Two critical clauses in the recently notified Drugs Price Control Order (DPCO) 2013 could open the doors for FDI from international drug store chains into the country. One is intended to free the wholesalers — or stockists in trade terms — from the whims of the pharmaceutical company. The second is to free the companies themselves from the whims of the trade body of stockists.The first clause has broadened the definition of “wholesaler”. The new definition “technically” allows any stockist to demand drug manufacturers to stock their medicines with him. So far, drug manufacturers appointed handpicked stockists who could sell their medicines.On the other hand, the order has also done away with the requirement of a no-objection-certificate (NoC) from the medicine trade body — All India Organisation of Chemists and Druggists (AIOCD) — before adding a new stockist to its marketing network. This will benefit pharmaceutical companies which are now legally empowered to supply medicines to more stockists, without waiting for the NoC.The development assumes significance in the wake of a recent Competition Commission of India (CCI) decision that charged AIOCD of unfair trade practices to control the supply of medicines in the market. Insistence on NoC was one of the issues highlighted by the CCI.Traders also see this as a move to encourage the entry of global medicine retail chains into the country. “The earlier attempts of medicine retail chains to gain foothold in Indian pharmaceutical market failed because association had an influence on the appointment of stockists. The dilution of the definition will now allow them to directly negotiate supply deals with pharmaceutical companies”, the wholesaler added.While the earlier DPCO of 1995 had defined “wholesaler” as a dealer or his agent or a stockist appointed by a manufacturer or an importer for the sale of his drugs to a retailer, hospital, etc.,” DPCO 2013, has turned the wholesaler company agnostic.It merely mentions “wholesaler " as “a dealer or his agent or a stockist engaged in the sale of drugs to a retailer, hospital, dispensary, medical, educational or research institution or any other agency” .According to trade sources, the notification has already resulted in about a dozen police complaints in Maharashtra after the Drugs Controller of that State issued a circular asking pharmaceutical companies and the drug trade to follow DPCO 2013 in its letter and spirit.Following the circular of the Maharashtra Food and Drugs Authority, wholesalers affiliated to AIOCD have stopped placing fresh orders with the companies, trade sources point out. The development is keenly watched by the 600,000 strong medicine traders across the country as the outcome of these actions might alter the future direction of the country’s medicine trade."We have requested the government to look into the matter. Indiscriminate supply of medicines will create a chaotic situation”, a Mumbai based wholesaler said.Ramesh Chandra Gupta, a Hyderabad based veteran drug wholesaler has a different view. “Handling of medicines is a specialized job. Allowing every one, irrespective of their capacity to store medicines in good conditions, to stock medicines may not be a good idea”, he points out. According to him, some control over the appointment of stockist also helps maintain more accountability.The drug law says that “no manufacturer or distributor shall withhold from sale or refuse to sell to a dealer any drug without good and sufficient reasons and no dealer shall withhold from sale or refuse to sell any drug available with him to a customer intending to purchase such drug” to ensure uninterrupted supply of medicines in the country.joe(dot)mathew(at)abp(dot)in; joecmathew(at)gmail(dot)com(at)joecmathew
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Maclean Raphael, Executive Director - Human Resources, 3M India & Sri Lanka was working with Bharat Petroleum as an aviation officer where his job involved taking responsibility for a group of people in his shift. Through his interactions, he discovered that he enjoyed ‘taking care’ of them. The fact that his brother was a HR professional from XLRI also prompted him to switch to HR. Raphael believes outsourcing core HR processes like some organisations have done is not recommended as it is all about people and a personal touch should be maintained above all. Also, Raphael says the HR function should be viewed as an investment centre and not a cost centre, as attracting, engaging and retaining talent ensures creating a strong foundation and future of any organisation. ExcerptsWhat has been the biggest achievement in your career?That is indeed a tough question, because when I look back, in all humility I must confess that every day has been so fulfilling because of the achievements, thanks to the people that I work with. However, if I were to pull out one stand-out achievement and term it as my biggest, it would have to be, without a doubt, growing into my current position and heading the HR function for such a great corporation as 3M and in such a dynamic country like India. What have been the primary traits/qualities that have helped you attain your present position?Let me share the feedback people around me have given– a pleasing leadership style, extremely dependable, result oriented with a ‘will do it come what may attitude’, a positive and cheerful countenance, a supportive and “wanting-to-help” approach, being open, honest, firm and fair. I would also attribute sheer hard work, common sense, support from family and colleagues, some wonderful bosses, and God’s grace (not necessarily in that order though) as other aspects that have helped me attain success in my current position.What are the challenges you are facing in the organisation?There are several challenges that are characteristic of any growing organisation, which include enhancing productivity and profitability, prioritising our resources to achieve our business goals, building supervisory and leadership capability, maintaining high morale through challenging and difficult times, engaging, developing and retaining our good people.What are the steps a company should take to develop and motivate future leaders?First and foremost, a company should have a clear plan as to how it should attract and develop future leaders, what it will do to set expectations right, what the career plan is for employees and what the plan is to develop and grow them into these positions. All this needs to be supported by an open, fair and stringent process to identify people with the right potential, as well as the willingness to trust your people, early in their careers , to handle challenging roles. What is your rate of attrition? How do you prevent it?The rate of attrition at 3M India has decreased by 6 percentage points over the last 15 months and is well within the industry average. We have initiated several actions to contain it, and they include, strengthening our hiring and on boarding process, engaging with employees, empowering them and allowing them to create their own destinies, trusting them to do a good job, recognizing and rewarding them with competitive salaries, providing them with learning opportunities and growing them in the Company.What sets your company apart from other companies as far as work culture goes?3M has a culture which indeed, sets us apart. We have what is known as the “Minnesota nice” which represents the culture of respect that people have for one another in the organisation. Trust is central to our interactions and we believe in empowering people to find their space, make mistakes and evolve themselves – internally we refer to this as the McKnight principle, i.e., a philosophy that was propounded by William McKnight, 3M’s former CEO& Chairman which has contributed to shaping the culture and DNA of 3M. We also believe in recognizing people and growing them from within. 3M is a highly ethical organization that practisesand believes in doing business the right way. What is the biggest challenge you face when selecting people?The challenge is to find people who share the same vision and dreams, backed by the right domain expertise, along with the cultural fit. Also, 3M is such a diversified company that it sometimes poses challenges to find the right talent with such unique skill sets.How do you track employees' satisfaction or dissatisfaction?Whilst we have a Standard Opinion Survey which we conduct once in two years, we also have other forums and systems like the Open House, a Feedback Box, Skip Level Meetings and above all an Open Door Policy where employees are encouraged to approach their seniors & top management in the company and share their concerns. How has HR been important to the bottom line of the company?At 3M, businesses recognises the critical role and impact that HR has on hiring, on-boarding, compensation, training, development, engagement, retention and growth of employees. Further, HR also contributes in the following ways – By providing the right environment to enable employees to stay engaged and performBy creating the right processes and systems at all people touch point areasBy building Line Managers to become HR Managers for the respective small group teamsAll this directly and indirectly impacts the bottom line of the company. A case in point was last year, when one of our businesses was having high attrition at the beginning of the year. HR worked in tandem with the leaders of that business and increased the retention to a record high by the end of the year, earning a comment from the Country Business Leader who said that the higher retention increased productivity and profitability in a significant manner last year. How has the downturn affected HR?The biggest impact of the downturn on HR has been on prioritisation and allocation of limited resources. Business and Functional teams have to achieve challenging targets with limited resources. HR needs to ensure that the morale of the employees and the organization is still maintained at a high level. How should HR be integrated with the core line of business?HR has already been integrated with the business teams in 3M. We are well aligned with our business goals and each business has a HR Business Partner who proactively works with them at a strategic level to achieve company goals.A survey has questioned HR's actual contribution in an organisation. Would you like to comment on it with particular reference to your organisation?In all humility, I’d like to believe that our HR function has been able to integrate with all our 5 business groups and make a difference in 3M. Two things will determine our success, one is the perception of how we have been able to impact our business and functional teams, and second would be the actual metrics that will prove that we have been able to contribute, for e.g. hiring cycle time, hiring costs, on-board feedback, quality of hires, engagement survey scores on various people process & systems, retention scores, training scores, productivity, succession readiness etc. If you could change three things about HR practices, what would they be?In my years of experience, these are some learnings and insights I can shareDo not jump the bandwagon and blindly follow what other companies do, but see what is relevant to your organisationUnderstand that HR is not like any other function, and outsourcing core HR processes like some organisations have done is not recommended. HR is about people and it is critical that there is a personal touch and supervision is maintained over some key HR functions/ activitiesThe HR function should be viewed as an investment centre and not a cost centre, as attracting, engaging and retaining talent ensures creating a strong foundation and future of any organisation. As told to Poonam Kumar
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Is corporate India burying its head in the sand in face of rising aggression from Maoists? Once again business leaders have stayed away from reacting to the Maoist attack on Congress leaders in Chhatisgarh. Some business leaders perhaps feel that this is a political and social issue that does not directly concern them. Many others feel that reacting now would land them in the middle of a political crossfire. Most though should be terribly worried about the attack. Whether they speak up and condemn the attack or not is a smaller issue. What is important though is the implication it has for business and growth. About a third of india is under the influence of Maoist and Naxalite rebels. A painful fact is that much of these regions are also rich in natural resources. State governments and industrial groups have been experimenting with various models to harness these resources.Most of these attempts have been driven by opaque policies that benefit crony capitalism at the cost of local communities. Political and business leaders are still to realise the impact of this dangerous game. Resource-oriented scams are now routinely cropping up in states. Many go unnoticed and unreported. These allow Maoists to justify their terrorist activities. Maoists convince their cadres and local communities that their wealth is being usurped by political and business leaders.While there is some truth to this allegation, it does not justify violence in any way.Even as the government and security agencies are stepping up their war against Maoists, corporate India must act too. Business is an equal stakeholder in social peace. Ensuring it is the responsibility mostly of the government, but also of industry and community leaders. Corporates that operate in regions under Maoist influence should step up their community engagement programmes. Many companies objected when a law was being discussed that would force them to share profits with local communities whose land had been acquired or mined. This exposes a mindset that focusses on short-term gains.Giving up a higher share of profits should be seen as an investment in regional community, social peace and local development. More importantly, these businesses should be supported by the local government to raise the level of communication of these activities in the region. Often good work is ignored while scam are highlighted. Maoists influence will be undermined by high profile acts of social welfare. There are various reports that suggest the Maoist empire has annual revenues of Rs 1,500-2,000 crore or about $500 million. Much of this money comes from ransom and extortion. Organisations working in these areas have to pay monthly extortion fees or risk kidnapping, arson and attacks. This threat will have to be met with police action. Local governments must be reinforced and strengthened to counter extortion. This is critical to plug the funding of terror activities. Central, state and local governments must place strengthening of security forces on top priority to ensure that Maoists are choked of funds. For the sake of long-term peace and development, industry leaders will have to sink business rivalry to support local government in a open forceful manner. Countering the growing menace of Maoist terrorism will require corporate India to change the way it does business. It will have to discard crony capitalism to being more benign, transparent and collaborative. It is time for community capitalism.(Pranjal Sharma is a senior business writer. He can be contacted at pranjalx@gmail.com)
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The proliferation of actively-managed funds has made it difficult for investors to choose appropriate active investment strategies, according to John Davies, global head of exchange traded products at S&P Dow Jones Indices. “Overtime, investors will have to add passive investment strategies to their portfolios to stabilise returns,” says Davies.Retail investments worth Rs 12,200 crore — roughly over 1.2 per cent of overall mutual fund assets — are managed through exchange traded funds in India; of this Rs 10,580 crore are invested in gold ETFs alone, as per data by Assocation of Mutual Funds in India.John Davies noted that low liquidity has been the biggest problem faced by ETF listed in Indian exchanges. In terms of trading volumes, even the most popular ETFs have turned in just over 1 lakh units over the past few months.“The ETF industry will grow in India in the years to come. Investors will have to be taught about ETFs, before they become popular here,” Davies said in an interview to BW| Businessworld’s Shailesh Menon.Edited ExcerptsActive investment strategies or passive strategies. Which one’s better?One’s not better than the other. It’s mostly a question of harnessing the best of both strategies. On an average, most active fund managers fail to beat their respective benchmarks. Passive strategies mirror market movements; so if indices have gained over a period of time, ETFs tracking them would also have made money.Are ETFs growing, considering the general aversion towards stock market-linked products?ETFs have taken a lot of time to grow even in developed markets. ETFs in the US manage assets worth a trillion dollars — which is just about 9 per cent of the entire mutual fund industry; in Europe it’s just 3 per cent. ETFs will evolve over a period of time. To answer your question, ETFs are quite popular among investors in developed markets. Most active fund managers in developed markets have not been able to beat benchmarks over a period of time. Also, the massive increase in number of equity funds has made it difficult for investors to pick the right fund or fund manager. Lower fees is also prompting investors to shift to ETFs.There’s a verbal loop going around that ETFs are causing (market) crashes around the world. ETF detractors were more vocal about this last year. What’s your comment on this?ETFs cannot be blamed for the (market) crashes last year. Most ETFs are pretty clear about liquidity. The asset base of ETF pools, across the world, is so low that it, in itself, cannot cause a market crash.You said ETFs are cheaper investment options. But in India, ETFs charge about 40 – bps as asset management fees. Is that really cheap?At 40–70 bps, Indian ETFs are still expensive in real terms. But if you compare expense ratios of other domestic funds, ETFs are much cheaper. I agree, ETFs are much cheaper in developed markets. An S&P-500 Spyder ETF charges an expense ratio of just 9 bps. Expense ratios will come down as markets mature in India.Some asset managers have launched weighted index ETFs in India. How do you see this variant of ETFs evolving?Weighted indices are becoming popular among investors world-over. Product manufacturers, on their part, are launching funds with strategies and derivative overlays. This trend of mixing active and passive strategies will gain popularity in the years to come. Weighted index ETFs are efficient and can outperform broader indices overtime.
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The shift in consumer preference towards digital delivery platforms and proliferation of smartphones have helped the digital music industry evolve in India. According to the latest Ficci 2013 report, growth in music consumption (both online and mobile) is expected to drive the music industry to revenues of over Rs 2,000 crore by 2017. Emerging technologies have had a significant impact on the way music is produced, distributed and consumed. Siddhartha Roy, COO, Hungama Digital Media Entertainment, speaks to Businessworld Online’s Tanuja Chatterjee about the global launch of its next generation music app and Hungama’s future plans.How do you see the transition in the online streaming industry in terms of size and platform?India is one of the rare markets which will see transition from 3G to 4G in a relatively short period of time. Internet connections are expected to reach 443 million by 2016 and youth will continue to drive internet usage through the mobile medium. With cheaper devices, increased penetration of smartphones, internet and social media, there will be a rise in data consumption. Given this, music streaming will continue to grow exponentially. With our insights, we have seen that owning content continues to be an inherent need for the consumer.How do you view your latest music app with respect to the existing players in the market? How will you define your new music app that streams video as well?The Hungama music app offers music and video streaming within the app, incorporated unique mood-based music discovery and world's only music app integrated with loyalty and rewards. It offers a seamless audio video experience, where a customer can make a choice to consume music across audio or video. This is essentially based on the insight that the Indian consumer not only listens to music but also watches music. There are times when the user wants to listen to music based on his mood. Hence, the app has a rich Mood Discovery feature that finds and plays music to match the user's mood. This feature allows users to discover music based on their preferences - Mood, Tempo, Language, Genre or Era. And finally, the biggest game changer is our loyalty programme. We are the first music app that rewards the consumer for his every action on the app. With this feature, users can earn points every time they watch videos, play/share music, invite friends or create playlists. Do you think the app would be accepted by your customers and simultaneously stand out from the crowd?Over the last 8 weeks, the app has received phenomenal response. Within four weeks of its successful debut, the app crossed 1 million downloads and is topping charts across all store fronts. The app is available on iOS, Android and a lite version on BBZ10. Ranked #1 in the top music apps category on iOS and Android platforms within just ten days of its launch; this ultimate music streaming app remains top trending app since its launch. Consumers had also rated the Hungama music app and given it a 4.5 star rating on the app store. The android version of the app is also trending worldwide with a 4.4 star rating.How do you plan to monetise this app?The Hungama.com business has always been and will remain a transaction driven business. The Hungama app is the first app that launched with premium billing available. There are principally two kinds of subscriptions that we have built. On the iOS it is an in-app subscription where we open an ad free video streaming environment to the users. The customer pays Rs 110 on a monthly basis, and can access the entire library of ad free music and videos for streaming. In the android space, because we have the entire micro charging opportunity in India with our billing integrations with all major telcos, we have integrated the download option. Consumer can own a piece of content by way of in-app transaction. The app is another touch point for the consumer to enjoy his music anytime, anywhere.Hungama recently forayed into Middle East market. How has been the response so far?Hungama Movies was officially launched in the Middle East during the Gitex Technology Week 2012. This expansion of our movies product offering was to address the demand for Bollywood and Indian content by South Asian diaspora residing in the Middle East region. The response from this region has been impressive with more than 10,000 subscribers registered already.What are the other initiatives lined up by Hungama? Please share your future plans?With regards to the music application, we will be rolling out adaptive streaming, Windows app and continue to build the product. We are also launching a new product BUZZTOP - an exclusive content distribution platform which is a captive media space for the 2nd and 3rd Generation Laptops powered by Intel.Could you brief a bit about your revenue model?Hungama has a download and streaming model. We have single downloads of songs for as less as Rs 10 and subscription based &package model for content that allows fixed or unlimited downloads. All our products have been built on the 'download to own' model which ensures a sustained digital content ecosystem offering return on investment for artists and record labels alike.
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After discussing it for months, the Telecom Regulatory Authority of India (Trai) has stayed away from announcing free national roaming. It has announced a cut in national roaming fees though. That should provide cheaper connectivity to millions of subscribers while also providing relief to operators who had been worried that free roaming would dent their top line by approximately 10 per cent.It is not that operators cannot offer free national roaming. Trai has stated that operators can offer plans for roaming subscribers to opt for partially free roaming, or full free roaming for a fee starting July 1. So Special Tariff Vouchers which were earlier limited to within a circle would be permitted for roaming tariffs. That will enable service providers to customise tariffs for roaming subscribers.Even without paying a fee, roaming will become cheaper for millions of mobile telecom service users. Under the new tariffs, mobile-telephone users will pay Re 1 per minute for making a call, and Rs 1.5 per minute for receiving calls outside their telecom circle. Till now, subscribers were charged Rs 1.40 per minute for making calls, and Rs 2.40 per minute for receiving calls.Roaming charges are unique to India. Unlike other countries, India is divided across 22 telecom service areas (largely along state boundaries). Mobile service users of one service area have to pay additional charges for making or receiving calls and text messages, outside their home service area. Goldman Sachs terms the decision as balanced since it achieves the government objective of allowing free national roaming and does not materially impact telecom operator revenues. anupjayaram (at) gmail.com anup(dot)jayaram(at)abp9dot)in9at)anupjayaram
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Governments worldwide are faced with the dual-challenge of delivering “Public Services of the Future” while tightly controlling their budgets. There is a pressing need for governments to find reliable ways of implementing reform to realise savings and higher operating efficiencies, without affecting the services they deliver, whilst reducing the initial investments required for such transformation and mitigating the involved risks. “Delivering Public Service for Future” programme by Accenture has identified four profound structural shifts that will drive the future of governments. One of these represents a different approach to operational efficiency: instead of focusing on budget cuts, governments can better deliver public services by make productivity their mission. Over the past few years, governments around the globe have opted to partner with the private sector for designing and implementing projects in the public space to bring in efficiencies. With governments facing financial pressures, the priority now is to manage the funds outflow from the government, while delivering high quality, successful According to the Department of Economic Affairs in India, Public-Private Partnership models have been in existence for over 11 years, with the model in vogue over the past 6-7 years, especially in the infrastructure sector. As of July 2011, more than 750 PPP projects were in progress with estimated project costs of over Rs 380,000 crore. The primary reasons for opting for a PPP model tend to revolve around improved quality of infrastructure or service, and The key to ensuring success in a PPP project is employing a combination of identified effective accountability measures, careful monitoring of the private partner’s performance, and similar oversight to their payout. Traditionally, public service organisations procured private services for a deliverable. These are fixed price arrangements under which a contractor is paid on the actual cost of direct labor, usually at specified hourly or monthly rates, the actual cost of materials and equipment usage, and an agreed upon add-on to cover the contractor’s overheads and profits. These contracts dangerously pit the purchaser and the supplier against each other instead of aligning their incentives. If operating under a fixed fee / time and materials contract, a provider has little motivation to look for the most cost and time effective solutions. The provider may even try to shortchange the buyer to improve his margins by either lengthening the duration of contract fulfillment, or supplying less skilled, lower valued labour than quoted (who in turn would take longer to complete the task than necessary). When several suppliers are competing for the same Time and Materials contract, as they often are, the situation is more tenuous. Once bidders have been vetted and approved, Indian government organisations are usually bound to hire the firm or contractor that quotes the lowest price for the work. The situation starts to resemble a distorted prisoner’s dilemma: each firm tries to anticipate the other’s quoted price and find a way to cite a cost lower than that. Needless to say, quality concerns fly in the face of this silent war of abrasion. Government agencies have been known to be so stricken by the possible engagement of an approved contractor who quotes a price so low that quality will most certainly be compromised, that they scramble to find legitimate reasons to disqualify bidders that are notorious for this practice, a needless waste of time and effort for evaluators. Or, they are forced to specify a minimum contract value, which barely addresses the question of quality. The same contractor whose intention was to simply win the bid now has a higher minimum to quote, his commitment to value unchanged. And in the process the government agency also just lost its chance to hire a contractor who may actually have had an innovative cost saving scheme for them. It is not wrong to posit that time and materials contracts represent a silent devaluation of government services, the opposite of a silent auction, which reveals which bidder values you more.More problematically, by their very nature, the evaluation of these contracts’ fulfillment can only focus on binary - Yes or No - delivery of outputs, not on the quality of the output. There is increasing recognition that focusing merely on outputs does not support full value realisation. In contrast, value based arrangements, represent a new approach to fulfilling the needs of the public service organisation. This system provides performance incentives and/or consequences for non-performance and ties payment to quality of outcomes by minimising upfront investments, sharing risks and aligning incentives. An example of this may be tying the contractor’s payments to the savings or additional revenue it is able to accrue to the government agency that hired it. Value-based arrangements are not a new concept. In the corporate sector, employee salaries are segregated into fixed and variable components. The variable salary component is dependent on the performance of the individual and sometimes of the company during the appraisal period. Individuals and teams strive to work harder to perform beyond their expected performance objectives to receive a higher payout at the end of the appraisal period. The need to deliver next-generation services at a lower cost has become a priority for all governments. The proliferation of Public-Private Partnerships with high risks and rewards affirms the need for governments to focus on outcome delivery through a “risk and reward-sharing’ approach: a portion of service provider fees are put at risk with payment based on successfully meeting the terms of the contract. A value-based arrangement ties some portion of the service providers’ fees to the outcomes delivered. In simple terms, it holds service providers accountable and provides a better return on investment (ROI) if they succeed. Lack of success impacts the reward they will receive from the public service organisation. Governments can demand improved quality of services from the private partner and value-based deals can change the future of contracting by giving governments and public service organizations a chance to align their budgets and incentives within the limitations of tight fiscal realities. Rather than writing contracts that offer payments on milestones or outputs being achieved, which is how some PPP agreements are structured, governments need to design value-based deals that are outcome-centric, especially in large PPP projects.In fact, Time and Materials contracts represent and out-of-date paradigm. It is difficult to say when they came into existence, but the 15 September 1975 edition of The (US) Armed Services Procurement Regulation Manual for Contract Pricing, explained the use of time-and-materials contracts thus: “This arrangement is designed for situations where the amount or duration of work cannot be predicted and, as a result, where the costs cannot be estimated realistically. These are the conditions under which we sometimes buy repair and overhaul services, situations where you cannot predict with confidence the condition of items to be The (US) Department of Defense Contract Pricing Reference Guides described the “typical application” of a time-and-materials contract as “Emergency repairs to heating plants and aircraft engines.” Clearly, the application of time and materials contracts was toward relatively short-term, single task, small scale blue collar jobs in which the nature and extent of the work are unknown; and toward short-term consulting for long-term, complex, large scale white collar services in which subcontractors may play a significant portion of the main contractor’s work, and where outcomes are less objectively measurable. Many governments are already reviewing and restructuring contracts with service providers, with the focus on using existing government budgets more effectively by aligning success with compensation. Recently, a regional government in the USA hired a private company to overhaul the way it buys goods and services, with 30 per cent of the contractor’s compensation coming from the savings achieved. No savings, no payment.Mutually beneficial results for the government and private partner are dependent on many elements. It is vital to clearly define project roles & responsibilities at the outset, and establish meaningful performance measures that are transparent and auditable. To this end, it is important to research commercial quality standards, establish collaborative relationships with contractors to develop appropriate measures, and use a logic model to link measurable outputs to outcomes. Given that value-based contracts are a new concept in India, it will be necessary to train public institutions’ facilitators on the basics of performance based contracts so they can draft and hire wisely. For a project starting from groundup, say a business process reengineering assignment that aims to cut costs for the client, typically no contractor can assure certain outcomes from the outset; uncovering all possible cost savings is part of the work. This means that instead of establishing outcomes from the beginning as is done currently, the client and the contractor have to continually assess the outcomes and their arrangement and tweak it as required. If the client had promised 5 per cent of all savings as fees, expecting only 10 per cent reduction in costs, should the share increase or decrease if the contractor is able to create a more dramatic reduction? Without adequate exposure and training, government officials are not currently equipped to answer this question, which may not even have one right answer. The Government of India launched the National PPP Capacity Building Programme in 2010 with plans to train 10,000 senior and middle-level government officials to improve capacities among government officials in preparing and managing PPP projects across various infrastructure sectors. This programme must incorporate training specifically for best practices in value based contracts, by perhaps even inviting private companies that have benefited from awarding value-based contracts to share their experiences. In the United States, the Executive office of the President, Office of Management and Budget, and the Office of Federal Procurement Policy jointly issued a comprehensive “Guide to Best Practices for Performance-Based Service Contracting” that instructs on all aspects of the topic, from basic developmental elements, to job analysis (organisation, work, performance and standards, directives, costs and incentives analyses), to drafting the performance work statement, quality assurance plans and surveillance methods, contract administration and even conflict resolution. In fact, individual states, such as Washington have their own modules of instruction on the topic that are continually updated and laden with resources on performance reporting and evaluation methods. They are clearly overwhelmingly supporting performance-based contracts; the website quotes this fact below as introduction to the topic: “Conversion to performance-based contracting for Navy aircraft maintenance resulted in immediate savings of $25 million. Additional savings are anticipated through the positive and negative incentives contained in the contract. The proposal, evaluation and award process took 30 days less than was needed for the previous nonperformance based competition. Working with industry as a team, to meet Navy aircraft maintenance requirements, resulted in dollars and time savings. So far, performance is surpassing the contract’s minimum required standards.”A similarly well-informed and enthusiastic approach to training officials will pay rich dividends in India.Value-based arrangements can have a significant impact on public service budgets and performance. At the primary level, these contracts can reduce expenditure by minimizing the cost of service and ensuring increased efficiencies are realised. The best value-based arrangements represent a win-win scenario for both partners, and our public services officials should be encouraged to identify these latent synergies. By spending less, and spending wisely, value-based arrangements provide a more effective way to realize greater ROI, which is arguably the most important metric to those who ultimately receive these services, our citizens.(Nilaya Varma is Managing Director, Health & Public Services India practice at Accenture India)
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Indian companies trying to raise money for expansion will probably increase their hunt beyond the borders. Despite all the pressure, the Reserve Bank of India (RBI) refused to reduce interest rates citing concerns of inflation, falling rupee and rising prices of food. Domestic industry has reacted sharply by using strong words. In its reaction the Confederation of Indian Industry (CII), all but rejected RBI’s take on inflation situation. “Inflation is on a downward trajectory and core inflation, which reflects demand side pressures on the economy, has dipped to more than three year low,” says the statement from CII. The industry body hopes that, “The RBI would not wait for the next quarterly review, but intervene sooner if the economic condition warrants a mid-course correction.”The timid consumption trend in domestic markets is forcing a lot of companies to hold on to their expansion. No one wants to risk in fresh investment at high credit rates especially when consumers remain pessimistic about the future. Companies that are fortunate enough to maintain some reserves are banking on global expansion and acquisition. The continuing sluggishness in global economy is throwing up affordable target for acquisitions. European and American companies are now more relaxed about being acquired by an Indian entity than even half a decade ago. Apollo Tyres bid to spend $2.5-billion on US’s Cooper Tire and Rubber is a good example of this phenomenon. The company is three times the size of Apollo, but offers growth opportunities outside India. Car sales in India fell 7% last year and a rapid pick up is not expected. Other industries are in similar situation. Industrial growth in April was only 2.3%. According to Thomson Reuters data foreign currency loans from India dropped to $17.3 billion in 2012 from $24.1 billion a year earlier. About $5.4 billion has been raised so far in 2013. Even as domestic rates remain high, the government is working hard to further soften rates for project exporting companies. The Ministry of Finance and Ministry of External Affairs are working on new initiatives to increase the lending by Exim Bank of India at better rates. Under line of credit at low rates, funds are available for domestic companies to set up infrastructure projects in new markets like East Asia and Africa. While the primary motive is to increase its economic influence in target regions, the soft loans for project exports are being targeted by companies keen to grow abroad. Other financial institutions like Export Credit Guarantee Corporation and Indian Infrastructure Finance Company are increasing their play on this front. India companies have a tough time ahead either way. While domestic expansion is on hold, foreign expansion may be the only growth strategy available for the moment. Growth away from home is better than no growth at all. (Pranjal Sharma is a senior business writer. He can be contacted at pranjalx@gmail.com)
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