There is a new democracy in the neighbourhood. Myanmar's inspirational leader Aung San Suu Kyi is readying to enter Parliament after two decades of struggling for democracy. The immediate impact of this development has been the focus on bringing its economy back on track. Myanmar is among the least developed economies in the world.Its important now for Indian companies to participate in and boost the economic reconstruction of Myanmar. In 1997, Myanmar became a member of ASEAN. And it is the only member of ASEAN that shares a land border with India. Myanmar could be a critical bridge between India and ASEAN.Prime Minister Manmohan Singh is scheduled to visit Myanmar next month to emphasise its importance for India. The immediate impact of the easing of political restrictions has been the lifting of economic sanctions by the US and EU countries. Soon ban on travel and investing in Myanmar will lift, bringing in dozens of MNCs keen to invest.Myanmar contains deposits of gold, copper and gemstones. The nation is positioned between India and China, right in the middle of maritime routes between Europe and East Asia.So India has an advantage. Also, because India never really stopped doing business with Myanmar, Government-owned and private companies are involved in more than dozen projects in Myanmar. These include ONGC Videsh, RITES, NHPC, GAIL, and Essar.Infrastructure needs like roads and telecom can be fulfilled by Indian companies. TCIL has recently completed a project under which 32 towns are now connected with high speed data links. The petroleum sector offers a great potential for India and so does hydro power generation. The pharma industry is keen on Myanmar too and held an exhibition in Yangon last year.It could even be a great market for automotive industry. In fact, Tata Motors set up a heavy truck assembly unit in Myammar in 2010 after a $20-million line of credit given by Government of India to Government of Myanmar. Tata Motors set up the factory that has a capacity to make 1,000 trucks every year. Tata Motors supplies the kits that are assembled in the company called Myanmar Automobile and Diesel Engine Industries that is owned the Ministry of Industry of Myanmar. The trucks are sold with Tata branding. Tata Motors hopes to expand its presence in Myanmar in the coming months with passenger vehicles to build on its brand presence.Bilateral trade has more than doubled in seven years to about $1 billion in 2011-12. India and Myanmar signed a border trade agreement in 1994 and have two operational border trade points (Moreh-Tamu and Zowkhatar –Rhi on the 1664 km long border. Agreement has also been reached on setting up a third border trade point at Avakhung-Pansat/Somra. The trade with Myanmar will be a win-win since it will also boost the economies of India's north eastern states. Myanmar has recently rebuffed Chinese attempts to increase its influence. In November, Myanmar halted the $3.6-billion dam project at Myitsone, the biggest of seven planned by China Power Investment on account of environmental and seismic impact. This is a strong sign of Myanmar's independent thinking. India should not take Myanmar for granted either.Myanmar does not feel as threatened by India as it does by China. India has had trade links with Myanmar from the mid-19th century. Even now, more than 5 lakh people of Indian origin live in Myanmar.In 1960, when she was just 15, Aung San Suu Kyi came to India with her mother Daw Khin Kyi, who had been appointed Burma's ambassador to Delhi.Hopefully she will return to India soon, to reinforce the two countries decades old economic and cultural relationship.(Pranjal Sharma is a senior business writer. He can be contacted at pranjalx@gmail.com)
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Global telecom operators Sistema and Uninor expressed disappointment after the Supreme Court rejected the review petition filed by them in the 2G spectrum allocation case. The judgement, however, has been more or less on expected lines. Supreme Court had not really been expected to change its directive in favour of the axed companies involved in the 2G scam.Norway's Telenor, whose Indian joint venture will lose all its 22 permits, said it was "disappointed" by the dismissal of its review plea."We will now move a curative petition," it said in a statement.Indian laws allow a "curative" petition or further appeal even after a review plea is dismissed. This is heard by three top Supreme Court judges.The Indian unit of Russia's Sistema, which too will lose all but one of its permits, said it was considering future legal actions.Telenor and Sistema have separately asked the Indian government to resolve the licence disputes, citing bilateral pacts. Telenor has said it would seek compensation from New Delhi if the dispute is not resolved, while Sistema has said it reserved its rights to go for international arbitration.Mobile operators including Telenor and Sistema's Indian joint ventures and Indian companies Idea Cellular and Tata Teleservices had filed separate pleas seeking a review of the court's decision.Among other foreign telecoms groups affected by the licence cancellation, Abu Dhabi's Etisalat had said it would shut down its Indian operation on March 31.Bahrain's Batelco, whose Indian joint venture is set to lose all its six licences, has agreed to sell its 43 per cent stake in Indian affiliate S Tel to its local partner for $175 million.On Wednesday, while dealing with review petitions of seven telecom companies, the bench passed separate orders on each.The bench said cancellation of 22 licences of Unitech Wireless, which was in a joint venture with Norway's Telenor and operating under the brand name Uninor, "did not suffer from any legal infirmity warranting reconsideration of the issues decided therein." While disallowing the plea of Sistema Shyam Telservices, a joint venture between Russia's Systema and India's Shyam Telecom, which was granted 21 licences and is operating under the brand name MTS, the bench said "as a sequel to dismissal of the review petitions, the petitioner's prayer for stay (of judgement) is rejected." Dismissing the plea of Videocon, which had filed two petitions seeking a review of the verdict cancelling its 21 licences, the bench said "in the garb of seeking a review, the petitioner wants re-hearing of the case and we do not find any valid ground, much less justification, to entertain its prayer." The bench also did not entertain a review of the judgement cancelling 15 licences granted to Swan Telecom, now Etisalat DB, a joint venture between India's DB Group and UAE's Etisalat.Tata Teleservices Ltd's plea for review of cancellation of its three licences granted in Assam, Jammu and Kashmir and North East, was dismissed with the bench saying there was no need for reconsideration of the issue decided by it.In the case of S Tel, the bench rejected its plea for permission to address oral arguments saying "the judgment of which review has been sought was decided after threadbare consideration of all the points raised during the course of hearing." It said S Tel's plea for setting aside its directions and stay of the February 2 judgement are "thoroughly misconceived and cannot be entertained." The bench said the verdict against Idea Cellular Ltd, which was having 13 licences after its merger with Spice, did not suffer from any error apparent warranting its reconsideration.Auction DilemmaThe Supreme Court in its February order asked the government to revoke the permits in early June and redistribute them through an open auction. The auction would be last chance for the affected carriers to win back the permits, but there is no clarity yet on the timing of the auction."We will carry out auctions under the direction of the SC. The companies that have lost their licences can take part," Telecom Secretary R Chandrashekhar said. He expressed happiness over the court's decision to hear the government's review petition on April 13. The telecoms ministry said it needs more than a year to complete the auction process, creating uncertainty for the companies who have to shut down operations in June.The telecoms ministry has filed a separate plea with the Supreme Court, seeking the court's direction on the timing of the auction. The plea is yet to be heard by court.A total of 19 people and six companies were charged in the alleged scam, including former telecom minister A Raja, who presided over the 2008 licensing process, and several high-ranking corporate executives. All accused in the case have denied any wrongdoing and their trial is ongoing.The Supreme Courthas agreed to hear a plea by the Indian government on April 13 to review some observations the court had made in its February order. The government has not challenged the licence cancellation.(With Agencies)
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Our personal and professional lives are increasingly blending together.Smart devices are being used for a blend of personal and business tasks, and for accessing entertainment and carrier-provided services. At the same time, an influx of young, tech-savvy workers are having a tremendous impact on companies and their IT organizations. They enter the workforce with tremendous energy and new ideas, but also with their own set of preferred tools and applications–from mobile devices and laptops to social networking tools which have become prevalent in Indian enterprises. Employees want to use the devices they prefer and are less willing than ever before to live with IT mandated devices.Today, enterprises across different verticals are encouraging the entry of smart devices into the corporate network. Choice is the new paradigm. At the same time, it creates new security and management challenges for IT organizations. Symantec 2012 State of Mobility Survey revealed that 53 per cent of respondents consider mobility as somewhat to extremely challenging and 40 per cent of respondents identified mobile devices as one of their top three IT risks. This trend, often referred to as "the consumerization of IT," is causing the explosion of information beyond the four walls of an office to a mind-boggling variety of devices and platforms, many Indian enterprises are at a loss to define and establish policies and processes that guide appropriate usage and protect the most valuable asset – information. Security Implications As A Result Of Adopting Smart DevicesAs smart devices become more ubiquitous, attackers are making them their target both as a means to access the data stored in it and as a direction for gaining access to the business network or introducing malware onto it. Symantec's latest Internet Security Threat Report XVI revealed a 42 per cent increase in mobile vulnerabilities in 2010. The consumerization of IT is forcing organizations to support a wider array of technologies, and mobility allows people to connect from any location.Enterprises face unique challenges for the security and management of smart devices as many users either bring their own personal devices into the enterprise or use their business devices for personal use. Further since device downtime could result in business disruption, the inability for a technician to service a customer or prevent a salesman from providing a potential customer with critical and timely information, organizations need the ability to respond efficiently to device problems. Many enterprises lack the ability to adequately support and extend access to various consumer devices which puts both corporate data and business communications at risk. Just managing these devices is hard enough, and securing the information on them can be a bigger challenge.Counter Measures Against The Security IssuesAs IT becomes increasingly consumerized, the new challenges require a fundamental shift in the way Indian enterprises approach the connected world which means they protect and manage identities and information, regardless of the device, the location, the infrastructure - physical or virtual. Today, enterprises need to implement a security strategy that is risk-based and policy-driven, information-centric and operationalized across a well-managed infrastructure. Organizations that choose to embrace mobility, without compromising on security, are most likely to improve business processes and achieve productivity gains. To this end, organizations should consider developing a mobile strategy that defines the organization's mobile culture and aligns with their security risk tolerance. Some key recommendations include:Enable Broadly: Mobility offers tremendous opportunities for organizations of all sizes. Explore how you can take advantage of mobility and develop a phased approach to build an ecosystem that supports your plan. To get the most from mobile advances, plan for line-of-business mobile applications that have mainstream use. Employees will use mobile devices for business one way or another – make it on your terms.Think Strategically: Build a realistic assessment of the ultimate scale of your mobile business plan and its impact on your infrastructure. Think beyond email. Explore all of the mobile opportunities that can be introduced and understand the risks and threats that need to be mitigated. As you plan, take a cross-functional approach to securing sensitive data no matter where it might end up. Manage Efficiently: Mobile devices are legitimate endpoints that require the same attention given to traditional PCs. Many of the processes, policies, education and technologies that are leveraged for desktops and laptops are also applicable to mobile platforms. So the management of mobile devices should be integrated into the overall IT management framework and administered in the same way – ideally using compatible solutions and unified policies. This creates operational efficiencies and lowers the total cost of ownership. Enforce Appropriately: As more employees connect their personal devices to the corporate network, organizations need to modify their acceptable usage policies to accommodate both corporate-owned and personally-owned devices. Management and security levers will need to differ based on ownership of the device and the associated controls that the organization requires. Employees will continue to add devices to the corporate network to make their jobs more efficient and enjoyable so organizations must plan for this legally, operationally and culturally.Secure Comprehensively: Look beyond basic password, wipe and application blocking policies. Focus on the information and where it is viewed, transmitted and stored. Integrating with existing data loss prevention, encryption and authentication policies will ensure consistent corporate and regulatory compliance.(The author is VP and MD, India Product Operations, Symantec)
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High inflation and ballooning fiscal deficit has been the concern for Chaitanya Pande, head of fixed income at ICICI Prudential Asset Management Company, who feels the government in the coming weeks before the Reserve Bank of India's (RBI's) monetary policy will bite the bullet and increase fuel prices. He sees RBI's decision will follow government decision and therefore RBI will cut rates (repo rates) by 25 basis points (bps) on 17 April 2012 and in total 75 bps by the end of the year. Talking to Businessworld, he feels the only way government can achieve its targets (fiscal deficit) would be to bring down the subsidies and pass the burden in form of hikes to the consumers, otherwise it becomes difficult for the government to manage its finances. The fixed income manager sees the 10-year government securities (G-Sec) yields to be volatile for the next 3-6 months because the supply is significantly larger than the market has seen. In the absence of policy measures, he expects 10 year G-Sec to rise to 8.75 per cent, while policy measures that will trigger fiscal consolidation have the potential to bring the G-Sec down to 8.00-8.25 per cent.Talking about investment in fixed income, he feels anytime is a good time to invest, but retail investors should come through mutual funds as the fixed income market unlike equity market is a big boys' market. Though short in supply, he currently prefers investing in 1-3 years corporate bonds. He also suggests that investors should park their money in 3-year fixed maturity plans (FMP) and regular saving plans. Meanwhile, his own investments is skewed towards debt which is around 60-65 per cent of his portfolio, followed by equity which is around 30-35 per cent and the rest 5 per cent in gold. However, he is waiting for a correction in gold to increase his exposure to the yellow metal to 10 per cent.Excerpts from the conversation:Despite rate cuts why is the market still struggling for liquidity? What is your assessment of the Indian economy? The tightness in liquidity in the short term is due to the fact that the expected government spending is yet to happen. The government surplus of around Rs 1,20,000 crore is currently with the RBI and is expected to be spent over the coming week. Additionally there are some maturities expected in the first half of the week. With the combination of expected government spending and maturities on the anvil, we expect the liquidity scenario over the next week to be easy and also possibly +/- 1 % within RBI's band over the next month.We therefore expect liquidity in the first quarter of FY13 to be relatively easier since there are a lot of maturities coming up and also RBI is expected to begin its rate cut cycle. The second quarter will show some strain since RBI is unlikely to do too many open market operations (OMOs) in the first 2 quarters of FY13.Do you expect RBI to cut rate cut in the forthcoming monetary policy on 17 April 2012 and why? If yes, then by how much? If no then when do you think RBI will start cutting rates?RBI has a stated objective in moderating growth and fiscal consolidation to initiate rate action. Also there is usually a 6-12 month time lag between RBI's rate cuts and its effects filtering to the economy. Hence even if he cuts rates now, it will start reflecting in the economy only in the second half of the year. We expect RBI to cut rates in April policy by around 25 bps, albeit only if the government is able to pass through the oil price hikes. In case the government is not able to pass through oil price hikes, the viability of fiscal consolidation gets called into question and cuts might get pushed out till further clarity is achieved.What is your take on the 10-year G-Sec yields and why?The 10-year government securities (G-Sec) yields will definitely be volatile for the next 3-6 months because the supply is significantly larger than the market has seen. There is to some extent supply fatigue in the market. At the same time there are some potential positives. If the government were to actually bite the bullet and pass on the oil price hikes, we expect the RBI to initiate a more sustained cutting cycle. Hence it is a combination of push and pull factors i.e. pull by the weight of the supply and push by fiscal/monetary policy action either by the government or RBI that will drive G Sec yields. In the absence of policy measures we expect 10-year G-Secs to trade in the range of 8.50 – 8.75 per cent. On the other hand, policy measures that will trigger fiscal consolidation have the potential to bring it down to around the 8.00 - 8.25 per cent.As a fund manager how are you managing the money in your portfolio and where are you investing in this market? In current market condition where will you advice investors to invest?All our investment decisions are aligned to the mandate of the fund. Hence in the short term funds we buy predominantly short-term papers. In the longer duration, funds we are adding duration, albeit cautiously, given the current uncertainty on policy actions and the viability of fiscal deficit target.Meanwhile, we have always held the view that there is no one-solution-fits-all for investors and deciding on funds to be invested in would depend on investment horizon and risk appetite of the investors. We therefore believe that short-term funds are best suited for moderate risk appetite investors in the mid maturity bucket. For investors with a lesser investment horizon, we recommend investments in Ultra Short Term Plan. Duration funds are likely to well as we go into the first quarter of next year, albeit expected volatility caused by oil prices and fiscal/monetary policy action or the lack thereof.We believe that at the moment, short-term strategies may not be best suited given that it is too binary and the outcome can go either ways. It is therefore ideal to look at the 1 – 3 year space.What is your take on the 1 year, 2 years, 3 years, 5 years and 10-years yields in corporate bonds? Will you be a buyer in corporate bonds and what would be the tenure?We believe that all the above stated tenures offer attractive yields/. However the 5 – 10 year because of supply and volatility in the underlying sovereign bonds will be likely to remain under pressure. The one to 3 year is therefore our preferred space in the current environment.Where are you personally investing your own money? And why?I strongly believe is asset allocation being the guiding principle for investments. I have allocation to asset classes like debt, equity, real-estate and gold as well. Within the fixed income space a significant part of my investments are in the short-term plan.How has the flows been to fixed income funds and if they have been positive into which funds have you seen maximum traction?We have seen significant flows into our FMP's as is the trend in the January to March period. Also market yields were attractive and therefore have got investors to invest significantly. We have also seen inflows into our short term and regular savings plans as investors looked for an open ended fund in the short to medium space.
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In the presence of a most erudite panel, the Businessworld Marketing Whitebook 2012-13 launch saw an exciting discussion on: "Is Social Media Still A Mystery For Marketers?" Addressing a distinguished audience ABP managing director D.D. Purkayastha lauded the Marketing Whitebook for consistently providing consumer data and insights to the marketing fraternity. Addressing the audience, he remarked, "The Businessworld Marketing Whitebook was one of the first titles to come out of our foray into book publishing. It was born when we realised that markets and consumer behaviour were changing very rapidly, and it was important to capture the new market dynamics in different segments in a single volume."Commissioning editor for BW Books, Anjana Saproo, introduced the panel. The panel included Kirthiga Reddy, director online operations and head of Facebook India; Hari V. Krishnan, country manager, LinkedIn India; Bharat Bambawale, global brand director, Airtel; Farshad Family, MD, Nielsen Media India; and Rajat Gandhi, India head at Zenith Optimedia. The panel engaged in a refreshing discussion with CEO of GroupM, Vikram Sakhuja, who was the moderator. The audience was packed with marketers, representatives of creative agencies and clients.The discussion started with Sakhuja asking the panelists if marketers were actually clear in their brief when they asked for a social media strategy? Zenith Optimedia's Gandhi said that "90 per cent of client briefs we get are like ‘give me a Facebook page and fans'… so we need to teach them that there is a world beyond Facebook fans and pages". D.D. Purkayastha addressing the audience Voicing client opinion, Bharat Bambawale of Airtel noted that companies should have an objective before they set out to chart a social media journey. "Most clients oscillate between ‘I don't know what I want' to ‘I know it so well that I can do it on my own'. I would encourage clients to try things, see what you do not know… For instance, in some of our campaigns we discovered there is a certain kind of content people respond to… if you make your content heavily branded it just doesn't work."Throwing a question at Facebook's Reddy, Sakhuja asked, "You are the default option for social media for all brands, tell us about brands who've really got it right?" Reddy cited PepsiCo's "change the game" campaign that took off last year during the World Cup. "Some of the things I'd highlight is that they understand different ad formats, know the difference between premium advertisements that could get the home page slots, and can get the message across to a large target group, and they have got the part right where they truly engage with their connections, bridge the online-offline gap." She emphasised that an integrated campaign across mediums produces good results. Quoting a study she said, "They (PepsiCo) had 60 per cent share in voice in the digital platform and highest brand association across categories. We see this kind of use across big brands." Reddy also cited how start-ups were using information from their connections to devise their stock and distribution strategy.Nielsen India's Farshad Family stressed on the importance of brands' presence in social media. "Social media is starting to permeate daily life, and if that is where consumers are spending time, that is where you need to be. It is your duty to figure out how to be there. You need to integrate social media with the rest of your brand strategy."LinkedIn's Hari V. Krishnan recommended a targeted approach to social media. "Lots of brands look at social media as a broad bucket you are putting a lot into, and they expect to paint it with a single brushstroke, but the context changes everything." Citing LinkedIn's own strategy he said, "We are the largest network of professionals, so when we think of our business model, what groups and constituencies we would like to talk about, they could be recruiters, they could be marketers — we have a third tangent focused on sales people because they want to talk to us about new professions as well. You can't control what they say, you have to think about ways in which you can participate and be respectful of that… they are on a professional network. They have a different frame in mind." Sakhuja then gave Zenith's Gandhi four options across different social media platforms that agencies should ideally recommend to clients. It included consumer understanding and brand strategy, a listening piece, online reputation management and community-building exercise. Gandhi picked the last option. "I would say start from the last one since the rest of them are double-edged swords and then grow by taking baby steps".Finally, Sakhuja sought the opinion of the panel on one of the more baffling aspects of social media: monetisation.Airtel's Bharat Bambawale suggested that brands should not rush towards monetisation, "I would encourage that clients try things and see how they turn up. Don't be in a hurry. Brands are always looking at conversion to sale. The reason being most marketers come from conventional media models which work around the fact that people view your advertisement and go buy your products. Social media is not like that." Clarifying the concept of social media, he said, "It's a loop where consumers/users will do the things they want to do, like talk to other people or share aspects of their lives, unlike the conventional television audience/consumer". Reddy pointed out how brands were actually leveraging consumer-driven data to capitalise their business, "E-commerce portal Babyoye carried out a Mother's Day poll where they asked users what would they like to buy (to gift others)… and the top 4 desired products were stocked by the company, and 80 per cent of their sales were actually driven by those products. So it directly impacted their bottom line."The session concluded with the audience's interaction with the panel. This was followed by the launch of the Businessworld Marketing Whitebook 2012-13.Seagram's Blender Pride was the event's presenting sponsor, NDTV Profit was the television partner and Luxottica eyewear was the gift partner.Click here to view Event's Slide Show(This story was published in Businessworld Issue Dated 09-04-2012)
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If reports are to be believed, Vijay Mallya is considering shedding part of his stake in his beer company United Breweries to raise cash for the ailing Kingfisher Airlines. If the news is indeed true, it is hard to fathom what Mallya is actually gambling on. United Breweries holds half of the Indian market for beer, and it is a hugely profitable business. Last year, its PBDIT (profits before interest, depreciation and taxes) was Rs 434.8 crore. Its profits after tax was Rs 197 crore. It is also growing rapidly. And beer is a good market to be in – there is no fear of the growth slowing down in the near future.On the other hand, Kingfisher Airlines is in a terrible shape. It has around Rs 7,000 crore of debt and is losing money hand over fist. It has not had enough cash to pay its vendors properly or even its staff. It has had to ground a lot of its fleet, and cancel hundreds of flights. Its bankers don't want to lend any more – and indeed ICICI Bank has asked for more collateral to cover even what it has loaned. The chances of Kingfisher Airlines turning around anytime soon is fairly remote. Meanwhile, despite trying his best, Mallya hasn't been able to bring in a strategic investor into the airline. Not too many investors – even deep pocketed ones – want to buy into an airline that is in such deep financial trouble. In fact, it is easier to start a new airline from scratch. And starting a new airline will probably be easier for any deep pocketed businessman than buying Kingfisher simply because a new airline will not have to deal with the brand baggage of an airline that has had to ground most of its flights and cannot guarantee flight schedules any more.But the real issue goes deeper. In general, the aviation business is a terrible one globally. Only the best players make any sort of money – and that during good years. In India, the business is even worse because of a range of other problems – including taxes and the high cost of aviation fuel. Currently, there is just about one airline in the country making money – Indigo. Everyone else – Jet, Indian Airlines, Go etc are losing money.Thus to sell a highly profitable firm (United Breweries) in a great market (Beer) to fund a loss making company (Kingfisher Airlines) in a lousy business (aviation) makes little sense.There is no reason to believe Mallya is a bad businessman – his successes outnumber his failures. He has made great moves to consolidate his position in the liquor empire. He has seen off successive challengers – both Indian and from outer shores. His grip on his overall spirits empire as well as the brewery market is very strong. More importantly, there is nothing to believe that Mallya is exceptionally sentimental about any company or business. In the past he has got into businesses and then got out of them if he felt that the effort was not commensurate with the rewards. He had made a foray into telecom very early – long before the mobile revolution started in earnest – but exited it after a point. So it would be naïve to believe that Mallya will continue to pump money into Kingfisher Airlines at the expense of his other businesses.There is a chance of course that Mallya is actually thinking of shedding some stake in his beer empire to pump funds into the airline. If that is true, it would be a calculated gamble taken by Mallya in order to get outsider investors. Sometimes, strategic investors agree to put money only if they believe that the promoter himself will stay invested in the business and has enough commitment. On the other hand, it could also be that these are mere rumours – and more wishful thinking on the part of his debtors than reality. Either way, one should not think that Mallya will continue throwing good money into a loss making business – just because he started it with great fanfare.
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India has a serious image problem. Inside and and outside the country. Only about 6 years ago, India was hailed as the "Fastest Growing Free Market Democracy."This was the brilliant brand India campaign launched at World Economic Forum's annual summit at Davos.Today, almost every word of this campaign sounds hollow.India's growth has fallen precipitously. Its no longer among the fastest growing countries. India can't be described as Free Market either. Several sectors are still closed to foreign investment. Economic borders and hurdles between Indian states are still more than the restrictions in multi-country EU. Even as a democracy, India hasn't covered itself with glory. Coalition politics has severly undermined the institution of the Parliament. State level politics has yet to rise to meet the development challenge.India has been proudly presenting itself as the better option than China. As a rule based democracy. But with the Finance Minister eager to introduce laws with retrospective effect, this argument is running thin. A fresh study reveals that the budget introduced over 25 changes that will be implemented with retrospective effect.All this could lead to even the growth rate going retro to 5 per cent.As result of the pessimisic mood, even the good steps taken by the government have been neglected. In the last few months, the government has moved aggressively to improve trade relations with Pakistan. This has deep and positive implications on security and regional growth. India has also developed a mature policy on boosting trade and investment ties with African countries.Unfortunately, both don't help the domestic growth too much. For domestic industry though, it opens fresh overseas growth options. The way its going, outward Indian FDI will grow faster than inward. Soon, fresh investment by Indian giants could well be lower in India than abroad.The BRICS summit is on in New Delhi. But several eminent economists say that the I in BRICS could soon be Indonesia. India may find itself to be the weakest link. Slowly, but surely, the other members of this group will strengthen their alliances with other countries. India could be left alone again. Like it was in the seventies, when its only friend was erstwhile USSR.All this sounds like a doomsday prediction. And this scenario is closer than we realise.Though, its not too late to turn the ship around. India can grow into being the Fastest Growing Free Market Democracy. For this to happen, domestic leaders must want to take India to this position.Central Ministers and Chief Ministers are welcomed in every national capital of the world today because of India's current and potential economic strength. They must promise decision making that rises above election rhetoric. In 2008, when the financial meltdown triggered global slowdown, it was thought that India could be among the countries that will support global growth. Now it appears that India can barely support its own growth. Political leadership must commit now to a common minimum economic and development agenda. It will be a shame if a democracy that wants to be seen as a global power does not deliver development. India may soon get an unwelcome image: "The Slowest, Faulty Market Democracy." (Pranjal Sharma is a senior business writer. He can be contacted at pranjalx@gmail.com)
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Why are Indians accused of being self-serving xenophobes? When the Supreme Court first held in January 2012 that Hutchison did not need to pay taxes in India when it sold its Indian telecom business to Vodafone, the English language press seemed to be jubilant that Rs 11,200 crore of cash had gone out of India's national kitty. Was it because we don't want the infrastructure this money will presumably fund? Or were we so overcome with righteous indignation that we would rather pay more taxes ourselves than have a really sweet bunch of foreign shareholders suffer because our tax department is so unethical?Let's get to the root of the issue. Here is a foreign company incorporated in Hong Kong which sold its Indian telecom business by selling the holding company in Cayman Islands for about Rs 55,715 crore to another SPV in Cayman Islands owned by Vodafone. Because the sale was made overseas, no one paid any taxes. Now, under Section 9(1)(i) of the Indian Income Tax Act, if income arises directly or indirectly because you transfer a capital asset in India, you have to pay taxes. When you sell a tax haven company which owns an Indian business – and owns nothing else - do capital assets get transferred in India or not? In other words, was a capital asset transferred in India "in consequence of" the share transfer that occurred in Cayman Islands?When you get past the legal gobbledegook, the question you have to ask is this: to understand what really happened here so that you can tax it, or not, will you "look at" the surface of this transaction or do you "look through" it at its real meaning? Put another way; are you interested in form or in content? On any other day, if this was between two equal private parties in India where you had no prejudices, I suspect you may say that you prefer substance over form. Who wants to be superficial anyway? Apparently, the English language press loved the superficial view. The Supreme Court agreed, taking the view that it wasn't going to look through anything unless the law specifically asked it to do so. It observed that looking through was a matter of policy. It noted that Hutchison had paid a lot of domestic taxes in India for the thirteen years it operated in India.It concluded that this was not a case of a sham structure being created only to avoid taxes.There was a second issue as well. Resident Indians have to pay taxes in India. If you own assets in India, you are deemed to be a resident. Vodafone was at all relevant times a shareholder of Bharti. Didn't that make it resident in India? Vodafone argued that tax presence has to be viewed in the context of the transaction. The entity that held the Bharti shares was not the entity that purchased the Hutchison shares. Basically it was saying that if you incorporate different companies to run different businesses, each of them have to be seen in isolation. Does that sound like slippery slick Willy logic? The Supreme Court didn't agree. It also held that it had to examine the "legal nature" of the transaction and not the indirect transfer of rights and entitlements in India.It seems to me that the legal issue is pretty finely balanced. The same issue has been argued in courts around the world and the decision has gone both ways in different countries. Which country wants to be seen to be tricked out of its dues through fancy structuring? If you have no prejudices, you will see that there is a real issue here. It is of course true that traditionally, courts around the world have been comfortable taking any transaction for what it purported to be. Increasingly, in recent years, the mood has changed and courts are inclined to discern the true nature of what is going on in a variety of legal areas. As a result, slick ‘structuring' of transactions in order to avoid this or that legal implication is increasingly an uphill task. You could argue that the Supreme Court took the old fashioned view, which is not to say that it is not a highly credible view.I expect the euphoria in the press has nothing to do with the tax law interpretation issue. Most people have no idea where tax jurisprudence is headed at a global level and couldn't care less. The response was largely emotional. We could as easily have been incensed, not jubilant at the tax discrimination. If a resident Indian had purchased the business in India without all this globetrotting and treaty shopping, he would have paid taxes in India. Why should a foreigner be better placed than an Indian? That apart, those who live here and work here and pay their taxes here could easily want everyone else to pay their taxes too. So when the press went "Ra Ra hurrah!" in January, were we all just congenital tax evaders getting high at some sort of convoluted tax dodgers parade congregating to celebrate the Supreme Court judgment? Whatever the psychosis we were pandering to, the Finance Minister wouldn't have any of it. He has therefore proposed a new dispensation using three tools to capture this money. First, by a retrospective amendment, the minister wants to make controlling interest a capital asset with effect from April Fool's day 1962. Nice touch! Next he wants to retrospectively amend the meaning of "transfer" to take in transfers that occur as a result of the sale of shares of foreign companies. Finally, he attacks the problem of indirect transfers by legislating that an asset will be deemed to be situated in India if its value is substantially based on assets located in India. Indian elites are incensed now. Retrospectively changing laws is being projected as somehow unethical. It's also being seen as circumventing and dishonouring the Supreme Court.Whatever the ‘ethics' of retrospective changes, it certainly has worldwide popularity! Israel is probably not a good example but it promulgated laws after the Second World War which criminalized acts which occurred before Israel existed as a nation! Germany is probably a better example. The German constitution provides for the creation of such laws and I am told that Germany has even created new crimes retrospectively because they violate international laws. They haven't had quite the same luck with retrospective tax legislation with taxable events occurring in Netherlands and Denmark. These nationswent to the European Court of Justice which said that national legislation could not be created to offset foreign corporate tax. The result may have been very different if Germany was not a EU member.It's the opposite in America. The US Supreme Court has ruled that retrospective civil and tax laws may be created but retrospective criminal laws may not. It's the same in Australia, Canada, Finland,France, Indonesia, Sweden, and a host of other countries.Several others around the world, notably Brazil, Iran, Ireland and Norway ban substantially all retrospective legislation. As a general proposition, most countries do not approve of sending people to jail for things they did which were not crimes when they did them. Most countries are quite happy to retrospectively apply civil and tax laws, and that includes India.Section 20(1) of our Constitution bans the retrospective creation of crimes and penalties. As for tax amendments, in 1985, the Supreme Court ruled in the Hindustan Gum and Chemical case that a legislature was competent to overcome a legal decision by amending the law to change the basis of the judgment. In 2005, the Supreme Court also ruled in the RC Tobacco case that "A law cannot be held to be unreasonable merely because it operates retrospectively. Indeed even judicial decisions are in a sense retrospective. When a statute is interpreted by a court, the interpretation is, by fiction of law, deemed to be part of the statute from the date of its enactment." How true!Besides, when it comes to taxes, we've been doing it all the time. Recall that in 1983, excise law was changed to capture tax based on the "Maximum Retail Price" as stated on the package of goods. In March 1987, the Central Excise Commission issued a show cause notice to ITC claiming that ITC was selling cigarettes at higher than its specified MRP. In the ensuing litigation, the department claimed that the company could not sell cigarettes at higher than MRP and it had to pay tax on the maximum price at which it actually sold them. In turn, the company claimed that the words ‘may be sold' occurring in the definition of sale price meant ‘capable of being sold', meaning that the price at which it actually sold cigarettes was not particularly relevant. The Supreme Court agreed with the Company. It held that the language of the notification was clear. Tax was paid on the price printed on the packet. It wasn't for the tax department to launch investigation on whether the cigarettes were actually sold at that price!As you can guess, the Government wasn't about to tolerate this blatant violation of law's intent. In Jan 2005, in the wake of the judgment, it issued an ordinance empowering the revenue authorities to change excise rules retrospectively. It also enlarged the definition of ‘sale price' to mean "the higher of MRP or maximum selling actual price". Now, here is the dodgy part. Under Section 5 of the ordinance, the court's power to subject this section to a judicial review was excluded. As a general proposition, courts are not very happy to see their own jurisdiction excluded. But ITC wasn't going to pay lawyers twice, especially as retrospectivity is thin ice to skate on. It made a deal with the Government, letting go the Rs. 250 Crores it had deposited with the Government and keeping the Rs. 453 Crores more that the Government wanted it to pay. Sound like a blackmail payoff, doesn't it? I think you can make some very realistic assessment about what happens next in the Vodafone case because Vodafone has little to gain by a second round of litigation and the Government needs the money now, not in ten years.The question we should be asking ourselves though is where our self interest lies. We know that globally, the Government's view is gaining in popularity. For sixty years, we have been cry-babies of the license permit quota raj asking for tax breaks before every budget. For sixty years, our general attitude has been to treat the Government like the local thug it really is. For sixty years, we have seen ourselves as smart when we ripped the Government off and slyly winked at our friends to say "le lee na?" We know that we cannot grow as a nation unless we spend money on public schemes. Somebody has to pay taxes or we are going nowhere. If we want change - and progress - how about changing our attitude? Like not being jubilant when the Government fails to collect taxes from exiting foreigners who've just made a fortune in our country and are off with the booty.(The author is managing partner of the Gurgaon-based corporate law firm N South and author of the pioneering business book Winning Legal Wars. He can be contactedat rcd@nsouthlaw.com)
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