesand specialised water proofing inrecent years using acquisitions and JVsas an entry point.

Auris said the India business ofHenkel had been growing at a clip of10-11 per cent annually, which it isexpected to maintain in the future. Theeighth unit would not only cater to thedomestic market, he said, but wouldalso take care of needs in West Asia,Africa and South Asia.

Henkel steps up investment in adhesives

Invests ~400crore in eighthplant in Indialaunched on Tuesday

SHREYA JAI

The Union government recentlyannounced a scheme to bundlerenewable energy with thermal

(coal/gas)-based power and sell themtogether. The idea is to ensure opti-mum utilisation and sale of renewablepower and thereby reduce the cost ofpower at the consumers’ end. Thiswould also help states meet theirmandatory renewable pur-chase obligations (RPO).

The thermal power indus-try is elated at this decision,but the renewable energy sec-tor is divided on the scheme.Some have called it a plan tosalvage under-utilised stressedthermal power units and oth-ers think it detrimental forrenewable power units.

The draft scheme proposedby the Centre said power gen-erators “shall supply renew-able power along with thermal power,in ‘Round-The-Clock’ manner, keepingat least 80 per cent annual availabili-ty”.

“Minimum of 51 per cent of energyshall be dispatched from renewableenergy sources. This 51 per cent shallalso include dispatch from storage sys-tem, provided RE (renewable energy)sources were used to store energy inthe storage system,” said the draft.

Generators who plan to sell bundledpower under this scheme will have toquote a composite tariff at which theywill sell the combined power. Tariff cal-culations would include renewable tar-iff and the first-year tariff of thermalpower, adjusted to cover any changesin coal prices.

The payment to the generatorwould be in the similar ratio as theenergy share in the composite supply.

The scheme has proposed that the totalcomposite tariff will consist of 51 percent RE tariff, 30 per cent variable ther-mal tariff and 19 per cent fixed thermaltariff. The renewable tariff is a single-part tariff quoted for 25-30 years.Thermal tariff, however, has two por-tions – variable tariff, which is the costof the fuel, and fixed tariff, which is thecapital cost incurred on the project.

“It will help both developers anddistribution utilities as itwill add another sourceof power in the procure-ment profile. If the biddesign is formulatedproperly the compositetariff would be lowerthan when purchasedseparately,” said A KKhurana, DirectorGeneral, Association ofPower Producers – a rep-resentative body of thethermal power sector.

Most industry executives believethis scheme could help salvagestressed thermal power assets. “Thethermal power projects which do nothave any sale agreements can be bun-dled with actively selling renewableprojects. This will help them stayafloat,” said a sector expert.

The power sector has Rs 2 trillionworth of stressed assets with 40 pro-jects declared non-performing assets.Of this, more than two dozen are understress because they have no power pur-chase agreements (PPAs) to sell pow-er.

The challenge, however, lies in thefact that government will have no rolein the bundling, apart from settingrules. The initiative would have to betaken by the power producers them-selves. Renewable energy players aredoubtful if any mainstream player will

even evince interest. “Even if they do,how does that benefit me? I will be sup-plying 50 per cent of the total demandand will be paid 50 per cent,” said asenior sector executive.

Renewable sectorconsultancy Bridge toIndia in a recent notesaid, “We suspect thatbecause of limitednumber of potentialbidders, the schemewould not attract very competitive bidsand may therefore not be cost attrac-tive for discoms. With proposedmandatory blending of thermal power,the scheme remains beyond scope of

most renewable power developers.”The situation could get grimmer

given the delayed payment by thestates. Both thermal and renewableenergy projects are facing payment

delays from thestates.Outstanding duesof thermal powerprojects stand atrecord high of Rs83,000 crore. In

case of renewable, the amount is closeto Rs 11,000 crore (last recorded in July2019), but the delay runs are for morethan six months to one year.

Several states also do not honour

the PPA they sign with renewablepower projects. The ministry of powerhas mandated the “letter of credit”system of prepayment for the statesto purchase power from any unit.However, that is for the current andfuture payments and offers no reliefon dues.

Another challenge would be the“merit order despatch” of power basedon tariff and energy source. While bun-dled power will get priority in the meritorder, different composite tariff of thebundled power could add to the con-fusion. Some of the renewable powerprojects and large thermal projectshave super-low tariffs in the range ofRs 1.75-2.5 per unit.

Sector experts believe the compos-ite tariff would come to around Rs 3per unit or so, according to the cost ofthermal power in the bundled scheme,which varies across the country. As thecost of coal increases, the cost of ther-mal and thereby of the bundledscheme would go up. The cost ofrenewable power, however, is depen-dent on the cost of equipment in caseof solar and on market demand in caseof wind.

The draft scheme has mentioned,but not addressed the concern on thecost, said the executive quoted above.“But as hybrid projects (solar and windprojects built together) did not fly off,this initiative should be given achance,” he said.

State-owned power generator NTPChas been preparing the ground for bun-dled power for some time. The compa-ny decided to back down some of itsthermal power in order to blend withrenewable and sell together last year.It has also decided to set up small solarand wind power plants at its thermalpower sites.

No other major power developer hasannounced any such plan especiallyprivately owned units. With most ofthem battling stress, this schemewould have to aim at plants with lowutilisation first, said an executive,killing two birds with one stone.

8 ISSUES AND INSIGHTS>

MUMBAI | WEDNESDAY, 5 FEBRUARY 2020

> CHINESE WHISPERS

> LETTERS

For those concerned aboutthe issues of clean air andsustainability, there were

four things of interest inFinance Minister NirmalaSitharaman’s Budget. Theannouncements we re, however,incremental in na ture, ratherthan path-breaking.

Solar power: The recently-

launched solar pump scheme isset to be ex panded. The govern-ment aims to provide two mil-lion farmers (1.75 million earli-er) with subsidised standalonesolar pumps, help another 1.5million (1 million earlier) tosolarise their grid-connectedpump sets, and set up solarplants on barren land underKUSUM scheme. The targetedinstallation of 25,750 megawattsby 2022 under the original planwould also be increased,though no new number hasbeen announced.

A proposal to set up “largesolar power capacity” alongrailway tracks on land ownedby Indian Railways is alsounder consideration.

Thermal power: Thefinance minister acknowledged

that there are “thermal powerplants that are old and their car-bon emission levels are high.”

The action proposed is,however, tentative: "For suchpower plants, we propose thatutilities running them would beadvised to close them, if theiremission is above the pre-setnorms. The land so vacated canbe put to alternative use,” she said.

Clean air: Mention of cleanair in the Budget indicates thatsome sort of priority is accord-ed to it. As cities roll out theirclean air plans, ministerSitharaman announced that ~44 billion ($616 million) wouldbe set aside to encourage themin 2020-21.

By comparison, a newNational Mission on QuantumTechnologies and Applicationswas allocated Rs 80 billion ($1.1billion) over a five-year period.

Electric vehicles: To en -courage domestic value addi-tion, customs duty has been in -creased by varying degrees oncompletely knocked-down, se -mi-knocked-down and comple -tely built units of buses, trucks,two-wheelers, three-wheelersand passenger cars.

There were other announce-ments that could prove positivefor the renewable energy sector.Sovereign wealth funds willnow enjoy 100 per cent taxexemption on their in terest,dividend and capital ga insincome for investments ma dein infrastructure and otherspecified sectors before March31, 2024. The renewable energysector has been of particularinterest to these funds, withrecent commitments from the

likes of Abu Dhabi InvestmentAuthority and UAE’s MubadalaInve stment Company.

The new concessional cor-porate tax rate of 15 per cent —available to new manufacturingdomestic companies set up onor after October 1, 2019 — isnow extended to the businessof electricity generation. Thiswill also be a plus for renewableenergy companies.

The decision to move to pre-paid smart electricity meters forall consumers in the next threeyears — if it happens — wouldhelp the distressed distributioncompanies, and in turn, therenewable energy companies.

The author is editor, global policy,BloombergNEFvgombar@bloomberg.net

A splash of sunshine and a hint on thermalMinistry of recyclingFinance Minister Nirmala Sitharamangot unique policy suggestions in herfirst interaction with industry afterpresenting her Budget. While laudingher big disinvestment target of over ~2trillion for the next fiscal year at agathering organised by the Federationof Indian Chambers of Commerce andIndustry, an industry executiveobserved public sector assets were notreally for sale but were being“recycled”. “You should call it adepartment of recycling so that there isa positive twist to the government’sintent. Even my father keeps asking mewhy government companies are beingsold,” the executive quipped. It wasfollowed by a silent nod by the financeminister, who moved on to the nextquestion in a jiffy.

Mixing up datesThe Bharatiya Janata Party’s (BJP’s)Bhupender Yadav on Tuesday openedthe discussion on the motion ofthanks to the President’s address.Yadav said the opposition, particularlythe Congress, questioned thegovernment’s implementation ofAadhaar and goods and services tax(GST). The Congress’ Jairam Rameshreminded Yadav that it was NarendraModi who as Gujarat chief ministerhad first questioned Aadhaar and GST.Yadav said the opposition hadlaunched the “award wapasi”campaign in 2014, just as it was nowcovertly sponsoring protests againstthe amended Citizenship Act.However, what the BJP terms the“award wapasi” campaign took placein 2015. He said the Congressquestioned “the surgical strikes of2017”. The Uri surgical strikes tookplace in 2016. He repeatedly said thegovernment would mark thehundredth birth anniversary of BalGangadhar Tilak this year, andeventually corrected himself and saidit would be the freedom fighter’shundredth death anniversary.

Memorable replyOver the past almost six years, it has beenrare for Prime Minister Narendra Modi toreply to the motion of thanks to thePresident’s address on the same day in theLok Sabha and Rajya Sabha. However, thistime, he will speak on the motion in thetwo Houses the same day, that is,Thursday. Opposition sources suggestedthis change might have something to dowith the Delhi Assembly polls, which are onSaturday. The Opposition has moved over400 amendments to the motion. In thepast six years, there have been twooccasions when the Opposition forcedamendments to the President’s address inthe Rajya Sabha. But its numbers havedwindled since then and it is not in aposition to push through theamendments. The two Houses will take upa discussion on the Union Budget nextweek, on the last two days before theBudget session takes a pause on February11, to meet again on March 2.

Disservice to peopleThis refers to “Household savingsdrop to 6.5% of GDP in FY 19”(February 4). At a time when the rateof household savings has fallen to thelowest in eight years, the governmenthas introduced the option of exemp-tion-free tax structure. It is looking atlowering the interest rates of smallsavings and reducing tax incentivesfor them. This is not a wise move at atime when the rate of household sav-ings is falling. India has practicallyno social security system for the oldand the unemployed. It has no realefficient and affordable public healthsystem. Small savings help in the edu-cation and marriage of children,besides providing support during oldage and sickness.

By weakening the foundation ofsmall savings in a country where peo-ple are afraid to keep their money inbanks, where interest rates are fallingsteadily, where the bond market is notdeveloped and equity markets notunderstood by many, the governmentis doing a disservice to the people.Income Tax laws and regulations forma part of fiscal and economic systemsand should not work at cross purposeswith them. Better sense must prevail.

Arun Pasricha New Delhi

An inclusive BudgetWalking a tight rope and well within

her limitations, the Union financeminister has attempted to present aBudget that is pragmatic and devel-opment-oriented with focus onwealth creation and building infras-tructure for socio-economic welfare,given the available fiscal space andgeo-political and geo-economic equa-tions. The Budget has attempted tocover all sectors of the economy withmassive spending indicated in criticalsectors. A sense that we get in theBudget is that a virtuous cycle forgrowth must assume centre stage. Ifthe fundamentals are firmly laid outand the capacity to bear risks and set-backs are deftly managed to counterlooming uncertainties, things willautomatically fall in place for growthto happen on the expected lines andin a sustained manner.

Srinivasan Umashankar Nagpur

Letters can be mailed, faxed or e-mailed to: The Editor, Business StandardNehru House, 4 Bahadur Shah Zafar Marg New Delhi 110 002 Fax: (011) 23720201 · E-mail: letters@bsmail.inAll letters must have a postal address and telephonenumber

> HAMBONE

Is NDA-II heading the same way asUPA-II? The latest Mood of the Na -tion (MOTN) survey findings pub-

lished by India Today invite us to thinkof this te mp ting, but false, equivalence.As a na tion-wide popular movement co -nfronts the Narendra Modi-led BJP gov-ernment floundering in its second term,it is natural to think of the disastrousterm of the UPA-II under Manmohan Si -ngh, especially after the anti-corruptionmovement. It is a misleading compari-son though.

India Today’s six-monthly ‘Mood ofthe Nation’ poll is the oldest data seriesof its kind in India. (The other, the one Iprefer, CSDS-Lokniti on State of the Na -tion Survey has been interrupted aga in.)Although its method and quality have va -ried over the years, I still trust India To -day. This latest round was carried out dur-ing the last 10 days of 2019. As always, thepo llsters spoke to a small, but represen-tative sample of about 12,000-plus votersacross 19 states. Remember, a less-than-perfect survey is a superior source ofinformation than drawing room gossip.

Decline in BJP popularity?There are many indicators in MOTN sur-vey to support the idea of a decline in theBJP’s popularity. The headline forecastshows a drop of 50 seats compared to theNDA’s tally in 2019 Lok Sabha polls. Itwould look worse if we imagine a grand

alliance of the Opposition, in cluding theShiv Sena. The poll finds a loss of fourpercentage points in the NDA vote share,from 45 per cent in the Lok Sabha elec-tions to 41 per cent now. Add this to theoutcomes of Assembly elections follow-ing the Lok Sabha polls and you have atrend line of a consistent decline in theBJP’s fortunes.

I would, however, not rush into sucha conclusion. For one thing, I never takeseat forecasts very seriously, especiallywhen the Lok Sabha poll is some yearsaway. Voters don’t quite know their mind.And the pollsters don’t know what thenature of alliance arithmetic would even-tually look like. Besides, one should notread too much into a small drop after anextraordinary peak as in 2019. In any case,the poll shows that the BJP’s loss is notthe gain of its principal national oppo-nent, the Congress. In this respect,ThePrint’s editor-in-chief She kharGupta’s reading is bang on.

Despite a minor drop, Prime MinisterModi’s approval rating continues to behigh at 68 per cent. He continues to beway ahead of his competitors (53 per centprefer him over 13 per cent for RahulGandhi) in the PM race. He can afford toshed a few points as the Opposition hasno half-credible face to take him on. Thesupreme leader’s rating is more impor-tant to assess the strength of an authori-tarian regime than any projected voteshare for his party.

Split on economyThe poll’s indications on India’s econ-

omy are more significant, though not asrobust as I had expected. I wish the pollhad asked more pointed questions onthe economy.

At 32 per cent, unemployment is thetop-most anxiety of people. It has beenso since the MOTN survey held in August2016. If anything, the reality of jobless-ness finds a mild expression in the mir-ror of this poll.

Farm crisis may have slipped fromthe headlines, but continues to featureamong top concerns. While Modi did winfarmers’ votes, he has not been able towa sh away the impression that the farm-ers’ condition has deteriorated under hisregime. At the same time, food inflationis beginning to hurt the consumer,though this anxiety is yet to peak.

The bad-old UPA is now seen in a fair-er light for its handling of the economy.All in all, the population is almost equal-ly divided into three: 29 per cent believ-ers who see no reasons to worry, 28 percent sceptics who fear that the economyis stagnating or regressing and 32 percent agnostics who say it is growing, butat a slower pace. It’s bad news for theModi and Amit Shah regime, but not asbad as the reality of the economy war-rants. The public opinion has still notcrossed the tipping point.

Are majoritarian policies working?To my mind, the most significant fi -

ndings of this round of MOTN survey areabout the majoritarian policies followedby the Modi government since the LokSabha elections.

With Amit Shah as its mascot, theNDA-II has pursued an aggressive agen-da of polarisation through Kashmir, Ci -tizenship (Amendment) Act and the pro-posed nationwide National Register ofCitizens (NRC). Although these policiesare disastrous for our long-term nationalinterest and India’s international stand-ing, I feared that this would bring short-term political dividends to the BJP.

The survey shows the BJP may haveoverplayed. The move to scrap Article370 gets popular approval, but not as hi gh as the BJP may have hoped for. Si milarly, those who support the CAAoutnumbered those who are opposed (41per cent to 26 per cent) to it. The same istrue of the NRC (49 per cent to 26 percent).

A majority of the people (52 per cent)

agree minorities are feeling insecure.More significantly, 53 per cent agree theminorities are justified in feeling so. Themost damning news for the regime isthat more people feel that CAA-NRC is aploy to divert peoples’ attention thanotherwise (43 per cent to 32 per cent).Remember, this survey was completedbefore the JNU episode that may haveeroded the regime’s legitimacy even fur-ther. Clearly, at least some Modi support-ers have begun to think that he is com-mitting excesses. This sentiment bringsauthoritarian regimes down.

Not the beginning of the endBut this is not the beginning of the

decline of Modi. For one thing, the NDAvictory in 2019 was much higher than theUPA in 2009. Be sides, the anti-CAA-NRC-NPR moveme nt is not the darling of themedia that the Anna Hazare movementwas. Above all, the character of the Modiregime is radically different from that ofthe Singh government. Wha tever hap-pens, it will never quietly preside over itsown decimation as UPA-II.

If the Singh government was charac-terised by policy paralysis, this one is af -flicted by hyper-activism, sans a ro ad -map. We cannot compare this regimewith the previous because it is led by notone but two consummate political play-ers unrestrained by norms, conventionsor compunction. Their exit route cannotbe like the UPA’s tame surrender in 2014.

We are dealing with political animalswho would turn a setback into an oppor-tunity and invent crises. Indira Gandhi’sshock defeat in 1977 is the closest parallelthat we can think of. Perhaps, we need tolook beyond India, to our neighbourswho have fought against authoritarianregimes, to visualise an exit route for theModi-Shah regime. By special arrangement with ThePrint

The author is the national president of SwarajIndia. Views are personal

Modi-Shah regime not same as Manmohan’s UPA-II

YOGENDRA YADAV

INSIGHT

Flickering interest in ‘round-the-clock’ powerWhy power producers are not exactlyenthused by the govt’s scheme to bundlerenewable energy with thermal power

TAKETWOANALYSIS BEHIND THE HEADLINES

VANDANA GOMBAR

GREEN POWERState Renewable

energy capacity (gigawatts)*

Karnataka 15.2

Tamil Nadu 14.2

Gujarat 10.3

Maharashtra 9.6

Rajasthan 9.3

Andhra Pradesh 8.3

Others 19.0

TOTAL 85.9*As on December 31, 2019Source: Ministry of New and RenewableEnergy

The idea is to ensure optimumutilisation and sale ofrenewable power and therebyreduce the cost of power at theconsumers’ end

*average tariff for 2019 Source: Central Electricity Authority, power industry

2,30,701MWTotal thermalpower capacity

~2.6/kwh Average solar tariff ~3.5/kwh Average wind tariff

40,130MWStressedthermal assets

84,399MWTotal renewablecapacity

~3.05kwhAverage coaltariff

POWER ASSETS

OPINION 9> STAY INFORMED THROUGH THE DAY @ WWW.BUSINESS-STANDARD.COM

After shelving the idea of issuing foreign currency sovereign bonds tofund the fiscal deficit, the government has now decided to issue spec-ified categories of securities to non-resident investors. The idea behindthe proposal mentioned in the 2020-21 Budget is to further open up

the sovereign debt market for foreign investors and make sure that Indian gov-ernment bonds figure in global indices. Inclusion in global indices would resultin a stable flow of foreign savings. Some of the large and long-term investorssuch as pension funds invest on the basis of the composition of such indices.

The government’s intention to tap foreign savings is not very difficult tounderstand. According to the latest data, net household financial savings droppedto an eight-year low of 6.5 per cent of gross domestic product (GDP) in 2018-19. Itis likely that household financial savings are at similar levels, which are not suf-ficient to fund the needs of both the government and the corporate sector. Totalpublic sector borrowing itself is said to be at around 9 per cent of GDP. Thedecline in savings is putting upward pressure on interest rates, which is beingreflected in the bond market. The flow of foreign savings would ease some pres-sure in the debt market and help encourage real investments. The governmentis also increasing the limit for foreign investment in the corporate debt market.

However, things will not be this easy and straightforward. There are well-grounded reasons why policymakers in the past resisted opening up the debtmarket to foreign investors beyond a point. In the given context, it is likely thatIndia will not immediately get included in bond indices and would need to offera significant stock of bonds to foreign investors before being considered foraddition in indices. Inclusion in such indices often depends on availability andliquidity. But large foreign inflows will put upward pressure on the rupee, whichcould affect India’s external competitiveness and increase the current accountdeficit. To avoid currency appreciation, the Reserve Bank of India will need toactively manage the currency, which could affect its monetary policy objectives.In fact, the Indian central bank had to make large interventions in 2019, whichhas resulted in surplus liquidity in the system at a time when inflation has goneabove the upper end of the target band. Availability of foreign funds could alsoreduce bond market pressure in the short run and encourage the governmentto increase spending. This can pose financial stability risks in the medium tolong term. The government is already running a fiscal deficit of well over 4 percent of GDP, once the extra budgetary spending is added, and is mostly beingused to fund consumption expenditure.

Thus, while the idea of inclusion in global bond indices and accessing globalsavings has merits at a theoretical level, policymakers should not ignore thefundamental weaknesses of the Indian economy. Some of the reasons such asthe persistently high fiscal deficit and weaknesses in the financial system dis-couraged policymakers in the past from opening up the capital account. Theseweaknesses still exist. Therefore, it is important to first strengthen the funda-mentals of the economy. Increasing dependence on foreign flows with weakfundamental could raise financial stability risks.

Beyond numbers

Finance Minister Nirmala Sitharaman, in her presentation of theUnion Budget for 2020-21, sought to restore trust in the Indian gov-ernment’s numbers. Concern has built up over such matters as thescale of the fiscal deficit, the actual growth performance, and the

extent of unemployment. She deserves credit for making elements of extra-budgetary borrowing much clearer, and the government has also set up acommittee to examine how its official statistics are produced. This is, ineffect, a recognition that the credibility associated with official pronounce-ments has been undermined, and there is a need to recover it. Such an effortis particularly important at a time when India is increasingly dependingupon foreign capital to fill the gap caused by a collapse in private investmentand overspending by the government.

While this effort towards credibility is praiseworthy, it is important tonote that it has to extend beyond the question of growth and budgetary num-bers. Credibility emerges from the entire set of statements that surround suchmatters as a Union Budget. In the past, every word and fact that went into theBudget speech was known to be true, and could if necessary be footnoted andbacked out of official documentation. However, there were elements of theBudget speech that stood out this time as clearly not having gone throughsuch a process. An introductory section that mentioned that 271 million peoplehad been lifted out of poverty in the decade between 2006 and 2016 is worthconsidering as an example. That number emerges from the United NationsDevelopment Programme’s report on multidimensional poverty. It would havebeen better to have relied on the official Indian numbers for poverty, to give aclear sense of what the state’s own perception of its achievements are. Thesame section also provided various numbers for growth and inflation in variousdecades that were frankly incoherent. There is little doubt that growth overthe past two and a half decades has been robust, on average, and that in recentyears, inflation has largely been controlled. These points could have beenmade without appearing to stretch the data unduly.

Elsewhere in the speech, there were points that simply undermined theseriousness of the occasion and made the government look ideological andamateurish. For example, in a section dealing with trade, the speech mentionedthat seals from the Harappan civilisation had been deciphered: “Words fromthe Indus Script hieroglyphs have been deciphered. Commerce and traderelated words show how India for a millennia is continuing as rich in skills,metallurgy, trade etc.” One of the examples provided was of the name “Sethi”,which in modern India is associated with those who traditionally work inwholesale trade. The Budget speech claimed that this name was also visibleon seals from the Harappan civilisation — a claim that is at best not peer-reviewed and at worst ideologically tinged. There is every reason to supposeancient Indian civilisations were maritime-oriented and trade-intensive —the archaeological record is evidence enough. There is no reason to makeclaims of this sort that undermine the seriousness of the Budget speech andraise eyebrows all around.

Volume XXIV Number 123

MUMBAI | WEDNESDAY, 5 FEBRUARY 2020

If you have been befuddled by news headlineswhich alternately feature the astronomical lossesbeing posted by online shopping sites and the

equally astronomical market capitalisations theyseem to secure from private equity investors, be com-forted that you are not the only oneto be so confounded. The mecha-nisms that drive internet-basedbusinesses, particularly those thatdeal with consumer e-commerce,are not the same that have driventraditional businesses. Unravellingthese new processes will go a longway towards taking a rational publicpolicy stance on the controversiessurrounding consumer e-com-merce in India.

At the core of any internet modelof commerce is “disintermedia-tion”— or eliminating the multiple layers of whole-salers and dealers between a principal (producer orimporter) and the buyer. In the case of, say, mobilephone headphones, the manufacturer in Shenzhen,China, sells to an entity in Shenzhen who has tradeconnections in India, who, in turn, sells these head-phones to an entity in Delhi (the importer) who thensells these headphones to someone based in Mumbai(the wholesaler for Maharashtra) who, in turn, sellsthe headphones to an entity in Pune (Pune distribu-tor) who then sells the headphones to a retailer inViman Nagar area of Pune, who finally sells it to theconsumer. This simplified model comprising themanufacturer, China exporter, India importer,Maharashtra wholesaler, Pune distributor, Puneretailer and Pune consumer shows that between theChina manufacturer and the Pune consumer, thereare five entities.

When the China-based manufacture and thePune -based consumer adopt the internet and

become proficient in its use, the Pune-based con-sumer will buy the headphones directly from theShenzhen manufacturers’ website; the five entitieswho stood between them get “disintermediated”—that is, there is no role for them and they must close

down their businesses and fire alltheir employees.

As you can see, this disinterme-diation saves on the markups madeby the five entities which standbetween the manufacturer and theconsumer, making the product, inthis case headphones, cheaper forthe consumer and more profitablefor the manufacturer. This is an out-come that rational thinkers willaccept as what “efficiency” is allabout and consider it undisputedlygood for the economy as a whole.

This sounds like music to the ears of consumers.Where does this music queer its pitch? For one, tofacilitate the elimination of this chain, several e-commerce companies have sprung up, which enablethis disintermediation partly by enticing manufac-turers and end-consumers by subsidising the price.This, they hope, will entice consumers to quicklychoose to buy from their site instead of buying fromthe retail shop. These subsidies cost a fortune butprivate equity and venture firms will provide themthe capital to carry on till all the five elements in thechain are eliminated.

Where this music queers its pitch again is that incountries such as India, this four-level chain (Indiaimporter, state-level distributor, city-level distributor,city shop) is where economic power has always resid-ed. The folks who own these distribution businessesare the ones who lead chambers of commerce, RotaryClubs and Lions Clubs and serve on the boards oflocal co-operative banks and educational institutions.

In other words, they are the true grandees of theIndian business establishment.

And looked at from another angle, this four-levelchain accounts for 30-40 per cent of the gross domes-tic product and 55 per cent of the employment inIndia. The complete destruction of this chain willdestroy half of India’s employment.

What are the consumer behaviour patterns thatare shaping the behaviour of consumer product e-commerce firms worldwide? To start with, how bigis online shopping right now after two decades fromits starting days in the late 1990s? Authentic data isavailable only for the United States. According to theUS government Census, US retail e-commerce salesin the last quarter of 2019 as a per cent of total retailsales was a mere 10.5 per cent. But this overall numbermasks many different underlying movements. Forexample, many traditionally offline departmentstores (such as Walmart) are increasingly sellingonline and traditionally native online marketplacessuch as Amazon have started private labelling(putting their own brand name on products madeby others). Online e-commerce seems to flourish insome product categories — books, fashion, consumerelectronics, for example — and has barely made adent in some others.

Increasingly, online consumers resent beingcharged for delivery, but at the same time want deliv-ery either the same day or the next day. To achievethis, online companies are investing in vast ware-houses and in their struggle for industry dominanceare also subsidising delivery charges and productprices.

What drives this subsidising behaviour is a sharedbelief in the American financial community that“Winners Take All”— that the leading company inany market tends to take most of the profits— andbecause of this belief tend to give that early leadersmega-sized valuations.

The dilemma that India faces in 2020 is, if youreflect deeply, not much different from what we as acountry faced in the late 19th century when the textilespinning and weaving machines arrived threateningthe livelihoods of India’s handloom spinners andweavers. The use of such machines (broadly calledthe Industrial Revolution) did put many spinners,weavers and cloth retailers out of jobs but also madecotton cloth affordable for the Indian masses — notjust for the zamindars and other wealthy folk.

Turning our eyes away from the consumer e-com-merce controversies could lead to a trader-led socialrevolt; hindering the progress of e-commerce couldmake the Indian economy less competitive. Lettinga few companies, particularly foreign ones dominatethe market is nationally suicidal. It will take a megaeffort to update India’s Competition Law, laws dealingwith foreign direct investment and taxation lawsdealing with venture funding if we have to realiseour full national potential from e-commerce.

The writer (ajitb@rediffmail.com) is an internetentrepreneur and as a member of the government committeeto update India's Information Technology Act wrote Section79 which defines and governs the role of Internet players

It is still early to assess the short- and medium-term economic impact of the coronavirus crisis.But beyond the day-to-day monitoring of the vic-

tims of the epidemic, we can already question itscauses and consequences for the global economy.The global financial crisis of 2008had sounded the death knell of theliberal globalisation model. TheChinese crisis of 2020 could be thedeath knell for its great competitor:The authoritarian developmentalstate model. Orphaned by the twogreat paradigms, the Washingtonconsensus versus the Beijing con-sensus, the world is now con-demned to find a third, more sus-tainable paradigm between theall-market and all-state, the core ofRaghuram Rajan’s last book, TheThird Pillar.

The crisis of the Beijing model, first of all, isreflected in the very causes of the epidemic and itsmanagement. While the viral video of the construc-tion of a 1,000-bed hospital may have reinforced thefascination of some for the state model, the preciseinformation on the outbreak of the epidemic sincethe first case in Wuhan on December 8 confirms thethesis of the great economist Amartya Sen on thelink between democracy and famine. The latter arenever due to food shortages as such but the controlof information by an authoritarian central power.Minxin Pei's analysis of Wechat feeds in an op-edpiece in the Japan Times on January 29 shows it hasbeen a case of strict censorship delaying the rationaladaptation of behaviour and provoking a self-per-petuating feeling of panic among the population.

The second structural cause is clearly linked to

the “Beijing model”, a veritable hymn to progress ofthe type depicted in Aldous Huxley’s Brave NewWorld: Urbanisation, food, industrialisation, com-munication, planning, all in excess, with this paradoxwhere efficiency gains linked to economies of scale

and a scientific vision of the futureboomerang in exponential dam-ages. So TGVs are becoming high-speed propagation trains, and thenew silk routes are regaining theirstatus as the royal road for infectiousand parasitic diseases, as shown bya team from the University ofCambridge published in 2016 in theJournal of Archaeological Science.

What are now the possible con-sequences of the epidemic? Clearly,we have not yet emerged from thecrisis of liberal globalisation, judg-ing by the multiplication of social

crises that the International Monetary Fund itselfhas just acknowledged in its latest World EconomicOutlook. How will we get out of the crisis of theauthoritarian developmental state model? Beyonda short-term economic impact that should bring theChinese growth trend below 4 per cent in the comingyears, the medium-term consequences could be agood illustration of the ideogram of the word “crisis”in Chinese: Both danger and opportunity.

On the Chinese side, what better symbol thanthe 200 million surveillance cameras condemnedto scrutinise the irises behind the masks of a billionpeople. All the information from the ground pointsto a strengthening of censorship and authoritarian-ism, the expression of a crisis of legitimacy of aregime that has played the prosperity card againstfreedoms, but also the expression of a deaf protest,

of which the crises in Hong Kong and Taiwan areonly the visible face on the margins of the empire,like the viral silence on Tibet and Xinjiang.

For a year now, moreover, the Chinese popula-tion has been experiencing the crisis of the so-called“African” swine fever, which has led to the slaughterof at least 300 million heads and an explosion inthe prices of its basic meat. To this crisis, the author-ities responded as usual with more “scientific andtechnical progress”, with huge factory farms of about10 floors, while family farmers were chased by thepolice. This type of response, however, only servedto increase the mistrust of a population that aspiresmore and more to a healthy life as it ages and to areturn to nature, as evidenced by the very visiblerevival of Taoism or Buddhism. These have inspiredthe great popular revolts in Chinese history, suchas the Yellow Turban revolt around 180 AD, whichcontributed to the fall of the Tang Dynasty.

There is another dimension to this crisis on aglobal level: Deglobalisation and economic reloca-tion, that is to say, the re-embedding of the economicinto the social and territorial fabric. This shouldindeed experience a new impetus with a likely haltto the “Go Global” strategy declared by Xi Jinpingwhen he came to power in 2013. Mistrust of its newSilk Roads represents the possibility for India andAfrica to reemerge from the neo-colonial “made inChina”, which was nipping in the bud any prospectof local industrialisation. For the developed coun-tries, this represents a possible acceleration of relo-cation and the end of a destructive consumerismbased on dumping prices far below the real socialand environmental cost.

The writer is an economist at the French Institute ofInternational Relations

On August 7 last year, the President ofIndia abrogated all sections of Article370 of the Indian Constitution, exceptone, after both Houses of Parliamentpassed his government’s resolution todissolve the special status of theerstwhile state of Jammu andKashmir, dividing it into two UnionTerritories. In the run-up to thechanges, the government detaineddemocratically elected leaders of thestate, increased security personnelmanifold, and blacked out internet

and telephone services in a brutalclampdown that has lasted, in someform or the other, till now. The bookunder review, which won theprestigious JCB Prize for Literaturelast year, was written before thesedevelopments but manages verysuccessfully to echo all of it.  

Kashmiris, of course, have lived withconflict and suppression for decades,since an armed struggled for itsindependence started in the late 1980s.The repression unleashed by the Indianstate and displacement of people havefound voice in the poetry of Aga ShahidAli, the novels of Mirza Waheed andMalik Sajad, and the journalism ofBasharat Peer and Rahul Pandita, andfilms such as Roja, Haider, and others.But most of these works are byKashmiris, revealing the conditions inwhich they and their compatriots arecompelled to live. Ms Vijay’s novel —

her debut — is a rare and sympatheticlook into Kashmir from the Indianperspective.

The narrator of the novel is Shalini,“young, wealthy, and quite obviouslyadrift”, a 20-something woman, thedaughter of a rich businessman, livingin Bengaluru with her father, and — atthe beginning of thenarrative — reelingfrom grief at havinglost her mother. Thecharacter Ms Vijaycreates is layered.Shalini is entitled athaving never facedscarcity. Early in thenovel, she gets a jobat a government-runschool for childrenwith cerebral palsy,which she loses aftera showdown with the mother of a child.One is left wondering if this outburst isnot a product of privilege — Shalini canindulge herself because she doesn’treally need the job. Soon after, her father

gets her another job with a non-government organisation (NGO).

Ms Vijay makes excellent use of herplot material. The NGO in which Shaliniworks in Bengaluru — and from whichshe is fired for being disinterested in herwork — is set up as a contrast to anotherone in Kashmir: “Ritu (the NGO’s

founder) was toughand smart and hadan MBA from Yale,where, she liked tokeep reminding uslest we think hersoft and privileged,she had beenmugged four times,once at gunpoint.She drank oolongtea from a stainedmug and wasmarried to a World

Bank man.” The perfect picture ofmainland privilege, indulging in socialwork because they have nothing betterto do.

In contrast, Zarina’s NGO at

Kishtwar in Jammu feels like “anantiquated library minus its books, orsome sleepy backwater governmentoffice”. As Shalini gets down to sortingout the mess of the organisation’s billsand invoices, she cannot help beingreminded of Ritu “… and I was seized allat once by vertigo, by a sense of how farI’d come from everything I’d known.”Zarina and Zoya, Shalini’s hosts inKishtwar, are obviously modelled onParveena Ahanger, the founder of theAssociation of Parents of DisappearedPersons in Kashmir. Ms Ahanger hasworked relentlessly since the mid-1990swhen her son was made to allegedlydisappear — like Zoya’s son — by theIndian army, among the manythousands.

Ms Vijay creates a formidablenovel, but her prose style appears toslip up occasionally. For instance, veryearly in the book, she writes: “Ivolunteered as an assistant teacher —a title vastly out of proportion with myactual role.” The parenthesis hardlymakes sense. Similarly, a little later,

while describing Kishtwar, Shalinisays: “I could not escape noticing,either, the number of Indian soldiersand policemen in town.” There seemsto be a desire in the author to explaineverything. Surely everyone whoknows anything about Kashmir knowsabout the high presence of securitypersonnel in the area.

Or maybe they don’t. Shalini is notonly a product of privilege, but also ofthe specific post-Liberalisation kind,which includes holidays to resorts andEurope, and an entitlement to outrage.Outrage and anger seem to be the twomost common emotions Shalini feels.On seeing the large cupboard of filesabout disappeared people in Zarina’soffice, she can’t believe her eyes, and heroutrage seems to drive her to workharder. The novel progresses to an epicending — but it is not the job of areviewer to provide spoilers. I can onlyhope that those Indians still ignorant ofthe plight of Kashmiris will be asoutraged as Shalini when they read MsVijay’s book.

Coronavirus puts Beijing model to the test

Looking into Kashmir

BOOK REVIEWUTTARAN DAS GUPTA

Govt should not ignore fundamental weaknesses

Accessing foreign funds

Budget speech should have been fact-checked

JEAN-JOSEPH BOILLOT

THE FAR FIELDAuthor:Madhuri Vijay

Publisher:Fourth Estate

Price: ~599

Pages: 432

ILLUSTRATION: BINAY SINHA

AJIT BALAKRISHNAN

E-commerce in India:To be or not to beA thinking man’s guide to e-commerce controversies

DDT removal step in right direction: TyagiSUNDAR SETHURAMAN

Mumbai, 4 February

The Securities and ExchangeBoard of India (Sebi) has wel-comed the move by the gov-ernment to shift the dividendtaxation liability from compa-nies to investors.

“Removal of dividend dis-tribution tax (DDT) was some-thing the market has been ask-ing for. DDT was not logical. Itwas perhaps introduced tofacilitate imposing tax at theunit stage. Ideally, it should bepaid by the recipient as pertheir tax slab,” said Ajay Tyagi,chairman of Sebi, on the side-lines of an event organised bythe National Stock Exchange(NSE) to launch the request forquote (RFQ) platform for debtsecurities.

The Budget announcement

got a mixed response from themarket. While removal of DDTwill result in tax savings of 20per cent for companies, pro-moters and other wealthyshareholders may be taxed ashigh as 43 per cent on the divi-dends they receive.

Analysts believe firm willnow resort to buybacks insteadof paying dividends.

Globally, dividends aretaxed differently across geogra-phies. While the US andGermany impose withholdingtax on dividends, other marketslike UK and Singapore don’t.

Meanwhile, Tyagi said Sebihas asked Franklin TempletonMutual Fund to explain its deci-sion to assign zero value toVodafone Idea debentures even

before any action was initiatedby rating agencies.

“If the asset isn’t belowinvestment grade, there is nostipulation as such. We haveasked the fund house for anexplanation,” he said whenasked about the issue.

The action differed frompeers UTI MF, Nippon MF, andBirla MF, which went for write-

downs as per the valuation met-rics provided by rating agen-cies. Tyagi wasn’t specific whenasked if Sebi asked other fundhouses for an explanation.

On the proposed share saleof LIC, Tyagi said the insurerwill have to follow the sameprocess as any other firm. Herefused to comment furthersaying “no formulation hascome to us yet”.

Tyagi also said Sebi isreviewing the classificationframework meant for mid-capand small-cap mutual funds.

On the launch of NSE’s newplatform, he said, “The RFQplatform would definitely helpin pre-trade transparency,bringing in core confidenceamong participants by provid-ing exit route in the secondarymarket and bond market in atransparent manner.”

Asian stocks riseamid revival inChinese indicesWAYNE COLE & TOMO UETAKE

Sydney/Tokyo, 4 February

Asian stocks bounced backon Tuesday, with Chinesemarkets reversing some oftheir previous plunge amidofficial efforts to calm virusfears, although investor sen-timent remained fragile withoil near its 13-month lows.

MSCI’s broadest index ofAsia-Pacific shares outsideJapan rose 1.5 per cent, led bygains in South Korea andAustralia. Japan’s Nikkeiedged 0.6 per cent higher.

Chinese indices steadiedin choppy trade, after anxietyover the spreading coron-avirus erased some $400 bil-lion in market value fromShanghai's benchmark indexon Monday once marketsresumed from the Lunar NewYear holiday.

The Shanghai Compositegained 1.2 per cent, while theblue-chip CSI300 rebounded2.5 per cent, one day after anearly 8 per cent slide onMonday. Hong Kong’s HangSeng advanced 1 per cent.

Despite the relative mar-ket calm on Tuesday, the out-

break continued to generateconcerning headlines withHong Kong reporting its firstcoronavirus death — the sec-ond fatality outside mainlandChina with the total death tollnow at 427.

“Chinese authorities havebeen providing a lot of sup-port to the financial markets.There’s a level of assurancethat the rout would not beallowed to go on much fur-ther than necessary,” saidChristy Tan, head (marketsstrategy for Asia), NationalAustralia Bank, Singapore.

REUTERS

JASH KRIPLANI

Mumbai, 4 February

Mutual fund (MF) players thatwere expecting investor out-flows over uncertainty on tax

deducted at source (TDS) on capital gainswere relieved after the Central Board ofDirect Taxes (CBDT) on Tuesday clarifiedthat the proposal would only be limitedto dividend payouts.

The statement from the CBDT read:“A mutual fund shall be required todeduct TDS at 10 per cent only on divi-dend payment and no tax shall berequired to be deducted on incomewhich is in the nature of capital gains”.

The proposed Section 194K of the I-T Act stated: “Any person responsiblefor paying to a resident any income inrespect of units of a mutual fund ... shallat the time of credit of such income toaccount of payee ... deduct income taxat the rate of 10 per cent.”

The MF industry had sought clarifi-cation from the government on whether

the proposal would apply to investorredemptions, as uncertainty could haveled to investors exiting before April 1,when the proposal came into effect.

Industry players said lack of clarityon how officials would categorise incomefrom MF units was the primary reasonfor the uncertainty. Further, experts saidcalculating capital gains would havebeen operationally challenging.

Experts say the correct interpretationwas likely to be that TDS applies only todividends. “This is not the first time thata Section with this language has

appeared in the Budget document. Backin 1995, when such a Section was intro-duced, TDS was kept limited to dividendincome and not capital gains or redemp-tion,” said Ashok Shah, founding partnerof NA Shah Associates LLP.

Following this, the governmentissued a set of clarifications stating thatSection 194K only pertained to dividendand not repurchase or redemption ofunits. The latest Budget memorandumalso stated that dividend over ~5,000would be subject to 10 per cent TDS.

“It is difficult to calculate principle

or original investment in the case ofmutual funds, especially if investmentshave been made through systematicinvestment plans,” said a senior execu-tive of a fund house.

Amol Joshi, founder of Plan RupeeInvestment Services, said: “While wehave advised investors not to act hastlyas the issue should get clarified soon,direct plan investors could have actedin a knee-jerk manner if uncertainty hadcontinued.” Sentiment has been weakand there were fears additional tax lia-bilities could take further a toll on flows.

10% TDS only on dividendpayment by mutual funds

MUMBAI | WEDNESDAY, 5 FEBRUARY 2020 InvestorWWW.SMARTINVESTOR.IN FOR INFORMED DECISION MAKING <

The Smart The CIL stock has risen 5 per cent this week.Analysts see a 50 per cent upside from here. Theysay the worst in terms of volumes is behind andthe stock should get more attractive in terms ofdividend yield after removal of dividend tax. InFY19, it had dividend yield of 5.6%

QUICK TAKE: COAL INDIA FINDS FAVOUR “With China's central bank signalling liquidityinjection, markets' inclination will again be tobuy the dip. But the coronavirus is China economic sudden stop with cascading contagion for EM and Europe in particular..''MOHAMED A. EL-ERIAN, Chief Economic Adviser, Allianz

CBDT clarificationremoved uncertaintyover treatment ofcapital gains

THE COMPASS

Titan’s jewellery business braves slowdown stormBetter jewelleryproduct mix ledto sales rise, goldprice trend willbe key hereon

SHREEPAD S AUTE

Recovery in growth of Titan’s jewellerybusiness in the December quarter (Q3),despite the weak consumption sce-nario, was the key takeaway in theDecember quarter results.

Therefore, despite a tad lower-than-expected Q3 numbers, the Titan stocksurged 7.6 per cent to ~1,275.5 apieceon Tuesday. The bullish trend in themarket (Sensex was up 2.3 per cent),too, supported the stock.

On a stand-alone basis, while Titanclocked an 8.4 per cent year-on-year(YoY) rise in net sales to ~6,106 crore,its profit before tax (PBT) grew 6.3 percent YoY to ~637 crore.

Analysts were anticipating thesetwo figures at ~6,251 crore and ~685.7crore, respectively.

Following a 1.5 per cent YoY fall inthe September quarter, Titan’s jew-ellery business (80-85 per cent of over-

all sales and operating profit), grew 10.6per cent YoY in Q3.

A good product mix, with highershare of studded jewellery, led to thesales uptick for the jewellery business.Like-to-like sales of Titan’s Tanishqstore moved up to 9 per cent in Q3,from 2 per cent in Q2. The watches andeyewear segment performed relativelypoor in Q3, with a 2.4 per cent YoYdecline and about 3 per cent YoYgrowth in sales, respectively.

Despite good demand for high mar-gin studded products, Titan’s Ebitda(earnings before interest, tax, depreci-ation and amortisation) margin sawlimited improvement of 73 basis pointsYoY, to 11 per cent. This was on accountof higher store commission and highgold prices. Unlike the year-ago quar-ter, Q3 witnessed good contribution ofL2 stores (company-owned inventorybut operated by franchisee), which typ-ically attract higher commission outgo.

However, in the March quarter, theoverall operating performance mainlyof jewellery business is expected toimprove. According to Priyank Chheda,analyst at Reliance Securities: “Giventhe higher number of wedding days inthe March quarter, demand for high-margin studded jewellery is expectedto be better. This should propel theoverall operating performance ofTitan.” Store expansion and profit con-tribution by CaratLane would be theother trigger for Titan.

While the management has main-tained its jewellery growth target at 11-13 per cent for the October 2019-March 2020 period, higher pricesimpacted customer footfall initially inJanuary.

Thus, the gold price trend is crucialfor the stock, which is trading at a val-uation of 55x its FY21 estimated earn-ings, which is 28 per cent higher thanhistorical long-term average.

Weak financials, impairment charge ail GSK PharmaTrading at 41x itsFY21 earnings,most analystshave ‘sell’ rating

RAM PRASAD SAHU

An impairment charge andweak financial performanceled to an over 12 per cent fallin the GSK Pharmaceuticalsstock on Tuesday.

In addition, the company— as part of its strategicreview — is looking at optionsincluding sale of its Vemgalfacility in Karnataka.

The financial impairmentwas on account of a global vol-untary recall of ranitidine(antacid) products, whichinclude its top brand Zinetacin India.

The move was promptedby the detection of a carcino-gen in the drug, with the firmindicating it would continueits probe into the potentialsource of the carcinogen.

It reported a ~660-croreloss in the quarter because ofa one-time financial impactof ~750 crore. This pertained

to a ~640-crore financialimpairment on account ofunder-utilisation of manufac-turing facilities, ~97 crore ofimpairment of other assetsand costs, and ~17 crore onaccount of litigation.

The decision to sell theVemgal facility, built at a costof ~1,000 crore, came as a sur-prise. Capex on the facility,with the capacity to manufac-ture 8 billion tablets and 1 bil-lion capsules, had beenweighing on its cash flows

over the last few years. Withproduction from the plantexpected to begin in theMarch quarter, return ratioswere expected to improve.

However, the recall ofZinetac, which would haveaccounted for 60 per cent ofproduction, led to the saledecision. If this goes through,it will be the second major salein the last one year after thesale of a land parcel in Thanefor ~550 crore.

The recall of Zinetac and

portfolio optimisation led toa 6 per cent fall in reportedrevenues. However, even afteradjustments for one-offs,sales growth in the quarterstood at just 6 per cent.

Barring top brands, mostother portfolio products areunderperforming, leading tomuted sales performance.

Its operating profit margin,which was up marginally to16 per cent, was affected by asteep 620-basis-point jump inemployee costs. Higher staffcosts wiped off all gains onaccount of a better productmix and other expenditure.

Despite the sharp fall inthe share price, it is trading at41x its FY21 earnings esti-mates. Over 80 per cent ofanalysts covering have a “sell”rating on the stock. Given theuncertainty on Vemgal as wellas inconsistency in growth,investors may avoid the stockfor the time being.

Sebi unveilsnew FPIregistrationapplicationPRESS TRUST OF INDIA

New Delhi, 4 February

Capital markets regulatorSecurities and ExchangeBoard of India (Sebi) onTuesday come out with acommon application formfor registration of foreignportfolio investors, in orderto enhance operational flex-ibility and ease of access toIndian capital markets.

Depository participantshave been asked to continueto accept in-transit FPI reg-istration applications for aperiod of 60 days, Sebi saidin a circular.

The regulator has comeout with a CommonApplication Form (CAF) forregistration of FPIs, allot-ment of Permanent AccountNumber (PAN) and carryingout of Know Your Customer(KYC) for opening of bankand demat accounts.

The applicants seekingFPI registration need to fillthe common form pre-scribed by the regulator, dec-laration providing support-ing documents andapplicable fees for registra-tion and issuance of PAN.

ON THIN ICEInvestor sentiment has weakened in recent monthsEquity flows (~ crore)

Apr May Jun Jul Aug Sep Oct Nov Dec

4,608

5,407

7,663

8,1

12

9,1

52 6,6

09

6,0

26

1,31

1

4,4

99

Source: Amfi

STEEP SLIDE

MSCI AC Asia Pacific(Excluding Japan)

Source: Bloomberg

Country Effective rate of withholding tax (WHT) on dividends paid

US 30%

UK No withholding tax on dividends

Germany 26.375%

Netherlands 15%

Singapore No withholding tax on dividendsNote: Rates subject to applicable lower tax treaty rates under the respective tax treatySource: KPMG

STRIKING A CHORD

MUMBAI | WEDNESDAY, 5 FEBRUARY 2020 THE SMART INVESTOR 11. <

COMMODITIES1>

Stringent ‘rules of origin’:Copper, paper imports fallDILIP KUMAR JHA

Mumbai, 4 February

India’s imports of copper, RBD(refined, bleached and deodorised)palmolein, paper, and paperboard are

likely to decline in coming quarters dueto stringent norms being put in place on“rules of origin” to check the dumping ofthese commodities under Free TradeAgreements (FTAs) from non-producingcountries.

Faced with a sharp increase in importsof copper, RBD palmolein, paper, andpaperboards either at “nil” or “preferen-tial”, lower customs duties, thereby hurt-ing local producers, Indian manufacturershave repeatedly urged the government tocurb imports of these commodities fromnon-producing countries at lower duty.

Like developed nations, India tooencourages trade with countries includingNepal, Bangladesh, and Sri Lanka in Asiaat either “nil” or “lower than normal” cus-toms duties. But in the Union Budget2020, Finance Minister NirmalaSitharaman emphasised the need tostrengthen “rules of origin” under FTAsto curb import with malicious intent fromnon-producing (trading) countries.

“It has been observed that importsunder FTAs are on the rise. Undue claimsof FTA benefits have posed threat todomestic industry. Such imports requirestringent checks. In this context, suitableprovisions are being incorporated in theCustoms Act. In the coming months weshall review ‘Rules of Origin’ require-ments, particularly for certain sensitiveitems, so as ensure that FTAs are alignedto the conscious direction of our policy,”the minister said in her speech. India

imported around 190,000 tonnes of RBDpalmolein in recent months from Nepal.

Since there is no palm kernel-processingfacility in Nepal, the imported RBD pal-molein is feared to have originated inMalaysia. While direct imports of palmoleinattract 44.5 per cent, import through Nepalcould be possible at “nil” duty under theSouth Asian Free Trade Area (SAFTA).

“Exports of RBD palmolein from Nepalto India flout rules of origin and valueaddition with impunity and thereforeshould not be allowed under any circum-stances. Such imports will hit revenue col-lections of the government, in additionto affecting the domestic oilseeds pro-cessing industry and farmers,” said B VMehta, executive director, SolventExtractors’ Association (SEA).

Under the FTA, 35 per cent value addi-tion to the free on board (FOB) value of

goods in the exporting country is a must.Today, exporters add shipping and othermiscellaneous costs including handling,loading and unloading, etc. to achieve themandatory norms of 35 per cent.

“In the case of copper, a value additionof 35 per cent is impossible. There usedto be huge imports of refined copper barsfrom Sri Lanka and Vietnam until recent-ly, but they were curbed after the govern-ment removed copper bars from the com-modities list under FTAs. Similarly,imports of copper from other FTA coun-tries can be restricted for the benefit oflocal producers,” said Rohit Shah, man-aging director, Perfect Valves, a city-basedrefined copper importer.

The import of paper and paper-boards from non-producing countriesis a matter of great concern for Indianmanufacturers.

Exchanges to monitorcommodity derivativescontracts performanceDILIP KUMAR JHA

Mumbai, 4 February

The Securities and Exchange Boardof India (Sebi) has directed commod-ity exchanges to conduct a yearly per-formance review of all commodityderivatives contracts and send areport by June 30 every year. This hasto also be disclosed to the public, saidthe circular, issued on Tuesday.

The order takes effect from April 1and covers the current financial year.Each such exchange is to furnish abalance sheet (B/S) of all commodi-ties, including volumes, open interest,etc, with trading details,besides naming 10 majorproducing and consum-ing countries.

Apart from a globalB/S, the markets regula-tor has asked exchangesfor details of each com-modity from a domesticperspective — outputand consumption, life-cycle details and the varieties/gradesfound in India, besides majorchanges in policy governing trade inthe spot market of the commodity.

In addition, detail of geopoliticalissues in the commodity and itsimpact on the Indian scenario.

Publishing global and domesticdata of all commodities is expectedto help hedgers and other partici-pants to understand the market sen-timent and take positions according-ly. This would also help participantsto avoid a default in high volatility.

“The rational of having the deriv-atives market in agricultural com-modities is hedging and, hence,understanding this market is very

important. The details of commodi-ties and participants will give morecomfort to traders. This will boosttheir confidence and strengthen theentire commodity eco-system,” saidKapil Dev, agri-business head at theNational Commodity & DerivativesExchange, the country's largest infutures trading for this segment.

In addition, for each exchange togive details of participant types —farmers, hedgers, farmer producerorganisations and so on.

Sebi has said: “It is imperative tohave a framework to evaluate theperformance of these contracts based

not merely on statisticsregarding delivery andtrade volumes but alsoon the strength of acomprehensive empiri-cal assessment, afterconsidering all relevantinformation pertainingto the performance ofa derivative contractduring the relevant peri-

od of time.” The bourses have beenasked to discuss with their productadvisory committees and then dis-close prominently on their websites.

“Commodity exchanges will haveto share their data with Sebi. This wasvery much required and would bringin more transparency,” said NarinderWadhwa, president, CommodityParticipants Association of India.

“The whole idea is to align thespot market with the futures market,”said Naveen Mathur, director (com-modities and currencies) at AnandRathi Shares and Stockbrokers.

Globally on exchanges, says Dev,open interest ranges from 20-30 percent of production.

Govt seeks to check dumping of such products from non-producing nations

Coronavirus adds to Vedanta‘s woesUJJVAL JAUHARI

New Delhi, 4 February

The Vedanta stock has declined closeto 16 per cent since its mid-Januaryhighs. While volatility and pressure

on commodity prices have hurt investorsentiment, the coronavirus outbreak hasaggravated concerns. The impact ondemand for base metals from China mayput further pressure on realisations,impacting players such as Vedanta.

The price of Brent crude oil, too, hascorrected from about $70 a barrel to nearly$55 a barrel now. This, again, is not goodnews for the oil & gas segment of Vedanta,as it contributed slightly less than a fifthto the firm’s overall revenues during theDecember quarter (Q3).

It also contributed almost half the seg-mental profits, given the larger zinc, alu-minium, and copper segments reported adecline in profit contributions. Given thesedevelopments, the Street is cautious on thebase metals and oil major.

Analysts at Emkay Global said theyremain cautious on the near-term demandsituation in China because of the epidemic,which could lead to further correction incommodity prices.

The pressure is evident as the per-tonnealuminium price on the London MetalExchange (LME) has slipped to the $1,690-level (lowest in a year) over a fortnight, from$1,800. Aluminium contributed about athird to the overall revenues of Vedanta inthe December quarter. The segment,though, benefitted from the firm’s efforts tocut the cost of production. More bauxiteproduction, helped by lower coal prices,meant the per-tonne cost of production

declined to $1,695 (down 9 per cent sequen-tially and 17.4 per cent year-on-year).

Though the company plans to reducecosts further to $1,500, analysts remainwatchful on coal linkages as supplies mayget impacted because of seasonal issues.

Meanwhile, the segment just con-

tributed 7.8 per cent to the overall Ebit(earnings before interest and tax) duringQ3 with declining aluminium realisationsthat averaged at $1,752 a tonne on the LME.Given the demand environment, theStreet’s concerns about a further fall in real-isations remain valid.

The zinc India business, represented bylisted firm Hindustan Zinc, remained thesecond largest contributor — at about 22per cent of the overall revenue in Q3. Thesegment, however, also saw its profitsdecline 29 per cent year-on-year becauseof less production of the mined metal, aswell as realisations. The zinc price on theLME during the quarter at $2,388 a tonnewas down 9 per cent year-on-year.

Its international zinc business also wit-nessed lower production at its Scorpiomines, while lower realisations remain adamper. The ramp-up at its Gamesbergmines is delayed, and the cost of produc-tion remains elevated at around $1,600 atonne. Analysts, who remain watchful oframp-up at Zinc International, say that itcan provide impetus to growth.

Meanwhile, the management is confi-dent of achieving its guided productionramp-up in the oil & gas and zinc business-es. The company is targeting the oil & gasbusiness to exit FY20 with a productionrun-rate of 225,000 boepd (barrels of oilequivalent per day) compared to the exitrate of 189,000 boepd for FY19.

Analysts at Motilal Oswal FinancialServices say that the next leg of growth isnow dependent on the success of produc-tion ramp-up as guided for the oil & gasand zinc businesses. They, too, remain cau-tious about maintaining a ‘neutral’ ratingon the stock and add that the recent sharpcorrection in commodity prices becauseof demand worries on account of the coro-navirus outbreak does not bode well forthe near-term earnings outlook.

This cautious stance is not surprising,as the higher output may not be enough tofully compensate for the fall in prices.

BASE METAL PRICES TAKE A HITLME spot price in $ per tonne

Brent crudespot ($ / BBL)

Feb 3, 2020

53.2% Chg 1 year

-13.6

Feb 3, 2020 % Change 1 yearTin 16,350 -21.5Zinc 2,200 -19.5Lead 1,879 -10.2Aluminium 1,695 -9.5Copper 5,595 -8.2Nickel 12,750 2.3

Source: LME, Bloomberg Compiled by BS Research Bureau

What are the key takeaways from theBudget? The broader theme is that the govern-ment is selling its assets to run its house.There is a significant step up in disinvest-ment. If your revenue collectionsare less, there are limitedresources for developmentexpenditure. So you have to resortto non-tax revenues. The govern-ment is sitting on a lot of valuableassets, which can be monetised. Setting adisinvestment target of ~2.1 trillion is a bigmove, but execution will be the key. Thisgovernment has the political mandate topush ahead with it. Another takeaway isthat the government is focused on invest-ment-led growth and is making efforts toattract foreign capital. Domestic savingshave weakened as the economy hasslowed down. So you need foreign capitalto support growth.

The market's first reaction to the Budgetwas negative? Have you changed yourstance on the Indian markets? We haven’t revised our price targets.There were a lot of expectations from the

Budget. That’s why we saw the selloff (onSaturday). Also, the scare around coron-avirus played its part. Once again the mar-kets have rebounded and shares of severalcompanies are doing well. We are back to

basics. The focus will again be ongrowth and earnings. Hopefully,the global environment will con-tinue to be supportive.

What are the investment themesthat have emerged from the Budget?As such, there is no new theme. The onlything was insurance, which we correctedby removing it from our model portfolio.Today, you can invest in insurance andget a tax benefit. But the direction inwhich we are going, the benefit may notbe there. So it is negative from the flowperspective. The other aspect is DDT (div-idend distribution tax); after it goes away,the effective tax rate moves up for insur-ance companies. We believe the insur-ance story has long-term potential, but itwill go through a phase of consolidation.Currently, we are focusing on an invest-ment-led growth -- whether it is construc-tion or cement or select financials.

How will the removal of DDT impactcorporate financials?Now the question is, whether companiesincrease the dividend or retain the taxsaved. If a company needs capital, it willhave the lever to keep that extra capital.Companies which don’t need the capitalcan increase payouts. From a promoterpoint of view, a tax-efficient alternativecould be buyback. So I would expect a lotof companies to announce buybacks.From a foreign investor point of view, youhave made the assets relatively attractivefrom the tax purpose.

How do you see earnings growth shapingup?There are still some tailwinds. Everyyear, we are cutting earnings by 15 percent. Even this fiscal year, if youadjust for the corporate tax cut, theyare 15 per cent below consensusestimates. Theearnings cut hadbeen more inten-sive towards thesecond half of thelast calendar yearamid a slowdownin the economy.Now you havethings likeimprovement in

rates at telecoms; major NPA issues, too,are behind us. All of these are helping. Wenow have to see how things pan out glob-ally. There could a potential impact onsectors like metals if commodity pricescome off. At this point, we think there willbe a 5 per cent cut in consensus earningsestimates, both for FY21 and FY22.

Nomura recently downgraded India from‘overweight’ to ‘neutral’. Are otherregional peers looking attractive?We went overweight on India in Octoberas the government stepped up reforms. Atthat the time, we had a positive view on

India versus other Asian markets,which were affected by the (US-China) trade tensions. However,with the trade tensions recedingand valuations looking cheaper,our strategist took a call of going

overweight on some other mar-kets. Now, this issue of coron-

avirus has emerged, whichagain makes India rela-

tively better than someother markets

exposed to stuff liketourism. In the

near term,India has the

potential tolook safer.

‘India appears better market amid coronavirus scare’Attracting foreign capital, investment-led growth, and aggressive disinvestments are the keythemes emerging out of the Budget, says SAION MUKHERJEE, India equity strategist, Nomura. Inan interview with Samie Modak, Mukherjee says the Indian markets are once again lookingrelatively attractive as against some of the Asian peers hit by coronavirus. Edited excerpts:

SARBAJEET K SEN

The long-awaited hike in insurancecover for bank fixed deposits (FDs) wasfinally announced by the finance min-ister in the Union Budget. From ~1 lakhearlier, it has now gone up to ~5 lakhper depositor.

This hike alone should not, howev-er, motivate investors to put more mon-ey in FDs, as poor post-tax returns,especially for those in the higher taxbrackets, could affect their ability tobuild wealth over the long term.

The move comes in the aftermathof the Punjab and Maharashtra Co-operative Bank fraud that left over amillion depositors in the lurch.

Banks pay an insurance premiumto the Deposit Insurance and CreditGuarantee Corporation (DICGC) to pro-vide this cover. In return, in case of abank failure, the DICGC will, hence-forth, pay each depositorup to ~5 lakh. However,bear in mind that theDICGC makes a payoutonly in case of bank fail-ure and not in case of amoratorium or otherrestrictions imposed bythe Reserve Bank of India.

Though the insurancehike reduces the risk onbank FDs even further, should it promptyou to bet more money on them? Theidea behind investing in a bank FD is topocket stable returns without taking toomuch risk. “The risk in bank depositshas always been on the lower side, andthe current measure will furtherenhance the confidence of small andmid-level investors,” says Anil Rego,founder and chief executive officer(CEO), Right Horizons. For senior citi-zens, interest income up to ~50,000 istax-free in a year, which makes this prod-uct more attractive for this segment.

FDs key disadvantage, however, isthat interest rates, especially thoseoffered by quality banks, are quite low.Abundant liquidity and low credit off-take could lead to banks reducing their

FD rates further.For those in the higher tax brackets,

post-tax income from FDs becomesquite low. Interest income is added tothe investor’s income and taxed at themarginal tax rate. “For anyone in the30 per cent tax slab, for instance, a 7per cent FD actually offers just 4.9 percent post tax. Hence, more money youlock in FDs, slower your overall port-folio will grow. You will struggle to beatinflation and meet your financial goalsover the long term. It could mean notbeing able to save for retirement andhaving to continue working even in the60s,” says Adhil Shetty, co-founder andCEO, BankBazaar.

What then is the most optimal wayto invest in FDs? “Pensioners shoulduse FDs to generate assured income.Everyone else should use FDs primarilyto keep their emergency funds and oth-er money that may be required at short

notice. Older investorsmay have a higher alloca-tion to fixed-incomeinstruments, includingFDs, for the stability theyprovide. Younger onesshould have a larger expo-sure to market-linkedinvestments so that theirmoney grows at a fasterclip,” says Shetty.

According to Rego, those in thehigher tax brackets, who pay a sur-charge on their income tax, shouldexplore more tax efficient options likedebt mutual funds, including the likesof banking and PSU funds (which havea lower chance of default).

Finally, the instruments you chooseshould fit into your asset allocation: 100minus your age should be your equityallocation, and the balance should gointo debt products. FDs should form apart of your debt allocation. Your choiceof investments should also be alignedto your goals and time horizon. Forinstance, if you have to pay your daugh-ter’s college fee one year from now, youshould keep that money in low-riskbond funds and bank FDs.

Higher share of FDs canaffect wealth creationThough FD insurance cover has risen 5-fold, youngerinvestors should use those to park short-term funds

YOUR MONEY

ATTRACTIVE FD RATESInterest rates (%)

Bank 6 months - < 1 year 1- <2 years 2- < 3 years

Lakshmi Vilas 7.00-7.35 7.50-7.80 7.50-7.60

YES 6.85-7.15 7.25-7.40 7.25-7.50

DCB 6.85 7.00-7.60 7.40

IDFC First 6.75-7.00 7.25-7.50 7.25RBL offers 7.45% in 2-<3 year period Source: Bankbazaar.com

Outbreak has led to a fall in base metal prices; production ramp-up in oil & gas and zinc biz crucial, say analysts

DARK HORSEImport of refined oil from Nepal (tonnes)

Source: Nepal custom service

nSoya oil nPalm

Apr

May

Jun

Jul

Aug

Sept

Oct

Nov

20194,193

12,628

16,265

15,587

17,293

18,413

20,958

25,316

29,731

2,730

2,547

3,598

3,776

4,476

4,334

8,290

Each such bourse tofurnish the B/S of allcommodities,including volumes,open interest, etc,with trading details,besides naming 10major producing andconsuming countries

> PRICE CARD

As on Feb 4 International Domestic ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------

Price %Chg# Price %Chg#

METALS ($/tonne)

Aluminium 1,694.5 -5.2 2,020.5 6.7

Copper 5,595.0 -4.3 6,300.0 3.0

Zinc 2,200.0 -14.9 2,483.5 -9.4

Gold ($/ounce) 1,568.4* 3.9 1,765.0 3.9

Silver ($/ounce) 17.7* -1.9 20.1 -2.2

ENERGY

Crude Oil ($/bbl) 53.9* -13.6 58.0 -5.6

Natural Gas ($/mmBtu) 1.8* -35.1 1.8 -35.0

AGRI COMMODITIES ($/tonne)

Wheat 194.6 8.9 291.1 -4.1

Maize 186.4* 8.1 268.6 -4.5

Sugar 418.1* 21.5 490.0 -0.7

Palm oil 687.5 17.5 1,129.5 18.4

Cotton 1,496.1 6.6 1,587.2 -2.0* As on Feb 04, 20 1800 hrs IST, # Change Over 3 MonthsConversion rate 1 USD = 71.3 & 1 Ounce = 31.1032316 grams.

Notes:1) International metals, Indian basket crude, Malaysia Palm oil, Wheat LIFFE and

Coffee Karnataka robusta pertains to previous days price.2) International metal are LME Spot prices and domestic metal are Mumbai local

spot prices except for Steel.3) International Crude oil is Brent crude and Domestic Crude oil is Indian basket.4) International Natural gas is Nymex near month future & domestic natural gas is

MCX near month futures.5) International Wheat, White sugar & Coffee Robusta are LIFF E future prices of

near month contract.6) International Maize is MATIF near month future, Rubber is Tokyo-TOCOM near

month future and Palm oil is Malaysia FOB spot price.7) Domestic Wheat & Maize are NCDEX future prices of near month contract, Palm

oil & Rubber are NCDEX spot prices.8) Domestic Coffee is Karnataka robusta and Sugar is M30 Mumbai local spot price.9) International cotton is Cotton no.2-NYBOT near month future & domestic

cotton is MCX Future prices near month futures.Source: Bloomberg Compiled by BS Research Bureau

MUMBAI | WEDNESDAY, 5 FEBRUARY 2020 BRAND WORLD 21. <

VANITAKOHLI-KHANDEKARNew Delhi, 4 February

What does the fact thatmore men are listen-ing to radio mean? Or

that more people are listeningto it in the car? It means a dropin FMCG (fast moving con-sumer goods) advertising and arise in advertising by brandsthat target male consumers,such as cars, banking andfinancial services. “The audi-ence is becoming more maleand 35 plus years. Women havegiven way to men, that is a bigchange in the last 5-7 years,”says Prashant Panday, manag-ing director and CEO of the~635 crore EntertainmentNetwork India. It operatesRadio Mirchi the largestoperator in the ~3,100 croreIndian radio industry.

According to the IndianReadership Survey or IRSdata for the third quarter of2019, radio listenershipgrew, somewhat slowly to105 million, from 104 millionin 2017. The largest chunk oflistenership comes from mobilephones, followed by people lis-tening at home on a music sys-tem or transistor. But it is thethird, car listenership, whichhas grown from about 22 mil-lion in 2017 to 34 million in thelast study that is causing theshift, say radio operators.

It has meant “No big FMCGbrand is on radio. The biggest(by advertising volumes) is DPGroup (Baba Elaichi), ShuddhPlus, Pan Parag and others.Now look at the big daddies onTV. There is Ghadi detergent,HUL etc. Radio has beenreduced from 700,000-800,000 lakh seconds (adver-tising from FMCGs) to nothing.

Because advertisers are seeingit more as a male product,” saysPanday. On the other hand allthe big auto firms fromHyundai, Maruti, Honda, Tata,M&M, Hero Motorcycles are onradio. So are LIC and KarurVysya Bank among others.

In FY2019 male-orientedadvertising categories account-ed for 54 per cent of ad volumesacross radio stationsagainst 47.6 percent in

FY2014. In the same periodfemale-oriented categories fellto 30.6 per cent from 34.6 percent according to AirCheck, aradio spot monitoring agency.“The composition of advertis-ers has changed because nowthey are looking at radio forinteraction. The usage is moretactical than brand building,”thinks Nisha Narayanan, COO

and director, Red FMand Magic FM.

Rahul

Gautam, vice president mar-keting, Ford India disagrees.“We are active on radio. It worksas a good surround medium fora ‘buy me now’ kind of mes-sage. It gives our channel part-ners confidence that marketingis behind us and supplementsprint and TV. But we don’t takeradio just as a tactical medium,”he says. For example, in 2019,Ford launched the ‘Discover themore in you’ campaign withRadio Mirchi. It was a call forpeople to look within and takeactions that helped them bemore compassionate, calm andresponsible. It was a mix ofradio, on ground and videoswith RJ Naved dressing up as atraffic cop and censuring peo-ple for honking. During DiwaliFord ran another campaign, onBig FM and Radio City, whichincluded getting their RJs toFord offices and at its dealers.

“Today we are not radio sta-tions but content creators.Radio combines live, local inter-action and on the ground,” saysNarayanan. It is perhaps thisuse of radio that has helped themedium battle its big chal-lenges, of relevance and thelack of measurement.

One reason listenership isslowing is not because peo-ple don’t want radio, butbecause many firms don’toffer an FM tuner with asmartphone. “Womenwould consume it largelyon older phones. Nowalmost half the newerphones come without FM so

where would they consumeit? Also ten years back after-

noon programming wasn’tthere on television,” saysPanday. He reckons that thewhole Jio phenomenon couldgive a new lease of life to radio,because it hopes to sell 500million of their ~1,500 phones,all of them FM enabled.

Even if listenership were torise “Measurement is a chal-lenge. Spending on radio ismore of a judgement call and isbased on campaign to cam-paign,” says Gautam. Butunlike in TV, there doesn’tseem to be any effort to get arobust metric in place. It isperhaps the first thing theindustry needs to fix if itwants FMCGs and otheradvertisers to come back.

Brands track themen on the FM trailThe growing band of male radio listeners is drawing inauto, insurance brands; changing the nature of themedium and traditional advertising patterns

“Radio has beenreduced from 700,000-800,000 seconds(advertising fromFMCGs) to nothing.Because advertisersare seeing it more as amale product”

PRASHANT PANDAYMD & CEO, EntertainmentNetwork India (Radio Mirchi)

The nation accounts for 14 per cent of glob-al crude demand. Economists are forecast-ing a sharp deceleration in Chinese econo-my over the next few quarters due to thevirus outbreak.

China’s central bank is making effortsto calm investor concerns after a record$700 billion wipeout in market capitalisa-tion on Monday.

According to reports, the People’s Bankof China (PBOC) injected 1.2 trillion yuan($173.81 billion) into money marketsthrough reverse bond repurchase agree-ments. It also unexpectedly cut the interestrate on those short-term funding facilitiesby 10 basis points.

“Indian markets are very correlated toglobal markets, and today’s rally was a reac-tion to China’s efforts to pump liquidityinto the system. Going forward, the pace ofeconomic recovery in India and how strongit will be an important determinant of themarket,” said Jyotivardhan Jaipuria,founder, Valentis Advisors.

Positive manufacturing sector data alsohelped investor sentiment. The manufac-turing Purchasing Managers’ Index (PMI)for India shot up to an eight-year high at 55.3in January from 52.7 in December, the datareleased on Monday showed.

Some experts said the latest rebound inthe market could be on account of short-covering and investors needed to be cautious.

“It will be a highly polarized market; theIndian economy is now skewed in favour ofcompanies which have high cash flows. Thebanking and NBFC system no longer in aposition to finance the growth of our com-panies which have strong cash positionswill be able to take advantage to grow fur-ther and faster. And the bulk of the stockmarket flows being attracted by these largecompanies,” Saurabh Mulkherjea, founder,Marcellus Investment Managers.

Consumer durables and metal stocksrose the most, with their sectoral indicesgaining 3.5 per cent and 3.3 per cent, respec-tively. Among the Sensex components,Titan gained the most at 7.5 per cent, onaccount of the strong recovery for a jew-ellery business in the third quarter andstrong outlook for the quarter ended March.ITC and HDFC were the best-performingSensex stocks, gaining 3.9 per cent and 3.8per cent, respectively.

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Markets roar back after Budget shock

Ball in your court now...

“If you are saving dollars, I am quiteokay with that, because beyond apoint, that savings has to find a pro-ductive use,” she added.

The FM said it was the choice ofthe corporate where to use the mon-ey which it got after the govern-ment's decisions. “Each one of ushas to become engine of growth.Enterprise spirit is yours, we arefacilitators," she added.

She added the intention of herproposal to give options of lower taxrates without exemptions to per-sonal income taxpayers was to even-tually have low tax rates with a sim-ple regime. “This would be reflected

in other taxes as well, includingDDT,” she said in response to a ques-tion. Sitharaman, along with all thesecretaries of her ministry, will betravelling to Mumbai, Chennai, andKolkata, beginning Friday, to discussthe Budget decisions. Interactionswith industry and trade bodies,economists, and farmers groups arescheduled, the finance minister said.

The special window for stressedhousing projects has begun as a lotof funds of the construction sectorare stuck. As many as 13 projectshave been sanctioned so far,Economic Affairs Secretary AtanuChakraborty said.

FM Nirmala Sitharaman flanked by CII President Vikram Kirloskar (right)and CII President-Designate Uday Kotak, in New Delhi PHOTO: DALIP KUMAR