Most of us don’t realise it, but India is becoming increasing dependent on African countries. Recent months have seen increasing investment from India into African countries. Bilateral trade has risen sharply. And now the interdependence is at its highest level in history. Between 2001 and 2011, bilateral trade rose $10 billion to $63 billion. This was same as India’s trade with US at $63 billion. But the next three years will overshadow all previous growth. A study by Confederation of Indian Industry and the World Trade Organisation estimates that bilateral trade will balloon to $176 billion in the next three years. The surprising element here is that India now depends on African countries for 20 per cent of its petroleum imports. Just six years ago in 2005, India did not import any oil from African countries. Today the top importers from Africa to India are Nigeria, South Africa, Angola, Egypt, Algeria and Morocco. These countries export mostly oil and gold to India. This is a significant shift in the bilateral relationship which is benefitting both regions. For India it is important to reduce dependence on middle east for oil and for the African countries it was important to find more buyers to get the best price for their products. This growing dependence on Africa will be a key dynamic that will shape trade and investment with India. It is not just natural resources. There is a growing shift towards services and manufactured products. Indian tourists to Africa doubled. There was an increase of close to 50 per cent from African countries to India. While absolute numbers are growing, new opportunities in travel and hospitality are being tapped. Inorganic chemicals and pharmaceutical made in countries like Egypt, Morocco and South Africa are signs of rising imports of technology intensive imports to India. Efforts are on to invest in food processing industry in Africa by Indian companies so that the products can be imported back to India. Indian companies have invested about $32 billion in various projects in Africa. Now a reverse flow is emerging. Companies from Morocco and South Africa are leading the investment into India. These include FirstRand Bank and SAB Miller from South Africa to 74 per cent Moroccan joint venture with Paradeep Phosphate. The CII-WTO report says that as outward FDI from Africa grows, it is likely to head towards similar markets like India. Indian companies are now making clear distinctions between the diversity of regions within Africa. They are creating dedicated strategies for East, West, South, central and North Africa. Each of these regions is a unique market with specific strengths. Companies are increasingly choosing to specialise in a region and are not treating Africa as a single homogenous market. This approach promises to pay greater dividend as even African companies are studying Indian states before making trade decisions. The study has highlighted steps that need to be taken to remove hurdles to trade and investment based on a survey of Indian and African business leaders. Surprisingly, the problems are common. There is lack of market access and adequate knowledge of each other’s markets. Lack of trade finance and bilateral investment treaties is holding back transactions. While large companies have the ability to overcome such hurdles, mid-sized companies are hesitating to invest in the absence of institutional support. High cost of transport and logistics in Africa is a barrier and an opportunity for investment. Governments in both regions have to work harder to make business environment safer and easier. Africa’s trade with India grew by 48 per cent while with China it grew only 28 per cent between 2005 and 2011. This eye-opening fact should be tempered by mentioning that the Africa’s bilateral trade with China stands at $166 billion, more than double that of trade with India. But the higher rate of growth is an indication of where the economic relationship can go if the atmosphere is made more conducive. Removal of fundamental hurdles will ensure that Indian and African countries develop deeper and balanced ties that will be healthy and sustainable. (Pranjal Sharma is a senior business writer. He can be contacted at pranjalx@gmail.com)
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Tax avoidance, with all its euphemisms, may soon come to a grinding halt. In a draft action plan released on 19 July, the OECD (Organisation for Economic Co-operation and Development) has come down heavily on Base Erosion & Profit Shifting (BEPS), the plague that tax officers in economies like India have been grappling with for a long time now.Multinationals, the largest contributors to taxmen globally, have been reducing their tax obligations by systematically shifting their profits to a low tax jurisdiction such as Cayman Islands, Bahamas or Ireland. For example, a multinational operating in India could pay huge sums as royalty or interest to its parent in Cayman Islands, thus reducing its profit (and consequently, tax payable) in India. Much of the wrangling between the Income Tax department and their prey, the MNCs, can be traced to such arrangements. Read: Transfer Pricing, A Friction Between The Taxman & MNCsIn its action plan on BEPS, the OECD calls for measures to ensure that profits of a company are taxed in the country where it is made (source country), rather than where it is legally located (resident country). International tax treaties should not be abused to obtain undue tax benefits, deductibility of payments made to a low tax jurisdiction without any economic merit, stricter rules for taxing intangibles like royalty or benefits from outsourcing, are all mooted in the plan. In a nutshell, profits will have to be taxed in accordance with where value is created. Read: Harassed Companies Rush For Advance Ruling On Tax Matters“This could mean the end of tax planning as we know it today”, says Bijal Ajinkya, tax partner at law firm Khaitan & Co. “On the one hand, this will give more clarity on what governments can tax and what it cannot. So, companies will be able to engage in better tax planning, now that the shades of permissible grey will be eliminated. Even for the tax departments, they will have better clarity on the activity that is happening in the country, to get a better handle of what it can tax”.This follows several recent issues in developed as well as developing nations where largely profitable companies got away with paying minimal or no taxes. In India’s most famous tax case so far, Vodafone convinced the Supreme Court it was not liable to deduct tax (TDS) on its purchase of Hutch’s Indian operations claiming the profits were made by selling a company registered in Cayman Islands. In the UK, Starbucks was in the eye of a controversy after it emerged it paid only $8 mn as tax over 14 years of operations in the country, despite sales of $3 bn in that period. Then it emerged that Google was paying tax at a rate of 2 per cent of its non-US profits, leading again to much criticism. Read: Half Of Investments In Emerging Markets Go Via Tax Havens: ReportRead Interview: 'Expect Much More TP Litigation Globally'“What is interesting is that this represents a change in thinking within the OECD itself. “Earlier developed nations were happy to charge tax based on legal residence, as most entities were registered within their jurisdiction”, says a renowned tax expert who did not want to be named in the story. “But around the time of the financial crisis, as companies began to shift their registered entities to tax havens, they were faced with a widespread erosion of tax revenue” he says.To be sure, several countries have already been taking measures in this direction. This week, the UK passed a much awaited General Anti Abuse Rules that would check many of these practices. In India, a similar rule was delayed to 2016 after widespread criticism. What the OECD plan does is to take the wind out of MNCs lament that they are being treated unfairly. Read more stories on Tax Avoidanceabraham(dot)mathews(at)abp(dot)inmatabrahamc(at)gmail(dot)com (at)ebbruz
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Do you want to drive a billboard? Early this week, a Pune-based media and advertising company — Dreamers — launched a concept in major metros like Delhi and Mumbai, that promised potential car buyers a deal that sounded like a dream. A chosen set of customers, 15,000 of them around the country, would be picked by Dreamers to buy the car of their choice in the bracket of Rs 2.5 lakh to Rs 6 lakh. The customer will have to make the initial down payment and the car will be registered in his name. Dreamers will then proceed to pay the customers their EMI expenses for the next three years.What’s the deal for the company in this exercise? The car owner has to let out the side panels of his cars as advertising space to the company and the company will recover what it spends as EMI through advertising revenues. By March 2014, Dreamers plans to put out 15,000 cars on Indian roads and add one lakh more cars through this exercise by March 2015. The company claims that it’s being flooded with enquiries by eager customers — 1,500 of those enquiries from the NCR alone — who want to jump on to the driver's seat with a deal that sounds perfect for the bargain hunters.But think of the flip side. To keep his contract with the company, customers have to keep their car running for 1,500 kms a month if you live in a big city like Mumbai and Delhi and about 1,000-1,200 kms if you come from a smaller town. That means, with current fuel charges, a car owner could end up spending anything between Rs 9,000 and 12,000 per month depending on the car you drive. Of course, consumers cannot keep the car idle as there will be a GPS device installed in their cars to keep track of their movements.Next is the economics for the company to keep their business going. They will have to pay customers EMIs of at least Rs 4,300 on a seven-year loan or a maximum of Rs 8,200 (three-year tenure) for a car costing Rs 2.5 lakh. That would mean that the company would need revenues upwards of Rs 45 crore in the current financial year itself to break even while the service starts in September 2013. The bigger the car, the higher goes the break-even point. For instance, a Rs 6- lakh car would attract an EMI of Rs 10,000 (seven year loan) to Rs 19,700 (three year loan). Of course, Dreamers also has to contend with competition from fleet cab chains like Meru and TAB Cabs that are hunting for ads to supplement their revenues.But Sunis Mohamed, CEO, Dreamers, is confident that a growth in spend of advertisers in the Rs 1,800-crore 'Out Of Home' (OOH) space is good enough to keep them in business. Independent reports like the Pitch Madison Media Advertising Outlook for 2013, however, indicate that the outdoor medium (which this advertising innovation will be a part of) is going through “bitter sweet” times, with a projected growth rate of just 4.3 per cent in 2013. Dreamers may hope for beginners' luck to work, but not every innovator has succeeded in the OOH space. Some years back, a South India-based company launched the idea of televising ads at the point of sale by installing television sets behind the shop counters. The novelty wore off. Again, the screens installed outside elevators, where consumers get a glance of ads while waiting for the lift have not become hot property either.But one thing is for sure. The idea gives the premise of consumers as brand ambassadors, a new twist altogether. email: prasad (dot) sangameshwaran (at) abp (dot) inemail: alertprasad (at) gmail (dot) comTwitter: @alertprasad
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As voice revenues have been stagnating, telecom operators have been focusing on raising data revenues. Now, Reliance Communications (R-Com) has slashed 3G data tariffs to 2G rates. In what is termed as a game-changing plan, R-Com subscribers can access 3G services at Rs 123 for 1 GB, Rs 246 for 2 GB and Rs 492 for 4 GB.But RCOM is doing only what Bharti Airtel and Vodafone did a couple of months ago. Bharti Airtel cut 3G data prices by 70 per cent in May. Vodafone slashed 3G tariffs by 80 per cent in June. Gurdeep Singh, President and Chief Executive Officer, Wireless, Reliance Communications Limited, said: “This is an inherent part of RCOM’s objective to take high-speed data services to every smart phone and tablet user in the country, without them worrying about incremental or high costs.”But will this make a difference to the data market? R-Com is reported to have 7.2 million 3G subscribers compared to Bharti Airtel’s 8.4 million and Vodafone’s 3.3 million. It remains to be seen how many current 2G subscribers move over to 3G services. Himanshu Shah, research analyst at HDFC Securities points out that RCOM’s rate reduction is unlikely to have a material impact on other telecom operators due to an inferior 3G network presence. While RCOM om has 11,000 3G BTS across 13 circles, Bharti Airtel has 25,000 and Idea Cellular has 17,000 across 11 circles. Since other operators have already reduced tariffs, it is unlikely that there will be another round of cuts. Read Also: Bharti Airtel Slashes 4G RatesOnly about 5 per cent of India's 850 million mobile users have subscribed to 3G services, which are estimated to account for 3 per cent of mobile revenue of telecommunication carriers.Uptake of the premium internet services has been slower than expected as a majority of mobile subscribers mostly use phones to make calls and also partly due to the high pricing of such services. anupjayaram (at) gmail (dot) com
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If you are a travel operator and don't have a mobile app offering, you just might be left behind in the race. A survey on the multi-screen behaviour of travellers released on Wednesday (17 July) by Google-IPSOS highlights how people are increasingly turning to their smart phones for booking travel. A third of travel queries today are coming from the mobile and tablet, with mobile apps preferred over browsers as a booking platform. For booking and sharing, mobile app usage was 12- 15 per cent higher in comparison to mobile sites.IPSOS carried out the study on 1519 leisure travelers, between the ages of 20 and 45 years, across the 8 metros in India. All respondents were owners of internet capable phones and had traveled by air at least once in the last 12 months and had researched a trip element online, be it a flight or rail ticket, hotel booking etc. 80 per cent of these respondents had smart phones.The study reveals the multi-screen behaviour of travelers, showing that 76 per cent users use both computer and mobile across all the usual stages of travel — dreaming, researching, booking, experiencing and sharing — while 60 per cent users move from one device to another when they switch from researching to booking. The mobile is seen to be most consistent across the research stage. According to the survey, 54 per cent users searched for exploratory elements on each device. Says Vikas Aghniotri, Director, Travel & BFSI, Google India, “We already know that Smart phone users on an average spend 76 minutes on the internet through their phones. This study establishes that today’s hyper-connected, hyper-informed smart phone user is consuming online content across devices.”The fact that the mobile device is the preferred option even at home, with 67 per cent agreeing to the same, goes to show that the phone is becoming an extension of the individual. Convenience (94 per cent) and immediacy (77 per cent) win it for the mobile. In terms of booking online, flights have seen a 92 per cent conversion rate after research; accommodation has seen an 88 per cent conversion, rail travel 94 per cent. Also, 58 per cent of users who researched online on mobile, booked on it as well. Security was seen as the biggest concern for booking on mobile by respondents.“With travel being the most evolved and mature vertical, we believe that the findings from this study will help them to devise strategies to engage the users across multiple online screens/devices,” says Aghniotri. ankitaramgopal(at)abp(dot)inankitaramgopal(at)gmail(dot)com(at)ankitaramgopal
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Multinational drug companies may not have grown in the country like some of the domestic drug companies like Cipla, Lupin or Sun Pharma have managed to do, but the top selling drugs in India still belong to the MNCs.GlaxoSmithKline's Augmentin, an antibiotic used to treat bacterial infections is the largest selling drug in the country with sales of Rs 294.2 crore for the 12 months ended May 2013, data from IMS Health says.The second and third largest selling drugs in the country are Pfizer's Corex and Abbott's Phensedyl — both cough and cold preparations — with sales of Rs 286.2 crore and Rs 282.6 crore respectively. The fourth largest selling drug also belongs to a multinational company — Novartis India's Voveran (RS 263 crore) which is used as an analgesic to treat pain and inflammatory disorders. Novo Nordisk's insulin brand Human Mixtard is the fifth largest selling drug with sales of Rs 261.1 crore for the same period. The next two spots are occupied by drugs produced by two domestic companies — Aristo Pharmaceuticals' Monocef which is used to cure typhoid and Bangalore-based Ayurveda company Himalaya's Liv-52, which claims to protect the liver against various hepato-toxins. Liv-52 is also the fastest growing among the top ten brands for the 12-month period, with 29.9 percent in terms of value growth. IMS Health tracks the sales of pharmaceutical drugs in the country sold through the stockists and distributors.For the period MAT (Moving Annual Total) May 2013, IMS Health reports the pharmaceutical market has grown to Rs 74,117 crore, with a growth of 10 per cent, over the same period last year.Abbott, which acquired Piramal Healthcare's formulation business, is the largest drug company operating in India with sales of Rs 5,172 crore and a market share of 7 per Abbott is well ahead of Cipla, with sales of Rs 3,623 crore (market share of 4.9 per cent) and Sun Pharma with sales of Rs 3,277 crore (market share of 4.4 per cent). Glaxosmithkline and Ranbaxy (4.1 per cent each) share the next two slots in terms of market share and sales. Daiichi Sankyo owned Ranbaxy Laboratories was the largest drug company in terms of sales and market share for many years till its sell-off in 2008. email: pb(dot)jayakumar(at)abp(dot)inemail: pbjayan(at)gmail(dot)comtwitter: (at)pbjayakumar
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It’s not always that a central bank purposely allows a country’s banking system to wretch by squeezing liquidity that spreads panic in financial markets and makes investors very nervous. The People’s Bank of China apparently did something like that last month to send a signal to erring local banks: get real, discipline yourself, and check those bad loans, control profligacy.Soon after, as the Communist Party of China marked its 92nd anniversary, Chinese President Xi Jinping sent out another message to party cadres long used to being judged on their ability to drive economic growth. He told them that it was just fine to look at doing something else that was more important in the long term than merely focus on boosting the GDP.These are both in many ways strong messages from China’s political leadership that is now battling an economic slowdown. On one hand, it shows its resolve to address some of the key structural deformities that have started hurting the world’s second-biggest economy. On the other, it’s all politics and the Communist Party needs to look at different options to address the expectations of a new generation that is beginning to question and protest.Analysts have been busy paring the economic growth for China for some months now, and there is a strong chance it would come in below the government’s target of 7.5 per cent this year. That won’t be surprising because the overall economy has slowed and jobs have gone as China’s traditional export markets are yet to recover fully from the Lehman flu.Plus, bad loans and undisciplined bank lending are scaring the government for good reasons. As the world economy tottered after the Lehman collapse in 2008, Chinese banks went on a lending spree to ensure that the domestic economy continued to grow. All this was, of course, done with the government’s knowledge. Now the chicken is coming back home to roost, raising fears over the possible puncturing of asset bubbles created by availability of easy money. The worry is genuine, as a slowdown coupled with a sharp decline in asset prices could create more bad debts.A combination of a wobbly economy, job losses, high-profile corruption in the government and environmental problems that are impacting day-to-day lives and businesses is too deadly to handle. The party – with 85 million members -- realises that economic development alone can’t continue to provide it the legitimacy it requires to remain in control.That was evident in a commentary by the official Xinhua news agency earlier this month. It said that the “new Chinese leadership has warned that the biggest threat to the Party involves alienating itself from the masses, as a slew of Party members and officials are not caring about people’s well-being.”This follows Xi’s earlier statement that winning or losing public support was an issue that concerned the party’s very survival. Indeed, the shifting social and economic sands in China today mean the party needs to quickly start appreciating people’s aspirations and become accountable for its actions. It’s, however, not easy for party officials to make that remarkable U-turn easily.A clean up also means that the focus needs to shift slightly away from the decades-old mantra of economic growth by any means. The obsession with GDP growth has to be tempered to manage environmental pollution, wastage and a growing divide between the rich and poor – an explosive social concoction that will hurt the party if it explodes.There is also a realisation that corruption remains one the “hardest nuts to crack,” as the Xinhua commentary said, adding that undesirable work styles such as formalism, bureacratism, hedonism and extravagance were alienating the Party from the people. The view seems to be, at least on the surface, that the system has become too rotten for comfort and, therefore, needs to be shaken up hard.For China’s government and its people it is now a choice between slower economic growth and much-needed reforms. After decades of high-octane growth, it is now time to step back and see what can be done to make it healthier in the long run and ensure the party and its control is not impacted.Pushed to the wall, the Chinese government wants to turn the crisis into an opportunity reform, which is a noble thought. The big question is can the 85 million party cadres continue to manage the fate of the world’s most populated country? Corruption, according to Xinhua, might be one the hardest huts to crack, but there are several other nuts around that need to be cracked too for the pudding to become a little more edible than what it is now. Xi has time to take them up one at a time.(The columnist, a former newspaper editor, is President, Public Affairs, Genesis Burson-Marsteller and co-founder of Public Affairs Forum of India. He has a keen interest in China and Southeast Asia. Views are personal)
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India has seen phenomenal growth in voice services in the last decade. Broadband penetration, on the other hand is still only a little over one per cent. Broadband is increasingly becoming important in today's information age. It provides communication and timely access to information, which leads to better productivity, innovation and economic growth. According to World Bank estimates, every 10per cent growth in broadband penetration of a country leads to 1.3 per cent increase in GDP for developing countries. India's wired subscriber base stands at about 15 million as of Jan 2013, despite a 12 per cent growth seen in the last 1 year. Similarly, the number of 3G subscribers constitutes only about 4 per cent of total subscribers as of today. Among the many factors that have contributed to the slow growth of broadband, last mile is one that particularly stands out. Last mile is the final link of a network that connects an end customer (mostly residential) to the telecom service provider's nearest access point. Many different access media and technologies can be used for this link. The copper wire for landlines/DSL-broadband, coaxial cable (from cable TV) and the wireless connectivity between cell towers and mobile phones are all examples of the last mile. Recently optical fibers, which were traditionally used in long distance and metro networks, have found their way into the last mile.The last mile has generally been a costly affair as it involves setting up wired media (twisted pair copper, co-axial cables or optic fibers) to subscriber's homes or the huge spectrum costs if wireless technology is used. Hence operators have always put a lot of effort into re-using the existing media while delivering new broadband services to end customers. Europe which historically had a high penetration of landlines uses DSL technology (which delivers broadband over twisted pair copper), and similarly US used it's cable-TV infrastructure to deliver 'cable broadband'. In comparison, India's voice growth happened over 2G mobile technology and it's digital TV was primarily delivered through DTH. Hence it doesn't have a last mile infrastructure it can bank upon. On the technology front, India can use either wireless (4G/LTE) or Fiber to the Home (FTTH) running on GPON (Gigabit Passive Optical Networks) to address this. The government already auctioned the BWA spectrum in 2010 and the licensees are gearing up to launch LTE based broadband services on a nationwide scale. LTE is a 4th generation (4G) mobile technology that is capable of providing speeds of upto 100Mbps to an end user over the wireless infrastructure. The BWA/LTE approach can be used to cover large geographical areas relatively quickly since setting up each base station can provide coverage to a few sq kms at once . While a lot of passive infrastructure can be re-used/shared with 2G/3G infrastructure, new investments will have to be made in the 4G wireless equipment and the backhaul infrastructure. The FTTH approach on the other hand can be used to deliver high speed broadband services. Optical fibers and FTTH is capable of delivering huge bandwidth, and can cater to the projected bandwidth demand for the next couple of decades. Wireline broadband typically provides lower latencies and higher bandwidths compared to wireless and does not suffer from issues like spectrum congestion (too many subscribers sharing the same spectrum, leading to lower quality of service) or from signal coverage issues. Also, applications like Video Telephony/Skype, Video conferencing and Video on Demand require high bandwidth, and hence are best delivered over wired infrastructure. Wired infrastructure is also used to backhaul bandwidth from mobile base stations. The government can play a key role in addressing these last mile challenges to speed up the broadband availability throughout the country. On the wireless front, steps like allowing spectrum re-farming and releasing more spectrum would improve the availability and quality of broadband services for the country at affordable prices. The right of way (ROW) charges for laying optical fibers would need to be rationalised and speedy permissions and approvals for ROW will be needed from municipal bodies will help in improving this infrastructure. The recently announced NOFN (National Optic Fiber Network) project is a good example of steps being taken by the government to improve the broadband services. NOFN project envisages providing optic fiber based broadband connectivity to over 2.5 lakh gram panchayats and would require laying 2 lakh kms of additional fiber. This would enable applications like E-Learning, tele-medicine, access to timely information on things like weather, agricultural inputs and provide farmers access to more markets for selling their produce. While infrastructure is one pillar of broadband growth, other factors like availability of affordable data plans and localised content is also important for driving broadband adoption. If all of the factors align, India can not only catch up with the developed world on the broadband penetration figures but also become one of the largest broadband markets globally.Sanjay Nayak, CEO & MD of Tejas Networks
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