Shiv Someshwar, Director of climate policy at the Earth Institute talks to Businessworld's Yashodhara Dasgupta how sustainable development goals can be used to highlight the inequities in the current system What is sustainable development?In 1987, a UN World Commission on Environment and Development report — ‘Our Common Future' (the Brundtland Report) — laid the basis for the concept of sustainability. The heavy focus was on intergenerational equity, both for now and in the future. Fast forward to Johannesburg 2002, the concept was revisited and it was clarified it by having three core areas – environmental sustainability, economic growth and social equity. The effort was to make sure that growth, equity and environment are recognised because there was a sense that developing countries were getting upset with the focus on sustainability which many thought was a ‘green wash'. They thought that advanced economies are talking about limits to growth by using the term sustainability because of the idea that there is one finite planet and it has to support all of us. The key word then is equity. It takes an entire village to support one person in the US. Here in India, you have 35 per cent of the population under the poverty line. So that's why effort was made to incorporate all three areas. Now, at Rio+20 (to be held in June 2012), the goal will be to revisit sustainable development. Some countries, according to me, are mistakenly opposing this because they think sustainable development goals could be used to bypass issues of equity and common but differentiated responsibilities. But actually, they can use the sustainable development goals to basically highlight the inequities in the current system and force the industrialised countries to actually come up with the financing that has always been promised.You guys need to be really pushing. You need to be pushing also for scientific data. What does science say about the 2 degree Centigrade target? How can you be so blasé about 2 degrees? It's is a huge amount. And now the US is going to say well, we never really promised. So we're looking at 4 degrees and it's not going to be linear rise in temperature. It's going to have all these huge implications on the ecosystem.How do you then bridge the information gap about climate change which exists nationally as well?That is not unique to climate issues. That is part and parcel of development itself. For example, the previous regime in the US used the uncertainties in the economic model to not make any policies. But not doing a policy is itself a policy. It's a job for NGOs, non-profits and the media to make sure it happens. There's a lot of emphasis with FDI coming in and the Indian government can put in money into renewable energy. I think these are very big stories that are completely absent in the news.But what is climate policy really?It is really policy on socio-economic development that has an impact on climate. If you're not going to be mitigating, how do you adapt? And so on. The implications of development on climate and then the equal impact of the same on the kind of policies you undertake in response to climate change. India has a very good set up called the Agro-Met Advisory system which is a world leader in giving climate information for 24-48 hrs to farmers. We've been working with them for 2-3 years to extend that to one month. When we think about climate change, it's important for mitigation and economic trajectories of governments but not for adaptation. At the farm level, if you talk about adaptation for a 100 years from now, they'd think it's really silly. They would want to focus on the next season or the next year. So the concept of what constitutes climate and response also has to be wider. You also need to anticipatory work plan as well.What are the key parts of climate policy?Whether one likes it or not, government departments and ministries are in silos. Given that fact, we need to make sure at critical junctures especially at spatial scales in the district and state level, there is really strong inter-sectoral policy coordination so that we have don't have a situation where multiple climate policies say between agriculture, water resource management, energy are working at cross-purposes. Subsidies are also important. It's not about yanking the subsidies away. Here we have to look at the nature of the social safety net that we need to put in place anticipating the kind of welfare shock from removing the subsidies.So what's not being done here that should be?You have the very impressive eight missions – the National Action Plan on Climate Change – that are based on the trajectory of what's going to happen a hundred years from now. I'd like to see how resilient critical infrastructure is here in India now. Right now, like in the case of Mumbai floods, everything comes to a standstill. Or if there's a major drought, what happens to the farmers. In addition to this action plan, what's really important would be to engage the current infrastructure and policymaking to see what the resilience of the system is to enhanced climate variability. Where you had return periods of drought between 6-8 years, now in some parts of India that may be 4-6 years. What would happen then? What would happen in case of extreme events? Doing this gives you a sense of the vulnerability of infrastructure to climate dynamics and you know what else you need to do in order to create resilience. This also gives you a chance to look at the new infra requirements just from the climate perspectives. Too many times when people talk about adaptation, they only focus on climate as the dynamics as though only climate is changing and the rest of it is static – what I call development nirvana. That's not really the case at all. You've got massive population movement, resource intensification, changes in agricultural patterns and job structures in urban areas. Once you've looked at the vulnerability and new infra requirements, on top of that add what you know about the population trajectory or the urbanising trend, what else should be the combined infrastructure. That's one thing I feel India should do and that's also a way to immediately attract the attention of policymakers. What happened in Mumbai was because of climate change as well as designs which were a 100 years old.What about pay-offs?You can also look at this in terms of engaging new areas of opportunity. Indian entrepreneurs are extremely innovative in seeking out new areas. For example, the efficiency of buildings, fuel efficiency, using less materials – there's a huge opportunities in a series of industries. The same thing holds for agriculture. Businesses always protest when things are changing and that they need stability of policy. But the very fact was that they got into the business at the time of change. So I don't think they should fear policy changes as long as it is reasonable and has scientific backing.How do you bring financial institutions into this?There's a great deal of emphasis for example, in the states of New York and California forcing insurance companies to reveal plans for extreme climate events. Do they have any plans or are they just going to throw up and declare bankruptcy. The green insurance companies have been at the forefront of climate risk evaluation. And investors want to figure out if their investments are safe in the insurance companies. This is how the finance industry is becoming savvy on the risk and opportunities from changing climate.What about those in India?Pata nahi (No idea).Will it be effective to look at these public goods as global commons or local commons?Local can be looked at as metropolitan, as sub-national all the way to global. All of them have the commons embedded and have institutions that are at the national level accountable to the citizens. But what happens to water aquifers or to fertile agricultural lands in delta regions? There's accountability there and at the same time, nation-states are making policies at the global level. So it makes no sense to talk about local versus global. The tragedy of the commons can happen at any of these levels. Garrett Hardin had it wrong. It's a very famous thesis. But there's much research that came out later to say that there are social rules of engagement and regulations that permit a certain level of extraction like you have at a national level as well. So we're not trying to figure out is how to make sure we inform policy makers across these levels. Biophysically and socio-economically they're all connected. For example, if there's a bumper harvest of coffee in Brazil, the price of coffee collapses. We longer have the freedom to say this is within our national boundaries, we don't care what happens outside.What about just the term global commons? It would have the same impact as protecting national commons.I think that comes down to good communication. Global doesn't mean we're disconnected. We're all part of the world. I do see what you're saying. There is a sense of disconnect. That's made worse by the scale of 100 years. We need to focus on right now.Related Link: Changing For Good
Read More
RBI Governor Duvvuri Subbarao said on Tuesday financial markets should not be under the impression that recent administrative steps that authorities have taken to curb speculation in foreign exchange are temporary. David Bloom, Global Head of FX Strategy, HSBC Bank plc, Stephen King, Chief Economist HSBC Bank plc and Leif Eskesen, Chief Economist for India & ASEAN, HSBC, made a brief stop in Mumbai recently while travelling through Asia and talked with BW's Tanushree Pillai about the status of the Indian economy in comparison to its Asian peers and what needed to be done to bring growth on track. Bloom, their global head of fx strategy, talked about how the RBI can help prevent volatility in the rupee. We have seen the Reserve Bank taking measures to save the ailing rupee. These steps include changes in external commercial borrowing policy and non-resident external rupee deposits and foreign currency nonresident deposits. Do you think these measures will help?David Bloom: At the outset, these measures would be partially successful. One way to look at this would be to see it as a parachute. It only helps you land safely, but it doesn't put you back in the aeroplane — it just slows down the move. India's currency position can be compared to that of Turkey, which has 9 per cent current account deficit, but it took some radical steps and stabilised its currency, Lira. So, it is possible to take steps to prevent one's currency from depreciating further. In India, nothing has changed in the past three months, while the situation has worsened in the US and the Eurozone. So, you will have a more active and interventionist central bank going forward. This is a function of the global economy.Stephen King: Investors are increasingly in a mood of surviving and not thriving, which means they are looking to hold the most liquid assets. In emerging markets, it is tough to get hold of assets one can get rid of quickly, and that leads to volatility in those markets. Bloom: We still think the rupee could go to 58 per dollar. It is not a one-off thing, and you don't stand alone here. If you could control the rupee, you would have already done it. This is a fluid situation and doesn't begin and end with this day.Some say that if you consider the real effective exchange rate (REER), the rupee is over-valued and needs to depreciate. Bloom: These valuations are not extreme. Ironically, all central banks were trying to get weak currencies; now that they are getting them, they don't like them. We have seen extreme valuations of both sides and at no stage do we think these valuations and sell-offs have created extreme valuation. Hence, we still think dollar/rupee can head further down. The market is flipping and flopping on what's happening globally and a weaker rupee is going to add to the problem of inflation. Leif Eskesen: The rupee is more or less in line with the REER currently, but there are risks such as a spike in global risk aversion could send it lower in nominal terms. The pass through from the exchange rate into inflation is very high for India and that is a concern.King: (Coming to ) the problems associated with quantitative easing (QE2) — such as capital flowing into emerging markets, these economies adopted what we call quantitative tightening — increasing reserve ratios, capital controls and exchange controls. Conventional economic wisdom suggests these measures work to a certain extent.What are your comments on the future of the euro?Bloom: We are not terribly bearish on the euro. We do not believe in a break up story here. The euro is caught between two scenarios. One, where the US is printing and Europe defaults — a cataclysmic problem — and the other where US prints and Europe prints a little and, in return, does structural reforms.King: Hypothetically, if Europe breaks tomorrow, the value of its individual currencies may rise. So, the value is not in terms of individual currencies, but in terms of bond spreads.Is it advisable for the RBI to intervene at the cost of using its forex reserves?King: If a country has large forex reserves and chooses not to intervene when life becomes tough, why have those reserves in the first place? It is perfectly legitimate for a central bank to use its reserves if it generates stability.Inflation seems to be the RBI's focus for now. If it intervenes in forex market, will it give out wrong signals about its stance?Eskesen: The purpose of the intervention will be to smoothen out volatility and to prevent the exchange rate from depreciating too much — which limits imported inflation — and is consistent with the RBI's policy stance. There has been a change of leadership in PIIGS (Portugal, Italy, Ireland, Greece and Spain). How and when will they take to repair their sovereign balance sheets?King: The issue for these nations is whether their leaders have the political legitimacy to act. We have technocrat leaders in Italy and Greece and they do not seem to enjoy the political legitimacy of an elected leader. So, at first, there are signs of significant civil unrest. Will those technocratic leaders be able to deliver the reforms they are promising? What we need is a Europe-wide solution and not one which simply blames the countries in the periphery. The difficulty will ultimately spread to Germany and other core countries. You need to have collective decision making in the fiscal area and there has to be some degree of sacrifice of national sovereignty.Eskesen: Some of the leaders are acting now, but these austerity measures certainly add to the pain. You can't expect this situation to get resolved by country-specific measures. A broader, pan-European approach will help. In the short term, it is an issue of crisis management.Over the medium term, there need to be tighter constraints on individual countries.Foreign fund inflows have been a trickle of what they were around the same time last year. When will they start again? King: There is a tremendous amount of risk aversion across the globe. The good news for India and emerging markets is that after the first wave of the crisis, these parts were able to rebound faster because of stronger fundamentals and that holds true even now.Eskesen: The pain from the current crisis will have to spread further northward (core countries such as Germany), before they will be ready to take aggressive steps that are needed to contain the crises. We are not anticipating a breakup of the EU, but things will get worse further before the ECB steps in to expand its balance sheet and keep the crises from worsening further. India is more insulated, but not immune to global spillovers.
Read More
R.K. Pachauri, Chairman of the Intergovernmental Panel on Climate Change (IPCC) and Director General of The Energy and Research Institute (TERI), spoke to BW's Yashodhara Dasgupta about where India stands in the context of sustainability and the biggest opportunities that are yet to be tapped intoWhere does India stand when it comes to sustainable development?India has a long way to go. We've followed the path of development that's been followed by the rich nations which is of course, very different. Perhaps it's suiting or suited them but our case is different. We are major importers of fossil fuels. If we continue with our dependence on these imports, there are implications that we have to consider. Our levels of air pollution are quite horrible and we have widespread poverty. Alleviation of poverty is extremely important for sustainable development. Our forest cover has to be increased — it is inching forward. Over the years they have been degraded. Our rivers are terribly polluted and can't sustain any life. If you look at these indicators and trends, we certainly have a long way to go.What are the areas we should work on?We have to start on various fronts. And while in some cases, one may follow another — given the diversity of challenges — in others; they have to be tackled simultaneously. We certainly need to correct out pricing distortions. There are some subsidies which are actually perverse such as kerosene, LPG, diesel. You look at the lack of investment in public transport. We have to come with models that ensure public good. So we need more investment here. Our rivers need to be cleaned up. I think the costs that are imposed on account of our rivers being totally polluted is very high. Water-borne diseases are the biggest killers in this country. Unless we clean up our ground and surface water, the impact on human health is going to get progressively worse and thus, costs will go up sharply. So I think there are a number of things we need to do and we don't have the luxury of waiting for one or the other. We have to do them together.Where is the Indian private sector in terms of sustainability? Which sector has the most potential in this regard?The private sector has to be a part of this. All stakeholders — government, civil society and businesses — have to work towards creating sustainability, together. There are many success stories. There are many businesses that are visionary and have taken steps that may not make immediate financial sense but would certainly lead to benefits overtime. The one sector where there is enormous potential for improvement is the buildings sector. Our buildings are by and large energy inefficient and given the technology that exists — much of which has been developed by TERI — there is a lot we can do in this sector. Even in terms of reducing greenhouse gases (GHGs), the scientific evidence is very clear that the building sector provides you with and enormous opportunity. This has to be done very quickly and not just at the national level. It must be done at state government and local governments levels too because by-laws and regulations are essentially in the hands of local governments. We need to empower and train them. We also need to train our architects and builders because a lot of them haven't had any formal education on some of these aspects of building and construction.How much has the concept of green growth been embedded in policymakers?At the moment, there is acceptance. But there's greater acceptance than understanding. We need to explain to policymakers and businesses what green growth is like. As it happens, there are a large range of options that we have which are negative cost options: that is, you can actually make or save money or the cost is very little, thus the returns are very attractive in financial and economic terms. Green growth needs to be broken down to see what can be done sector by sector. That's where the intellectual community needs to come into the lead to make assessments on what the choices are for different sectors in different activities. All of these when aggregated national roadmap on how we should proceed.What are the new technologies you're looking forward to for the purpose of mitigating and adapting to climate change?Technological opportunities exist across the board. In the building sector there are immense opportunities. For instance, I don't understand why in a city like Delhi every house should not have a water heater. The technology is there. Perhaps the manufacturing base has to be widened but all of that will happen when you regulations by which a market develops. An example is water pumps, which are highly inefficient. If they were to be replaced by superior models, energy consumption would improve significantly. Our study with the Jal Nigam in Delhi and other cities shows that there are many opportunities here. So it's as much an issue of choices as it is an issue of the policy that would drive you to the right choices.Isn't natural gas polluting?If natural gas leaks from the pipeline, then yes, it adds to GHGs. But if you're making a comparison with coal, then from an industrial point of view, it's far cleaner than coal because for every unit of heat, it emits much lower levels of GHGs.What's your opinion on Durban?I wish that discussions in Durban there were more discussions on the scientific findings we have on various aspects of climate change. If that had happened, perhaps we would have had an outcome that was a little more ambitious. It's not for me to comment on what happened at Durban. This is what the negotiators wanted. But my concern is that action on climate change has to be driven by the knowledge of science of climate change.
Read More
Yvo de Boer, former secretary of UN Framework Convention on Climate Change and KPMG Special Global Advisor speaks to BW's Yashodhara Dasgupta about the development and the inclusion of private sector and financial institutions What is sustainability? I wouldn't define it as sustaining what we have. It really means transitioning towards a different economy, a different lifestyle, a different concept of welfare based on the fact that the world is changing, and we need to adapt.It means living within the carrying capacity of the planet in terms of energy prices, energy security, resource scarcity, food scarcity, water scarcity, climate change and population growth. We're not exactly in the right direction. And I think that we can do that while giving people a decent lifestyle but our definition of decent has to change. I think we can have health care for all. We can have mobility for all. But the vehicles will probably be different in that they'll be fuelled by different sources energy. There'll be more public transport. I would expect us to change agricultural production to make it more efficient. Now I think 40 per cent of food is actually lost between the farm and the shop. So there are huge efficiencies that we need to realise.Why is there scepticism or reluctance to accept the sustainability concept?Well, in getting ready for the Rio+20 summit where the main focus is on green growth, there's a big fight that has emerged about green growth because developing countries believe it will keep them poor and favour environmentally friendly technology which is in the hands of the industrialised nations. The problem is that while a lot of people talk about green growth, they don't really understand how it can be made to apply in their own country. If you asked the environment minister of most countries if they understand how environment can be greened and grown at the same time, they probably wouldn't have the answer to that question.The best way to explain what green growth is, is to show people. I think some of the analysis being done by the OECD and others is quite useful. But you can't take it home and cook it. You need a story for your own city, your own neighbourhood, your own country. It's only when the model is made for your country that you can begin to believe it. In addition to the policy side, there are also externalities.In terms of a solution, you need it at a local level. But at the same time, it doesn't cover everything. For example, in oceans — not all of which are owned by any one country — you have massive depletion of fish stock. There you need an international approach. Similarly on climate change, I think we need an international regime to help countries given the confidence that everyone is working together.How do you rate financial institutions in embracing this?I would rate them very differently. I think some banks are beginning to understand there is a business case to be made in investing in sustainability. Some pension funds are beginning to see it. But others are not. I think the fundamental problem that underpins that is the fact that at the moment we're not pricing the solutions. You can pump CO2 into the atmosphere without having to pay for it. To my mind, that's what makes renewable expensive.Is complete abandonment of fossils fuels the only option?Fossil fuels are going to be part of the energy mix for decades to come. A number of fossil fuels are a very cheap source of energy especially in developing countries. They will be reluctant to stop using that. It's very much a matter of making a transition. Gas can help in that transition. What worries me is that we can lock in a lot of capital in intermediate technology that makes it difficult to take the next step.Does the private sector need to wait for a push?I don't think they are waiting for that moment to come. Many of them are already putting new products and services in the market. Are they doing enough? No. They could be doing more. One of the things that is most critical for the private sector is long term predictability. To be sure that if an election comes up, there won't be a radical shift in direction. And it's that lack of clarity that slows many companies down.Is it good to mix business with environment?I think we're at a point where there is no such thing as a non-green business. It takes the meat industry 10,000 litres of water to produce 1 kg of meat. So the meat industry needs to be concerned about water scarcity. In that sense, many companies have to take this into account in their supply chain and method of production. This is why CSR was more of a PR thing about 10-15 years ago. It's now coming to the heart of corporate strategy all over the world gradually. Why are the economies of India and China not doing as good as it was last year? Because demand from Europe has declined due to the economic crisis. In other words, most of the developing countries are selling to international markets, so they have to adopt the standards of these markets. Hopefully, we're past the point where we can produce rubbish of one part of the market and quality stuff for others.What about resources? Which do we need to be most concerned about?I would say water because it interacts with so many other things. Most of what we eat, wear or are is virtually water.What did you think of Durban?The outcome is a success. There is an agreement that we need to move forward in a uniform way but respecting that different countries have different responsibilities. We're gradually moving away from this black and white world with industrialised countries on one hand and developing on the other. At the same time, the process needs to focus more strongly on incentives, on finance, technology and on capacity building so that countries can make the concept of green growth come true.Where do you think we are right now?I think we are in very deep trouble. The preoccupation in America and Europe is 100 per cent with financial crisis and not with sustainability issues. I think that's impacting other parts of the world. We might be moving, I hope not, to a global crisis which will preoccupy people and make them more reluctant to change and innovate. And the clock is ticking on many of these global issues.
Read More
It's served as the David to the veritable Goliaths of the web industry, first on the desktop and now increasingly on mobile. Somewhat skittish, but always innovating, Opera's web browsers exist for practically every PC and mobile platform imaginable, often pioneering features that trickle down to the competition. Tushar Kanwar sat down with Lars Boilesen, CEO, Opera to have a wide-ranging conversation about surviving the web and Opera's outlook on the future.Opera recently purchased Handster (a white-label mobile app store). What benefits did the acquisition bring to Opera, given that you already ran an existing app store with Appia? We think it is very important for us to have our own app marketplace, beginning with our own storefront in the mobile space, and then on the desktop and TV in the future. In the long term — the move will be from native apps — those that run solely on one platform or the other (like Android or Java apps), to web apps that run across all devices. When that happens, we need to control our own app store, which allows developers to come in with their apps, and just tick off the platforms they want their apps to be made available for:TV, cars, mobiles, everything that is running Opera code. We're the only ones at the moment who can offer such a cross-platform offering. Speaking of web apps, Opera has long been a strong proponent, pretty much spearheading the initiative. How far away are we from a pure-web apps store, given how popular native platform specific applications are at the moment?It's very hard to say, because when we started making mobile browsers, we thought they were two years away, and it ended up taking 10 years before mobile browsers really took off. It took Steve Jobs and the iPhone to make mobile browsing what it is today. That said, where we are today, with the Internet, if you make the products compelling, people will start using it — it all comes down to the user experience. We're excited about increased HTML5 acceptance (more so with the recent developments around Adobe Flash), and things are moving much faster than we anticipated, even if we compare them what they were like to 6 months ago, but I can't say when it will reach a critical mass. For the time being, our app stores will feature native apps and web apps - that is today's market, but we will spearhead the transition to a web-apps based world. Revenues are up, as are profits. What specifically are you doing to increase your ARPU (average revenues per user) figures?The last couple of years have been great for us at Opera, with a very scalable revenue and profit model. Back in '99, we were losing money, with most of our revenues coming from customised browsers for phone manufacturers such as Samsung and HT. That business just disappeared with the iPhones and Androids. We were left with a desktop product generating revenues mainly from search tie-ups and content partnerships. Today, it's different, we're more focused on making great consumer products, no more consultancy work, and that's something we learnt the hard way.Of course, I have to mention two great things that have happened for us when it comes to revenue and how we scale our business. First, we managed to leverage on the success of Opera mini through operators. Most operators started realising that data traffic on their network was up by almost 50 per cent due to one application called Opera mini. And so if you look at Russia, India and other emerging markets, we have signed 50 operator agreements in the last 18 months, something many other software companies can only dream of doing with so many telcos. Plus we're helping them fight Apple and Google taking over their users. The other factor is TV, which has been very scalable and profitable business for Opera. It's also a market where we are very ambitious going forward because we see where we failed with the desktop where we had great technology but never enough user uptake. With TV, there is no real Apple, Google competitor offering yet, and it's only a short matter of time before we get there. TV operators are asking us to build a platform they can ship, and we're the only one who have app store, advertising and payment technologies in place to make this happen. You spoke about your desktop presence, where your competition has often out noised you and the product has languished, especially if you compare it with your mobile browser growth rates. Is it still a priority, your desktop browser? I think we need to be realistic about it. While we've done some fantastic innovations in the desktop browser space, things like speed dial, tabbed browsing, a mail client within the browser, it really hasn't been driving growth for us. Yet, if you take India for example, where we are very strong on mobile and are seeing fantastic growth, crazy growth almost. It is here where we believe there will be a spillover from mobile to desktop, with users looking for the same experience on their desktops that they see all day on their phones. In addition, unlike Russia, where we integrate our mail client with the most popular mail services, in India we believe a lot of people will not have got their first mailbox yet, and we want Opera to be that mailbox. With their recent Kindle launches, Amazon launched the new Silk browser, which is seen as homage to Opera mini's technology of compressing data in a server before it reaches your mobile web browser. Yet, as networks improve and 3G gains acceptance, do you see your star product Opera mini becoming redundant?Let's look at it this way, we have Opera mini (not the full fledged Opera Mobile browser) on the iPhone, which is widely used in developed markets, but we still have 3-4 million folks using Opera mini on the iPhone, primarily because it is fast when compared to the default browser. And remember, there are still a lot of bad networks out there, even in the US, and our intention for the future is to have a seamless mixed model — where you can get full fidelity on your mobile browser on a good network, and server compressed 'mini mode' on slower network. I think the merging of the Opera mini and Mobile browsers will be a killer feature, possibly as early as early 2012.Can you speak to your partnerships and presence in India? There's a fantastic growth story there, we have grown from 1 million to more than 20 million users now in India. Even compared to two years ago we are probably embracing the fact more that India is our biggest market, because in the past we spent a lot of time on getting a position in the US. Today, we are proud of our position in emerging markets, and we're finding new ways to monetise the business each passing month. Speaking specifically of local partnerships, we are working with Vodafone, and conducting some serious pilot testing with some other big operators in India. With our team on the ground, we are also dealing with all the local regulations like lawful intercepts, which involves putting our servers into India. Essentially, we are really trying to speed up our investments into India.Where does Opera go next? What is the next inflection point for the company; areas that you foresee possibly going well the next few years that you haven't actually dealt with in the past couple of years?We're betting heavily on HTML5 becoming the dominant platform, and while Google and others are involved, we really try to be in the front seat. That is very important for our cross platform offering. As I said, we're very ambitious on TV, where we want to build a platform for TV manufacturers and TV operators, so they have something more compelling when Google and Apple arrive in the market. We're working on the app store and some other features on the TV platform that the world hasn't seen yet, so we're very excited by that.With regard to mobile and desktop, we may be a little more realistic going forward, focusing on browser features and then on integrating popular local services. There are a lot of content and third party services which are very popular in India but the big guys only want to push their own services, so we think that's a nice way to compete with them.You will be completing 2 years as CEO in January 2012. How has the journey personally been? It's been great. Of course, it was a little bit unexpected that I had to take over, and I took over at a point when we were in a difficult position, with slow desktop growth and little or no revenues from mobile or TV. We were forced into restructuring the company; we stopped our consultancy business, instead focusing all our engineering resources into making great consumer products. Then we saw major success with Opera mini, and started monetising this through operators and third-party content providers. And with the position we are in the TV space, we now have three legs to stand on today compared to one leg 18-20 months ago.
Read More
India Factoring and Finance Solutions — a joint venture NBFC between Punjab National Bank, Malta-based credit institution, FIM Bank Group, Italy-based Banca IFIS and Blend Financial Services of Mumbai — is in the business of ‘factoring' - providing trade finance services for small and medium enterprises (SMEs) and small-scale industries with a special focus on the ever-increasing international (export and import) and domestic factoring.India Factoring CEO Sudeb Sarbadhikary talked to BW's Tanushree Pillai about what ails the SME sector and what needs to be done.Excerpts from the interviewHow did India Factoring come into being?Ours is a Joint Venture between FIM Bank, with 49 per cent stake, Punjab National Bank with 30 per cent stake and other minor investors (Banca – with 10 per cent stake), Blend Financial with 1 per cent. The rest 10 per cent is held in Employee Stock Options (ESOPs).The MoU was first signed in 2009 and we went to the RBI for a license in March 2010 and we have been in the business since October 2010. India Factoring operates its business from Delhi, Mumbai, Chennai, Bangalore, Kolkata, Ahmedabad and Hyderabad.What is it that India Factoring does?We do what is called ‘factoring' – which is essentially receivable financing. In a B2B environment, typically, there are credit invoices (across the table payments are rare). Large corporate procure from smaller vendors and the vendors mostly get paid about 3-4 months later.Effectively, the receivables are assigned to us and we finance these suppliers and we collect the money from the final buyers. These small vendors mostly have small balance sheets and do not have the adequacy to get banking finance. With us in the picture, they get the flexibility to raise resources. That's the principal benefits for these small vendors and hence, our aim is to provide liquidity to the SME sector, although our risk is on the larger corporate.SMEs are always challenged for funds and have to raise funds from elsewhere. This sector plays a vital role in the growth of our economy by contributing 45 per cent of the industrial output, 40 per cent of exports. It also provdes 42 million jobs. Less than 20 per cent of bank finance goes in to the SME sector, so there is a huge lacuna there.The interest is charged from the SME. We are pre-paying the invoices. Sometimes, there are deductions – like a back up cover (typically 20 per cent). We currently have 100 clients on a pan-India basis. Our focus will remain on the SME sector and we aim to triple our client base by March 2012. Our stockholders give us a committed capital as and when we hit different milestones.We are investigating possibilities of reaching geographical areas where there is a huge SME presence – like Coimbatore, Pune, Chandigarh. We recently forayed into Punjab and Haryana as well.What is the basis of this geographical area selection? For us it was important to have a pan-India presence from the beginning. My client could be in Mumbai, but it could be providing receivables to his client in the south. We recently received permission to do export factoring, which will help SME exporters. We are also part of IFG – International Factoring Group – we can use their skill sets to assess buyers in different countries - which helps us support Indian export to these countries.Most of our clients are from the manufacturing side, although we do have exposure in auto, textile, IT, hardware and software companies. Our association with PNB has helped us a lot in reaching out to clients in rural India too.How big is the factoring industry here?Current turnover for the India factoring industry would be about Rs 200 crore. There are five independent companies, and some banks are also present.There is SBI Global, Canbank (Canara Bank subsidiary), IFCI Factors, Bibby Factors (UK based), along with India Factoring. HSBC, DBS and Standard Chartered banks too have an embedded factoring desk within the bank.There isn't much awareness about factoring here. Currently, there is a bill that is being tabled in Parliament. We are hoping once the bill goes through, there will be more players, more education.Globally, factoring is a huge industry. About 60-70 per cent of procurement for big retail brands is through factoring. The reason why this industry is so huge in developed markets is because of laws clearly defining the industry. For a factoring company, the biggest challenge is whether it has a right on the receivables. Here, in India, there no clear laws which explain what a factory company can do in the event of a non-payment.What happens when no payment is made to the factoring company?In that event, we would recourse it back to the SME – which is the reason we are not aggressively pitching to extremely small enterprises. We need to be comfortable about the fact that the SME will pay us even if there is no final buyer in the end. This in a way has inhibited the growth of SMEs. What is forfaiting?Vendor forfaiting is a trade finance where financing is done on a completely non-recourse basis. It involves purchasing of credit instruments like letters of credit etc on a non recourse basis from the seller of goods.These instruments are supported by buyer's bank and hence have an obligor risk which is mainly a bank/financial institution risk. The forfaiter deducts interest (in form of discount) and pays the residual proceeds to the seller on non-recourse basis.How it works is that the seller ships/provides goods/services as per its contract and submits necessary documentation to us or to our bankers. Trade documents are transmitted to the importer's bank for acceptance and/or assignment of proceeds to us. On receipt of such confirmation, we pay discounted proceeds to the seller on a non-recourse basis and we assume payment risk of the importer's bank.The letter of credit is the responsibility of a third party. This product is engineered for exporters who typically work with developing countries. Forfaiting is a service-based business and it's mostly our factoring clients who use the service.
Read More
As the interest rate cycle appears to have peaked, N Sethuram Iyer, chief investment officer, Daiwa Asset Management, feels this would be the right time for investors to move into short and medium term bond funds. Talking to Businessworld, he said 2012 appeared to be a year for investing in fixed income rather than equity, as one could look at returns of around 10 per cent or higher in fixed income funds over the next one year. Confident that this is a time for a gradual shift to longer maturities in debt funds and increasing the mark-to-market component in portfolios, Iyer also feels the uncertainty in equity market will continue and a defensive portfolio in FMCG, pharmaceutical, telecom and IT will be the preferred bets at this point of time.Excerpts from the interviewWhat has been your analysis of the Reserve Bank of India's (RBI) monetary policy? And why? RBI Policy review was on expected lines with no rate action in any of the reference rates. RBI has also indicated that future monetary policy responses will take into account the risks to growth. The emphasis has therefore shifted from inflation targeting to managing downward pressures on growth. The clear indication is that there would be no further rate hikes.On the liquidity side, RBI has clearly indicated that open market operations (OMO) would be the route taken to manage the liquidity position.Globally countries are cutting rates. How do you see the interest rate cycle panning out in India and why? Will RBI wait to cut rates till inflation falls below 6 per cent?There is a clear indication that interest rate easing would depend on the economic growth numbers that will emerge in the future. RBI has indicated that while inflation would moderate, it may remain above the comfort zone for some time. We believe that RBI could consider rate cuts even before inflation gets into the comfort zone of below 6 per cent. We feel that if the growth numbers continue to remain weak, action could be taken in cutting rates within a few months if the inflation continues to have a downward trajectory.Despite increasing the FII window in G-Sec and corporate bonds, why aren't we seeing inflows coming into these market? Surprisingly, on a risk adjusted basis, they can make a risk free return of 3-3.5 per cent.The restrictions relating to minimum period lock-in in respect of G-Sec and corporate bonds are being relaxed and we will be seeing very active interest from FIIs to participate in the Indian debt market papers.Going forward, where do you see the 10-year government securities and why? Will 10-year cross 9 per cent? Are you buying G-Sec? Which maturities are you favouring and why?Yields on 10-year government securities had very likely peaked at around 8.85 per cent levels witnessed a few weeks back. We believe that the yields would gradually come down in tandem with the RBI action relating to short-term interest rates. The yield curve which indicates inversion in the short-term securities would likely realign over the short term and we would gradually witness a parallel downward shift in the yield curve. This is clearly a time to go for longer maturities where the returns would be significantly higher over the next 6–9 months.What is your take on the 1-year, 2-year, 3-year, 5-year and 10-year yields in corporate bonds? Will you be a buyer in corporate bonds and what would be the tenure?In respect of corporate bonds, we expect a significant downward drift in yields at the shorter end, which would be more liquidity driven, while we do not see major shift in the yield pattern in long maturity bonds.It's been seen that the market is favouring Certificate of Deposits rather than corporate bond. Why is that?Certificate of Deposits have better liquidity and that would be the primary reason for CDs being preferred to corporate bonds. Also, so far the preference has been in the very short maturity papers where yields have been high due to liquidity in the system remaining tight.Why is commercial paper languishing in the market? Commercial papers are less liquid as compared with CDs. Besides, with the slowing of the economy and the rising incidence of NPAs in the banking sector, credit risks in companies issuing CPs would be scrutinized in greater detail.In times of uncertainty, where will you advice investors to invest? Currently where are you investing your money? And why?As the interest rate cycle appears to have peaked, this is a good opportunity for investors to gradually move into short and medium term bond funds, which can benefit for slightly longer maturity securities as and when the interest rate cycle is reversed. It would make sense to gradually shift from Liquid Funds to Short term and medium term bond funds over the next two to three months.Is the fund house seeing an inflow of money? How much of it is coming into fixed income and how much into equities and in which schemes? 2012 clearly looks to be a year for investing in fixed income as compared to equity. One can look at returns of around 10 per cent or higher in fixed income funds over the next one year.As a fund manager how are you managing the money in your portfolio and where are you investing in this market (both equity and debt)?This is clearly a time for a gradual shift to longer maturities in Debt Funds and increasing the mark-to-market component in portfolios. The equity market continues to look uncertain and a defensive portfolio (FMCG, pharma, IT, telecom) are the preferred bets at this point of time.Where do you see the equity markets in the short and medium term and why? Is it a good time to buy equities?Equity markets are likely to remain range bound in the short and medium term with a slightly negative sentiment. Third quarter earnings are likely to be under pressure on account of input costs going up and also on account of currency weakening and other factors. One needs to wait for clear indications both on the reform front and definitive actions from RBI in respect of interest rates before getting comfortable that growth can rebound. We would advise investors to have caution in equity investments in the very short term.
Read More
Anil Kapur, MD - South & South-East Asia, Western Union explains to BusinessWorld's Tanushree Pillai how the remittances business works and how it helps in financial inclusion.How old is Western Union in India?We are about 17 years old in India now. We started around 1993-94, when we signed our first agent. We signed our agreement with India Post in the year 2000. In late 2001-early 2002, we had fewer than 3000 locations (agent locations include standalone retail, banks, post offices, money changers, travel agencies, jewelers) in India. Today, we have over 80,000 locations in India. We have outlets at about 7,000 post offices, 30,000 bank branches (mostly nationalized). These outlets are more than all bank branches put together and that puts us in a position to help in financial inclusion.Our typical customers here are from Low Income Groups who are receiving money from family members working abroad and about 70-80 per cent of the income earned is sent back to India. Our service reaches out to the smallest villages in India.Western Union started about 160 years ago in US and is listed at NYSE. How does Western Union typically work?Typically one would have to walk into a Western Union outlet and deposit the money with the agent (plus a fee). The agent then passes this money onto Western Union, which passes it onto the agent where the money is collected. The actual transfer of money is, of course, happening through the banking system.Here, someone who is receiving the money would have to any Western Union outlet and fill out a form, show a 10-digit number that would have been given to you by the person sending you money. Once you are identified correctly, the cash is handed to you.The model is ideal for those who live in rural areas where money transfer through a bank account could take longer or for those who do not have a bank account to start with.What happens if one walks into an outlet where the agent is short of cash?Our clear intention is to have agents who can easily dispense cash. Agents are required to keep Rs 3-5 lakh at any point of time. The same is needed for post offices too, as those in rural areas might not have huge amounts of underlying cash. A large number of our people are constantly training post office and bank staff. There are also some private NBFCs (full-fledged money changers) who appoint small retail outlets as sub-agents. These employees are constantly in touch with the agents and customers too. We have what we call NRI meetings, where these employees go to a village and gather all the visiting NRIs and explain to them how Western Union works. We do grassroots programs, road shows to provide knowledge.What happens once a customer walks in an outlet to receive cash?The basic requirement for a WU agent is a computer. But now, we do have a model where in the absence of a computer, you can operate with the help of a fax machine. The transaction can be faxed into a computer model (the Hub and Spoke model – a system for network routes). So the agent looks in to the software that we have, looks at your details, the code you have been provided, checks for identify. The person depositing the money would need to fill in the personal details of the person receiving the cash. Once the transaction is complete, the software generates a signal to our entire network that this transaction is now complete. (RBI only allows receiving money)Over US $76 billion were moved worldwide in 2010 and our global market share in the remittance business is about 17 per cent. In India, we had 10 million receivers in 2010. The big markets for us are in Punjab, Tamil Nadu, Kerala, while new markets are UP and Bihar.What's the biggest advantage of remitting money through WU?The fact that one doesn't need a bank account for the same. Many of our customers, from rural areas – with no bank account - walk in to a post office or bank to receive cash from their relatives and the bank asks them to open an account so that they can opt to keep some of the money in the account for future use. A bank account is created in the process, which helps in financial inclusion.The charges that the sender pays are determined by us, but the receiver doesn't have to pay to receive the remittance. There can however, be only 12 transfers in a year and one cannot receive more than US$2500 per transaction.Interestingly, there is a village in Punjab where one of the cross-roads is called ‘Western Union Chowk' as almost the people living in the vicinity receive their remittance through Western Union.What are your future plans?We are currently sending our agents to the US, Canada, France and Germany to meet with leaders there to open ethnic outlets. Indians abroad are typically more open to the idea of remitting money through Indian agents at grocery stores. We are banking on that tendency to open ethnic outlets so more and more Indians can easily remit money without hassles.We are currently in over 200 countries globally and 4,85,000 locations around the world.
Read More
Currently Ipsos (a French company) is the world's third largest market research firm with a strong presence in advertising, marketing, media research, public opinion. In July this year it announced the acquisition of Synovate from Aegis Media, which would further help strengthen its presence in the Asian markets, especially India. David Richardson, MD, Ipsos APAC talks about business in emerging markets and how larger companies globally are depending on research in newer geographies more than ever in an interview with Businessworld's Suneera Tandon.With the global acquisition of Synovate from Aegis Media a few months back, how are you leveraging the existing capabilities of Synovate to Ipsos?In terms of the two companies, they are quite complimentary to each other. Ipsos remains very strong in advertising research, innovation and product development. Synovate brings to Ipsos strong product testing capabilities and strong tools in customer loyalty research which very well match the innovation tools that IPSOS has had. Synovate also brings a strong approach in the custom health care research space, especially in Asia, where it remains a leading player in this area. It has a strong network around the world, that combined with the connections Ipsos already had, gives us a strong position in health-care custom research. Geographically, Synovate has been very strong in Asia, while Ipsos was strong in North East Asia, but weak in South East Asia and India. So the combination of the two companies will allow us to double our business in Asia.So then Asia becomes will become a very strong market for you, is that strategy arising from the volatility the western world is facing?Ipsos was already doing business in developing markets, but this helps get there a bit faster. Ipsos is the largest custom research company in Lat Am (Latin America) and has a strong base there. But emerging markets have always been important. Ipos has been strong in Lat Am but weak in South East Asia and with Synovate, it has been the opposite. So the combination of the two companies is complimentary with both having a degree of presence in Asia, Middle East and Africa. This will increase our share of business from the emerging markets of the world and take it to about 20 per cent.With the volatility in the western world right now, how are brands tackling the situation?The world is a little bit nervous vis-vis the global economy. I think everyone knows that the focus is on emerging markets. Now it's a matter of what the difference is between what companies are going to do in the emerging markets and what they are doing already. There used to be a broad based desire to treat all countries in Asia as somewhat similar and attractive but that practice went away. Then everybody shifted their focus on BRIC. Now people realise that just because you understand China doesn't mean you understand India as well. So it's gone back to the fundamentals that you have to understand each country differently. The world is really focused on China, India and Brazil right now. The amount of business done across Asia has not increased. As companies get stronger in Asia, they don't need to source research from outside the continent, they are spending more money in Asia. So spending is increasing in China and other Asian countries which means it's decreasing everywhere else. Are these global or domestic brands that are focusing on these markets?The global brands are always very focused and they will continue on developing this opportunity. Everyone is talking about focusing on the next billion consumers. At the same time you see the emergence of multinationals that are operating in different parts of Asia, which are beginning to develop scale. Ten years ago you would have called Samsung one of those mini MNC and now you won't. So you can't predict which is going to be the next big MNC, but there will be a lot of countries - based in India or China- that will develop and increase their multi-national presence. There is also a shift increasingly from our global partners towards global businesses working locally. We've got big India based businesses who are taking their business outside India and that's a great opportunity for us. Our clients in India vary from FMCG, automotive, (several key Indian brands such as Tata, Hero) healthcare, telecom etc.How important is research in today's time and date?There are two perspectives on the need of research. Firstly if you are an international company, based let's say in Europe and you've identified that for your company's future you have to understand and perform better in the far-off lands that are culturally very far from you, you need research to fulfil the promises to share-holders because why should they promise to do a great job if they don't understand these markets\people. This is equally true for companies here in India who want to spread their wings and do more to grow in another part of the region of this country; so they need research to expand beyond their comfort zone.The other dimension is that India is a very young country where a lot of changes are taking place. Even well experienced businesses are trying to track what's going to happen next, what are the change the growing youth population is going to bring in terms of behaviour, consumerism and social outlook. But there must be challenges in functioning in a market like India?The Indian research industry faces a major handicap right now. Prices (to clients) have been exceptionally low. There is no reason for places like Indonesia, Vietnam and Philippines to be five times more expensive in terms of price charged to clients. It's not like India is 1\5th the value of consumers in other countries, but prices in marketing research have been fixed and haven't risen in a decade even though salaries have gone up a lot. The industry is at that turning point where companies realise that they need to invest more in research. Now companies are starting to invest in technology to innovate and move towards digital data-collection. Even clients, for the first time, in a decade are signalling to pay more. There are companies willing to pay to up to 50 per cent more for our services, in the past six months. Now that is a radical change.
Read More
Uncertainty prevailing in the Euro-zone has seen Nick Cringle, global co-CIO, RBS Wealth Management, cutting his client exposure in equities by 40-50 per cent for investors — both conservatives and risk takers. Instead, he has been parking their money in safe havens like Swiss Franc, gold, US dollar and US bonds. Talking to BusinessWorld's Mahesh Nayak, he said the European crisis would see risk assets (equities) moving further south and market momentum and sentiment would return only if sustainable policy measures like aggressive quantitative easing and short-term fiscal stimulus are introduced in the US and Europe along with credible medium-term fiscal consolidation plans. As for the Indian market, he expects it to move in line with the global markets.Excerpts from the conversation:What is your view on Indian and global financial markets?Recent events have reinforced our cautious view on risk assets as game-changing policy is still not evident and valuations are yet to reach compellingly attractive levels. We continue to be cautious due to the high level of political risk, especially in Europe, and increasing evidence of a globally synchronised slowdown. In such circumstances, it is often the case that markets only bottom when valuations become compellingly attractive, or there is some sort of positive policy hammer blow that convincingly changes the direction of markets. So far we have not seen either. We expect the Indian markets to move in line with the global markets, even though valuations appear attractive. The prevailing volatility in global markets combined with domestic high inflation, rates and earning downgrades could contribute to domestic pessimism.When do you see the clouds of uncertainty getting clear?Market momentum and sentiment will only turn if some sustainable policy measures are introduced. These would include aggressive quantitative easing in the US and Europe; a shift to explicit inflation targeting in the US; short-term fiscal stimulus in the US and Europe combined with credible medium term fiscal consolidation plans and/or a combination of monetary and fiscal stimulus in China and material currency appreciation.In the absence of such concerted policy action, risk assets can be expected to weaken further in the coming months. At some point, valuation will kick in as a driver, but before it does, risk assets will fall further in price.What are the major challenges and concerns for the markets — Indian and global?In the recent weeks, the European crisis has entered an even more serious phase, with Italian and Spanish bond yields reaching around 7 per cent level, prevented from going higher still only by ECB bond buying in the secondary market. Also, it is difficult to see how the EFSF bailout fund can remain credible. Perhaps even more worrying, the crisis has moved right into the core of the Euro Zone with the spread between German and French 10-year bond yields hitting 200 bps. Political risk at a European level is still very high, with Germany and France in open disagreement about the extent to which the ECB should intervene in government bond markets. In addition, the newly appointed technocratic governments in Italy and Greece could face immense difficulties and opposition in reforming their economies. In addition, the Euro Zone is tipping into recession, making fiscal consolidation that much harder for periphery and core Euro Zone countries alike. Leading indicators suggest the Euro Zone is already slipping into a substantial recession driven by banks' deleveraging, fiscal consolidation and the shock to business and consumer confidence that the European financial crisis has created. It is not inconceivable that one of the smaller Euro Zone countries such as Greece should attempt to leave the Euro Zone in the next twelve months as domestic populations rise up against years of fiscal austerity. Such an event would quickly lead to contagion to other European periphery markets and increase financial stresses further.Even if the ECB does eventually relent, and engage in full-blown quantitative easing (QE), this will no longer be the silver bullet that it could have been 6 or 12 months ago. Put simply, despite some improvement in the US outlook, the risks to the global economy lie firmly to the downside because of the escalating crisis in Europe. This policy coordination may have to include not only ECB QE, but also outright reversal and pursuit of fiscal stimulus in major economies like the US and China in particular.In case of India, growth is tempered by high cyclical inflation and rates combined with delay in policy decisions. Further, with heightened risks of slowing global economic growth, Euro Zone's debt crisis and concerns of contagion effects have kept the markets volatile in sync with the global equity markets and also kept external investors guarded. However, India's resilience, reflected by over 8 per cent GDP growth during the global slowdown is the re-iteration of its strong fundamentals driven by domestic consumption and investments and its minimum dependence on external trade. While this inward nature of the market would insulate partly the economic growth, we expect moderation in growth at 7.5 per cent in FY12.What would you advice investors to do in the current environment?Due to the risk factors highlighted above we believe that there will be increased volatility in equity markets going forward, with a downside bias. We have already taken action to de-risk our global portfolios in light of the above mentioned risks. From an overweight Indian equities in March'11, we have turned to underweight in three phases from Aug'11 on the back of global developments. We like defensives namely Health care and Consumer Staples, while we are underweight cyclicals namely Materials and Industrials.This would be a great opportunity for Indian investors to increase fixed income allocations, to benefit from the prevailing cyclical high yields & our belief that Interest rates are close to peaking out. Clients should look at investing in a mix of accrual & duration strategy to take advantage of this interest rate cycle.
Read More
